AIV Apartment Investment and Management Company

Apartment Investment and Management Company (“Aimco”) (NYSE: AIV) announced today results for first quarter 2016.

Chairman and Chief Executive Officer Terry Considine comments: “Aimco enjoyed a solid first quarter. Operating results were ahead of guidance with accelerating revenue growth and good cost control. New and renewal lease rates increased at a greater rate in first quarter 2016 than they did in first quarter 2015. Portfolio quality improved with average monthly revenue per apartment home now exceeding $1,860. Construction continues at two phased redevelopments in Center City Philadelphia: Park Towne Place and The Sterling. The Aimco balance sheet continues its steady improvement. For the fourth consecutive year, Aimco was recognized by The Denver Post as one of Colorado’s Top Workplaces.”

Chief Financial Officer Paul Beldin adds: “First quarter AFFO of $0.51 per share increased 11% compared to first quarter 2015 and was $0.05 per share ahead of the midpoint of our guidance range. Of this outperformance, $0.02 per share was driven by Same Store property operating results and $0.03 per share was due to the timing of income tax related items and Capital Replacements spending. We are increasing our full year Pro forma FFO and AFFO guidance by $0.01 at the midpoints to take into account first quarter results and our expectations for the balance of the year. We are also updating our full year Same Store NOI growth guidance to a range of 5.5% to 6.5%, an increase of 25 basis points at the midpoint.”

Financial Results: First Quarter AFFO Up 11%

              FIRST QUARTER (all items per common share - diluted)     2016     2015   Variance Net income     $ 0.15       $ 0.58     (74 )% Funds From Operations (FFO)     $ 0.57       $ 0.51     12 % Add back Aimco share of preferred equity redemption related amounts     $ —       $ 0.01     (100 )% Pro forma Funds From Operations (Pro forma FFO)     $ 0.57       $ 0.52     10 % Deduct Aimco share of Capital Replacements     $ (0.06 )     $ (0.06 )   — %

Adjusted Funds From Operations (AFFO)

    $ 0.51       $ 0.46     11 %          

Pro forma FFO (per diluted common share) - Year-over-year, first quarter Pro forma FFO increased 10% as a result of: Property Net Operating Income growth; increased contribution from redevelopment and acquisition communities; and lower interest expense. These increases were partially offset by lower non-core earnings, including tax benefit and amortization of deferred tax credit income, and by the loss of income from apartment communities that were sold in 2015.

Adjusted Funds from Operations (per diluted common share) - Year-over-year, first quarter AFFO increased 11% as a result of higher Pro forma FFO. As Aimco concentrates its investment capital in higher-quality, higher price point apartment communities, its free cash flow margins are increasing and contributing to a higher AFFO growth rate.

Operating Results: First Quarter Conventional Same Store NOI Up 7.1%

            FIRST QUARTER       Year-over-Year   Sequential       2016   2015   Variance   4th Qtr.   Variance Average Rent Per Apartment Home     $1,614   $1,535   5.1 %   $1,604   0.6 % Other Income Per Apartment Home     179   177   1.1 %   170   5.3 % Average Revenue Per Apartment Home     $1,793   $1,712   4.7 %   $1,774   1.1 % Average Daily Occupancy     96.0 %   95.9 %   0.1 %   95.5 %   0.5 %                         $ in Millions                       Revenue     $172.9   $165.0   4.8 %   $170.2   1.6 % Expenses     53.9   53.9   0.1 %   51.8   4.1 % NOI     $119.0   $111.1   7.1 %   $118.4   0.5 %        

Conventional 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 either as a new lease, where a vacant apartment is leased to a new customer, or as a renewal. The table below details new and renewal lease rates for Aimco’s first quarter 2016 Same Store portfolio.

                    2016     Jan   Feb   Mar   1st Qtr. Renewal rent increases     5.7%   6.0%   6.3%   6.0% New lease rent increases     2.8%   3.2%   4.4%   3.5% Weighted average rent increases     4.0%   4.3%   5.4%   4.6%          

Conventional Non-Same Store NOI - Aimco’s Conventional non-Same Store NOI for first quarter 2016 increased by 26% year-over-year and 3.3% as compared to fourth quarter 2015, primarily due to increasing contribution from Aimco’s Redevelopment apartment communities.

            FIRST QUARTER       Year-over-Year   Sequential $ in Millions     2016   2015   Variance   4th Qtr.   Variance Conventional Redevelopment and Development     $11.1   $7.8   41.8 %   $10.3   7.2 % Conventional Acquisition     0.8   0.1   782.6 %   0.9   (10.7 )% Conventional Other     9.9   9.4   5.8 %   9.9   (0.2 )% Total Conventional non-Same Store     $21.8   $17.3   26.0 %   $21.1   3.3 %        

Redevelopment and Development: Progressing as Planned

During first quarter, Aimco invested $31 million in redevelopment, most of which related to the ongoing redevelopment of The Sterling and Park Towne Place, mixed-use communities located in Center City Philadelphia. Since 2014, Aimco has completed the redevelopment of 279 apartment homes, or 68% of the total approved for redevelopment, at The Sterling. At March 31, 2016, Aimco had leased 91% of the completed apartment homes in The Sterling, at rental rates above underwriting. At Park Towne Place, Aimco had completed redevelopment of 223 apartment homes, or 47% of the total approved for redevelopment. At March 31, 2016, Aimco had leased 88% of the completed apartment homes in Park Towne Place, at rental rates above underwriting. Costs for both projects are consistent with underwriting.

During first quarter, Aimco invested $15.6 million in its One Canal development in Boston. Aimco expects completion of construction in second quarter 2016. Leasing is progressing as planned and at March 31, 2016, 6% of the apartment homes were leased at rental rates ahead of underwriting. Initial occupancy is expected in May 2016.

Aimco continued the lease-up of Vivo, a 91 apartment home community located in Cambridge, Massachusetts. At March 31, 2016, 62% of the apartment homes were leased at rental rates above underwriting.

Portfolio Management: Revenue Per Apartment Home Up 9% to $1,864

Aimco portfolio strategy seeks predictable rent growth from a portfolio of apartment communities that is diversified across “A,” “B” and “C+” price points, averaging “B/B+” in quality, and that is also diversified across large coastal and job growth markets in the U.S. Aimco target markets are primarily coastal markets, and also include several Sun Belt cities and Chicago, Illinois. Please refer to the Glossary for a description of our Portfolio Quality Ratings.

As part of its portfolio strategy, Aimco seeks to sell each year the lowest-rated 5% to 10% of its portfolio and to reinvest the proceeds from such sales in higher quality apartment communities through redevelopment of communities in its current portfolio, occasional development of new communities, and selective acquisitions. Through this disciplined approach to capital recycling, Aimco has significantly increased the quality and expected growth rate of its portfolio.

            FIRST QUARTER       2016   2015   Variance Communities     139     141     (2 ) Apartment Homes     40,376     42,566     (2,190 ) % NOI in Target Markets     91 %   87 %   4 % Revenue per Apartment Home     $ 1,864     $ 1,704     9 % Portfolio Average Rents as a Percentage of Local Market Average Rents     112 %   109 %   3 % Percentage A (1Q 2016 Revenue per Apartment Home $2,367)     48 %   43 %   5 % Percentage B (1Q 2016 Revenue per Apartment Home $1,687)     35 %   36 %   (1 )% Percentage C+ (1Q 2016 Revenue per Apartment Home $1,552)     17 %   19 %   (2 )% Percentage C     — %   2 %   (2 )% NOI Margin     68 %   66 %   2 % Free Cash Flow Margin*     62 %   59 %   3 %

* Assumes Capital Replacements spending of $1,200 per apartment home.

     

First Quarter 2016 Portfolio Transactions - In first quarter, Aimco sold one Conventional apartment community with 96 apartment homes for $10 million in gross proceeds. Aimco’s share of net sales proceeds after payment of transaction costs was $9.6 million. Aimco did not acquire any apartment communities during the first quarter.

Quarter-End Portfolio - First quarter 2016 Conventional portfolio average monthly revenue per apartment home was $1,864, a 9% increase compared to first quarter 2015, due to: year-over-year Same Store monthly revenue per apartment home growth of 4.7%; the sale of Conventional apartment communities in 2015 and 2016, with average monthly revenues per apartment home substantially lower than those of the retained portfolio; and reinvestment of the sales proceeds through redevelopment, development and acquisition of apartment communities with higher rents and better prospects.

Bay Area Acquisition Update - As previously reported, Aimco has agreed to acquire for $320 million an apartment community with 463 apartment homes currently under construction in Northern California. Closing of the acquisition is expected to occur upon completion of construction, which is anticipated for summer 2016. Aimco has begun leasing and at March 31, 2016, had leased approximately 5% of the apartment homes at rental rates above underwriting.

Balance Sheet and Liquidity:

Components of Aimco Leverage

              AS OF MARCH 31, 2016 $ in Millions     Amount   % of Total  

Weighted Avg.Maturity (Yrs.)

Aimco share of long-term, non-recourse property debt     $ 3,695.8     91 %   7.9 Outstanding borrowings on revolving credit facility     106.1     3 %   2.5 Preferred securities*     246.0     6 %   40.0 Total leverage     $ 4,047.9     100 %   9.6

* Aimco’s preferred securities are perpetual in nature; however, for illustrative purposes, Aimcocomputes the weighted average maturity of its total leverage assuming a 40-year maturityon its preferred securities.

       

Leverage Ratios

Aimco target leverage ratios are: Debt and Preferred Equity to EBITDA below 7.0x; and EBITDA to Interest Expense and Preferred Dividends greater than 2.5x. Aimco also focuses on the ratios of Debt to EBITDA and EBITDA to Interest Expense. Please see the Glossary for definitions of these metrics.

             

TRAILING-TWELVE-MONTHSENDED MARCH 31,

      2016   2015 Debt to EBITDA     6.4x   6.5x Debt and Preferred Equity to EBITDA     6.8x   6.9x EBITDA to Interest Expense     3.2x   2.8x EBITDA to Interest Expense and Preferred Dividends     2.9x   2.6x      

Future leverage reduction is expected both from earnings growth, especially as apartment communities now being redeveloped or developed are completed and leased, and from regularly scheduled property debt amortization funded from retained earnings.

During the second quarter, Aimco expects to provide notice of redemption to the holders of its 7% Class Z Perpetual Preferred Stock. Such securities have a redemption value of $35 million and are first available for redemption on July 29, 2016.

Liquidity

Aimco’s only recourse debt at March 31, 2016, was its revolving credit facility, which Aimco uses for working capital and other short-term purposes, and to secure letters of credit.

At quarter-end, Aimco had outstanding borrowings on its revolving credit facility of $106.1 million and available capacity of $463.9 million, after consideration of $30 million of letters of credit backed by the facility. Aimco also held cash and restricted cash on hand of $152.9 million.

Finally, Aimco held properties in its unencumbered asset pool with a total estimated fair market value of approximately $1.8 billion.

Equity Activity

Dividend - As previously announced, the Aimco Board of Directors declared a quarterly cash dividend of $0.33 per share of Class A Common Stock for the quarter ended March 31, 2016. On an annualized basis, this represents an increase of 12% compared to the dividends paid during 2015. This dividend is payable on May 31, 2016, to stockholders of record on May 20, 2016.

2016 Outlook: Guidance Raised to Reflect First Quarter Outperformance

                ($ Amounts represent Aimco Share)    

FULL YEAR2016

 

PREVIOUS FULLYEAR 2016

 

FULL YEAR2015

                Net Income per share     $0.41 to $0.51   $0.37 to $0.47   $1.52 Pro forma FFO per share     $2.24 to $2.34   $2.23 to $2.33   $2.23 AFFO per share     $1.92 to $2.02   $1.91 to $2.01   $1.88                 Conventional Same Store Operating Measures               Revenue change compared to prior year     4.50% to 5.00%   4.50% to 5.00%   4.5% Expense change compared to prior year     1.75% to 2.25%   2.50% to 3.00%   2.1% NOI change compared to prior year     5.50% to 6.50%   5.25% to 6.25%   5.6%                 ($ Amounts represent Aimco Share)    

SECONDQUARTER 2016

        Net income per share     $0.08 to $0.12 Pro forma FFO per share     $0.54 to $0.58 AFFO per share     $0.45 to $0.49         Conventional Same Store Operating Measures       NOI change compared to first quarter 2016     0.25% to 1.25% NOI change compared to second quarter 2015     3.50% to 4.50%    

Aimco’s guidance for second quarter year-over-year Same Store NOI growth of 4% at the midpoint reflects a lower rate of growth than in second quarter 2015. This lower rate of growth is due to two factors:

• First, during 2016, Aimco has undertaken to reduce the number of lease expirations occurring in off-peak months and to move more leasing volume into the second and third quarters where Aimco typically enjoys greater pricing power. The increased number of lease expirations will increase frictional vacancy during the second quarter, reducing average daily occupancy and increasing turnover expenses. Together, these factors are expected to reduce second quarter year-over-year Same Store NOI growth by approximately 100 basis points.
• Second, Aimco’s second quarter expenses last year included non-routine items that resulted in negative year-over-year expense growth for second quarter 2015. The comparison of Aimco’s second quarter expenses for 2016 to the reduced level in 2015 is expected to reduce year-over-year Same Store NOI growth for second quarter 2016 by approximately 100 basis points.

Earnings Conference Call Information

Live Conference Call:           Conference Call Replay: Friday, April 29, 2016 at 1:00 p.m. ET Replay available until 9:00 a.m. ET on July 29, 2016 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: 0213315 Passcode: 10083886  

Live webcast and replay: http://www.aimco.com/investors

 

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.

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 (“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 focused on the ownership and management of quality apartment communities located in selected markets in the United States. Aimco is one of the country’s largest owners and operators of apartments, with 195 communities in 22 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 2016 results, including but not limited to: Pro forma FFO and selected components thereof; AFFO; Aimco redevelopment and development investments, timelines and Net Operating Income contribution; Aimco acquisition and lease-up 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 developments and redevelopments; Aimco’s ability to meet timelines and budgeted rental rates related to Aimco lease-up properties; 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 the control of Aimco, including, without limitation: 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 amount, location and quality of competitive new housing supply; 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; 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, redevelopments and developments; 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 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, 2015, 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 March 31, 2016 2015 REVENUES Rental and other property revenues $ 241,481 $ 238,289 Tax credit and asset management revenues 4,758   5,976   Total revenues 246,239   244,265     OPERATING EXPENSES Property operating expenses 88,397 95,492 Investment management expenses 975 1,603 Depreciation and amortization 79,828 74,432 General and administrative expenses 11,935 10,652 Other expenses, net 1,570   1,019   Total operating expenses 182,705   183,198   Operating income 63,534 61,067 Interest income 1,835 1,725 Interest expense (47,634 ) (53,520 ) Other, net 77   2,264   Income before income taxes and gain on dispositions 17,812 11,536 Income tax benefit 5,886   6,921   Income before gain on dispositions 23,698 18,457 Gain on dispositions of real estate, net of tax 6,187   85,693   Net income 29,885 104,150 Noncontrolling interests: Net income attributable to noncontrolling interests in consolidated real estate partnerships (930 ) (4,756 ) Net income attributable to preferred noncontrolling interests in Aimco OP (1,726 ) (1,736 ) Net income attributable to common noncontrolling interests in Aimco OP (1,172 ) (4,398 ) Net income attributable to noncontrolling interests (3,828 ) (10,890 ) Net income attributable to Aimco 26,057 93,260 Net income attributable to Aimco preferred stockholders (2,757 ) (3,522 ) Net income attributable to participating securities (77 ) (394 ) Net income attributable to Aimco common stockholders $ 23,223   $ 89,344     Net income attributable to Aimco per common share - basic and diluted $ 0.15   $ 0.58     Weighted average common shares outstanding – basic 155,791   153,821   Weighted average common shares outstanding – diluted 156,117   154,277       Consolidated Balance Sheets (in thousands) (unaudited)     March 31, 2016 December 31, 2015 ASSETS Buildings and improvements $ 6,525,006 $ 6,446,326 Land 1,861,157   1,861,157   Total real estate 8,386,163 8,307,483 Accumulated depreciation (2,858,642 ) (2,778,022 ) Net real estate 5,527,521 5,529,461 Cash and cash equivalents 64,454 50,789 Restricted cash 90,158 86,956 Other assets 460,080 448,405 Assets held for sale —   3,070   Total assets $ 6,142,213   $ 6,118,681     LIABILITIES AND EQUITY Non-recourse property debt, net $ 3,811,510 $ 3,822,141 Revolving credit facility borrowings 106,080   27,000   Total indebtedness 3,917,590 3,849,141 Accounts payable 37,792 36,123 Accrued liabilities and other 305,604 317,481 Deferred income 59,961 64,052 Liabilities related to assets held for sale —   53   Total liabilities 4,320,947   4,266,850   Preferred noncontrolling interests in Aimco OP 86,201 87,926 Equity: Perpetual Preferred Stock 159,126 159,126 Class A Common Stock 1,566 1,563 Additional paid-in capital 4,068,196 4,064,659 Accumulated other comprehensive loss (431 ) (6,040 ) Distributions in excess of earnings (2,625,295 ) (2,596,917 ) Total Aimco equity 1,603,162   1,622,391   Noncontrolling interests in consolidated real estate partnerships 142,742 151,365 Common noncontrolling interests in Aimco OP (10,839 ) (9,851 ) Total equity 1,735,065   1,763,905   Total liabilities and equity $ 6,142,213   $ 6,118,681    

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AimcoElizabeth Coalson, 303-691-4350Vice President-Investor Relationsinvestor@aimco.com