Business Context and Reporting Period
Company: Apartment Investment & Management Company (Aimco)
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: September 30, 2008
Business Overview: Aimco is a self-administered REIT engaged in the acquisition, ownership, management, and redevelopment of apartment properties. As of September 30, 2008, the company owned or managed 1,067 properties containing 178,083 units across 46 states, D.C., and Puerto Rico. The company operates two primary segments: Real Estate and Investment Management.
Key Financial Metrics
| Metric (in thousands) | Three Months Ended Sep 30, 2008 | Nine Months Ended Sep 30, 2008 |
|---|---|---|
| Total Revenues | $395,978 | $1,159,132 |
| Net Income | $175,799 | $407,292 |
| Net Income Attributable to Common Stockholders | $163,575 | $367,190 |
| Diluted EPS (Common) | $1.81 | $3.93 |
| Funds From Operations (FFO) - Diluted | $75,912 | $218,874 |
| Net Cash Provided by Operating Activities | N/A | $335,227 |
| Total Indebtedness | $6,865,731 | $6,865,731 |
| Cash and Cash Equivalents | $219,047 | $219,047 |
| Restricted Cash | $306,999 | $306,999 |
Material Changes vs. Prior Period
- Profitability Surge: Net income attributable to common stockholders increased significantly to $163.6 million for the quarter (from a loss of $21.4 million in Q3 2007) and $367.2 million for the nine-month period (from a loss of $9.5 million in 2007).
- Discontinued Operations: The primary driver of the income increase was a substantial rise in income from discontinued operations, totaling $111.8 million for the quarter and $392.7 million for the nine months. This was due to higher net gains on the sale of real estate (88 properties sold in the first nine months of 2008).
- Unconsolidated Gains: Gains on dispositions of unconsolidated real estate increased by $94.5 million for the quarter, largely due to a $98.4 million gain from the disposition of two properties by unconsolidated partnerships.
- Revenue Growth: Total revenues increased 10.1% for the quarter and 8.5% for the nine months, driven by higher rental revenues and a significant increase in asset management and tax credit revenues ($32.8 million vs. $12.7 million for the quarter).
- Expense Increases: Operating expenses rose due to higher depreciation and amortization ($120.8 million for the quarter) related to completed redevelopments and increased general and administrative expenses.
- Cash Flow: Net cash provided by investing activities turned positive ($936.7 million for nine months) due to $1.42 billion in proceeds from real estate dispositions, offsetting capital expenditures of $476.0 million.
Guidance, Outlook, Risks, and Unusual Items
- Market Outlook: Management notes a challenging environment for the remainder of 2008 due to credit market conditions. The strategy focuses on serving residents, controlling costs, minimizing capital spending, reducing leverage, and upgrading portfolio quality.
- Portfolio Strategy: Aimco plans to sell properties representing approximately 20% of current asset value, primarily those outside the 20 largest U.S. markets, to concentrate the portfolio.
- Unusual Items:
- Special Dividends: The company declared special dividends of $2.51 per share (Jan 2008) and $3.00 per share (Aug 2008), partially paid in cash and partially in stock, associated with taxable gains from property dispositions.
- Casualty Losses: Tropical Storm Fay and Hurricane Ike caused estimated losses of $29.6 million, resulting in a net loss impact of approximately $5.0 million after insurance and minority interest adjustments.
- Write-offs: A $4.8 million write-off of communication infrastructure costs and a $1.0 million write-off of software/hardware assets were recorded in the nine months ended September 30, 2008.
- Risks:
- Liquidity & Credit: Tightening credit markets and rising interest rates (LIBOR and SIFMA) may increase the cost of capital and affect refinancing options. A 1.0% increase in 30-day LIBOR would reduce annual income attributable to common stockholders by approximately $6.2 million.
- Real Estate Valuation: The company holds properties classified as "held for sale" ($303.8 million) and recognized impairment losses of $2.3 million on properties held for use. The Lincoln Place property in Venice, CA, has a carrying amount of $201.0 million which may exceed fair value due to litigation, though no impairment was recorded under current GAAP rules for held-for-use assets.
- Legal & Environmental: Ongoing FLSA litigation regarding overtime and on-call claims has been largely settled. Potential liabilities exist regarding mold exposure and environmental remediation, though management believes these are not currently material.
Investor Verification Checklist
- Discontinued Operations Impact: Verify the sustainability of earnings by analyzing the portion of net income derived from discontinued operations ($392.7 million for nine months) versus continuing operations ($14.6 million).
- Debt Maturities: Review the schedule of non-recourse property debt maturities ($93.1 million in Q4 2008 and $401.9 million in 2009) and assess refinancing risks given current credit market conditions.
- Capital Expenditures: Confirm the level of capital spending ($476 million for nine months) and the company's ability to fund future redevelopment and replacement needs without diluting equity or increasing leverage significantly.
- Special Dividend Structure: Understand the composition of recent special dividends (cash vs. stock) and the impact of share issuances on diluted share counts and future EPS.
- Impairment Risks: Monitor the status of the Lincoln Place property and other assets held for sale to assess potential future impairment charges if fair values decline further or sales are delayed.