Aimco Reports Second Quarter 2014 Results, Raises Guidance

Business Wire

DENVER--(BUSINESS WIRE)--

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%

         
    SECOND QUARTER   YEAR-TO-DATE
(all items per common share - diluted)   2014     2013     2014     2013  
Net income   $ 0.51     $ 0.07     $ 0.95     $ 0.10  

Funds From Operations (FFO)/ Pro forma Funds From Operations (Pro forma FFO)

  $ 0.52     $ 0.49     $ 1.02     $ 0.97  
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%

         
    SECOND QUARTER   YEAR-TO-DATE
    Year-over-Year   Sequential   Year-over-Year
      2014     2013   Variance   1st Qtr Variance     2014     2013   Variance
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                      
Revenue   $ 176.9   $ 169.9   4.1 %   $ 174.9   1.1 %   $ 351.8   $ 337.0   4.4 %
Expenses     58.8     58.4   0.7 %     59.7   (1.6 )%     118.5     116.4   1.8 %
NOI   $ 118.1   $ 111.5   5.9 %   $ 115.2   2.6 %   $ 233.3   $ 220.6   5.8 %
     

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  

Year-to-
Date

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  

Weighted Avg.
Maturity (Yrs.)

 

Weighted
Avg Rate

Aimco share of long-term, non-recourse property debt   $ 4,020.0  

93

  8.2   5.26%
Outstanding borrowings on revolving credit facility   53.4  

1

  4.3   2.78%
Preferred securities   265.7  

6

  Perpetual   6.71%
Total leverage   $ 4,339.1  

100

  n/a   5.32%
       

Leverage Ratios

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.

     
   

TRAILING-TWELVE-MONTHS
ENDED JUNE 30,

   

2014

  2013
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.

Liquidity

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.

Equity Activity

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.

Outlook

             
   

THIRD
QUARTER

 

FULL YEAR
2014

 

PREVIOUS FULL
YEAR 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 [1]   n/a   ~$3M   ~ $0M
Historic Tax Credit Benefit [2]   n/a   $12M to $14M   $10M to $11M
Real estate value of unencumbered properties   n/a   $900M to $950M   $525M to $575M
[1]   Represents revised projection of tax benefit associated with Aimco's Taxable REIT Subsidiary.
[2] 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

 

Supplemental Information

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.

About Aimco

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.

Forward-looking Statements

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,
2014   2013   2014   2013  
REVENUES
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  
Total revenues 246,418   241,745   495,342   479,249  
 
OPERATING EXPENSES
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  
Operating income 65,797 58,712 131,075 111,352
Interest income, net 1,671 2,651 3,400 9,064
Interest expense (55,061 ) (57,730 ) (110,807 ) (116,076 )
Other, net 189   (987 ) (1,790 ) (3,251 )
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 84,605 6,979 166,137 9,812
Noncontrolling interests:

Net (income) loss income attributable to noncontrolling
 interests in consolidated real estate partnerships

(2,226 ) 6,150 (13,615 ) 11,112
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   $  
Net income $ 0.51   $ 0.07   $ 0.96   $ 0.10  
Earnings attributable to Aimco per common share - diluted:
Income from continuing operations $ 0.51   $ 0.01   $ 0.95   $  
Net income $ 0.51   $ 0.07   $ 0.95   $ 0.10  
 
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):
 

Three Months
Ended June
30, 2013

Six Months
Ended June 30,
2013

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  
Operating income 5,631 11,045
Interest income 115 193
Interest expense (4,172 ) (8,373 )
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
ASSETS
Buildings and improvements $ 6,169,512 $ 6,332,723
Land 1,811,503   1,881,358  
Total real estate 7,981,015 8,214,081
Accumulated depreciation (2,716,076 ) (2,822,872 )
Net real estate 5,264,939 5,391,209
Cash and cash equivalents 33,826 55,751
Restricted cash 223,580 127,037
Other assets 500,877 505,416
Assets held for sale [1] 55,443    
Total assets $ 6,078,665   $ 6,079,413  
 
LIABILITIES AND EQUITY
Non-recourse property debt $ 4,152,802 $ 4,337,785
Revolving credit facility borrowings 53,400   50,400  
Total indebtedness 4,206,202 4,388,185
Accounts payable 37,158 43,161
Accrued liabilities and other 282,531 287,595
Deferred income 93,294 107,775
Liabilities related to assets held for sale [1] 30,753    
Total liabilities 4,649,938   4,826,716  
Preferred noncontrolling interests in Aimco OP 78,917 79,953
Equity:
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 equity 1,349,810   1,172,744  
Total liabilities and equity $ 6,078,665   $ 6,079,413  
 
[1] As of June 30, 2014, Aimco had six properties with an aggregate of 224 units classified as held for sale.
 

Contact:
Apartment Investment and Management Company
Elizabeth Coalson, 303-691-4350
Vice President Investor Relations
or
Investor Relations, 303-691-4350
investor@aimco.com

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