Apartment Investment and Management Company (Aimco) — Q1 2019 Form 10-Q
Reporting period: Three months ended March 31, 2019. Aimco is a REIT operating through AIMCO Properties, L.P.; the combined filing presents both entities. At quarter-end, Aimco held interests in 128 apartment communities with 34,349 homes.
Financial performance
| Metric | Q1 2019 | Q1 2018 |
|---|---|---|
| Total revenue | $230.2 million | $247.7 million |
| Net income attributable to Aimco common stockholders | $271.6 million; $1.88 per diluted share | $81.5 million; $0.54 per diluted share |
| Net cash from operating activities | $81.6 million | $81.3 million |
| Net cash provided by (used in) investing activities | $252.4 million | ($171.6 million) |
| Net cash used in financing activities | ($208.2 million) | $86.8 million |
| Total indebtedness at period-end | $3.93 billion | $4.08 billion at December 31, 2018 |
Q1 net income included a $291.5 million gain on property dispositions. The large GAAP earnings increase therefore primarily reflects asset-sale gains, rather than recurring operations. Revenue fell 7.1% year over year, principally reflecting the 2018 sale of the Asset Management business; real estate operating performance improved. Interest expense declined $6.4 million, or 13.4%, to $41.4 million.
Same Store property NOI increased 5.5% to $128.6 million: revenue rose 4.2% and expenses rose 0.8%. Average daily occupancy was 97.0%, up 90 basis points; renewal and new-lease rent changes were 5.2% and 0.8%, respectively, for a weighted average increase of 2.9%. Same Store NOI margin was 73.2%, up 90 basis points.
Management’s non-GAAP measures showed diluted Pro forma FFO per share of $0.61, versus $0.59, and AFFO per share of $0.55, versus $0.54. These measures are not GAAP earnings and reflect management-defined adjustments.
Liquidity, debt and capital
- Cash and cash equivalents were $162.3 million; restricted cash was $36.1 million. Available revolver capacity was $723.1 million, net of letters of credit.
- Debt was primarily non-recourse property debt. About 93.3% of property-level debt was fixed-rate; its weighted-average maturity was 7.8 years. The filing reports a 7.2x ratio of proportionate debt and preferred equity to Adjusted EBITDAre, against a target below 7.0x. Adjusted EBITDAre coverage of interest and preferred dividends was 3.1x, above the 2.5x target.
- Unencumbered communities had an estimated fair value of $2.5 billion at quarter-end. In April, Aimco repaid $167.5 million of property debt, increasing the estimated unencumbered pool to $3.3 billion. The company reported BBB- stable ratings from two agencies.
- Operating cash flow was nearly unchanged year over year. Investing cash flow benefited from $342.1 million of disposition proceeds; capital expenditures were $85.5 million. Financing outflows included debt repayments, revolver paydown, share repurchases and shareholder distributions.
Material changes, outlook and risks
- Aimco sold seven communities comprising 2,206 homes for $408.6 million gross proceeds and $340.2 million net proceeds; the sales generated the $291.5 million GAAP gain. No communities were classified as held for sale at March 31.
- A special dividend valued at $2.02 per share was distributed in March, consisting of cash and stock, alongside a reverse split intended to neutralize the effect on shares outstanding. Aimco declared a subsequent quarterly dividend of $0.39 per share, payable May 31, 2019.
- Redevelopment and development investment was $45.1 million in Q1. Total estimated net investment in active projects was $326.6 million, of which $162.0 million had been funded; projected weighted-average NOI yield was 5.9% assuming untrended rents. Management expects $80–$100 million of capital enhancements for 2019 and expects total capital replacement spending to decline year over year.
- Management began redevelopment of 707 Leahy, a $23.7 million project, and estimated an approximately 9% Free Cash Flow internal rate of return. Project outcomes, costs and timing remain subject to execution and market conditions.
- In April, Aimco closed the $65.0 million acquisition of One Ardmore. It also called its Class A Perpetual Preferred Stock for redemption on May 16, 2019. Management stated the near-term plan did not contemplate an equity issuance.
- Key risks include apartment-market supply, rents and occupancy; operating-cost growth; financing availability, rates and covenant compliance; development and redevelopment execution; insurance and casualty losses; REIT qualification; and environmental and legal matters. The filing describes continuing environmental matters involving former dry-cleaning sites in Indiana and Lake Tahoe, but management did not expect a material adverse financial effect. Capital commitments totaled approximately $184.7 million, mostly expected within 12 months.
The company cautions that quarterly results are not necessarily indicative of full-year results. It reported no material changes to the risk factors in its 2018 Form 10-K and expected to remain in compliance with its revolver’s 1.40x fixed-charge coverage covenant; the reported trailing-twelve-month ratio was 2.05x.
Important facts for investors to verify
- How much of reported earnings growth came from realized disposition gains versus recurring property operations, and the ongoing impact of selling seven communities.
- Whether Same Store rent, occupancy and NOI trends persist, and whether controllable expense reductions offset taxes and other cost pressures.
- Project spending, completion dates, lease-up and realized returns against redevelopment and development estimates.
- Post-April debt, liquidity and preferred-stock redemption effects, including leverage against management’s stated targets.
- Cash needs and coverage for dividends, capital commitments and environmental matters; review the company’s non-GAAP definitions and reconciliations when comparing FFO, AFFO and leverage metrics.