APARTMENT INVESTMENT & MANAGEMENT CO. (Aimco) — 2016 Form 10-K
Reporting period: Fiscal year ended December 31, 2016. The filing combines Aimco and AIMCO Properties, L.P.; Aimco conducts its business through the Operating Partnership and held a 95.4% common-unit interest at year-end. Q4 figures below are unaudited.
Business context
Aimco is a REIT focused on owning, operating, redeveloping and selectively developing apartment communities. At year-end, its portfolio comprised 189 communities and 46,311 homes across 22 states and the District of Columbia, including conventional and affordable housing.
Financial and operating performance
| Metric | 2016 | 2015 |
|---|---|---|
| Total revenue | $995.9 million | $981.3 million |
| Net income | $483.3 million | $272.0 million |
| Net income attributable to Aimco common stockholders | $417.8 million | $236.0 million |
| Diluted earnings per common share | $2.67 | $1.52 |
| Adjusted FFO per share (non-GAAP) | $1.97 | $1.88 |
| Operating cash flow | $377.7 million | $359.9 million |
| Capital expenditures | $346.6 million | $367.2 million |
| Total indebtedness | $3.885 billion | $3.849 billion |
Net income growth principally reflected higher real estate disposition gains: $393.8 million net of tax in 2016 versus $180.6 million in 2015. Thus, the GAAP earnings increase substantially reflects asset sales; adjusted FFO per share, a measure of ongoing performance, grew 5%.
In Q4 2016, revenue was $249.5 million, net income attributable to common stockholders was $162.0 million and diluted EPS was $1.03. Q4 net disposition gains were $156.6 million. In Q4 2015, the corresponding figures were $245.9 million, $66.6 million, $0.43 and $50.1 million.
Conventional same-store revenue increased 4.7%, expenses increased 1.4%, and property NOI rose 6.2%. Weighted average rent increased 4.0%; average daily occupancy was 95.9%, consistent with 2015. Conventional portfolio operating and free-cash-flow margins were 68% and 62%, respectively (company-defined measures). Operating cash flow increased $17.8 million year over year; cash flow less reported capital expenditures was approximately $31.1 million, before other investing and financing needs.
Cash and cash equivalents were $61.2 million and restricted cash was $69.9 million at year-end. The $600 million revolving facility had $17.9 million drawn and $570.3 million available after letters of credit. Property-level debt had an 8.0-year weighted average maturity and a 4.78% weighted average interest rate; approximately 98% was fixed-rate. Leverage ratios improved modestly: proportionate debt plus preferred equity to adjusted EBITDA was 6.7x versus 6.8x; adjusted EBITDA to interest expense and preferred dividends was 2.9x versus 2.8x.
Material changes, outlook and risks
- Aimco sold eight consolidated communities in 2016 for $544.5 million gross proceeds and recorded $393.8 million of net disposition gains. It sold seven conventional communities and reinvested proceeds in capital projects and acquisitions, including Indigo, a 463-home Redwood City community.
- Redevelopment spending was $155.4 million and development spending $31.8 million in 2016. Management expected combined redevelopment and development spending of $100–$200 million in 2017. The filing describes project milestones and anticipated stabilization dates, but does not provide company-wide earnings or FFO guidance.
- Management reported rent growth decelerating in some markets amid competitive new supply, while citing geographic and price-point diversification as a mitigating factor. Risks include local economic weakness, expense inflation, competition, construction delays or cost overruns, financing availability and interest rates, casualty events, regulation and REIT qualification.
- Environmental matters include groundwater contamination associated with a former Indiana property, which was placed on the Superfund National Priorities List in 2016, and a separate Lake Tahoe dry-cleaner matter. Aimco increased its estimated environmental accrual; the filing does not provide a clear amount. Management did not expect either matter to materially adversely affect consolidated results, but outcomes remain uncertain.
- About $260.2 million of property-debt principal maturities were scheduled for 2017. Management expected to remain compliant with the revolving-facility coverage covenant over the next 12 months. A 100-basis-point increase in 30-day LIBOR was estimated to reduce annual net income by approximately $0.9 million.
- In January 2017, the Board declared a $0.36-per-share quarterly common dividend, a 9% annualized increase from 2016, and anticipated similar quarterly dividends for the rest of 2017, subject to Board review. Management targeted a dividend payout of approximately 65% of adjusted FFO.
Most important facts for investors to verify
- How much of reported earnings growth came from dispositions versus recurring property operations; assess adjusted FFO alongside GAAP net income.
- Whether same-store rent and NOI growth can persist as supply pressures intensify, and whether occupancy and leasing assumptions hold.
- Progress, total costs, lease-up and realized returns for major redevelopment and development projects, including Park Towne Place, The Sterling and One Canal.
- Debt maturities, refinancing terms, covenant headroom, available revolver capacity and the effect of rate changes on cash flow.
- Environmental accrual adequacy and developments in the Indiana and Lake Tahoe matters; the filing does not quantify the exposure clearly.
- Whether the announced dividend trajectory is supported by recurring cash generation after capital spending and required debt payments.