Apartment Investment & Management Co. — Q1 2012 Form 10-Q
Reporting period: Three months ended March 31, 2012; unaudited. The combined filing covers Aimco and its operating partnership, which are managed as one enterprise. Unless indicated otherwise, financial amounts below are consolidated and in U.S. dollars.
Business context
Aimco is a multifamily REIT. At quarter-end it held interests in 196 conventional properties with 62,420 units and 165 affordable properties with 19,947 units. Conventional and affordable operations contributed 88% and 12% of proportionate property NOI, respectively. Management plans to dispose of almost all affordable properties over time and reinvest in its conventional portfolio.
Financial and operating performance
| Metric | Q1 2012 | Q1 2011 / prior year-end |
|---|---|---|
| Total revenue | $273.8 million | $264.0 million |
| Operating income | $43.2 million | $36.7 million |
| Loss from continuing operations | $24.2 million | $31.7 million |
| Net income (loss) | $10.6 million | $(27.3) million |
| Net loss attributable to Aimco common stockholders | $10.6 million; $(0.09) per share | $31.8 million; $(0.27) per share |
| Operating cash flow | $48.5 million | $27.7 million |
| Cash and cash equivalents at quarter-end | $83.2 million | $91.1 million at Dec. 31, 2011 |
| Total indebtedness | $5.20 billion | $5.12 billion at Dec. 31, 2011 |
Revenue increased 3.7% year over year. Total same-store NOI rose 6.2%, with same-store revenue up 4.0% and expenses up 0.4%; its operating margin increased to 63.6% from 62.3%. Conventional same-store NOI rose 6.8%, while affordable same-store NOI rose 1.8%. Conventional average daily occupancy was 96.0%. Aimco reported FFO of $48.4 million and adjusted FFO of $35.2 million, versus $45.8 million and $34.3 million, respectively, in Q1 2011. These are non-GAAP measures.
Investing activities used $7.0 million and financing activities used $49.3 million; cash declined $7.8 million during the quarter. Capital expenditures were $56.4 million, including $15.7 million of redevelopment spending. Restricted cash was $174.0 million and is not equivalent to freely available cash. Total assets were $6.82 billion and total equity was $1.08 billion at March 31.
Available capacity under the $500 million revolving facility was $402.1 million, after $67.4 million outstanding and $30.5 million of letters of credit. Property-level debt had a 7.9-year weighted-average maturity; approximately 96% was fixed-rate. Trailing-twelve-month debt-service and fixed-charge coverage ratios were 1.62x and 1.38x, respectively, versus covenants of 1.50x and 1.30x.
Material changes and notable items
- Common-stockholder loss improved from $31.8 million to $10.6 million, principally reflecting stronger property NOI and higher disposition gains. The quarter nevertheless remained loss-making from continuing operations.
- Discontinued-operations income was $34.9 million, compared with $4.4 million a year earlier. It included $35.7 million of disposition gains. Aimco sold or disposed of 10 consolidated properties for $89.7 million gross proceeds and $40.4 million net proceeds; the prior-year period included 12 properties and $28.9 million gross proceeds.
- Continuing-operations real estate impairment losses were $6.4 million, primarily for properties expected to be sold within 12 months. Property operating expenses fell to $108.6 million from $115.3 million, while other expenses increased to $6.3 million from $3.9 million, partly due to separation costs.
- Quarter activity included a $72.3 million acquisition of a 488-unit Phoenix property, assuming $29.1 million of debt principal, and a $38.5 million purchase of remaining interests in seven partnerships owning 13 properties. Aimco also issued $9.8 million of 7.00% Class Z preferred stock.
- Cash provided by operations increased $20.8 million year over year. Capital expenditures rose to $56.4 million from $30.2 million; property-sale proceeds and operating cash helped fund investment and redevelopment.
Outlook, risks and contingencies
- Management expected to invest $125–$150 million in redevelopment during 2012 and $400 million over several years across 10 projects. It projected un-trended current returns above 7% and free-cash-flow internal rates of return above 10% for those projects.
- By December 31, 2015, management intended to reduce debt and preferred equity to EBITDA below 7.0x and raise EBITDA coverage of interest and preferred dividends above 2.5x. Reported trailing-twelve-month ratios were 9.7x and 1.79x, respectively. These are targets, not assurances.
- Management said it expected to remain within revolving-credit covenants through the remainder of 2012. No specific quarterly or full-year earnings guidance is provided in the filing text.
- Key risks include financing availability and cost, debt-service and covenant capacity, apartment demand and local economic conditions, property values, operating-cost inflation, regulation and REIT qualification, litigation, environmental liabilities, severe weather, and execution of acquisitions, dispositions and redevelopment.
- Construction commitments were approximately $53.4 million, mostly expected during 2012. A further $3.0 million loan advance was committed for West Harlem properties; in specified circumstances, the obligor could put properties to Aimco, requiring about $30.9 million cash and assumption of about $118.3 million in property debt, subject to rent-level conditions.
- Interest-rate swaps and floating-rate debt create exposure: management estimated a 100-basis-point rate increase would reduce annual common-stockholder income (or increase loss) by about $2.5 million. Swap collateral included $20.0 million of restricted cash. The filing also describes pending IRS examinations, tax-credit compliance obligations and partnership litigation; management did not expect these matters to have a material adverse effect.
Important facts for investors to verify
- How much of reported earnings improvement is attributable to recurring property operations versus disposition gains and discontinued operations.
- Whether rent growth, occupancy and expense trends sustain same-store NOI growth, particularly given the 40-basis-point occupancy decline noted for conventional same-store properties.
- Whether redevelopment spending and projected returns are achieved, and how the associated capital requirements affect cash flow and leverage.
- Debt and preferred-equity reduction progress against management’s 2015 targets, alongside covenant headroom and refinancing needs.
- Actual unrestricted liquidity, since restricted cash is substantial, and the timing and net proceeds of planned property sales and the managed-property portfolio transfer.
- Potential effects of the West Harlem put provisions, tax-credit compliance, IRS examinations, partnership litigation and other contingencies.