APARTMENT INVESTMENT & MANAGEMENT CO quarterly report, Q2 FY2020

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APARTMENT INVESTMENT & MANAGEMENT CO. — Q2 2020 Form 10-Q

Reporting period: Quarter and six months ended June 30, 2020. Amounts below are in U.S. dollars; financial statement amounts are rounded to millions. Aimco is a REIT whose apartment portfolio is held and operated through AIMCO Properties, L.P. At quarter-end, the portfolio comprised 125 communities and 32,938 homes across 17 states and the District of Columbia.

Financial and operating performance

  • Q2 revenue: Rental and other property revenue was $218.8 million, down 2.4% from $224.2 million in Q2 2019. First-half revenue was $443.4 million, down 2.4% year over year.
  • Q2 earnings: Net income was $43.2 million versus $70.0 million; net income attributable to Aimco common stockholders was $39.2 million versus $59.2 million. Diluted EPS was $0.26 versus $0.40. First-half net income was $52.2 million versus $361.3 million, heavily affected by lower disposition gains.
  • Cash flow: First-half operating cash flow was $184.4 million, up from $170.0 million. Investing activities used $160.1 million, while financing activities provided $240.5 million. Cash, cash equivalents and restricted cash totaled $442.5 million at June 30.
  • Same-store operations: Q2 same-store NOI declined 1.4% to $132.1 million; revenue fell 1.1%. Average daily occupancy was 95.5%, down about 140 basis points year over year. Renewal rents rose 5.1%, new-lease rents fell 2.4%, and weighted-average rent growth was 1.8%. Same-store NOI margin was 73.0%, down about 30 basis points. First-half same-store NOI increased 1.8%.
  • Non-GAAP measures: Q2 diluted Pro forma FFO per share was $0.63 versus $0.60; AFFO per share was $0.55 versus $0.51. Management attributed growth to lease-up, Parkmerced mezzanine-loan income and lower G&A, partly offset by pandemic impacts and redevelopment drag. These measures are not GAAP earnings.
  • Debt and liquidity: Total indebtedness was $4.89 billion, up from $4.51 billion at year-end 2019. Aimco reported approximately $1.2 billion of liquidity: $398.4 million cash, $30.0 million restricted cash excluding tenant deposits, and $793.5 million available revolving-credit capacity. No revolver borrowings were outstanding at quarter-end. Approximately $2.3 billion of communities were unencumbered.
  • Leverage and coverage: Net leverage to Adjusted EBITDAre was 8.1x, above the company’s below-7.0x target; Adjusted EBITDAre coverage of interest and preferred distributions was 3.3x, above its 2.5x target. Trailing-12-month fixed-charge coverage was 2.02x against a 1.40x covenant minimum.

Material changes and notable items

  • Q2 disposition gain was $47.2 million from one community sale, compared with $64.3 million in Q2 2019. First-half 2020 gains were $47.2 million versus $355.8 million in first-half 2019, when eight communities were sold. This difference substantially explains the year-over-year decline in reported net income.
  • Q2 interest expense increased 23.4% to $48.8 million, reflecting refinancing activity, the new term loan and prepayment penalties. The company excluded $6.2 million of prepayment penalties from Pro forma FFO.
  • On April 20, Aimco obtained a $350 million term loan, principally to repay revolver borrowings. It matures April 20, 2021, with a one-year extension option, and bears interest at 30-day LIBOR plus 1.85%, subject to a 0.50% LIBOR floor.
  • During Q2, Aimco placed $608.8 million of property debt, generating $370.6 million of incremental proceeds. The loans had a 9.3-year weighted-average term and 2.9% weighted-average interest rate. Approximately 99% of property-level debt was fixed rate.
  • The company recorded $8.0 million of Q2 incremental COVID-related impacts, including higher interest, bad debt, lower commercial revenue, reduced late-fee income and safety costs; these were not excluded from Pro forma FFO or AFFO. First-half write-offs included $2.9 million of straight-line commercial rent and $2.2 million of related deferred leasing costs.

Outlook, risks and contingencies

  • No formal earnings guidance was provided. Management said it expected to meet leverage targets through property NOI growth, including an expected $30 million of incremental NOI from long-cycle redevelopment projects, and approximately $350 million of expected property sales, including a community under contract. Proceeds from the under-contract sale were expected to reduce leverage.
  • Management reported $1.2 billion of liquidity and said it expected sufficient resources to meet operational needs. It expected to remain within debt covenants. These expectations depend on operating performance, financing availability and asset sales.
  • COVID-19 remained a principal uncertainty: rent protections and eviction restrictions, recession risk, lower occupancy or rents, collection losses, commercial-tenant weakness, higher operating costs, and delays or cost increases in construction could affect results and property values. Q2 residential billed-amount collections were 95.3% during the period and 97.2% by July 31; July collections were 95.8% by month-end. The company recognized 98.4% of Q2 residential revenue, treating 1.6% as bad debt.
  • Redevelopment and development commitments totaled approximately $179 million, most expected within 12 months. Estimated remaining investment across listed projects was $165.4 million. Construction schedules and stabilization estimates were subject to pandemic-related delays.
  • The Parkmerced mezzanine investment was $293.4 million at quarter-end, including a $275 million loan accruing at 10%. The company recognized $13.7 million of first-half income but reported receiving only $0.6 million in cash during that period; collectability risk could require stopping income recognition or recording impairment.
  • Environmental matters include groundwater contamination near a former Indiana property and a Lake Tahoe site. The company said it did not expect either matter to materially adversely affect results, but outcomes remain uncertain; civil suits remain pending in the Lake Tahoe matter.
  • Subsequent events: a $5 million non-refundable deposit was received on a community expected to sell for approximately $126 million later in 2020. The board declared a $0.41-per-share quarterly dividend on July 28, payable August 28.

Important facts for investors to verify

  • Whether rent collections, occupancy and bad debt remain resilient as pandemic-related assistance, restrictions and deferrals change.
  • Progress on the planned approximately $350 million of property sales, including closing and use of proceeds, and the resulting leverage trajectory.
  • Term-loan refinancing or extension plans ahead of its April 2021 maturity, and compliance with leverage and fixed-charge covenants.
  • Parkmerced loan interest collections, collateral value and the recoverability of accrued interest and principal.
  • Redevelopment spending, construction timing, lease-up and expected NOI versus current estimates and remaining commitments.