Apartment Investment And Management: Slow And Steady Wins The Race

seekingalpha06-01

Apartment Investment and Management Company (AIMCO) is a real estate development company with apartment rental units in its portfolio.Aimco has a strong balance sheet with low risk non-recourse loans....

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Ajax9/iStock via Getty Images Apartment Investment and Management Company (NYSE:AIV)(Aimco) also known as Aimco is a real estate developer and manager of multifamily assets across the United States. The company was formed in 1975 and through a series of acquisitions in the following 3 decades, in 2020, it spun off a portion of its rental housing communities AIR Communities (AIRC). Today Aimco has 39 properties. 23 stabilized income-producing properties with the remaining properties in various degrees of development or redevelopment. Aimco generally seeks development and redevelopment opportunities where barriers to entry are high. With this investment thesis, Aimco has been doing well in the multifamily sector. Its focus on higher-end multifamily homes is reaping returns in the long run while reducing downside risk. Apartment Investment and Management Company and Its Improving F-Score In reviewing its F-Score which analyzes its financial strength on a score of 1 to 9 (1 implies a financially weak company and a 9 showing a financially strong company), Aimco's most recent quarterly and annual F-Score is a 6. A few years ago it was a 3:   F-Score (AIMCO website)  F-Score (Aimco website) (Source: Aimco's Financial Statements) In recent years its long-term debt has trended downwards and EBITDA has been inching upwards. Some of the changes are driven by the following:  Mid-2023, Aimco divested and took a 25% loss on its Parkmercd mezzanine loan. The strategy to divest was to move away from passive investments. Q1-2024 financials show portfolio-wide stabilized NOI has improved and has increased by 6.5% year over year Revenue has increased by 5.4% year over year while occupancy remains high at 97.9% Current development projects are within budget at ~$648 million with a forecasted stabilized NOI of $44 million annually. This approximates a 6.7% cap rate upon stabilization (full stabilization is expected by late 2026). The remaining cost to complete is $51MM.  Another reason why Aimco stands out as a viable real estate company to invest in is its non-recourse loans. Non-recourse loans prevent lenders from calling the loan and forcing the borrower to fully repay its debt obligations. In recent weeks, there have been news reports of lenders calling their loans in because the borrower was not able to pay:  $16MM loan was in default for 200+ unit development by Hong Kong-based Zhuguang Luxury apartment, NEMA, could default as the property's cash flow can no longer cover the monthly debt service $29M loan tied to a San Jose industrial campus has defaulted in early 2024  Not that Aimco needs to worry about being in default on its loans, the company has ample cash. As of March 31, 2024, Aimco can tap into more than $290MM ($121.8MM is from cash on hand, $18.6MM is restricted cash, and a $150 revolving credit facility). This is enough cash to also complete its current development projects costing ~$51MM. Apartment Investment and Management Company and Its Strong institutional Ownership Another reason why Aimco makes a good investment is because more than 70% of its investors are institutional investors:   Institutional Ownership (Aimco website) (Source: Institutional Ownership on Aimco website) Institutional investors are investment managers who have done their homework in researching companies to invest - at least that is typically the case. A strong level of institutional ownership implies there is a lot of support among \"smart\" investors in this stock. Despite its share price consistently trading below $10, management did initiate a stock repurchase plan in 2023. 6.2 million shares were repurchased at an average price of $7.33. This implies that perhaps management believes its shares are undervalued and it is a good time to repurchase its shares. Risk: Uncertainty in the US Economy Low interest rates typically drive the economy. Just recently, it wasn't clear whether the Federal Reserve would start cutting interest rates because inflation remained stubbornly high. While interest rates remain high, businesses and consumers are hesitant to spend, and this is creating a spill-on effect as companies are earning less income. This leads to fewer hirings and coming full circle, leads to an ongoing slowdown in the economy, and a negative downside pressure on Aimco's finances. Slow Growth Patient Play Aimco is not a get-rich-quick type of stock. This is a real estate development company that operates in a barriers-of-entry environment. Its developments typically take a few years or even longer to reach stabilization. Aimco does have its rental business to generate steady income but there are only marginal increases in rents each year here. Overall, the company does make money and it is a steadily profit-growing venture as evidenced by its financials above. Other points worth highlighting again are its strong institutional ownership here, Aimco operates by trying to minimize risk (for example it only takes out non-recourse loans), and it strives to have ample cash for its business. These are good qualities to have in a stock. Passive investors who do not actively trade and don't mind holding it over the long term should consider including this in their investment portfolio. While other real estate companies are struggling and defaulting on their loans, Aimco is steadily bringing new rental products online and leasing up its current rentals at a 97.9% occupancy rate. This speaks to management's ability to run a tight business amid other struggling real estate firms and those that are defaulting on their loans.  Buy the slow and steady, I'm bullish on Apartment Investment and Management Company.","kind":null,"is_publish_news":true,"is_publish_highlight":false,"is_publish_live":null,"is_publish_wemedia":null,"editions":null,"column":"","sentiment":"","news_tag":"","news_rank":0,"symbols":[],"gpt_button":1},"commentList":[],"isCommentEnd":true,"newsSizeData":{"likeSize":0,"commentSize":0,"repostSize":0,"favoriteSize":0,"likeStatus":false,"favoriteStatus":false},"APP":{"userAgent":"Mozilla/5.0 AppleWebKit/537.36 (KHTML, like Gecko; compatible; ClaudeBot/1.0; +claudebot@anthropic.com)","isDev":false,"isTTM":true,"deviceId":"web-server-community-laohu8-v3","version":"4.24.2","shortVersion":"4.24.2","platform":"web","vendor":"web","appName":"ttm","isIOS":false,"isAndroid":false,"isTiger":false,"isTHS":false,"isWeiXin":false,"isWeiXinMini":false,"isWeiBo":false,"isQQ":false,"isBaiduSwan":false,"isBaiduBox":false,"isDingTalk":false,"isToutiao":false,"isOnePlus":false,"isHuaWei":false,"isXiaomi":false,"isXiaomiWebView":false,"isOppo":false,"isVivo":false,"isSamsung":false,"isMobile":false},"href":"/m/news/2440718809"}