NXRT - Aimco: Riding The Brightline To Higher Rents

2023-05-31 15:05:23 ET

Summary

• The Brightline inter-city rail route in South Florida has led to increased property prices and rental rates near its stations.
• Apartment Investment and Management Company (Aimco) has the highest exposure to the Miami market, with over 6,000 units in Miami and Fort Lauderdale.
• Aimco is a buy due to its focus on markets and demographics where it can create value, with its South Florida development expected to create rising NOI and realized capital appreciation.

Foreword : The Brightline inter-city rail route eases the pressures of South Florida's huge population growth. Prices for homes proximal to rail stations are rising faster. Rents for apartments near the stations are rising faster, too. We identify the landlords in each sub-market and reveal the standout winner in the group.

Brightline is an inter-city rail route that runs from Miami to West Palm Beach; it is the only privately owned and operated intercity passenger railroad in the United States. Early last week, the Wall Street Journal ran an article describing how Florida's booming property markets were booming even harder in submarkets proximal to Brightline's rail stations. Home prices in those rail station zip codes appreciated twice as fast as the broader market. As multifamily REIT investors, we were intrigued to learn that the same effect had spilled over into apartment rents. It was time to visit Portfolio Income Solutions' Property Directory to find out which REITs owned multifamily in those rail station sub-markets.

The Brightline Route

Florida East Coast Industries, a unit of Fortress Investment Group, opened the route from Miami to West Palm Beach in 2018 and will this year expand the line to its sixth station at Orlando International Airport. Let's see who owns the apartments.

As measured by unit count, Apartment Investment and Management Company, or Aimco ( AIV ) has dominant market share in Miami. BREIT and Starwood RE Income Trust are publicly registered but non-exchange traded REITs, so they are not really a potential option. Apartment Income REIT (AIRC), formerly part of AIV, has the next highest Miami exposure for exchange traded issues.

Publicly traded REITs have not been very active in the city of Aventura, but Camden Property Trust ( CPT ) has a meaningful presence with 379 apartment units. CPT also has 400 units in Miami. AIRC moves along the rail line with 180 units in Aventura.

Aimco currently dominates the Fort Lauderdale market, but Camden and Apartment Income REIT have a Fort Lauderdale foothold along the line, as well.

AvalonBay ( AVB ) is the top owner in Mouse Mouth (Boca Raton), and this complements its Brightline properties in Miami and Fort Lauderdale. CPT and the ever-present Starwood are also at this stop.

NexPoint Residential ( NXRT ) makes its first appearance along the line. NXRT is joined by Starwood, AVB, and our Canadian neighbors, the Morguard Companies ([[MGRUF]], [[MNARF]]).

With Disney World as the epicenter of Florida tourism, REITs have long appreciated the sustaining demand here for workforce housing. Camden has a big presence in Orlando, with more than 3,500 units. CPT is closely followed by Mid-America Apartments (MAA), UDR, Inc. (UDR), Independence Realty (IRT), NXRT, and Starwood.

Last Stop (For Now)

Brightline currently runs from Miami to Orlando, but a route extension to Tampa is planned. REITs are already deep in the Tampa market; light rail will be a welcome, value-enhancing amenity.

So Who is All Aboard?

Each of the REITs identified above is enjoying the benefits of the new commuter rail services in South Florida, but most of them have large, geographically far-flung portfolios which won't broadly benefit from Brightline's presence. The exception is Aimco. With a total apartment count presently standing at just over 13,300 units, Aimco's 6,092 units in Miami and Fort Lauderdale are taking full, strategic advantage of realizing the train's rent raising capacity. I say strategic because Aimco is just getting started.

As disclosed in their 1Q earnings supplement, Aimco has more than 5,000 new Miami and Fort Lauderdale apartment units in their development pipeline over the next five years. Over the last few quarters, Aimco management has commented that new developments have leased up above underwritten projections. They are obviously anticipating more of the same.

Is Aimco a Buy?

In recent weeks, Aimco has garnered some possibly unwelcome press through overtures from activist investor Land & Buildings. Land & Buildings contends that AIV trades at a consistently high discount to its own estimate of NAV. AIV estimates their NAV exceeds $12/share. Land & Buildings advocates for a sale of the company that would let stakeholders realize value. I think I need to call Jonathan Litt and ask him to get busy in coordinating a sale of all of my multifamily REIT holdings; They are too cheap, too!

Currently trading at ~$8.00, AIV's market discount approximates the discount of the whole of the apartment REIT sector. Interest rates have risen at an unprecedented pace. The property sales markets have stalled. Proposing selling a company for full valuation in the absence of a huge population of buyers is a non-starter and no more than noise. I own shares in 40 companies I feel the market undervalues; in this environment, it would be pathetic for me to whine and ask for more.

Aimco is a buy because it is more than a landlord. Aimco is focused on markets and demographics within which it can create value. Its concentration in South Florida development will create rising NOI and realized capital appreciation. Aimco does this systematically. Selling the company at NAV, if it could be accomplished, stops the progress. I want more than NAV; let them run their business. Aimco is a buy.

APPENDIX:

Transportation Infrastructure is a Real Estate Game Changer

I have always been a fan of mass transit. Commuter rail systems reduce road congestion. They are environmentally cleaner. Train riders save time and money and can increase personal productivity as they read emails and news that they couldn't address if they were driving themselves to work.

The emergence of Brightline inter-city rail is making South Florida a better place to live and invest in real estate. We are excited to see what benefits come from the planned route connecting Southern California to Las Vegas.

For further details see: