Business Context and Reporting Period
Company: Apartment Investment & Management Company (Aimco)
Filing Type: Form 10-K (Annual Report)
Period Ended: December 31, 2009
Business Overview: Aimco is a self-administered REIT engaged in the acquisition, ownership, management, and redevelopment of apartment properties. As of December 31, 2009, the company owned or managed 870 properties containing 135,654 units across 44 states, D.C., and Puerto Rico. The portfolio is split between conventional market-rate properties (88% of NOI) and affordable housing properties (12% of NOI). The company operates through two segments: Real Estate and Investment Management.
Key Financial Metrics
| Metric | 2009 | 2008 |
|---|---|---|
| Total Revenues | $1,195.8 million | $1,243.2 million |
| Operating Income | $110.5 million | $58.1 million |
| Net (Loss) Income | $(44.8) million | $627.0 million |
| Net Loss Attributable to Aimco Common Stockholders | $(114.8) million | $351.3 million |
| Funds From Operations (FFO) - Diluted | $126.0 million | $166.0 million |
| Pro Forma FFO - Diluted | $178.8 million | $189.0 million |
| Net Cash Provided by Operating Activities | $233.8 million | $440.4 million |
| Total Indebtedness | $5,690.3 million | $6,069.8 million |
| Cash and Cash Equivalents | $81.3 million | $299.7 million |
| Dividends Declared per Common Share | $0.40 | $7.48 |
Material Changes vs. Prior Period
- Net Income Decline: The company reported a net loss of $44.8 million in 2009 compared to net income of $627.0 million in 2008. This $671.8 million decrease was primarily driven by a significant reduction in income from discontinued operations due to fewer property sales and lower gains on sales in 2009 compared to 2008.
- Discontinued Operations: Income from discontinued operations dropped from $744.9 million in 2008 to $152.2 million in 2009. In 2008, the company sold 151 consolidated properties generating $757.2 million in net gains; in 2009, it sold 89 properties generating $216.0 million in net gains.
- Impairment Losses: In 2008, the company recognized $91.1 million in impairment losses on real estate development assets (Lincoln Place and Pacific Bay Vistas). No similar impairments were recognized in 2009.
- Operating Expenses: General and administrative expenses decreased by $29.6 million (29.8%) in 2009 due to organizational restructuring and workforce reductions.
- Debt Reduction: Total indebtedness decreased by approximately $379.5 million. The company repaid $310.0 million of its term loan in 2009 and eliminated all 2010 property debt maturities through refinancing and sales.
Guidance, Outlook, and Risks
- Portfolio Strategy: Management intends to upgrade portfolio quality by selling approximately 5% to 10% of the portfolio annually, focusing on target markets (top 20 U.S. markets). Proceeds are used for capital investments, redevelopment, or acquisitions in well-located properties.
- Liquidity: As of December 31, 2009, the company had $136.2 million available under its $180.0 million revolving credit facility. A $90.0 million term loan matured in March 2011 (partially repaid to $45.0 million by late February 2010).
- Interest Rate Risk: The company has significant variable-rate indebtedness ($654.6 million) and variable-rate preferred stock ($67.0 million). A 100 basis point increase in 30-day LIBOR would reduce net income attributable to common stockholders by approximately $1.5 million annually.
- Key Risks:
- Financing: Disruptions in credit markets could affect the ability to refinance debt or obtain new financing.
- REIT Qualification: Failure to qualify as a REIT would subject the company to corporate income tax and potentially default on credit facilities.
- Real Estate Market: Fluctuations in real estate values, occupancy rates, and rental rates in target markets could adversely affect operating results.
- Environmental/Litigation: Potential liabilities related to environmental contamination, mold, and litigation regarding partnership transactions.
Important Facts for Investor Verification
- Discontinued Operations Impact: Verify the sustainability of earnings by analyzing Funds From Operations (FFO) and Pro Forma FFO, as GAAP net income was heavily influenced by one-time gains from property sales in 2008 which were significantly lower in 2009.
- Debt Maturities: Confirm the status of the $90.0 million term loan maturing in March 2011 and the $180.0 million revolving credit facility maturing in May 2011, noting the company's recent efforts to reduce near-term maturities.
- Dividend Policy: Note the drastic reduction in dividends declared per share from $7.48 in 2008 (which included special dividends paid partly in stock) to $0.40 in 2009. Verify the company's ability to maintain the current dividend level given the net loss.
- Impairment History: Review the specific details of the $91.1 million impairment recognized in 2008 to understand the valuation risks associated with redevelopment assets like Lincoln Place and Pacific Bay Vistas.
- Variable Rate Exposure: Assess the company's hedging strategy (total rate of return swaps) and the potential impact of rising interest rates on its $654.6 million of floating-rate debt.