Average Revenue Rises 8% YOY for Aimco Portfolio

Apartment Investment and Management Company announced its third quarter 2016 results this week.

Here is press release:Chairman and Chief Executive Officer Terry Considine comments: “Aimco had a solid third quarter. Our portfolio, diversified by price point and across markets, coupled with excellent and measured customer satisfaction, produced steady rent growth of 5.2% year-to-date, a rate of growth 70 basis points higher than last year. Average revenue per apartment home was $1,950, up 8% year-over-year. The lease-ups of One Canal in Boston and Indigo in Redwood City, California are both well ahead of schedule.”

“As we work to complete this year and plan for 2017, we expect more of the same: continued steady rent growth from properties and customer service that attracts stable households with median incomes of $100,000 and growing; exposure to overbuilding in some markets limited by portfolio diversification; value creation through redevelopment; and a safe balance sheet with only modest exposure to capital markets and higher interest rates.”

Chief Financial Officer Paul Beldin adds: “Pro forma FFO of $0.55 per share exceeded the midpoint of guidance by $0.01, primarily due to better than expected property operations and lower interest expense as we take advantage of the low interest rate environment. Third quarter AFFO of $0.45 per share was at the midpoint of guidance. We are increasing our full year Pro forma FFO guidance by $0.01 to reflect third quarter outperformance and maintaining our AFFO guidance, to reflect $0.01 of increased capital spending in our portfolio.”

Financial Results: Year-To-Date AFFO Up 4%

Net Income (per diluted common share) - Year-over-year, third quarter net income decreased primarily due to higher depreciation from redevelopment and development projects placed into service during 2016 and 2015, partially offset by a gain on an asset sold in third quarter 2016.

Pro forma FFO (per diluted common share) - Year-over-year, third quarter Pro forma FFO decreased 4% as a result of: the loss of income from apartment communities sold in 2015 and early 2016; a lower income tax benefit of $4.6 million due to the planned simplification of Aimco’s taxable REIT entities; and higher casualty losses. These decreases were partially offset by Conventional Same Store Property Net Operating Income growth and increased contribution from redevelopment and acquisition communities.

Adjusted Funds from Operations (per diluted common share) - Year-over-year, third quarter AFFO decreased 6% as a result of lower Pro forma FFO and higher Capital Replacement spending in our apartment communities.

Operating Results: Third Quarter Conventional Same Store NOI Up 6.3%

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.

Redevelopment and Development: Progressing as Planned

During third quarter, Aimco invested $44 million in redevelopment, $14 million of which related to the ongoing redevelopment of Park Towne Place and The Sterling, mixed-use communities located in Center City Philadelphia. Aimco is redeveloping the four towers at Park Towne Place, one at a time, and at September 30, 2016, had leased 90% of the completed homes in the South Tower and 59% of the completed homes in the East Tower. Rental rates are consistent with underwriting. Based on this success, Aimco began redevelopment of the North Tower. Aimco is redeveloping The Sterling, a 30-story building, one floor at a time, and at September 30, 2016, had leased 91% of the completed homes. Rental rates are consistent with underwriting.

During third quarter, Aimco began a $15 million redevelopment of Saybrook Pointe, a 324 apartment home community located in San Jose, California and a $26 million redevelopment of Yorktown, a 364 apartment home community located in Lombard, Illinois, a western suburb of Chicago.

Leasing is progressing at One Canal in Boston with 73% of the apartment homes leased at September 30, 2016, and at rental rates ahead of underwriting. Leasing is also on track at Indigo in Redwood City, California, with 48% of the apartment homes leased at September 30, 2016, a pace well ahead of underwriting, and at rental rates consistent with underwriting.

Portfolio Management: Revenue Per Apartment Home Up 8% to $1,950

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.

Third Quarter 2016 Portfolio Transactions - Aimco acquired for $320 million, Indigo, a 463 apartment home community located in Redwood City, California. As discussed, the apartment community is now in lease-up. Stabilized revenues per apartment home are expected to average $4,130, making this an “A” quality asset for Aimco.

In third quarter, Aimco sold one Affordable apartment community with 296 apartment homes for $27.5 million in gross proceeds and $10.3 million in net proceeds to Aimco.

Quarter-End Portfolio - Third quarter 2016 Conventional portfolio average monthly revenue per apartment home was $1,950, an 8% increase compared to third quarter 2015, due to: year-over-year growth of 5.0% in Conventional Same Store monthly revenue per apartment home; 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.

Balance Sheet and Liquidity:

Non-recourse Property Debt - During the third quarter, Aimco closed one fixed-rate, non-recourse, amortizing, 10-year property loan for $145 million at an interest rate of 3.34%, a spread of 152 basis points over the 10-year Treasury rate at the time of pricing.

Preferred Securities - During the third quarter, Aimco redeemed all of the outstanding shares of its Class Z Cumulative Preferred Stock, at a redemption value 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.

Future leverage reduction is expected from earnings growth, especially as apartment communities now being redeveloped are completed and One Canal and Indigo are leased, and from regularly scheduled property debt amortization funded from retained earnings. Aimco expects the Debt to EBITDA and Debt and Preferred Equity to EBITDA ratios to decrease to approximately 6.3x and 6.7x, respectively by year end.

Liquidity

Aimco’s only recourse debt at September 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 September 30, 2016, Aimco had outstanding borrowings on its revolving credit facility of $294.8 million and available capacity of $278.2 million, after consideration of $27.0 million of letters of credit backed by the facility. Aimco also held cash and restricted cash on hand of $157.4 million.

Finally, Aimco held properties in its unencumbered asset pool with an estimated fair market value of approximately $1.6 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 September 30, 2016. On an annualized basis, this represents an increase of 12% compared to the dividends paid during 2015. This dividend is payable on November 30, 2016, to stockholders of record on November 18, 2016.