Apartment Investment & Management Company (Aimco) — 2019 Form 10-K
Business context and reporting period. This combined annual report covers Aimco and AIMCO Properties, L.P. for the fiscal year ended December 31, 2019; fourth-quarter figures are included. Aimco is a REIT focused on owning, operating, redeveloping, and developing apartment communities. At year-end, its portfolio comprised 124 communities and 32,839 homes, with an average economic ownership of approximately 99%. Aimco owned 94.0% of the Operating Partnership’s common units.
Financial and operating highlights
| Metric | 2019 | 2018 | Change or context |
|---|---|---|---|
| Total revenue | $914.3 million | $972.4 million | Down 6.0%, primarily reflecting the 2018 sale of the Asset Management business; 2019 real-estate rental and other property revenue was $914.3 million versus $922.6 million. |
| Net income | $508.0 million | $716.6 million | Down 29.1%; results include substantial gains on dispositions. |
| Net income attributable to Aimco common stockholders | $466.1 million | $656.6 million | Diluted earnings per share fell to $3.15 from $4.34, principally due to lower disposition gains. |
| Nareit FFO per diluted share | $2.37 | $2.63 | Down from 2018. |
| Pro forma FFO per diluted share | $2.50 | $2.45 | Up 2.0%. |
| AFFO per diluted share | $2.20 | $2.16 | Up 1.9%. |
| Cash provided by operating activities | $374.5 million | $396.4 million | Down $21.9 million. |
| Cash used in investing activities | $205.4 million | Cash provided of $121.8 million | 2019 included the Parkmerced mezzanine loan, acquisitions, and capital spending, partly offset by sale proceeds. |
| Total indebtedness at year-end | $4.51 billion | $4.08 billion | Includes $4.23 billion net non-recourse property debt and $275.0 million of revolver borrowings. |
Property performance and fourth quarter
- Same Store NOI increased 4.3% for 2019, on revenue growth of 3.8% and expense growth of 2.4%. Average daily occupancy was 97.1%, up 60 basis points; the Same Store NOI margin was 73.7%.
- Weighted-average rent increases on new and renewal leases were 3.4%; resident turnover improved to 43% of homes.
- For the fourth quarter, revenue was $230.0 million, net income was $142.8 million, net income attributable to common stockholders was $133.3 million, and diluted EPS was $0.90. Fourth-quarter Pro forma FFO and AFFO per share increased 5% and 12%, respectively, year over year.
Liquidity, debt, and capital allocation
- Year-end cash and cash equivalents were $142.9 million, restricted cash was $34.8 million, and available revolver capacity was $517.8 million. Aimco also reported approximately $2.4 billion of unencumbered communities by estimated fair value.
- Property debt had a weighted-average interest rate of 3.89% and weighted-average maturity of 7.5 years; approximately 96% was fixed-rate. New 2019 property financing totaled $772.6 million, at a weighted-average rate of 3.32% and term of 11.4 years.
- Proportionate Debt and Preferred Equity to Adjusted EBITDAre was 7.6x, above Aimco’s below-7.0x target; Adjusted EBITDAre coverage of interest and preferred dividends was 3.5x, above its greater-than-2.5x target. Management attributed 0.3x of leverage to delayed sales and forecast year-end 2020 ratios of approximately 6.4x and 6.5x, respectively, for debt and debt plus preferred equity.
- During 2019, Aimco sold 12 communities for $619.4 million of net proceeds and recorded $503.2 million of gains on dispositions. It invested $229.8 million in redevelopment and development and reported $396.0 million of capital additions across its segments.
- The company made a five-year, $275 million mezzanine loan to the Parkmerced partnership at 10% annual interest, and received an option to acquire a 30% interest subject to stated terms.
- Common dividends declared were $1.56 per share for 2019. In January 2020, the Board declared a quarterly dividend of $0.41 per share, a 5% increase from regular quarterly dividends paid in 2019.
Material changes versus the prior comparable period
- The 2018 sale of the Asset Management business reduced the revenue base and created earnings dilution, while improving the company’s intended long-term growth profile. Aimco reported no Asset Management NOI in 2019.
- Same Store operating performance strengthened: NOI growth accelerated to 4.3%, from 3.2% in 2018, with higher occupancy and flat controllable operating expenses.
- GAAP earnings fell significantly as disposition gains were lower than in 2018. The 2018 comparison included the gain on sale of the Asset Management business; 2019 gains also included sales of apartment communities.
- Indebtedness increased, and delayed planned sales temporarily raised leverage. The company also redeemed $125 million of Aimco preferred stock during 2019.
Outlook, commentary, risks, and unusual items
- Management expected $250 million to $300 million of redevelopment and development spending in 2020. The remaining estimated net investment in approved and active projects at year-end was $268.3 million, expected to be funded in 2020 and later, on a leverage-neutral basis, primarily with proceeds from sales of lower-return communities.
- Management said it expected gradual leverage reduction through 2020, supported by planned property sales and earnings growth from completed redevelopments. These are forward-looking expectations, not guarantees.
- Active projects involve construction, permitting, cost, timing, lease-up, and rent risks. Parc Mosaic’s final building was delayed slightly, although management continued to expect stabilization in the fourth quarter of 2020.
- Other key risks include economic and local housing-market conditions, competing supply, rent regulation, real-estate illiquidity, financing availability and refinancing, debt covenants, interest-rate changes and the LIBOR transition, casualty losses and insurance costs, environmental liabilities, cybersecurity and privacy requirements, and continued REIT qualification.
- A 100-basis-point change in 30-day LIBOR was estimated to change annual interest expense by approximately $4.5 million, before any offset from variable-rate cash balances. Two rating agencies rated Aimco BBB- with stable outlook.
- Casualty losses were $9.0 million in 2019, including storm-related flooding damage at One Canal. Aimco excluded specified unusual costs from Pro forma FFO, including certain prepayment, preferred redemption, casualty, and restructuring items; these non-GAAP adjustments should be considered alongside GAAP results.
- Aimco reported ongoing discussions with regulators concerning environmental matters at two previously owned properties, but did not expect resolution to have a material adverse effect. The independent auditor issued unqualified opinions on the financial statements and internal controls; management also concluded controls were effective.
Important facts for investors to verify
- Whether scheduled and delayed community sales occur on the expected timing and terms, and whether proceeds are sufficient to fund capital plans and reduce leverage as projected.
- Progress, total costs, occupancy, lease-up, and expected returns for major redevelopment and development projects, including Flamingo Point, The Fremont, Eldridge Townhomes, 707 Leahy, and Parc Mosaic.
- The quality and comparability of reported Pro forma FFO, AFFO, leverage ratios, and NAV estimates, all of which depend on company-defined non-GAAP methodologies and assumptions.
- The Parkmerced mezzanine loan’s repayment and collateral protections, and the terms and economic value of the associated 30% ownership option.
- Debt maturities, refinancing availability, covenant compliance, and sensitivity to interest rates, including the transition away from LIBOR.
- Potential costs or outcomes of environmental matters, casualty claims, and other contingencies, as well as the continued ability to meet REIT requirements and pay distributions.