Apartment Income REIT Corp (NYSE: AIRC)
Last Price: USD: 37.00|Fair Value: USD: 52.00
Business Strategy & Outlook
Apartment Income REIT has significantly slimmed down the portfolio of multifamily buildings it owns over the past decade to just its best assets. The company invests in metropolitan markets with solid demographic trends that allow the company to maintain high occupancies and pass along consistent rent increases. Demand for apartments depends on economic conditions in their markets like job growth, income growth, decreasing homeownership rates, high relative cost of single-family housing, and attractive urban centers. Apartment Income’s portfolio is typically more suburban than its multifamily REIT peers, which has put it at a slight disadvantage over the past economic cycle but should favor growth in the company as millennials move from the urban centers out into the suburbs over the next few years. The company regularly recycles capital by selling noncore assets or markets and uses the proceeds to fuel targeted acquisitions with strong growth prospects, a strategy that has improved the company’s performance over the past few years. Apartment Income has significantly streamlined its portfolio and strategy over the past decade.
While the company has decreased its portfolio from over 300 properties at the end of 2008 to 80 properties in the current portfolio, the company owns approximately the same number of assets over that time frame in the 8 markets it currently considers to be its core markets. The company’s exit from markets with lower growth prospects has increased the portfolio’s expected average growth. The company completed the sale of the last of its affordable living and asset management businesses in 2018, segments with limited growth prospects that the company has been trying to exit for years. In 2020, Apartment Income spun off its development pipeline and lease-up portfolio into its own company so that the remaining company could focus on the highest-quality assets. These efforts have brought Apartment Income’s portfolio closer to its peers in terms of both asset quality and market exposure. While the company still has a differentiated portfolio from its peers, it is to have similar internal and external growth opportunities.
Financial Strengths
Apartment Income is in decent financial shape from a liquidity and a solvency perspective. Debt maturities in the near term should be manageable through a combination of refinancing, asset sale proceeds, and free cash flow. The company should be able to access the capital markets when acquisition and development opportunities arise. 2023 net debt/EBITDA and EBITDA/interest to be roughly 7.2 and 3.8 times, respectively, both of which represent leverage levels higher than to see for the company. However, the company will generate solid EBITDA growth and maintain discipline in capital allocation decisions and should improve these leverage metrics over time. As a REIT, Apartment Income is required to pay out 90% of its income as dividends to shareholders, which limits its ability to retain its cash flow. However, the company’s current run-rate dividend is easily covered by the company’s cash flow from operating activities, providing Apartment Income plenty of flexibility to make capital allocation and investment decisions. The company’s credit rating is to remain stable through steady rental income growth in its existing portfolio and the stabilization of the company’s current developments, which should allow the company to continue to access the debt market in combination with equity issuance and asset dispositions to fund its debt maturities, acquisitions, and new development activity.
Bulls Say
Company Description
Apartment Investment and Management Co. owns a portfolio of 84 apartment communities with over 26,000 units. The company focuses on owning large, high-quality properties in the urban and suburban submarkets of Boston, Denver, Los Angeles, Miami, Philadelphia, San Diego, San Francisco, and Washington, D.C.
(Source: Morningstar)
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