APARTMENT INVESTMENT & MANAGEMENT CO. — Q1 2018 Form 10-Q
Reporting period: Three months ended March 31, 2018. Aimco is a REIT whose operating partnership holds its assets and conducts its business. The filing reports their results on a combined basis.
Business context
Aimco owns, operates, redevelops and selectively develops apartment communities in major U.S. markets. At quarter-end, its Real Estate portfolio included interests in 134 communities with 37,228 homes; its reportable Real Estate segment included 130 consolidated communities with 37,086 homes. It also provides asset-management services to affordable-housing partnerships.
Financial and operating performance
| Metric | Q1 2018 | Q1 2017 |
|---|---|---|
| Total revenue | $247.7 million | $246.5 million |
| Operating income | $53.4 million | $57.8 million |
| Net income | $95.7 million | $17.2 million |
| Net income attributable to Aimco common stockholders | $81.5 million; $0.52 per share | $11.5 million; $0.07 per share |
| Pro forma FFO per share | $0.60 | $0.58 |
| AFFO per share | $0.54 | $0.51 |
| Cash provided by operating activities | $81.3 million | $73.6 million |
| Cash used in investing activities | $171.6 million | $87.7 million |
| Cash provided by financing activities | $86.8 million | $21.6 million |
Same Store NOI increased 2.7%, on revenue growth of 2.6% and expense growth of 2.1%. Average daily occupancy was 96.3%, up 30 basis points year over year. Renewal rents increased 4.9% and new-lease rents 0.4%, for a weighted average increase of 2.7%. Real Estate segment proportionate NOI rose 8.2%, including contributions from acquisitions, redevelopment lease-up and the Palazzo ownership-interest reacquisition.
Q1 net income included a $50.3 million gain on real estate dispositions and a substantially larger income tax benefit. Aimco attributed the $32.4 million year-over-year increase in tax benefit primarily to an intercompany transfer of assets related to the Asset Management business. The filing says the related tax benefit is excluded from FFO; it should not be treated as a recurring operating result.
Debt, liquidity and capital allocation
- At March 31, total indebtedness associated with the Real Estate portfolio was $4.03 billion: $3.70 billion of non-recourse property debt, a $249.7 million term loan and $78.6 million drawn on the revolving facility. Asset Management partnership debt, generally non-recourse, was reported separately at $225.5 million.
- Cash and cash equivalents were $51.9 million and restricted cash was $39.0 million. Available revolving-credit capacity was $509.1 million, for approximately $600 million in combined cash, restricted cash and available capacity. Unencumbered communities had estimated fair value of about $2.0 billion.
- Management’s leverage measures were 6.8x proportionate debt to Adjusted EBITDA, 7.2x proportionate debt and preferred equity to Adjusted EBITDA, and 3.2x Adjusted EBITDA to adjusted interest expense and preferred dividends. Management targeted the latter leverage ratio above 2.5x and debt plus preferred equity to Adjusted EBITDA below 7.0x.
- Approximately 94.6% of property-level debt was fixed-rate; weighted average property-debt maturity was 7.4 years. The $250 million term loan matured June 30, 2018, with a one-year extension option. The revolving credit facility provided $600 million of commitments.
- The company declared dividends of $0.38 per common share, compared with $0.36 a year earlier. Net cash, cash equivalents and restricted cash decreased $3.5 million during the quarter to $139.0 million.
Material changes, transactions and outlook
- Same Store NOI growth was 2.7%; Pro forma FFO per share increased 3.4% to $0.60 and AFFO per share rose 5.9% to $0.54 year over year.
- Aimco acquired Bent Tree Apartments, a 748-home Virginia community, for $160 million. In May 2018, it completed the first four communities in a six-community Philadelphia-area acquisition announced after quarter-end; the stated total price was $445 million, with remaining closings expected in summer 2018 and the first half of 2019.
- During Q1, Aimco sold three communities with 513 homes for $71.9 million gross proceeds and a $50.6 million after-tax gain. It also sold its interests in the La Jolla Cove property, receiving about $5 million cash and providing seller financing with a stated value of $48.6 million.
- In April, Aimco agreed to sell its Asset Management business and four affordable communities for $590 million. It expected approximately $512 million net proceeds after costs and specified debt repayment, and anticipated closing in Q3 2018. Planned uses included repaying borrowings, reducing leverage, funding redevelopment and redeeming preferred stock. Management estimated the transactions would reduce AFFO by $0.03 per share in 2018 and $0.04 in 2019 before becoming accretive in 2021.
- Management expected year-end 2018 proportionate debt to Adjusted EBITDA of 6.3x and debt plus preferred equity to Adjusted EBITDA of 6.7x, partly reflecting the planned sale proceeds. It forecast $120–$200 million of 2018 development and redevelopment spending and $80–$100 million of capital enhancements. Current redevelopment and development investments were estimated at $432.8 million, with a projected 6.1% untrended NOI yield.
- Management reported a BBB- stable investment-grade rating from two agencies and expected compliance with its credit-agreement fixed-charge coverage covenant. It also reported that disclosure controls were effective and there had been no material change in internal control over financial reporting.
Risks, contingencies and unusual items
Management cited real-estate market, operating-cost, financing, insurance, legal and regulatory risks, including the ability to maintain occupancy and rents, access capital, meet debt covenants and execute acquisitions, dispositions and redevelopment plans. A 100-basis-point change in 30-day LIBOR was estimated to change annual net income attributable to common holders by approximately $5.1 million. The company described unresolved environmental matters involving a former Indiana property and a former dry-cleaning site near Lake Tahoe; it did not expect either matter to materially affect financial condition, results or cash flows. It also disclosed Airbnb-related litigation costs, which are excluded from Pro forma FFO, and approximately $160 million of capital-project commitments, most expected within 12 months. The filing reported no material changes to the risk factors in the 2017 Form 10-K.
Important facts for investors to verify
- Whether the planned Q3 sale closes on the stated terms and produces the expected approximately $512 million net proceeds.
- Completion, funding and operating performance of the Philadelphia acquisitions, including the remaining scheduled closings.
- Repayment or extension of the $250 million term loan due June 30, 2018, and progress toward management’s year-end leverage targets.
- Whether Same Store rent, occupancy and expense trends sustain NOI growth, and whether redevelopment projects meet budget, schedule and projected yields.
- The recurring earnings outlook excluding the disposition gain and intercompany-transfer tax benefit; the filing does not provide clear full-year earnings or FFO guidance.
- Developments in the environmental matters and Airbnb litigation, and any resulting financial exposure beyond management’s current assessment.