Business Context and Reporting Period
Company: Apartment Investment & Management Company (AIMCO)
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: September 30, 1996
Business Overview: AIMCO is a Real Estate Investment Trust (REIT) owning a geographically diversified portfolio of middle-market multifamily apartment properties. As of September 30, 1996, the Company owned 56 properties containing 14,585 units and managed an additional 22,600 units for third parties and affiliates.
Key Financial Metrics
| Metric | Nine Months Ended Sep 30, 1996 | Nine Months Ended Sep 30, 1995 |
|---|---|---|
| Total Revenues (Rental + Service) | $75,834,000 | $61,633,000 |
| Net Income | $9,351,000 | $11,460,000 |
| Net Income Allocable to Common Stockholders | $9,351,000 | $6,291,000 |
| Funds From Operations (FFO) | $25,192,000 | $18,893,000 |
| Cash Earned For Shareholders (CEFS) | $21,839,000 | $16,078,000 |
| Net Cash Provided by Operating Activities | $30,865,000 | $17,842,000 |
| Total Debt Outstanding | $304,772,000 | $268,692,000 |
| Cash and Cash Equivalents | $1,115,000 | $2,379,000 |
| Weighted Avg. Common Shares Outstanding | 12,127,000 | 9,622,000 |
Material Changes vs. Prior Period
- Revenue Growth: Rental revenues increased to $70.4 million (from $55.7 million) driven by the acquisition of 12 properties between December 1995 and May 1996. "Same store" property revenues increased 3.7% due to higher rental rates and occupancy.
- Net Income Decline: Total net income decreased 18.4% to $9.35 million. However, net income allocable to common stockholders increased 48.6% to $9.35 million, as the prior year included $5.17 million allocable to convertible preferred stock which was redeemed in 1996.
- Interest Expense Surge: Interest expense doubled to $16.8 million (from $8.4 million) due to new financings completed in 1995 and 1996, including the refinancing of tax-exempt bonds at a higher fixed rate (7.2% vs. ~6.0% floating).
- Service Company Income: Income from the service company business dropped to $1.04 million (from $2.02 million) primarily because the Company acquired seven properties previously managed for third parties, converting management fee revenue into rental revenue.
- Portfolio Activity: The Company acquired four properties for a total consideration of $65.5 million (cash, stock, and assumed debt) and sold four Texas properties for $17.2 million net proceeds.
Guidance, Outlook, and Risks
- Capital Expenditures: The Company expects to incur approximately $967,000 in capital replacements for the remainder of 1996 and $300 per unit for 1997. Initial capital expenditures of $4.4 million are expected over the next 12 months.
- Acquisitions: The Company is in the process of acquiring general partnership interests in 21 limited partnerships (12 properties) for $22 million, expected to close in Q4 1996. Additionally, a $23.1 million acquisition of J.W. English Companies assets was completed in November 1996 (subsequent to period end).
- Liquidity: The Company increased its revolving line of credit to $50 million in August 1996. A temporary modification in October 1996 increased borrowing capacity to 70% of appraised value.
- Risks and Contingencies:
- Environmental: The Montecito property in Austin, Texas, is adjacent to a former landfill. Methane remediation is substantially complete, but final approval is contingent on continued monitoring.
- IRS Ruling: The IRS ruled in October 1996 that certain advances to service company subsidiaries are not includable in gross income for REIT qualification tests for 1994 and 1995.
- Dividends: A quarterly dividend of $0.425 per share was declared on October 24, 1996.
Investor Verification Checklist
- Verify the impact of the 100% increase in interest expense on future cash flows and dividend coverage.
- Confirm the closing and integration details of the J.W. English Companies acquisition ($23.1 million) and the pending $22 million partnership acquisition.
- Monitor the status of the Montecito property environmental remediation and potential future costs.
- Review the utilization of the $50 million credit facility and the terms of the temporary modification (increased interest rates during the modification period).
- Assess the sustainability of the 4.2% increase in average monthly rent per occupied unit in the "same store" portfolio.