Apartment Investment and Management Company (“Aimco”) (AIV) announced today first quarter results for 2019.
Chairman and Chief Executive Officer Terry Considine comments: “Aimco has started 2019 with solid results, the product of an intentional strategy to create Net Asset Value per share. In our Same Store portfolio, we maintained 97.0% occupancy for the entire quarter, increased net operating income by 5.5%, and posted peer-leading net operating income margins of 73.2%. In Redevelopment, we started the renovation of 707 Leahy, located in Redwood City, California; adding another start to this highly accretive business. In Portfolio Management, we sold seven apartment communities at prices above our internal estimated gross asset values for proceeds sufficient to complete the paired trade funding for the value-creating share repurchases in last year’s fourth quarter. And last month, we acquired One Ardmore, the fifth and final community in the Philadelphia portfolio acquisition announced one year ago.”
Chief Financial Officer Paul Beldin adds: “First quarter 2019 AFFO of $0.55 per share and Pro forma FFO of $0.61 per share were $0.02 and $0.01 ahead of the midpoint of our respective guidance ranges due to better than expected operating results at our Same Store, Redevelopment and Acquisition communities and the timing of general and administrative expenses. First quarter Same Store revenue growth of 4.2% was ahead of the assumptions underpinning the midpoint of our full-year 2019 revenue growth guidance of 3.3%, leaving us well positioned as we enter the important summer leasing season.”
“Aimco’s balance sheet is safe and liquid, which creates opportunity and flexibility. Aimco used proceeds from first quarter sales to pay down borrowings on our revolving credit facility, ending the quarter with cash on hand of $198 million and the capacity to borrow $723 million under our revolving credit facility. On April 1, we prepaid, at par, $168 million of property-level debt maturing during the third quarter of 2019. This repayment of debt added $740 million of property value to Aimco’s pool of unencumbered properties, now estimated at $3.3 billion.”
Financial Results: First Quarter Pro forma FFO Up 3%; AFFO Up 2%
|(all items per common share - diluted)||2019||2018||Variance|
|Pro forma Funds From Operations (Pro forma FFO)||$||0.61||$||0.59||3||%|
|Deduct Capital Replacements||$||(0.06||)||$||(0.05||)||20||%|
|Adjusted Funds From Operations (AFFO)||$||0.55||$||0.54||2||%|
Net Income (per diluted common share) - Year-over-year, first quarter net income increased primarily due to higher gains on the sale of apartment communities.
Pro forma FFO (per pro forma diluted common share) - Aimco’s first quarter Pro forma FFO per share increased $0.02 year-over-year due to the following items:
- $0.04 from Same Store Property Net Operating Income growth of 5.5%, driven by a 4.2% increase in revenue, offset by a 0.8% increase in expenses;
- $0.05 from Net Operating Income contributions from redevelopment communities and 2018 property acquisitions; and
- $0.01 lower interest expense; offset by
- ($0.08) contribution eliminated following the 2018 sale of the Asset Management business and sales in 2018 and 2019 of apartment communities to fund Aimco’s investment activities.
Adjusted Funds from Operations (per pro forma diluted common share) - AFFO per share increased $0.01 year-over-year due to the $0.02 increase in Pro forma FFO, offset $0.01 by an acceleration of capital replacement spending as compared to the previous year. For the full year, Aimco expects total capital replacement spending to decline year-over-year as the Aimco portfolio continues to be upgraded with Aimco capital invested in fewer, but more valuable, properties.
Operating Results: First Quarter Same Store NOI Up 5.5%
|Average Rent per Apartment Home||$2,041||$1,977||3.2||%||$2,031||0.5||%|
|Other Income per Apartment Home||124||120||3.3||%||126||(1.6||%)|
|Average Revenue per Apartment Home||$2,165||$2,097||3.2||%||$2,157||0.4||%|
|Average Daily Occupancy||97.0%||96.1%||0.9||%||97.0%||—||%|
|$ in Millions|
|Revenue, before utility reimbursements||$175.7||$168.6||4.2||%||$175.1||0.4||%|
|Expenses, net of utility reimbursements||47.1||46.8||0.8||%||43.9||7.3||%|
Same Store 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 as either a new lease, where a vacant apartment is leased to a new customer, or as a renewal. The table below details changes in new and renewal lease rates.
|Renewal rent increases||4.9||%||5.3||%||5.5||%||5.2||%|
|New lease rent increases||(0.2||%)||1.2||%||1.5||%||0.8||%|
|Weighted average rent increases||2.1||%||3.1||%||3.4||%||2.9||%|
|Average Daily Occupancy||97.1||%||97.0||%||97.0||%||97.0||%|
Redevelopment and Development
Redevelopment is Aimco’s second line of business where Aimco creates value by repositioning communities within the Aimco portfolio. Aimco also undertakes limited ground-up development when warranted by risk-adjusted investment returns, either directly or in connection with the redevelopment of an existing apartment community. Aimco invests to earn leverage-neutral risk-adjusted returns in excess of those expected from the apartment communities sold in “paired trades” to fund the redevelopment and development. Of these two activities, Aimco generally favors redevelopment because it permits adjustment of the scope and timing of spending to align with changing market conditions and customer preferences.
During the first quarter, Aimco invested $45 million in redevelopment and development. Aimco continued phased redevelopment activities in Miami at its Flamingo South Beach and Bay Parc communities, and ground-up construction at Parc Mosaic in Boulder, Colorado, The Fremont on the Anschutz Medical Campus in Denver, Colorado, and Elm Creek Townhomes in Elmhurst, Illinois.
Aimco also began a $24 million full redevelopment of 707 Leahy in Redwood City, California. This 110-home community is located in one of the most dynamic job markets in the world and benefits from higher density than permitted under the current zoning code. Aimco expects this investment to generate a Free Cash Flow internal rate of return of approximately 9%.
Portfolio Management: Revenue Per Apartment Home Up 6% to $2,181
Aimco’s portfolio of apartment communities is diversified across “A,” “B,” and “C+” price points, averaging “B/B+” in quality and is also diversified across several of the largest markets in the United States.
As part of its portfolio strategy, Aimco seeks to sell up to 10% of its portfolio annually and to reinvest the proceeds from such sales in accretive uses such as capital enhancements, redevelopments, some developments, and selective acquisitions with projected Free Cash Flow internal rates of return higher than expected from the communities being sold. Through this disciplined approach to capital recycling, Aimco significantly increases the quality and expected growth rate of its portfolio.
|Average Revenue per Apartment Home||$||2,181||$||2,052||6||%|
|Portfolio Average Rents as a Percentage of Local Market Average Rents||113||%||113||%||—||%|
|Percentage A (1Q 2019 Average Revenue per Apartment Home $2,839)||52||%||49||%||3||%|
|Percentage B (1Q 2019 Average Revenue per Apartment Home $1,918)||32||%||35||%||(3||%)|
|Percentage C+ (1Q 2019 Average Revenue per Apartment Home $1,727)||16||%||16||%||—||%|
|Free Cash Flow Margin||67||%||66||%||1||%|
First Quarter Portfolio - For its entire portfolio, Aimco’s average monthly revenue per apartment home was $2,181 for first quarter 2019, a 6% increase compared to first quarter 2018. This increase is due to year-over-year growth in Same Store revenue as well as Aimco’s acquisition activities, lease-up of redevelopment communities, and sales of communities with average monthly revenues per apartment home lower than those of the retained portfolio.
Acquisitions - Aimco evaluates potential acquisitions with an eye for unique and opportunistic investments and funds acquisitions pursuant to its strict “paired trade” discipline.
In the first quarter, Aimco made no acquisitions.
In April, Aimco closed the $65 million acquisition of One Ardmore, the fifth and final community included in the Philadelphia portfolio acquisition announced one year ago. This 110-home community is located in the heart of one of Philadelphia’s Main Line suburbs and most desirable submarkets. Aimco acquired One Ardmore at the completion of construction, and expects the community to be fully occupied before year-end.
Dispositions - In the first quarter, Aimco sold seven apartment communities with 2,206 apartment homes for gross proceeds of $409 million. Proceeds, net of debt repayment and transaction costs, were $340 million. Three communities are located in suburban Chicago, one in Alexandria, Virginia, one in Virginia Beach, Virginia, and two in Nashville, Tennessee. Proceeds from the sales were used to complete the leverage-neutral, “paired trade” funding for the fourth quarter 2018 common stock repurchases.
Aimco’s leverage strategy seeks to increase financial returns by using leverage with appropriate caution. Aimco limits risk through its balance sheet structure, employing low leverage, primarily non-recourse and long-dated property debt; and Aimco builds financial flexibility by maintaining ample unused and available credit as well as holding properties with substantial value unencumbered by property debt; and uses partners’ capital when it enhances financial returns or reduces investment risk.
Aimco total leverage includes the Aimco share of long-term, non-recourse, property debt encumbering apartment communities, outstanding borrowings under its revolving credit facility, and outstanding preferred equity.
|AS OF MARCH 31, 2019|
|$ in Millions||Amount||% of Total|| |
|Aimco share of long-term, non-recourse property debt||$||3,870||96||%||7.8|
|Outstanding borrowings on revolving credit facility||70||2||%||2.8|
|Pro forma Preferred Equity*||101||2||%||40.0**|
|Pro forma Total Leverage*||$||4,041||100||%||8.5**|
|Pro forma cash, restricted cash and investments in securitization trust assets*||(162||)|
|*||Aimco has adjusted Preferred Equity and cash on a pro forma basis to reflect the redemption of its Class A Perpetual Preferred Stock as if it had been redeemed with cash on hand on March 31, 2019.|
|**||Aimco’s Preferred Equity is perpetual in nature; however, for illustrative purposes, Aimco has computed the weighted average maturity of its Pro forma Total Leverage assuming a 40-year maturity for its Preferred Equity. Aimco has calculated the weighted average maturity of its Pro forma Total Leverage assuming that its Class A Perpetual Preferred Stock, which on April 15, 2019 Aimco called for redemption on May 16, 2019, was redeemed on March 31, 2019||.|
Aimco target leverage ratios are Proportionate Debt and Preferred Equity to Adjusted EBITDAre below 7.0x and Adjusted EBITDAre to Interest Expense and Preferred Dividends greater than 2.5x. Aimco calculates Adjusted EBITDAre and Adjusted Interest Expense used in its leverage ratios based on current quarter amounts, annualized.
|Proportionate Debt to Adjusted EBITDAre||7.0x|
|Proportionate Debt and Pro forma Preferred Equity to Adjusted EBITDAre||7.2x|
|Adjusted EBITDAre to Pro forma Adjusted Interest Expense||3.3x|
|Adjusted EBITDAre to Pro forma Adjusted Interest Expense and Pro forma Preferred Dividends||3.2x|
Aimco’s leverage ratios have been calculated on a pro forma basis. Please refer to Supplemental Schedule 5 and the Glossary for additional information and supporting calculations.
During first quarter 2019, Aimco retitled its Adjusted EBITDA measure to Adjusted EBITDAre in its calculation of leverage ratios. The computation of Adjusted EBITDAre has been modified from Aimco’s prior measure to include the amortization of debt issuance costs as a component of interest expense in both the computation of Adjusted Interest Expense and Adjusted EBITDAre. The impact of this change is less than 0.1x to each ratio. Aimco also added to the Glossary a reconciliation of Net Income to EBITDAre, as defined by Nareit.
At March 31, 2019, Aimco held cash and restricted cash of $198 million and had the capacity to borrow $723 million under its revolving credit facility, after consideration of $7 million of letters of credit backed by the facility. Aimco uses its credit facility primarily for working capital and other short-term purposes and to secure letters of credit.
Aimco also manages its financial flexibility by maintaining an investment grade rating and holding apartment communities that are unencumbered by property debt. At March 31, 2019, Aimco held unencumbered apartment communities with an estimated fair market value of approximately $2.5 billion. In April 2019, Aimco prepaid, at par, $168 million of property-level debt maturing during the third quarter 2019, increasing the estimated value of its pool of unencumbered apartment communities by $740 million to $3.3 billion.
Equity Capital Activities
As previously announced, on February 3, 2019, Aimco's Board of Directors declared a special dividend valued at $2.02 per share of common stock that consisted of $67.1 million in cash and 4.5 million shares of common stock, which was distributed on March 22, 2019.
In order to facilitate comparisons with previous periods, Aimco authorized a reverse split to neutralize the effect of the stock dividend. Taken together, the total number of shares outstanding after the stock dividend and reverse-split was unchanged by the two actions.
On April 29, 2019, the Aimco Board of Directors declared a quarterly cash dividend of $0.39 per share of Class A Common Stock for the quarter ended March 31, 2019, representing an increase of 3% compared to the dividends paid in second quarter 2018. This dividend is payable on May 31, 2019, to stockholders of record on May 17, 2019.
Aimco is herein maintaining Full Year guidance established in the Fourth Quarter 2018 Earnings Release.
($ Amounts represent Aimco Share)
|YEAR-TO-DATE MARCH 31, 2019||FULL YEAR 2019|
|Net Income per share||$1.88||$3.13 to $3.63|
|Pro forma FFO per share||$0.61||$2.41 to $2.51|
|AFFO per share||$0.55||$2.12 to $2.22|
|Select Components of Nareit FFO|
|Same Store Operating Measures|
|Revenue change compared to prior year||4.2%||2.80% to 3.80%|
|Expense change compared to prior year||0.8%||2.00% to 3.00%|
|NOI change compared to prior year||5.5%||2.70% to 4.50%|
|Tax Benefit||$4M||$7M to $9M|
|Property management expenses||$5M||$20M|
|General and administrative expenses||$10M||$47M|
|Total Offsite Costs||$15M||$67M|
|Redevelopment/Development||$45M||$225M to $275M|
|Capital Enhancements||$16M||$80M to $100M|
|Property dispositions||$409M||$750M to $850M|
|Property acquisitions ||$0M||$65M|
|Average revenue per apartment home||$2,181||~$2,220|
|Proportionate Debt to Adjusted EBITDAre ||7.0x||~6.7x|
|Proportionate Debt and Preferred Equity to Adjusted EBITDAre ||7.2x||~6.9x|
|||Aimco does not predict or guide to acquisitions. Full year 2019 acquisition guidance represents the purchase price for One Ardmore, which was acquired in April 2019. Aimco monitors potential transactions with an eye for unique and opportunistic investments and funds acquisitions pursuant to its strict “paired trade” discipline.|
|||Aimco has calculated pro forma leverage ratios at March 31, 2019 assuming that its Class A Perpetual Preferred Stock, which on April 15, 2019 Aimco called for redemption on May 16, 2019, was redeemed March 31, 2019.|
|($ Amounts represent Aimco Share)||SECOND QUARTER 2019|
|Net income per share||$0.39 to $0.43|
|Pro forma FFO per share||$0.57 to $0.61|
|AFFO per share||$0.48 to $0.52|
Earnings Conference Call Information
|Live Conference Call:||Conference Call Replay:|
|Friday, May 3, 2019 at 1:00 p.m. ET||Replay available until August 3, 2019|
|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: 9077982||Passcode: 10130487|
Live webcast and replay: investors.aimco.com
The full text of this Earnings Release and the Supplemental Information referenced in this release are available on Aimco’s website at investors.aimco.com.
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 measures not defined under accounting principles generally accepted in the United States, or GAAP. Certain Aimco terms and Non-GAAP measures are defined in the Glossary in the Supplemental Information and Non-GAAP measures reconciled to the most comparable GAAP measures.
Aimco is a real estate investment trust focused on the ownership and management of quality apartment communities located in select markets in the United States. Aimco is one of the country’s largest owners and operators of apartments, with ownership interests in 129 communities in 17 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 second quarter and full year 2019 results, including but not limited to: Nareit FFO, Pro forma FFO and selected components thereof; AFFO; Aimco redevelopment and development investments and projected yield on such investments, timelines and Net Operating Income contribution; expectations regarding sales of Aimco apartment communities and the use of proceeds thereof; and Aimco liquidity and leverage metrics.
These forward-looking statements are based on management’s judgment as of this date, which is subject to risks and uncertainties. Risks and uncertainties include, but are not limited to: Aimco’s ability to maintain current or meet projected occupancy, rental rate and property operating results; the effect of acquisitions, dispositions, redevelopments and developments; Aimco’s ability to meet budgeted costs and timelines, and achieve budgeted rental rates related to Aimco redevelopment and development investments; expectations regarding Aimco sales of apartment communities and the use of proceeds thereof; and Aimco’s 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 Aimco’s control, including, without limitation:
- Real estate and operating risks, including fluctuations in real estate values and the general economic climate in the markets in which Aimco operates and competition for residents in such markets; national and local economic conditions, including the pace of job growth and the level of unemployment; the amount, location and quality of competitive new housing supply; the timing of acquisitions, dispositions, redevelopments and developments; and changes in operating costs, including energy costs;
- Financing risks, including the availability and cost of capital markets’ financing; the risk that cash flows from operations may be insufficient to meet required payments of principal and interest; and the risk that earnings may not be sufficient to maintain compliance with debt covenants;
- Insurance risks, including the cost of insurance, and natural disasters and severe weather such as hurricanes; and
- Legal and regulatory risks, including costs associated with prosecuting or defending claims and any adverse outcomes; the terms of governmental regulations that affect Aimco and interpretations of those regulations; and possible environmental liabilities, including costs, fines or penalties that may be incurred due to necessary remediation of contamination of apartment communities presently 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 Aimco’s 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, 2018, 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|
|Rental and other property revenues attributable to real estate||$||230,235||$||225,393|
|Asset Management business rental and tax credit revenues||—||22,327|
|Property operating expenses attributable to real estate||79,184||78,287|
|Property operating expenses of partnerships served by Asset Management business||—||9,195|
|Depreciation and amortization||93,565||92,548|
|General and administrative expenses||10,369||11,355|
|Other expenses, net||5,703||2,958|
|Total operating expenses||188,821||194,343|
|Gain on dispositions of real estate||291,473||53,195|
|Income before income tax (expense) benefit||294,276||61,173|
|Income tax (expense) benefit||(2,981||)||34,517|
|Net income attributable to noncontrolling interests in consolidated real estate partnerships||(91||)||(6,206||)|
|Net income attributable to preferred noncontrolling interests in Aimco OP||(1,934||)||(1,937||)|
|Net income attributable to common noncontrolling interests in Aimco OP||(15,137||)||(3,755||)|
|Net income attributable to noncontrolling interests||(17,162||)||(11,898||)|
|Net income attributable to Aimco||274,133||83,792|
|Net income attributable to Aimco preferred stockholders||(2,148||)||(2,148||)|
|Net income attributable to participating securities||(417||)||(119||)|
|Net income attributable to Aimco common stockholders||$||271,568||$||81,525|
|Net income attributable to Aimco per common share – basic and diluted||$||1.88||$||0.54|
|Weighted average common shares outstanding – basic ||144,232||151,872|
|Weighted average common shares outstanding – diluted ||144,445||152,000|
|||2018 basic and diluted weighted average common shares outstanding have been restated to reflect the impact of the February 20, 2019, reverse stock split. Basic and diluted weighted average common shares outstanding were 156,609 and 156,740, respectively, as previously reported for the three months ended March 31, 2018.|
|Consolidated Balance Sheets|
|(in thousands) (unaudited)|
|March 31,||December 31,|
|Net real estate||5,643,853||5,723,475|
|Cash and cash equivalents||162,286||36,858|
|Assets held for sale||—||42,393|
|Liabilities and Equity|
|Non-recourse property debt||$||3,879,453||$||3,937,000|
|Debt issue costs||(20,430||)||(21,695||)|
|Non-recourse property debt, net||3,859,023||3,915,305|
|Revolving credit facility borrowings||70,000||160,360|
|Accrued liabilities and other||293,279||226,230|
|Liabilities related to assets held for sale||—||23,177|
|Preferred noncontrolling interests in Aimco OP||101,195||101,291|
|Perpetual preferred stock||125,000||125,000|
|Class A Common Stock||1,488||1,446|
|Additional paid-in capital||3,495,295||3,515,686|
|Accumulated other comprehensive income||4,851||4,794|
|Distributions in excess of earnings||(1,742,998||)||(1,947,507||)|
|Total Aimco equity||1,883,636||1,699,419|
|Noncontrolling interests in consolidated real estate partnerships||(2,857||)||(2,967||)|
|Common noncontrolling interests in Aimco OP||79,493||67,189|
|Total Liabilities and Equity||$||6,283,769||$||6,190,004|