APARTMENT INVESTMENT & MANAGEMENT COMPANY (Aimco) — Q2 2021 Form 10-Q
Business context and reporting period
Quarter ended June 30, 2021; amounts below are in U.S. dollars. Aimco is a multifamily-focused REIT, reporting together with its operating partnership. The December 2020 separation from Apartment Income REIT Corp. (AIR) is important context: 2020 comparative results include pre-separation carve-out accounting and allocated costs, so some comparisons are not directly like-for-like. At quarter-end, Aimco reported 24 operating apartment communities with 6,067 homes, development and redevelopment projects, and an office building.
Financial and operating performance
- Q2 revenue: $40.4 million, up 8.8% from $37.2 million. Operating expenses were $44.4 million versus $36.0 million, including higher general and administrative costs.
- Q2 earnings: Net loss was $20.4 million, compared with net income of $3.1 million; loss attributable to Aimco common stockholders was $19.7 million, or $0.13 per share, versus earnings of $3.1 million, or $0.02 per share. A $17.0 million unrealized loss on interest-rate options and higher interest and administrative expenses were significant factors.
- Six-month earnings: Net income was $1.0 million versus $7.7 million; income attributable to common stockholders was $0.5 million, or $0.00 per share, versus $7.5 million, or $0.05 per share. Six-month results included an $8.4 million unrealized gain on interest-rate options.
- Property operations: Q2 Operating Portfolio revenue before utility reimbursements rose 2.2% year over year; proportionate property NOI increased 0.8%. Occupancy improved 140 basis points to 97.3%, while operating expenses rose 5.4%, mainly from property taxes and insurance. Six-month Operating Portfolio NOI declined 2.6%; total proportionate NOI declined 1.6%.
- Cash flow: Six-month operating cash flow was $16.5 million, down from $28.4 million. Investing cash outflow was $102.1 million, including $82.4 million of capital expenditures and $18.2 million for real estate purchases. Financing cash inflow was $82.1 million, primarily reflecting construction-loan proceeds.
- Liquidity and debt: Cash and equivalents were $286.1 million, with $9.2 million of restricted cash. Management reported $445 million of available liquidity, including $150 million of undrawn revolver capacity. Total indebtedness was $1.076 billion: $427.9 million of non-recourse property debt, $114.3 million of construction loans, and $534.1 million payable to AIR. The AIR notes bear 5.2% interest and mature in January 2024. Lease liabilities were $450.6 million.
- Capital and commitments: Total assets were $2.312 billion and total equity was $561.2 million. Development and redevelopment commitments totaled approximately $335.2 million, most expected within 24 months. Construction-loan capacity was reported as $304.8 million undrawn.
Material changes, outlook, and risks
- Q2 general and administrative expense increased $5.8 million year over year; the filing attributes the increase mainly to the transition from allocated pre-separation expenses to costs of operating as a separate company. Interest expense rose $6.8 million, mainly due to the AIR notes.
- During the first half, Aimco invested approximately $94 million in development and redevelopment. Management said key projects were on schedule and on budget, and reported more than 200 homes leased at properties in lease-up. It cited a $1.0 billion development and redevelopment pipeline and stated an expected annualized return on equity of 12%–16% once target capital allocation is achieved; these are management objectives, not guaranteed results.
- Aimco does not presently intend to pay a regular quarterly cash dividend, planning instead to reinvest earnings. Management said it believed liquidity was sufficient for operational needs in 2021 and beyond. No specific earnings or revenue guidance was provided.
- Risks include construction costs and schedules, market and occupancy conditions, financing availability and interest-rate exposure, debt-covenant compliance, and continued reliance on contractual arrangements with AIR. Aimco reported compliance with its revolver covenants and expected to remain compliant.
- The $322.4 million Parkmerced mezzanine investment is a five-year loan bearing 10% interest, subordinate to a $1.5 billion first mortgage. Accrued interest is included in the receivable; the filing warns that San Francisco rent weakness and COVID-related disruption could impair repayment. Legal title to the relevant subsidiaries had not yet transferred from AIR.
- Finance leases with AIR include aggregate residual-value guarantees of $250.8 million. The filing also reports approximately $1.77 billion of undiscounted future finance-lease payments, substantially offset in present-value accounting by discounting; lease termination and stabilization terms are material to the arrangements.
- Other notable items include a $13.9 million guarantee liability for certain pre-separation legal liabilities and approximately $120 million outstanding on two non-recourse construction loans. The filing says lenders may have recourse to Aimco’s general credit in certain situations related to consolidated VIEs.
Important facts for investors to verify
- Review the original filing’s segment and comparable-period disclosures, especially the effect of the separation and pre-separation allocated expenses.
- Track Operating Portfolio occupancy, rent growth, property expenses, and NOI, including the different quarterly and six-month trends.
- Assess Parkmerced loan collectability, collateral priority, accrued interest, and transfer of legal title from AIR.
- Confirm funding needs and remaining commitments for development projects, undrawn construction financing, project budgets, and lease-up progress.
- Review debt maturities, variable-rate exposure, AIR-related obligations, lease guarantees, liquidity availability, and covenant headroom.
- Distinguish GAAP earnings and operating cash flow from adjusted EBITDAre, a non-GAAP measure that management presents as supplemental.