AIV Apartment Investment and Management Company

Apartment Investment and Management Company (“Aimco”) (NYSE: AIV) announced today second quarter 2016 results and raised full year 2016 guidance.

Chairman and Chief Executive Officer Terry Considine comments: “At a time when various markets are impacted by new supply, we appreciate the diversification...both geographic and price point...of the Aimco portfolio. That diversification reduces volatility and makes revenue more predictable. Operating results were in line with guidance. We are on-track with lease-up efforts at One Canal in Boston and at Indigo in Redwood City, California. Construction continues at two phased redevelopments in Center City Philadelphia where new phases were started. Portfolio quality improved as revenue per apartment home was up 8% to $1,900.”

Chief Financial Officer Paul Beldin adds: “Second quarter AFFO of $0.50 per share increased 9% compared to second quarter 2015 and was $0.03 per share ahead of the midpoint of our guidance range. This outperformance was due to greater than planned non-core earnings, including $0.01 per share related to transactional revenues originally anticipated later in the year. We are increasing our full year Pro forma FFO and AFFO guidance by $0.01 at the midpoint of our guidance range to take into account the $0.02 of outperformance, offset by a $0.01 reduction due to the decision to vacate the North Tower at Park Towne Place as we accelerate its redevelopment timeline.”

Financial Results: Second Quarter AFFO Up 9% Year-Over-Year

              SECOND QUARTER   YEAR-TO-DATE (all items per common share - diluted)   2016   2015   Variance   2016   2015   Variance Net income   $ 1.41     $ 0.39     262 %   $ 1.57     $ 0.97     62 % Funds From Operations (FFO)   $ 0.59     $ 0.56     5 %   $ 1.16     $ 1.07     8 % Add back Aimco share of preferred equity redemption related amounts   $ —     $ —     — %   $ —     $ 0.01    

(100)

%

Pro forma Funds From Operations (Pro forma FFO)   $ 0.59     $ 0.56     5 %   $ 1.16     $ 1.08     7 % Deduct Aimco share of Capital Replacements   $ (0.09 )   $ (0.10 )  

(10)

%

  $ (0.15 )   $ (0.16 )  

(6)

%

Adjusted Funds From Operations (AFFO)   $ 0.50     $ 0.46     9 %   $ 1.01     $ 0.92     10 %            

Net Income (per diluted common share) - Year-over-year, second quarter net income increased primarily due to higher gains on property sales in second quarter 2016, as compared to 2015.

Pro forma FFO (per diluted common share) - Year-over-year, second quarter Pro forma FFO increased 5% as a result of: Conventional Same Store Property Net Operating Income growth; increased contribution from redevelopment and acquisition communities; and higher non-core earnings. These increases were partially offset by the loss of income from apartment communities that were sold in 2015.

Adjusted Funds from Operations (per diluted common share) - Year-over-year, second quarter AFFO increased 9% 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: Second Quarter Conventional Same Store NOI Up 4.1%

            SECOND QUARTER   YEAR-TO-DATE     Year-over-Year   Sequential   Year-over-Year       2016       2015     Variance   1st Qtr.   Variance     2016       2015     Variance Average Rent Per Apartment Home   $ 1,611     $ 1,530     5.3 %   $ 1,595     1.0 %   $ 1,603     $ 1,523     5.3 % Other Income Per Apartment Home     188       187     0.5 %     187     0.5 %     187       186     0.5 % Average Revenue Per Apartment Home   $ 1,799     $ 1,717     4.8 %   $ 1,782     1.0 %   $ 1,790     $ 1,709     4.7 % Average Daily Occupancy     95.9 %     96.4 %  

(0.5)

%

    96.0 %  

(0.1)

%

    96.0 %     96.2 %  

(0.2)

%

                                  $ in Millions                                 Revenue   $ 168.5     $ 161.6     4.2 %   $ 167.1     0.8 %   $ 335.6     $ 321.2     4.5 % Expenses     52.9       50.6     4.6 %     52.5     0.8 %     105.4       103.0     2.3 % NOI   $ 115.6     $ 111.0     4.1 %   $ 114.6     0.8 %   $ 230.2     $ 218.2     5.5 %            

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 second quarter 2016 Same Store portfolio.

                          2016   1st Qtr.   Apr   May   Jun   2nd Qtr.   Year-to-Date Renewal rent increases   6.0 %   6.4 %   5.9 %   6.4 %   6.2 %   6.1 % New lease rent increases   3.5 %   4.0 %   4.3 %   4.9 %   4.4 %   4.0 % Weighted average rent increases   4.6 %   5.1 %   5.1 %   5.6 %   5.3 %   5.0 %            

Conventional Non-Same Store NOI - Aimco’s Conventional non-Same Store NOI for second quarter 2016 increased 13.4% year-over-year primarily due to increasing contribution from Aimco’s Redevelopment apartment communities.

            SECOND QUARTER   YEAR-TO-DATE     Year-over-Year   Sequential   Year-over-Year $ in Millions   2016   2015   Variance   1st Qtr.   Variance   2016   2015   Variance Conventional Redevelopment and Development   $ 15.1   $ 12.9   17.1 %   $ 15.2  

(0.7)

%

  $ 30.3   $ 24.3   24.7 % Conventional Acquisition     0.8     0.0   n/a       0.8   —       1.6     0.1   n/a   Conventional Other     6.1     6.5  

(6.2)

%

    6.0   1.7 %     12.1     12.1   —   Total Conventional non-Same Store   $ 22.0   $ 19.4   13.4 %   $ 22.0   —     $ 44.0   $ 36.5   20.5 %            

Redevelopment and Development: Progressing as Planned

During second quarter, Aimco invested $43 million in redevelopment, $31 million of which related to the ongoing redevelopment of Park Towne Place and The Sterling, mixed-use communities located in Center City Philadelphia. At Park Towne Place, as of June 30, 2016, Aimco had completed redevelopment of 356 apartment homes and had leased 73% of the completed homes. Rental rates are above underwriting. Based on the success of earlier phases of the Park Towne Place redevelopment, during the second quarter, Aimco decided to proceed with redevelopment of a third tower with 227 apartment homes. At The Sterling, as of June 30, 2016, Aimco had completed redevelopment of 343 of the 534 apartment homes in the community and had leased 88% of the completed homes. Rental rates are above underwriting. Based on the success of earlier phases of redevelopment of The Sterling, in the second quarter, Aimco decided to proceed with the final phase, and anticipates completion in spring 2017. Projected returns on these newly approved phases at both Park Towne Place and The Sterling are similar to those of the previous phases.

During second quarter, Aimco invested $13.2 million in the substantial completion of One Canal in Boston. Leasing is progressing as planned and at June 30, 2016, 35% of the apartment homes were leased and rental rates are ahead of underwriting.

Portfolio Management: Revenue Per Apartment Home Up 8% to $1,900

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 Aimco’s 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.

          SECOND QUARTER     2016     2015     Variance Conventional Apartment Communities   137     143    

(6)

 

Conventional Apartment Homes   38,841     41,425    

(2,584)

 

Conventional % NOI in Target Markets   91 %   89 %   2 % Revenue per Apartment Home   $ 1,900     $ 1,759     8 % Portfolio Average Rents as a Percentage of Local Market Average Rents   113 %   110 %   3 % Percentage A (2Q 2016 Revenue per Apartment Home $2,386)   51 %   50 %   1 % Percentage B (2Q 2016 Revenue per Apartment Home $1,719)   37 %   33 %   4 % Percentage C+ (2Q 2016 Revenue per Apartment Home $1,546)   12 %   17 %  

(5)

%

NOI Margin   67 %   67 %   —   Free Cash Flow Margin*   62 %   61 %   1 %

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

     

Second Quarter 2016 Portfolio Transactions - In second quarter, Aimco sold two Conventional apartment communities with 1,547 apartment homes for $291.9 million in gross proceeds. Net sales proceeds after payment of transaction costs were $289.4 million. Aimco did not acquire any apartment communities during the second quarter.

Quarter-End Portfolio - Second quarter 2016 Conventional portfolio average monthly revenue per apartment home was $1,900, an 8% increase compared to second quarter 2015, due to: year-over-year Same Store monthly revenue per apartment home growth of 4.8%; 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, Indigo, an apartment community with 463 apartment homes currently under construction in Redwood City, California. Closing of the acquisition is expected upon completion of construction, anticipated to occur by the end of third quarter 2016. At June 30, 2016, Aimco had leased 18% of the apartment homes and rental rates are above underwriting. Move-ins commenced on July 1st.

Balance Sheet and Liquidity:

Components of Aimco Leverage

          AS OF JUNE 30, 2016 $ in Millions   Amount   % of Total  

Weighted Avg.Maturity (Yrs.)

Aimco share of long-term, non-recourse property debt   $ 3,680.2   90 %   7.7 Outstanding borrowings on revolving credit facility   160.5   4 %   2.3 Preferred securities*   246.0   6 %   34.4 Total leverage   $ 4,086.7   100 %   9.0 * Aimco’s preferred securities are perpetual in nature; however, for illustrative purposes, Aimco has computed the weighted average maturity of its total leverage assuming a 30-day maturity on the Class Z Cumulative Preferred Stock, which Aimco will redeem on July 29, 2016, and a 40-year maturity on its other preferred securities.  

Non-recourse Property Debt - During the second quarter, Aimco priced two fixed rate, non-recourse, amortizing, 10-year property loans totaling $166.5 million at interest rates of 2.77% and 3.34%, spreads of 129 basis points and 152 basis points, respectively, over the 10-year Treasury rates at the time of pricing.

Preferred Securities - During the second quarter, Aimco called for the redemption of all outstanding shares of its Class Z Cumulative Preferred Stock on July 29, 2016, at a redemption value including dividends through the redemption date of approximately $35 million.

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 and, where appropriate, reconciliations to GAAP.

         

TRAILING-TWELVE MONTHSENDED JUNE 30,

    2016   2015 Debt to EBITDA   6.4x   6.5x Debt and Preferred Equity to EBITDA   6.8x   7.0x EBITDA to Interest Expense   3.3x   2.9x EBITDA to Interest Expense and Preferred Dividends   3.0x   2.6x    

Future leverage reduction is expected 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.

Liquidity

Aimco’s only recourse debt at June 30, 2016, was its revolving credit facility, which Aimco uses for working capital and other short-term purposes, and to secure letters of credit.

At June 30, 2016, Aimco had outstanding borrowings on its revolving credit facility of $160.5 million and available capacity of $410.0 million, after consideration of $29.5 million of letters of credit backed by the facility. Aimco also held cash and restricted cash on hand of $430.3 million ($428.0 million Aimco share), which included approximately $290 million of 1031 exchange proceeds anticipated to be invested during the third quarter.

Finally, Aimco held properties in its unencumbered asset pool with an estimated fair market value of approximately $1.7 billion.

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 June 30, 2016. On an annualized basis, this represents an increase of 12% compared to the dividends paid during 2015. This dividend is payable on August 31, 2016, to stockholders of record on August 19, 2016.

2016 Outlook: Guidance Raised to Reflect Second Quarter Outperformance

              ($ Amounts represent Aimco Share)  

FULL YEAR2016

 

PREVIOUS FULLYEAR 2016

 

FULL YEAR2015

              Net Income per share   $1.75 to $1.83   $0.41 to $0.51   $1.52 Pro forma FFO per share   $2.26 to $2.34   $2.24 to $2.34   $2.23 AFFO per share   $1.94 to $2.02   $1.92 to $2.02   $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%   1.75% to 2.25%   2.1% NOI change compared to prior year   5.50% to 6.50%   5.50% to 6.50%   5.6%               Non-Core Earnings             Non-recurring investment management revenues   $5M   $1M to $3M   $1M             ($ Amounts represent Aimco Share)  

THIRDQUARTER 2016

      Net income per share   $0.06 to $0.10 Pro forma FFO per share   $0.52 to $0.56 AFFO per share   $0.43 to $0.47       Conventional Same Store Operating Measures     NOI change compared to second quarter 2016   1.25% to 2.25% NOI change compared to third quarter 2015   5.50% to 6.50%  

Earnings Conference Call Information

Live Conference Call:       Conference Call Replay: Friday, July 29, 2016 at 1:00 p.m. ET Replay available until 9:00 a.m. ET on October 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: 5105563 Passcode: 10088380  

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 192 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: third 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 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; financing risks, including the availability and cost of capital markets’ financing and the risk that Aimco’s cash flows from operations may be insufficient to meet required payments of principal and interest; the risk that Aimco’s 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 Six Months Ended June 30, June 30, 2016 2015 2016 2015 REVENUES Rental and other property revenues $ 242,871 $ 238,637 $ 484,352 $ 476,926 Tax credit and asset management revenues 8,347   6,146   13,105   12,122   Total revenues 251,218   244,783   497,457   489,048     OPERATING EXPENSES Property operating expenses 88,305 87,930 176,702 183,422 Investment management expenses 1,017 1,086 1,992 2,689 Depreciation and amortization 80,680 75,150 160,508 149,582 General and administrative expenses 11,254 12,062 23,189 22,714 Other expenses, net 5,526   2,912   7,096   3,931   Total operating expenses 186,782   179,140   369,487   362,338   Operating income 64,436 65,643 127,970 126,710 Interest income 1,843 1,705 3,678 3,430 Interest expense (48,894 ) (49,605 ) (96,528 ) (103,125 ) Other, net 4,906   350   4,983   2,614   Income before income taxes and gain on dispositions 22,291 18,093 40,103 29,629 Income tax benefit 7,121   5,814   13,007   12,735   Income before gain on dispositions 29,412 23,907 53,110 42,364 Gain on dispositions of real estate, net of tax 216,541   44,781   222,728   130,474   Net income 245,953 68,688 275,838 172,838 Noncontrolling interests:

Net income attributable to noncontrolling interests in consolidated real estate partnerships

(8,677 ) (111 ) (9,607 ) (4,867 )

Net income attributable to preferred noncontrolling interests in Aimco OP

(1,708 ) (1,736 ) (3,434 ) (3,472 )

Net income attributable to common noncontrolling interests in Aimco OP

(11,135 ) (2,972 ) (12,307 ) (7,370 ) Net income attributable to noncontrolling interests (21,520 ) (4,819 ) (25,348 ) (15,709 ) Net income attributable to Aimco 224,433 63,869 250,490 157,129 Net income attributable to Aimco preferred stockholders (2,758 ) (2,758 ) (5,515 ) (6,280 ) Net income attributable to participating securities (293 ) (307 ) (370 ) (701 ) Net income attributable to Aimco common stockholders $ 221,382   $ 60,804   $ 244,605   $ 150,148     Net income attributable to Aimco per common share – basic $ 1.42   $ 0.39   $ 1.57   $ 0.97   Net income attributable to Aimco per common share – diluted $ 1.41   $ 0.39   $ 1.57   $ 0.97     Weighted average common shares outstanding – basic 156,375   155,524   155,876   154,672   Weighted average common shares outstanding – diluted 156,793   155,954   156,248   155,115     Consolidated Balance Sheets (in thousands) (unaudited)         June 30, 2016 December 31, 2015 ASSETS Buildings and improvements $ 6,283,998 $ 6,446,326 Land 1,847,582   1,861,157   Total real estate 8,131,580 8,307,483 Accumulated depreciation (2,657,290 ) (2,778,022 ) Net real estate 5,474,290 5,529,461 Cash and cash equivalents 55,225 50,789 Restricted cash 375,092 86,956 Other assets 360,669 448,405 Assets held for sale 8,952   3,070   Total assets $ 6,274,228   $ 6,118,681     LIABILITIES AND EQUITY Non-recourse property debt, net $ 3,795,098 $ 3,822,141 Revolving credit facility borrowings 160,540   27,000   Total indebtedness 3,955,638 3,849,141 Accounts payable 43,414 36,123 Accrued liabilities and other 206,104 317,481 Deferred income 57,819 64,052 Liabilities related to assets held for sale 6,214   53   Total liabilities 4,269,189   4,266,850   Preferred noncontrolling interests in Aimco OP 86,198 87,926 Equity: Perpetual Preferred Stock 159,126 159,126 Class A Common Stock 1,566 1,563 Additional paid-in capital 4,066,476 4,064,659 Accumulated other comprehensive loss (710 ) (6,040 ) Distributions in excess of earnings (2,455,302 ) (2,596,917 ) Total Aimco equity 1,771,156   1,622,391   Noncontrolling interests in consolidated real estate partnerships 150,257 151,365 Common noncontrolling interests in Aimco OP (2,572 ) (9,851 ) Total equity 1,918,841   1,763,905   Total liabilities and equity $ 6,274,228   $ 6,118,681    

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AimcoLynn Stanfield, 303-793-4661Senior Vice President, FinanceorValerie Kimball, 303-793-4661Director, Investor RelationsorInvestor Relations, 303-793-4661investor@aimco.com