Business Context and Reporting Period
Company: Apartment Investment & Management Company (Aimco)
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: March 31, 2010
Business Overview: Aimco is a self-administered REIT focused on owning and managing market-rate and affordable apartment communities in the 20 largest U.S. markets. As of March 31, 2010, the company owned or managed 836 properties containing 132,075 units. The company operates two reportable segments: Conventional Real Estate Operations and Affordable Real Estate Operations.
Key Financial Metrics
| Metric (in thousands) | Q1 2010 | Q1 2009 |
|---|---|---|
| Total Revenues | $292,976 | $293,451 |
| Net Operating Income (Real Estate Ops) | $148,304 | $148,282 |
| Operating Income | $25,434 | $30,819 |
| Net Loss (GAAP) | $(16,760) | $(32,571) |
| Net Loss Attributable to Aimco Common Stockholders | $(40,440) | $(37,698) |
| Loss Per Share (Basic & Diluted) | $(0.35) | $(0.34) |
| Funds From Operations (FFO) - Diluted | $29,323 | $51,336 |
| Pro Forma FFO - Diluted | $36,921 | $48,813 |
| Cash Provided by Operating Activities | $26,778 | $(17,774) |
| Total Indebtedness | $5,718,957 | $5,644,720 |
| Cash and Cash Equivalents | $77,875 | $81,260 |
Material Changes vs. Prior Period
- Net Loss Improvement: The consolidated net loss decreased from $32.6 million in Q1 2009 to $16.8 million in Q1 2010. However, the net loss attributable to Aimco common stockholders increased slightly from $37.7 million to $40.4 million.
- Discontinued Operations: Income from discontinued operations increased significantly to $21.0 million in Q1 2010 from $2.9 million in Q1 2009, driven by a $23.1 million increase in gains on dispositions of real estate.
- Revenue Composition: Total revenues remained relatively flat. Rental revenues increased by $4.8 million, while asset management and tax credit revenues decreased by $5.3 million due to a write-off of uncollectible syndication fees and lower promote income.
- Accounting Changes: The company adopted ASU 2009-17 regarding Variable Interest Entities (VIEs), resulting in the consolidation of 49 previously unconsolidated partnerships and the deconsolidation of 10 others. This impacted segment reporting and noncontrolling interest allocations.
- Operating Expenses: General and administrative expenses decreased by $4.5 million (27.8%) due to organizational restructuring. Property operating expenses increased by $4.8 million, primarily due to higher costs in snow removal and maintenance.
Guidance, Outlook, and Risks
- Liquidity: The company maintains $77.9 million in cash and cash equivalents and $121.4 million available under its revolving credit facility. Management expects to fund future needs through operating cash flows, property sales, and refinancing.
- Market Risk: Aimco is exposed to interest rate risk. A 100 basis point increase in 30-day LIBOR would reduce net income attributable to common stockholders by approximately $1.4 million annually. The company utilizes total rate of return swaps to manage fixed-rate debt costs.
- Dispositions: The company continues to sell properties inconsistent with its long-term strategy. In Q1 2010, 12 properties were sold for net proceeds of $21.1 million.
- Risks: Key risks include the availability and cost of financing, fluctuations in real estate values, competition for residents, and potential environmental liabilities (including mold and hazardous substances). The company is also subject to IRS examinations regarding 2006 and 2007 tax returns, though no material effect is expected.
- Dividends: No dividends were declared on common stock for the quarter. Preferred stock dividends totaled $12.9 million.
Investor Verification Checklist
- Accounting Transition Impact: Verify the specific impact of the ASU 2009-17 adoption on the balance sheet, particularly the $37.3 million charge to equity and the consolidation of 49 new partnerships.
- Discontinued Operations Quality: Assess the sustainability of the $21.0 million income from discontinued operations, noting it is driven by one-time gains on property sales rather than recurring operations.
- FFO Decline: Investigate the 43% year-over-year decline in FFO attributable to common stockholders ($51.3M to $29.3M) and the specific drivers (e.g., lower gains on unconsolidated dispositions, tax credit write-offs).
- Debt Maturities: Review the $45.0 million term loan maturing in Q1 2011 and the $180.0 million revolving credit facility maturing in May 2011 to assess refinancing risks.
- Noncontrolling Interests: Analyze the significant increase in net earnings attributed to noncontrolling interests ($18.4 million increase), which reduced the net loss attributable to Aimco common stockholders.