Apartment Investment & Management Company (Aimco) — Q1 2017 Form 10-Q
Business context and reporting period
Quarter ended March 31, 2017. Aimco is a self-managed REIT focused on owning, operating, redeveloping and selectively developing apartment communities. Its operating partnership holds the business assets; Aimco owned 95.4% of its common units at quarter-end. The filing presents both entities on a combined basis.
Key financial metrics
| Metric | Q1 2017 | Q1 2016 or comparison |
|---|---|---|
| Total revenue | $246.5 million | $246.2 million |
| Operating income | $57.8 million | $63.5 million |
| Net income | $17.2 million | $29.9 million |
| Net income attributable to Aimco common stockholders; diluted EPS | $11.5 million; $0.07 | $23.2 million; $0.15 |
| FFO / AFFO per diluted share (non-GAAP) | $0.58 / $0.51 | $0.57 / $0.51 |
| Operating cash flow | $68.5 million | $74.0 million |
| Investing cash flow | $(86.2) million | $(65.6) million |
| Financing cash flow | $21.6 million | $5.3 million |
Same-store NOI rose 3.7% year over year, on revenue growth of 3.4% and expense growth of 2.7%. Quarter-end total assets were $6.19 billion and total liabilities were $4.25 billion. Real Estate portfolio debt, including revolver borrowings, was $3.74 billion; Asset Management partnerships had a further $230.9 million of non-recourse debt. Cash and restricted cash attributable to Aimco were $88.5 million, and available capacity under the revolving credit facility was $519.4 million. Management reported $607.9 million of cash, restricted cash and available credit.
Common dividends declared were $0.36 per share, compared with $0.33 a year earlier. The company spent $82.2 million on capital expenditures, including $39.1 million of redevelopment additions and $17.8 million of property upgrades.
Material changes versus the prior comparable period
- Revenue was nearly flat, but common-stockholder earnings fell by $11.7 million and diluted EPS declined from $0.15 to $0.07. Management attributed the decrease primarily to lower real estate disposition gains and higher depreciation and amortization from completed developments and redevelopments and the Indigo acquisition.
- Disposition results shifted from a $6.2 million net gain in Q1 2016 to a $0.4 million net loss in Q1 2017. In the 2017 quarter, an Asset Management partnership sale generated a $0.6 million gain and $0.5 million related tax expense.
- Operating cash flow declined $5.4 million, while investing cash use increased, largely reflecting capital spending and the timing of operating payments.
- Effective January 1, 2017, Aimco adopted tax-accounting guidance for intercompany asset transfers and recorded a $62.5 million cumulative reduction to opening retained earnings. This accounting adjustment reduced reported equity; it was not a Q1 operating expense.
Guidance, management commentary, risks and unusual items
- Management expects year-end leverage ratios of approximately 6.0x Proportionate Debt to Adjusted EBITDA and 6.4x Proportionate Debt and Preferred Equity to Adjusted EBITDA, versus 6.3x and 6.7x, respectively, at March 31. These are non-GAAP measures and management expectations, not guarantees.
- Expected 2017 spending: $100 million to $200 million for development and redevelopment, and $70 million to $90 million for property upgrades. Management said the near-term plan did not contemplate an equity issuance.
- Redevelopment and lease-up progress included One Canal at 97% leased, Indigo at 86%, The Sterling at 86%, and Park Towne Place’s East Tower at 82%. Management reported rental rates consistent with underwriting at One Canal and Park Towne Place.
- Management cited competitive new apartment supply as a factor slowing rent growth in some locations; about one-third of its “A” price-point portfolio was in submarkets with more than 2% projected supply growth over the next year.
- At quarter-end, about 98% of property-level debt was fixed-rate, with a 7.4-year weighted-average maturity. $251.2 million of Real Estate portfolio property debt matures during the remainder of 2017. Aimco had a BBB- stable investment-grade rating from two agencies and reported a 1.96x credit-agreement fixed-charge coverage ratio against a 1.40x minimum.
- Risks include apartment-market and operating-cost pressures, access to and cost of financing, debt-covenant compliance, severe weather and insurance costs, and legal, regulatory and environmental exposure. The filing describes ongoing groundwater-remediation matters in Indiana and Lake Tahoe; management did not expect either to materially affect financial condition, results or cash flows, but outcomes remain uncertain.
- Construction-related commitments were approximately $86.2 million, mostly expected within 12 months. Aimco said it did not anticipate material refunds or reductions of investor contributions under tax-credit arrangements. It reported no material changes to previously disclosed risk factors.
Most important facts for investors to verify
- Whether same-store rent and NOI growth continue amid competitive supply, and whether new developments and redevelopments lease up on schedule and at expected rates.
- Whether projected capital spending, property dispositions and operating cash flow support the dividend and management’s targeted reduction in leverage.
- The amount and refinancing terms of 2017 debt maturities, revolver usage and covenant headroom.
- Whether the Indiana and Lake Tahoe environmental matters, or other contingencies, develop into material costs despite management’s current assessment.
- How the $62.5 million accounting adoption adjustment and lower disposition gains affect comparisons of reported equity and earnings; distinguish GAAP results from non-GAAP FFO, AFFO and leverage measures.