APARTMENT INVESTMENT & MANAGEMENT CO. — Q3 2021 Form 10-Q
Business context and period. This combined report covers Aimco and Aimco OP L.P. for the quarter and nine months ended September 30, 2021. Aimco is a multifamily-focused REIT with operating apartments, development and redevelopment projects, and other real estate investments. Aimco separated from Apartment Income REIT Corp. (AIR) in December 2020; 2020 comparative results include predecessor carve-out accounting and allocated costs, so comparisons—particularly general and administrative expenses and cash flows—may not be directly comparable.
Financial results and key metrics
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Rental and other property revenue | $42.9 million | $37.3 million | $123.1 million | $112.8 million |
| Net income (loss) | $(4.8) million | $2.0 million | $(3.8) million | $9.7 million |
| Net income (loss) attributable to Aimco | $(5.0) million; $(0.03) per share | $2.0 million; $0.01 per share | $(4.5) million; $(0.03) per share | $9.5 million; $0.06 per share |
| Operating cash flow | Not presented quarterly | $22.1 million | $41.3 million | |
| Adjusted EBITDAre (non-GAAP) | $17.6 million | $19.9 million | $53.8 million | $61.0 million |
- Q3 proportionate property NOI was $26.8 million, up 10.7%; nine-month NOI was $75.5 million, up 2.5%. Operating Portfolio NOI was up 5.1% in Q3 but essentially flat for the nine-month period.
- Operating Portfolio Q3 revenue before utility reimbursements rose 6.8% year over year; average occupancy was 97.8%, up 280 basis points. Expenses rose 10.6%, primarily from real estate taxes and insurance. The company collected 98.2% of resident amounts owed and recognized 99.2% of revenue, reserving 0.8% as bad debt.
- Q3 operating expenses were $48.7 million, including $21.7 million depreciation and amortization and $8.9 million G&A. Interest expense was $12.7 million. Nine-month interest expense rose to $38.0 million from $18.6 million.
- Nine-month investing cash outflow was $216.6 million, including $134.9 million in capital expenditures and $69.6 million for real estate purchases. Financing provided $158.6 million. Cash, cash equivalents and restricted cash ended at $262.8 million, down from $298.7 million at year-end 2020.
Balance sheet, debt and liquidity
- At September 30, 2021, total assets were $2.394 billion, total liabilities $1.829 billion, and total equity $560.5 million.
- Total indebtedness was $1.158 billion: $485.1 million non-recourse property debt, $138.4 million construction loans, and $534.1 million notes payable to AIR. Lease liabilities of $448.9 million are additional to indebtedness.
- Available liquidity was reported as $413 million: $253 million cash, $10 million restricted cash, and $150 million undrawn revolving-credit capacity. The revolver matures in December 2023, subject to two one-year extension options; no revolver borrowings were outstanding.
- Property debt was approximately 89% fixed-rate, with a 5.7-year weighted-average remaining maturity and 3.09% weighted-average rate. AIR notes carry a fixed 5.2% rate and mature January 2024. Construction loans are variable-rate, with $143.7 million outstanding at quarter-end.
- Management reported compliance with credit-facility covenants and expected continued compliance. A 100-basis-point change in 30-day LIBOR was estimated to change annual interest expense by approximately $2.0 million.
Material changes, outlook and risks
- Compared with 2020, Aimco moved from positive to negative net income. Management attributed higher interest expense principally to the AIR notes issued in connection with the separation, and higher G&A to operating as a separate company rather than relying on predecessor cost allocations. Q3 G&A increased $7.3 million year over year; nine-month G&A increased $17.6 million.
- Development and redevelopment spending was $162 million for the first nine months. Approximately $294.2 million of project commitments remained, most expected within 24 months; $281.2 million of construction-loan capacity was undrawn. Management said it had sufficient liquidity for operational needs in 2021 and beyond, based on information then available.
- Management described roughly $1.0 billion of development and redevelopment projects underway and more than $2 billion of future opportunities under Aimco control. It targets annualized returns on equity of 12%–16% once optimal capital allocation is achieved and expects to redeploy over $500 million of equity over four to five years. These are strategic targets, not guaranteed results. Aimco plans to reinvest earnings and does not presently intend to pay a regular cash dividend.
- Projects had stated schedules ranging from deliveries beginning in 2022–2024 and stabilization targets in 2024–2026. Management reported several projects on schedule and on budget; actual costs, delivery timing, lease-up and returns remain uncertain.
- The $330.0 million Parkmerced mezzanine investment includes accrued and unpaid interest, earns 10% annually, and is subordinate to a $1.5 billion first mortgage. AIR had not yet transferred legal title to the loan-holding subsidiaries; Aimco reported exposure to nonpayment, including pandemic-related risk.
- Aimco has $250.8 million of residual-value guarantees on AIR finance leases. It also reported $13.0 million remaining on a guarantee for certain pre-separation legal liabilities, expected to run through 2023. No pending legal proceedings were identified as likely to materially affect financial condition or results.
- Other risks include development cost and schedule overruns, supply-chain disruption, interest rates and financing availability, property-market conditions, debt-covenant compliance, and the ability of AIR and other counterparties to perform separation-related obligations. No subsequent events were reported through the filing date.
Important facts for investors to verify
- Whether development budgets, timelines, lease-up and stabilization targets are achieved, and whether project returns meet management’s targets.
- Parkmerced loan collectability, accrued-interest treatment and the timing of transfer of legal title from AIR.
- Liquidity after committed development spending, construction-loan draws and scheduled debt obligations, including the January 2024 AIR-note maturity.
- Exposure to variable rates and the effectiveness and terms of interest-rate options and caps.
- Whether apartment revenue and occupancy gains can outpace property expense growth, especially taxes and insurance.
- The implications of post-separation service arrangements and the limited comparability of 2020 predecessor results with 2021 standalone costs.