AIV- Apartment Investment and Management Company

[thepupil]

https://s26.q4cdn.com/968906501/files/doc_presentations/2020/09/Strategic-Transformation-Presentation-Sept-2020.pdf

 

see slide 3, where they say AIRC is $50 NAV and AIV (RemainCo) is $8 NAV. note that the company did a dividend and then a stock dividend / reverse split since that presentation, but after all that the per share amounts are roughly the same.

 

I recommend being very patient / stingy with AIV. I could see it trading very low ($3-$4 type of stuff), but I haven't really dug in asset by asset yet (nor can i find an AIV-specific list of assets / S-1 type of filing, which i thought did exist at one point.

 

Standalone AIRC presentation is here:

https://d18rn0p25nwr6d.cloudfront.net/CIK-0000922864/1e374e84-4118-4f46-9782-8fc6f1ecb104.pdf

 

 

 

 

 

[bilo]

Did anyone see AIV's go forward dividend policy? 

[realassetsvalue]

I clearly already missed a trick by not buying the whole thing in the low $30s like you did but my thoughts were that ShitCo is set up to have a ton of indiscriminate selling, is highly leveraged and the youngest guy on the management team worked his way into the CEO position - perhaps there are some entrepreneurial energies that will be unlocked. Could be a classic Joel Greenblatt style spin-off set up so that would be the interesting entity to focus on. I missed the forest for the trees on the combined entity 1-2 months ago and was too sensitive about the tax impact...

 

Attached is the Info Statement for "New AIV" which has enough info to allow for a high-level ballpark valuation albeit you've got to wade through 230 pages to do it.

 

I agree in being very stingy on price on AIV. I think it becomes very interesting around $4 a share. This may be too greedy and reflects a super conservative valuation but I think you need a huge margin of safety given that its a largely untested team looking to do very complicated and expensive development projects (i.e. one of the most efficient ways to set money on fire on the planet).

 

Primary components of value in my mind are:

• Stabilized multifamily portfolio of 3,140 units - majority Boston suburbs one property in Bay Area, one in Miami: Would be worth $530m based on an estimated $40m NOI and 7.5% cap rate, less ~$235m of debt, $295m or ~$1.85 per share
  
• Cash of $210m or ~$1.30 per share - albeit this is going to be invested into the leased properties and other redevelopment projects soon
  
• Other owned redevelopment properties in Miami, one is income producing, other is a vacant office, if we assume 25% discount to what they paid for them in 2019 and 2020 that would be $180m or $1.10 per share
  
• ParkMerced Mezzanine Note - on the books for $300m ($275m principal, ~$25m accrued interest) but behind $1.5 billion whole loan, collateral (San Fran multifamily estate) was valued at $2.1 billion in December 2019 but will have been hit hard by COVID. This is almost certainly impaired today - I believe the CMBS notes trade at a discount - and may be a write-off in the worst case scenario
  
• Separate portfolio of 2,887 units, Manhattan and then assorted other markets, which are overall good but I assume the sub-markets are weak, hence AimCo sticking them in the ShitCo. This has been levered up with $201m of third-party debt then a $534m 3-year note to AIR on top of that to take leverage up to 85% of management's value estimate of $860m / $300k a unit, which is about a 5% cap rate. Even marginal value declines here would wipe out the equity so in the worst case I've assumed its a zero
  
• Four properties they are leasing from AIR (more leverage) and leasing up / redeveloping. I think three of the 4 are essential done and just leasing, the fourth - Flamingo Point in Miami - is estimated to require ~$80m of CAPEX and take a few years. The terms of these leases are unclear and whether there will be any value here for AIV will depend on what cap rates are agreed to determine "fair market value" and how the lease up goes. I've just not assumed anything here - positive or negative but who knows
  
• Some minor other assets including some seller note receivables and a $12.5m investment (with another $37.4m committed) to IQHQ, a life sciences fund / pre-IPO business that is run by the former team from BioMed Realty. This is like the hottest institutional allocation in real estate and they've raised a ridiculous amount of capital this year. Gives them some rights to develop multifamily at IQHQ's mixed-use projects
  

 

Would love to hear peoples' views on the company and assets.

 

I think this thing will be more or less operating cash flow neutral so I'd assume dividend only to cover taxable income and REIT requirements. No dividend policy announced that I've seen. Another reason for REIT investors to sell.

AimCo_NewCo_InfoStatement.pdf

[thepupil]

thanks realassets, super informative.

[Gregmal]

Been spending some time on this tonight as it seems others have as well. But I'm beginning to look at this really as a very interesting way to play the covid recovery/trends in a very diversified/risk semi-mitigated kind of way through a special situation type of scenario holding a lot of levered options. I know that statement is a clusterfuck of contradictions, but you've got some NY/SF, Miami which is hot, and then Boston which I dont really think has been effected the same way as others and has a very healthy and growing tech/life sci scene in addition to being another finance hub. Like others, even scrubbing this down to a ridiculous degree, you kind of get a $4-ish floor using some really draconian scenarios which maybe would have been valid on 10/30 along with the likes of ESRT/PGRE trading at 5 handles....but now?

 

I took a bit off around 5.20 after getting in for a quick trade but after digging in a bit tonight I honestly think I'm leaning towards shifting gears and kicking this over to investment position rather than trading sardine and honestly I'm probably a buyer tomorrow if we get a sub 5 open.

 

Like others mentioned, some aggravation in terms of digging in is it seems management put quite a bit of effort into the IR work for AIRC and didnt make even a half assed effort with this.

 

[Gregmal]

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......

 

Agree. 1001 Bickell is a hell of a property and if you are doing development, South FL/Miami is probably one of the best markets. Further, it seems the office building is walking distance from the Yacht Club development, and a few miles from Hamilton. Grade A locations. I actually love that these are the redevelopment projects. Timing couldn't be better really.

[Brett]

https://s26.q4cdn.com/968906501/files/doc_presentations/2020/09/Strategic-Transformation-Presentation-Sept-2020.pdf

 

see slide 3, where they say AIRC is $50 NAV and AIV (RemainCo) is $8 NAV. note that the company did a dividend and then a stock dividend / reverse split since that presentation, but after all that the per share amounts are roughly the same.

 

I recommend being very patient / stingy with AIV. I could see it trading very low ($3-$4 type of stuff), but I haven't really dug in asset by asset yet (nor can i find an AIV-specific list of assets / S-1 type of filing, which i thought did exist at one point.

 

Standalone AIRC presentation is here:

https://d18rn0p25nwr6d.cloudfront.net/CIK-0000922864/1e374e84-4118-4f46-9782-8fc6f1ecb104.pdf

 

Thank you.

 

Page 100 and F-27 has the stand-alone assets - is that what you're looking for?: https://www.sec.gov/Archives/edgar/data/922864/000119312520305789/d35704dex991.htm

[Brett]

Very helpful, realassets.  I was probably going to spend more time later this week.

 

Back of the envelop math. The stabilized and separate portfolio properties are probably worth north of $800 million each. You have $770 million of net debt. You're at $830 million now. Slap on the $275 million Parkmerced loan. In theory this asset will have pretty binary outcomes. You don't get paid, or the option on the property is worth a ton.

 

The two main things that trouble me:

 

1. I don't know how to analyze redevelopment properties. I don't trust my ability to handicap that.

2. Management seems weak and redevelopment would seem to depend on management being good.

 

I'd also add the NAV discount will be obvious. I kind of dislike ideas where 'everyone knows it's cheap'. But if it's below $4, I probably care less about that.

[CorpRaider]

Thanks guys.  A sub $5 REIT unit, that just got kicked out of S&P 500 (!), and now pays zero dividends. 

 

I'm wondering if anyone who owned the stock last week (outside of us and J. Litt) are even allowed to hold the stock going forward.   

[Gregmal]

Thanks guys.  A sub $5 REIT unit, that just got kicked out of S&P 500 (!), and now pays zero dividends. 

 

I'm wondering if anyone who owned the stock last week (outside of us and J. Litt) are even allowed to hold the stock going forward. 

 

Add in potentially non marginable, which takes out another layer of capital.

 

Similar to SRG, I wonder if there is a case where conversion back to a C-corp makes sense.

 

I'll also add, the mezzanine loan is not necessarily 0 or boom. Even just in the meantime the thing is spitting off $27M a year back to the company. I'd also add that while the staggered board and that whole enchilada seems bad, its less so after reading into it a bit more. All of that rolls off after 2024. The reasoning behind doing it like this actually makes some sense to me. I think this company looks a wee bit different 3-4 years from now. And generally speaking I'd say it makes sense to give them some time to get to work. You dont need to be a genius to make money as a developer in South Florida. As long as the music doesnt stop, I'd say you're probably good here. And really, I dont even think the music has started really playing. Anyone want to start pitching Goldman Sachs to take some space at 1001 Brickell?

[LearningMachine]

Even though the management is not shareholder-friendly and will dilute shareholders again and again, I got carried away by the excitement of amazing assets to look further.  Here is my calculation of NAV while trying to work around their obfuscation:

 

Real Estate: At first, I thought their values were carried values from the past and might be undervalued.  However, then I looked at their Seattle property (https://blue.kingcounty.com/Assessor/eRealProperty/Detail.aspx?ParcelNbr=0695000245).  King county appraised values are usually not that far off from actual market values.  County lists it at $57.7 million.  In SEC filings, AIV lists it at $79.944 million in SEC filings before depreciation, and $41.366 million after depreciation.  Let's give them the benefit of the doubt and use all of AIV's values.  Let's give them another benefit, and exclude all of their depreciation, and just do 10% discount on those values before depreciation.  They list total real estate value of $1,385.412 million on Page F-27.  They missed adding Hamilton on The Bay to this list.  Let's add $89.6 million for that, bringing total Real Estate to $1,475.012 million.  With very reasonable 10% discount, it comes to $1,327.5 million.

 

Cash: $210 million

 

Parkmerced loan: Because this is second lien, let's ignore this for now.

 

Total Assets: $1,327.5+210 = $1,537.511 million

 

Total Debt: $493.886 property debt plus $534 million notes payable to AIR add up to $1,027.886 million

 

Net Asset Value: $1,537.511 - $1,027.886 = $509.625 million

 

94.91% Net Asset Value available to common share holders = $483.685 million

 

NAV per share (156.631 million shares) = $3.09

 

 

 

[Gregmal]

Hamilton on the Bay closed a couple of months ago and it appears the figures you pointed to are representing 2019 YE so that probably is why its not in there.

 

There's also this notation:

 

Aimco will be well-capitalized with an estimated gross asset value of $1.3 billion, and an estimated Net Asset Value, or NAV (as defined in the Information Statement), of $1.2 billion, each as of March 31, 2020 (in each case, without giving effect to the value of the Initial Leased Properties or the Separate Portfolio Assets (each as defined in the Information Statement)).

 

So I would think there is a bit of double counting in there.

[LearningMachine]

Hamilton on the Bay closed a couple of months ago and it appears the figures you pointed to are representing 2019 YE so that probably is why its not in there.

 

There's also this notation:

 

Aimco will be well-capitalized with an estimated gross asset value of $1.3 billion, and an estimated Net Asset Value, or NAV (as defined in the Information Statement), of $1.2 billion, each as of March 31, 2020 (in each case, without giving effect to the value of the Initial Leased Properties or the Separate Portfolio Assets (each as defined in the Information Statement)).

 

So I would think there is a bit of double counting in there.

 

Yes, I looked at that comment too, and thought why are they obfuscating.

 

So, then, I tried to re-build what rhetoric could they hang their hat on to be able to make a claim like that for GAV and NAV, and so reconstructed what they must have meant by excluding Separate Portfolio assets.

 

Here is the partial (not complete) logic they could hang their hat on to create disinformation:

Cash 210,000

Parkmerced 300,000

Total stabilized 464,844

1001 Brickel 307,441

GAV declared 1,282,285

Debt stabilized 233,180

NAV declared 1,049,105

 

Then, I was like I am not going to get carried away by their obfuscation and disinformation attempts, and re-build everything myself from scratch. That is how I calculated $3.09 NAV above.

 

 

 

[Gregmal]

Yea I also get curious when I see wording and phrases that seem unorthodox, especially in legal documents as they are always there for a reason. I am still dissecting this. Have a real good basis(relative to where this has traded) on a smallish position right now, but haven't got anywhere near dissecting everything in there yet. Hoping to make more progress in between breaks shoveling all this damn snow this afternoon/tonight/tomorrow.

[LearningMachine]

Yea I also get curious when I see wording and phrases that seem unorthodox, especially in legal documents as they are always there for a reason. I am still dissecting this. Have a real good basis(relative to where this has traded) on a smallish position right now, but haven't got anywhere near dissecting everything in there yet. Hoping to make more progress in between breaks shoveling all this damn snow this afternoon/tonight/tomorrow.

 

You reminded me why I don't miss snow :-).

[thepupil]

LM, if you think NAV is $3 which assets do you think AIV is overstating, or which liabilities do you think they are understating?

 

I am not quite following you here.

 

I think you are using gross book.

 

Gross book would significantly understate NAV given the stabilized portfolio was purchased 2002/3 w/ one asset in 2006, the separate portfolio has some assets purchased in the 90's (do you think garden apartment in Nashville are the same px as 1994?).

 

I'm not saying I've done a NAV build up because i haven't, but I don't quite follow how you get to $3 and I think that using gross book is far more erroneous than taking management at face value (which also has its flaws, of course).

 

I would also note that taking all the assets and subtracting all the debt to get a NAV ignores the asset specific nature of debt (though the loans from AIRC are secured by the portfolios, which increases risk, but also seems like a friendly party should shit hit the fam since they have such strong historical ties, don't think AIRC's going to foreclose on AIV).

[LearningMachine]

LM, if you think NAV is $3 which assets do you think AIV is overstating, or which liabilities do you think they are understating?

 

I am not quite following you here.

 

I think you are using gross book.

 

Gross book would significantly understate NAV given the stabilized portfolio was purchased 2002/3 w/ one asset in 2006, the separate portfolio has some assets purchased in the 90's (do you think garden apartment in Nashville are the same px as 1994?).

 

I'm not saying I've done a NAV build up because i haven't, but I don't quite follow how you get to $3 and I think that using gross book is far more erroneous than taking management at face value (which also has its flaws, of course).

 

I would also note that taking all the assets and subtracting all the debt to get a NAV ignores the asset specific nature of debt (though the loans from AIRC are secured by the portfolios).

 

Pupil, I also got excited at first, thinking that their values must be undervalued.  However, then, I looked at each of their properties on page F-27, and realized that their prices before depreciation are not undervalued.  For example, take a look at the Seattle property I mentioned. They are listing it $70.944 million for 135 units, that is, $525.5K per unit.  That is a high price for Seattle area.  To be reasonable, I'm only giving them a 10% discount on that value in my calculation, that is $472.95K per unit, and even that I think is high price for Seattle area.

 

I don't think we can rely on any of AIV's calculation of NAV, GAV or even their various tables entirely.  You have to rebuild everything from scratch.

 

Please take a look at my post from 11:14:46 AM (2:14 pm Eastern Time), and let me know which figure doesn't make sense.

[LearningMachine]

do you think garden apartment in Nashville are the same px as 1994?.

 

The garden apartment in Nashville is listed at $41.045 million before depreciation for 288 units for a unit price $142.5K per unit. 

 

I don't know too much about Nashville area, but that doesn't look undervalued to me for a garden apartment.

 

 

[thepupil]

it wouldn't surprise me if they were worth substantially more, though I'm not familiar with the market (beyond Nashville being super hot as a RE market)

 

maybe to step back a bit. gross book/unit on stabilized is $146K/ unit ($464mm / 3180 = $145K) and is $212K/unit on separate portfolio, with $73k of unit of debt and $90K / unit of debt respectively (kind of makes sense why they levered up with the AIRC note with that context)

 

there's a big property range. For every Seattle at $540K / unit or 118 W 23rd in NYC at $1.1mm / unit, there are others which may be cheap (Bank Lofts, Denver 2001 purchase, $147K/unit gross book), Massachussetts apartments $112-$117K, that's cheaper than NEN. Yacht Club at Brickell purchased in 03 ($230K/unit gross book)

 

I think it would be a mistake to extrapolate Seattle across the whole portfolio (or a cheap property). I'd note that re the seattle property, lots of people's ESS/EQR NAV's are not far from that; i agree with you it seems too high, but not outlandish. 

 

I agree with your general commentary that mgt isn't making it easy here, but think it's a leap to get into "obfuscation" "disinformation" etc.

 

[LearningMachine]

it wouldn't surprise me if they were worth substantially more, though I'm not familiar with the market (beyond Nashville being super hot as a RE market)

 

maybe to step back a bit. gross book/unit on stabilized is $146K/ unit ($464mm / 3180 = $145K) and is $212K/unit on separate portfolio, with $73k of unit of debt and $90K / unit of debt respectively (kind of makes sense why they levered up with the AIRC note with that context)

 

there's a big property range. For every Seattle at $540K / unit or 118 W 23rd in NYC at $1.1mm / unit, there are others which may be cheap (Bank Lofts, Denver 2001 purchase, $147K/unit gross book), Massachussetts apartments $112-$117K, that's cheaper than NEN. Yacht Club at Brickell purchased in 03 ($230K/unit gross book)

 

I think it would be a mistake to extrapolate Seattle across the whole portfolio (or a cheap property). I'd note that re the seattle property, lots of people's ESS/EQR NAV's are not far from that; i agree with you it seems too high, but not outlandish. 

 

I agree with your general commentary that mgt isn't making it easy here, but think it's a leap to get into "obfuscation" "disinformation" etc.

 

How do you explain them making statements like $1.3 Billion GAV and $1.2 Billion NAV, implying only $100K of debt?  Yes, they could try to hang their hat on saying they didn't count separate properties, or some debt, etc.  I expect more integrity.  I see their claim of NAV as $8/share as disinformation based on obfuscation.

 

They use figures from partial set of assets and debt, and then they make statements based on partial logic.

 

I'm not extrapolating Seattle across the whole portfolio because I am not saying that their entire portfolio values listed on F-27 are grossly overvalued before depreciation.  I'm saying 10% cut on values before depreciation is reasonable.  I'm saying let's just do the math based on that and calculate our own NAV, and that calculation leads to $3.09 above.

[thepupil]

It's not clear to me they are trying to be misleading or hide anything, but perhaps I'm missing something. 

 

as realassetsvalue pointed out, each of the separate portfolios and stabilized have NOI's in the disclosure whcih is a nice sanity check to the NAV.

 

[Gregmal]

I'd also point out that the $3 NAV does not include the mezzanine loan which, while possibly a write down, from that base, provides a 6% annual income stream against the entire $3 NAV and if repaid in full, 60%+ upside to the NAV. This alone, is probably worth waiting around in massively scrubbed down multifamily, some of which at early 2000s prices. So I guess my back up the truck, 10%+ position buys will start in the mid 3s and pyramid down!

[thepupil]

ya I'm just getting up to speed, I'm seeing like super bear case $3 and bull case $9+, which means I'll add at $4, $3, lose hope when it hits $2.5 and sell at $4-$5.

 

the Parkmerced loan is the 85% - 72% mezz tranche of a $2.1 billion asset (pre-covid) w/ an option on appreciation. the CMBS is 2019 vintage so they have 10 years (almost) as long as they can keep it cash flowing (they did request forbearance in early 2020), but I note that highly subordinated tranches (of the CMBS that's ahead of the mezz loan) are trading in the $90's now.  it's not a certainty to me at all that this is a zero.

[realassetsvalue]

Completely agree that there is a lack of clarity and promotion but I don't think its necessarily obfuscation or disinformation.

 

Page 82 of the info statement lays out how they are valuing the stabilized portfolio (on a cap rate basis using the CBRE market cap rates, weighted average cap rate of 5.4% and range of 5.1% - 5.6%) and the "other" real estate assets, Hamilton Bay and 1001 Brickell, which are valued at the acquisition cost (1001 Brickell acquired in 2019, Hamilton Bay August 2020, post-COVID).

 

Why their GAV and NAV estimate seems disingenuous - i.e. they obviously have more than $100m of debt - is that they are only counting their estimate of the NAV of the "separate portfolio", which is the one they levered up with the AIR note. Can see the build up and how that slots in in the September Presentation Pupil shared a link to somewhere at the end I think. Obviously understates their full debt but in fairness, the separate portfolio debt is all non-recourse as far as I can tell at this stage.

 

I don't think using historic cost is the right way to value the MF assets. Its a useful data point but they provide NOI for both stabilized and separate portfolio going back to 2017 so I think an NOI / cap rate basis makes the most sense.

 

I definitely think that their cap rates are more aggressive than I would be comfortable underwriting but you can choose whatever cap you want to put on the NOI. I also knocked NOI down 10% from the 9M 2020 figures for good measure.

 

Also as far as I can tell, they've not included their partial interest in a property in South Carolina and a couple in San Diego in their stabilized / separate portfolio NOIs. This won't move the needle but a little extra value that I'm not measuring in my $4 a share conservative estimate.

 

Time will tell re: lack of disclosures. I remember Greenblatt saying in his book that often management performance incentives are set of the starting stock price post-spin, which means management have no incentive to promote the stock. That would mean that lack of disclosures and promotion is a good thing.

 

Or the "new blood" (Wes Powell) is just as shareholder unfriendly as the old guard were. Time will tell but if this continues to drop (and as Gregmal said - who is even allowed to own this), I think price alone can mitigate a lot of that risk... I am curious what management and other insiders are going to do with their shares and also how management are going to be paid. I couldn't find anything useful on that front in the Info Statement.

[LearningMachine]

Based on their history, I worry management will probably print themselves free shares while folks here pay with their hard-earned dollars. 

 

The other thing to be worried about here is the interest rate risk.  I think it will come get all those who are getting short-term loans to pay for assets without any warning.  Folks in real estate are pricing assets based on 10 bps changes in cap rates, but all those cap rates will go out the window if interest rate risk materializes. Long term loans is the best way to mitigate in current climate.

 

Ideally, I'd like to see management being so shareholder friendly that they are taking the time to get long 30+year mortgages while explaining to shareholders they are doing it at a slightly higher cost and it will result in slightly lower income, but they are doing it to protect the shareholders from the interest rate tsunami that might hit anytime.

 

Here, they currently have 5-10 year maturity for property loans and 2024 maturity for the note owed to AIR.