AIV

Business Context and Reporting Period

Company: Apartment Investment & Management Company (Aimco)
Filing Type: Form 10-Q (Unaudited)
Period Ended: March 31, 2008
Business Overview: Aimco is a self-administered REIT engaged in the acquisition, ownership, management, and redevelopment of apartment properties. As of March 31, 2008, the company owned or managed 1,163 properties containing 202,337 units across 46 states, D.C., and Puerto Rico. It is the largest owner and operator of apartment properties in the U.S. based on unit data.

Key Financial Metrics

Material Changes vs. Prior Period

• Net Income Decline: The company reported a net loss of $24.5 million for Q1 2008, a decrease of $49.8 million compared to net income of $25.2 million in Q1 2007. This was primarily driven by the absence of a $42.2 million deferred debt extinguishment gain recognized in Q1 2007 related to the VMS National Properties Joint Venture refinancing.
• Discontinued Operations: Income from discontinued operations dropped significantly from $31.3 million in Q1 2007 to $1.7 million in Q1 2008. This reflects lower net gains on real estate sales and the absence of the $22.9 million debt extinguishment gain from VMS properties sold in 2007.
• Interest Expense: Interest expense increased by $5.9 million (5.8%) to $107.4 million, driven by higher loan principal balances from refinancing and acquisitions, partially offset by lower interest rates.
• Same Store Performance: Consolidated same store net operating income increased 3.7% to $167.6 million. Average rent per unit increased 2.5% to $894, and average physical occupancy rose to 94.8%.
• Capital Expenditures: Total capital expenditures were $150.8 million, with significant spending on redevelopment ($82.0 million) and capital improvements ($26.1 million).

Guidance, Outlook, and Risks

• Management Focus: For 2008, management aims to enhance operations, obtain rate and occupancy increases, upgrade portfolio quality through redevelopment, improve balance sheet flexibility, and minimize the cost of capital.
• Liquidity: The company maintains $163.1 million in cash and $386.2 million in availability under its revolving credit facility. Liquidity is supported by operating cash flows, property sales, and refinancing activities.
• Share Repurchases: Aimco repurchased 5.1 million shares for $170.6 million during the quarter. As of March 31, 2008, approximately 28.2 million shares remained authorized for repurchase.
• Special Dividend: A special dividend of $2.51 per share was paid in January 2008, totaling $232.9 million, with a significant portion paid in stock.
• Risks: Key risks include interest rate fluctuations, real estate market conditions, environmental liabilities (including mold), and the potential for impairment of long-lived assets if future cash flows do not support carrying values. The company noted an IRS examination of the 2006 federal tax return but does not anticipate a material effect.

Investor Verification Checklist

• Debt Extinguishment Gains: Verify the impact of the one-time $42.2 million gain in 2007 on year-over-year comparability of net income.
• Discontinued Operations: Review the composition of the $1.7 million income from discontinued operations to understand the remaining portfolio being sold.
• Capital Expenditure Commitments: Confirm the $127.6 million in committed construction projects and the funding sources for these expenditures.
• Interest Rate Sensitivity: Assess the exposure to variable rates given the use of total rate of return swaps to convert fixed-rate debt to variable-rate debt.
• Impairment Testing: Monitor the status of the Lincoln Place property in Venice, California, which is subject to litigation and potential future impairment.