DENVER--(BUSINESS WIRE)--Apartment Investment and Management Company (“Aimco”) (NYSE: AIV) announced today first quarter 2017 results.
Chairman and Chief Executive Officer Terry Considine comments: “Aimco had a solid first quarter and we are on track to meet our 2017 plan. Operating results were on target with strong renewal lease rates and lower costs offsetting somewhat softer than expected new lease rates in Denver and at Aimco’s higher price point communities in Los Angeles. Average monthly revenue per apartment home was nearly $2,000, up 7% compared to first quarter 2016. Redevelopment activities are on plan and we have completed the lease-up of our One Canal community in Boston. The Aimco balance sheet remains strong with abundant liquidity and limited exposure to capital markets. For the fifth consecutive year, Aimco was recognized by The Denver Post as one of Colorado’s Top Workplaces.”
Chief Financial Officer Paul Beldin adds: “First quarter AFFO of $0.51 per share was $0.01 per share ahead of the midpoint of our guidance range. Our full year 2017 guidance is unchanged and we are projecting second quarter AFFO to be in a range from $0.46 to $0.50 per share. Additionally, we have revised the presentation of our Supplemental Schedules to help readers better understand the distinction between our Real Estate portfolio and our Asset Management business, more easily calculate certain Aimco proportionate results, and to include information that will help users calculate the value of communities we classify as Redevelopment and Development.”
Financial Results: First Quarter FFO Up 2%; AFFO Flat
|(all items per common share - diluted)||2017||2016||Variance|
|Funds From Operations (FFO)/ Pro forma Funds From Operations (Pro forma FFO)||$||0.58||$||0.57||2||%|
|Deduct Aimco share of Capital Replacements||$||(0.07||)||$||(0.06||)||17||%|
|Adjusted Funds From Operations (AFFO)||$||0.51||$||0.51||—||%|
Net Income (per diluted common share) - Year-over-year, first quarter net income decreased primarily due to lower gains on the sale of apartment communities and higher depreciation from developments and redevelopments placed into service during 2016 and from Aimco’s 2016 acquisition of Indigo.
Pro forma FFO (per diluted common share) - Year-over-year, first quarter Pro forma FFO increased 2% as a result of Same Store Property Net Operating Income growth and increased contribution from development, redevelopment and acquisition communities, partially offset by the loss of income from apartment communities sold in 2016.
Adjusted Funds from Operations (per diluted common share) - The increase in Pro forma FFO was partially offset by an increase in capital replacements primarily due to the timing of spending in 2016, resulting in no change in AFFO per share as compared to 2016.
Operating Results: First Quarter Same Store NOI Up 3.7%
|Average Rent Per Apartment Home||$||1,705||$||1,639||4.0||%||$||1,699||0.4||%|
|Other Income Per Apartment Home||172||171||0.6||%||167||3.0||%|
|Average Revenue Per Apartment Home||$||1,877||$||1,810||3.7||%||$||1,866||0.6||%|
|Average Daily Occupancy||95.8||%||96.1||%||(0.3||)%||96.0||%||(0.2||)%|
|$ in Millions|
Same Store Rental Rates - Aimco measures changes in rental rates by comparing, on a lease-by-lease basis, the rate on a newly executed lease to the rate on the expiring lease for that same apartment. Newly executed leases are classified either as a new lease, where a vacant apartment is leased to a new customer, or as a renewal. The table below details changes in new and renewal lease rates for Aimco’s first quarter 2017 Same Store portfolio.
|Renewal rent increases||5.1||%||5.5||%||4.9||%||5.1||%|
|New lease rent increases||(0.3||)%||(1.6||)%||(1.0||)%||(1.0||)%|
|Weighted average rent increases||2.3||%||1.7||%||1.7||%||1.9||%|
During first quarter, the pace of Aimco’s rent growth slowed in some locations due to competitive new supply. Aimco’s diversification by both geography and price point mitigates, but does not eliminate, competition from new supply. Recent data shows that approximately one third of Aimco’s portfolio, represented by “A” price point apartment communities, is located in submarkets with more than 2% supply growth projected over the next year.
Redevelopment: Progressing as Planned
During first quarter, Aimco invested $41 million in redevelopment and development, $18 million of which related to the ongoing redevelopment of Park Towne Place and The Sterling, mixed-use residential communities located in Center City, Philadelphia. Aimco is redeveloping the four towers at Park Towne Place, one at a time, and by March 31, 2017, had completed the lease-up of the South Tower and had leased 82% of the homes in the East Tower. Rental rates are consistent with underwriting. Redevelopment of the North Tower is underway and on schedule. During first quarter, Aimco began pre-leasing apartment homes in this third tower and expects initial occupancies during the second quarter.
Aimco completed redevelopment of the 534 apartment homes at The Sterling during first quarter. At March 31, 2017, 86% of the homes were leased. Aimco expects to complete the redevelopment of non-residential areas in second quarter. Results of the redevelopment are consistent with underwriting.
During first quarter, Aimco commenced a phased redevelopment of Calhoun Beach Club, a mixed-use residential community located in Minneapolis. The redevelopment, in which we anticipate investing $28.7 million over the next few years, includes the planned redevelopment of 275 apartment homes as well as common areas.
Lease-Up Communities: One Canal 97% Leased
At One Canal in Boston, 97% of the apartment homes were leased at March 31, 2017, at rental rates consistent with underwriting. Leasing remains well ahead of schedule at Indigo in Redwood City, California, where 86% of the apartment homes were leased at March 31, 2017.
Portfolio Management: Revenue Per Apartment Home Up 7% to $1,996
Aimco portfolio strategy seeks predictable rent growth from a portfolio of apartment communities that is diversified across “A,” “B” and “C+” price points, averaging “B/B+” in quality, and that is also diversified across the largest markets in the U.S. Please refer to the Glossary for a description of Aimco Portfolio Quality Ratings.
As part of its portfolio strategy, Aimco seeks to sell each year up to 10% of the apartment communities in its portfolio and to reinvest the proceeds from such sales in prospects with higher projected free cash flow returns than expected from the communities sold, such as property upgrades, redevelopment of communities in its current portfolio, occasional development of new communities, and selective acquisitions of apartment communities. Through this disciplined approach to capital recycling, Aimco has significantly increased the quality and expected growth rate of its portfolio.
|Revenue per Apartment Home||$||1,996||$||1,860||7||%|
|Portfolio Average Rents as a Percentage of Local Market Average Rents||112||%||112||%||—||%|
|Percentage A (1Q 2017 Revenue per Apartment Home $2,601)||51||%||48||%||3||%|
|Percentage B (1Q 2017 Revenue per Apartment Home $1,741)||35||%||35||%||—||%|
|Percentage C+ (1Q 2017 Revenue per Apartment Home $1,676)||14||%||17||%||(3||)%|
|Free Cash Flow Margin||63||%||62||%||1||%|
Quarter-End Real Estate Portfolio - Aimco’s Real Estate portfolio average monthly revenue per apartment home was $1,996 for first quarter 2017, a 7% increase compared to first quarter 2016. Year-over-year growth in Same Store average rent and other income per apartment home of 4.0% and 0.6%, respectively, resulted in monthly revenue per apartment home growth of 3.7%. The sale of apartment communities in 2016 with average monthly revenues per apartment home substantially lower than those of the retained portfolio and reinvestment of the sales proceeds through redevelopment, development and acquisition of apartment communities with higher rents and better free cash flow return prospects also contributed to the growth in average revenue per apartment home.
Balance Sheet and Liquidity
Components of Aimco Leverage
Aimco leverage includes the Aimco share of long-term, non-recourse property debt encumbering apartment communities in the Real Estate portfolio, outstanding borrowings on the Aimco revolving credit facility, and outstanding preferred equity.
In the calculation of its leverage, Aimco excludes non-recourse property debt obligations of consolidated partnerships served by its Asset Management business. Through the Asset Management business, Aimco is a service provider to various partnerships owning real estate where Aimco is compensated by fees paid from the operation and liquidation of the partnerships. The non-recourse property debt obligations of the partnerships are not Aimco’s obligations and have limited effect on the amount of fees and other payments Aimco expects to receive. Please refer to Supplemental Schedule 5(a) for the presentation of Aimco leverage and a reconciliation of Aimco proportionate leverage to Aimco’s consolidated leverage.
|AS OF MARCH 31, 2017|
|$ in Millions||Amount||% of Total||
|Aimco share of long-term, non-recourse property debt*||$||3,537||92||%||7.4|
|Outstanding borrowings on revolving credit facility||70||2||%||4.8|
|*||The partnerships for whom Aimco provides asset management and other services own real estate encumbered by $235 million in non-recourse property debt, which is not considered Aimco’s leverage.|
|**||Aimco’s Preferred Equity is perpetual in nature; however, for illustrative purposes, Aimco has computed the weighted average maturity of its total leverage assuming a 40-year maturity on its Preferred Equity.|
Non-recourse Property Debt - During the first quarter, Aimco closed two fixed-rate, non-recourse, amortizing, property loans totaling $65 million with 10-year terms and a weighted average interest rate of 3.71%, representing a weighted average spread of 134 basis points over the corresponding Treasury rate at the time of pricing.
Aimco target leverage ratios are Debt and Preferred Equity to EBITDA below 7.0x and EBITDA to Interest Expense and Preferred Dividends greater than 2.5x. Aimco also focuses on the ratios of Debt to EBITDA and EBITDA to Adjusted Interest Expense. Please see the Glossary for definitions of these metrics and, where appropriate, reconciliations to GAAP.
|Debt to EBITDA||6.3x||6.2x|
|Debt and Preferred Equity to EBITDA||6.7x||6.7x|
|EBITDA to Adjusted Interest Expense||3.4x||3.4x|
|EBITDA to Adjusted Interest Expense and Preferred Dividends||3.1x||3.0x|
Aimco’s leverage excludes non-recourse property debt obligations of consolidated partnerships for whom Aimco provides asset management and other services as explained above. Were Aimco to include these non-recourse debt obligations in its leverage, Aimco’s Debt to EBITDA ratios would have been 6.5x and 6.4x and Aimco’s Debt and Preferred Equity to EBITDA ratios would have been 6.9x and 6.8x for the trailing twelve month periods ended March 31, 2017 and 2016, respectively. Similarly, were Aimco to include in its Adjusted Interest Expense, the amounts of interest on such non-recourse debt, Aimco’s EBITDA to Adjusted Interest Expense ratios would have been 3.2x and Aimco’s EBITDA to Adjusted Interest Expense and Preferred Dividends would have been 2.9x for the trailing twelve month periods ended March 31, 2017 and 2016. Further information about Aimco’s leverage may be found in Supplemental Schedules 5(a) and 5(b) and in the Glossary.
Future improvement in leverage metrics is expected from earnings growth, especially as apartment communities now being redeveloped are completed, as operations for One Canal and Indigo reach stabilization, and from regularly scheduled property debt amortization funded from retained earnings. Aimco expects its Debt to EBITDA and Debt and Preferred Equity to EBITDA ratios to decrease by year end to approximately 6.0x and 6.4x, respectively.
Aimco’s only recourse debt at March 31, 2017 was its revolving credit facility, which Aimco uses for working capital and other short-term purposes and to secure letters of credit.
At March 31, 2017, Aimco had outstanding borrowings on its revolving credit facility of $70 million and available capacity of $519 million, after consideration of $11 million of letters of credit backed by the facility. Aimco also held cash and restricted cash on hand of $88 million.
Aimco also held unencumbered apartment communities with an estimated fair market value of approximately $1.6 billion.
Dividend - As previously announced, the Aimco Board of Directors declared a quarterly cash dividend of $0.36 per share of Class A Common Stock for the quarter ended March 31, 2017. On an annualized basis, this represents an increase of 9% compared to the dividends paid during 2016. This dividend is payable on May 31, 2017, to stockholders of record on May 19, 2017.
|($ Amounts represent Aimco Share)||
|Net income per share||$0.06 to $0.10|
|Pro forma FFO per share||$0.56 to $0.60|
|AFFO per share||$0.46 to $0.50|
Earnings Conference Call Information
|Live Conference Call:||Conference Call Replay:|
|Friday, April 28, 2017 at 1:00 p.m. ET||Replay available until July 28, 2017|
|Domestic Dial-In Number: 1-888-317-6003||Domestic Dial-In Number: 1-877-344-7529|
|International Dial-In Number: 1-412-317-6061||International Dial-In Number: 1-412-317-0088|
|Passcode: 8070984||Passcode: 10104182|
Live webcast and replay: www.aimco.com/investors
The full text of this Earnings Release and the Supplemental Information referenced in this release are available on Aimco’s website at www.aimco.com/investors.
Glossary & Reconciliations of Non-GAAP Financial and Operating Measures
Financial and operating measures found in this Earnings Release and the Supplemental Information include certain financial measures used by Aimco management that are measures not defined under accounting principles generally accepted in the United States (“GAAP”). These measures are defined in the Glossary in the Supplemental Information and reconciled to the most comparable GAAP measures.
Aimco is a real estate investment trust focused on the ownership and management of quality apartment communities located in select markets in the United States. Aimco is one of the country’s largest owners and operators of apartments, with ownership interests in 188 communities in 22 states and the District of Columbia. Aimco common shares are traded on the New York Stock Exchange under the ticker symbol AIV, and are included in the S&P 500. For more information about Aimco, please visit our website at www.aimco.com.
This Earnings Release and Supplemental Information contain forward-looking statements within the meaning of the federal securities laws, including, without limitation, statements regarding projected results and specifically forecasts of second quarter results, including but not limited to: Pro forma FFO and selected components thereof; AFFO; Aimco redevelopment and development investments and projected yield on such investments, timelines and Net Operating Income contribution; expectations regarding sales of Aimco apartment communities and the use of proceeds thereof; and Aimco liquidity and leverage metrics.
These forward-looking statements are based on management’s judgment as of this date, which is subject to risks and uncertainties. Risks and uncertainties include, but are not limited to: Aimco’s ability to maintain current or meet projected occupancy, rental rate and property operating results; the effect of acquisitions, dispositions, redevelopments and developments; Aimco’s ability to meet budgeted costs and timelines, and achieve budgeted rental rates related to Aimco redevelopments and developments; and Aimco’s ability to comply with debt covenants, including financial coverage ratios.
Actual results may differ materially from those described in these forward-looking statements and, in addition, will be affected by a variety of risks and factors, some of which are beyond Aimco’s control, including, without limitation:
- Real estate and operating risks, including fluctuations in real estate values and the general economic climate in the markets in which Aimco operates and competition for residents in such markets; national and local economic conditions, including the pace of job growth and the level of unemployment; the amount, location and quality of competitive new housing supply; the timing of acquisitions, dispositions, redevelopments and developments; and changes in operating costs, including energy costs;
- Financing risks, including the availability and cost of capital markets’ financing; the risk that cash flows from operations may be insufficient to meet required payments of principal and interest; and the risk that earnings may not be sufficient to maintain compliance with debt covenants;
- Insurance risks, including the cost of insurance, and natural disasters and severe weather such as hurricanes; and
- Legal and regulatory risks, including costs associated with prosecuting or defending claims and any adverse outcomes; the terms of governmental regulations that affect Aimco and interpretations of those regulations; and possible environmental liabilities, including costs, fines or penalties that may be incurred due to necessary remediation of contamination of apartment communities presently or previously owned by Aimco.
In addition, Aimco’s current and continuing qualification as a real estate investment trust involves the application of highly technical and complex provisions of the Internal Revenue Code and depends on Aimco’s ability to meet the various requirements imposed by the Internal Revenue Code, through actual operating results, distribution levels and diversity of stock ownership.
Readers should carefully review Aimco’s financial statements and the notes thereto, as well as the section entitled “Risk Factors” in Item 1A of Aimco’s Annual Report on Form 10-K for the year ended December 31, 2016, and the other documents Aimco files from time to time with the Securities and Exchange Commission.
These forward-looking statements reflect management’s judgment as of this date, and Aimco assumes no obligation to revise or update them to reflect future events or circumstances. This press release does not constitute an offer of securities for sale.
|Consolidated Statements of Operations|
|(in thousands, except per share data) (unaudited)|
|Three Months Ended|
|Rental and other property revenues attributable to Real Estate||$||225,228||$||222,573|
Rental and other property revenues of partnerships served by Asset Management business
|Tax credit and transaction revenues||2,691||4,758|
|Property operating expenses attributable to Real Estate||79,626||79,431|
Property operating expenses of partnerships served by Asset Management business
|Investment management expenses||784||975|
|Depreciation and amortization||87,168||79,828|
|General and administrative expenses||10,682||11,935|
|Other expenses, net||1,738||1,570|
|Total operating expenses||188,692||182,705|
|Income before income taxes and gain on dispositions||12,564||17,812|
|Income tax benefit||4,985||5,886|
|Income before gain on dispositions||17,549||23,698|
|Gain (loss) on dispositions of real estate, inclusive of tax||(394||)||6,187|
|Net income attributable to noncontrolling interests in consolidated real estate partnerships||(951||)||(930||)|
|Net income attributable to preferred noncontrolling interests in Aimco OP||(1,949||)||(1,726||)|
|Net income attributable to common noncontrolling interests in Aimco OP||(557||)||(1,172||)|
|Net income attributable to noncontrolling interests||(3,457||)||(3,828||)|
|Net income attributable to Aimco||13,698||26,057|
|Net income attributable to Aimco preferred stockholders||(2,148||)||(2,757||)|
|Net income attributable to participating securities||(59||)||(77||)|
|Net income attributable to Aimco common stockholders||$||11,491||$||23,223|
|Net income attributable to Aimco per common share – basic and diluted||$||0.07||$||0.15|
|Weighted average common shares outstanding – basic||156,259||155,791|
|Weighted average common shares outstanding – diluted||156,754||156,117|
|Consolidated Balance Sheets|
|(in thousands) (unaudited)|
|March 31, 2017||December 31, 2016|
|Net real estate||5,509,622||5,509,760|
|Cash and cash equivalents||45,876||45,821|
|Assets of partnerships served by Asset Management business:|
|Real estate, net||235,549||245,648|
|Cash and cash equivalents||19,198||15,423|
|Liabilities and Equity|
|Non-recourse property debt secured by Aimco Real Estate communities||$||3,688,258||$||3,648,623|
|Debt issue costs||(17,804||)||(18,347||)|
|Non-recourse property debt, net||3,670,454||3,630,276|
|Revolving credit facility borrowings||69,700||17,930|
|Accrued liabilities and other||202,929||223,137|
|Liabilities of partnerships served by Asset Management business:|
|Non-recourse property debt, net||230,882||236,426|
|Accrued liabilities and other||58,624||58,430|
|Deferred income ||16,868||18,452|
|Preferred noncontrolling interests in Aimco OP||101,606||103,201|
|Perpetual preferred stock||125,000||125,000|
|Class A Common Stock||1,570||1,569|
|Additional paid-in capital||4,051,645||4,051,722|
|Accumulated other comprehensive (loss) income||(118||)||1,011|
|Distributions in excess of earnings||(2,489,961||)||(2,385,399||)|
|Total Aimco equity||1,688,136||1,793,903|
|Noncontrolling interests in consolidated real estate partnerships||153,242||151,121|
|Common noncontrolling interests in Aimco OP||(5,001||)||(58||)|
|Total liabilities and equity||$||6,187,440||$||6,232,818|
|||Deferred income primarily represents cash received by Aimco and other amounts required by GAAP to be recognized in earnings in future periods as Aimco performs certain responsibilities under tax credit agreements or as other events occur. Please refer to the Glossary for information about the Asset Management business and a projection of the timing of income recognition related to the tax credit arrangements.|