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Bill Ackman's New REITs

Holly LaFon

Holly LaFon

273 followers
Pershing Square's Bill Ackman (Trades, Portfolio) finally jettisoned the remainder of one of his largest activist positions, the real estate investment trust (REIT) General Growth Properties (GGP) – a four-year project – in the first quarter. Though he ventured into the real estate space before, with holdings in Howard Hughes Corp (HHC) (current position) and Alexander & Baldwin Inc. (ALEX) (sold fourth quarter 2012), in the first quarter as he sold out General Growth, he added more exposure to REITs – known for their high dividend payments – with the acquisition of Apartment Investment & Management Company (AIV) (or Aimco) and Home Properties Inc. (HME).

Aimco was Ackman’s second largest new first quarter position, behind Platform Specialty Products Corp (PAH). With 3,749,393 shares, the position reflects 1.4% of his long portfolio, of 2.57% of the company’s outstanding shares. The first quarter average share price of the company was $29, for a transaction value around $108.7 million – small in comparison to the over half a billion he spent on Platform Specialty.

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Aimco is a Maryland company with two wholly owned subsidiaries, Aimco-GP and Aimco-LP Trust and its business is primarily focused on property operations and portfolio management of only apartment communities. During the first quarter, the company’s revenue per apartment home reached $1,505, providing it a 64% operating margin and 59% free cash flow margin. This marked a 9.9% increase from average revenue in the first three months of 2013, driven by per-home revenue growth for its conventional same store properties and the sale of other communities in 2013 that had lower revenues per home, as the company has been upgrading its portfolio.

The company reported pro forma funds from operations in the first quarter of $0.50, at the high end of its guidance, as a result of strong property operating results and higher than expected transaction income, offset by casualty losses caused by adverse weather. A year prior FFO was $0.48 per share.

The company determines the amount of its dividend payment in large part by the size of its adjusted FFO, which increased 13% year over year to $0.43 per share from $0.38 per share. The indicator is growing at a faster rate than its pro forma FFO because it the company is focusing on higher quality, higher priced apartment communities, decreasing the amount of capital replacements as a percentage of net operating income.

The company paid a first quarter dividend of $0.26 per share, up from $0.24 per share in the previous quarter. The company paid an annual dividend totaling $2.40 per share before the housing crisis from 2006 to 2008, and has increased it to $0.96 per share in 2013. It also has a dividend yield of 3.22%.

Aimco’s five-year dividend history:

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Aimco’s five-year revenue and earnings history:

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At $31.22 per share, Aimco’s stock price Friday is near a five-year high, while its P/S ratio at 4.63 is near a 10-year high. It also has a P/E of 17.1 and P/B of 4.9.

At 0.34% of Ackman’s portfolio, his second REIT holding, Home Properties Inc. (HME), is his smallest long portfolio position. He bought 473,778 shares of the company, which had an average share price of $58 for the quarter.

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The company is also involved in owning, operating and rehabilitating apartment communities, mainly in the Northeast and Mid-Atlantic regions. In the first quarter, the company reported FFO below its expectations at $67.6 million, or $1.00 share, compared to $66.0 million, or $1.05 per share, in the prior-year quarter. The decline was primarily due to severe weather. It paid a dividend of $0.73 per share, up from $0.70 per share in the previous quarter. The company has been increasing its dividend payments annually since 2010.

Home Properties’ five-year dividend history:

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Due to lower-than-expected operating results in the first quarter, Home Properties decreased the midpoint of its prior guidance for FFO to a range of $4.42 to $4.54 for the full year, and to a range of $1.09 to $1.13 for the second quarter.

Home Properties’ five-year revenue and earnings history:

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The company currently pays a dividend yield of 4.7%. Its share price at $61.46 and its P/S at 5.24 are both near 10-year highs. Its P/E ratio at 21.2 is near a 10-year low. It also has a P/B of 2.2.

To see more Bill Ackman (Trades, Portfolio) stocks, go to his Pershing Square portfolio here. Not a Premium Member of GuruFocus? Try it free for 7 days here!


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