Attached files
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| EX-99.1 - EXHIBIT 99.1 EARNINGS RELEASE - APARTMENT INVESTMENT & MANAGEMENT CO | q42016er-ssxex991.htm |
| 8-K - 8-K - APARTMENT INVESTMENT & MANAGEMENT CO | a8-kq42016earningsrelease.htm |
1
2017 OUTLOOK & 2018 FORECAST
FEBRUARY 2017
2
INTRODUCTION
This supplemental disclosure provides a summary of Aimco's recent
results, our 2017 Outlook and a 2018 Forecast. This information
highlights four factors that we expect to drive changes in our short-
term results:
1. Same Store NOI growth rates;
2. Contribution to 2017 from lease-up successes in 2016;
3. Reduction of non-core earnings as we continue to simplify
our business; and
4. Lower G&A and other offsite costs as we scale our
overhead to our more focused activities.
The 2017 outlook tracks broadly the 2017 Forecast Aimco provided in
February 2016, but is lower for three reasons discussed below.
2017
Outlook
2017
Prior Forecast
Change at
Midpoint
Earnings
Pro forma FFO per share
AFFO per share
$2.39 - $2.49
$2.07 - $2.17
$2.42 - $2.56
$2.12 - $2.26
-$0.05
-$0.07
Same Store Operations
Revenue Growth
Expense Growth
NOI Growth
3.25% - 4.25%
2.50% - 3.00%
3.50% - 5.00%
3.75% - 4.75%
2.50% - 3.00%
4.00% - 5.50%
-0.50%
-0.50%
The reduction in Aimco's expectation for 2017 AFFO per share as compared to the year-
ago forecast is driven by three factors.
$0.03 from lower NOI due to slower rent growth: $0.02 in our Same Store portfolio;
and $0.01 in contribution from our Redevelopment communities.
$0.02 due to slower pace for certain redevelopments started in 2016 based on
caution about market rents.
$0.02 due to an increase in anticipated Capital Replacement spending.
3
TABLE OF CONTENTS
Page
2016 Highlights 4
Strategic Areas of Focus 5
Property Operations 6
Redevelopment & Development 8
Portfolio Management 9
Balance Sheet Management 10
Summary Expectations for 2017 & 2018 11
4
2016 HIGHLIGHTS
* Economic Income represents the annual change in NAV per share plus cash dividends per share. The annual change
in NAV per share is computed based on Aimco's 3Q 2016 NAV.
Economic Income: $7 per share*
15% Return on Net Asset Value (NAV)
NAV per share up 12% to $52 Cash dividends per share up 12% to $1.32
Same Store NOI
6.2%
Redevelopments &
Lease-Ups:
value creation of
$270M from
stabilization of
redevelopments and
lease-up activities
Portfolio Quality
increasing; average
revenue per
apartment home
8% to $1,978
Leverage 0.1x;
$1.6B
unencumbered
pool; largely
unused $600M line
of credit
AFFO per share
5% to $1.97
Recognized as a "Top Place to Work" for the fourth year in a row
5
STRATEGIC AREAS OF FOCUS
EXCELLENCE IN
PROPERTY OPERATIONS
MAINTAIN A SAFE, FLEXIBLE BALANCE SHEET
WITH ABUNDANT LIQUIDITY
ADD VALUE THROUGH REDEVELOPMENT AND
LIMITED DEVELOPMENT
OPERATE A SIMPLE BUSINESS AND
FOSTER A PERFORMANCE CULTURE
UPGRADE PORTFOLIO THROUGH DISCIPLINED
PORTFOLIO MANAGEMENT
6
PROPERTY OPERATIONS
STRATEGIC OBJECTIVE: Produce above-average operating results through focus on
customer satisfaction, resident retention and superior cost control.
LOOKING BACK: Aimco NOI 17% over the past three years
LOOKING FORWARD: Aimco expects Same Store NOI growth above trend due to solid
consumer demand for apartments and our continued focus on cost control.
Our 2017 Outlook projects lower revenue growth than in our prior forecast, which forecast included
assumptions about market rent growth based on the weighted average of submarket growth rates
projected by REIS and AXIOMetrics at the time. Aimco's current outlook for 2017 rent growth is based
on the earn-in of Aimco's 2016 leasing activities and our projections for 2017 weighted average rent
increases.
Our 2018 forecast assumes:
Renewal rents increase at 4.5% and New Lease rents increase at 3.0%, the weighted average
of submarket growth rates projected by REIS and AXIOMetrics.
Operating expenses increase at a market-weighted inflation rate as projected by Moody's
Economy.com, reduced by 15 basis points due to Aimco operating efficiency and innovation
initiatives.
4.5%
2.3%
5.5%
4.5%
2.1%
5.6%
4.7%
1.4%
6.2%
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
7.0%
Revenue Expense NOI
Same Store Growth Rates
2014 2015 2016
3.75%
2.75%
4.25%
Low 3.75%
Low 2.50%
Low 4.00%
High 4.75%
High 3.00%
High 5.50%
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
Revenue Expense NOI
Projected Same Store Growth Rates
2017 Outlook 2017 Prior Forecast
3.75%
2.75%
4.25%
Low 3.25%
Low 2.50%
Low 3.50%
High 4.25%
High 3.00%
High 5.00%
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
Revenue Expense NOI
Project d Same Store Growth Rates
2017 Outlook 2018 Forecast
7
PROPERTY OPERATIONS
Lease-Up Communities - During 2016, Aimco completed the lease-up of Vivo, located in
Cambridge, MA, ahead of plan and significantly outperformed our expectations for the
lease-up of One Canal, located in Boston, MA, and Indigo located in Redwood City, CA.
% Apt. Homes Occupied
Year-End 2016
Stabilized
Occupancy Stabilized NOI
Total Apt.
Homes
2016
Outlook
2016
Actual
2016
Outlook
2017
Outlook
2016
Outlook
2017
Outlook
ONE CANAL,
BOSTON
310 65% 86% 3Q 2017 1Q 2017 4Q 2018 2Q 2018
INDIGO,
BAY AREA
463 40% 77% 3Q 2017 2Q 2017 4Q 2018 3Q 2018
With the accelerated leasing pace and rental rate achievement consistent with
underwriting, the projected contribution to 2017 NOI from these lease-up communities is
$0.13 per share, $0.01 per share greater than we had forecast one year ago.
8
REDEVELOPMENT & DEVELOPMENT
STRATEGIC OBJECTIVES: Add value by repositioning communities in special locations
with expected higher rates of revenue growth and some protection against competitive
new supply. Invest selectively through development in desirable locations where accretive
redevelopment or acquisition opportunities are not readily available.
LOOKING BACK: During the last three years, Aimco completed seven redevelopments
located in high-quality locations in: the Bay Area; La Jolla, CA; west Los Angeles;
downtown Seattle; and suburban Chicago, all of which had reached NOI stabilization as
of December 31, 2016. In total, these redevelopments added value of $298M, an amount
equal to 40% of Aimco's investment.
NOI
Stabilized
Properties
PROJECT SCOPE
Redevelopment projects 7
Net investment $750M
Apartment homes redeveloped 1,349
VALUE CREATION
Redevelopment value creation ($M) (1) $298M
As a % of investment (2) 40%
(1) Based on stabilized GAV as computed by Aimco as of the quarter of NOI stabilization.
(2) During 2008, Aimco recognized impairment losses on two of its redevelopment properties totaling approximately $91M. These impairments are
included in the net investment amount in this table.
LOOKING FORWARD: Aimco expects over the next two years to invest $200M - $450M
in redevelopment and development and to create value equal to 25% to 35% of its
investment. Aimco redevelopment and development activities during 2017 are focused on:
Completion of the six multi-phase redevelopments under construction at year-
end 2016;
Subject to favorable economic conditions, potentially starting additional
redevelopments including the fourth and final tower at Park Towne Place and
three to five new projects; and
Continuing to plan 2018 starts to backfill our redevelopment pipeline.
9
PORTFOLIO MANAGEMENT
STRATEGIC OBJECTIVES: Own and operate a portfolio of properties diversified by both
geography and price point to limit exposure to competitive new supply. Add value by
making accretive paired trades selling lower-rated properties to fund investment in higher-
rated properties, increasing returns as measured by free cash flow internal rate of return
and improving portfolio quality as measured by average revenue per apartment home.
LOOKING BACK: During the last three years, Aimco significantly upgraded the quality of
its portfolio, while maintaining its geographic and price point diversification.
Year-End
2013
Year-End
2016 % Change
FOOTPRINT
Communities
Apartment Homes
% NOI in Target Markets
162
50,486
88%
134
37,922
88%
- 17%
- 25%
0%
QUALITY
Revenue per Apartment Home
Percentage A
Percentage B
Percentage C+
Percentage C
$ 1,469
38%
37%
18%
7%
$ 1,978
52%
34%
14%
0%
+ 35%
+ 37%
- 8%
- 22%
- 100%
LOOKING FORWARD: Through market rent growth and disciplined capital recycling, we
expect revenue per apartment home to approximate $2,050 at 2017 year-end and $2,130
at 2018 year-end.
While Aimco's outlook for 2017 and its forecast for 2018 do not include any
acquisitions, Aimco will continue in both years to evaluate opportunities to upgrade its
portfolio pursuant to its paired trade discipline.
Aimco considers it likely that the economy will continue its slow growth and that
demographics will support continued strong consumer demand for apartments.
However, after several years of above-trend rent growth, Aimco sees rent growth in
many markets decelerating due to competitive new supply. As a result of geographic
and price point diversification, Aimco's exposure to competitive new supply is largely
limited to approximately one quarter of its portfolio: "A" price point communities in
submarkets with more than 2% supply growth projected over the next twelve months.
This exposure is mitigated in some submarkets where the rate of job growth exceeds
the rate of supply growth, and in other submarkets where Aimco's "A" rents are
substantially lower than the rents charged by new supply.
10
BALANCE SHEET MANAGEMENT
STRATEGIC OBJECTIVE: Maintain a safe, flexible balance sheet with abundant liquidity,
rated "investment grade" by both S&P and Fitch, with the capacity to take advantage of
opportunities created by a future real estate down-cycle.
LOOKING BACK: During the last three years, Aimco has reduced leverage and added
financial flexibility by creating an unencumbered pool of assets.
Year-End
2013
Year-End
2016
%
Change
DEBT TO EBITDA 7.1x 6.3x - 11%
DEBT AND PREFERRED EQUITY TO EBITDA 7.3x 6.7x - 8%
VALUE OF UNENCUMBERED ASSETS $0.4B $1.6B +300%
LOOKING FORWARD: We expect the quantum of leverage to remain fairly constant. We
expect our leverage ratios will improve due to NOI growth in our Same Store portfolio and
the earn-in from stabilization of redevelopments and lease-up communities.
Year-End
2016
Year-End
2018
Forecast
%
Change
DEBT TO EBITDA 6.3x ~ 5.8x - 8%
DEBT AND PREFERRED EQUITY TO EBITDA 6.7x ~ 6.2x - 7%
VALUE OF UNENCUMBERED ASSETS $1.6B $1.9B + 19%
Exposure to interest rates - Aimco has limited near-term exposure to changes in interest
rates due to the long duration and fixed rates of its leverage. A 100 basis point change in
the 10-year treasury rate leading to an equal change in Aimco borrowing rates would
change, plus or minus, forecasted 2017 and 2018 AFFO per share by $0.01 and $0.04,
respectively.
Exposure to capital markets - Aimco's operating, investing and financing activities have
limited exposure to capital markets.
Aimco's business plans for 2017 and 2018 are fully funded by (i) continuing
operations, (ii) refinancing $416M of maturing property debt over the next two years
at LTVs lower than 50%, and (iii) selling $385M - $465M in properties over the next
two years.
Aimco's business plans do not contemplate equity issuance.
11
SUMMARY EXPECTATIONS
2017 Outlook and 2018 Forecast
The information in this "2017 Outlook and 2018 Forecast" document contains forward-looking statements
within the meaning of the federal securities laws, which statements are based on management's
judgment as of this date. This information includes certain risks and uncertainties and will be affected by
a variety of factors, some of which are beyond Aimco's control. Additional information regarding risks and
uncertainties that may affect future results may be found on page 14 herein. Please see pages 6 to 8 of
Aimco's Fourth Quarter 2016 Earnings Release for additional information regarding Aimco's 2017
Outlook.
Our 2017 Outlook and 2018 Forecast reflect continuation of the strategy we have executed over the last
several years. This strategy focuses on excellence in property operations; value creation through
redevelopment and occasional development; portfolio management based on a disciplined approach to
capital recycling and simplification of the business; a safe, flexible balance sheet with abundant liquidity;
and a simple business model executed by a performance-oriented and collaborative team.
Consistent execution of that strategy has produced:
Improved operating results;
An improved portfolio;
A simpler business with higher quality earnings;
Safer leverage;
Reduced offsite costs; and
Increased AFFO per share, cash dividends per share and NAV per share.
Our outlook for 2017 and forecast for 2018 reflect continued progress on each of these fronts.
12
SUMMARY EXPECTATIONS
($ Amounts represent Aimco Share)
2016
ACTUAL
2017
OUTLOOK
2018
FORECAST
Net Income $2.67 $0.38 - $0.48 $0.48 - $0.62
Pro forma FFO per share $2.32 $2.39 - $2.49 $2.50 - $2.64
AFFO per share $1.97 $2.07 - $2.17 $2.17 - $2.31
Select Components of FFO
Conventional Same Store Operating Measures
Revenue change compared to prior year 4.7% 3.25% - 4.25% 3.25% - 4.25%
Expense change compared to prior year 1.4% 2.50% - 3.00% 2.50% - 3.00%
NOI change compared to prior year 6.2% 3.50% - 5.00% 3.50% - 5.00%
Non-Core Earnings
Amortization of deferred tax credit income
(1)
$18M $11M $6M
Non-recurring investment management revenues
(2)
$5M $0M $0M
Historic Tax Credit benefits
(3)
$14M $4M - $5M $0 - $4M
Other tax benefits, net $12M $15M - $17M $10M - $12M
Total Non-Core Earnings $49M $30M - $33M $16M - $22M
Offsite Costs
Property management expenses $25M $23M $22M - $23M
General and administrative expenses $45M $43M $42M - $43M
Investment management expenses $4M $4M $4M
Total Offsite Costs $74M $70M $68M - $70M
Capital Investments
Redevelopment and development $183M $100M - $200M $100M - $250M
Property upgrades $75M $70M - $90M $70M - $90M
Transactions
Property dispositions $529M $160M - $190M $225M - $275M
Property acquisitions
(4)
$320M $0M $0M
Portfolio Quality
Fourth quarter Conventional Property average revenue per apartment home $1,978 ~$2,050 ~$2,130
Balance Sheet
Debt to Trailing-Twelve-Month EBITDA 6.3x ~6.1x ~5.8x
Debt and Preferred Equity to Trailing-Twelve-Month EBITDA 6.7x ~6.5x ~6.2x
Value of unencumbered properties
(5)
~$1.6B ~$1.9B ~$1.9B
Note: Financial information included in Aimco's 2017 Outlook and 2018 Forecast has been prepared based on Generally
Accepted Accounting Principles in effect as of 2017. Such information does not incorporate the effect of Aimco's anticipated
2018 adoption of revenue recognition and lease accounting pronouncements. Aimco is currently evaluating the effect of the
adoption of these standards, but does not expect there to be a material effect to AFFO.
13
SUMMARY EXPECTATIONS
Notes:
(1) Amortization of deferred tax credit income includes: current period recognition of cash received in
prior periods required by GAAP to be deferred at the time of receipt and recognized in future
periods; and approximately $5M per year of income received in cash in the current period. As our
Low Income Housing Tax Credit arrangements expire, and we ultimately exit the business,
recognition of tax credit income will continue to decline.
(2) Non-recurring investment management revenues represent fees earned by Aimco in connection
with certain financing and disposition activities, which fees are paid to Aimco in cash. Over the last
many years, we have simplified our business and eliminated substantially all of the real estate
partnership arrangements that gave rise to these non-recurring fees.
(3) Historic Tax Credit benefits are realized in connection with our redevelopment of officially
designated historic apartment communities. As those redevelopments are completed, such
benefits are no longer available.
(4) While Aimco's outlook for 2017 and forecast for 2018 do not include any acquisitions, Aimco will
continue in both years to evaluate opportunities to upgrade its portfolio pursuant to its paired trade
discipline.
(5) Represents Aimco's estimate of the value of unencumbered properties at period-end, assuming
constant capitalization rates.
Glossary & Reconciliations of Non-GAAP Financial and Operating Measures
Financial and operating measures discussed in this document include certain financial measures used by
Aimco management, some of which are measures not defined under accounting principles generally
accepted in the United States, or GAAP. These measures are defined in the Glossary and
Reconciliations of Non-GAAP Financial and Operating Measures included in Aimco's Fourth Quarter
2016 Earnings Release dated February 2, 2017. Where appropriate, the non-GAAP financial measures
for Aimco's 2016 results and 2017 Outlook included within this document have been reconciled to the
most comparable GAAP measures within Aimco's Fourth Quarter 2016 Earnings Release referenced
above. For additional information regarding Aimco's NAV and the valuation methodology used to
estimate NAV, please refer to Aimco's Net Asset Value Presentation as of September 30, 2016,
published on November 15, 2016 and can be found on Aimco's website.
14
FORWARD-LOOKING STATEMENTS
This presentation contains forward-looking statements within the meaning of the federal securities laws,
including, without limitation, statements regarding projected results and specifically forecasts of first full year
2017 and 2018 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;
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,
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.