News Column

Aimco Reports First Quarter 2014 Results

May 1, 2014

DENVER--(BUSINESS WIRE)-- Apartment Investment and Management Company (“Aimco”) (NYSE: AIV) announced today its first quarter 2014 results.

Chairman and Chief Executive Officer Terry Considine comments: "Aimco made solid progress in 2014’s first quarter. Operating results were ahead of plan, notwithstanding the severe winter weather and its related costs. Portfolio quality improved with average monthly revenue per apartment home now exceeding $1,500. Redevelopment completions and expected rents increased, although so too did costs. These activities are expected to add $1.50 to Net Asset Value per share over the coming two years. Standard & Poor's upgraded its rating of the Aimco balance sheet and The Denver Post again recognized Aimco as one of Colorado’s Top Workplaces."

Chief Financial Officer Ernie Freedman adds: "Pro forma FFO of $0.50 per share was at the high end of our guidance primarily due to strong property operating results and higher than expected transaction income, offset somewhat by higher than anticipated casualty losses related to severe weather during the quarter. We are increasing our full year Pro forma FFO and AFFO guidance to reflect first quarter outperformance."

Financial Results:AFFO Up 13%, Pro forma FFO Up 4%

     
    FIRST QUARTER
(all items per common share)   2014     2013  
Net income   $ 0.44     $ 0.03  
Funds From Operations (FFO)/ Pro forma Funds From Operations (Pro forma FFO)   $ 0.50     $ 0.48  
Deduct Aimco share of Capital Replacements   $ (0.07 )   $ (0.10 )
Adjusted Funds From Operations (AFFO)   $0.43     $0.38  
   


Pro forma FFO - Year-over-year, first quarter Pro forma FFO increased 4% as a result of improved property operating results, lower offsite costs and lower interest expense. These positive results were somewhat offset by: sales of apartment communities; higher casualty losses as a result of severe weather in the Northeast and Midwest, and lower interest income.

Adjusted Funds from Operations - First quarter AFFO increased 13% when compared to first 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 Replacements due to the sale of approximately 7,000 apartment homes during 2013. As Aimco concentrates its investment capital in higher quality, higher price-point apartment communities, Capital Replacements are expected to decline as a percentage of net operating income. As a result, AFFO is increasing at a faster rate than is Pro forma FFO.

Operating Results: Conventional Same Store NOI Up 5.6%

Conventional Same Store Results

     
    FIRST QUARTER
    Year-over-Year   Sequential
      2014       2013     Variance   4th Qtr   Variance
Average Rent Per Apartment Home   $ 1,322     $ 1,281     3.2 %   $ 1,315     0.5 %
Other Income Per Apartment Home     168       147     14.3 %     155     8.4 %
Average Revenue Per Apartment Home   $ 1,490     $ 1,428     4.3 %   $ 1,470     1.3 %
Average Daily Occupancy     95.7 %     95.4 %   0.3 %     95.5 %   0.2 %
                     
$ in Millions                    
Revenue   $ 174.9     $ 167.2     4.6 %   $ 172.3     1.5 %
Expenses     59.7       58.1     2.8 %     55.6     7.4 %
NOI   $ 115.2     $ 109.1     5.6 %   $ 116.7     (1.3 )%
         


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   Jan   Feb   Mar   1st Qtr
Renewal rent increases   4.7 %   5.1 %   5.0 %   4.9 %
New lease rent increases   0.3 %   0.8 %   1.7 %   1.0 %
Weighted average rent increases   2.5 %   2.8 %   3.1 %   2.8 %
 


Portfolio Management: Revenue Per Apartment Home Up 9.9% to $1,505

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 fourth quarter 2013, the most recent period for which REIS information is available, Aimco Conventional Apartment Community rents averaged 105% 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.

First quarter 2014 Conventional portfolio average monthly revenue per apartment home was $1,505, a 9.9% increase compared to first quarter 2013, as a result of year-over-year Same Store monthly revenue per apartment home growth of 4.3% and the sale of Conventional Apartment Communities during 2013 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 first quarter 2014, Aimco sold three Conventional Apartment Communities and two Affordable Apartment Communities with 1,219 and 387 apartment homes, respectively, for $136.9 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 $53.5 million.

Redevelopment: Creating $1.50 of Net Asset Value per Share

During first quarter 2014, Aimco invested $48.4 million in the redevelopment of six apartment communities. Pacific Bay Vistas, in San Bruno, California, was completed in April as expected. The community is 62% occupied as of April 30, and is expected to reach stabilized occupancy before the end of summer.

Construction continued at both Preserve at Marin, in Corte Madera, California and at Lincoln Place, in Venice, California. Aimco has determined that the work required to restore and modernize these communities is more extensive than originally anticipated, resulting in higher costs and construction delays. Scope changes at Preserve at Marin also contributed to higher cost estimates, which now total $125.5 million for the redevelopment. Aimco has achieved higher rents on the lease-up of the first building completed and expects higher rents for the balance of the community. Completion of Preserve at Marin is now anticipated to occur in first quarter 2015. At Lincoln Place, Aimco expects its net investment to total $365 million, which represents total estimated capital costs of $390 million, reduced by $25 million of historic tax and other credits expected to be earned in connection with the redevelopment. As of April 30, 267 of the 294 completed units at Lincoln Place were occupied. Completion of the project is now anticipated to occur in first quarter 2015.

In total, Aimco is forecasting a net investment of approximately $670 million in redevelopment projects currently underway and those projects that were completed during the last twelve months. The expected Net Operating Income yield on this investment, assuming current rents, is approximately 5.5%. Prevailing capitalization rates for stabilized communities in these markets range from 3.75% - 5.00%. As these communities are leased (assuming current rents) and stabilized over the next two years, they are expected to add approximately $1.50 to Aimco's Net Asset Value per share.

See Supplemental Schedule 10 to this Earnings Release for details of redevelopment projects underway, including updated cost and rent estimates.

Development: Progressing as Planned

During the first quarter 2014, Aimco invested $9.0 million in the development of its One Canal Street property in Boston. Construction was slowed somewhat due to adverse weather conditions, but the project remains on time and on budget.

Balance Sheet and Liquidity:Leverage on Target

Components of Aimco Leverage

     
    AS OF MARCH 31, 2014
$ in Millions   Amount   % of Total  

Weighted Avg.

Maturity (Yrs.)

 

Weighted

Avg Rate

Aimco share of long-term, non-recourse property debt   $ 4,150.7    

94

  8.2   5.28 %
Outstanding borrowings on revolving credit facility     110.1    

3

  4.5   2.19 %
Preferred securities     138.0    

3

  Perpetual   6.56 %
Total leverage   $ 4,398.8    

100

  n/a   5.24 %
       


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 MARCH 31,

    2014   2013
Debt to EBITDA   7.1x   7.5x
Debt and Preferred Equity to EBITDA   7.4x   7.8x
EBITDA Coverage of Interest   2.6x   2.4x
EBITDA Coverage of Interest and Preferred Dividends   2.5x   2.3x
   


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 March 31, 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 first quarter, Aimco had outstanding borrowings on its revolving credit facility of $110.1 million and available capacity of $445.4 million, net of $44.5 million of letters of credit backed by the facility. At the end of the first quarter, Aimco's share of cash and restricted cash on hand was $195.4 million. In addition, Aimco held eight apartment communities in its unencumbered asset pool with a total estimated fair value of approximately $410.0 million.

Equity Activity

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 March 31, 2014. The first quarter 2014 dividend is payable on May 30, 2014, to stockholders of record on May 16, 2014.

Outlook

                   
     

SECOND

QUARTER

 

FULL YEAR

2014

 

PREVIOUS FULL

YEAR 2014

 

FULL YEAR

2013

                   
Net income per share     $0.05 to $0.09   $0.68 to $0.78   $0.30 to $0.40   $1.40
Pro forma FFO per share     $0.48 to $0.52   $2.02 to $2.12   $2.00 to $2.10   $2.04
AFFO per share     $0.36 to $0.42   $1.64 to $1.74   $1.63 to $1.73   $1.53
                   
Conventional Same Store Operating Measures                  
NOI change compared to first quarter 2014     0.25% to 1.25%   n/a   n/a   n/a
NOI change compared to same period 2013     3.50% to 4.50%   3.00% to 5.00%   3.00% to 5.00%   5.1%
Revenue change compared to 2013     n/a   3.00% to 4.00%   3.00% to 4.00%   4.4%
Expense change compared to 2013     n/a   2.00% to 3.00%   2.00% to 3.00%   3.0%
                   
Redevelopment Investment (in millions)     n/a   $140 to $160   $125 to $150   $178.3
         


Earnings Conference Call Information

Live Conference Call:

     

Conference Call Replay:

Friday, May 2, 2014 at 1:00 p.m. ET Replay available until 9:00 a.m. ET on May 19, 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: 8125818 Passcode: 10043920
 

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 233 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: second 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.




Aimco

Investor Relations

Elizabeth Coalson, 303-691-4350

Vice President Investor Relations

investor@aimco.com

Source: Aimco


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