Business Context and Reporting Period
Company: Apartment Investment & Management Company (Aimco)
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: June 30, 2006
Business Overview: Aimco is a self-administered REIT engaged in the acquisition, ownership, management, and redevelopment of apartment properties. As of June 30, 2006, the company owned or managed 1,320 properties containing 230,438 units across 47 states, D.C., and Puerto Rico. The company is the largest owner of apartment properties in the U.S. based on unit data.
Key Financial Metrics
| Metric (in thousands) | Six Months Ended June 30, 2006 | Six Months Ended June 30, 2005 |
|---|---|---|
| Total Revenues | $858,421 | $704,510 |
| Net Income | $119,162 | $29,598 |
| Net Income Attributable to Common Stockholders | $76,074 | $(14,964) |
| Funds From Operations (FFO) | $180,368 | $166,760 |
| FFO Attributable to Common Stockholders (Diluted) | $137,403 | $122,302 |
| Net Cash Provided by Operating Activities | $264,940 | $182,373 |
| Net Cash Provided by Investing Activities | $265,935 | $(340,511) |
| Net Cash Used in Financing Activities | $(369,142) | $201,574 |
| Total Assets | $10,392,396 | $10,019,160 |
| Total Indebtedness | $6,606,819 | $6,096,091 |
| Cash and Cash Equivalents | $323,463 | $161,730 |
Material Changes vs. Prior Period
- Profitability Surge: Net income attributable to common stockholders improved from a loss of $15.0 million in the prior year to a profit of $76.1 million. This was driven primarily by a significant increase in income from discontinued operations (gains on property sales) and higher net operating income from property operations.
- Accounting Change (EITF 04-5): The company consolidated 156 previously unconsolidated partnerships effective January 1, 2006, due to the adoption of EITF 04-5. This resulted in a $73.5 million charge to retained earnings at the beginning of the year and significantly increased reported depreciation, interest expense, and minority interest.
- Discontinued Operations: Income from discontinued operations rose to $116.1 million (from $31.3 million) due to the sale of 38 properties and the South Tower of the Flamingo South Beach property, generating net gains of approximately $114.6 million.
- Same Store Performance: Consolidated same store net operating income increased by 10.4% year-over-year, driven by a 3.4% increase in occupancy and a $23 per unit increase in average rent.
- Debt and Liquidity: Total indebtedness increased by approximately $511 million, largely due to debt assumed in newly consolidated properties. Cash and cash equivalents increased by $161.7 million, bolstered by proceeds from property sales and a $98 million preferred stock issuance.
Guidance, Outlook, and Risks
- Outlook: Management expects gross sales proceeds from 2006 dispositions to range between $850 million and $1.05 billion. Proceeds are planned to be used for debt reduction, capital expenditures, and acquisitions.
- Capital Expenditures: For the six months ended June 30, 2006, the company spent $177.6 million on capital expenditures (including redevelopment, improvements, and replacements). Commitments for construction projects due in 2006 total approximately $82.3 million.
- Dividends: Dividends declared per common share were $1.20 for the six-month period.
- Risks and Contingencies:
- Legal Proceedings: The company is involved in various litigation, including an FLSA collective action regarding overtime pay for maintenance workers and insurance litigation involving WestRM/XL Reinsurance. Management does not expect these to have a material adverse effect.
- Environmental/Mold: Potential liabilities exist regarding hazardous substances and mold exposure, though no material costs have been incurred to date.
- Interest Rate Risk: The company is exposed to interest rate fluctuations, particularly on variable-rate debt, though it primarily utilizes long-term fixed-rate mortgage debt.
Investor Verification Checklist
- Discontinued Operations Impact: Verify the sustainability of earnings given that a significant portion of the net income ($116.1 million) is derived from one-time gains on property sales rather than recurring operations.
- EITF 04-5 Consolidation Effects: Review the impact of the new consolidation rules on reported debt levels, depreciation expenses, and minority interest allocations.
- Preferred Stock Redemptions: Note the subsequent redemption of $175.2 million in Class R Preferred Stock on July 20, 2006, which occurred after the balance sheet date.
- Same Store Metrics: Confirm the 3.4% occupancy increase and rent growth in the "same store" portfolio as a leading indicator of core operational health.
- Debt Maturities: Assess the company's ability to refinance or repay the $6.6 billion in total indebtedness, particularly given the increase in variable rate exposure.