Apartment Investment and Management Company (Aimco) — 2011 Form 10-K
Reporting period: Fiscal year ended December 31, 2011. This summary also includes fourth-quarter results where disclosed. Amounts are in U.S. dollars; financial statement amounts are generally in millions unless noted.
Business context and reporting period
Aimco is a self-managed REIT that owns and operates apartment properties, primarily through AIMCO Properties, L.P. At year-end, its owned or managed portfolio comprised 518 properties and 93,694 units. Its owned real estate operations are divided into conventional, market-rate apartments and affordable housing. Conventional properties generated 87% of proportionate property NOI; affordable properties generated 13%.
Financial performance and position
| Metric | 2011 | 2010 |
|---|---|---|
| Total revenue | $1,079.6 | $1,055.9 |
| Operating income | $166.3 | $119.5 |
| Loss from continuing operations | $(142.1) | $(163.5) |
| Income from discontinued operations, net | $83.9 | $73.9 |
| Net loss attributable to Aimco common stockholders | $(103.2); $(0.86) per share | $(125.3); $(1.08) per share |
| Net cash provided by operating activities | $258.8 | $257.5 |
| Cash and cash equivalents at year-end | $91.1 | $111.3 |
| Total assets | $6,871.9 | $7,378.6 |
| Total equity | $1,144.7 | $1,306.8 |
- Operating margin was approximately 15.4%, compared with 11.3% in 2010. This is operating income divided by total revenue.
- Cash flow from investing was $40.5 million; cash used in financing was $319.6 million. Cash and cash equivalents fell $20.3 million during the year.
- Property NOI in continuing operations increased 4.9%. Same-store NOI increased 5.9% overall: conventional same-store NOI rose 5.3%, and affordable same-store NOI rose 10.4%.
- For fourth-quarter 2011, revenue was $272.9 million, operating income $39.7 million, and net loss attributable to common stockholders $23.4 million, or $0.19 per share. Fourth-quarter 2010 figures were $271.1 million, $31.9 million, and a $38.4 million loss, or $0.33 per share.
- Funds From Operations (FFO), a non-GAAP measure, was $181.8 million; Pro forma FFO was $178.2 million; and Adjusted FFO was $104.4 million, down from $116.6 million in 2010. The filing cautions that these measures are not substitutes for GAAP earnings or operating cash flow.
Debt and liquidity
- Consolidated property debt was $5.17 billion at year-end, versus $5.18 billion in 2010. Aimco reported no outstanding corporate-level debt or revolver borrowings. Substantially all owned or controlled properties were encumbered by debt.
- Property debt had a weighted average interest rate of 5.50% and weighted average maturity of 8.0 years; approximately 96% was fixed-rate. About 3.7% of unpaid principal was scheduled to mature in 2012; the company reported that some of those maturities had been rate-locked or extended.
- The revolving credit facility was expanded to $500 million and matures in December 2014, with two possible one-year extensions. Available capacity at year-end was $469.5 million, net of letters of credit.
- Restricted cash was $186.7 million. Cash, cash equivalents, restricted cash, and notes receivable totaled approximately $389 million. The filing estimates a 100-basis-point increase in 30-day LIBOR would reduce annual net income attributable to common stockholders by about $1.9 million, before potential offsets from variable-rate assets.
- Debt and preferred equity to EBITDA was 10.0:1 at year-end. The company reported compliance with debt covenants; its 2011 credit-agreement debt-service and fixed-charge coverage ratios were 1.61:1 and 1.37:1, respectively.
Material changes versus the prior comparable period
- Revenue increased 2.2%, operating income increased $46.8 million, and the common-stockholder net loss narrowed by $22.2 million year over year. Improved property operating results were partly offset by higher interest expense.
- Interest expense increased $13.8 million, principally reflecting $20.7 million of prepayment penalties and a $2.3 million write-off of deferred loan costs. These costs related to refinancing transactions that extended maturities and reduced borrowing rates on more than $600 million of property loans.
- Same-store results improved: conventional revenues grew 2.8% while expenses declined 1.5%; affordable revenues grew 4.0% while expenses declined 3.8%.
- Aimco sold 67 consolidated properties in 2011, compared with 51 in 2010, recognizing approximately $101.2 million of net gains on sale. The gains contributed to discontinued-operations income and are not equivalent to recurring operating earnings.
- Capital spending was $200.4 million, up from $178.9 million in 2010. Continuing-operations capital replacements were $83.3 million and capital improvements were $72.7 million.
- Common dividends declared were $0.48 per share for 2011, versus $0.30 in 2010. Common shares outstanding increased to 120.9 million at year-end from 117.6 million, including shares issued through an at-the-market offering.
Guidance, management commentary, risks and unusual items
- Management expected average conventional rents to increase about 10% in 2012, including effects from rent growth and sales of lower-rent properties. It estimated 2011 leasing activity would contribute 2.1% to 2012 revenue growth.
- For 2012, Aimco planned to sell more than 25 conventional properties with approximately 7,700 units and more than 60 affordable properties with approximately 1,800 units, based on its average ownership. Planned uses of proceeds included about $120 million for specified redevelopments and $200 million for acquisitions, largely partnership-interest purchases.
- Management projected 2012 year-end Debt to EBITDA of approximately 7.5:1 and Debt and Preferred Equity to EBITDA of approximately 9:1, and anticipated higher interest coverage. These are forward-looking targets, not guarantees.
- In February 2012, the board declared a $0.18-per-share common dividend for the quarter ended December 31, 2011 and anticipated similar quarterly dividends for the remainder of 2012, subject to board review and prevailing circumstances.
- Aimco agreed to transfer asset management of its legacy NAPICO business and sell related interests, subject to conditions and regulatory approvals; it expected the transaction to close later in 2012.
- Government housing subsidies included in rental revenue were $124.3 million for 2011 across continuing and discontinued operations; $110.5 million related to continuing operations. Aimco identified potential subsidy changes, program compliance, and contract renewals as risks.
- Other key risks include refinancing availability and cost, covenant compliance, property values and operating conditions, competition, redevelopment execution and cost overruns, weather and casualty losses, environmental liabilities, insurance costs, and continued qualification as a REIT. A 2011 severe-weather loss included $5.2 million from Northeast snowstorms and $1.6 million from a California windstorm.
- The filing reports a $7.5 million additional payment agreed in mediation concerning partnership mergers; court and arbitration settlement approvals were not all final as of the filing date. Management did not expect ordinary-course legal matters to have a material adverse effect. The filing also disclosed a conditional West Harlem property put that could require approximately $30.8 million in cash and assumption of about $118.4 million of property debt if specified operating thresholds are met.
- Auditors issued unqualified opinions on the financial statements and internal control over financial reporting. Management reported effective disclosure controls and internal controls at year-end.
Important facts for investors to verify
- How much of the 2011 improvement in reported results depends on property-sale gains and discontinued operations, versus recurring property operations and cash flow.
- Progress, pricing, and execution of 2012 asset sales, redevelopment spending, acquisitions, and the NAPICO transaction.
- Refinancing status for 2012 maturities and later debt maturities, including rates, extensions, and covenant headroom.
- Whether projected rent growth, coverage ratios, and leverage reduction are achieved, and how occupancy and operating expenses develop.
- The sustainability of common and preferred distributions given REIT distribution obligations, debt restrictions, capital needs, and cash balances.
- Potential exposure from government subsidy contracts, the conditional West Harlem put, partnership litigation settlements, and environmental or casualty claims.