Tags: Apartment | Investment | Mortgage | AIV

Apartment Investment: REIT in a Tough Transition

By    |   Thursday, 19 April 2012 03:24 PM

Apartment Investment and Mortgage Company (AIV) is a company in transition, selling off underperforming properties in a bid to improve returns even as a tough economy continues to challenge its customers, the renters of its apartments.

AIV is a real estate investment trust (REIT) that focuses primarily on coastal U.S. cities, Sunbelt cities, and Chicago. AIV’s top five markets by net operating income contribution include the metropolitan areas of Washington, D.C.; Los Angeles, California; Boston, Massachusetts; Philadelphia, Pennsylvania; and Chicago, Illinois.

AIV owns and operates apartment buildings in two segments: conventional and affordable property operations. Conventional relies on renters who pay their own way; affordable renters are those who receive some form of government assistance for housing.

In the conventional segment the company at the end of 2011 had 198 properties with 62,834 units in which it held an average ownership of 93 percent. On the affordable operations side, the company had 172 properties with 20,612 units in which it held an average ownership of 59 percent.

Conventional and affordable properties generated 87 percent and 13 percent, respectively, of proportionate property net operating income in 2011. “Affordable properties tend to have relatively more stable rents and higher occupancy due to government rent payments and thus are much less affected by market fluctuations,” management noted.

The company uses leverage to increase returns, management said. “At Dec. 31, 2011, approximately 86 percent of our leverage consisted of property-level, non-recourse, long-dated, fixed-rate, amortizing debt and 14 percent consisted of perpetual preferred equity, a combination which helps to limit our refunding and re-pricing risk.” AIV had no corporate debt at the end of 2011.

“Substantially all of our consolidated properties are encumbered by property debt,” management also told investors in the latest annual report. “Approximately 96 percent of our property-level debt is fixed-rate.”

Steady losses

AIV has reported steady losses for several quarters but often beats the estimates on those losses handily. The current consensus for the upcoming results is a 31-cent loss.

AIV is a $3.16 billion market cap stock in a sector where the average company market cap is $8.20 billion. Its projected earnings per share growth in the coming year is 10 percent, vs. a sector average of 24.88 percent.

Analysts are mixed on AIV, with most neutral on the stock and the outlying buy and sell calls tipped slightly toward the positive view. Raymond James, RBC Capital Markets and EVA Dimensions expect the company to outperform. Market Edge calls it a buy.

Goldman Sachs, however, has a sell on AIV, as do the analysts at Ativo Research.

“Ativo Research projects as of this date that AIV will greatly underperform the market averages over the next six to 12 months leading to our decision of a strong sell,” the analysts wrote on April 13.

Apartment Investment and Mortgage Company next reports on May 3.

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Thursday, 19 April 2012 03:24 PM
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