Apartment Investment and Management Co. (Aimco) has announced its plan to separate its business into two separate publicly traded companies—Aimco and Apartment Income REIT (AIR).
The newly formed AIR, a self-managed real estate investment trust, will provide an efficient and effective way for investors to allocate capital to multifamily: ownership with public market liquidity of a diversified portfolio of apartment communities, with low financial leverage, limited execution risk, best-in-class operations, and low management costs. Aimco will retain its business of developing and redeveloping multifamily communities while pursuing other transactions.
The decision is based on a longer-term strategic review by management and an engaged board process over the past several months. According to Bob Miller, Aimco lead director, the end result is the refined concept of AIR as a “pure play” apartment investment vehicle and to refocus Aimco on growing its pipeline of development and redevelopment opportunities.
“We came to understand deeply that today’s Aimco includes two businesses: ownership with active management and development,” said Miller. “We believe that both will benefit from separation with balance sheets tailored to the individual businesses, enhanced management focus, expanded opportunities, and distinctive risks and rewards for shareholders.”
AIR plans to own 93.5% of a portfolio of 98 stabilized communities with 26,599 apartments, selected from the existing Aimco portfolio, diversified by geography and price point as well as located in several large markets, including Boston, Denver, Los Angeles, Miami, Philadelphia, San Diego, the San Francisco Bay Area, and Washington, D.C. These multifamily communities are primarily Class A and B assets that are located within submarkets with above-average growth expectations. These properties have an estimated fair market value of $10.4 billion.
In addition, Aimco announced that it has entered into a 10-year joint venture with a passive institutional investor to own 12 multifamily properties with 4,051 units in California. The move is part of the firm’s longer-term strategy to reduce financial leverage and rebalance its capital allocation among target markets.
The properties are valued at $2.4 billion, or approximately $592,000 per unit. According to Aimco, the properties secure nonrecourse 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 the ownership of the remaining 61% interest and is responsible for operating the properties, earning property and asset management fees.
