Current (April 2008) mortgage industry practices make it significantly more difficult for prospective homeowners to obtain financing. Many will be forced to continue in rental homes/apartments. Rental growth for AIV has been strong and should continue.
An apartment REIT worthy of consideration that appears to be given up for dead by most investors is Apartment Investment Company or AIMCO (AIV). Depending on which financial website you use, you might see the yield ranging from as high as 109.2% (MarketWatch) to 40.9% (Yahoo Finance). The actual cash yield of AIMCO is 17.92% based on management's decision to drop the dividend payout to $1 from $2.40/share. The number reported by Marketwatch.com is probably higher because AIV also declared a stock dividend due to profits generated from asset sales. The REIT has dropped a precipitous 91.33% from its February 2007 peak of $64.35 due to concerns about the highly leveraged nature of the company and recent changes in management leading to the resignation of its CFO. Trading below book value and at a discount to its peers AvalonBay, Equity Residential (EQR) and Essex Property Trust (ESS), the risk/reward trade off looks appealing for AIMCO. I am probably not the only one feeling that way as a director of the company purchased 150,000 shares for $922,550 on the open market last week. There have also been a series of open market insider purchases at Essex Property Trust in the last two weeks.
Based on the valuation of AvalonBay when compared to peers as displayed in the numbers section below, I am going to commit roughly $5,000 of the new special reports portfolio to AvalonBay and will also make the purchase for my personal portfolio. As a more risky play, I am also going to initiate a smaller position to the tune of $2,500 in AIMCO. The actual number of shares and dollar amounts will be based on the closing price as of February 23, 2009.