Business Context and Reporting Period
Company: Apartment Investment & Management Company (Aimco)
Filing Type: Form 10-K (Annual Report)
Period Ended: December 31, 2008
Business Overview: Aimco is a self-administered and self-managed Real Estate Investment Trust (REIT) engaged in the acquisition, ownership, management, and redevelopment of apartment properties. As of December 31, 2008, the company owned or managed 992 properties containing 162,807 units across 44 states, the District of Columbia, and Puerto Rico. The portfolio is divided into conventional (market-rate) and affordable (government-subsidized) segments.
Key Financial Metrics
| Metric | 2008 | 2007 |
|---|---|---|
| Total Revenues | $1,457.9 million | $1,376.8 million |
| Net Income | $415.5 million | $29.9 million |
| Net Income Attributable to Common Stockholders | $361.8 million | $(36.1) million (Loss) |
| Funds From Operations (FFO) | $228.3 million | $389.6 million |
| FFO Attributable to Common Stockholders (Diluted) | $179.5 million | $325.4 million |
| Net Cash Provided by Operating Activities | $421.5 million | $465.5 million |
| Total Assets | $9,403.2 million | $10,606.5 million |
| Total Indebtedness | $6,777.1 million | $6,403.0 million |
| Stockholders' Equity | $1,418.4 million | $1,749.7 million |
| Cash and Cash Equivalents | $299.7 million | $210.5 million |
Material Changes Versus Prior Period
- Net Income Surge: Net income increased significantly from $29.9 million in 2007 to $415.5 million in 2008. This increase was primarily driven by a $544.8 million gain from discontinued operations (sales of 151 properties), compared to $83.1 million in 2007.
- Continuing Operations Loss: Despite the overall net income gain, the company reported a loss from continuing operations of $129.3 million in 2008, compared to a loss of $53.2 million in 2007. This deterioration was largely due to a $107.5 million provision for impairment losses on real estate development assets (specifically Lincoln Place and Pacific Bay Vistas) and a $22.8 million restructuring charge.
- Portfolio Reduction: The company sold 151 consolidated properties in 2008, generating net proceeds of approximately $2.3 billion. This reduced the consolidated portfolio from 657 properties in 2007 to 514 properties in 2008.
- Debt Reduction: Proceeds from asset sales were used to repay approximately $1.1 billion in non-recourse property debt, repay a $75.0 million term loan, and repurchase $27.0 million of variable rate preferred stock.
- FFO Decline: Funds From Operations (FFO) decreased by 41% to $228.3 million, reflecting the impact of the impairment charges and restructuring costs on the core operating performance.
Guidance, Outlook, and Risks
- 2009 Outlook: Management expects 2009 to remain "very difficult." The company plans to continue selling approximately $2.0 billion of assets located outside target markets over the next two years.
- Capital Expenditures: Redevelopment spending is expected to decrease in 2009, with investments projected between $50.0 and $75.0 million for conventional projects and $30.0 to $45.0 million for affordable projects.
- Liquidity: As of December 31, 2008, the company had $578.8 million available under its revolving credit facility and $72.0 million available on a non-recourse secured credit facility. Cash and cash equivalents increased to $299.7 million.
- Key Risks:
- Financing Risk: Disruptions in credit markets could affect the ability to refinance maturing debt or obtain new financing at favorable terms.
- Interest Rate Risk: The company has significant variable-rate indebtedness ($1.3 billion). A 1.0% increase in 30-day LIBOR would reduce income attributable to common stockholders by approximately $4.3 million annually.
- Impairment Risk: Continued declines in real estate values, particularly in Southern California, could lead to further impairment charges on development assets.
- REIT Qualification: Failure to meet REIT requirements could result in significant corporate income tax liabilities.
Important Facts for Investor Verification
- Impairment Charges: Verify the valuation assumptions used for the $107.5 million impairment charge on development assets (Lincoln Place and Pacific Bay Vistas) and the $16.3 million impairment on the Casden Properties LLC investment.
- Discontinued Operations: Confirm the sustainability of the $544.8 million gain from discontinued operations, as this was a one-time event driven by asset sales rather than recurring operational performance.
- Debt Maturities: Review the schedule of debt maturities, noting $288.0 million in non-recourse property debt maturing in 2009 and $284.7 million in 2010, and assess refinancing risks in the current credit environment.
- Special Dividends: Note that a significant portion of dividends declared in 2008 ($489.8 million) was paid in stock rather than cash, which impacts cash flow analysis.
- Restructuring Costs: Monitor the execution of the organizational restructuring, which included a $22.8 million charge and plans to eliminate approximately 300 jobs by March 1, 2009.