Apartment Investment & Management Co. (Aimco) — Q2 2012 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2012. The combined filing reports Aimco and its operating partnership; figures below are consolidated unless noted. Aimco is a REIT focused on owning, redeveloping, leasing and managing apartment properties. At quarter-end it held interests in 192 conventional properties (61,313 units) and 152 affordable properties (18,737 units).
Financial results and condition
| Metric | Q2 2012 | Q2 2011 | Six months 2012 | Six months 2011 |
|---|---|---|---|---|
| Total revenue | $270.9 million | $259.4 million | $540.0 million | $518.8 million |
| Operating income | $48.0 million | $46.5 million | $90.9 million | $83.1 million |
| Continuing-operations loss | $11.5 million | $43.6 million | $35.4 million | $74.8 million |
| Net income (loss) | $34.1 million | ($27.0 million) | $44.8 million | ($54.2 million) |
| Net income (loss) attributable to Aimco common stockholders | $0.5 million | ($33.2 million) | ($10.1 million) | ($65.0 million) |
| FFO attributable to Aimco common stockholders, diluted | $48.4 million | $34.8 million | $96.8 million | $80.6 million |
| Pro forma FFO, diluted | $58.2 million | $32.3 million | $106.6 million | $78.0 million |
| Adjusted FFO, diluted | $43.2 million | $16.1 million | $78.3 million | $50.6 million |
Q2 common-stockholder earnings per share were approximately break-even, versus a $0.28 loss a year earlier; first-half EPS was a loss of $0.08 versus a $0.55 loss. Discontinued operations contributed $45.6 million in Q2 and $80.2 million in the first half, including property-sale gains; continuing operations remained loss-making. Common dividends declared were $0.18 per share for Q2 and $0.36 for the first half, versus $0.12 and $0.24 in 2011.
Same-store operating performance improved: Q2 total same-store revenue rose 4.6%, expenses rose 2.1%, NOI rose 6.1%, and operating margin increased to 64.1% from 63.2%. Conventional same-store occupancy averaged 95.5%, compared with 95.9% a year earlier. Combined new and renewal conventional lease rates were 5.0% above expiring rents during Q2.
At June 30, total assets were $6.95 billion, property debt was $5.09 billion, and total equity was $1.37 billion. Cash and cash equivalents were $313.0 million; restricted cash was $168.9 million. Operating cash flow for the first half was $152.0 million, compared with $95.2 million a year earlier. Investing activities used $29.3 million; financing activities provided $99.2 million. Capital expenditures were $117.4 million.
Property debt was approximately 96% fixed-rate, with a 7.6-year weighted-average maturity; less than 1% of principal was due in the remainder of 2012. Aimco had no revolving-credit borrowings and $473.0 million of available capacity, net of letters of credit, under its $500 million facility. Debt-service and fixed-charge coverage were 1.61x and 1.38x, respectively, versus covenants of 1.50x and 1.30x.
Changes versus the prior comparable period
- Revenue increased 4.4% in Q2 and 4.1% in the first half. Growth reflected property revenue and stronger same-store NOI.
- Reported net income improved substantially, mainly because of higher gains on real estate dispositions and lower interest expense. The 2011 comparison included $20.7 million of debt prepayment penalties and $2.3 million of deferred loan-cost write-offs from refinancing.
- Discontinued-operations income increased to $45.6 million in Q2 from $16.6 million and to $80.2 million in the first half from $20.5 million, primarily due to increased net gains on property sales.
- Real estate impairment charges were $6.7 million in Q2 and $13.1 million for the first half; none were recorded for held-for-use properties in the comparable 2011 periods.
- First-half operating cash flow rose by $56.8 million. Capital expenditures increased to $117.4 million from $61.8 million, with higher redevelopment and improvement spending.
Outlook, risks and unusual items
- Management expected to spend $125–$150 million on redevelopment at ten properties during 2012; approximately $400 million was expected across the projects over several years. Based on current rents, projected initial cash returns were greater than 7% on average, with free-cash-flow IRRs above 10% on average. These are forward-looking estimates, not assured outcomes.
- Management planned to sell essentially all affordable properties over four to five years and reinvest in the conventional portfolio. It also expected to reach stated leverage targets by early 2014, nearly two years earlier than previously anticipated, following equity issuance and preferred-stock redemptions.
- Management’s leverage targets were debt plus preferred equity/EBITDA below 7.0x and EBITDA coverage of interest and preferred dividends above 2.5x. Pro forma expected annualized Q4 2012 ratios were 7.7x and 2.3x, respectively—still short of both targets.
- During the first half, Aimco raised $558.6 million net from common-stock offerings and $9.8 million from preferred stock issuance. It redeemed $300.9 million of preferred stock by June 30 and a further $300.0 million in July. The July transaction is subsequent to the reporting date.
- Portfolio activity included 28 property dispositions in the first half, two property acquisitions for $72.3 million and $38.9 million, and the purchase for $40.1 million of remaining interests in seven consolidated partnerships. One property with 192 units remained classified as held for sale at June 30.
- Key risks include real-estate-market and operating conditions, financing availability and cost, covenant compliance, interest-rate exposure, property values and impairment, environmental liabilities, litigation, and maintaining REIT qualification. A 1% increase in 30-day LIBOR was estimated to reduce annual common-stockholder income by about $1.8 million. Rate-of-return swap terms may require debt paydown or additional collateral; $20.0 million was posted as collateral.
- A potential West Harlem property put, conditional on specified rent levels, could require approximately $30.9 million in cash and assumption of approximately $118.3 million of property debt. The filing also identifies $53.2 million of construction commitments. Management did not expect material tax-credit investor refunds or material effects from the disclosed IRS examinations.
Important facts for investors to verify
- Separate recurring property performance from sale gains and other discontinued-operations income; confirm the effect of dispositions on future revenue and earnings.
- Review FFO, pro forma FFO and adjusted FFO reconciliations and capital-replacement assumptions; these are non-GAAP measures and are not substitutes for GAAP earnings or operating cash flow.
- Track leverage and covenant headroom against management’s targets, including the completed July preferred-stock redemption and the resulting financing mix.
- Assess redevelopment budgets, projected returns, execution progress and required capital spending against actual cash generation.
- Monitor property debt maturities, refinancing terms, variable-rate exposure, swap collateral requirements and the contingent West Harlem put obligation.