Business Context and Reporting Period
Company: Apartment Investment & Management Company (Aimco)
Filing Type: Form 10-Q (Unaudited)
Period Ended: September 30, 2003
Business Overview: Aimco is a real estate investment trust (REIT) owning and operating apartment communities across the U.S. and Puerto Rico. As of September 30, 2003, the Company owned a controlling interest in 178,913 units in 697 properties and managed an additional 51,847 units for third parties. The Company operates two primary segments: Real Estate and Investment Management.
Key Financial Metrics
| Metric | Three Months Ended Sep 30, 2003 | Nine Months Ended Sep 30, 2003 | Balance Sheet (Sep 30, 2003) |
|---|---|---|---|
| Total Revenues (Rental + Management) | $392.3 million | $1,158.6 million | N/A |
| Net Income | $40.6 million | $121.7 million | N/A |
| Net Income Attributable to Common Stockholders | $13.7 million | $47.7 million | N/A |
| Earnings Per Share (Basic) | $0.15 | $0.51 | N/A |
| Funds From Operations (FFO) (Diluted) | $86.4 million | $274.6 million | N/A |
| Adjusted FFO (AFFO) (Diluted) | $71.3 million | $216.4 million | N/A |
| Free Cash Flow | $182.8 million | $546.6 million | N/A |
| Total Assets | N/A | N/A | $10.18 billion |
| Total Indebtedness | N/A | N/A | $6.33 billion |
| Cash and Cash Equivalents | N/A | N/A | $126.7 million |
| Stockholders' Equity | N/A | N/A | $2.91 billion |
Material Changes vs. Prior Period
- Revenue Growth: Consolidated rental revenues increased 12.4% ($41.7 million) for the quarter and 15.6% ($150.0 million) for the nine months compared to 2002. This growth was driven primarily by newly consolidated properties ($30.5 million quarterly increase) and acquisition properties ($11.8 million quarterly increase).
- Same-Store Decline: Despite overall growth, consolidated same-store revenues decreased 1.7% for the quarter and 4.5% for the nine months due to lower average rents and occupancy rates.
- Net Income Decline: Net income attributable to common stockholders decreased 43.5% for the quarter and 47.6% for the nine months compared to the prior year. This was largely due to increased preferred dividends, higher interest expense, and lower accretion income from notes receivable.
- Discontinued Operations: Income from discontinued operations surged to $27.5 million for the quarter (vs. $4.3 million in 2002) and $62.7 million for the nine months (vs. $2.3 million in 2002), primarily due to a $22.9 million gain on dispositions in the quarter.
- Debt Levels: Total indebtedness increased to $6.33 billion from $6.14 billion at year-end 2002, reflecting new borrowings for acquisitions and refinancing activities.
Guidance, Outlook, and Risks
- Dividend Reduction: On November 6, 2003, the Board reduced the quarterly dividend from $0.82 to $0.60 per share to align with current profitability levels.
- Capital Allocation: The Company plans to use proceeds from property sales to reduce debt and fund capital needs. It sold 55 conventional properties and one land parcel in the nine months ended September 30, 2003, generating net proceeds of $224.1 million.
- Accounting Changes: The Company adopted SFAS 150, reclassifying certain preferred securities as liabilities, which increased interest expense. Additionally, FIN 46 (Consolidation of Variable Interest Entities) is expected to result in the consolidation of approximately $2.7 billion in additional assets and $2.1 billion in liabilities in the fourth quarter of 2003.
- Legal Contingencies: Significant litigation includes a settlement regarding NAPICO (a predecessor entity) involving payments of $29 million in cash and $19 million in stock, plus guaranteed payments of $35 million over five years. The Company also faces lawsuits regarding mold exposure and FLSA overtime claims, though management does not expect these to have a material adverse effect.
- Market Risk: The Company has $1.68 billion in floating-rate debt. A 1% increase in interest rates would reduce annual income before minority interests by approximately $16.8 million.
Investor Verification Checklist
- Dividend Sustainability: Verify the impact of the dividend cut on future cash flow coverage ratios (AFFO payout ratio).
- FIN 46 Impact: Monitor the fourth-quarter 2003 filing for the full impact of consolidating variable interest entities on leverage ratios and asset base.
- Same-Store Performance: Analyze the trend in same-store occupancy and average rent, which declined in 2003, to assess core operational health.
- Debt Maturities: Review the schedule of debt maturities, particularly the $264.4 million in short-term debt (Casden Loan and Revolver) expected to be repaid or refinanced.
- Legal Settlements: Track the status of the NAPICO settlement and the potential for additional costs related to the insurance agent litigation (NPS/National Union).