APARTMENT INVESTMENT & MANAGEMENT CO. — FY 2014 Form 10-K
Reporting period: Fiscal year ended December 31, 2014, including fourth-quarter results. The combined filing covers Aimco, a REIT, and its operating partnership, which holds and operates the business. Aimco owned 95% of the partnership’s common units at year-end.
Business context
Aimco owns, manages, and redevelops conventional and affordable apartment communities, targeting major coastal and job-growth markets. At year-end, its portfolio comprised 203 communities and 52,336 homes; 192 communities were consolidated. Conventional and affordable operations generated 90% and 10%, respectively, of proportionate property NOI.
Financial results and key metrics
| Metric | FY 2014 | FY 2013 |
|---|---|---|
| Total revenue | $984.4 million | $974.1 million |
| Operating income | $262.4 million | $249.0 million |
| Income from continuing operations | $67.5 million | $34.6 million |
| Net income attributable to Aimco common stockholders | $300.2 million | $203.7 million |
| Diluted EPS | $2.06 | $1.40 |
| Net cash provided by operating activities | $321.4 million | $325.6 million |
| Capital expenditures | $367.3 million | $350.3 million |
| Total indebtedness at year-end | $4.14 billion | $4.39 billion |
- FY 2014 revenue rose about 1.1% and operating income about 5.4%. Net income growth was substantially influenced by a $288.6 million after-tax gain on real estate dispositions; continuing-operations income also increased.
- Conventional same-store revenue increased 4.5%, expenses increased 2.3%, and NOI rose 5.5%. Average daily occupancy improved to 95.8% from 95.6%.
- Conventional same-store new and renewal lease rates were, on average, 4.4% above expiring leases. Q4 conventional portfolio average revenue per effective home was $1,669, up 13.6% year over year, reflecting both property operations and portfolio changes. Q4 conventional operating and free-cash-flow margins were 66% and 61%.
- Affordable segment NOI increased 0.9% to $56.1 million. Government subsidies included in rental revenue were $74.6 million, down from $88.4 million in 2013.
- Adjusted FFO per diluted share increased 1%; AFFO per diluted share increased 10%. These are non-GAAP measures; AFFO was $245.8 million, versus $222.0 million in 2013.
- Common dividends declared totaled $1.04 per share for 2014, up from $0.96. The board declared $0.28 per share in January 2015 and anticipated similar quarterly dividends for the rest of 2015, subject to its discretion.
Fourth-quarter snapshot
Q4 2014 revenue was $242.2 million, operating income $63.8 million, continuing-operations income $19.3 million, net income attributable to Aimco common stockholders $36.3 million, and diluted EPS $0.25. The quarter included $26.2 million of after-tax disposition gains.
Debt, liquidity, and capital allocation
- Year-end cash and cash equivalents were $29.0 million; restricted cash was $91.4 million. Operating cash flow was $321.4 million. Investing activities provided $13.7 million, while financing activities used $361.9 million.
- Property debt was $4.02 billion and revolving-credit borrowings were $112.3 million at year-end. About 97% of property debt was fixed-rate; its weighted-average maturity was 8.1 years and weighted-average interest rate was 5.17% for encumbered communities. Debt maturities were $215.9 million in 2015, including scheduled amortization.
- Before the subsequent offering, the $600 million revolving facility had $112.3 million drawn and $445.9 million of capacity after letters of credit. In January 2015, Aimco raised approximately $367 million net from a common-stock offering, repaid the facility balance, and gave notice to redeem the remaining $27 million of CRA preferred stock. Remaining proceeds were intended for property-debt repayment, redevelopment, and upgrades.
- Actual trailing-twelve-month debt plus preferred equity to Adjusted EBITDA was 7.6x; interest and preferred-dividend coverage was 2.5x. Pro forma for the January 2015 offering and planned uses, the ratios were 7.0x and 2.7x, respectively. Credit-agreement coverage ratios were above their stated covenants at year-end; management expected compliance in 2015.
- Aimco sold 30 consolidated communities in 2014 for an aggregate sale price of $735.6 million, reporting $456.6 million net proceeds and $288.6 million after-tax gains. It acquired six conventional communities with 1,182 homes for $291.9 million.
Outlook, commentary, risks, and unusual items
- Management’s strategy is to recycle capital from lower-return properties into higher-quality assets, upgrades, redevelopment, and selective development. It targeted selling 5%–10% of the portfolio annually. For 2015, it expected to invest approximately $210–$230 million in conventional redevelopment and development.
- At year-end, ongoing redevelopment and development projects represented 2,909 planned homes and $806.5 million estimated total net investment, of which $581.2 million had been invested. The filing reports $223.1 million of construction commitments, approximately half expected within 12 months.
- Key risks include property-market and competitive conditions, rent and occupancy performance, construction delays and cost overruns, financing availability and interest rates, debt-covenant compliance, required capital spending, and the ability to renew government housing assistance contracts. About 14% of 2014 subsidies related to contracts that expired in late 2014 or expire in 2015 and were being renewed or expected to be renewed.
- Variable-rate debt and preferred securities totaled approximately $259.5 million. Management estimated a 100-basis-point LIBOR increase would reduce annual net income by about $2.0 million. Most property debt is non-recourse and property-secured.
- Casualty losses increased to $11.8 million from $6.7 million in 2013, mainly due to severe winter weather and a hailstorm. A $1.8 million real-estate impairment was recorded in 2014.
- Aimco was in discussions with the EPA concerning contamination near a property it sold in 2008. The company disputed responsibility for the separate residential area under review and did not expect the matter to have a material financial effect, but the outcome was uncertain.
- Routine property sales were reported differently after early adoption of revised discontinued-operations accounting. Consequently, comparisons with 2013 and 2012 classifications are not directly equivalent; the filing states prior periods were not retrospectively recast under the new standard.
Important facts for investors to verify
- Whether the 2015 redevelopment and development program meets budget, schedule, lease-up, and rent targets, particularly at major projects.
- How much of reported earnings growth reflects recurring property performance versus disposition gains, and how AFFO and FFO reconcile to GAAP results.
- Actual use of January 2015 equity proceeds, debt reduction, share dilution, preferred-stock redemption, and subsequent leverage and coverage ratios.
- Debt maturities, covenant headroom, refinancing access, and the availability of unencumbered assets and liquidity.
- Renewal outcomes for housing assistance contracts and any material changes in subsidy revenue, alongside the EPA matter and other contingencies.