Investing

Disgruntled Shareholder 'Land & Buildings' Pushes Aimco's Board for Strategic Review and Sales Process

Ben Ward

Published: April 19, 2023 10:37 pm

Shares of Apartment Investment and Management Company (US:AIV), or Aimco, rose 5% in trading on Tuesday after activist shareholder Land & Buildings Investment Management issued a letter to the board calling for a sale process. The activist holders have been critical of the real estate investment trust (REIT) as AIV stock has been trading at a discount to the internal estimated net asset value (NAV)

Land & Buildings which owns a 5.80% stake in Aimco. In the letter, Jonathan Litt, founder of Land & Buildings, urged Aimco to evaluate all possible alternatives, including a sale of the company, to maximize value for shareholders.

Litt expressed concerns over Aimco’s failure to act with urgency and encouraged the board to run a full public strategic review process. He also stated that there is still capital available in the financing markets for a potential transaction and that the company has attractive assumable debt in place.

The AIV stock price is up 14.3% so far in 2023. That compares with a 3.9% rise in the share price of the iShares Residential and Multisector Real Estate ETF (US:REZ). The REIT’s shares have a 0.4% allocation among that exchange-traded fund’s 39 holdings.

New Board Members

Land & Buildings’ independent nominee, James Sullivan, was appointed to Aimco’s board in December after a recommendation by proxy adviser Institutional Shareholder Services (ISS) that a newcomer could help iron out governance issues and establish a more robust investor communication program that could improve performance.

Activist shareholders like Land & Buildings typically take a significant stake in a company and use their influence to push for changes that they believe will increase the company’s value. While some investors may be wary of activist shareholders, they can be a good outcome for investors in certain cases.

Activist shareholders can bring attention to undervalued assets — as in this case — and push for changes that increase shareholder value. Land & Buildings’ call for a sale process at Aimco is a prime example of how an activist shareholder can help increase shareholder value.

REIT veteran Sherry Rexroad was added to the board last month, as the company shuffles board leadership roles and committee compostion.

Margin Expansion

In February, Aimco reported its fourth quarter of 2022 results, claiming it was a successful year where it simplified, improved and organized its business. In the final quarter of 2022, revenue for the REIT grew by 9.5% to $35.2 million.

The group reported a large net loss of $212 million compared to a loss of $1.1 million in the prior year, attributing the loss primarily to a non-cash impairment charge related to a mezzanine debt investment.

For the year, Aimco’s net operating income (NOI) margins expanded by 220 basis points, as NOI increased by 14.2% to over $94 million.

A chart from Fintel’s financial metrics and ratios page for AIV shows the improvement of cash generation from operating activities over the final quarters of 2022.

The company repurchased $25 million worth of shares and exited $1 billion worth of investments. The balance sheet was also strengthened with $1 billion of near-term liability maturity terms doubled.

Aimco has a total planned investment value of $815 million for its active development and redevelopment projects, which require around $45 million of additional Aimco capital to complete.

Growing Fund Ownership

The Fintel platform highlights that Aimco has experienced a 2.12% growth in institutional owners on the register in the most recent quarter. There are currently 385 institutions on the register that own a total of 141.15 million shares. The average portfolio allocation ahs also grown by 6.32% during the quarter.

Fintel’s Fund Sentiment Score of 68.63 ranks AIV in the top 30% when screened against 36,470 other global securities.

Options Premium

Fintel’s options data on AIV revealed a spike in net premium purchased by investors in trading on Tuesday, which is a bullish indicator of investor sentiment.

Some $65 million of net long premium was purchased from the sale of a significant amount of put option premium.

Aimco’s board has not yet responded publicly to Land & Buildings’ letter, but investors will be watching closely to see how they respond. If the board does decide to run a full public strategic review process and evaluate all potential alternatives, including a sale, it could lead to a significant increase in shareholder value. Investors will be waiting to see what action Aimco takes in the coming days and weeks.

This article originally appeared on Fintel