Apartment Investment and Management Company (Aimco) — Q3 2013 Form 10-Q
Reporting period: Three and nine months ended September 30, 2013. Amounts are in U.S. dollars; financial statement amounts below are in millions unless stated otherwise. The combined filing covers Aimco and its operating partnership, which are managed and operated as one enterprise.
Business context and reporting period
Aimco is a REIT focused on owning, managing and redeveloping apartment communities in major coastal and job-growth markets. At quarter-end it held interests in 173 conventional properties with 54,094 homes and 79 affordable properties with 10,891 homes. Conventional and affordable operations contributed 90% and 10%, respectively, of proportionate property NOI for the first nine months.
Financial performance
| Metric | Q3 2013 | Q3 2012 | Nine months 2013 | Nine months 2012 |
|---|---|---|---|---|
| Total revenue | $254.5 | $252.8 | $754.6 | $744.0 |
| Operating income | $67.9 | $48.9 | $186.0 | $133.6 |
| Income from continuing operations | $8.2 | $5.9 | $12.2 | Loss of $24.0 |
| Net income | $79.4 | $53.3 | $89.2 | $98.1 |
| Net income attributable to Aimco common stockholders | $66.3 | $24.2 | $81.5 | $14.1 |
| Diluted EPS | $0.46 | $0.17 | $0.56 | $0.11 |
| Dividends declared per common share | $0.24 | $0.20 | $0.72 | $0.56 |
- Conventional same-store NOI increased 5.9% in Q3 and 5.1% year to date. Q3 same-store revenue rose 4.4% while expenses rose 1.6%. Affordable segment NOI was essentially flat in Q3 and down 0.4% year to date.
- Q3 conventional portfolio average revenue per home was $1,426, up 6.6% year over year; conventional operating margin was 64%. New and renewal lease rates combined were 3.3% above expiring rents.
- Operating cash flow was $248.1 for the first nine months, versus $242.3 in 2012. Investing used $299.2, including $275.1 of capital expenditures and $119.1 for West Harlem property loans. Financing provided $34.2. Cash and cash equivalents ended at $67.6.
- At September 30, total indebtedness was $4.83 billion, including $4.53 billion of non-recourse property debt and $298.6 million drawn on the revolving facility. Restricted cash was $130.5 million. Equity was $1.10 billion.
- The amended $600 million revolving credit facility had $255.6 million of remaining borrowing capacity after outstanding borrowings and letters of credit. It matures in September 2018, including a one-year extension.
- Management’s non-GAAP FFO attributable to Aimco common stockholders was $73.4 million in Q3 and $214.7 million year to date; AFFO was $51.1 million and $159.5 million, respectively. These measures are not substitutes for GAAP earnings or operating cash flow.
Material changes versus prior periods
- Q3 revenue increased 0.7%; year-to-date revenue increased 1.4%. Operating income improved in both comparisons, helped by lower depreciation and amortization and improved conventional property performance.
- Q3 net income attributable to Aimco common stockholders rose to $66.3 million from $24.2 million, substantially reflecting higher discontinued-operations income and gains on property sales. Year-to-date discontinued-operations income fell to $77.0 million from $122.1 million as gains on property dispositions declined.
- Lower preferred dividends and distributions following the 2012 redemption of $600.9 million of preferred securities materially increased earnings attributable to common holders versus 2012.
- Capital expenditures rose to $275.1 million from $188.4 million year to date, while real estate disposition proceeds fell to $120.7 million from $285.2 million. Aimco sold 13 properties in the first nine months, compared with 50 in 2012.
- Revolver borrowings increased from zero at December 31, 2012 to $298.6 million at September 30, 2013. Total indebtedness increased by approximately $258.8 million.
Outlook, management commentary, risks and unusual items
- Management expects conventional redevelopment and development spending of approximately $170–$190 million for 2013. It expects to invest about $190 million over two years in a Boston project comprising 310 apartments and commercial space; a $114 million construction loan and sales of lower-rated properties are expected to help fund it.
- Management expects to dispose of affordable properties over the next four to five years and reinvest proceeds in conventional properties. No full-year earnings or revenue guidance is provided in the supplied filing text.
- Management’s leverage targets are debt and preferred equity to proportionate EBITDA below 7.0x and coverage above 2.5x. At September 30, debt and preferred equity to proportionate EBITDA was 8.0x, and coverage of interest and preferred dividends was 2.4x. Management expected to reach its targets in early 2014 and expected to remain in compliance with credit covenants for the remainder of 2013. Facility covenant ratios were above their stated minimums.
- About 91% of leverage was property-level non-recourse debt and 97% of property-level debt was fixed-rate; its weighted-average maturity was 8.1 years. Management identified financing availability and cost, interest rates, apartment-market conditions, redevelopment execution, operating costs, regulatory changes, litigation and environmental liabilities as risks. A 100-basis-point increase in specified short-term rates was estimated to reduce annual Aimco common-stockholder income by $3.1 million.
- Q3 discontinued operations included $71.2 million of income, including a $74.7 million gain on property dispositions before related tax and other effects. The gain-heavy contribution makes reported net income less representative of recurring property operations.
- Construction commitments were approximately $146.2 million, most expected within 12 months; active redevelopment projects had estimated total costs of $599.7 million. The West Harlem loan borrower was required to repay the loans by November 22, 2013; subsequent repayment is not established by this filing.
- Aimco disclosed an IRS tax proceeding concerning 2006 and 2007 partnership tax adjustments, but said it did not expect a material effect. It also described ordinary-course legal, environmental and tax-credit compliance exposures, without expecting material adverse effects from the matters discussed. Management reported effective disclosure controls and no material change in internal control during the quarter.
Important facts for investors to verify
- How much of reported earnings and year-over-year improvement reflects property-sale gains and other discontinued operations, versus recurring rental operations and FFO/AFFO.
- Progress on leverage reduction, covenant headroom, revolver use and the planned expansion of the unencumbered asset pool.
- Actual spending, schedule, financing and expected returns for the Boston development and existing redevelopment projects, alongside the planned property sales.
- Whether the West Harlem loans were repaid by the stated deadline and the resulting collection or credit exposure.
- Execution and operating performance of the affordable-property disposition strategy, including the effects of taxes, transaction timing and reinvestment.