APARTMENT INVESTMENT & MANAGEMENT CO. — Q3 2016 Form 10-Q
Reporting period: Three and nine months ended September 30, 2016; unaudited. The combined filing covers Aimco and AIMCO Properties, L.P. Aimco owns 95.4% of the Operating Partnership. The business owns and manages conventional and affordable apartment communities in U.S. coastal and job-growth markets.
Financial highlights
Amounts below are in millions of dollars, except per-share data. Comparisons are with the corresponding 2015 periods.
| Metric | Q3 2016 | Q3 2015 | Nine months 2016 | Nine months 2015 |
|---|---|---|---|---|
| Total revenue | $248.9 | $246.4 | $746.4 | $735.4 |
| Operating income | $58.7 | $64.0 | $186.7 | $190.7 |
| Net income | $30.0 | $23.8 | $305.9 | $196.6 |
| Net income attributable to Aimco common stockholders | $11.2 | $19.2 | $255.8 | $169.3 |
| GAAP diluted EPS | $0.07 | $0.12 | $1.64 | $1.09 |
| Adjusted FFO per diluted share | $0.45 | $0.48 | $1.46 | $1.40 |
| Dividends declared per common share | $0.33 | $0.30 | $0.99 | $0.88 |
- Q3 rental and other property revenue increased 1.6%; operating income declined 8.3%. Higher depreciation and amortization, including from completed redevelopments and developments, was a key factor in the lower operating income.
- For the first nine months, revenue rose 1.5% and operating income declined 2.1%. Net income growth principally reflected a $237.2 million net gain on real estate dispositions, versus $130.5 million in 2015; GAAP earnings therefore include a substantial disposition contribution.
- Conventional same-store NOI grew 6.3% in Q3 and 5.9% year to date. Q3 same-store revenue increased 5.0% while expenses rose 2.4%. Affordable segment NOI increased 8.9% in Q3 and 9.1% year to date.
- Q3 diluted AFFO per share decreased 6% year over year; nine-month AFFO per share increased 4%. AFFO and FFO are non-GAAP measures defined by the company.
Cash flow, debt and liquidity
- For the nine months, operating cash flow was $276.5 million, up from $258.4 million. Investing used $234.3 million and financing used $45.1 million. Cash and cash equivalents ended the period at $47.9 million; restricted cash was $109.5 million.
- Total indebtedness was $4.06 billion at September 30, 2016, including $3.76 billion of non-recourse property debt and $294.8 million drawn on the $600 million revolving credit facility. Reported additional revolver capacity was $278.2 million after letters of credit.
- Management said it intended to repay substantially all revolver borrowings by December 31, 2016, using apartment-sale proceeds and anticipated property financings. Property debt had a 7.9-year weighted average maturity; $122.6 million of principal was due in the remainder of 2016. Approximately 98% of property-level debt was fixed-rate.
- Trailing-twelve-month leverage metrics: proportionate debt/Adjusted EBITDA was 6.5x; proportionate debt plus preferred equity/Adjusted EBITDA was 6.9x. Adjusted EBITDA/adjusted interest expense and preferred dividends was 2.9x. Credit-agreement coverage ratios exceeded stated covenants; management expected continued compliance over the next 12 months.
- Q3 conventional portfolio NOI margin was 67% and free-cash-flow margin was 62%, as reported by management. These are supplemental, non-GAAP measures.
Material changes, outlook and risks
- In August, Aimco acquired Indigo, a 463-home Redwood City community, for approximately $320 million, including $17 million of 6.0% preferred OP units issued to the seller. It secured a $145 million, 10-year fixed-rate loan at 3.34%. At quarter-end, 48% of homes were leased, at rents consistent with underwriting.
- Nine-month apartment-sale proceeds were $329.4 million gross, with a reported $237.2 million net gain. Four conventional communities with 1,402 homes were classified as held for sale at quarter-end.
- Aimco redeemed all outstanding Class Z preferred stock for $34.8 million in July. The company reported approximately $228.2 million of preferred equity at quarter-end, including preferred OP units.
- Management expected 2016 development and redevelopment spending of $185–$195 million and anticipated approximately $75 million in property-upgrade spending for the year. It reported $117.8 million invested in redevelopment and $30.5 million in development during the first nine months. No specific full-year earnings or FFO guidance is provided in the supplied filing text.
- Capital commitments for redevelopment, development and improvements totaled approximately $116.6 million, most expected to be incurred within 12 months; a further estimated $26.3 million of ongoing redevelopment spending was not contractually committed.
- Risks discussed include apartment-market competition, rent and occupancy trends, operating-cost increases, financing availability and rates, covenant compliance, redevelopment execution, insurance and natural disasters, REIT qualification, and legal or environmental exposure. Aimco described ongoing remediation-related regulatory matters at a former Indiana property and a Lake Tahoe-area property, but did not expect either to have a material adverse effect. It accrued its estimated share of Lake Tahoe cleanup costs; the amount is not clearly stated in the supplied text.
Important facts for investors to verify
- How much reported earnings growth reflects property-sale gains versus recurring operating performance; review FFO/AFFO reconciliations and the company’s non-GAAP definitions.
- Whether the planned year-end revolver repayment occurred, and the availability, cost and covenants of replacement property financing.
- Actual spending, lease-up, rents and stabilization timing for Indigo, One Canal and major redevelopments against management’s underwriting.
- Updated disposition plans and proceeds for communities held for sale, and the associated effects on recurring revenue and cash flow.
- Developments in the environmental matters, related accruals and any resulting obligations or changes in the company’s stated risk assessment.