Apartment Investment and Management Company (Aimco) — Q3 2014 Form 10-Q
Business context and reporting period
Quarter ended September 30, 2014; comparisons are with Q3 and the first nine months of 2013. Aimco is a REIT that owns and manages conventional and affordable apartment communities through AIMCO Properties, L.P. At quarter-end, it reported interests in 143 conventional communities with 43,306 homes and 61 affordable communities with 9,142 homes. Aimco owned 95.0% of the operating partnership’s common units.
Financial and operating performance
| Metric | Q3 2014 | First nine months 2014 |
|---|---|---|
| Total revenue | $246.8 million, up 1.2% year over year | $742.2 million, up 2.6% |
| Operating income | $67.5 million, versus $64.5 million | $198.5 million, versus $175.9 million |
| Net income | $144.5 million, versus $79.4 million | $310.7 million, versus $89.2 million |
| Net income attributable to Aimco common stockholders | $124.7 million, versus $66.3 million | $263.9 million, versus $81.5 million |
| Diluted earnings per Aimco common share | $0.85, versus $0.46 | $1.81, versus $0.56 |
| Cash from operating activities | Not provided as a quarterly figure | $233.4 million, versus $248.1 million |
Reported net income included after-tax real estate disposition gains of $126.3 million in Q3 and $262.5 million year to date. Excluding those gains, income from continuing operations was $18.2 million for Q3 and $48.2 million year to date. Aimco’s diluted FFO per share increased 2% in Q3 and 4% year to date; diluted AFFO per share increased 11% and 15%, respectively. These are non-GAAP measures.
Conventional same-store property NOI increased 4.4% in Q3 and 5.2% year to date; affordable property NOI increased 4.3% and 0.6%, respectively. Conventional same-store occupancy averaged 95.7% in Q3, compared with 95.5% a year earlier. Q3 lease rates were 6.0% above expiring rates overall for combined new and renewal leases. For the retained conventional portfolio, Q3 average revenue per effective home was $1,649; management reported a 65% operating margin and 58% free-cash-flow margin.
Balance sheet, debt and liquidity
At September 30, total assets were $5.94 billion and total indebtedness was $3.96 billion, down from $4.39 billion at December 31, 2013. Cash and cash equivalents were $29.2 million; restricted cash was $166.0 million. The $600 million revolving credit facility had $14.5 million drawn and $543.1 million available after letters of credit. Debt fair value was estimated at $4.2 billion versus $4.0 billion carrying value.
About 93% of leverage was property-level non-recourse debt and 7% perpetual preferred equity. Approximately 97% of property debt was fixed rate; weighted-average maturity was 8.4 years. The company reported $233.4 million of operating cash flow, $115.7 million of net cash provided by investing activities, and $375.6 million of cash used in financing activities for the nine months. Capital expenditures were $277.2 million. Cash declined $26.6 million over the period.
Changes, outlook, risks and unusual items
- Disposition gains drove much of the increase in reported net income. Aimco sold 15 consolidated communities in Q3 and 26 year to date; net proceeds are intended to fund 2014–2015 investments. A 2014 accounting change means routine property-sale results are no longer classified as discontinued operations, limiting direct comparability with 2013 presentation.
- Management emphasized portfolio upgrading, redevelopment, acquisitions and leverage reduction. It reported trailing-twelve-month debt/Adjusted EBITDA of 6.6x and debt plus preferred equity/Adjusted EBITDA of 7.1x. Its stated targets are below 7.0x for the latter measure and above 2.5x for Adjusted EBITDA coverage of interest and preferred dividends; actual coverage was 2.6x.
- Management said it expected covenant compliance over the next 12 months. Credit-facility coverage ratios were above their stated covenant minimums at quarter-end. The facility’s fixed-charge coverage covenant rises to 1.40x in 2015.
- Development and redevelopment commitments totaled approximately $189.6 million, most expected within 12 months. Major projects included Lincoln Place and One Canal Street. A potential special dividend in 2015 was noted because of taxable disposition gains; whether required and its amount depend on future sales and taxable gains, and a portion could be paid in stock.
- Risks include rental demand and local economic conditions, financing availability and cost, interest rates, construction budgets and schedules, property taxes and operating costs, regulation, environmental matters and litigation. Management disclosed EPA discussions concerning contamination near a former property in Indiana but did not expect a material adverse effect. It also reported a $1.4 million impairment on an asset held for sale.
- Aimco issued preferred securities yielding 6.875% and 7.00%, generating approximately $123.8 million net proceeds, primarily used to repay revolving borrowings. Its credit rating outlook was reported as positive by two agencies at BB+ level, not investment grade.
Important facts for investors to verify
- How much recurring earnings and cash generation remain after excluding disposition gains, and how the 2014 discontinued-operations accounting change affects comparisons.
- Whether redevelopment spending, leasing and stabilization meet projected costs, schedules and returns.
- Debt and preferred-equity leverage, covenant headroom, debt maturities and the availability of the revolving facility.
- Future property-sale volume, reinvestment returns and whether taxable gains trigger a 2015 special dividend.
- Potential exposure from the EPA matter, tax-credit compliance obligations and other contingencies.