Press Release

DENVER--(BUSINESS WIRE)-- Apartment Investment and Management Company (“Aimco”) (NYSE: AIV) announced today second quarter results for 2018.

Chairman and Chief Executive Officer Terry Considine comments: “In the second quarter, Aimco produced solid results: Same Store Net Operating Income was up 3.2% year-over-year; Redevelopment contributed more earnings and further value creation; and 2018 paired trades were completed, increasing expected Free Cash Flow returns by 400 basis points.”

“We completed our exit from the affordable housing line of business, part of a strategic plan set in 2011. Since then, Aimco has made steady progress on other elements of the plan: selling $4.2 billion in lower-rated communities; improving portfolio quality to $2,090 in monthly revenue per apartment home; and reducing leverage by $1.8 billion. As a result, Net Asset Value per share more than doubled.”

Chief Financial Officer Paul Beldin adds: “Second quarter 2018 AFFO of $0.54 per share was $0.02 per share ahead of the high end of our guidance range, and Pro forma FFO of $0.61 per share met the high end of guidance. AFFO exceeded the midpoint of our expectations due to $0.01 per share of stronger property operating results with the remainder due to timing-related items.”

Net Income (per diluted common share) - Year-over-year, second quarter net income decreased due to higher depreciation from redevelopments placed into service and from apartment communities acquired during 2018 and to lower gains on the sale of real estate.

Pro forma FFO (per diluted common share) - Aimco’s second quarter Pro forma FFO was flat year-over-year. The following items contributed to Pro forma FFO:

• $0.02 from Same Store Property Net Operating Income growth of 3.2%, driven by a 3.2% increase in revenue, offset by a 3.3% increase in expenses; and
• $0.03 from leasing activity related to renovated homes at Redevelopment communities, 2018 acquisitions, and the second quarter 2017 reacquisition of a 47% interest in the Palazzo communities, offset in part by lower Property Net Operating Income from apartment communities sold in 2017 and 2018.

As compared to 2017, this increase of $0.05 to Pro forma FFO per share was offset by increased interest expense on corporate borrowings primarily related to acquisitions, increased personnel costs due to the timing of incentive compensation costs, and lower tax benefits.

Adjusted Funds From Operations(per diluted common share) - Year-over-year, second quarter AFFO increased 6% as a result of lower Capital Replacement spending. Approximately one-third of the decrease in Capital Replacement spending was due to Aimco’s paired trade activity including the sale of approximately 2,300 apartment homes in 2017 and an additional 513 apartment homes through June 30, 2018, and the remaining decrease is due to timing of 2018 capital spending. As Aimco concentrates its investment capital in higher quality, higher price point communities, Free Cash Flow margin is increasing as Capital Replacements decline as a percentage of Net Operating Income.

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 changes in new and renewal lease rates.

Redevelopment

Redevelopment is Aimco’s second line of business where Aimco creates value by repositioning communities within the Aimco portfolio. Aimco also undertakes ground-up development when warranted by risk-adjusted investment returns, either directly in connection with the redevelopment of an existing apartment community or, on a more limited basis, at a new location. Aimco invests to earn 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 favors redevelopment because it permits adjustment of the scope and timing of spending to align with changing market conditions and customer preferences.

During the second quarter, Aimco invested $42 million in redevelopment and development. In Center City, Philadelphia, Aimco continued construction on the fourth and final tower of Park Towne Place; lease-up is underway. At June 30, 2018, 90% of the redeveloped apartment homes in the community were leased and 28 of the 136 homes still under renovation were pre-leased.

During the second quarter, Aimco invested $10 million in the development of its Parc Mosaic community in Boulder, Colorado. Aimco expects completion of construction in late 2019 and initial occupancy in the summer of 2019.

During the second quarter, Aimco leased 181 apartment homes at its Redevelopment communities. At June 30, 2018, Aimco’s exposure to lease-up at active redevelopment and development projects was approximately 419 apartment homes, of which 108 were in the fourth tower of Park Towne Place, 215 were being constructed at Parc Mosaic, and 96 were located in three other active redevelopments.

During the third quarter, Aimco expects to exercise its option to acquire approximately two acres of land adjacent to its 21 Fitzsimons apartment community, located on the University of Colorado Anschutz Medical Campus, for the development of an apartment community. Over the next two years, Aimco expects to invest approximately $87 million to construct 253 apartment homes and 4,600 square feet of retail space. Aimco anticipates a stabilized net operating income yield in the low 6% range, driven by an 80% net operating income margin due to operational efficiencies from owning the adjacent property, and a Free Cash Flow internal rate of return greater than 10% resulting in value creation of at least 35%. Upon completion of the project, Aimco will own and operate 853 apartment homes on the campus. Employment on the campus has grown by 9% annually from 2015 to 2017 and exceeds 25,000 jobs today. This number is expected to grow to 46,000 jobs over the next 12 years. Aimco has multi-year options to acquire the balance of the land on the campus that is zoned for multifamily, enough for an additional 600 apartment homes.

Portfolio Management: Revenue Per Apartment Home Up 7% to $2,090

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, occasional 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 has significantly increased the quality and expected growth rate of its portfolio.

Second Quarter Real Estate Portfolio - For its entire portfolio, Aimco’s average monthly revenue per apartment home was $2,090 for second quarter 2018, a 7% increase compared to second quarter 2017. This increase is due to year-over-year growth in Same Store revenue as well as Aimco’s acquisition activities, lease-up of redevelopment and acquisition properties, and sale of communities with average monthly revenues per apartment home lower than those of the retained portfolio.

Acquisitions - Aimco evaluates potential acquisitions with an eye for unique and opportunistic investments and funds acquisitions pursuant to its strict paired trade discipline. As previously announced, in April 2018 Aimco agreed to acquire six communities in the Philadelphia area. On May 1st, Aimco purchased four communities including 665 apartment homes and 153,000 square feet of office and retail space for $308 million. The purchase of the fifth apartment community is conditioned upon the City of Camden’s approval of the transfer of the existing PILOT tax agreement, which has not yet been received. The purchase of the sixth apartment community is expected upon completion of construction in the first half of 2019.

In the first quarter, Aimco purchased for $160 millionBent Tree Apartments, a 748-apartment home community in Fairfax County, Virginia. Since acquisition, results have exceeded underwriting, with new lease rates increasing by 8%, 5% before capital investments, and occupancy increasing by approximately 300 basis points to 97%.

Dispositions - On July 25, 2018, Aimco sold for $590 million its Asset Management business and its four affordable apartment communities located in Hunters Point. After payment of transaction costs and repayment of property-level debt encumbering the Hunters Point apartment communities, net proceeds to Aimco were approximately $512 million.

On July 27, 2018, Aimco sold for $170 millionChestnut Hill Village, an 821-apartment home community located in north Philadelphia.

Aimco used proceeds from the two sales to fund 2018 acquisitions, completing the paired trades. The sale of Chestnut Hill Village rebalanced Aimco’s capital allocation to Philadelphia from a lower-rated apartment community in north Philadelphia to communities in the more desirable Center City and University City submarkets.

Aimco used proceeds from these sales to repay in full its revolving credit facility and its term loan. Aimco plans to use the remaining proceeds to reduce property-level borrowings and to fund an expected increase in 2018 redevelopment activity.

Balance Sheet

Aimco Leverage

Aimco’s leverage strategy seeks to increase financial returns while using leverage with appropriate caution. Aimco limits risk through balance sheet structure, employing low leverage, primarily non-recourse and long-dated property debt; 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 Aimco share of long-term, non-recourse, property debt encumbering apartment communities in its Real Estate portfolio, outstanding borrowings under its revolving credit facility and term loan, and outstanding preferred equity. Aimco leverage excludes the non-recourse property debt obligations of consolidated partnerships served by its Asset Management business.

Leverage Ratios

Aimco target leverage ratios are Proportionate Debt and Preferred Equity to Adjusted EBITDA below 7.0x and Adjusted EBITDA to Interest Expense and Preferred Dividends greater than 2.5x. Aimco calculates Adjusted EBITDA, Pro forma EBITDA and Adjusted Interest Expense used in its leverage ratios based on current quarter amounts, annualized.

Aimco expects its Proportionate Debt to Adjusted EBITDA and Proportionate Debt and Preferred Equity to Adjusted EBITDA ratios to decrease to 6.3x and 6.7x, respectively, before year-end.

Liquidity

At June 30, 2018, Aimco held cash and restricted cash of $88 million and had the capacity to borrow $368 million under its revolving credit facility, after consideration of outstanding borrowings of $220 million and $12 million of letters of credit backed by the facility. Aimco uses its credit facility primarily for working capital and other short-term purposes and to secure letters of credit. After the completion of the July dispositions, Aimco used the proceeds to repay outstanding borrowings on the revolving credit facility and term loan. On a pro forma basis, Aimco would have had the capacity to borrow $593 million under its revolving credit facility and additional cash of approximately $207 million.

Aimco also manages its financial flexibility by maintaining an investment grade rating and holding apartment communities that are unencumbered by property debt. At June 30, 2018, Aimco held unencumbered apartment communities with an estimated fair market value of approximately $2 billion.

Dividend - As previously announced, the Aimco Board of Directors declared a quarterly cash dividend of $0.38 per share of Class A Common Stock for the quarter ended June 30, 2018. On an annualized basis, this represents an increase of 6% compared to the dividends paid during 2017. This dividend is payable on August 31, 2018, to stockholders of record on August 17, 2018.

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 (“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 133 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 third quarter and full year 2018 results, including but not limited to: FFO, Pro forma FFO and selected components thereof; AFFO; Aimco redevelopment/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 redevelopments and developments; 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, 2017, 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.

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Apartment Investment and Management Company
Investor Relations
Suzanne Sorkin, 303-793-4661
Vice President, Investor Relations/FP&A
investor@aimco.com

Source: Apartment Investment and Management Company