Business & Finance
Business and Finance
Business and Finance
Thu, September 9, 2010
Wed, September 8, 2010 
NEW YORK--([ BUSINESS WIRE ])--Fitch Ratings has affirmed and simultaneously withdrawn the ratings of Apartment Investment and Management Company (NYSE: AIV) and its operating partnership, AIMCO Properties, L.P. (collectively, Aimco) as follows:
Apartment Investment and Management Company
--Issuer Default Rating (IDR) 'BB+';
--$180 million revolving credit facility 'BB+';
--$765.9 million perpetual preferred stock 'BB-'.
AIMCO Properties, L.P. (as co-borrower)
--IDR 'BB+';
--$180 million revolving credit facility 'BB+'.
The rating assigned to Aimco's term loan, which was paid off in July, was also withdrawn.
The affirmation of Aimco's ratings is based on the asset and geographic diversification of its apartment community portfolio, which has led to relatively stable performance throughout the downturn, as well as its long term debt profile and adequate liquidity position. Aimco's leverage and fixed charge coverage have remained stable and are commensurate with the ratings. The ratings also factor Aimco's limited pool of unencumbered assets; however, recourse debt is limited to the company's revolving credit facility. While Aimco has limited entity risk, it remains fairly dependent on the government-sponsored enterprises (GSEs) for funding, which could impact its liquidity and funding costs should their involvement in this market diminish.
Aimco's ratings are supported by its large portfolio of 486 conventional and affordable properties spread across the U.S., concentrated in the 20 largest residential markets at June 30, 2010. The portfolio is well diversified geographically with the largest market comprising less than 13% of net operating income (NOI) and the 10 largest markets comprising a reasonable 62.7% of total NOI.
The ratings also reflect Aimco's steady coverage metrics despite the challenging operating environment. Given the diversification of the portfolio, total portfolio NOI declines have been fairly limited at -0.5% and -0.4% in 2009 and the first half of 2010, respectively, as larger declines in the same store conventional portfolio have been offset to some extent by the performance of redevelopment conventional properties and same store affordable properties. Aimco's fixed charge coverage ratio (defined as recurring operating EBITDA less recurring capital replacement expenditures divided by interest expense, capitalized interest and preferred dividends) has been stable at 1.3 times (x) since 2007 and remained at that level for the trailing 12 months ended June 30, 2010.
Aimco's leverage continues to be commensurate with the 'BB+' rating. Leverage as measured by debt to recurring operating EBITDA was 9.7x for the trailing 12 months ended June 30, 2010, in line with 2009 (9.8x) and slightly above 2008 (9.3x). Management expects to reduce leverage modestly over time through principal amortization, which is a feature of most of its mortgage loans.
Aimco's adequate liquidity position and long-term debt profile are also reflected in the ratings. The company's liquidity position has improved over time despite a sizeable reduction in the size of its revolving credit facility due to the sale of assets, reduced capital expenditures, and refinancing of its non-recourse secured mortgages. Aimco has a liquidity coverage metric of 1.0x from June 30, 2010 to Dec. 31, 2011 calculated as sources of liquidity (unrestricted cash, availability under the company's revolving credit facility, projected retained cash flows from operating activities) over uses of liquidity (pro rata debt maturities and projected capital replacement expenditures). Under the assumption that the company is able to refinance 80% of its maturing secured debt, which is reasonable given its recent refinancing activity, the liquidity surplus rises to 1.6x. Aimco's debt maturity profile is long and well laddered with an average remaining term of eight years and less than 16% of total debt maturing through 2012.
Nevertheless, Aimco is fairly reliant on the GSEs for financing. Management estimates that the GSEs provide approximately 60% of the company's mortgage debt. As a result, a substantial reduction in Freddie Mac or Fannie Mae's participation in the multifamily credit markets could adversely affect Aimco's ability to obtain non-recourse property debt financing, particularly at the attractive rates offered by GSEs. However, higher funding costs would impact Aimco gradually given the long term nature of its funding base.
Aimco's limited unencumbered assets are also factored into the company's 'BB+' IDR. As of Dec. 31, 2009, the company had 10 unencumbered assets with a book value of $177 million, which represented 1.8% of total assets. Aimco's encumbered assets continue to generate residual cash flow and value available to corporate debt investors; however, the cash flow generated by these assets is structurally subordinated to Aimco's non-recourse secured property debt. Nevertheless, Aimco's recourse debt is currently limited to its $180 million revolving credit facility, which had availability of $137.1 million as of June 30, 2010 after giving effect to $42.9 million outstanding for undrawn letters of credit issued under the revolving credit facility.
The two-notch differential between Aimco's IDR and preferred stock rating is consistent with Fitch's criteria for corporate entities with a 'BB+' IDR. Based on Fitch's report 'Equity Credit for Hybrids and Other Capital Securities' dated Dec. 29, 2009, Aimco's preferred stock is 75% equity-like and 25% debt-like since it is perpetual and has no covenants but has a cumulative deferral option in a going concern. Debt plus 25% of preferred stock-to-recurring EBITDA and debt plus 25% of preferred stock-to-undepreciated book capital were 10.0x and 58%, respectively, as of June 30, 2010.
Fitch has withdrawn these ratings because Aimco is no longer considered to be relevant to Fitch's REIT coverage.
Headquartered in Denver and incorporated in 1994, Aimco is an equity REIT that is engaged in the acquisition, ownership, management and redevelopment of both conventional and affordable apartment properties. In addition, Aimco has an investment management platform that provides services such as portfolio strategy, tax credit syndication, acquisitions, dispositions and other transactional services for which the company earns fees. As of June 30, 2010, Aimco had $10.5 billion in undepreciated book assets and a total market capitalization of $8.6 billion. Approximately 88% of Aimco's net asset value is invested in conventional properties, while 12% is invested in affordable properties.
Additional information is available at '[ www.fitchratings.com ]'. The issuer did not participate in the rating process, or provide additional information, beyond the issuer's available public disclosure.
Related Research:
--'Corporate Rating Methodology' (Aug. 16, 2010);
--'Parents & Subsidiary Rating Linkage' (July 14, 2010);
--'Criteria for Rating U.S. Equity REITs and REOCs' (April 16, 2010);
--'Equity Credit for Hybrids & Other Capital Securities - Amended' (Dec. 29, 2009);
--'Rating Hybrid Securities' (Dec. 29, 2009);
--'Recovery Rating and Notching Criteria for REITs' (Dec. 23, 2009);
--'Evaluating Corporate Governance' (Dec. 12, 2007).
Related Research:
Corporate Rating Methodology
[ http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=546646 ]
Criteria for Rating U.S. Equity REITs and REOCs
[ http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=510465 ]
Rating Hybrid Securities
[ http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=493086 ]
Evaluating Corporate Governance
[ http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=363502 ]
Recovery Rating and Notching Criteria for REITs
[ http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=492828 ]
Parent and Subsidiary Rating Linkage Criteria Report
[ http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=534826 ]
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