Apartment Investment & Management Company (Aimco) — 2012 Form 10-K
Business context and reporting period. This combined filing covers Aimco and its operating partnership, AIMCO Properties, L.P., for the fiscal year ended December 31, 2012. Aimco is a REIT focused on owning, operating and redeveloping U.S. apartment communities. At year-end, its portfolio comprised 265 properties and 67,977 units; conventional operations generated 90% of proportionate property NOI and affordable operations 10%. Aimco owned 94.8% of the operating partnership’s common units.
Financial performance and position
| Metric | 2012 | 2011 |
|---|---|---|
| Total revenue | $1,033.2 million | $981.9 million |
| Operating income | $200.2 million | $153.2 million |
| Continuing-operations income (loss) | $(14.9) million | $(135.6) million |
| Net income (loss) attributable to Aimco common stockholders | $82.1 million; $0.61/share | $(103.2) million; $(0.86)/share |
| Net cash from operating activities | $316.8 million | $258.8 million |
| Capital expenditures | $270.2 million | $200.4 million |
| Cash and cash equivalents at year-end | $84.4 million | $91.1 million |
| Restricted cash at year-end | $146.9 million | $184.0 million |
| Property debt at year-end | $4,688.4 million | $4,772.8 million |
| Total equity | $1,154.9 million | $1,144.7 million |
2012 net income included $210.3 million of income from discontinued operations, including $234.5 million of property-disposition gains before related tax and other effects. Continuing operations remained loss-making. The filing reports FFO of $226.5 million, pro forma FFO of $247.7 million and adjusted FFO of $180.9 million; these are non-GAAP measures and should not be treated as substitutes for GAAP earnings or operating cash flow.
Same-store performance improved: conventional same-store revenue rose 4.7%, expenses 1.6%, and NOI 6.5%. Total same-store revenue grew 4.6%, expenses 1.9%, and NOI 6.2%; total same-store operating margin increased to 64.6% from 63.6%. Conventional same-store average daily occupancy was 95.5%, compared with 95.7% in 2011.
Fourth quarter. 2012 Q4 revenue was $266.0 million, operating income $60.9 million, continuing-operations income $9.1 million, and net income attributable to common stockholders $67.9 million, or $0.47 per share. Q4 discontinued-operations income was $88.2 million.
Debt and liquidity. Approximately 97% of leverage was property-level, non-recourse debt and 3% perpetual preferred equity; approximately 97% of property-level debt was fixed rate. Property debt had a 7.9-year weighted-average maturity and a 5.44% weighted-average interest rate. The $500 million revolving credit facility had no borrowings at year-end, with $454.6 million available after letters of credit. Debt and preferred equity to EBITDA was 7.7x and EBITDA coverage of interest and preferred dividends was 2.4x on an annualized Q4 basis, versus company targets of below 7.0x and above 2.5x, respectively. Credit Agreement coverage ratios exceeded stated covenants at year-end.
Material changes versus prior period
- Revenue increased 5.2%, operating income rose to $200.2 million from $153.2 million, and common-stockholder results turned positive. The earnings improvement was driven in part by higher property operating income, lower interest expense and higher real-estate disposition gains.
- Cash from operations increased $58.0 million. Financing cash outflow increased to $435.1 million, primarily reflecting preferred-equity redemptions, debt payments, distributions and purchases of noncontrolling interests.
- Aimco sold 75 consolidated properties for $719.0 million in aggregate, receiving $289.9 million in net proceeds after debt, transaction costs and other amounts. The company reported a net gain of approximately $223.8 million after related income taxes.
- Two common-stock offerings generated approximately $641.4 million in net proceeds, including option-exercise proceeds; Aimco used proceeds and other cash to redeem $600.9 million of preferred stock. Common shares outstanding increased substantially.
- Conventional redevelopment spending rose to $100.1 million from $33.2 million. Aimco also spent $50.7 million acquiring noncontrolling interests in 11 partnerships and $127.8 million on conventional property acquisitions.
- Aimco completed the sale of its legacy Napico asset-management business, but the transaction was primarily seller-financed. Accounting sale recognition was deferred pending full payment of the notes.
Outlook, commentary and key risks
- Management expected conventional redevelopment investment of approximately $130 million to $160 million in 2013 and anticipated achieving leverage targets by early 2014, earlier than previously expected. It expected similar quarterly common-stock dividends for the remainder of 2013, while retaining board discretion to change them.
- Aimco expected to sell essentially all affordable properties over the next four to five years and reinvest the proceeds in its conventional portfolio. The filing does not provide a quantified full-year 2013 earnings or revenue forecast.
- Debt is a central risk: substantially all owned or controlled properties were encumbered, leverage ratios remained outside stated targets, and the credit facility was due in December 2014, subject to extension conditions. A 100-basis-point increase in 30-day LIBOR was estimated to reduce annual net income attributable to common stockholders by about $1.4 million.
- Contractual obligations included $232.2 million of redevelopment and construction commitments, mostly expected over 24 months. A West Harlem property put option could require approximately $31.0 million to $98.1 million in cash plus assumption of about $118.2 million in property debt if specified performance thresholds are met.
- Other principal exposures include redevelopment cost, permitting, completion and lease-up risks; refinancing and credit-market conditions; apartment competition and local economic weakness; government housing subsidies and program requirements; potential rent regulation; casualty, severe-weather and insurance costs; environmental liabilities; and continued REIT qualification.
- Government-agency rental subsidies were $117.3 million across continuing and discontinued operations in 2012; $97.9 million related to continuing operations. Certain housing-assistance contracts expire in 2013, which management anticipated renewing.
Most important facts for investors to verify
- How much of 2012’s common-stockholder profit and reported improvement came from property sales rather than recurring property operations; review continuing-operations results and FFO/AFFO reconciliations.
- Whether same-store rental growth, occupancy and expense control persist, particularly given the 20-basis-point occupancy decline in conventional same-store properties.
- Progress toward leverage targets, refinancing needs and covenant headroom, including the 2013–2017 scheduled property-debt payments and the 2014 credit-facility maturity.
- Actual returns, completion schedules and remaining committed costs for redevelopment projects, and whether planned 2013 spending stays within management’s stated range.
- Collection and timing of seller-financed Napico notes and the conditions for recognizing the transaction as a sale; assess related exposure to the portfolio.
- Renewal of expiring housing-assistance contracts and the sensitivity of affordable-property cash flows to subsidy or program changes.
- Dividend sustainability relative to recurring cash generation, capital needs, preferred distributions and debt obligations; distinguish declared dividends from the $0.76 annual amount reported for 2012.