Apartment Investment and Management Company (“Aimco”) (NYSE: AIV) announced today its third quarter 2012 results.
Chairman and Chief Executive Officer Terry Considine comments: “We are on track for the solid execution of our 2012 plans. Conventional Same Store operating income year-to-date has increased 6.7% over last year due to consistent renewal rent gains and good success in controlling costs. Our portfolio is much improved with average rents of $1,332, up 8% year-over-year, due to investment in property upgrades, sale of lower-rated properties, and the quality of our acquisitions. We have restarted our redevelopment program with clear plans, high-quality locations and attractive expected returns. Our balance sheet is much improved with leverage reduced by approximately $700 million.”
Chief Financial Officer Ernie Freedman adds: “Third quarter Pro forma FFO of $0.46 per share exceeded the midpoint of our guidance range by $0.01 per share, primarily as a result of better than expected property operating results. At the midpoint of our guidance, we are projecting full year FFO and AFFO per share growth of approximately 11% and 31%, respectively.”
Third Quarter Pro forma FFO Up 12%, AFFO Up 38%
|Net income (loss) per common share||$||0.17||$||(0.12||)||$||0.11||$||(0.67||)|
|Funds from Operations (FFO)||$||0.38||$||0.41||$||1.15||$||1.09|
|Add back (deduct) preferred equity redemption related amounts||$||0.08||$||—||$||0.17||$||(0.02||)|
|Pro forma Funds from Operations (Pro forma FFO)||$||0.46||$||0.41||$||1.32||$||1.07|
|Deduct Aimco's share of Capital Replacements||$||(0.13||)||$||(0.17||)||$||(0.36||)||$||(0.40||)|
|Adjusted Funds From Operations (AFFO)||$||0.33||$||0.24||$||0.96||$||0.67|
Year-to-date 2011 financial results include a deduction of $0.15 per share related to debt prepayment penalties and write-off of deferred loan costs incurred in connection with a refinancing and securitization transaction during second quarter 2011. Excluding these charges, comparable year-to-date Pro forma FFO and AFFO per share were $1.22 and $0.82, respectively.
Pro forma FFO - Pro forma FFO increased 12% when compared to third quarter 2011 as a result of: improved property operating results; additional income generated by investments in partnership tenders and mergers; and lower preferred stock dividends due to $600.9 million of redemptions during 2012. These positive results were somewhat offset by lower interest income and lower income from discontinued operations. Pro forma FFO was within Aimco's guidance range of $0.43 to $0.47 per share.
Adjusted Funds from Operations - AFFO increased 38% when compared to third quarter 2011. Capital Replacements continue to decline year-over-year in line with the reduced number of apartment units as Aimco's portfolio is concentrated in fewer properties with higher margins, generating AFFO growth at a faster rate than Pro forma FFO growth.
Aimco's property operations consist primarily of Conventional real estate operations, which relate to Aimco's diversified portfolio of market-rate apartment communities. Aimco also operates a portfolio of Affordable Properties, which consists of properties with rents that are generally paid, in whole or in part, by a government agency. Over the next four to five years, Aimco expects to dispose of these Affordable Properties and reinvest capital in its Conventional portfolio.
Third Quarter Total Same Store NOI Up 6.9%, Up 6.4% Year-to-Date
|Conventional Same Store||82%||4.9%||0.5%||7.4%||4.5%||0.8%||6.7%|
|Affordable Same Store||12%||4.4%||6.2%||3.4%||4.0%||3.5%||4.4%|
|Total Same Store||94%||4.8%||1.3%||6.9%||4.5%||1.2%||6.4%|
Conventional Same Store Results
|Average Rent Per Unit||$||1,184||$||1,134||4.4%||$||1,167||1.5%||$||1,168||$||1,119||4.4%|
|Other Income Per Unit||128||118||8.5%||121||5.8%||121||111||9.0%|
|Average Revenue Per Unit||$||1,312||$||1,252||4.8%||$||1,288||1.9%||$||1,289||$||1,230||4.8%|
|Average Daily Occupancy||95.3||%||95.2||%||0.1%||95.5||%||-0.2%||95.6||%||95.8||%||-0.2%|
|$ in Millions|
|2012||1st Qtr||2nd Qtr||Jul||Aug||Sept||3rd Qtr||Year-to-Date|
|Renewal rent increases||5.1%||5.7%||6.3%||6.4%||5.6%||6.0%||5.6%|
|New lease rent increases||2.0%||4.3%||4.5%||4.3%||2.6%||3.8%||3.7%|
|Weighted average rent increases||3.4%||5.0%||5.3%||5.3%||4.1%||4.8%||4.6%|
Affordable Same Store Results - For third quarter 2012, average daily occupancy for the Affordable portfolio was 98.9%, an increase of 1.2% from third quarter 2011, while average revenue per unit increased 3.2% from $960 to $991 per unit.
Aimco's portfolio strategy seeks predictable rent growth from a portfolio of A, B and C-quality conventional properties, 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 measures Conventional Property 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 less than 90% of local market average. For second quarter 2012, the most recent period for which REIS information is available, Aimco's Conventional Property rents averaged 101% of local market average rents, unchanged from first quarter 2011.
Aimco's target markets are primarily coastal markets, and also include several Sun Belt cities and Chicago, Illinois. In executing its portfolio strategy, Aimco expects to sell each year the lowest-rated 5% to 10% of its portfolio and to invest the proceeds from such sales in redevelopment and acquisition of higher-quality properties. Through this disciplined approach to capital recycling, from 2006 through 2011, Aimco increased its year-end conventional portfolio average revenue per unit at a compound annual growth rate of 5.5%. Approximately one-quarter of the revenue growth is attributable to market rent growth, notwithstanding two consecutive years of market rent declines, with the balance representing the impact of portfolio improvements through dispositions, redevelopment and acquisitions. Aimco expects to sell down its Affordable portfolio over the next four-to-five years.
Conventional Property Revenue per Unit Up 8.0% to $1,332
Third quarter 2012 Conventional portfolio average revenue per unit was $1,332, an 8.0% increase compared to third quarter 2011, as a result of year-over-year revenue growth of 4.9% and the sale of Conventional Properties during 2011 and 2012 with average revenues per unit substantially lower than those of the retained portfolio.
Dispositions - In third quarter 2012, Aimco sold eight Conventional Properties and 14 Affordable Properties with 2,349 and 1,562 units, respectively, for $235.4 million in gross proceeds. Average revenue per unit for the Conventional Properties sold during the quarter was $795, compared to the retained portfolio average of $1,332 per unit. Aimco's share of net sales proceeds after distributions to limited partners, repayment of existing property debt and transaction costs was $62.3 million.
Acquisitions - During the third quarter, Aimco acquired for $19.7 million a property located in Downtown San Diego, adjacent to the Gaslamp District. The acquisition was funded in part by the assumption of $9.7 million of non-recourse property debt, and in part by the tax-free exchange of proceeds from the sale of lower-rated properties. The acquired property consists of 84 apartment homes and approximately 8,000 square feet of commercial space. The property's average residential revenue per unit is $1,880, and its average rents are approximately 15% greater than the local market average. Aimco intends to add value to the acquisition through property upgrades and operational improvements.
During the third quarter, Aimco began the redevelopment of The Preserve at Marin located in Corte Madera, California. The Preserve at Marin has unobstructed views of San Francisco Bay and Mount Tamalpais, and direct access to nearby nature preserves. Aimco acquired this vacant 126-unit property in August 2011, and, including its purchase price, expects to invest a total of $85 million in the property. First occupancy is anticipated in the second quarter 2013 and current market rents for comparable product are estimated to average $3,880 per unit.
Also during the third quarter, Aimco continued the redevelopment of its Elm Creek property in Chicago, where 28 new townhomes are being constructed on a vacant land parcel contiguous to the property. During the quarter, Aimco also completed construction of an exclusive roof-top patio and lounge area and amenity upgrades at its Palazzo at Park La Brea property, located in West Los Angeles. Redevelopment of the property's four penthouse model units was substantially complete at quarter-end. Also during third quarter, Aimco began a multi-phase capital project at its 2900 on First property in Seattle. The initial phase of this project consists of Capital Replacement and Capital Improvement investments, with redevelopment beginning in 2013.
As Aimco previously announced, Aimco started in the fourth quarter the redevelopment of its Lincoln Place property in Venice, California. An earlier phase began last year with the redevelopment of four buildings with 65 apartment homes. Work was completed earlier this year and 50 of the apartment homes have been re-leased to returning residents. Over the next two years, Aimco will redevelop another 41 buildings including 631 now-vacant apartment homes, together with common areas and landscaping. Aimco will also construct on now-vacant land 13 new buildings with 99 apartment homes, a 5,000 square foot leasing center and a 6,100 square foot fitness center and pool area.
The Lincoln Place redevelopment is being funded by a $190.7 million FHA-insured loan that closed in October. The loan bears interest at 2.73% and is interest-only until 2014, when it converts to a 40-year fully amortizing loan that is freely pre-payable after 10 years. At closing, Aimco prepaid a $63 million loan secured by the property that required interest at 7.5% and that was due in fourth quarter 2013. Additionally, because of its historic significance, the property has been approved for historic tax credits, which Aimco intends to sell, expecting to raise $16 million.
During fourth quarter 2012, Aimco expects to begin multi-phase capital projects at Park Towne Place and The Sterling, both located in Center-City Philadelphia. Similar to the 2900 on First project, the initial phases of the Philadelphia projects will consist of Capital Replacement and Capital Improvement investments, with redevelopment beginning in 2013.
During 2012, Aimco expects to invest $100 million in redevelopment at ten properties. At the end of the third quarter, construction was underway at nine of these properties, including the three properties undergoing multi-phase capital projects. Over the next few years, Aimco expects to invest approximately $400 million in redevelopment of these ten properties and generate on average initial cash returns before projected market rent growth greater than 7% and Free Cash Flow Internal Rates of Return in excess of 10%.
Balance Sheet and Liquidity
Components of Aimco Leverage
|AS OF SEPTEMBER 30, 2012|
|$ in Millions||Amount||% of Total|
|Aimco's share of long-term, non-recourse property debt||$||4,567.0||96||%||7.7||5.49%|
|Outstanding borrowings on revolving line of credit||66.2||1||%||4.2||4.48%|
Aimco's leverage targets are: Debt and Preferred Equity to EBITDA of less than 7.0x; and EBITDA Coverage of Interest and Preferred Dividends of 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.
|Annualized 3rd Qtr||Expected Annualized|
4th Qtr 2012
|Debt to EBITDA||7.9x||8.3x||7.7x||8.2x||7.5x|
|Debt and Preferred Equity to EBITDA||8.1x||9.7x||8.0x||9.6x||7.7x|
|EBITDA Coverage of Interest||2.3x||2.1x||2.3x||2.2x||2.5x|
|EBITDA Coverage of Interest and Preferred Dividends||2.2x||1.7x||2.2x||1.8x||2.3x|
EBITDA Coverage of Interest and Preferred Dividends ratios are provided on a pro forma basis to exclude dividends on preferred stock redeemed during 2012.
Future leverage reduction is expected from earnings growth generated by the current portfolio and by regularly scheduled property debt amortization funded from retained earnings.
Aimco's recourse debt at September 30, 2012, was limited to its revolving credit facility, which Aimco uses for working capital purposes and to secure letters of credit. At the end of third quarter, Aimco had outstanding borrowings on its revolving credit facility of $66.2 million and available capacity was $406.8 million, net of $27.0 million of letters of credit backed by the facility. Also at the end of the quarter, Aimco had on hand $102.5 million of cash.
Common Stock Offerings - Pursuant to an option granted to underwriters of a $240.7 million equity offering completed in June, Aimco sold in July 1,350,000 shares of Common Stock for net proceeds of $36.1 million, or $26.74 per share.
Preferred Stock Redemption - Also during third quarter, using primarily the proceeds from the June and July equity offerings, Aimco redeemed for $300.0 million all of the outstanding shares of its Class U Cumulative Preferred Stock. In connection with the redemption, Aimco recognized redemption related charges of $12.1 million, consisting of previously deferred issuance costs and discounts.
Dividend - As announced on October 30, 2012, Aimco's Board of Directors declared a quarterly cash dividend of $0.20 per share of Class A Common Stock for the quarter ended September 30, 2012. The third quarter 2012 dividend is payable on November 30, 2012, to stockholders of record on November 16, 2012.
|Net income (loss) per share||-$0.04 to $0.02||$0.06 to $0.12||-$0.29 to -$0.22|
|Pro forma FFO per share||$0.47 to $0.53||$1.79 to $1.85||$1.78 to $1.86|
|AFFO per share||$1.31 to $1.37||$1.30 to $1.38|
|Conventional Same Store Operating Measures|
|NOI change compared to third quarter 2012||3.0% to 4.0%|
|NOI change compared to same period 2011||5.0% to 6.0%||6.50%||6.0% to 7.0%|
|Revenue change compared to 2011||4.60%||4.75% to 5.25%|
|Expense change compared to 2011||1.25%||2.0% to 2.5%|
|Average daily occupancy||95.6%||95.5% to 96.0%|
|Affordable Same Store NOI change compared to 2011||4.00%||2.5% to 3.5%|
|Total Same Store NOI change compared to 2011||6.00%||5.5% to 6.5%|
Change in Guidance for Conventional Same Store NOI Growth Compared to 2011
|Current full year||4.60||%||1.25||%||6.50||%|
|Previous full year at the midpoint||5.00||%||2.25||%||6.50||%|
|Change due to utilities experience||(0.20||)%||(0.80||)%||0.17||%|
Change due to 30 bps decrease in second
half average daily occupancy
Aimco currently expects full year 2012 Conventional Same Store revenue to increase 4.6% when compared to 2011, which is 0.4% lower than the midpoint projected by Aimco in second quarter 2012. This decrease is the result of: a decrease in previously projected tenant utility reimbursements, which are accounted for in other rental income; and a decrease in expected second half average daily occupancy. Lower projected utility reimbursements are more than offset by expected utility expense savings, generating a positive impact to NOI of 0.17% compared to Aimco's prior forecast.
2012 Outlook (continued)
|$ in Millions||CURRENT|
|Asset Management and Tax Credit Activities|
|Non-Recurring Expenses, including pursuit costs of $1.5||$3||$4|
|Property Management Expenses||$35||$35|
|General and Administrative Expenses||$48||$47|
|Conventional Redevelopment||$100||$125 - $150|
|Property Upgrades||$55||$30 - $40|
|Transaction Activities (Aimco Share)|
|Acquisitions (100% Aimco Share)||$130||$130|
|Real Estate Value of Partnership Tenders and Mergers||$143||$160|
Dispositions, before transaction expenses and repayment
of property debt
|$600 - $700||$600 - $700|
Earnings Conference Call
|Friday, November 2, 2012 at 1:00 p.m. EDT||Replay available until 9:00 a.m. EDT on November 19, 2012|
|Domestic Dial-In Number: 1-866-843-0890||Domestic Dial-In Number: 1-877-344-7529|
|International Dial-In Number: 1-412-317-9250||International Dial-In Number: 1-412-317-0088|
|Passcode: 7511607||Passcode: 10018923|
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 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.
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: fourth quarter and full year 2012 results; redevelopment project investments, timelines and stabilized rents; and annualized fourth quarter 2012 leverage ratios. 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 and redevelopments; 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; 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 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 properties presently owned or previously owned by Aimco. In addition, our 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 our 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, 2011, 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.
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 319 communities in 29 states, the District of Columbia and Puerto Rico. 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.
|Consolidated Statements of Operations|
|(in thousands, except per share data) (unaudited)|
Three Months Ended
Nine Months Ended
|Rental and other property revenues||$||256,752||$||242,574||$||760,155||$||725,090|
|Asset management and tax credit revenues||10,696||11,885||27,681||28,772|
|Property operating expenses||106,462||106,458||309,515||316,943|
|Investment management expenses||2,817||2,311||9,445||7,397|
|Depreciation and amortization||87,444||87,687||264,978||259,069|
|Provision for real estate impairment losses||2,453||—||10,801||—|
|General and administrative expenses||12,311||12,741||37,491||36,370|
|Other expense, net||5,230||3,838||11,514||12,328|
|Total operating expenses||216,717||213,035||643,744||632,107|
|Interest income, net||2,079||3,372||7,088||7,295|
|Equity in income (losses) of unconsolidated real estate partnerships||206||(4,987||)||(2,800||)||(8,432||)|
Gain on dispositions of interests in unconsolidated real estate and
|Income (loss) before income taxes and discontinued operations||4,455||(25,164||)||(24,355||)||(102,518||)|
|Income tax benefit||114||893||586||4,913|
|Income (loss) from continuing operations||4,569||(24,271||)||(23,769||)||(97,605||)|
|Income from discontinued operations, net||48,766||28,928||121,882||48,014|
|Net income (loss)||53,335||4,657||98,113||(49,591||)|
Net (income) loss attributable to noncontrolling interests in
Net income attributable to preferred noncontrolling interests in
Net (income) loss attributable to common noncontrolling interests
|Total noncontrolling interests||(14,554||)||(6,099||)||(34,583||)||5,438|
|Net income (loss) attributable to Aimco||38,781||(1,442||)||63,530||(44,153||)|
|Net income attributable to Aimco preferred stockholders||(14,515||)||(13,301||)||(49,136||)||(35,429||)|
|Net income attributable to participating securities||(103||)||(58||)||(317||)||(169||)|
|Net income (loss) attributable to Aimco common stockholders||$||24,163||$||(14,801||)||$||14,077||$||(79,751||)|
|Weighted average common shares outstanding - basic and diluted||144,959||120,339||130,960||118,939|
|Earnings (loss) per common share - basic and diluted:|
|Loss from continuing operations attributable to Aimco common stockholders||$||(0.07||)||$||(0.26||)||$||(0.60||)||$||(0.91||)|
|Income from discontinued operations attributable to Aimco common stockholders||0.24||0.14||0.71||0.24|
|Net income (loss) attributable to Aimco common stockholders||$||0.17||$||(0.12||)||$||0.11||$||(0.67||)|
|Consolidated Statements of Operations (continued)|
|Income from Discontinued Operations|
|Income from discontinued operations consists of the following (in thousands):|
Three Months Ended
Nine Months Ended
|Rental and other property revenues||$||7,297||$||30,365||$||37,244||$||104,551|
|Property operating expenses||(5,020||)||(17,279||)||(16,970||)||(54,643||)|
|Depreciation and amortization||(2,549||)||(10,565||)||(15,013||)||(36,365||)|
|Provision for real estate impairment losses||(2,453||)||(5,671||)||(8,837||)||(11,979||)|
|Operating (loss) income||(2,725||)||(3,150||)||(3,576||)||1,564|
|Loss before gain on dispositions of real estate and income taxes||(4,542||)||(8,916||)||(9,996||)||(17,588||)|
|Gain on dispositions of real estate||55,721||37,467||139,925||64,901|
|Income tax (expense) benefit||(2,413||)||377||(8,047||)||701|
|Income from discontinued operations, net||$||48,766||$||28,928||$||121,882||$||48,014|
|Income from discontinued operations attributable to:|
|Noncontrolling interests in consolidated real estate partnerships||$||(11,683||)||$||(11,838||)||$||(22,902||)||$||(16,924||)|
|Noncontrolling interests in Aimco Operating Partnership||(2,141||)||(1,127||)||(6,012||)||(2,063||)|
|Total noncontrolling interests||(13,824||)||(12,965||)||(28,914||)||(18,987||)|
|Income from discontinued operations attributable to Aimco||$||34,942||$||15,963||$||92,968||$||29,027|
|Consolidated Balance Sheets|
|(in thousands) (unaudited)|
|September 30, 2012||December 31, 2011|
|Buildings and improvements||$||6,593,894||$||6,372,683|
|Total real estate||8,600,254||8,341,116|
|Net real estate||5,751,208||5,707,874|
|Cash and cash equivalents||102,515||91,066|
|Accounts receivable, net||36,540||41,796|
|Notes receivable, net||103,288||111,205|
|Investment in unconsolidated real estate partnerships||38,249||47,790|
|Assets held for sale||46,475||348,102|
|LIABILITIES AND EQUITY|
|Non-recourse property debt||$||4,871,981||$||4,870,426|
|Revolving credit facility borrowings||66,200||—|
|Accrued liabilities and other||235,881||283,247|
|Liabilities related to assets held for sale||46,729||317,918|
|Preferred noncontrolling interests in Aimco Operating Partnership||80,077||83,384|
|Perpetual Preferred Stock||68,114||657,114|
|Class A Common Stock||1,456||1,209|
|Additional paid-in capital||3,714,674||3,098,333|
|Accumulated other comprehensive loss||(6,397||)||(6,860||)|
|Distributions in excess of earnings||(2,902,175||)||(2,841,467||)|
|Total Aimco equity||875,672||908,329|
|Noncontrolling interests in consolidated real estate partnerships||264,286||270,666|
|Common noncontrolling interests in Aimco Operating Partnership||(36,980||)||(34,321||)|
|Total liabilities and equity||$||6,565,388||$||6,871,862|