S&P500 stock - Apartment Investment and Management Company (NYSE: AIV)

Stay Away from the stock but look out for bargain deals on apartments.

Legal entities Incorporated as trusts involved in buying, owning, managing and developing apartment properties are known as Real Estate Investment Trusts (REITs). Real Estate Investment Trust Act of 1960 governs these establishments. Such entities are in closed-end investments in real estate or related mortgage assets. This act exempts trusts from corporate income and capital gains taxation, providing they invest primarily in specified assets, pay out most of their income to shareholders, and meet certain requirements regarding the dispersion of trust ownership.A REIT is, simply put, a company dedicated to owning and, in most cases, operating income-producing real estate, such as apartments, shopping centers, offices and warehouses. Some REITs are also engaged in financing real estate. Most importantly, a REIT is legally required to pay virtually all of its taxable income (90 percent) to its shareholders every year.

Apartment Investment and Management Company, AMICO, owns and manages a real estate portfolio of 1,475 apartment properties containing approximately 260,000 apartment units located in 47 states, the District of Columbia, and Puerto Rico. As a REIT, the company would not be subject to federal income tax, if it distributes at least 90% of its taxable income to its shareholders. AIMCO was founded in 1975 and is headquartered in Denver, Colorado.
Garden-style, mid-rise and high-rise properties forms AMICO's portfolio. Real estate (owning and operating apartments) and investment management business (providing property management and other services relating to the apartment business to third parties and affiliates) forms its core activities. Through AMICO's wholly owned subsidiaries, AIMCO-GP, Inc. and AIMCO-LP, Inc., the Company owns a majority of the ownership interests in AIMCO Properties, L.P. (AIMCO Operating Partnership). As of December 31, 2006,AIMCO held approximately a 90% interest in the common partnership units and equivalents of the AIMCO Operating Partnership. AIMCO conducts all of its business and owns all of its assets through the AIMCO Operating Partnership.

AIMCO divides property operations into conventional and affordable. The conventional operations, which are market-rate apartments with rents paid by the resident, include 469 properties with 135,289 units.AIMCO Capital conducts its operations of 336 properties with 38,934 units, which typically are apartments with rents frequently subsidized or paid by a government agency. AIMCO's conventional operations are organized into four divisions, and are further sub-divided into 17 regional operating centers (ROCs). The ROCs are generally smaller business units with specialized operational, financial and human resource leadership. AIMCO Capital was organized to focus on the Company's affordable housing properties, the operations of which are most often subsidized or financed by the United States Department of Housing and Urban Development (HUD), state housing agencies or tax credit financing.AIMCO Capital operates AIMCO's affordable properties through three ROCs.

Portfolio management includes acquisitions of properties located in markets where its core portfolio is concentrated. AIMCO acquires properties and property interests in three ways, the direct acquisition of a property, acquisition of a portfolio of properties through a purchase or a merger or business combination with, an entity that owns or controls the property and the purchase from third parties.

AIMCO's core properties are located in areas where population and employment growth are expected to exceed national trends and where there is potential for long-term growth at higher rates of return. Its properties are located in coastal states, as well as the Rocky Mountain region and Chicago. At December 31, 2006, the Company had 270 conventional core properties. Within its core portfolio, the largest single market (Washington, D.C.) contributed approximately 10%, and the five largest markets (Washington, D.C., Southern California, New England, Philadelphia and Miami-Fort Lauderdale) together contributed approximately 38%, to net operating income during the year ended December 31, 2006. As of December 31, 2006, the Company had 199 conventional non-core properties.In 2006, AIMCO completed direct acquisitions of nine conventional core properties, containing approximately 1,700 residential units. These properties are located in California, Florida and North Carolina.  

Terry Considine is the Chairman of the Board and Chief Executive Officer.He is also the Chairman and Chief Executive Officer of American Land Lease, Inc., another publicly held real estate investment trust but he devotes substantially all of his time to his responsibilities at AIMCO. 

Timothy J. Beaudin is the Executive Vice President and Chief Development Officer. Catellus Development Corporation employed him before he joined AMICO.

Thomas M. Herzog is the Chief Financial Officer. He took care of GE Real Estate and prior to this he was with Deloitte & Touche LLP.

AMICO competes with Simon Property Group, Inc, Prologis, Vornado Realty Trust, Public Storage, Inc to name a few. AMICO's property operations team achieved solid results with same-store occupancy of 94.8%, year-over-year revenue growth of 4.2%. Comparing Same Store results in the third quarter 2007 with the third quarter 2006, total revenue increased $10.5 million, or 4.2%. The increase in revenue was primarily generated by higher average rent, up $27 per unit, or 3.2%, from $850 per unit to $877 per unit and higher occupancy. At quarter-end, AIMCO's corporate debt balance was $550.0 million, up from $540.0 million at year-end 2006, and carried a weighted average interest rate of 6.93%. The balance on AIMCO's revolving credit facility was $75.0 million and total dry powder at quarter end was more than $600.0 million. Net loss for the quarter of $2.3 million decreased $22.6 million from net loss of $24.9 million in the third quarter 2006. Higher results in the third quarter 2007 resulted from various items including: a change in accounting for tax credit arrangements in the third quarter 2006, which resulted in a non-recurring charge to earnings of $14.4 million, higher property net operating income of $3.9 million, and lower general and administrative expenses of $3.1 million.

Apartment landlords are facing the risk of a recession, a glut of residential homes coming back on the market as rentals, and poor performance during the last economic pullback. When the mortgage market begins to normalize, these REIT's have competition from bargain-priced homes that will attract renters to once again make comeback into homeownership. Since mortgages are difficult to obtain due to changes in underwriting rules sale of new apartments will be slow. The diluted EPS is $ 0.59, but the trailing twelve month P/E is 64 times. I prefer to stay away from this stock until something concrete develops in the real estate market.