Business context and reporting period
Apartment Investment and Management Company (Aimco) and its operating partnership filed a combined unaudited Form 10-Q for the quarter ended September 30, 2020. Aimco is a residential REIT focused on owning, managing, redeveloping and developing apartment communities. At quarter-end, its portfolio comprised 126 communities and 33,209 homes across 17 states and Washington, D.C.
Key financial metrics
| Metric | Q3 2020 | Q3 2019 |
|---|---|---|
| Rental and other property revenue | $215.5 million | $229.8 million |
| Net income (loss) | $(24.8) million | $4.0 million |
| Net income (loss) attributable to Aimco common stockholders | $(25.0) million; $(0.17) per share | $2.0 million; $0.01 per share |
| Nareit FFO per share | $0.45 | $0.61 |
| Pro forma FFO per share | $0.61 | $0.64 |
| AFFO per share | $0.53 | $0.56 |
| Same-store proportionate property NOI | $121.9 million | $133.1 million |
For the nine months ended September 30, 2020, revenue was $658.8 million versus $684.3 million; net income was $27.4 million versus $365.3 million; net cash provided by operating activities was $265.9 million versus $278.7 million. Investing activities used $356.0 million and financing activities provided $180.9 million. The prior-year nine-month net income included substantially larger real estate disposition gains.
At September 30, cash and cash equivalents were $228.4 million and restricted cash was $40.1 million. Total indebtedness was $4.407 billion, including $4.058 billion of non-recourse property debt and a $348.5 million term loan, with no revolving-credit-facility borrowings. Reported total assets were $7.042 billion and total equity was $2.137 billion. Aimco reported available liquidity exceeding $1.0 billion, including $793.4 million of revolver capacity. Approximately 98% of property-level debt was fixed-rate; its weighted-average remaining term was 8.2 years.
Material changes versus the prior comparable period
- Q3 revenue declined about 6% year over year. Same-store revenue was down 5%; same-store NOI declined 6.3% after reflecting the California joint venture transaction. Average daily occupancy was 93.9%, down approximately 280 basis points, and same-store bad debt reduced revenue by 140 basis points.
- Q3 common-stockholder results shifted to a loss from modest income. Management cited lower occupancy and COVID-19 impacts, debt prepayment penalties, higher separation-related costs and unrealized derivative losses. Pro forma FFO per share fell 5%.
- Interest expense increased $8.5 million in Q3, chiefly due to $7.9 million of debt prepayment penalties and interest on the term loan and property debt. Other expenses, net, increased $13.6 million, largely reflecting separation costs and derivative losses.
- Nine-month disposition gains fell to $47.2 million from $356.9 million in 2019. Operating cash flow declined $12.9 million, while investing cash use increased substantially, partly reflecting the Hamilton on the Bay acquisition and lower sale proceeds.
Outlook, management commentary, risks and unusual items
- On September 14, Aimco announced a planned separation into two public companies: Apartment Income REIT (AIR), expected to hold about 90% of estimated fair value in stabilized apartments, and a new Aimco, expected to retain redevelopment and development activities and selected non-traditional assets. The company expected completion in 2020, subject to approvals and other conditions; completion and benefits were not assured.
- COVID-19 affected occupancy, rents, collections and operating costs. Aimco estimated $9.5 million of incremental AFFO impact in Q3 and $22.6 million for the first nine months. Residential billed rent collected by October 23 was 96.4% for September; management said October collections were tracking consistently with September. These are management estimates and collection measures, not a guarantee of future results.
- Management reported same-store average daily occupancy of 93.9%, with materially weaker urban performance than suburban performance. Q3 residential rent collection and leasing remain exposed to pandemic conditions, local eviction and rent-relief rules, and economic recovery.
- A September California joint venture sold a 39% interest in 12 communities for $461 million; Aimco retained 61% ownership and control. It used joint-venture proceeds in part to prepay $405 million of property debt, incurring $7.8 million of penalties. Aimco also acquired Hamilton on the Bay for $89.6 million and committed $50 million to IQHQ.
- The $350 million term loan matures April 20, 2021, with a one-year extension option, and bears interest at 30-day LIBOR plus 1.85%, subject to a 0.50% floor. The term loan and revolver have a 1.40x fixed-charge-coverage covenant; the trailing-twelve-month ratio was 1.93x. Net leverage to Adjusted EBITDAre was 7.4x on an annualized current-quarter basis and 7.0x on a trailing-twelve-month basis, compared with management’s target below 7.0x.
- Redevelopment and development commitments included approximately $184 million of capital commitments, mostly expected within 12 months. Management estimated $109.9 million to complete five major ongoing long-cycle projects and $9.6 million for two resumed short-cycle projects; it said available liquidity was sufficient for these costs.
- Subsequent to quarter-end, the board declared an $8.20-per-share special dividend, comprising $0.82 in cash and $7.38 in stock, payable November 30, 2020, with a reverse stock split intended to offset share dilution. The dividend had not been paid as of the filing.
- Principal risks include pandemic-related rent collection and occupancy pressures, separation execution and costs, refinancing and covenant compliance, development cost and lease-up risk, real estate market conditions, and environmental matters. Aimco described unresolved environmental proceedings relating to former properties but did not expect them to have a material adverse financial effect.
Important facts for investors to verify
- Whether and when the AIR separation closed, its final terms, costs, portfolio allocation and obligations between the separated companies.
- Subsequent rent collections, bad debt, occupancy and rental-rate trends, especially in urban markets, and the continuation or expiration of local tenant protections.
- Cash available after the special dividend, debt repayment and committed redevelopment spending; also confirm term-loan extension or refinancing arrangements before its 2021 maturity.
- Progress against leverage targets and fixed-charge covenant requirements, including the effects of operating results and any separation-related debt allocation.
- Parkmerced mezzanine-loan collectability: Aimco reported a $300.3 million investment balance, accrued interest, and only $0.6 million of cash interest received in the first nine months.
- Development completion, lease-up and final costs, as well as the expected sale of the community classified as held for sale.