AIV- Apartment Investment and Management Company

[CorpRaider]

Figured we need a thread for AIV so we don't totally co-opt the general discussion of residential REITs: 

 

Aimco ("AIV") is a diversified multifamily (apartments) REIT.  Enterprise value is about 9.6 billion.  Around September 14, 2020, AIV announced a plan to spin off their apartment holding co ("AIRC") and leave behind a remaining Aimco that will hold the development rights for several properties and will continue to develop and redevelop properties for new AIR. 

 

Here's a link to mgmt. presentation on the transaction:  https://s1.q4cdn.com/176956323/files/doc_presentations/2020/09/Strategic-Transformation-Presentation-Sept-2020.pdf

 

We only have managment's summary/release of the interco relationships but basically each will have certain options or rights of first refusal on activities of the other for a period after separation.  CEO Consadine is going with AIR but will be on board of both.  Theory seems to be that a simple apartment holdco that doesn't develop or redevelop will be more richly valued and have more stable NOI/AFFO.  Spin is going to be taxable. 

 

Here's a link to IR site; where they posted a Q&A about WTF they were thinking and the tax issues https://investors.aimco.com/overview/default.aspx

 

Mgmt. thinks this lack of lumpiness/clarity will allow a slightly higher dividend from SpinCo (AIRC) and thinks it will unlock value, moving toward their estimated $58 NAV (units in low/mid 30s during all relevant periods).

 

Mgmt. helpfully points out tax bill from spin will increase basis.......(!)..........they also say this will be a good thing if rates go up and real estate tax provisions get revised in immediate/near future.  Mgmt. says no vote required because of the taxable spin structure.

 

The Q&A was posted to respond to a letter from Land & Buildings (it basically just repeats the announcement and says yeah we considered other options): as @thepupil pointed out in the other thread thusly: 

 

"Jonathan Litt is coming at AIV, speaking to potential motivations on the transaction:

 

https://landandbuildings.com/land-buildings-sends-letter-to-aiv-board-of-directors//

https://landandbuildings.com/wp-content/uploads/2020/09/LandB-Press-Release-Letter-to-AIV-Board-9-22-20.pdf"

Land and buildings has also filed a preliminary proxy solicitation which sets forth arguments why mgmt. has stunk up the joint and calling for special vote https://www.bamsec.com/filing/92189520002487?cik=922864

 

I don't own any, just watching. 

 

Might be fun to get a little to hop in with some votes to help capitalism function well in my small way.

 

[CorpRaider]

Here's more background from @thepupil:

 

"https://seekingalpha.com/news/3613573-apartment-investment-and-management-plans-spinoff-jv

 

https://seekingalpha.com/pr/18004279-aimco-announces-formation-of-apartment-income-reit-self-managed-10-billion-reit-and-closing

 

AIMCO splitting into a development company / stabilized company, since the market hates development and will probably value the stabilized better.

 

I'm not really familiar with AIV / AIMCO. Just skimmed.

 

Also, a nice 4.2% cap rate / $592K / unit california sale in the press release. That's a strong comp as it relates to ESS.

 

I found this the other day on twitter as it related to ESS.

 

https://www.privateeyecapital.com/why-would-any-long-term-investor/

 

'Aimco also announced, as part of its longer-term strategy to reduce financial leverage and to rebalance its capital allocation among target markets, that it has entered into a ten-year joint venture with a passive institutional investor to own jointly 12 multi-family properties with 4,051 units located in California. The properties were valued at $2.4 billion, or approximately $592,000 per unit, equivalent to an implied NOI cap rate of ~4.2% and an implied free cash flow cap rate of ~4.0% (based upon NOI and free cash flow annualized for the six months ended June 30, 2020). The properties secure non-recourse property debt of $1.22 billion with a weighted average interest rate of 3.17% and have an implied equity value of $1.18 billion. In exchange for a 39% interest subject to $475 million of property debt, Aimco received $461 million cash plus an additional $24 million for future redevelopment spending. Aimco retains ownership of the remaining 61% interest and is responsible to operate the properties, earning property and asset management fees. The valuation is equal to 97% of the Gross Asset Value (“GAV”), as of 1Q20, previously calculated and published by Aimco.'"

[CorpRaider]

Land and Buildings is calling for a special meeting re: the split transaction.  Says current plan is going to cost unit holders ~$8 per share in taxes.  Notes that CEO mostly holds interest via operating partnership units which will not be impacted by the phantom gains which are going to be generated pursuant to management's plan. 

 

L&B is soliciting proxies.  I think I'm going to buy a little (via tax advantaged account) and get in here and participate in some good, clean, fun corporate democracy.

 

https://aimhighaiv.com/land-buildings-files-definitive-solicitation-statement-calling-for-special-meeting-of-shareholders-at-aiv-and-delivers-open-letter-to-shareholders/

[thepupil]

you understand the special divvy yet?

 

I think the substance of it is a mini tender offer / buyback where if you elect stock you're automatically re-investing the big divvy whereas others are cashing out, but overall it's kind of a shuffling exercise.

 

Stockholders will have the opportunity to elect to receive the special dividend in the form of all cash or all stock, subject to proration if either option is oversubscribed.

 

Total shares of Aimco common stock outstanding following completion of both the special dividend and the reverse stock split will be unchanged from the total shares outstanding immediately prior to the special dividend, however, some individual stockholders may have more Aimco shares, and some individual stockholders may have fewer Aimco shares, after the completion of both the special dividend and the reverse stock split, compared to before, based on their individual elections.

 

Apartment Investment and Management Company Authorizes Special Dividend and Reverse Stock Split

Business Wire

DENVER -- October 23, 2020

Apartment Investment and Management Company (“Aimco”) (NYSE: AIV) announced today that 2020 property sales, including the previously announced California Joint Venture, generated taxable gains in excess of the company’s regular quarterly dividend. On October 21, 2020, the Board of Directors (the “Board”) of Aimco declared a special dividend payable to holders of Aimco’s common stock as of the close of business on November 4, 2020 (the “Record Date”) with an aggregate value of $8.20 multiplied by the number of outstanding shares of Aimco’s common stock on the Record Date (the “Dividend Value”), comprised of cash and Aimco common stock.

The aggregate cash amount of the special dividend will be $0.82 per share (the “Cash Amount”). This amount includes Aimco’s regular quarterly cash dividend for the fourth quarter and accelerates into 2020 the payment of the first regular quarterly dividend for 2021. The aggregate value of Aimco common stock distributed pursuant to the special dividend will be determined by subtracting the Cash Amount from the Dividend Value (with the value of a share of Aimco common stock for this purpose to be determined based on the volume weighted average trading price of a share of Aimco common stock during the 10 trading day period ending at the close of business on November 24, 2020 (the “Valuation Period”)). The special dividend will be payable after the close of business on November 30, 2020, to stockholders of record as of the close of business on the Record Date.

Stockholders will have the opportunity to elect to receive the special dividend in the form of all cash or all stock, subject to proration if either option is oversubscribed.

To neutralize the dilutive impact of the Aimco common stock issued in the special dividend, the Board also authorized a reverse stock split, which will be effective on November 30, 2020, immediately after the payment of the special dividend. The split ratio for the reverse stock split will be determined at a later date shortly after the Valuation Period. Total shares of Aimco common stock outstanding following completion of both the special dividend and the reverse stock split will be unchanged from the total shares outstanding immediately prior to the special dividend, however, some individual stockholders may have more Aimco shares, and some individual stockholders may have fewer Aimco shares, after the completion of both the special dividend and the reverse stock split, compared to before, based on their individual elections. The reverse split will ensure comparability of Aimco per share results before and after these transactions.

 

 

[CorpRaider]

Thanks for posting, I was going to, but I've been lazy/been buried at work. 

 

I was thinking that too (after saying WTF like 5 times), but now I think all the machinations are so they can conserve cash while complying with the requirements around the required distributions incident to the big tax gains mgmt created via their brilliant plans/disposal.

 

I used to do some REIT work but it has been.a.while, so TFIW... 

 

It looks like (under REIT tax distribution rules) they have to do at least a 10% cash component that unit holders can elect (actually it looks like 20% to me, but the REITs are/were lobbying for a temporary reduction to 10% minimum cash component...they got this during the GFC)...

 

I guess they have or will have a letter ruling in hand that says the 10% is ok (could be in Cares Act/stimmy bills; I didn't see that, but I haven't been following closely).

 

The immediate reverse split seems sketchy/desperate to me.  I guess it will/has been blessed (I mean the tax bill is going out to joe bagholder either way), but the purpose of this leg also seems to be to conserve cash. 

 

If they didn't do the reverse split, all else equal, they would have to pay out more total cash (due to dilution/new shares).  Alternatively, they could cut the per share cash dividend. (gasp!!!)  It seems like people/retail would understand that cut better than getting an $8.20 phantom gain with only .82 cents cash and ending up with zero additional shares...but, ok slick. 

 

I continue to wonder if they are just doing a bunch of stuff to try and piss off taxable and/or retail investors...like maybe a Greenblatt "yellow book" situation, but IDK. 

 

Maybe they just think they are implementing Steven Roth's pure play plans and are not worried about the phantom gains...either because they are insulated from the gains by their limited ownership and the structure thereof (operating pship units per L&B) or their ability to predict the future of tax policy (I am very skeptical of that; especially when they are talking about making other people write checks).

 

 

 

[CorpRaider]

Whelp, it seems maybe mgmt was a bit over confident about their ability to predict monumental real estate taxation shifts...Then again, I didn't go to law school "near Boston."

[SugarRE]

While I mostly like "too complicated" this one seems too complicated.  I am only now catching up after my initial 2 hours spent on this 2 or 3 weeks ago, but at first blush I like the development spin off.  People are going to hate it.....which makes it interesting maybe via forced sales. 

 

Has anyone seen (besides the garbage in the presentation), good info on what the portfolios actually are.  I know I'm being a bit lazy, but......

[SugarRE]

While I mostly like "too complicated" this one seems too complicated.  I am only now catching up after my initial 2 hours spent on this 2 or 3 weeks ago, but at first blush I like the development spin off.  People are going to hate it.....which makes it interesting maybe via forced sales. 

 

Has anyone seen (besides the garbage in the presentation), good info on what the portfolios actually are.  I know I'm being a bit lazy, but......

[thepupil]

While I mostly like "too complicated" this one seems too complicated.  I am only now catching up after my initial 2 hours spent on this 2 or 3 weeks ago, but at first blush I like the development spin off.  People are going to hate it.....which makes it interesting maybe via forced sales. 

 

Has anyone seen (besides the garbage in the presentation), good info on what the portfolios actually are.  I know I'm being a bit lazy, but......

 

I haven't done a wild amount of work on this one but still own it. While it's complicated, I view the big picture as follows:

 

All numbers expressed in pre-stock divvy pre reverse split terms

 

1. The company thinks these 2 things are worth $58. The market values them at $33 (where I bought), now high $30's. assets are diverse enough and have low leverage such that i don't think the company can be WILDLY off. 

2. The company recently printed a substantial asset sale at a 4 cap, in line/above their view of value. this de-levers, decreases overall california exposure, and is positive.

3. this spin / two companies thing transaction is not great from a tax perspective. Putting in IRA is an easy mitigant/advantage for the small time holder

4. multifamily financing market is bonkers good right now

5. outside of urban core, multifamily not doing terribly

6. Litt probably can't hurt and will likely help. actual legal recourse is limited by this being a maryland REIT, but could easily see some bigger guns getting involved (to bid for the company)

 

the property list is in the 10k and info in presentations / supplementals. my overall read was that there's a lot of variance in quality and that the portfolio is kind of an incoherent hodgepodge (Class B- in DC vs some very nice buidings in california vs some apartments in philly w/ big U Penn exposure, etc. 

Is this the presentation you are referring to as garbage? honestly it seemed good enough for me given they own 25K units (how granular can one get?)

https://s1.q4cdn.com/176956323/files/doc_presentations/2020/11/05/AIR_November_Presentation_Final.pdf

https://s1.q4cdn.com/176956323/files/doc_financials/2020/q3/q3replace/3Q-2020-ER-Final.pdf

 

 

basically ~57% of management NAV and 68% of AIR only NAV seemed too cheap for the circumstances, fundamentally it has low leverage and it's not too concentrated on any geography/class type etc. i feel like if the transaction happens and people are pissed and hate management forever, the right discount is probably in the area of where i bought/where it trades. it's not like these guys are portnoys/RMR, the things made 9.3% since 1994, 6.5% over 10 years (and that's using an ending price that will be higher once the special div/reverse split occuss)

 

i'm watching 13F day in 3 days on this one pretty carefully.

 

i'm a sucker for positive carry optionality.

 

 

 

 

 

 

[SugarRE]

I might have been a bit to harsh, but I would like more detail and I am focused on the spin.  There was just a general overview of that they call the properties.  Hoping that "the little book...." lessons can help me out there as CR said below.

 

Can I assume you all are following land and buildings soapbox as well?

[thepupil]

Land & Buildings CIO: Aimco Should OK Vote on Reverse Spin-Off

By Elizabeth Rembert

(Bloomberg) -- Land & Buildings Investment Management, LLC Chief Investment Officer Jonathan Litt said that Apartment Investment and Management Companyshould allow a vote on the planned reverse spin-off “before moving forward with such a potentially value-destructive transaction.”

Comments come after the company received a letter from Aimco indicating it plans to consummate the planned reverse spin-off“shortly” and that the shareholder meeting is unlikely to occur before the separation

Litt: ““This letter makes it crystal clear that Aimco does not care what its shareholders think. Forty-seven percent -- nearly double the required 25% -- of the Company’s shareholders supported our call for a special meeting to vote on the proposed reverse spin-off”

NOTE: Nov. 12, Land & Buildings Says AIV Holders Should Vote onSpin-Off Plan

NOTE: Sept. 22, Activist Investor Litt Targets Aimco Over Plans to Split (3)

 

 

[formthirteen]

Jonathan Litt says this is “a potentially value-destructive transaction” and "which could massively destroy value" while loading up on shares  ???

 

Here is his letter to the AIV board:

https://landandbuildings.com/wp-content/uploads/2020/09/LandB-Press-Release-Letter-to-AIV-Board-9-22-20.pdf

 

Voices Major Concerns about Company’s Plan to Separate into Two Businesses Via Reverse Spin-Off – Which Could Massively Destroy Value

 

AIV Underperformance vs. Proxy Apartment Peer Average -914%

 

AIV is Land & Buildings Investment Management's biggest holding at 12% of AUM which was 3% in Q2 when they started buying. This is also Long Pond Capital's biggest public position at 8.6%. Long Pond Capital sold ESRT in Q3 and still owns PGRE, BTW.

[Gregmal]

Jonathan Litt says this is “a potentially value-destructive transaction” and "which could massively destroy value" while loading up on shares  ???

 

Here is his letter to the AIV board:

https://landandbuildings.com/wp-content/uploads/2020/09/LandB-Press-Release-Letter-to-AIV-Board-9-22-20.pdf

 

Voices Major Concerns about Company’s Plan to Separate into Two Businesses Via Reverse Spin-Off – Which Could Massively Destroy Value

 

AIV Underperformance vs. Proxy Apartment Peer Average -914%

 

AIV is Land & Buildings Investment Management's biggest holding at 12% of AUM which was 3% in Q2 when they started buying. This is also Long Pond Capital's biggest public position at 8.6%. Long Pond Capital sold ESRT in Q3 and still owns PGRE, BTW.

 

Brilliant timing. The institutions continue to impress! And yea, good catch with the Litt position increase. Further pointing me towards the conclusion that the guy values publicity much more than anything else.

[thepupil]

I'm not a Litt fanboy or anything, but I think it totally makes sense to load up on shares of a cheap company while you are fighting them from doing a transaction that will in part justify the discount.

 

I appreciate what L&B is doing here and think their involvement is a net positive, likewise with Long Pond. The proxy firms and other ginormous folks like state pensions are also on Litt's side here. i think there's a chance management will jam the transaction through and that will potentially be their undoing.

 

 

AIV is like that lone girl in the bar and Jimmy Buffett just started singing

 

Can't you feel them circling, honey?

Can't you feel them swimming around?

You got fins to the left, fins to the right

And you're the only bait in town

Oh-oh-woah, oh-oh-woah

You got fins to the left, fins to the right

And you're the only girl in town

 

or maybe everyone just gets impatient pukes the stock and I end up bagholding this thing at 1/2 NAV or whatever.

[LearningMachine]

Is anyone not concerned about their history of printing shares and clear indications to do so in the future?

 

They are indicating they will print more shares of both entities:

• Print more Aimco shares in the future: "A broader menu of investment choices, now eschewed by AIR that includes transactions that are short-term dilutive".  See slide 2 at https://s1.q4cdn.com/176956323/files/doc_presentations/2020/09/Strategic-Transformation-Presentation-Sept-2020.pdf.
  
• Print AIR shares in the future: "Growth opportunities through acquisition of under-managed communities".  See slide 5 at https://s1.q4cdn.com/176956323/files/doc_presentations/2020/11/17/AIR_November_Presentation_Update_NAREIT_Final.pdf.
  

 

They also recently distributed a gimmick dividend of $8.20, which has $0.82 in cash and rest in newly minted shares.  See https://s1.q4cdn.com/176956323/files/doc_presentations/2020/11/05/Aimco_Tax_Q-A.pdf.

[thepupil]

Is anyone not concerned about their history of printing shares and clear indications to do so in the future?

 

They are indicating they will print more shares of both entities:

• Print more Aimco shares in the future: "A broader menu of investment choices, now eschewed by AIR that includes transactions that are short-term dilutive".  See slide 2 at https://s1.q4cdn.com/176956323/files/doc_presentations/2020/09/Strategic-Transformation-Presentation-Sept-2020.pdf.
  
• Print AIR shares in the future: "Growth opportunities through acquisition of under-managed communities".  See slide 5 at https://s1.q4cdn.com/176956323/files/doc_presentations/2020/11/17/AIR_November_Presentation_Update_NAREIT_Final.pdf.
  

 

They also recently distributed a gimmick dividend of $8.20, which has $0.82 in cash and rest in newly minted shares.  See https://s1.q4cdn.com/176956323/files/doc_presentations/2020/11/05/Aimco_Tax_Q-A.pdf.

 

 

on your first point, I think you're reading that incorrectly. They are saying the transaction benefits Aimco because it will allow Aimco to engage in activities that re "short-term" dilutive. Management of AIV is saying that the stabilized company (AIR) which is the bulk of AIV's value, would be penalized for doing things that are "long-term/complex/short term dilutive" and that Aimco will be doing that in the future. the idea is to segment sharehodlers who want a smooth ever increasing stable dividnd/FFO per share into AIR and shareholders who have a tolerance for lumpiness and complexity  into Aimco or as I call it CrapCo.

 

It is pretty well established that REIT owners and analyst don't like anything that decreases FFO/dividend per share and call this "dilution" even if it's good for long term intrinsic value.

 

• Investment Flexibility: A broader menu of investment choices, now eschewed by AIR that includes transactions that are short-term dilutive, or longerterm, or more complicated, or better measured by NAV creation than FFO, or that involve more non-recourse leverage and which may result in higher

investment returns;

 

On your second point, I would be delighted if AIR becomes an accretive issuer of shares, but that would require a significant re-rating. If they issue shares at low valuation that would be value destructive. The issuance of shares is neither good nor bad, it all depends on valuation. The ability to access cheap equity capital is a long-term advantage of REITs. Looking on bloomberg AIV had 130mm diluted shares in 2012 and they have 148mm now ~14% cumulative growth over 8 years. in 2008 they had 86mm. Like many REITs they issued a lot between 2009-2012 (presumably to delever and/or grow, but honestly i don't know the ancient history of this company). Many REITs, particularly the worse managed ones went into the GFC overlevered and were forced to issue. I'm assuming that's the case here.

 

On your third point, AIV recently did a big JV of some of their best properties at a very nice valuation (around a 4 cap, california JV).

 

On September 8, 2020, we formed a joint venture with a passive institutional investor, to own a portfolio of 12 multi-family apartment communities with 4,051 homes located in California. The communities included in the joint venture were valued at $2.4 billion, or approximately $592,000 per apartment home. The joint venture has existing property debt of $1.22 billion and an implied equity value of $1.18 billion. In exchange for a 39% interest subject to $475 million of property debt, we received $461 million. We retain ownership of 61% of the joint venture and will control and operate the communities in exchange for property and asset management fees.

 

because this represented a sale of equity interest and these properties must have had a low basis, this created a lot of earnings, which as a REIT, must be distributed to shareholders. AIV doesn't want to distribute that in the form of cash (the whole point of the transaction was to decrease leverage/cali exposure and sell assets at a good price, you can't de-lever if you send all the cash from asset sales to your shareholders), and so did a stock dividend (stock dividends are allowed and still qualify for REIT status, I believe they increased the % as part of the CARES act to allow REITs to de-lever rather than force them to distribute cash).

 

the stock dividend (what you refer to as printing shares) doesn't change value either way, it does cause tax friction, whcih along with the pending taxable spin is another reason to have owned this in a tax advantaged account. management telegraphed that they would have to make a big distribution because of the cali JV.

 

 

Overall, your concern about management capital allocation is warranted, these guys' record isn't spectacular and that's why this fight is happening.

[thepupil]

just to follow up, AIV issued 8.2mm shares @ $39 in January 2015, raising $320mm (this is roughly the current stock price for those who bought before the record date, when you account for the pending stock dividend and reverse split, this was after the stock went from $26-->$39 over 2014 so seems reasonably well timed.

 

they raised a bunch in 2012 around $26/27

[LearningMachine]

Is anyone not concerned about their history of printing shares and clear indications to do so in the future?

 

They are indicating they will print more shares of both entities:

• Print more Aimco shares in the future: "A broader menu of investment choices, now eschewed by AIR that includes transactions that are short-term dilutive".  See slide 2 at https://s1.q4cdn.com/176956323/files/doc_presentations/2020/09/Strategic-Transformation-Presentation-Sept-2020.pdf.
  
• Print AIR shares in the future: "Growth opportunities through acquisition of under-managed communities".  See slide 5 at https://s1.q4cdn.com/176956323/files/doc_presentations/2020/11/17/AIR_November_Presentation_Update_NAREIT_Final.pdf.
  

 

They also recently distributed a gimmick dividend of $8.20, which has $0.82 in cash and rest in newly minted shares.  See https://s1.q4cdn.com/176956323/files/doc_presentations/2020/11/05/Aimco_Tax_Q-A.pdf.

 

 

on your first point, I think you're reading that incorrectly. They are saying the transaction benefits Aimco because it will allow Aimco to engage in activities that re "short-term" dilutive. Management of AIV is saying that the stabilized company (AIR) which is the bulk of AIV's value, would be penalized for doing things that are "long-term/complex/short term dilutive" and that Aimco will be doing that in the future. the idea is to segment sharehodlers who want a smooth ever increasing stable dividnd/FFO per share into AIR and shareholders who have a tolerance for lumpiness and complexity  into Aimco or as I call it CrapCo.

 

I actually read that the way you're reading it.  That is why I listed the first point as "Print more Aimco shares" not "Print more AIR shares".  In other words, management is saying we don't want to print AIR shares for "short-term" dilutive transactions, but it is ok to go ahead and print AIV shares for "short-term" dilutive transactions.

[thepupil]

I think we’ll have to agree to disagree on what that section means. I believe they are simply saying that Aimco will engage in activities that are potentially dilutive to short term EPS (such as development). I don’t see anything indicating they intend for Aimco to become an issuer.

 

I think you are interpreting the word “dilutive” as “issuing shares” whereas dilutive can mean many things. It is saying they can put the lumpy stuff in Aimco.

 

As an example, Vornado is kicking out tenants out of an occupied building to redevelop it. That is dilutive to EPS for several years, but isn’t issuing shares.

[LearningMachine]

On your second point, I would be delighted if AIR becomes an accretive issuer of shares,

 

I wouldn't be so excited because I am reading that as saying that if they are yielding at 5% per year, it is ok for them to print shares as long as they are buying apartments at prices that they project to yield 5.01%.

 

The first issue is how many accretive acquisition projections have you seen that always end up accretive.

 

The second more important issue here is you are effectively locking your money to yield around whatever percentage yield they pick to be appropriate, e.g. around 5%.  They will continue to print shares as long as they can get you around that much yield.

 

I'm hoping we can do better than locking in our money to yield at 5% :-).

 

In other words that is what they see as their cost of capital.  That is the rate at which they will invest any incremental capital from printing shares.

[LearningMachine]

I think we’ll have to agree to disagree on what that section means. I believe they are simply saying that Aimco will engage in activities that are potentially dilutive to short term EPS (such as development). I don’t see anything indicating they intend for Aimco to become an issuer.

 

I think you are interpreting the word “dilutive” as “issuing shares” whereas dilutive can mean many things. It is saying they can put the lumpy stuff in Aimco.

 

As an example, Vornado is kicking out tenants out of an occupied building to redevelop it. That is dilutive to EPS for several years, but isn’t issuing shares.

 

They are talking about dilutive transactions here, not any other actions.

[thepupil]

On your second point, I would be delighted if AIR becomes an accretive issuer of shares,

 

I wouldn't be so excited because I am reading that as saying that if they are yielding at 5% per year, it is ok for them to print shares as long as they are buying apartments at prices that they project to yield 5.01%.

 

The first issue is how many accretive acquisition projections have you seen that always end up accretive.

 

The second more important issue here is you are effectively locking your money to yield around whatever percentage yield they pick to be appropriate, e.g. around 5%.  They will continue to print shares as long as they can get you around that much yield.

 

I'm hoping we can do better than locking in our money to yield at 5% :-).

 

In other words that is what they see as their cost of capital.  That is the rate at which they will invest any incremental capital from printing shares.

 

By accretive, I mean accretive to value per share. Let’s for sake of argument say AIR’s NAV is $40 ( haircutting management of $50/ share). If AIR traded at $45 or $50, I’d be totally fine with them issuing shares. If it trades at $30, issuance would destroy value per share unless their use of proceeds was super exciting.

 

Again, how one feels about issuance depends on price relative to value and even then context matters. GRIF issues shares below NAV this year and its probably the best capital allocation decision they’ve made, the stock went up on the news (because people understand the stock needs to get bigger and more liquid to work and the transaction was the first step in that.)

 

With respect to cost of capital, the consolidated entity has an above market cost of capital. That’s why I’m here. They’re trying to correct that in an a transaction that arguably destroys value and is tax inefficient, that’s why Jon Litt’s here. We’ll see what happens.

 

 

[thepupil]

They are talking about dilutive transactions here, not any other actions.

 

Not sure I get your point. Transaction is a broad term. Where in the book on how to parse slide decks does it say “all transactions must involve equity issuance and if so they must be  at unfavorable valuations”.

 

I think CrapCo is going to trade like crap (typical spin dynamics as references above by Sugar), so I don’t think they’ll be looking to issue tons of shares out of the gate.

 

There are numerous risks with this investment, many of which involve the management team, but don’t think these are the key issues.

[LearningMachine]

They are talking about dilutive transactions here, not any other actions.

 

Not sure I get your point. Transaction is a broad term. Where in the book on how to parse slide decks does it say “all transactions must involve equity issuance and if so they must be  at unfavorable valuations”.

 

I think CrapCo is going to trade like crap (typical spin dynamics as references above by Sugar), so I don’t think they’ll be looking to issue tons of shares out of the gate.

 

There are numerous risks with this investment, many of which involve the management team, but don’t think these are the key issues.

 

For the record, I'm deciding to not invest because these are key issues for me as I do see their share printing history and share printing inclinations for the future as a sign of non-shareholder friendly management.

[Gregmal]

I agree this is super cheap, but a management team that gives zero shits about its shareholders and behaves in this manner just isn't really worth it, IMO, when you can still pick up better assets with better managers at the current valuations. When 40% of your shareholders express concern about something, who do you think you are just going about business as usual? I also think the mechanics of the spin, and effectively sticking shareholders with a tax bill while not paying out a higher percentage(or all of it) in cash, is scummy.