Finding calm in the storm - high quality real estate with a big margin of safety

High quality multifamily REIT asset trading at a large discount to NAV with some catalysts

Business Overview

Apartment Investment and Management Company ($AIV) (let’s call it “Aimco” from now on) is a diversified real estate company focused on value-add and opportunistic investments in U.S. multifamily properties. Aimco’s current form emerged after a late-2020 spin-off, in which its stabilized apartment portfolio was separated into a new REIT (AIR Communities, or AIRC). Post spin-off, Aimco retained a smaller portfolio of apartment communities and a pipeline of development/redevelopment projects. Over the past four years, Aimco has transformed its holdings by completing new developments and strategic asset sales. As of early 2025, Aimco’s assets include ~20 stabilized apartment communities (~5,200 apartment homes) generating steady rental income, nearly 1,000 newly delivered apartment units in lease-up, one active development project in Miami, and a large future development pipeline (~7.7 million square feet of potential). Aimco also owns a boutique hotel (the Benson Hotel in Colorado) and a few other non-apartment investments, though its core business is suburban multifamily real estate.

Aimco’s stabilized apartment portfolio is concentrated in established suburban submarkets with limited new supply, including areas of the Midwest and Northeast U.S., which has supported strong occupancy and rent. In 2024, these stabilized properties had an average occupancy of ~97.9% and achieved 4.5% year-over-year NOI growth. The company’s development/redevelopment arm focuses on projects in high-barrier markets (e.g. Washington D.C., Maryland, coastal California, and South Florida) where Aimco believes it has a comparative advantage and can create substantial value through construction and lease-up Recent projects include Upton Place in D.C. (689 units + retail), Strathmore Square Phase I in Bethesda, MD (220 units), and Oak Shore in Marin County, CA (24 single-family rental homes including accessory units). These projects were substantially completed by late 2024 and are now leasing; importantly, early leasing at Upton and Oak Shore is ahead of pro forma rents, putting these developments on track to deliver a ~7% yield on cost when stabilized, well above typical market cap rates. Aimco’s active development (as of Q1 2025) is a waterfront multifamily project in Miami with a total budget around ~$94 million, and a broader land pipeline (notably in Southeast Florida, the D.C. Metro, and Colorado) that offers significant longer-term growth optionality.

So today, Aimco today is a hybrid multifamily REIT: it owns a base of stabilized apartment assets generating cash flow, while also pursuing value creation through development and redevelopment. This strategy has required significant capital investment and patience (as new projects initially depress earnings), but Aimco has recently begun harvesting value via asset sales and returning capital to shareholders. The company’s management team and board (led by CEO Wes Powell) have taken steps to simplify the portfolio and unlock value, especially in response to shareholder pressure (described below). Aimco does not currently pay a regular quarterly dividend (unlike most REITs), choosing to reinvest cash flow, but it has distributed proceeds through special dividends following asset sales.

Investment Thesis

We have been monitoring the stock for a while and took a starter position late last year, and are now pounding the table, given the recent drop in the stock. In addition to just a fundamental disconnect to NAV, we believe the there are other catalysts to realize upside. Our thesis as follows:

• Significant NAV Discount: Aimco’s shares trade at a meaningful discount to the intrinsic value of its real estate holdings. We go through the math more below, but we believe a conservative SOTP value yields a $13-$14 price per share vs. the $7.30 close recently, or a 85% return at the midpoint. In case you do not trust our math, an activist investor, Land & Buildings, estimates Aimco’s NAV is roughly $11.50 per share (post a large $2.10 NAV distribution that has yet to occur). This independent NAV estimate (supported by Green Street’s analysis) implies a large gap between Aimco’s private-market real estate value and its public market valuation.

• High-Quality Apartment Portfolio: Yes, the market is rough and volatile and real estate feels risky given the uncertain rate environment. However, Aimco’s has a very high quality base in its stabilized apartments, which are concentrated in markets with favorable supply/demand dynamics. The properties are largely suburban, diversified by geography and price point, and benefit from high occupancy and affluent tenant demographics (e.g. median household income of new residents was $130k in Q4’24, with a healthy rent-to-income ratio ~21%. This suggests Aimco’s properties can maintain pricing power even in a softening economy. Moreover, Aimco’s debt tied to these assets is low-cost and long-term, enhancing their value – the company has valuable assumable fixed-rate mortgages well below current market interest rates. In a 7%+ interest rate environment, any acquirer could assume Aimco’s in-place property debt (average rate ~6.4% after recent refinancings) or benefit from interest rate caps, which is an attractive feature relative to buying similar assets in the open market. Overall, the stabilized portfolio’s cash flows are secure and growing, underpinned by markets like suburban D.C., suburban Chicago/Illinois, the Northeast, and Colorado where new supply is limited.

• Embedded Growth from Development Pipeline: Unlike pure-play apartment REITs, Aimco has a development pipeline that is just now starting to bear fruit. The company invested over $1.3 billion in development projects since 2020 and those projects are coming online with strong initial performance. Nearly 400 new units delivered in 2023-24 have been leased at rates ahead of underwriting, supporting ~7% yields on cost. This creates significant unrealized value: if these new properties were valued at market cap rates (~5–5.5% for high-quality multifamily), the implied value is substantially higher than cost. As these projects stabilize over the next 12 months, Aimco’s cash flow (NOI) will increase materially. For example, Upton Place and Strathmore Square alone should contribute tens of millions in NOI once fully leased, on top of the $99 million NOI the stabilized portfolio generated in 2024. In effect, Aimco’s earnings power is set to grow organically as the development pipeline matures – yet the market is not fully pricing this in. Investors buying AIV now get this built-in growth at a steep discount.

• Future Development: Furthermore, Aimco still controls a “deep pipeline” of future development opportunities (7.7 million sq ft potential) that it could monetize or joint-venture in the future, providing long-term upside optionality. Notably, Aimco has indicated it will reduce its exposure to development activity going forward) – a prudent move to focus on harvesting value rather than initiating large new projects in the current capital market environment.

• Catalyst – Strategic Review and Potential Sale: Perhaps the most immediate catalyst is Aimco’s ongoing strategic alternatives process. In January 2025, following the agreement to sell its Brickell Assemblage land in Miami for $520 million (expected to close shortly, and management will dividend out proceeds), Aimco’s Board expanded its efforts to “unlock and maximize shareholder value,” including exploring sales of major business components or an outright sale/merger of the company. Morgan Stanley has been engaged as financial advisor for this. This move came after pressure from Land & Buildings, which publicly called for Aimco to pursue a full company sale as the “best path forward” given the simplified, mostly stabilized portfolio post-asset sales. We view the strategic review as a strong signal that Aimco’s board/management are open to a transaction in the near term Aimco is now a much more straightforward portfolio (largely apartments with some development upside), and the recent asset sales have de-risked the company, making it an attractive takeover candidate. In short, there is a real possibility that Aimco could be acquired or broken up within our 3-year investment horizon, which would likely unlock the NAV discount in the stock. The ongoing strategic review and active involvement of a well-regarded activist investor increase the probability of such a catalyst.

• Shareholder-Friendly Capital Actions: Even if a full sale does not occur immediately, Aimco’s management has shown commitment to returning capital to shareholders and improving corporate governance. For instance, after selling two Miami assets in Q4 2024, Aimco paid a special dividend of $0.60/share in January 2025, distributing essentially all net proceeds. The company has stated it intends to return the majority of net proceeds from the pending $520M Brickell sale to stockholders as well. These actions both directly reward shareholders and signal that management recognizes the stock’s undervaluation (i.e. excess cash should be given back or used for buybacks). We would not be surprised to see Aimco repurchase shares opportunistically – in fact, Aimco bought back ~3 million shares in mid-2023 at ~$8.02/share. Such buybacks are highly accretive when the stock trades at a large discount to NAV. Additionally, Aimco has improved governance (de-staggering its board, etc.) and aligned management incentives with shareholder returns. The insider ownership (Chairman/CEO Terry Considine via AIR owns a stake, and Aimco’s CEO and directors hold shares) and activist presence mean shareholders’ interests are front and center. All these factors give us confidence that the value in Aimco’s assets will ultimately accrue to stockholders, either through corporate actions or market recognition.

Valuation: Sum-of-the-Parts (SOTP) and NAV Analysis

The part you all have been waiting for…since Aimco has a few different buckets of assets, we think a straightforward SOTP is what makes the most sense here (also given they will likely just sell the assets soon). We assume a moderate 5.25%–5.75% capitalization rate range for Aimco’s apartment assets, reflecting their suburban locations and solid rent growth (for context, private-market cap rates for quality multifamily have moved into the mid-5% range given higher interest rates, though Aimco’s specific markets with low supply might warrant the low end of this range). Our valuation is cross-checked against management commentary and third-party NAV estimates.

• Stabilized Apartment Properties (Operating Segment): Aimco has 20 stabilized communities with 5,243 apartment homes as of year-end 2024. These produced $99.0 million in NOI in 2024. Applying a cap rate of ~5.5% (mid-point of our assumed range) to this NOI, we get a gross asset value of approximately $1.8 billion for the stabilized portfolio. If we use a slightly more aggressive 5.0% cap (acknowledging the high occupancy and strong demand in Aimco’s submarkets), the value would be ~$2.0 billion; at a conservative 6.0%, it’d be ~$1.65 billion. For SOTP, we’ll use ~$1.8B as a base case. This equates to roughly $340k per apartment unit on average, which seems reasonable given many of these assets are in high-cost areas (e.g. suburban D.C., Boston, etc.) with monthly rents around $2,300. Notably, Aimco’s average rent per unit is ~$2,290/month, which supports these valuations. This segment’s value anchors Aimco’s NAV – it’s the “core” real estate that generates ongoing cash flow.

• Recently Completed Developments (Lease-Up Properties): Aimco has three major residential projects that were substantially completed in late 2023 or early 2024 and are currently in lease-up: Upton Place (689 units, Washington D.C.), Strathmore Square Phase I (220 units, Bethesda MD), and Oak Shore (24 homes, Marin County CA). The total direct development cost for Upton and Strathmore came in at $334.8M and $181.4M, respectively, a combined ~$516M, about $10M below original projections in total (reflecting careful cost control). We estimate Oak Shore’s cost around ~$50–$80M (not publicly stated, but it’s a smaller project of luxury rentals). In addition, Aimco’s active development in Miami (the waterfront project) has a budget of roughly $94M (as inferred from guidance). All-in, Aimco’s invested capital in these development projects is on the order of $600–$700 million. These new assets are high-quality and are already renting at or above pro forma rates, targeting a 7% stabilized yield on cost. At a 7% yield, $600M of cost implies roughly $42M of future NOI once stabilized. If we capitalize that future NOI at 5.5%, the indicative value of these projects when stabilized is ~$760 million (and at a 5.0% cap, over $840M). Thus, there is $150–$240M of value uplift not yet reflected on Aimco’s balance sheet (cost vs. value). For our SOTP, we will take a midpoint and assign $700 million value to the batch of completed and in-progress developments, roughly equal to their cost plus a portion (about half) of the anticipated value creation. This acknowledges that while these assets are not fully stabilized (so a buyer might discount them slightly), they are far along (construction risk is past, and lease-up is progressing well). In fact, Aimco increased its ownership in Upton Place to 100% by buying out its JV partner’s 10% stake in Q4 2024 - a sign of confidence in the asset’s value. By including some of the upside, we reflect that any acquirer or the market, as these properties stabilize in the next year, will likely attribute more than just cost to them.

• Other Assets: Aimco’s “Other” segment mainly consists of The Benson Hotel & Faculty Club in Aurora, CO – a 106-room hotel completed in mid-2023 adjacent to a university campus. The hotel generated ~$6.7M in revenue in 2024 while ramping up. We value the Benson Hotel at roughly $70–$80 million (approximately 10–11x 2024 revenue, or ~$0.5M per key which is reasonable for a niche high-end hotel, and in line with its ~$75M total cost recorded). Apart from the hotel, Aimco holds some minor equity investments (for example, a mezzanine loan/equity in the Parkmerced redevelopment in San Francisco, and a stake in a life-science RE development firm). However, Aimco took a large impairment on Parkmerced in 2023 and its value is uncertain in the current environment, so we conservatively assign minimal value to these non-core investments in our base case. They could be upside options (if, say, San Francisco recovers or IQHQ succeeds, Aimco might see a payoff), but they aren’t central to the thesis. We will include a token ~$20M value for these various non-core pieces. In total, other assets ~ $90M (roughly $75M hotel + $15M misc.). This is relatively small in the context of Aimco’s overall asset base.

• Brickell: In late December, Aimco reached an agreement to sell the Brickell Assemblage for $520 million. At that time the buyer's deposit of $38 million became non-refundable, so we are fairly confident this deal will close. We also have heard that there was a long list of buyers interested in this property, so even in an uncertain macro backdrop, this deal should get done. From the last earnings call:

  • The buyer can exercise an option to finance up to $115 million of the purchase price with a transferable seller financing note from Aimco for a period of 18 months at a rate of 12%. If exercised the purchase price increases by $20 million, to $540 million.

  • The sale, which is subject to certain closing conditions and extension options, is scheduled to occur as early as March 2025 but may be extended at the buyer's option to the fourth quarter of 2025, with such extensions requiring the buyer to increase its non-refundable deposit.

  • Net proceeds from the transaction, accounting for the associated property-level debt and deferred tax liability, are estimated to range from $300 to $320 million depending on the buyer's election regarding seller financing. Upon receipt, Aimco intends to return the majority of the net proceeds from the transaction to shareholders.

Now summing up the asset values:

• Stabilized Apartments: ~$1.8 billion (base case at ~5.5% cap)

• Development/Lease-Up Properties: ~$700 million (cost plus partial upside)

• Other Assets (Hotel & misc.): ~$90 million

• Brickell: $520 million (full sales price, since we are keeping debt in liabilities below)

Total Gross Asset Value ≈ $3.11 billion.

Next, we subtract liabilities to arrive at the net equity value (NAV). Aimco’s balance sheet at 12/31/2024 had $1.24 billion of total debt outstanding (all non-recourse). The company also carries a deferred tax liability of ~$101 million), largely related to built-in gains on appreciated assets (this would come due if assets are sold in taxable transactions – relevant if a portfolio sale happens). Net debt was about $1.07B, as Aimco had ~$172M of cash on hand. For NAV, it’s appropriate to subtract the full debt and perhaps the deferred tax if we are assuming an asset sale scenario. To be conservative, we will subtract the deferred tax as well, given the strategic review could result in dispositions that trigger taxes. Thus, total liabilities to deduct = $1.17 billion (debt minus cash + deferred taxes).

Net Asset Value (NAV) = $3.11B – $1.17B = ~$1.94 billion. Dividing by ~142 million fully diluted shares outstanding gives an NAV of ~$13.66 per share. This is our base case NAV under a mid-range cap rate and partial credit for development upside – that is a 84% return from today’s stock price.

We’d also emphasize that this is a middle-of-the-road-assumptions estimate. If we assume a slightly more favorable scenario – e.g., Aimco’s stabilized cap rate is closer to 5.0%, and we credit the full market value of the new developments – NAV would be materially higher (closer to $15 per share and a double from today’s prices). Even on the low side, using a 6% cap (very conservative for these assets) and valuing developments only at cost, we still get NAV around $12.50. Thus, downside appears well protected by asset value, while upside to a reasonable NAV is on the order of +75-90%.

We also do love that the $300+ million net proceeds from the recent sale will be paid to us via a special dividend after close. That is $2.11 per share or 29% of the share price that we get back in the next couple of months!

In today’s volatile market, we like this upside/downside skew with a super high quality asset base that likely has a long list of buyers between a 5.5%-6.0% cap rate.

Finally, we’d like to point out that after the $520 million Brickell sale, we are creating the remaining assets for $1.6 billion (EV of $2.1 billion minus $520 million). The stabilized portfolio generates $99 million of NOI and the development portfolio will add $60 million once stabilized. So in essence, we are creating the remaining assets at a 10% cap rate, which is a wild mispricing for quality multifamily assets in this market.

Why this exists:

We believe this opportunity exists for a couple of simple reasons:

1. Traditional REIT investors screen for dividend yields, and Aimco is a “bad” REIT in that it does not pay a regular dividend today

2. It is a smaller residential REIT - Avalon Bay, Equity Residential, etc are 20-30x larger in EV, and Aimco is just a bit too small for institutional interest

3. Given the hodgepodge of assets, including the development pipeline that is not yet stabilized (leased), valuing Aimco is marginally harder than valuing the traditional REITs above.

4. The rate movement in recent weeks has caused REITs to sell off more than usual, as prior to March 2025, Aimco had been consistently trading in the high 8s, low 9s per share.

Quick summary:

1. Aimco has a high quality base portfolio of apartments that are 98% occupied in top urban/suburban markets

2. This base generates $99 million of NOI (growing 3-4%), so at a 5.5% cap rate, that is worth $1.8 billion

3. New developments are coming online quickly, and we believe that part of the asset base is worth $700 million conservatively, but could be more if Aimco finishes developing and leasing them.

   1. As an aside, a recent company presentation indicated these new developments should yield $50-60 million of NOI. At a 6% cap rate, that is worth closer to $900 million to us

4. Other assets are not a huge part of the equation and worth $90 million, conservatively

5. Brickell will be sold for $520 million and proceeds ($320 million net) will be distributed to shareholders soon (28% of the market cap today)

6. We have a $7.30 stock whose NAV is conservatively $13.50 - $14.00, or a 84% return. In a bear case with a 6% cap rate, it’s worth $12-$12.50 and in a bull case with a 5% cap rate, $15.00+.