Business context and reporting period
Apartment Investment and Management Company (Aimco), a REIT, and its operating partnership filed this combined unaudited Form 10-Q for the quarter and six months ended June 30, 2023. Aimco’s portfolio centers on U.S. multifamily real estate and includes stabilized apartments, properties under development, land, a hotel, an office building, and alternative investments. At June 30, Aimco held 94.9% of the operating partnership’s economic interest. Unless otherwise noted, figures below are consolidated and in U.S. dollars.
Financial performance and condition
| Metric | Q2 2023 | Q2 2022 | Six months 2023 | Six months 2022 |
|---|---|---|---|---|
| Rental and other property revenue | $45.7m | $50.7m | $89.9m | $100.7m |
| Net income (loss) | $0.1m | $253.2m | ($5.6m) | $263.3m |
| Net income (loss) attributable to Aimco | ($3.6m) | $239.1m | ($12.4m) | $247.3m |
| Diluted earnings (loss) per share | ($0.02) | $1.57 | ($0.09) | $1.62 |
| Operating cash flow | Not presented by quarter | $17.7m | $25.4m |
- Stabilized Operating segment Q2 revenue rose 9.5% to $37.0m and proportionate property NOI rose 9.8% to $25.5m. The NOI margin was approximately 68.9% of segment revenue before utility reimbursements. Six-month segment revenue and NOI increased 10.4% and 11.4%, respectively.
- At June 30, total assets were $2.216bn, net real estate $1.558bn, total indebtedness $1.066bn, and total liabilities $1.449bn. Indebtedness increased from $1.048bn at year-end 2022; cash and cash equivalents declined to $165.0m from $206.5m.
- Six-month investing cash outflow was $126.6m, including $129.9m of capital expenditures. Financing cash inflow was $71.5m; cash, cash equivalents, and restricted cash decreased $37.4m to $192.4m. Capital expenditures accrued at period-end were $62.8m.
- Reported liquidity was $342.4m: $165.0m cash, $27.4m restricted cash, and $150.0m available under the revolving facility. There were no revolver borrowings. The facility matures in December 2023, subject to two one-year extension options.
- About 88% of non-recourse property debt was fixed-rate and 12% variable-rate; Aimco reported all outstanding non-recourse property debt was fixed or hedged. Weighted-average contractual rate was 4.9% including caps, with a 7.0-year average remaining maturity. The company said rate caps protected variable-rate debt against a 100-basis-point index move.
Material changes versus the prior comparable period
- GAAP earnings fell sharply from 2022, principally because Q2 2022 included $205.4m of lease-modification income from terminating leases with AIR and a $94.6m real-estate disposition gain. Q2 2023 included only $1.9m of disposition gain and no lease-modification income.
- Q2 2023 revenue declined 9.9% year over year at the consolidated level, even as stabilized Operating segment revenue grew. The filing attributes part of the consolidated comparison to prior-year property sales and lease terminations.
- Interest expense declined to $9.7m from $41.5m for Q2 and to $19.4m from $56.1m for the half year, primarily reflecting prior repayment of notes payable to AIR and other property debt.
- Depreciation and amortization and general and administrative expense also declined year over year, partly following property dispositions/lease terminations and the conclusion of AIR-related consulting services.
- Operating-segment occupancy softened: Q2 average daily occupancy was 96.2%, down 140 basis points year over year. Average monthly revenue per apartment home rose $230 to $2,291. The Other segment’s NOI fell 23.7%, primarily due to lower occupancy at the Miami office building.
Outlook, management commentary, risks and unusual items
- Management said it expects sufficient liquidity for operational needs over the next 12 months, with longer-term needs to be funded primarily through property financing, operating cash flow, and equity recycling. It cited possible additional property financing or asset sales if liquidity needs exceed current sources. No specific earnings or revenue guidance was provided.
- Management said five active development and redevelopment projects remained on track for budget, lease-up metrics, and current market valuations, and cited a pipeline of approximately 14 million gross square feet. The Hamilton was 95% leased or pre-leased and expected to stabilize in Q3 2023; Strathmore Square’s first phase was targeted for delivery in the second half of 2024; Upton Place’s initial delivery was expected in Q4 2023. These are forward-looking expectations.
- In June, Aimco received $33.5m for a 20% participation in the Parkmerced mezzanine investment; the purchaser may acquire the remaining 80% for $134m plus interest of at least 19% annually through May 2024. Aimco also prepaid $4m of interest at closing and expected another $7m before year-end. The transaction did not qualify for sale accounting: the participation remains an asset and cash received is recorded as a liability.
- Construction-related contracts totaled $165.5m, with $229.0m undrawn on construction loans. Additional unfunded commitments included $3.2m to unconsolidated joint ventures and $2.1m to property-technology funds. Management expects most construction commitments to be funded over the next 24 months.
- Key stated risks include interest-rate and refinancing conditions, availability of property/development financing, project timing and costs, and execution of business plans. Management reported compliance with facility covenants and expected continued compliance over the next 12 months. It said there were no material changes to previously disclosed risk factors and no pending legal proceedings expected to materially affect financial condition or results.
- Aimco said it does not presently intend to pay a regular quarterly cash dividend, while noting its REIT obligation to distribute at least 90% of taxable REIT income annually. It repurchased 984,799 shares in Q2 at a weighted-average $7.97 per share, for approximately $7.9m; six-month repurchases were $22.4m.
- The company began transitioning from LIBOR to SOFR effective July 1, 2023 and said it expected no material financial-statement impact. Disclosure controls were reported effective, with no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Confirm the December 2023 revolving-facility maturity, extension conditions, and refinancing plan; distinguish restricted cash from freely available liquidity.
- Track development budgets, funding availability, leasing, and delivery progress, particularly at Upton Place, Strathmore Square, Oak Shore, and The Hamilton.
- Verify whether the Parkmerced purchaser exercises its remaining participation option, and assess the accounting and cash implications of any resulting payment.
- Monitor apartment occupancy, rent growth, operating costs, and the office building’s occupancy, which management identified as affecting segment results.
- Assess future debt maturities, interest-rate exposure and hedge coverage, facility covenant headroom, and the effect of capital spending relative to operating cash generation.
- Interpret year-over-year GAAP earnings comparisons in light of the significant 2022 lease-modification and property-sale gains; the filing does not provide a clear numerical full-year earnings outlook.