Business Context and Reporting Period
Company: Apartment Investment & Management Company (Aimco)
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: June 30, 2010
Business Overview: Aimco is a self-administered REIT focused on owning and managing quality apartment communities in the 20 largest U.S. markets. The portfolio consists of conventional (market-rate) and affordable (government-subsidized) properties. As of June 30, 2010, the company owned or managed 817 properties with 129,350 units.
Key Financial Metrics
| Metric (in thousands) | Six Months Ended June 30, 2010 | Six Months Ended June 30, 2009 |
|---|---|---|
| Total Revenues | $584,475 | $581,447 |
| Net Loss (GAAP) | $(26,930) | $(40,200) |
| Net Loss Attributable to Aimco Common Stockholders | $(58,393) | $(67,622) |
| Net Cash Provided by Operating Activities | $110,963 | $59,401 |
| Funds From Operations (FFO) Attributable to Common Stockholders | $76,285 | $90,108 |
| Total Indebtedness | $5,643,911 | $5,602,216 |
| Cash and Cash Equivalents | $78,318 | $81,260 |
| Restricted Cash | $211,795 | $219,255 |
Material Changes vs. Prior Period
- Net Loss Improvement: The net loss attributable to Aimco common stockholders decreased by $9.2 million (13.6%) compared to the prior year period. This improvement was driven by increased other income (litigation settlements) and a reduction in interest expense, partially offset by lower gains on property dispositions.
- Operating Cash Flow: Net cash provided by operating activities increased significantly by $51.6 million year-over-year, primarily due to reduced payments on operating accounts payable and accrued restructuring costs.
- Discontinued Operations: Income from discontinued operations increased by $8.0 million to $47.4 million, driven by a $21.8 million decrease in interest expense related to sold properties, despite a $6.2 million decrease in operating income.
- Accounting Changes: The company adopted ASU 2009-17 regarding Variable Interest Entities (VIEs), resulting in the consolidation of approximately 49 previously unconsolidated partnerships and the deconsolidation of 10 others. This impacted segment reporting and noncontrolling interest allocations.
- Asset Management Revenues: Asset management and tax credit revenues declined $8.3 million year-over-year due to a weak tax credit syndication market and the write-off of uncollectible syndication fees.
Guidance, Outlook, and Risks
- Outlook: Management expects property sales to continue declining in the second half of 2010 as recent sales allowed for the full repayment of term debt. Renewal rates are positive in all but one market, and new lease rates are showing improvement in several markets.
- Liquidity: The company maintains $78.3 million in cash and $137.1 million available under its revolving credit facility. The $25.0 million term loan outstanding at period-end was repaid in July 2010.
- Dividends: Dividends declared per common share remained at $0.10 for the quarter.
- Risks:
- Interest Rate Risk: The company has $536.1 million in floating-rate debt. A 100 basis point increase in LIBOR would reduce annual net income by approximately $0.7 million.
- Derivative Exposure: The company utilizes total rate of return swaps ($308 million notional) to convert fixed-rate debt to variable rates. Counterparty default could result in the loss of net interest benefits.
- Regulatory: The Dodd-Frank Act may increase the cost of capital and compliance expenses.
- Environmental: Potential liabilities related to mold and hazardous substances remain a risk, though no material costs have been incurred to date.
Key Facts for Investor Verification
- FFO Decline: While GAAP net loss improved, FFO attributable to common stockholders decreased by $13.8 million year-over-year, primarily due to lower gains on dispositions and higher operating real estate impairment losses in the prior year.
- Disposition Volume: Property sales volume decreased significantly (23 properties sold in H1 2010 vs. 29 in H1 2009), impacting gains on dispositions which are a key component of earnings.
- Debt Maturities: Verify the status of the $25 million term loan (repaid July 2010) and the $180 million revolving credit facility maturing in May 2011.
- Accounting Adjustments: Review the impact of the ASU 2009-17 adoption on the consolidation of VIEs, which altered the composition of the portfolio and noncontrolling interest calculations.
- Tax Credit Exposure: Monitor the write-off of deferred costs related to abandoned tax credit projects, which contributed to the decline in asset management revenues.