Aimco Reports Second Quarter Results, Raises 2016 Guidance

DENVER--(BUSINESS WIRE)-- 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

View source version on businesswire.com: http://www.businesswire.com/news/home/20160728006595/en/

Aimco
Lynn Stanfield, 303-793-4661
Senior Vice President, Finance
or
Valerie Kimball, 303-793-4661
Director, Investor Relations
or
Investor Relations, 303-793-4661
[email protected]

Source: Apartment Investment and Management Company

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