Aimco reports third quarter 2013 results
Denver--(business wire)--apartment investment and management company (“aimco”) (nyse: aiv) announced today its third quarter 2013 results. chairman and chief executive officer terry considine comments: "aimco enjoyed a solid third quarter. business is good with steady demand driving higher rents. our portfolio gets better and better as we add high quality properties through redevelopment, acquisitions and selective development funded by the sale of lower-rated properties." chief financial officer ernie freedman adds: "pro forma ffo of $0.50 per share was equal to the midpoint of our guidance. we are projecting fourth quarter pro forma ffo to be in a range from $0.53 to $0.59." pro forma ffo up 11%, affo up 15% year-to-date pro forma ffo - pro forma ffo increased 9% when compared to third quarter 2012, as a result of improved property operating results, lower offsite costs, additional interest income earned on the west harlem property loans acquired in second quarter 2013, and lower interest expense due to refinancing activities. these positive results were somewhat offset by lower investment management income and lower income from discontinued operations. adjusted funds from operations - affo increased 6% when compared to third quarter 2012, as a result of pro forma ffo growth, offset somewhat by increased capital replacement spending. an increase in 2013 capital replacement spending related to multi-phase capital projects was partially offset by a reduction in standard capital replacements due to the sale of approximately 11,000 apartment homes during 2012. as aimco concentrates its investment capital in higher quality, higher price-point properties, capital replacements decline as a percentage of net operating income. as a result, affo, up 15% year-to-date, is increasing at a faster rate than is pro forma ffo, up 11% year-to-date. property operations aimco's property operations consist primarily of aimco's diversified portfolio of market-rate apartment communities. aimco also operates a portfolio of affordable properties, which consists of properties with rents that are generally paid, in whole or in part, by a government agency. over the next four to five years, aimco expects to dispose of these affordable properties and reinvest proceeds in its conventional portfolio. year-over-year conventional same store noi up 5.9% conventional same store results 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 as either a new lease, where a vacant apartment is leased to a new customer, or a renewal of an existing lease. year-to-date sep preliminaryoct 3.1% in september, aimco executed a targeted "sale" in greater washington d.c. and in philadelphia in order to increase occupancy in advance of the expected seasonal slowdown in consumer demand. concessions that were offered at these properties to build occupancy were largely eliminated at the end of september. on a preliminary basis, october new lease rates increased 1.1% across aimco's entire same store portfolio. this result compares favorably to new lease rate increases in september 2013, and to new lease rate increases of 0.4% in october 2012. affordable same store results - for third quarter 2013, average daily occupancy for the affordable portfolio was 98.9%, which was consistent with third quarter 2012, while average revenue per apartment home increased 1.1% from $969 to $980 per apartment home. portfolio management aimco's portfolio strategy seeks predictable rent growth from a portfolio of "a", "b" and "c" quality market-rate properties, averaging "b/b+" in quality, and diversified among the largest coastal and job growth markets in the u.s., as measured by total apartment value. aimco's target markets are primarily coastal markets, and also include several sun belt cities and chicago, illinois. aimco measures asset quality based on rents compared to local market average rents as reported by reis, a third-party provider of commercial real estate performance information and analysis. aimco defines asset quality as follows: "a" quality assets are those with rents greater than 125% of local market average; "b" quality assets are those with rents 90% to 125% of local market average; and "c" quality assets are those with rents lower than 90% of local market average. for second quarter 2013, the most recent period for which reis information is available, aimco's conventional property rents averaged 103% of local market average rents. aimco expects to sell each year the lowest-rated 5% to 10% of its portfolio and to invest the proceeds from such sales in redevelopment and acquisition of higher-quality properties. through this disciplined approach to capital recycling, from 2007 through 2012, aimco increased its year-end conventional portfolio average revenue per apartment home at a compound annual growth rate of 6.1%, approximately three times the growth rate of market rents. this outsized rate of growth reflects the impact of portfolio management through dispositions, redevelopment and acquisitions. conventional property revenue per apartment home up 6.6% to $1,426 third quarter 2013 conventional portfolio average revenue per apartment home was $1,426, a 6.6% increase compared to third quarter 2012, as a result of year-over-year revenue per apartment home growth of 4.4% and the sale of conventional properties during 2012 and 2013 with average revenues per apartment home substantially lower than those of the retained portfolio. portfolio management activities dispositions - in third quarter 2013, aimco sold five conventional properties and three affordable properties with 1,959 and 321 apartment homes, respectively, for $166.9 million in gross proceeds. aimco's share of net sales proceeds after distributions to limited partners, repayment of existing property debt and transaction costs was $57.2 million. the wind down of aimco’s affordable portfolio continued from more than 250 properties three years ago to 79 properties at the end of third quarter 2013. acquisitions - as previously announced, aimco acquired two properties during the third quarter. aimco acquired for $9.5 million a five-story building located in midtown atlanta adjacent to the 190-acre piedmont park and approximately three miles from aimco's peachtree park property. constructed in 2012, the building consists of 30 apartment homes and approximately 3,700 square feet of retail space. the property's average revenue per apartment home is approximately $2,100, and its rents are 165% greater than the atlanta market average, making this an "a" quality asset in aimco's portfolio. aimco intends to add value to the property through operational improvements. at closing, the atlanta acquisition was funded from aimco's credit facility, which aimco expects to repay with proceeds from the sale of a property containing 156 apartment homes located in virginia with average revenue per apartment home of $875. aimco expects the free cash flow internal rate of return generated by the acquired property to be approximately 100 basis points greater than expected from the property to be sold. also during the third quarter, aimco acquired for $15.1 million a 44-apartment home community located in boston, massachusetts. constructed in 2012, the property’s average revenue per apartment home is $2,200 per month, and its rents are 19% greater than the boston market average, making this a “b+” quality asset in aimco’s portfolio. at closing, the acquisition was funded from aimco’s credit facility, which aimco expects to repay with proceeds from the sale of a florida property containing 262 apartment homes with average revenue per apartment home of $750. aimco expects the free cash flow internal rate of return generated by the acquired property to be approximately 150 basis points greater than property expected to be sold. redevelopment and development during the third quarter, aimco continued the redevelopment of five properties that began during 2012. in addition, aimco continued multi-phase capital projects at park towne place and the sterling, both located in center city philadelphia, and 2900 on first, located in seattle. the initial phases of these projects consist of capital replacement and capital improvement investments, with redevelopment expected to follow. as previously announced, during third quarter, aimco entered into an agreement with trinity financial to develop a 12-story building at one canal street in the historic bulfinch triangle neighborhood of boston’s west end. under the terms of the agreement, trinity and its experienced development team will be responsible for construction of the building. over the next two and one-half years, aimco expects to invest approximately $190 million in the development of one canal street, which will include 310 luxury apartment homes, approximately 22,000 square feet of commercial space and 147 parking spaces. the site has been leased to aimco pursuant to a 99-year ground lease from the massachusetts department of transportation. the development will be funded in part by a $114 million construction loan and in part by proceeds from the sales of lower-rated properties in less desirable submarkets. the property loan bears interest at a rate of 5.2%, and matures in 2023. consistent with aimco’s discipline of upgrading its portfolio through paired-property, leverage-neutral transactions, aimco has identified four properties with approximately 3,100 apartment homes that aimco has sold or plans to sell to fund the equity portion of the one canal street development. these lower-rated properties are located in colorado, indiana, massachusetts and texas and have monthly revenues per unit averaging approximately $750. aimco expects its one canal street investment to generate a free cash flow internal rate of return that is 400 to 450 basis points greater than the properties identified for sale and 200 to 225 basis points greater than is available on the acquisition of a comparable, stabilized property in this submarket. balance sheet and liquidity components of aimco leverage weighted avg.maturity (yrs.) weighted avgrate leverage ratios aimco's leverage targets are: debt and preferred equity to ebitda less than 7.0x; and ebitda coverage of interest and preferred dividends greater than 2.5x. aimco also focuses on debt to ebitda and ebitda coverage of interest ratios. in calculating these ratios, aimco computes ebitda on a proportionate basis. see the glossary for definitions of these metrics. trailing-twelve-month annualized3rd qtr trailing-twelve-month annualized3rd qtr trailing-twelve-month 2013 debt to ebitda and debt and preferred equity to ebitda ratios are provided on a pro forma basis, taking into account the interest income associated with the west harlem property loans acquired during the second quarter, which acquisition was funded from aimco's revolving line of credit. aimco continues to expect to achieve its leverage target of debt and preferred equity to ebitda of approximately 7.0x in the first quarter 2014. future leverage reduction is expected from earnings growth generated by the current portfolio, by regularly scheduled property debt amortization funded from retained earnings, and by collection of the maturing west harlem property loans. liquidity aimco's recourse debt at september 30, 2013, was limited to its revolving credit facility, which aimco uses for working capital and other short-term purposes, and to secure letters of credit. as previously announced, during the third quarter, aimco closed on a new $600 million revolving credit facility to replace its existing $500 million facility. similar to the facility being replaced, borrowings on the new facility bear interest at a rate set forth on a pricing grid, which varies based on aimco's leverage. the interest rate spread on the new facility is, on average, 70 basis points lower than the facility being replaced. the new facility matures in september 2018, inclusive of a one-year extension. at the end of the third quarter, aimco had outstanding borrowings on its revolving credit facility of $298.6 million and available capacity was $255.6 million, net of $45.8 million of letters of credit backed by the facility. of the outstanding borrowings, $119.1 million related to the second quarter purchase of the west harlem property loans. aimco expects to repay borrowings on its revolving credit facility upon collection of the outstanding property loans and with proceeds from paired-property sales. at the end of the third quarter, aimco's share of cash and restricted cash on hand was $183.3 million. in addition, aimco holds four properties in its unencumbered asset pool with a total estimated fair value of approximately $190 million. equity activity dividend - as previously announced, aimco's board of directors declared a quarterly cash dividend of $0.24 per share of class a common stock for the quarter ended september 30, 2013. the third quarter 2013 dividend is payable on november 29, 2013, to stockholders of record on november 15, 2013. 2013 outlook aimco's pro forma ffo and affo guidance is based on financial results for the nine months ended september 30, 2013, and updated expectations related to certain investment activities. see notes on the following page. fourth quarter currentoutlook forfull year previousoutlook forfull year currentoutlook forfull year previousoutlook forfull year change inoutlook notes to 2013 outlook [1] at the midpoint of aimco's guidance range, affo guidance has been reduced by $0.01 per share. this projected reduction in affo is due to the planned acceleration of capital replacements spending related to multi-phase capital projects. during 2012, aimco began these capital projects at its 2900 on first property, located in seattle, and two center city philadelphia properties, park towne place and the sterling. the initial phases of these projects consist of capital replacement and capital improvement investments, which totaled $4.1 million in 2012. aimco expects to invest an additional $25 million in capital replacements related to these projects during 2013. this is an increase of $2 million compared to previous expectations as these projects are ahead of schedule. total estimated costs are on budget. [2] at the midpoint of aimco's guidance ranges, full year 2013 investments in redevelopment and development have been increased by $35 million, due in part to the one canal street development project and in part to additional costs related to aimco's lincoln place and preserve at marin redevelopment properties. [3] aimco has increased its dispositions guidance to reflect acceleration of 2014 sales into 2013, to fund the equity component of its increased investment activity. earnings conference call information live webcast and replay: http://www.aimco.com/investors/events-presentations/webcasts 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/financial-reports/quarterly-earning-reports. 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 not calculated in accordance with accounting principles generally accepted in the united states, or 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 that is focused on the ownership and management of quality apartment communities located in the largest markets in the united states. aimco is one of the country's largest owners and operators of apartments, with 252 communities in 23 states, the district of columbia and puerto rico. 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: fourth quarter and full year 2013 results, including but not limited to pro forma ffo and selected components thereof; affo; and aimco's development and redevelopment project investments, timelines and stabilized rents. these forward-looking statements are based on management's judgment as of this date and include certain risks and uncertainties. risks and uncertainties include, but are not limited to: aimco's ability to maintain current or meet projected occupancy, rental rates and property operating results; the effect of acquisitions, dispositions and redevelopments; our ability to meet budgeted costs and timelines, and achieve budgeted rental rates related to our development and redevelopment projects; and our 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: 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; 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 terms of governmental regulations that affect aimco and interpretations of those regulations; the competitive environment in which aimco operates; the timing of acquisitions, dispositions and redevelopments; 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 properties presently owned or previously owned by aimco. in addition, our 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 our 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, 2012, 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. september 30,
