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DENVER–(BUSINESS WIRE)–Apartment Investment and Management Company (“Aimco”) (NYSE: AIV) announced today third quarter results for 2019.

Chairman and Chief Executive Officer Terry Considine comments: “Business is good! Aimco had a strong third quarter. Third quarter Same Store revenue was up 3.8% year-over-year and NOI was up 4.1%. Year-to-date, Same Store results lead peers in revenue growth, expense control, NOI increases, and NOI margin. In redevelopment, Aimco invested $71 million at properties throughout the portfolio and welcomed the first residents at Parc Mosaic in Boulder, Colorado.”

“In portfolio management, we continue to seek accretive investment opportunities where the land value is a significant percentage of the total investment. We closed one such investment in the third quarter at 1001 Brickell Bay Drive in Miami, the waterfront land and office building contiguous to our Yacht Club community. Aimco now has the ability to combine two fully entitled land parcels and increase entitled density by 10%.”

Chief Financial Officer Paul Beldin adds: “In the third quarter, Aimco lowered its annual cost of leverage by approximately 10 basis points and extended the duration of its balance sheet. Aimco financed $668 million worth of property debt at a weighted-average interest rate of 3.34% and a weighted-average maturity of 11.4 years. Aimco also rate-locked a property loan for $100 million at a 3.21% interest rate and an eleven-year term to maturity.”

“Third quarter 2019 AFFO of $0.56 per share and Pro forma FFO of $0.64 per share were $0.02 ahead of the midpoint of our respective guidance ranges due to timing of offsite costs and casualty losses, and a greater than anticipated tax benefit. Based on our year-to-date results I am increasing, for the second time this year, Pro forma FFO and AFFO guidance by $0.01 at their respective midpoints. These results have Aimco well-positioned to achieve the 6%-8% 2020 AFFO growth presented a month ago in our preliminary 2020 Outlook.”

Financial Results: 3Q AFFO Per Share $0.02 Ahead of Guidance Midpoint

In July 2018, Aimco sold its Asset Management business, accepting near-term earnings dilution as the price of an increased long-term growth rate. Year-to-date, Aimco has overcome the earnings headwinds resulting from the sale and has posted Pro forma FFO per share $0.02 above 2018. In the fourth quarter the dilutive impact of the sale will be past and Aimco expects growth in AFFO per share, normalized for level capital replacement spending, of ~6% at the midpoint.

 

 

THIRD QUARTER

 

YEAR-TO-DATE

(all items per common share – diluted)

 

2019

 

2018

 

Variance

 

2019

 

2018

 

Variance

Net income

 

$

0.01

 

 

$

3.73

 

 

 

(100

%)

 

$

2.26

 

 

$

4.24

 

 

 

(47

%)

Nareit Funds From Operations (FFO)

 

$

0.61

 

 

$

0.76

 

 

 

(20

%)

 

$

1.78

 

 

$

1.97

 

 

 

(10

%)

Pro forma adjustments, net*

 

$

0.03

 

 

$

(0.13

)

 

 

(123

%)

 

$

0.07

 

 

$

(0.14

)

 

 

(150

%)

Pro forma Funds From Operations (Pro forma FFO)

 

$

0.64

 

 

$

0.63

 

 

 

2

%

 

$

1.85

 

 

$

1.83

 

 

 

1

%

Deduct Capital Replacements

 

$

(0.08

)

 

$

(0.07

)

 

 

14

%

 

$

(0.23

)

 

$

(0.19

)

 

 

21

%

Adjusted Funds From Operations (AFFO)

 

$

0.56

 

 

$

0.56

 

 

 

%

 

$

1.62

 

 

$

1.64

 

 

 

(1

%)

* See Supplemental Schedule 1 for a detailed list of Pro forma adjustments to FFO.

Net Income (per diluted common share) – Year-over-year, third quarter net income decreased primarily due to lower gains from dispositions.

Pro forma FFO (per pro forma diluted common share) – Aimco’s third quarter Pro forma FFO per share increased $0.01 year-over-year due to the following items:

  • $0.03 contribution from Same Store Property Net Operating Income growth of 4.1%, driven by a 3.8% increase in revenue, offset by a 3.1% increase in expenses; and
  • $0.02 lower cost of leverage; offset by
  • ($0.02) contribution eliminated following the 2018 Asset Management business paired trade, net of the benefit of reinvestment in apartment communities with higher long-term growth prospects; and
  • ($0.02) other net items, including contributions from investments in accretive acquisitions, redevelopment, and development, offset by sales of lower-growth apartment communities to fund these investments and reduced tax benefit.

Adjusted Funds from Operations (per pro forma diluted common share) – Aimco’s third quarter AFFO per share was flat year-over-year due to the $0.01 increase in Pro forma FFO per share offset by a $0.01 increase in capital replacement spending. For the full year 2019, Aimco expects total capital replacement expenditures, per share, to be flat year-over-year as Aimco continues to upgrade its portfolio and invest capital in fewer, but more valuable, properties.

Operating Results: Third Quarter Same Store NOI Up 4.1%; Year-to-Date NOI Up 4.7%

 

THIRD QUARTER

 

YEAR-TO-DATE

 

Year-over-Year

 

Sequential

 

Year-over-Year

 

2019

 

2018

 

Variance

 

2nd Qtr.

 

Variance

 

2019

 

2018

 

Variance

Average Rent per Apartment Home

$

2,094

 

$

2,031

 

3.1

%

$

2,069

 

1.2

%

$

2,072

 

$

2,007

 

3.2

%

Other Income per Apartment Home

 

147

 

 

138

 

6.5

%

 

138

 

6.5

%

 

136

 

 

132

 

3.0

%

Average Revenue per Apartment Home

$

2,241

 

$

2,169

 

3.3

%

$

2,207

 

1.5

%

$

2,208

 

$

2,139

 

3.2

%

Average Daily Occupancy

 

96.8

%

 

96.4

%

0.4

%

 

96.9

%

(0.1

%)

 

96.9

%

 

96.3

%

0.6

%

 

 

 

 

 

 

 

 

 

$ in Millions

 

 

 

 

 

 

 

 

Revenue, before utility reimbursements

$

179.1

 

$

172.5

 

3.8

%

$

176.4

 

1.5

%

$

529.6

 

$

509.5

 

4.0

%

Expenses, net of utility reimbursements

 

48.2

 

 

46.8

 

3.1

%

 

47.2

 

2.2

%

 

142.1

 

 

139.5

 

1.9

%

NOI

$

130.9

 

$

125.7

 

4.1

%

$

129.2

 

1.2

%

$

387.5

 

$

370.0

 

4.7

%

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.

2019

1st Qtr.

 

2nd Qtr.

 

Jul

 

Aug

 

Sep

 

3rd Qtr.

 

Year-to-Date

Renewal rent increases

 

5.2

%

 

5.0

%

 

4.8

%

 

4.6

%

 

4.5

%

 

4.6

%

 

4.9

%

New lease rent increases

 

0.8

%

 

2.0

%

 

2.6

%

 

2.5

%

 

1.9

%

 

2.5

%

 

2.0

%

Weighted average rent increases

 

2.9

%

 

3.6

%

 

3.9

%

 

3.5

%

 

3.2

%

 

3.6

%

 

3.5

%

Average Daily Occupancy

 

97.0

%

 

96.9

%

 

96.6

%

 

96.9

%

 

97.0

%

 

96.8

%

 

96.9

%

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 some 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 third quarter, Aimco invested $71 million in redevelopment and development. Aimco continued phased redevelopment activities at Bay Parc in Miami, the full redevelopment of the North Tower at Flamingo Point in Miami Beach, Florida, and 707 Leahy in Redwood City, California, and ground-up construction at Parc Mosaic in Boulder, Colorado, The Fremont on the Anschutz Medical Campus in Aurora, Colorado, and Elm Creek Townhomes in Elmhurst, Illinois.

At Parc Mosaic, Aimco delivered the first building in August and, as of September 30, had leased 91% of its apartment homes. In late October, Aimco completed construction of the second building and had leased more than half of its apartment homes. The remaining buildings are on schedule to be delivered by year end.

At 707 Leahy, Aimco is on schedule to deliver the first building in the first quarter 2020, and preleasing is underway.

At Flamingo Point, Aimco began the full renovation of the North Tower and is on schedule to complete construction on the entryway, retail, and amenities by year end.

When possible, Aimco prefers redevelopments that can be completed one unit at a time, when that unit is vacated and available for renovation, or one floor at a time, thereby limiting the number of down units and lease-up risk. During the third quarter, Aimco completed 71 units at six smaller phase projects throughout its portfolio with another 15 units under construction at quarter end. Year-to-date 2019, at these projects, Aimco has completed 129 units.

During the third quarter, Aimco leased 117 apartment homes at redevelopment communities. At September 30, 2019, Aimco’s exposure to lease-up at active redevelopment and development communities was approximately 894 apartment homes, or less than 3% of Aimco’s apartment homes.

Portfolio Management

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.

 

THIRD QUARTER

 

2019

2018

Variance

Apartment Communities

 

128

 

 

133

 

(5

)

Apartment Homes

 

33,824

 

 

36,481

 

(2,657

)

Average Revenue per Apartment Home

$

2,262

 

$

2,131

 

6

%

Portfolio Average Rents as a Percentage of Local Market Average Rents

 

113

%

 

113

%

%

Percentage A (3Q 2019 Average Revenue per Apartment Home $2,976)

 

52

%

 

51

%

1

%

Percentage B (3Q 2019 Average Revenue per Apartment Home $1,979)

 

30

%

 

33

%

(3

%)

Percentage C+ (3Q 2019 Average Revenue per Apartment Home $1,782)

 

18

%

 

16

%

2

%

NOI Margin

 

71

%

 

72

%

(1

%)

Free Cash Flow Margin

 

66

%

 

67

%

(1

%)

Third Quarter Portfolio – For its entire portfolio, Aimco’s average monthly revenue per apartment home was $2,262 for third quarter 2019, a 6% increase compared to third 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.

In 2019, Aimco has reallocated capital from slower-growth markets such as Chicago and reinvested the proceeds in higher-growth markets such as Miami, Denver, and Boston.

Acquisitions Aimco evaluates potential acquisitions with an eye for unique and opportunistic investments, for example real estate transactions where the land is a significant percentage of the total value, and funds acquisitions pursuant to its strict “paired trade” discipline.

As previously reported, in the third quarter Aimco acquired for $157 million a 95% ownership in 1001 Brickell Bay Drive, the 350,000 square foot office building and land contiguous to its Yacht Club Apartments.

Combined, Yacht Club and 1001 Brickell Bay Drive give Aimco 4.25 acres, 600 linear feet of bay frontage, and the ability to increase density by 10% over what could be developed on the individual parcels. Aimco is evaluating options to maximize returns and minimize risk on the monetization of its investment. In the meantime, Aimco will earn income from the office building operations in excess of the income lost from those properties being sold to fund the investment.

Year-to-date, Aimco has acquired three properties: One Ardmore in Ardmore, Pennsylvania; 50 Rogers Street, a community under construction in Cambridge, Massachusetts; and 1001 Brickell Bay Drive in Miami, Florida. These acquisitions have an expected weighted-average Free Cash Flow internal rate of return of approximately 9%, approximately 300 basis points better than expected from the properties being sold in paired trades to fund the acquisitions.

Dispositions – Aimco made no dispositions in the third quarter.

Year-to-date, Aimco has sold eight properties generating net proceeds of $418 million used to fund acquisitions, redevelopment and development, the repurchase of Aimco shares in the fourth quarter of 2018, and general corporate uses.

Balance Sheet

Aimco Leverage

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 SEPTEMBER 30, 2019

$ in Millions

 

Amount

 

% of Total

 

Weighted Avg.

Maturity (Yrs.)

Aimco share of long-term, non-recourse property debt

 

$

4,265

 

 

 

98

%

 

 

8.1

 

Preferred Equity*

 

 

101

 

 

 

2

%

 

 

40.0

 

Total Leverage

 

$

4,366

 

 

 

100

%

 

 

8.8

 

Cash, restricted cash and investments in securitization trust assets

 

 

(185

)

 

 

 

 

 

 

 

 

Net Leverage

 

$

4,181

 

 

 

 

 

 

 

 

 

*

Aimco’s Preferred Equity is redeemable at the holder’s option. For illustrative purposes, Aimco has computed the weighted average maturity of its total leverage assuming a 40-year maturity for its Preferred Equity.

During the third quarter, Aimco financed $668 million of new non-recourse, fixed-rate property debt. These loans have a weighted-average interest rate of 3.34%, a weighted-average term to maturity of 11.4 years, and lower Aimco’s annual cost of leverage by approximately 10 basis points.

Aimco also rate-locked an $100 million fixed-rate, non-recourse, property loan with an eleven-year maturity and an interest rate of 3.21% which is expected to close during fourth quarter 2019.

Aimco is taking advantage of today’s interest rates to extend duration, reduce refinancing risk, and lower its cost of debt.

Leverage Ratios

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

 

7.3x

Proportionate Debt and Preferred Equity to Adjusted EBITDAre

 

7.5x

Adjusted EBITDAre to Adjusted Interest Expense

 

3.6x

Adjusted EBITDAre to Adjusted Interest Expense and Preferred Dividends

 

3.5x

Aimco leverage to EBITDAre ratios, while above target, are consistent with plan and expected to be 6.8x and 7.0x, respectively, by year end.

Liquidity

Aimco uses its credit facility primarily for working capital and other short-term purposes and to secure letters of credit. At September 30, 2019, Aimco held cash and restricted cash of $93 million and had the capacity to borrow up to $793 million under its revolving credit facility, after consideration of $7 million of letters of credit backed by the facility.

Aimco also manages its financial flexibility by maintaining an investment grade rating and holding apartment communities that are unencumbered by property debt. At September 30, 2019, Aimco held unencumbered apartment communities with an estimated fair market value of approximately $2.4 billion.

Equity Capital Activities

On October 29, 2019, the Aimco Board of Directors declared quarterly cash dividends of $0.39 per share of Class A Common Stock for the quarter ended September 30, 2019, representing an increase of 3% compared to the regular quarterly dividends paid in 2018. This amount is payable on November 29, 2019, to stockholders of record on November 15, 2019.

2019 Outlook

($ Amounts represent Aimco Share)

 

YEAR-TO-DATE

SEPTEMBER 30,

2019

 

 

FULL YEAR

2019

 

PREVIOUS

FULL YEAR

2019

 

CHANGE AT

THE MIDPOINT

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Income per share

 

$2.26

 

 

$3.14 to $3.46

 

$3.24 to $3.56

 

– $0.10

 

Pro forma FFO per share

 

$1.85

 

 

$2.47 to $2.51

 

$2.44 to $2.52

 

+ $0.01

 

AFFO per share

 

$1.62

 

 

$2.18 to $2.22

 

$2.15 to $2.23

 

+ $0.01

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Select Components of Nareit FFO

 

 

 

 

 

 

 

 

 

 

 

 

Same Store Operating Measures

 

 

 

 

 

 

 

 

 

 

 

 

Revenue change compared to prior year

 

4.0%

 

 

3.60% to 3.80%

 

3.60% to 3.80%

 

 

Expense change compared to prior year

 

1.9%

 

 

2.00% to 2.60%

 

2.00% to 2.60%

 

 

NOI change compared to prior year

 

4.7%

 

 

4.00% to 4.40%

 

4.00% to 4.40%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other Earnings

 

 

 

 

 

 

 

 

 

 

 

 

Tax Benefit

 

$9M

 

 

$10M to $11M

 

$7M to $9M

 

+ $2.5M

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Offsite Costs

 

 

 

 

 

 

 

 

 

 

 

 

Property management expenses

 

$15M

 

 

$20M

 

$20M

 

 

General and administrative expenses

 

$34M

 

 

$47M

 

$47M

 

 

Total Offsite Costs

 

$49M

 

 

$67M

 

$67M

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Capital Investments

 

 

 

 

 

 

 

 

 

 

 

 

Redevelopment/Development

 

$168M

 

 

$240M to $260M

 

$240M to $260M

 

 

Capital Enhancements

 

$68M

 

 

$85M to $95M

 

$80M to $100M

 

Narrowed range

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Transactions

 

 

 

 

 

 

 

 

 

 

 

 

Property dispositions

 

$488M

 

 

$750M to $850M

 

$750M to $850M

 

 

Property acquisitions [1]

 

$223M

 

 

$223M

 

$223M

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Portfolio Quality

 

 

 

 

 

 

 

 

 

 

 

 

Average revenue per apartment home

 

$2,262

 

 

~$2,270

 

~$2,260

 

+ $10

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance Sheet

 

 

 

 

 

 

 

 

 

 

 

 

Proportionate Debt to Adjusted EBITDAre

 

7.3x

 

 

~6.8x

 

~6.7x

 

+ 0.1x

 

Proportionate Debt and Preferred Equity to Adjusted EBITDAre

 

7.5x

 

 

~7.0x

 

~6.9x

 

+ 0.1x

 

[1]

Aimco does not predict or guide to acquisitions. Full year 2019 acquisition guidance represents the acquisitions completed year-to-date. Aimco monitors potential transactions with an eye for unique and opportunistic investments and funds acquisitions pursuant to its strict “paired trade” discipline.

($ Amounts represent Aimco Share)

 

FOURTH QUARTER 2019

 

 

 

Net income per share

 

$0.88 to $1.20

Pro forma FFO per share

 

$0.62 to $0.66

AFFO per share

 

$0.56 to $0.60

 

Earnings Conference Call Information

Live Conference Call:

Conference Call Replay:

Friday, November 1, 2019 at 1:00 p.m. ET

Replay available until February 1, 2020

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: 2662782

Passcode: 10135579

Live webcast and replay: investors.aimco.com

 

 

Supplemental Information

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.

About Aimco

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 128 apartment 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.

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 fourth quarter, full year 2019, and full year 2020 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.

Contacts

Matt Foster, Director, Investor Relations

303-793-4661

[email protected]

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