Business context and reporting period
Aimco, a REIT, and AIMCO Properties, L.P. (the Operating Partnership) filed a combined unaudited Form 10-Q for the quarter ended September 30, 2015. The business owns, manages, redevelops and develops apartment communities in U.S. coastal and job-growth markets. At quarter-end it held interests in 143 conventional communities with 41,429 homes and 56 affordable communities with 8,685 homes. Aimco owned 95.4% of the Operating Partnership’s common units.
Financial results and key metrics
Amounts below are consolidated unless identified otherwise; dollar amounts are in millions.
| Metric | Q3 2015 | Q3 2014 | Nine months 2015 | Nine months 2014 |
|---|---|---|---|---|
| Total revenue | $246.4 | $246.8 | $735.4 | $742.2 |
| Operating income | $64.0 | $67.5 | $190.7 | $198.5 |
| Net income | $23.8 | $144.5 | $196.6 | $310.7 |
| Net income attributable to Aimco common stockholders | $19.2 | $124.7 | $169.3 | $263.9 |
| Diluted EPS | $0.12 | $0.85 | $1.09 | $1.81 |
| Operating cash flow | Not separately provided | Not separately provided | $258.4 | $233.4 |
- Property operations: Conventional same-store revenue grew 4.3% and expenses 1.9% in Q3, producing 5.4% NOI growth. New-lease rates were 6.6% above expiring rents and renewals 6.0% above; average daily occupancy declined 10 basis points. Conventional proportionate NOI increased 10.2% and affordable NOI 2.1% in Q3.
- Cash and debt: September 30 cash was $45.2 and restricted cash $93.2. Total indebtedness was $3.936 billion, down from $4.135 billion at year-end 2014; this included $3.808 billion of non-recourse property debt and $128.2 million drawn on the revolver. Revolver capacity available, net of borrowings and letters of credit, was $435.4 million.
- Leverage and coverage: Trailing-twelve-month proportionate debt / Adjusted EBITDA was 6.6x; including preferred equity, 7.1x. Adjusted EBITDA / Adjusted Interest and Preferred Dividends was 2.7x. Credit Agreement debt-service and fixed-charge coverage ratios were 1.95x and 1.84x, above covenants of 1.50x and 1.40x.
- Cash uses and distributions: Nine-month capital expenditures were $277.6; cash dividends and distributions totaled $191.6. Common dividends declared were $0.30 per share in Q3 and $0.88 for the nine months.
Material changes versus comparable periods
- Common-stockholder earnings and EPS fell sharply year over year, primarily because the prior-year periods included larger real estate disposition gains. No consolidated apartment communities were sold in Q3 2015; nine-month 2015 disposition gains were $130.5, versus $262.5 in the prior-year period. Q3 2014 included $126.3 of gains.
- Excluding disposition-related effects, management reported diluted Pro forma FFO per share growth of 12% for Q3 and 7% for the nine months; diluted AFFO per share grew 23% and 11%, respectively. These are non-GAAP measures.
- Lower average property debt and 2014 prepayment penalties helped reduce interest expense 16.5% in Q3 and 10.2% for the nine months. Revenue growth at retained and redeveloped conventional properties was partly offset by lower tax-credit and asset-management revenue and dispositions.
- Operating cash flow increased $25.1 for the nine months. Investing activities used $215.7, compared with $115.7 provided in the prior-year period, reflecting lower disposition proceeds and ongoing investment. Financing activities used $26.5, versus $375.6 used in 2014; 2015 included $366.6 of net common-stock proceeds.
Outlook, management commentary, risks and unusual items
- Management expects 2015 development and redevelopment spending of $225–$240 million. It expects to fund future investment principally with property-sale proceeds, borrowings, debt or equity financing, and operating cash flows; the filing provides no earnings or EPS guidance.
- A $320 million Northern California community acquisition is contracted, with closing expected after construction in summer 2016. Management intends to finance it on a leverage-neutral basis, primarily with a ten-year property loan and proceeds from sales of lower-rated properties. A $114 million non-recourse loan supports One Canal Street development, with $48.5 million available to draw at quarter-end.
- Capital-activity commitments totaled approximately $114.8 million, most expected within 12 months. Management expects to remain compliant with credit-facility covenants over the next 12 months and said it does not anticipate issuing corporate debt despite its investment-grade BBB- rating.
- Risks include property-market and financing conditions, interest rates, occupancy and rents, project costs and timing, debt covenant compliance, regulatory and REIT qualification requirements, litigation and environmental liabilities. The filing reports ongoing environmental discussions relating to former properties in Indiana and Lake Tahoe; management does not expect either matter to materially affect financial condition, results or cash flows. It also reported $2.2 million of higher Q3 other expense, principally legal costs and a write-off of consulting costs for a discontinued software project.
- Other notable matters: Aimco redeemed $27.0 million of preferred stock; the 2015 common-stock offering increased shares outstanding. Management said there were no material changes to previously disclosed risk factors or market-risk disclosures.
Important facts for investors to verify
- How much of reported earnings and cash generation is recurring, apart from property sales and other non-recurring items; review the company’s definitions and reconciliations of Pro forma FFO and AFFO.
- Whether same-store rent growth, occupancy and expense trends persist, and whether lease-up at redeveloped and newly acquired communities meets underwriting assumptions.
- Progress, total costs, financing and expected returns for the development and redevelopment pipeline, including One Canal Street and the contracted $320 million acquisition.
- Debt maturities, revolver availability, covenant headroom and the effect of future property sales or financing on leverage and liquidity.
- Potential financial exposure from the environmental matters and tax-credit compliance obligations, notwithstanding management’s stated assessment that material impacts are not expected.