Apartment Investment and Management Company (Aimco) — Q3 2022 Form 10-Q
Reporting period: Three and nine months ended September 30, 2022. This combined filing reports Aimco and Aimco OP L.P.; amounts below are consolidated unless noted. Aimco is a multifamily-focused REIT with operating apartments, development and redevelopment projects, land and alternative investments.
Financial results
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Rental and other property revenue | $47.7m | $42.9m | $148.4m | $123.1m |
| Net income (loss) | $34.2m | $(4.8)m | $297.5m | $(3.8)m |
| Net income (loss) attributable to Aimco | $29.5m | $(5.0)m | $276.8m | $(4.5)m |
| Diluted earnings (loss) per Aimco share | $0.19 | $(0.03) | $1.81 | $(0.03) |
| Operating cash flow | Not presented by quarter | $228.3m | $22.1m |
- Q3 operating-segment revenue rose 11.5% year over year and proportionate property NOI rose 17.5% to $24.5m. Average monthly revenue per apartment home was $2,173, up $261; average daily occupancy was 96.0%, down 190 basis points. Nine-month operating-segment NOI increased 15.8% to $69.1m.
- Consolidated operating expenses were $113.7m in Q3 and $229.0m year to date. Depreciation and amortization rose substantially, primarily from accelerated depreciation tied to terminated property leases.
- At September 30, cash and cash equivalents were $206.4m, restricted cash $19.1m, total assets $2.30bn, and total liabilities $1.29bn. Net real estate was $1.37bn.
- Indebtedness was $940.4m, down from $1.18bn at December 31, 2021. The $534.1m Notes Payable to AIR was prepaid in July. Aimco reported $375.4m of available liquidity, including cash, restricted cash and $150m of unused revolver capacity.
- For the first nine months, investing cash outflow was $83.0m and financing cash outflow was $164.4m; cash, cash equivalents and restricted cash declined $19.1m to $225.4m. Capital expenditures were $184.0m.
Material changes and unusual items
- Year-to-date results included $207.0m of lease-modification income and $170.0m of gains on real estate dispositions. These items were major contributors to the swing from a prior-year loss to substantial reported income.
- AIR paid Aimco $200m to terminate leases on four properties in September; Aimco relinquished control of those properties and the transaction eliminated $469m of related lease obligations. Aimco also recognized $85.7m of accelerated depreciation for the nine-month period.
- Sales included Pathfinder Village for $127m, with a $94.6m gain, and two Seattle-area communities for $122m combined, with $75.5m of gains. Aimco also acquired development land in Fort Lauderdale and made or funded joint-venture and IQHQ investments.
- Interest-rate-option gains were $48.0m year to date; equity-investment gains were $20.2m, including the IQHQ valuation and redemption gain. Debt-extinguishment loss was $28.9m. The nine-month results also included $24.3m of income tax expense.
- Operating cash flow included $195.8m of net cash received from development-property lease terminations, so the increase from 2021 should not be viewed as wholly recurring.
Outlook, financing and risks
- Management said development projects remained on schedule and on budget and that liquidity was sufficient for operational needs over the next 12 months. It expected to fund longer-term needs through property financing, operating cash flow and equity recycling. No earnings or revenue guidance was provided.
- Management does not presently intend to pay a regular quarterly dividend, preferring to reinvest earnings; a special dividend of $0.02 per share was paid September 30, 2022. Management stated the near-term plan did not contemplate issuing equity.
- At quarter-end, 81% of debt was fixed-rate and 19% variable-rate; weighted-average interest on non-recourse debt was 4.86%, with a 7.2-year average remaining maturity. Interest-rate caps protected 100% of variable-rate debt. A 100-basis-point rate change was estimated to affect interest expense by about $1.8m, before considering that protection.
- Development and redevelopment commitments totaled approximately $152.1m; $211.2m of construction-loan capacity was undrawn. Additional unfunded commitments included $14.2m for joint ventures and $2.7m for technology investments. The revolver matures in December 2023, subject to two one-year extension options.
- Key risks include rising rates, financing availability and refinancing, construction costs and timing, occupancy and rental demand, and potential non-recovery of the $362.8m Parkmerced mezzanine investment. Aimco was exploring monetization of that investment but extended the process amid financial-market uncertainty.
- A shareholder activist initiated a proxy contest, later withdrawing one of three nominees. The company warned that the contest could increase costs, divert management attention and create business and share-price uncertainty. Management reported disclosure controls were effective and no material internal-control changes occurred.
Important facts for investors to verify
- How much reported earnings and cash flow depended on the lease termination, property sales and fair-value gains, versus recurring apartment operations.
- Current operating trends in rents, occupancy and property expenses, particularly the occupancy decline despite revenue growth.
- Debt maturities, variable-rate exposure, cap coverage, revolver extension terms and compliance with credit-facility covenants.
- Recovery prospects and potential monetization value of the Parkmerced mezzanine loan, including the transfer of legal ownership from AIR and third-party consent status.
- Funding and execution of development commitments, project budgets and timelines, and the effect of the proxy contest on governance and strategy.