Business Context and Reporting Period
Company: Apartment Investment & Management Company (Aimco)
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: June 30, 2009
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 June 30, 2009, the company owned or managed 950 properties containing 154,511 units across 44 states, D.C., and Puerto Rico.
Key Financial Metrics
| Metric (in thousands) | Six Months Ended June 30, 2009 | Six Months Ended June 30, 2008 |
|---|---|---|
| Total Revenues | $668,137 | $688,273 |
| Net Operating Income (Real Estate Segment) | $351,980 | $339,712 |
| Net Loss Attributable to Aimco Common Stockholders | $(67,622) | $200,930 |
| Funds From Operations (FFO) - Diluted | $90,108 | $141,104 |
| Net Cash Provided by Operating Activities | $59,401 | $250,159 |
| Total Indebtedness | $6,486,805 | $6,591,228 |
| Cash and Cash Equivalents | $112,114 | $299,676 |
Material Changes vs. Prior Period
- Net Income Decline: The company reported a net loss attributable to common stockholders of $67.6 million for the six months ended June 30, 2009, compared to net income of $200.9 million in the prior year period. This decrease of $268.5 million was primarily driven by a significant reduction in income from discontinued operations due to fewer property sales in 2009 compared to 2008.
- Discontinued Operations: Income from discontinued operations dropped from $374.0 million in 2008 to $44.7 million in 2009. This reflects a decrease in gains on dispositions of real estate, as the company sold 29 consolidated properties in the first half of 2009 versus 45 in the same period of 2008.
- Asset Management Revenues: Asset management and tax credit revenues decreased by approximately $28.9 million (from $51.0 million to $22.1 million), primarily due to a reduction in promote income earned from the disposition of properties owned by consolidated joint ventures.
- Expense Reductions: General and administrative expenses decreased by 21.6% ($10.4 million) due to organizational restructuring initiated in late 2008, including workforce reductions.
- Depreciation Increase: Depreciation and amortization increased by 17.7% ($36.3 million) due to completed redevelopments and capital expenditures placed in service.
Guidance, Outlook, and Risks
- Market Outlook: Management expects financial and economic conditions for the remainder of 2009 to remain very difficult. The company is focused on reducing leverage, simplifying the business model, and serving customers efficiently.
- Portfolio Strategy: Aimco is actively marketing approximately $2.0 billion of conventional and affordable assets located outside its target markets (the top 20 U.S. markets) for sale to concentrate capital in core markets.
- Liquidity and Debt: The company has reduced property debt maturing through 2011 to $309.0 million. Refunding risk is expected to be eliminated for most of these loans by the end of Q3 2009. The revolving credit facility has $135.3 million available.
- Restructuring: The company estimates that organizational restructuring will reduce consolidated general and administrative expenses by $20.0 million to $30.0 million for the full year 2009 compared to 2008.
- Risks: Key risks include the availability and cost of financing, potential impairment of long-lived assets due to economic conditions, and exposure to interest rate fluctuations on variable rate debt and preferred stock.
Investor Verification Checklist
- Discontinued Operations Impact: Verify the extent to which the reported net loss is driven by the lack of one-time gains from property sales in 2009 compared to the high volume of sales in 2008.
- Refinancing Risk: Confirm the status of the $234.5 million in property loans maturing in 2011 that have not yet been refinanced, given the tight credit market conditions.
- FFO vs. Net Income: Review Funds From Operations (FFO) of $90.1 million as a more relevant metric for REIT performance than GAAP net loss, noting the add-back of depreciation and exclusion of gains on sales.
- Asset Dispositions: Monitor the progress of marketing the $2.0 billion portfolio of non-core assets to assess future cash flow generation and debt reduction capabilities.
- Derivative Exposure: Review the $419.3 million in total rate of return swaps and the associated $12.3 million cash collateral requirements to understand potential liquidity impacts if property values decline.