Business Context and Reporting Period
Company: Apartment Investment & Management Company (AIMCO)
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: September 30, 2001
Business Overview: AIMCO is a real estate investment trust (REIT) owning and managing a geographically diversified portfolio of apartment communities. As of September 30, 2001, the Company owned or controlled 154,081 units in 564 properties and managed an additional 149,724 units for third parties and equity partners.
Key Financial Metrics
| Metric (in thousands) | Three Months Ended Sep 30, 2001 |
Nine Months Ended Sep 30, 2001 |
Nine Months Ended Sep 30, 2000 |
|---|---|---|---|
| Rental & Other Property Revenues | $323,801 | $969,805 | $753,463 |
| Net Income | $26,111 | $70,564 | $67,940 |
| Net Income Attributable to Common Stockholders | $1,770 | $5,120 | $23,097 |
| Funds From Operations (FFO) - Diluted | $136,017 | $398,657 | $315,910 |
| Adjusted Funds From Operations (AFFO) | $103,607 | $308,437 | $248,271 |
| Net Cash Provided by Operating Activities | N/A | $384,939 | $281,185 |
| Total Indebtedness | $4,445,161 | $4,445,161 | $4,360,115 |
| Cash and Cash Equivalents | $69,186 | $69,186 | $157,115 |
Note: FFO and AFFO are non-GAAP measures used by management to evaluate performance.
Material Changes vs. Prior Period
- Revenue Growth: Rental revenues increased 19.4% for the quarter and 28.7% for the nine-month period compared to 2000. This growth was driven primarily by the acquisition of Oxford properties and other acquisitions, as well as a 3.1% to 4.2% increase in "same store" sales revenues.
- Net Income Decline (Common): While total net income increased slightly year-over-year for the nine months ($70.6M vs $67.9M), net income attributable to common stockholders dropped significantly to $5.1M from $23.1M. This was largely due to increased preferred stock dividends ($65.4M vs $44.8M) resulting from new preferred stock issuances.
- Expense Increases: Property operating expenses rose 22.9% (quarter) and 27.1% (nine months) due to acquisitions. Interest expense increased 19.0% (quarter) and 29.1% (nine months), primarily due to debt assumed in acquisitions, partially offset by lower rates on the credit facility.
- Service Business: Income from the service business surged to $21.3M for the quarter (from $2.3M in 2000) and $47.6M for the nine months (from $12.3M), driven by higher construction revenue and refinancing fee income.
- Same Store Performance: For the nine months ended September 30, 2001, same store average rent collected per unit increased to $687 from $662 in 2000, while average physical occupancy remained stable at 93.6%.
Guidance, Outlook, and Risks
- Capital Resources: The Company closed $791 million in secured notes payable during the nine months ended September 30, 2001, with a weighted average interest rate of 6.19%. The Company maintains a $400 million revolving credit facility, with $291 million available as of September 30, 2001.
- Acquisitions and Dispositions: During the quarter, the Company sold 27 apartment communities for $156 million (AIMCO share $70 million) and refinanced 25 mortgage loans generating $255 million in proceeds. The Company continues to pursue acquisitions of limited partnership interests.
- Market Risk: The Company's primary market risk is interest rate fluctuation. As of September 30, 2001, $708.5 million (15.9% of total debt) was variable-rate. A 1% increase in interest rates would reduce annual income and cash flows by approximately $7.1 million.
- Accounting Changes: Effective January 1, 2001, the Company began consolidating previously unconsolidated subsidiaries due to the REIT Modernization Act. Additionally, new accounting standards (FAS 141 and 142) regarding goodwill and intangibles are expected to increase annual net income by approximately $6.7 million starting in 2002.
- Risks: Risks include national and local economic conditions, interest rate fluctuations, real estate value variations, and environmental liabilities associated with property ownership.
Investor Verification Checklist
- Preferred Stock Impact: Verify the impact of the new Class P, Q, and R preferred stock issuances on cash flow available for common dividends, given the significant increase in preferred dividends.
- Same Store Metrics: Confirm the sustainability of the 3.8% rent growth in same-store properties amidst a potentially softening economic environment.
- Debt Maturity Profile: Review the maturity schedule of the $4.45 billion in total indebtedness to assess refinancing risks, particularly for the variable-rate portion.
- Acquisition Integration: Assess the performance of the Oxford properties and other recent acquisitions to ensure they meet projected returns.
- Liquidity Position: Monitor the reduction in cash and cash equivalents from $157M to $69M and the reliance on the revolving credit facility for working capital.