Aimco Spins Off $10.4B ‘Pure’ Investment Entity

The new company, Apartment Income REIT, will benefit from low financial leverage and limited execution risk.

Hamilton on the Bay

In a quest to separate its investment activities from its development and management activities, Apartment Investment and Management Co. has formed a $10 billion pure-play investment company. Aimco, a Denver-based real estate investment trust with a portfolio of 125 communities across the U.S., will retain its existing business of developing and redeveloping apartment projects.

The new entity, Apartment Income REIT (AIR), will be a self-managed REIT that will own 93.5 percent of a portfolio of 98 stabilized properties totaling 26,599 apartment homes. Located in major markets including Los Angeles, Washington D.C. and Philadelphia, the properties will be selected from Aimco’s existing portfolio. The assets have a total estimated fair market value of $10.4 billion.

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AIR and Aimco each plan to have a board of directors composed mainly of independent directors, as well as separate management teams, with AIR headquartered in Denver while Aimco will have its principal offices in Bethesda, Md., and Denver.

The proposed transaction is subject to a number of approvals, including SEC review and formal approval by Aimco’s board.

Pure play vehicle

Aimco noted that the formation of AIR will provide a simple and transparent vehicle for investment in the multifamily sector, citing the advantages of low financial leverage, limited execution risk and high-quality operations with low management costs. The decision came after a strategic review by management and several months of board consideration.

Bob Miller, Aimco’s lead director, said in the statement that the split-up was prompted by a realization that the company consists of two businesses—ownership and active management and development—and that both would benefit from the separation.

The AIR properties are expected to land $2.6 billion of new property debt with a weighted average net interest expense of 3.1 percent. The entity will not engage in development or redevelopment. Five of its properties are currently under construction or in lease-up and AIR plans to lease them to Aimco to complete the work. Aimco will wrap up construction and lease-up of each project at its own cost.

AIR’s portfolio is mainly located in large markets including Boston (10 percent of gross asset value); Philadelphia (12 percent); Washington, D.C. (12 percent) Denver (7 percent); the Bay Area (11 percent); Los Angeles (22 percent), Miami (10 percent), and San Diego (7 percent).

Aimco to keep some properties

Upon the formation of AIR, Aimco is expected to keep 11 stabilized multifamily properties together with a number of other assets and liabilities. The latter will include Hamilton on the Bay, a 28-story apartment tower in downtown Miami that Aimco acquired from SunTrust Community Capital in August.

Aimco will own the 271-unit multifamily asset as well as the land and zoning to build 389 additional apartment units. The company estimates the fair market value of all these properties to be $1.3 billion with a net asset value of $1.2 billion.

New joint venture

Simultaneously, Aimco also announced it has sold a 39 percent interest in 12 multifamily properties in California, collectively valued at $2.4 billion, under a new 10-year joint venture with an unnamed passive institutional investor. Aimco received $461 million cash along with $24 million for future redevelopment spending in exchange for the interest, which is subject to $475 million of property debt.

The bundle of properties totaling 4,051 units has an implied net operating income (NOI) cap rate of about 4.2 percent and an implied free cash flow cap rate of around 4.0 percent. The assets have an implied equity value of $1.18 billion. Aimco will keep a 61 percent ownership interest in the properties and will be responsible for operating them and earning property and asset management fees.

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