Land & Buildings Opposes AIMCO Reverse Spin Off

Activist investor Land & Buildings Investment Management has expressed concern over Apartment Investment and Management Co.’s plans to separate into two businesses through a reverse split. Land & Buildings, a significant shareholder in AIMCO, wrote an open letter to the company’s board of directors asserting that the split could potentially destroy value and requests that the company allow shareholders to vote on the proposed transaction.

Earlier this month, Apartment Investment and Management Co. announced plans to split into two publicly traded companies, Apartment Income REIT, or AIR,  and AIMCO. AIR will be a self-managed “pure play” REIT focused on multifamily investment, and it will own 93.5% of the company’s apartment portfolio in Boston, Philadelphia, Washington DC, Denver, the Bay Area, Los Angeles, Miami and San Diego. The portfolio totals 26,599 and will total $10.4 billion in value. AIMCO will continue to develop and redevelop apartment communities.

In its letter to AIMCO’s board of directors, Land & Buildings said, “We believe the proposed transaction will not close the company’s substantial discount to net asset value and is a thinly veiled attempt by management and the Board of Directors to rid themselves of a decades-long poor track record rather than address the fundamental issues challenging the company.”

In addition, Land & Buildings believes that it is unlikely that the new REITs, AIR and AIMCO, will trade anywhere near AIMCO’s current stated net asset value of $58 per share. “What seems clear to us is that the proposed spin-off is not the result of an informed evaluation of all available opportunities to maximize shareholder value, particularly given the extraordinary appetite by private institutional investors for high-quality apartments,” the company stated in its open letter, adding that the company should evaluate all opportunities for the real estate portfolio to avoid shareholder value destruction.

While Land & Buildings has major concerns about the move, Mizuho Securities USA is supportive of the move. In an analysis published the day after the announcement, the consulting firm said that the decision to split into two will create “simplicity, transparency and comparability,” and it will the company attract capital and generate better long-term earnings. Ultimately, this will drive dividend growth for AIR.

Land & Buildings concerns, however, run deep. In addition to concerns about valuation, the company also wrote that the board of directors and management are rushing to close the split without proper evaluation by shareholders. In fact, Land & Buildings believes that AIMCO has positioned the split as a taxable spin-off to evade shareholder comments.

Ultimately, Land & Buildings is requesting that the company give shareholders the opportunity to review and participate in the final decision. “We believe that shareholders deserve the right to express their views on such a material and potentially value-destroying plan,” it said in the letter. “The proposed spin-off is far too important for the future value of AIMCO to be rushed through without shareholder support. We therefore call on the Board to immediately put the proposed spin-off to a shareholder vote.”