Apartment Investment and Management Company (“Aimco”) (AIV) announced today its second quarter 2014 results.
Chairman and Chief Executive Officer Terry Considine comments: "Aimco enjoyed a solid second quarter with good progress on all fronts. With higher rents and good cost discipline, Same Store Net Operating Income was up 5.9% year-over-year. Conventional community average revenue per apartment home is approaching $1,550, up 11.4% year- over-year, reflecting rent growth and continued portfolio improvements. We completed the redevelopment of our Pacific Bay Vistas community and are making good progress on our other redevelopment activities. Our balance sheet is strong. Our prospects are good as we enter the second half of the year."
Financial Results: Second Quarter AFFO Up 19%, Pro forma FFO Up 6%
|(all items per common share - diluted)||2014||2013||2014||2013|
Funds From Operations (FFO)/ Pro forma Funds From Operations (Pro forma FFO)
|Deduct Aimco share of Capital Replacements||$||(0.08||)||$||(0.12||)||$||(0.16||)||$||(0.23||)|
|Adjusted Funds From Operations (AFFO)||$||0.44||$||0.37||$||0.86||$||0.74|
Chief Financial Officer Ernie Freedman comments: "Second quarter Pro forma FFO of $0.52 per share was equal to the high end of our guidance. We are projecting third quarter Pro forma FFO per share to be in a range from $0.48 to $0.52 and we are increasing our full year 2014 Pro forma FFO per share guidance from a range from $2.02 to $2.12 to a range of $2.04 to $2.12. Our updated guidance includes $0.02 per share of prepayment penalties associated with property debt payoffs anticipated to be completed during the second half of 2014. We continue to expect full year AFFO per share to be between $1.64 and $1.74."
Pro forma FFO - Year-over-year, second quarter Pro forma FFO increased 6% as a result of improved property operating results, lower offsite costs and increased contribution from redevelopment communities. These positive results were somewhat offset by the loss of income from apartment communities that were sold.
Adjusted Funds from Operations - Second quarter AFFO increased 19% when compared to second quarter 2013, as a result of Pro forma FFO growth, lower Capital Replacement spending associated with multi-phase capital projects started in prior years, and lower Capital Replacement spending due to the sale of approximately 7,000 apartment homes during 2013 and an additional 3,700 apartment homes year-to-date. As Aimco concentrates its investment capital in higher quality, higher price point apartment communities, Capital Replacements are declining as a percentage of net operating income. As a result, AFFO is increasing at a faster rate than is Pro forma FFO.
Operating Results: Second Quarter Conventional Same Store NOI Up 5.9%
|Average Rent Per Apartment Home||$||1,334||$||1,294||3.1||%||$||1,322||0.9||%||$||1,328||$||1,288||3.1||%|
|Other Income Per Apartment Home||167||155||7.7||%||168||(0.6||)%||167||150||11.3||%|
|Average Revenue Per Apartment Home||$||1,501||$||1,449||3.7||%||$||1,490||0.8||%||$||1,495||$||1,438||4.1||%|
|Average Daily Occupancy||96.0||%||95.6||%||0.4||%||95.7||%||0.3||%||95.8||%||95.5||%||0.3||%|
|$ in Millions|
Rental Rates - Aimco measures changes in rental rates by comparing, on a lease-by-lease basis, the rate on a newly executed lease to the rate on the expiring lease for that same apartment. Newly executed leases are classified either as a new lease, where a vacant apartment is leased to a new customer, or as a renewal.
|2014||1st Qtr||Apr||May||Jun||2nd Qtr||
|Renewal rent increases||4.9%||5.2%||4.7%||5.1%||5.0%||5.0%|
|New lease rent increases||1.0%||2.6%||5.0%||6.2%||4.7%||3.0%|
|Weighted average rent increases||2.8%||3.9%||4.9%||5.7%||4.9%||3.9%|
Portfolio Management: Revenue Per Apartment Home Up 11.4% to $1,548
Aimco's portfolio strategy seeks predictable rent growth from a portfolio of "A", "B" and "C" quality market-rate apartment communities, averaging "B/B+" in quality, and diversified among the largest coastal and job growth markets in the U.S., as measured by total apartment value. Aimco's target markets are primarily coastal markets, and also include several Sun Belt cities and Chicago, Illinois.
Aimco measures asset quality based on rents compared to local market average rents as reported by REIS, a third-party provider of commercial real estate performance information and analysis. Aimco defines asset quality as follows: "A" quality assets are those with rents greater than 125% of local market average; "B" quality assets are those with rents 90% to 125% of local market average; and "C" quality assets are those with rents lower than 90% of local market average. For first quarter 2014, the most recent period for which REIS information is available, Aimco Conventional Apartment Community rents averaged 106% of local market average rents.
Aimco expects to sell each year the lowest-rated 5% to 10% of its portfolio and to reinvest the proceeds from such sales in redevelopment and acquisition of higher-quality apartment communities. Through this disciplined approach to capital recycling, from 2010 through 2013, Aimco increased its year-end Conventional portfolio average monthly revenue per apartment home at a compound annual growth rate of more than 8%. This rate of growth reflects the impact of market rent growth, and more significantly, the impact of portfolio management through dispositions, redevelopment and acquisitions.
Second quarter 2014 Conventional portfolio average monthly revenue per apartment home was $1,548, an 11.4% increase compared to second quarter 2013, as a result of year-over-year Same Store monthly revenue per apartment home growth of 3.7% and the sale of Conventional Apartment Communities during 2013 and 2014 with average monthly revenues per apartment home substantially lower than those of the retained portfolio and reinvestment of the proceeds in higher-rent apartment communities through redevelopment and acquisitions.
Dispositions - In second quarter 2014, Aimco sold four Conventional Apartment Communities and two consolidated Affordable Apartment Communities with 2,016 and 111 apartment homes, respectively, for $156.6 million in gross proceeds. Aimco's share of net sales proceeds after distributions to limited partners, repayment of existing property debt and transaction costs was $120.5 million. In second quarter, Aimco also sold its partnership interests in nine unconsolidated Affordable Apartment Communities with 427 units.
Redevelopment: On Track to Create $1.50 of Net Asset Value per Share
During second quarter 2014, Aimco invested $54.4 million in redevelopment.
Pacific Bay Vistas, in San Bruno, California, was completed in April and was 88% occupied as of July 30. Aimco expects Pacific Bay Vistas to reach stabilized occupancy before the end of summer.
Construction continued at both Lincoln Place, in Venice, California and at Preserve at Marin, in Corte Madera, California. Work at each of these communities is progressing as planned. As of June 30, 2014, 342 of the 391 completed apartment homes at Lincoln Place were occupied and 26 of the 36 completed apartment homes at Preserve at Marin were occupied. In early July, and consistent with Aimco's redevelopment plan, the amenity building and the first of the newly constructed apartment homes at Lincoln Place were delivered. Also, in late July, the third of seven apartment buildings at Preserve at Marin was delivered as planned.
As previously reported, during first quarter 2014, Aimco started the redevelopment of its 2900 on First community in Seattle. This first phase of the redevelopment includes the renovation of all 135 apartment homes, is on time and on budget, and the new product has been well received. In second quarter, Aimco increased the scope of this redevelopment to include amenities such as a new fitness center, a redesigned courtyard to include a dog park, resident lounge and BBQ area, and other building interior and commercial space upgrades. Aimco expects to invest approximately $8.2 million in these additional amenities and upgrades, bringing the total estimated redevelopment investment to $15.2 million. Also as a result of the increased scope of work, Aimco expects to increase average revenue per apartment home at this community by an incremental $245 per month, bringing the project-wide incremental increase in average revenue per apartment home to $525 per month. Additional information may be found on Supplemental Schedule 10.
Development: Progressing as Planned
During second quarter 2014, Aimco invested $8.2 million in the development of its One Canal Street apartment community in Boston. The project is on time and on budget.
Balance Sheet and Liquidity: Leverage on Target and Declining
Components of Aimco Leverage
|AS OF JUNE 30, 2014|
|$ in Millions||Amount||% of Total||
|Aimco share of long-term, non-recourse property debt||$||4,020.0||
|Outstanding borrowings on revolving credit facility||53.4||
Aimco leverage targets are: Debt and Preferred Equity to EBITDA less than 7.0x; and EBITDA Coverage of Interest and Preferred Dividends greater than 2.5x. Aimco also focuses on Debt to EBITDA and EBITDA Coverage of Interest ratios. See the Glossary for definitions of these metrics.
|Debt to EBITDA||6.8x||7.8x|
|Debt and Preferred Equity to EBITDA||7.3x||8.0x|
|EBITDA Coverage of Interest||2.6x||2.5x|
|EBITDA Coverage of Interest and Preferred Dividends||2.5x||2.4x|
Future leverage reduction is expected both from earnings growth and from regularly scheduled property debt amortization funded from retained earnings.
Aimco recourse debt at June 30, 2014, was limited to its revolving credit facility, which Aimco uses for working capital and other short-term purposes, and to secure letters of credit.
At the end of the second quarter, Aimco had outstanding borrowings on its revolving credit facility of $53.4 million and available capacity of $502.1 million, net of $44.5 million of letters of credit backed by the facility. At the end of the second quarter, Aimco's share of cash and restricted cash on hand was $253.8 million. In addition, Aimco held ten apartment communities in its unencumbered asset pool with a total estimated fair market value of approximately $570.0 million.
Preferred Equity Issuances - As previously announced, on May 12, 2014, Aimco priced an underwritten public offering of five million shares of its 6.875% Class A Cumulative Preferred Stock. The shares were priced at $25 per share for gross proceeds to Aimco of $125 million. Net proceeds to Aimco were approximately $120.8 million. Also during second quarter 2014, Aimco issued 117,400 shares of its 7.000% Class Z Cumulative Preferred Stock through its Class Z Preferred Stock At-the-Market offering program at $25.65 per share, equating to a yield of 6.823%, for gross proceeds to Aimco of $3 million. A portion of the net proceeds from preferred equity issuances was used by Aimco to repay indebtedness under its revolving credit facility. Aimco intends to use the remainder of the proceeds for the repayment of non-recourse property debt.
Dividend - As previously announced, the Aimco Board of Directors declared a quarterly cash dividend of $0.26 per share of Class A Common Stock for the quarter ended June 30, 2014. The second quarter 2014 dividend is payable on August 29, 2014, to stockholders of record on August 15, 2014.
|Net income per share||$0.05 to $0.09||$1.10 to $1.18||$0.68 to $0.78|
|Pro forma FFO per share||$0.48 to $0.52||$2.04 to $2.12||$2.02 to $2.12|
|AFFO per share||$0.34 to $0.38||$1.64 to $1.74||$1.64 to $1.74|
|Conventional Same Store Operating Measures|
|NOI change compared to second quarter 2014||-0.25% to 0.75%||n/a||n/a|
|NOI change compared to same period 2013||3.25% to 4.25%||4.50% to 5.25%||3.00% to 5.00%|
|Revenue change compared to 2013||n/a||3.90% to 4.20%||3.00% to 4.00%|
|Expense change compared to 2013||n/a||2.25% to 2.50%||2.00% to 3.00%|
|Other Guidance Updates|
|Tax Benefit, Excluding Historic Tax Credit Benefit ||n/a||~$3M||~ $0M|
|Historic Tax Credit Benefit ||n/a||$12M to $14M||$10M to $11M|
|Real estate value of unencumbered properties||n/a||$900M to $950M||$525M to $575M|
|||Represents revised projection of tax benefit associated with Aimco's Taxable REIT Subsidiary.|
|||In connection with its first quarter earnings report, Aimco announced additional costs associated with the redevelopment of its Lincoln Place community in Venice, California. A portion of such costs are eligible for Historic Tax Credits, which are recognized by Aimco as apartment homes are delivered.|
Earnings Conference Call Information
Live Conference Call:
|Conference Call Replay:|
|Friday, August 1, 2014 at 1:00 p.m. ET||Replay available until 9:00 a.m. ET on August 18, 2014|
|Domestic Dial-In Number: 1-888-317-6003||Domestic Dial-In Number: 1-877-344-7529|
|International Dial-In Number: 1-412-317-6061||International Dial-In Number: 1-412-317-0088|
|Passcode: 6449406||Passcode: 10048938|
Live webcast and replay: http://www.aimco.com/investors/events-presentations/webcasts
The full text of this Earnings Release and the Supplemental Information referenced in this release are available on Aimco's website at http://www.aimco.com/investors/financial-reports/quarterly-earning-reports.
Glossary & Reconciliations of Non-GAAP Financial and Operating Measures
Financial and operating measures found in this Earnings Release and the Supplemental Information include certain financial measures used by Aimco management that are not calculated in accordance with accounting principles generally accepted in the United States, or GAAP. These measures are defined in the Glossary in the Supplemental Information and, where appropriate, reconciled to the most comparable GAAP measures.
Aimco is a real estate investment trust that is focused on the ownership and management of quality apartment communities located in the largest markets in the United States. Aimco is one of the country's largest owners and operators of apartments, with 218 communities in 23 states and the District of Columbia. Aimco common shares are traded on the New York Stock Exchange under the ticker symbol AIV, and are included in the S&P 500. For more information about Aimco, please visit our website at www.aimco.com.
This Earnings Release and Supplemental Information contain forward-looking statements within the meaning of the federal securities laws, including, without limitation, statements regarding projected results and specifically forecasts of: third quarter and full year 2014 results, including but not limited to Pro forma FFO and selected components thereof; AFFO; and Aimco's development and redevelopment project investments, timelines and stabilized rents. These forward-looking statements are based on management's judgment as of this date and include certain risks and uncertainties. Risks and uncertainties include, but are not limited to: Aimco's ability to maintain current or meet projected occupancy, rental rates and property operating results; the effect of acquisitions, dispositions, developments and redevelopments; our ability to meet budgeted costs and timelines, and achieve budgeted rental rates related to our development and redevelopment projects; and our ability to comply with debt covenants, including financial coverage ratios.
Actual results may differ materially from those described in these forward-looking statements and, in addition, will be affected by a variety of risks and factors, some of which are beyond the control of Aimco, including, without limitation: financing risks, including the availability and cost of capital markets financing and the risk that our cash flows from operations may be insufficient to meet required payments of principal and interest; the risk that our earnings may not be sufficient to maintain compliance with debt covenants; real estate risks, including fluctuations in real estate values and the general economic climate in the markets in which we operate and competition for residents in such markets; national and local economic conditions, including the pace of job growth and the level of unemployment; the terms of governmental regulations that affect Aimco and interpretations of those regulations; the competitive environment in which Aimco operates; the timing of acquisitions, dispositions, developments and redevelopments; insurance risk, including the cost of insurance; natural disasters and severe weather such as hurricanes; litigation, including costs associated with prosecuting or defending claims and any adverse outcomes; energy costs; and possible environmental liabilities, including costs, fines or penalties that may be incurred due to necessary remediation of contamination of apartment communities presently owned or previously owned by Aimco. In addition, Aimco's current and continuing qualification as a real estate investment trust involves the application of highly technical and complex provisions of the Internal Revenue Code and depends on its ability to meet the various requirements imposed by the Internal Revenue Code, through actual operating results, distribution levels and diversity of stock ownership.
Readers should carefully review Aimco's financial statements and the notes thereto, as well as the section entitled “Risk Factors” in Item 1A of Aimco's Annual Report on Form 10-K for the year ended December 31, 2013, and the other documents Aimco files from time to time with the Securities and Exchange Commission. These forward-looking statements reflect management's judgment as of this date, and Aimco assumes no obligation to revise or update them to reflect future events or circumstances. This press release does not constitute an offer of securities for sale.
|Consolidated Statements of Operations|
|(in thousands, except per share data) (unaudited)||
|Three Months Ended||Six Months Ended|
|June 30,||June 30,|
|Rental and other property revenues||$||239,492||$||233,936||$||479,628||$||464,188|
|Tax credit and asset management revenues||6,926||7,809||15,714||15,061|
|Property operating expenses||94,438||94,298||193,643||188,166|
|Investment management expenses||1,021||1,697||2,273||3,130|
|Depreciation and amortization||71,399||73,833||141,706||149,548|
|General and administrative expenses||10,125||11,153||20,657||22,932|
|Other expense, net||3,638||2,052||5,988||4,121|
|Total operating expenses||180,621||183,033||364,267||367,897|
|Interest income, net||1,671||2,651||3,400||9,064|
|Income before income taxes, discontinued operations and gain on dispositions||12,596||2,646||21,878||1,089|
|Income tax benefit (expense)||5,347||(169||)||8,105||(274||)|
|Income from continuing operations||17,943||2,477||29,983||815|
|Income from discontinued operations, net||—||4,502||—||8,997|
|Gain on dispositions of real estate, net of tax||66,662||—||136,154||—|
Net (income) loss income attributable to noncontrolling
|Net income attributable to preferred noncontrolling interests in Aimco OP||(1,602||)||(1,606||)||(3,207||)||(3,212||)|
|Net income attributable to common noncontrolling interests in Aimco OP||(3,735||)||(575||)||(7,346||)||(872||)|
|Net (income) loss attributable to noncontrolling interests||(7,563||)||3,969||(24,168||)||7,028|
|Net income attributable to Aimco||77,042||10,948||141,969||16,840|
|Net income attributable to Aimco preferred stockholders||(1,758||)||(701||)||(2,212||)||(1,403||)|
|Net income attributable to participating securities||(274||)||(140||)||(513||)||(280||)|
|Net income attributable to Aimco common stockholders||$||75,010||$||10,107||$||139,244||$||15,157|
|Earnings attributable to Aimco per common share - basic:|
|Income from continuing operations||$||0.51||$||0.01||$||0.96||$||—|
|Earnings attributable to Aimco per common share - diluted:|
|Income from continuing operations||$||0.51||$||0.01||$||0.95||$||—|
|Consolidated Statements of Operations (continued)|
Income from Discontinued Operations
|In first quarter 2014, Aimco adopted a new accounting standard which generally eliminates, on a prospective basis, the requirement that sales of individual apartment communities be presented within discontinued operations. Under the new standard, the results of operations related to apartment communities sold or classified as held for sale during 2014 or subsequent periods are included in continuing operations for both the current period and prior periods, and any gain or loss on such sales is included as a separate line item below income from discontinued operations within Aimco's Consolidated Statements of Operations.|
|Income from discontinued operations for apartment communities sold prior to Aimco's January 1, 2014 adoption of the new standard consists of the following (in thousands):|
|Rental and other property revenues||$||18,647||$||37,267|
|Property operating expenses||(8,075||)||(16,628||)|
|Depreciation and amortization||(4,838||)||(9,718||)|
|(Provision for) recovery of real estate impairment losses||(103||)||124|
|Income before gain on dispositions of real estate and income taxes||1,574||2,865|
|Gain on dispositions of real estate||2,663||5,992|
|Income tax expense||265||140|
|Income from discontinued operations, net||$||4,502||$||8,997|
|Loss (income) from discontinued operations attributable to:|
|Noncontrolling interests in consolidated real estate partnerships||$||5,313||$||7,530|
|Noncontrolling interests in Aimco OP||(550||)||(866||)|
|Total noncontrolling interests||4,763||6,664|
|Income from discontinued operations attributable to Aimco||$||9,265||$||15,661|
|Consolidated Balance Sheets|
|(in thousands) (unaudited)|
|June 30, 2014||December 31, 2013|
|Buildings and improvements||$||6,169,512||$||6,332,723|
|Total real estate||7,981,015||8,214,081|
|Net real estate||5,264,939||5,391,209|
|Cash and cash equivalents||33,826||55,751|
|Assets held for sale ||55,443||—|
|LIABILITIES AND EQUITY|
|Non-recourse property debt||$||4,152,802||$||4,337,785|
|Revolving credit facility borrowings||53,400||50,400|
|Accrued liabilities and other||282,531||287,595|
|Liabilities related to assets held for sale ||30,753||—|
|Preferred noncontrolling interests in Aimco OP||78,917||79,953|
|Perpetual Preferred Stock||186,126||68,114|
|Class A Common Stock||1,462||1,459|
|Additional paid-in capital||3,692,854||3,701,339|
|Accumulated other comprehensive loss||(5,243||)||(4,602||)|
|Distributions in excess of earnings||(2,735,097||)||(2,798,853||)|
|Total Aimco equity||1,140,102||967,457|
|Noncontrolling interests in consolidated real estate partnerships||233,064||233,008|
|Common noncontrolling interests in Aimco OP||(23,356||)||(27,721||)|
|Total liabilities and equity||$||6,078,665||$||6,079,413|
| As of June 30, 2014, Aimco had six properties with an aggregate of 224 units classified as held for sale.|
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Elizabeth Coalson, 303-691-4350
Vice President Investor Relations
Investor Relations, 303-691-4350