Business context and reporting period
Apartment Investment and Management Company (Aimco) and Aimco OP L.P. report for the three months ended March 31, 2021. Aimco completed its separation from Apartment Income REIT Corp. (AIR) in December 2020. Pre-separation comparative financials are carve-out results and may not reflect the costs or structure of Aimco as a standalone company. Aimco’s portfolio includes 24 operating apartment communities with 6,067 homes, development and redevelopment assets, and one office building.
Financial performance and position
- Revenue: Rental and other property revenue was $39.8 million, up 3.9% from $38.3 million. Operating Portfolio revenue before utility reimbursements declined 2.0% year over year.
- Profit: Net income was $21.4 million versus $4.6 million; net income attributable to Aimco common stockholders was $20.2 million, or $0.14 per diluted share, versus $4.4 million, or $0.03. Results included a $25.3 million unrealized gain on interest-rate options. Adjusted EBITDAre, a non-GAAP measure, was $16.7 million versus $20.9 million.
- Operating performance: Proportionate property NOI was $24.0 million, down 4.7%. Operating Portfolio NOI fell 5.8% to $21.5 million. Average occupancy was 97.6%; average revenue per occupied unit was $1,852, down 2.0% year over year. Aimco collected 97.5% of residential amounts owed and reserved 160 basis points as bad debt.
- Cash flow: Operating cash flow was $2.3 million versus $15.6 million. Investing used $37.9 million, including $31.7 million of capital expenditures; financing used $27.8 million. Cash, cash equivalents and restricted cash declined $63.4 million to $235.3 million.
- Debt and liquidity: Indebtedness was $964.0 million, comprising $429.9 million of non-recourse property debt and $534.1 million payable to AIR. The AIR notes bear 5.2% interest and mature in January 2024. Available liquidity was reported as $385.3 million, including $226.1 million cash, $9.2 million restricted cash and $150 million of unused revolving-facility capacity. No revolver borrowings were outstanding. Management reported compliance with debt covenants.
- Other balance-sheet items: Total assets were $2.22 billion. Lease liabilities were $447.0 million, including $433.5 million related to financing leases. Development and redevelopment commitments totaled approximately $266.4 million, most expected within 12 months.
Material changes versus the prior comparable period
- Revenue rose modestly, but operating costs increased: property operating expenses were $16.9 million versus $15.3 million, and general and administrative expenses were $6.3 million versus $1.8 million. Management attributed the G&A increase primarily to standalone-company costs versus predecessor allocations in 2020.
- Interest expense increased to $12.7 million from $5.7 million, principally due to the notes payable to AIR established in connection with the separation.
- Net income increased substantially, but the comparison was materially affected by the $25.3 million noncash mark-to-market gain on interest-rate options. Operating cash flow and proportionate property NOI declined.
- Balance-sheet assets and lease liabilities increased following commencement of four AIR property leases on January 1, 2021.
Outlook, commentary and risks
- Management said available liquidity and financing access were sufficient for operating needs in 2021 and beyond. Near-term plans did not contemplate issuing equity. It expected approximately $320 million of development and redevelopment spending; the company separately disclosed $266.4 million of capital commitments at quarter-end.
- Management reported development progress: Flamingo Point North Tower remained targeted for completion in 2022 and stabilization in 2023; Upton Place was progressing on budget toward 2024 completion; and the Benson Hotel was expected to be completed in first-quarter 2023. Leasing at three unstabilized properties accelerated in April and early May, according to management.
- On April 15, 2021, Aimco entered a $150 million, three-year variable-rate construction loan for Flamingo North Tower, priced at LIBOR plus 360 basis points, subject to a 3.85% floor. Subsidiaries indemnified AIR for certain losses if Aimco defaults.
- Key risks include COVID-19 effects on operations and markets, rental-rate and occupancy pressure, development cost and schedule overruns, access to financing and debt-covenant compliance, and obligations arising from the ongoing relationship with AIR.
- The $314.8 million Parkmerced mezzanine investment bears 10% interest and is junior to a $1.5 billion first mortgage. Management cited San Francisco rent weakness and pandemic-related disruption as risks to repayment. Legal title to related subsidiaries had not transferred to Aimco as of the filing discussion.
- Additional exposures include $244.7 million of residual value guarantees on leased properties, a $15.1 million guarantee liability for certain pre-separation legal matters, and a $37.5 million remaining IQHQ funding commitment. No dividend payment or expectation for future regular dividends had been declared.
Important facts for investors to verify
- How much of reported earnings came from the noncash interest-rate-option gain, and how should it be distinguished from recurring operating performance?
- Whether operating portfolio revenue, NOI, occupancy and bad-debt trends improve, particularly as pandemic effects and leasing-season conditions evolve.
- Funding and execution plans for development commitments, the new Flamingo loan, and the substantial long-term AIR lease obligations.
- Repayment prospects and impairment risk for the Parkmerced mezzanine loan, and the status of transfer of its related legal title.
- Cash availability after restricted balances, debt maturities and covenant requirements, alongside ongoing separation-related obligations and guarantees.