Zacks_Analysts' Blog : Aimco Obtains New Credit Facility - Analyst Blog

Apartment Investment and Management Company (AIV), or Aimco as the real estate investment trust (REIT) is popularly known, has recently obtained a new three-year revolving credit facility worth $500 million in its concerted effort to strengthen liquidity and reduce refinancing risk. The new credit facility replaces the existing $300 million credit facility that was scheduled to mature in May 2013.

The renewed credit facility is scheduled to mature in December 2014 and has an accordion feature that would enable Aimco to extend the maturity by two 1-year periods subject to the fulfillment of certain conditions. Wells Fargo Securities, LLC, part of Wells Fargo & Company (WFC); and KeyBanc Capital Markets, the investment banking division of KeyCorp (KEY), were the joint Lead Arrangers and Book Runners for the transaction.

Besides extending the debt maturity and the borrowing capacity of Aimco, the new credit facility reduces the capital outflow with a significantly low interest rate. The new credit facility bears an interest at LIBOR plus 2.75%, while that of the erstwhile credit facility was LIBOR plus 4.25%.

However, both the credit facilities have similar financial covenants, with debt service coverage covenant at 1.40x and fixed charge coverage covenant at 1.20x. Aimco intends to utilize the increased fund-flow from the new credit facility to secure corporate letters of credit and meet its short-term working capital requirements. 

Aimco has historically maintained a conservative balance sheet and pursued a strategy of financial flexibility that enables the payment of steady dividends to its shareholders. The new credit facility also optimizes the borrowing capacity of the company in accordance with its current capital plan.

One of the largest owners and operators of multifamily apartments in the U.S., Aimco has 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.

However, despite attempts to reposition its portfolio in higher growth markets, much of the company’s portfolio still resides in areas where housing is relatively cheap. As the company continues to sell non-core assets and buy in high-growth infill areas, we expect continued earnings dilution.

We maintain our long-term ‘Neutral’ rating on Aimco, which currently has a Zacks #3 Rank that translates into a short-term ‘Hold’ rating, indicating that the stock is expected to perform in line with the overall U.S. equity market for the next 1–3 months.