Business Context and Reporting Period
Company: Apartment Investment & Management Company (AIMCO)
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: September 30, 1998
Business Overview: AIMCO is a real estate investment trust (REIT) owning, managing, and developing apartment communities. As of September 30, 1998, the Company owned or controlled 57,561 units in 207 communities and managed an additional 67,929 units for third parties, totaling 200,540 units across 42 states, D.C., and Puerto Rico.
Key Financial Metrics
| Metric (in thousands) | 9 Months Ended Sept 30, 1998 | 9 Months Ended Sept 30, 1997 |
|---|---|---|
| Rental and Other Property Revenues | $265,700 | $127,083 |
| Net Income | $51,844 | $16,815 |
| Net Income Attributable to Common Stockholders | $35,524 | $15,980 |
| Funds From Operations (FFO) | $132,881 | $49,692 |
| Net Cash Provided by Operating Activities | $50,825 | $53,435 |
| Total Indebtedness | $1,275,401 | $808,530 |
| Cash and Cash Equivalents | $43,681 | $37,088 |
| Restricted Cash | $83,187 | $24,229 |
Per Share Data (9 Months): Basic EPS of $0.80; Diluted EPS of $0.79. Dividends paid per common share were $1.125.
Material Changes vs. Prior Period
- Revenue Growth: Rental revenues increased 109% to $265.7 million, driven by the acquisition of Ambassador Apartments, Inc. (52 communities) and 19 other properties in 1998, as well as properties acquired in 1997.
- Profitability: Net income surged 208% to $51.8 million. This was partially offset by increased depreciation ($59.8M vs $23.8M), goodwill amortization ($5.1M vs $0.7M), and interest expense ($56.8M vs $33.4M) associated with new acquisitions.
- Balance Sheet Expansion: Total assets grew from $2.1 billion to $3.1 billion. Total indebtedness increased by $467 million to $1.28 billion, reflecting debt assumed in acquisitions and new borrowings.
- Acquisitions: Aggregate consideration for 1998 acquisitions (including Ambassador) was $886.1 million, funded by cash, stock issuance, OP Units, and assumed debt.
Guidance, Outlook, Risks, and Unusual Items
- Subsequent Events & Mergers: On October 1, 1998, AIMCO completed the merger with Insignia Financial Group, Inc., assuming approximately $531 million in debt. A merger with Insignia Properties Trust (IPT) is expected to close in January 1999.
- Capital Markets: In November 1998, the Company issued $100 million of Class J Cumulative Convertible Preferred Stock. It also entered a $300 million interim term loan to refinance Insignia debt.
- Interest Rate Risk: The Company holds interest rate lock agreements with potential losses of approximately $12.4 million ($9.5M + $2.9M) as of September 30, 1998, pending refinancing in Q1 1999.
- Regulatory Risks:
- HUD: The Company faces scrutiny from the HUD Inspector General regarding past practices of NHP (acquired in 1997). Three 2530 clearance applications were deferred pending review. A settlement regarding a Limited Denial of Participation (LDP) in St. Louis was reached.
- Environmental: Potential liabilities exist regarding asbestos and underground storage tanks. A settlement in principle with the EPA regarding refrigerant violations at NHP properties involves a fine under $100,000.
- Year 2000 Compliance: The Company estimates total costs of $3.4 million to address Y2K issues, with approximately $2.8 million incurred to date. Remediation is expected to be complete by March 1999.
Investor Verification Checklist
- Debt Covenants: Verify compliance with the BOA Credit Facility covenants, specifically the debt-to-gross-asset-value ratio (max 0.55:1) and fixed charge coverage ratio (min 1.6:1 through Dec 31, 1998).
- HUD Clearance Status: Monitor the resolution of the deferred 2530 clearance applications and the outcome of the HUD Inspector General's inquiry, as this could impact future management contracts for affordable housing.
- Interest Rate Hedging: Confirm the execution of the refinancing for the $175 million in interest rate lock agreements in Q1 1999 to determine if the potential $12.4 million loss will be realized or amortized.
- Insignia Integration: Assess the financial impact of the Insignia merger and the subsequent IPT merger, including the $50 million special dividend obligation to Class E Preferred Stockholders.
- Capital Expenditures: Review the execution of the $71.4 million capital expenditure plan for 1998 to ensure properties remain competitive and revenue-generating.