AIV

Business Context and Reporting Period

Company: Apartment Investment & Management Co (AIMCO)
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: September 30, 2000
Business Overview: AIMCO is a real estate investment trust (REIT) owning, managing, and developing apartment communities. As of September 30, 2000, the Company owned or controlled 137,419 units in 500 properties, held equity interests in 132,909 units in 769 properties, and managed 63,458 units for third parties.

Key Financial Metrics

Material Changes vs. Prior Period

• Revenue Growth: Rental revenues increased 125.2% for the three months and 115.8% for the nine months compared to 1999. This was driven by the consolidation of 246 properties acquired through controlling interests in partnerships, plus new acquisitions, partially offset by property dispositions.
• Net Income: Net income attributable to common stockholders rose 199.5% for the quarter ($14.5M vs $4.9M) and 61.5% for the nine months ($23.1M vs $14.3M). Growth was fueled by "same store" property improvements and acquisitions.
• Interest Expense: Interest expense surged 116.9% for the quarter and 106.1% for the nine months due to the consolidation of acquired properties and increased borrowings to fund acquisitions.
• Acquisitions: The Company completed a major acquisition of Oxford Realty Financial Group (ORFG) properties for a total purchase price of $883 million (including $555 million of assumed debt). Additionally, six apartment communities were purchased for approximately $67 million.
• Dispositions: The Company sold 21 apartment communities and 4 land parcels for $168 million, realizing a GAAP gain of $9 million for the quarter.

Guidance, Outlook, Risks, and Unusual Items

• Capital Markets Activity: AIMCO issued $100 million of Class N Convertible Preferred Stock and $100 million of Class O Convertible Preferred Stock in September 2000 to repay indebtedness. It also issued $30 million of Class M Preferred Stock in January 2000.
• Liquidity: The Company maintains a $350 million revolving credit facility (with potential expansion to $400 million). As of September 30, 2000, $175 million was drawn. Management considers cash flows and credit facilities adequate for short-term needs.
• Market Risk: The Company has $552.9 million in variable-rate debt (14.5% of total debt). A 1% increase in interest rates would reduce annual income and cash flows by approximately $5.5 million.
• Legal & Contingencies:
  • HUD Investigation: A grand jury subpoena was issued in July 1999 regarding the management of HUD-assisted projects and a group purchasing program (Buyers Access). AIMCO believes it is in compliance and does not expect a material adverse effect, though fines or penalties cannot be ruled out.
  • Environmental: Standard risks regarding liability for hazardous substances on properties.
• Unusual Items: The Company recognized $20 million of deferred interest income and discounts on discounted notes for the nine months ended September 30, 2000, compared to $10 million in the prior year period.

Investor Verification Checklist

• Debt Covenants: Verify compliance with the new term loan covenants related to the Oxford acquisition, specifically the debt-to-gross-asset-value ratio (max 0.55:1) and interest coverage ratio (min 2.25:1).
• Preferred Stock Dilution: Review the terms of the newly issued Class M, N, and O preferred stock, noting conversion triggers and dividend rates (ranging from 8.5% to 9.5%).
• HUD Investigation Status: Monitor for any updates on the grand jury subpoena regarding Buyers Access and HUD management arrangements.
• High Performance Units: Assess the potential dilution from 15,000 High Performance Units held by management, which vest based on total return performance relative to the Morgan Stanley Dean Witter REIT Index.
• Variable Rate Exposure: Confirm the current draw on the revolving credit facility and the weighted average interest rate (9.19% as of Sep 30, 2000) to gauge sensitivity to rate hikes.