Apartment Investment & Management Co. (Aimco) — Q1 2014 Form 10-Q
Business context and reporting period
Quarter ended March 31, 2014; amounts below are in U.S. dollars. Aimco is a REIT whose operating partnership holds its assets. The business owns, manages and redevelops U.S. apartment communities. At quarter-end, Aimco held interests in 161 conventional communities (49,314 homes) and 72 affordable communities (9,680 homes). Conventional and affordable operations generated 91% and 9% of proportionate property NOI, respectively.
Financial performance and position
| Metric | Q1 2014 | Q1 2013 / comparison |
|---|---|---|
| Total revenue | $248.9 million | $237.5 million; up 4.8% |
| Operating income | $65.2 million | $52.6 million |
| Income from continuing operations | $12.0 million | Loss of $1.7 million |
| Net income | $81.5 million | $2.8 million |
| Net income attributable to Aimco common stockholders; diluted EPS | $64.2 million; $0.44 | $5.1 million; $0.03 |
| Operating cash flow | $54.8 million | $48.9 million |
| Cash and cash equivalents at quarter-end | $38.4 million | $55.8 million at Dec. 31, 2013 |
| Total indebtedness | $4.395 billion | $4.388 billion at Dec. 31, 2013 |
| Common dividend declared per share | $0.26 | $0.24 |
Net income included a $69.5 million after-tax gain on sales of five communities; the gain was the principal reason earnings rose year over year. Property operating expenses were $99.3 million, depreciation and amortization $70.3 million, and interest expense $55.6 million. Conventional same-store NOI increased 5.6% as revenue rose 4.6% and expenses 2.8%; average daily occupancy improved to 95.7% from 95.4%. Affordable segment NOI declined 2.7%, mainly due to higher utility costs.
Management reported diluted FFO of $73.2 million and AFFO of $62.0 million, versus $70.1 million and $55.0 million, respectively, in Q1 2013. On a diluted per-share basis, FFO/pro forma FFO grew 4% and AFFO grew 13%. These are non-GAAP measures; the filing cautions they are not substitutes for GAAP earnings or operating cash flow.
Investing activities used $46.1 million, including $94.2 million of capital expenditures and $100.1 million of disposition proceeds. Financing activities used $26.1 million; cash declined by $17.3 million during the quarter. Restricted cash was $160.8 million. Revolver borrowings were $110.1 million, with $445.4 million of stated remaining borrowing capacity after letters of credit.
Material changes and management commentary
- Q1 2014 results reflect prospective adoption of updated discontinued-operations guidance: routine apartment sales and related gains are no longer classified as discontinued operations. Q1 2013 presentation is therefore not fully comparable for dispositions.
- Conventional same-store revenue growth reflected stronger rents, fees and utility reimbursements. New lease rates were 1.0% above expiring rents and renewal rates 4.9% above expiring rents. Severe winter weather increased casualty losses by $2.9 million year over year.
- Management expects to dispose of affordable communities over the next four to five years and reinvest proceeds in the conventional portfolio. It expects conventional redevelopment and development investment of approximately $200–$230 million in 2014.
- Q1 capital expenditures rose to $94.2 million from $66.1 million, with redevelopment additions increasing to $51.7 million. Aimco reported higher-than-planned costs and delays at Preserve at Marin and Lincoln Place; both were then expected to be completed in Q1 2015. Pacific Bay Vistas was completed in April 2014.
- Management forecast approximately $670 million of investment in redevelopment projects underway or completed in the prior 12 months, with an expected NOI yield of about 5.5% at current rents. These are estimates, not guaranteed outcomes.
Debt, liquidity, risks and contingencies
Approximately 94% of leverage was property-level, non-recourse, long-dated debt and 3% perpetual preferred equity; about 97% of property debt was fixed rate. Weighted-average property-debt maturity was 8.2 years, with 1.8% of unpaid principal scheduled to mature in the remainder of 2014. Trailing-12-month debt to Adjusted EBITDA was 7.1x, or 7.4x including preferred equity; coverage of interest and preferred dividends was 2.5x. The company reported compliance with revolver covenants and expected continued compliance in 2014. The $600 million revolving facility matures in September 2017, subject to an extension option.
Capital commitments for redevelopment and improvements were approximately $302.1 million, more than half expected to be incurred within 12 months. Principal risks identified include financing availability and cost, debt covenant compliance, property-market and occupancy conditions, operating-cost inflation, weather and casualty events, redevelopment budget and schedule execution, litigation, environmental liabilities, and maintaining REIT status. Management said it did not expect material adverse effects from the disclosed tax matters or ordinary-course litigation; it also did not anticipate material tax-credit investor refunds. Environmental remediation obligations that could be reasonably estimated were described as immaterial.
Most important facts for investors to verify
- How much of reported earnings growth is recurring: the $69.5 million disposition gain was a major contributor to GAAP net income.
- Whether same-store rent and occupancy trends continue, and whether utility, tax and weather-related costs constrain NOI.
- Whether redevelopment estimates, timing and leasing assumptions hold, particularly for Lincoln Place and Preserve at Marin, and how the 5.5% expected NOI yield compares with realized results.
- Debt leverage, refinancing access, revolver availability and covenant headroom; reported leverage ratios are management-defined measures.
- Cash needs and funding sources for the $302.1 million of commitments and planned 2014 development and redevelopment spending, alongside dividends and capital spending.
- Whether planned affordable-property sales and portfolio reinvestment occur on expected terms and timelines.