Apartment Investment and Management Company, or Aimco (AIV) as the real estate investment trust (REIT) is popularly known, has recently amended its revolving credit facility to strengthen its liquidity. The borrowings under the new credit facility will bear an interest rate of LIBOR +1.5%, effectively reducing the interest rate under the facility by 0.5%.
The new facility increases its borrowing capacity from $180 million to $300 million, and extends the maturity of the same from May 2012 to May 2014 (including a one-year extension option). Aimco has historically maintained a conservative balance sheet and pursued a strategy of financial flexibility that enables the payment of steady dividend to its shareholders. The new credit facility also optimizes the borrowing capacity of the company in accordance with its current capital plan.
The debt service coverage and fixed charge coverage covenants of Aimco would remain unchanged at 1.40x and 1.20x, respectively, through the fourth quarter of 2011. However, from first quarter 2012, the debt service coverage and fixed charge coverage covenants would increase to 1.50x and 1.30x, respectively.
Aimco is one of the largest owners and operators of multifamily apartments in the U.S., with a diversified portfolio of conventional, affordable and student housing communities. The company has a strong portfolio of Class ‘B’ and Class ‘C’ properties primarily catering to the middle-income market. In addition, Aimco rents and leases its apartment units to a diverse base of residents. This provides a strong upside potential for the company.
Aimco is also selling older assets to reposition its portfolio and focus on fewer markets with higher growth potential. Furthermore, the company is focusing on redevelopments to mitigate operating risk in a challenging macroeconomic environment. We maintain our Neutral rating on Aimco, which currently has a Zacks #2 Rank that translates into a short-term Buy recommendation, and indicates that the stock is expected to outperform the overall U.S. equity market for the next 1-3 months.
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