Apartment Investment and Management Company (Aimco) — Q1 2013 Form 10-Q
Business context and period. This combined quarterly report covers Aimco and AIMCO Properties, L.P. for the three months ended March 31, 2013; amounts below are in U.S. dollars. Aimco is a REIT focused on owning, managing, and redeveloping apartment communities. At quarter-end, it held interests in 175 conventional properties (55,884 units) and 84 affordable properties (11,376 units). Conventional and affordable operations generated 90% and 10% of proportionate property NOI, respectively.
Financial performance and position
- Revenue and operating results: Total revenue was $255.5 million, up 1.2% year over year. Operating income was $57.8 million, compared with $40.1 million; the derived operating margin rose to 22.6% from 15.9%.
- Property performance: Conventional same-store NOI increased 4.6%, on revenue growth of 4.7% and expense growth of 4.9%. Affordable NOI decreased 1.1%. Total real estate portfolio NOI from continuing operations increased 5.2%. Conventional portfolio average revenue per effective unit rose 8.0% to $1,370; management reported a 63% operating margin.
- Profit and per-share results: Net income attributable to Aimco was $5.9 million, versus $1.9 million. Net income attributable to common stockholders was $5.1 million, or $0.03 per share, versus a $10.6 million loss, or $0.09 loss per share. Continuing operations attributable to common stockholders were approximately breakeven in Q1 2013, versus a $0.30-per-share loss in Q1 2012. Results benefited from improved operating income and lower interest expense, but the comparison also reflects reduced preferred dividends after $600.9 million of preferred securities were redeemed in 2012. Discontinued-operations income fell to $2.1 million from $33.2 million, mainly because of lower property-disposition gains.
- FFO and AFFO (non-GAAP): Aimco reported diluted FFO/pro forma FFO of $70.1 million, versus $48.4 million, and AFFO of $55.0 million, versus $35.2 million. These measures are not substitutes for GAAP earnings or operating cash flow.
- Cash flow and investment: Operating cash flow was $48.9 million, little changed from $48.5 million. Investing used $73.6 million, including $66.1 million of capital expenditures, compared with $56.4 million of capex a year earlier. Financing used $10.2 million. Cash and cash equivalents declined $34.9 million to $49.6 million.
- Debt and liquidity: Total indebtedness was $4.713 billion, including $4.664 billion of non-recourse property debt and $49.2 million drawn on the revolver. Restricted cash was $156.1 million. Remaining borrowing capacity under the $500 million credit facility was $405.4 million, net of borrowings and letters of credit. Approximately 97% of property-level debt was fixed-rate; weighted-average maturity was 7.9 years. Consolidated debt fair value was estimated at $5.1 billion versus carrying value of about $4.7 billion.
- Leverage and coverage: Trailing-twelve-month debt/EBITDA was 7.5x and debt plus preferred equity/EBITDA was 7.8x, above the stated targets of less than 7.0x. EBITDA coverage of interest and preferred dividends was 2.3x, below the target of greater than 2.5x. Credit-agreement debt-service and fixed-charge coverage were 1.68x and 1.58x, respectively, above covenants of 1.50x and 1.30x. Common dividends declared were $0.24 per share, up from $0.18.
Material changes, outlook, risks, and unusual items
- Management expects to reach its leverage targets by early 2014 through earnings growth and scheduled debt amortization. It expects conventional redevelopment spending of approximately $130 million to $160 million in 2013, and plans to dispose of affordable properties over the next four to five years and reinvest proceeds in the conventional portfolio.
- During Q1, Aimco sold three properties for $8.0 million gross proceeds and $0.3 million net proceeds, recording a net gain of about $1.8 million. In Q1 2012, ten properties generated $89.7 million gross and $40.4 million net proceeds, with a net gain of about $35.4 million.
- Construction and redevelopment commitments were approximately $206.9 million, most expected to be incurred within 24 months. A West Harlem loan arrangement includes property put options that could require cash payments of about $31.1 million or $60.7 million, depending on performance thresholds, and assumption of approximately $118.1 million of property debt.
- Interest-rate swaps covered $51.0 million of notional principal; Aimco had posted $20.0 million cash collateral under total-rate-of-return swaps. Management warned that covenant compliance, refinancing availability and cost, property values, occupancy and rents, local economic conditions, regulation, environmental matters, and severe weather could affect results and liquidity.
- The Napico legacy asset-management portfolio sale remains seller-financed and is accounted for under the profit-sharing method; the portfolio’s assets, liabilities, and results therefore continue to be reflected in the financial statements until the relevant sale-accounting requirements are met. Aimco expects a gain if full payment is received and sale recognition criteria are satisfied.
- Aimco challenged IRS adjustments for the Operating Partnership’s 2006 and 2007 tax years in Tax Court; management did not expect the litigation to materially affect financial condition or results. The filing reported no material changes to previously disclosed risk factors and no material control deficiencies.
Important facts for investors to verify
- Whether conventional rent and NOI growth continue to exceed property expense growth, and how occupancy trends develop.
- Progress toward the early-2014 leverage targets, including the effect of redevelopment spending, debt maturities, and available revolver capacity.
- Actual 2013 redevelopment spending versus the $130 million–$160 million outlook, and the timing and proceeds of planned affordable-property dispositions.
- Cash generation relative to capital expenditures, distributions, and the $206.9 million of construction commitments.
- Collection and accounting treatment of the seller-financed Napico notes, and any developments in the West Harlem put options or tax litigation.