This month's REIT Focus is on Apartment Investment and Management Company (AIV). AIV is a self-administered and self-managed Maryland real estate investment trust that is the 93.7% owner of the general partner and special limited partner interest in AIMCO Operating Partnership, the UpReit partnership that owns the assets of AIV. AIV engages in the ownership and management of a diverse portfolio of B/B+ apartment properties. As of 3/31/12, AIV owned 196 conventional properties with 62,420 units and 165 affordable properties with 19,947 units. AIV also manages for third party owners 8,569 units in 126 properties. AIV was incorporated in the State of Maryland in 1994 and is based in Denver, CO.
As of 3/31/12, the average occupancy and monthly rent were 96% and $1,075, respectively. As of 5/14/12, AIV had 121 million shares outstanding, a stock price of $27 per share, and a market capitalization of approximately $3.3 billion.
Select financial data for AIV as of the 3/31/12 10Q and for the period 1/1-3/31/12 is as follows (in 000's where applicable):
|Real Estate Assets, Gross||$8,911,000|
|Non-Recourse Property Debt and Revolving Credit Borrowings||$5,201,000|
|Earnings Per Share||($.09)|
|Cash Flow from Operations||$48,000|
|Unsecured Credit Facility ($432 million available)||$500,000|
|Market Capitalization (equity value only)||157%|
|Real Estate Assets Per Unit||$108,000|
|Dividend Yield ($.72/sh)||2.60%|
|NOI and Value Calculation:|
|Revenues Per Above Annualized||$1,096,000|
|Less: Operating Expenses||($469,000)|
|Projected NOI 2012||$627,000|
|Projected Inflation Rate||103.5%|
|Projected NOI for Next Year||$649,000|
|Projected Cap Rate||7.5%|
|Projected Value of Company||$8,653,000|
|Less: Total Debt & Preferred Stock||($5,868,000)|
|Projected Value of Company Equity||$2,785,000|
|Projected Value Per Share||$23|
|Market Price Per Share (4/14/12)||$27|
As shown above, our value for AIV is $23 per share versus a market price of $27 per share. A portion of the value difference can be attributed to projecting a forward one year net operating income.
The market is valuing AIV at a reasonable cap rate and not at the low 4%-5.5% cap rates of most of the other apartment REITs reviewed here. This is due to AIV's flat revenue growth, net losses and high debt level during the last three years. The debt is 58% of the cost of the assets but 157% of the market capitalization. Most REITs do not have a debt to market cap ratio greater than 50%. AIV is in the process of refinancing some of this debt to take advantage of lower rates and longer maturities. The weighted average interest rate and term on the debt are 5.5% and 8%, respectively. Current apartment financing rates range from 3% to 4.75%, so AIV can pick up positive leverage and cash flow as it refinances its current debt.
AIV has seen its operations improve somewhat from the depths of the recession in 2009. From 2009 to 2011, the net loss had decreased 9.6%, cash flow from operations has increased 10.7% and the dividend has increased from $.40 to $.72 a share. It looks like AIV is starting to turn around its operations with higher revenue and cash flow. Although the high debt level is a concern, we recommend purchase of the stock and feel it is the most reasonably priced of the apartment REITs.