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APARTMENT INVESTMENT & MANAGEMENT CO 10-K 2010 Table of Contents
UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C. 20549
Commission File Number 1-13232
Registrant’s telephone number, including area code:
(303) 757-8101
Securities Registered Pursuant to Section 12(b) of the
Act:
Securities Registered Pursuant to Section 12(g) of the
Act: none
Indicate by check mark if the registrant is a well-known
seasoned issuer, as defined by Rule 405 of the Securities
Act. Yes þ No o
Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or Section 15(d) of the
Act. Yes o No þ
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of
the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been
subject to such filing requirements for the past
90 days. Yes þ No o
Indicate by check mark whether the registrant has submitted
electronically and posted on its corporate Web site, if
any, every Interactive Data File required to be submitted and
posted pursuant to Rule 405 of Regulation S-T during the
preceding 12 months (or for such shorter period that the
registrant was required to submit and post such
files). Yes o No o
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of
Regulation S-K
is not contained herein, and will not be contained, to the best
of registrant’s knowledge, in definitive proxy or
information statements incorporated by reference in
Part III of this
Form 10-K
or any amendment to this
Form 10-K. þ
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definitions of
“large accelerated filer,” “accelerated
filer” and “smaller reporting company” in
Rule 12b-2
of the Exchange Act. (Check one):
Indicate by check mark whether the registrant is a shell company
(as defined in
Rule 12b-2
of the
Act). Yes o No þ
The aggregate market value of the voting and non-voting common
stock held by non-affiliates of the registrant was approximately
$1.0 billion as of June 30, 2009. As of
February 24, 2010, there were 117,140,672 shares of
Class A Common Stock outstanding.
Portions of the registrant’s definitive proxy statement to
be issued in conjunction with the registrant’s annual
meeting of stockholders to be held April 26, 2010, are
incorporated by reference into Part III of this Annual
Report.
APARTMENT
INVESTMENT AND MANAGEMENT COMPANY
TABLE OF
CONTENTS
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The Private Securities Litigation Reform Act of 1995 provides
a “safe harbor” for forward-looking statements in
certain circumstances. Certain information included in this
Annual Report contains or may contain information that is
forward-looking within the meaning of the federal securities
laws, including, without limitation, statements regarding the
effect of acquisitions and redevelopments, our future financial
performance, including our ability to maintain current or meet
projected occupancy, rent levels and same store results, and the
effect of government regulations. Actual results may differ
materially from those described in these forward-looking
statements and, in addition, will be affected by a variety of
risks and factors, some of which are beyond our control,
including, without limitation: financing risks, including the
availability and cost of financing and the risk that our cash
flows from operations may be insufficient to meet required
payments of principal and interest; earnings may not be
sufficient to maintain compliance with debt covenants; real
estate risks, including fluctuations in real estate values and
the general economic climate in the markets in which we operate
and competition for residents in such markets; national and
local economic conditions; the terms of governmental regulations
that affect us and interpretations of those regulations; the
competitive environment in which we operate; the timing of
acquisitions and dispositions; insurance risk, including the
cost of insurance; natural disasters and severe weather such as
hurricanes; litigation, including costs associated with
prosecuting or defending claims and any adverse outcomes; energy
costs; and possible environmental liabilities, including costs,
fines or penalties that may be incurred due to necessary
remediation of contamination of properties presently owned or
previously owned by us. In addition, our current and continuing
qualification as a real estate investment trust involves the
application of highly technical and complex provisions of the
Internal Revenue Code and depends on our ability to meet the
various requirements imposed by the Internal Revenue Code,
through actual operating results, distribution levels and
diversity of stock ownership. Readers should carefully review
our financial statements and the notes thereto, as well as the
section entitled “Risk Factors” described in
Item 1A of this Annual Report and the other documents we
file from time to time with the Securities and Exchange
Commission.
PART I
The
Company
Apartment Investment and Management Company, or Aimco, is a
Maryland corporation incorporated on January 10, 1994. We
are a self-administered and self-managed real estate investment
trust, or REIT, engaged in the acquisition, ownership,
management and redevelopment of apartment properties. We
primarily invest in the 20 largest U.S. markets, as
measured by total market capitalization, which is the total
market value of institutional-grade apartment properties in a
particular market. We define these markets as “target
markets” and they possess the following characteristics: a
high concentration of population and apartment units; geographic
and employment diversification; and historically strong returns
with reduced volatility as part of a diversified portfolio. We
are one of the largest owners and operators of apartment
properties in the United States.
We own an equity interest in, and consolidate the majority of,
the properties in our owned real estate portfolio. These
properties represent the consolidated real estate holdings in
our financial statements, which we refer to as consolidated
properties. In addition, we have an equity interest in, but do
not consolidate for financial statement purposes, certain
properties that are accounted for under the equity or cost
methods. These properties represent our investment in
unconsolidated real estate partnerships in our financial
statements, which we refer to as unconsolidated properties.
Additionally, we provide property management and asset
management services to certain properties, and in certain cases,
we may indirectly own generally less than one percent of the
operations of such
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properties through a partnership syndication or other fund. Our
equity holdings and managed properties are as follows as of
December 31, 2009:
Through our wholly-owned subsidiaries, AIMCO-GP, Inc. and
AIMCO-LP Trust, we own a majority of the ownership interests in
AIMCO Properties, L.P., which we refer to as the Aimco Operating
Partnership. As of December 31, 2009, we held an interest
of approximately 93% in the common partnership units and
equivalents of the Aimco Operating Partnership. We conduct
substantially all of our business and own substantially all of
our assets through the Aimco Operating Partnership. Interests in
the Aimco Operating Partnership that are held by limited
partners other than Aimco are referred to as
“OP Units.” OP Units include common
OP Units, partnership preferred units, or preferred
OP Units, and high performance partnership units, or High
Performance Units. Generally, after a holding period of twelve
months, holders of common OP Units may redeem such units
for cash or, at the Aimco Operating Partnership’s option,
Aimco Class A Common Stock, which we refer to as Common
Stock. At December 31, 2009, we had 116,479,791 shares
of our Common Stock outstanding and the Aimco Operating
Partnership had 8,374,233 common OP Units and equivalents
outstanding for a combined total of 124,854,024 shares of
Common Stock and OP Units outstanding (excluding preferred
OP Units).
Since our initial public offering in July 1994, we have
completed numerous transactions, including purchases of
properties and interests in entities that own or manage
properties, expanding our portfolio of owned or managed
properties from 132 properties with 29,343 apartment units to a
peak of over 2,100 properties with 379,000 apartment units. As
of December 31, 2009, our portfolio of owned
and/or
managed properties consists of 870 properties with 135,654
apartment units.
Except as the context otherwise requires, “we,”
“our,” “us” and the “Company”
refer to Aimco, the Aimco Operating Partnership and their
consolidated entities, collectively. As used herein, and except
where the context otherwise requires, “partnership”
refers to a limited partnership or a limited liability company
and “partner” refers to a limited partner in a limited
partnership or a member in a limited liability company.
Our Annual Report on
Form 10-K,
our Quarterly Reports on
Form 10-Q,
our Current Reports on
Form 8-K
and any amendments to any of those reports that we file with the
Securities and Exchange Commission are available free of charge
as soon as reasonably practicable through our website at
www.aimco.com. The information contained on our website
is not incorporated into this Annual Report. Our Common Stock is
listed on the New York Stock Exchange under the symbol
“AIV.” In 2009, our chief executive officer submitted
his annual corporate governance listing standards certification
to the New York Stock Exchange, which certification was
unqualified.
We operate in two reportable segments: real estate (owning,
operating and redeveloping apartments) and investment management
(portfolio management and asset management, which are further
discussed in the Business Overview). For further information on
these segments, see Note 17 of the consolidated financial
statements in Item 8, and Management’s Discussion and
Analysis in Item 7.
Business
Overview
Our principal financial objective is to increase long-term
stockholder value, both as measured by Net Asset Value, which is
the estimated fair value of our assets, net of debt, or NAV, and
total shareholder return.
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We strive to meet our objectives through:
Our business is organized around two core activities: Property
Operations and Investment Management. These core activities,
along with our financial strategy, are described in more detail
below.
Our portfolio is comprised of two business components:
conventional and affordable. Our conventional operations, which
provide 88% of our property net operating income and are
market-rate apartments with rents paid by the resident, include
243 properties with 74,030 units. Our affordable operations
provide 12% of our property net operating income and consist of
260 properties with 29,650 units, with rents that are
generally paid, in whole or part, by a government agency.
Affordable properties tend to have relatively more stable rents
and higher occupancy due to government rent payments and thus
are much less affected by market fluctuations.
We operate a broad range of property types, from suburban
garden-style to urban high-rise properties in 44 states,
the District of Columbia and Puerto Rico at a range of average
monthly rental rates. On average, our portfolio rents are
somewhat above the average rents in the local markets. This
diversification in geography insulates us, to some degree, from
inevitable downturns in any one market.
Our property operations currently are organized into five areas,
which are further subdivided according to our target markets. To
manage our nationwide portfolio more efficiently and to increase
the benefits from our local management expertise, we have given
direct responsibility for operations within each area to an area
operations leader with regular senior management reviews. To
enable the area operations leaders to focus on sales and
service, as well as to improve financial control and budgeting,
we have dedicated an area financial officer to support each area
operations leader, and with the exception of routine
maintenance, our specialized Construction Services group manages
all on-site
improvements, thus reducing the need for the area operations
leaders to spend time on oversight of construction projects.
We seek to improve our oversight of property operations by:
developing better systems; standardizing business goals,
operational measurements and internal reporting; and enhancing
financial controls over field operations. Our objectives are to
focus on the areas discussed below:
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Investment management includes activities related to our owned
portfolio of properties as well as services provided to
affiliated partnerships. Investment management includes
portfolio strategy, capital allocation, joint ventures, tax
credit syndication, acquisitions, dispositions and other
transaction activities. Within our owned portfolio, we refer to
these activities as Portfolio Management, and their benefit is
seen in property operating results and investment gains. For
affiliated partnerships, we refer to these activities as asset
management for which we are separately compensated through fees
paid by third party investors.
Portfolio Management involves the ongoing allocation of
investment capital to meet our geographic and product type
goals. We target geographic balance in Aimco’s diversified
portfolio in order to optimize risk-adjusted returns and to
avoid the risk of undue concentration in any particular market.
We also seek to balance the portfolio by product type, with both
high quality properties in excellent locations and also high
land value properties that support redevelopment activities. We
intend to slightly reduce our allocation of capital to
affordable properties to 10% of our NAV.
Our geographic allocation strategy focuses on our target markets
to reduce volatility in and our dependence on particular areas
of the country. We believe our target markets are deep,
relatively liquid and possess desirable long-term growth
characteristics. They are primarily coastal markets, and also
include a number of Sun Belt cities and Chicago, Illinois. We
may also invest in other markets on an opportunistic basis. We
intend to upgrade the quality of our portfolio through the sale
of approximately 5% to 10% of our portfolio annually, with the
proceeds generally used to increase our allocation of capital to
well located properties within our target markets through
capital investments, redevelopment or acquisitions. We expect
that increased geographic focus will also add to our investment
knowledge and increase operating efficiencies based on local
economies of scale.
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Our portfolio management activities include strategic portfolio
and capital allocation decisions including transactions to buy,
sell or modify our ownership interest in properties, including
through the use of partnerships and joint ventures, and to
increase our investment in existing properties through
redevelopment. The purpose of these transactions is to adjust
Aimco’s investments to reflect our decisions regarding
target allocations to geographic markets and to investment types.
We believe redevelopment of certain properties in superior
locations provides advantages over
ground-up
development, enabling us to generate rents comparable to new
properties with lower financial risk, in less time and with
reduced delays associated with governmental permits and
authorizations. Redevelopment work also includes seeking
entitlements from local governments, which enhance the value of
our existing portfolio by increasing density, that is, the right
to add residential units to a site. We have historically
undertaken a range of redevelopment projects: from those in
which a substantial number of all available units are vacated
for significant renovations to the property, to those in which
there is significant renovation, such as exteriors, common areas
or unit improvements, typically done upon lease expirations
without the need to vacate units on any wholesale or substantial
basis. We have a specialized Redevelopment and Construction
Services group to oversee these projects.
During 2009, we increased our allocation of capital to our
target markets by disposing of 68 conventional properties
located primarily outside of our target markets or in less
desirable locations within our target markets and by investing
$66.8 million in redevelopment of conventional properties.
As of December 31, 2009, our conventional portfolio
included 243 properties with 74,030 units in 38 markets. As
of December 31, 2009, conventional properties in our target
markets comprised 88% of our NAV attributable to our
conventional properties. Our top five markets by net operating
income contribution include the metropolitan areas of
Washington, D.C.; Los Angeles, California;
“Other” Florida (which is comprised of
Ft. Lauderdale, Jacksonville, Orlando, Palm Beach County
and Tampa); Chicago, Illinois and Boston, Massachusetts.
During 2009, we invested $46.0 million in redevelopment of
affordable properties, funded primarily by proceeds from the
sale of tax credits to institutional partners. As with
conventional properties, we also seek to dispose of properties
that are inconsistent with our long-term investment and
operating strategies. During 2009, we sold 22 properties from
our affordable portfolio. As of December 31, 2009, our
affordable portfolio included 260 properties with
29,650 units.
We are focused on maintaining a safe balance sheet, including
minimizing or eliminating our recourse debt and near term
property debt maturities as well as minimizing our cost of
capital on a risk adjusted basis. We primarily use non-recourse
and amortizing property debt with laddered maturities and
minimize reliance on corporate debt. The lower risk inherent in
non-recourse property debt permits us to operate with higher
debt leverage and a lower weighted average cost of capital. We
use floating rate property and corporate debt to provide lower
interest costs over time at a level that considers acceptable
earnings volatility.
During 2009, using proceeds from asset dispositions, we repaid
$310.0 million of our term loan, which matures in March
2011, leaving a remaining outstanding balance of
$90.0 million at December 31, 2009. We repaid an
additional $45.0 million through February 26, 2010,
leaving a remaining outstanding balance of $45.0 million.
During 2009, we also focused on reducing refunding risk by
accelerating refinancing of property loans maturing prior to
2012. At the beginning of 2009, property debt totaling
$753.0 million was scheduled to mature prior to 2012.
During 2009, through refinancing, repayment and property sales,
we reduced these maturities by 69%, or $516.3 million, and
eliminated all 2010 property debt maturities. As of
December 31, 2009, five loans totaling $236.7 million
were scheduled to mature in 2011. During January 2010, we
extended the maturity of one of these loans for
$65.0 million to 2013. We expect to refinance the remaining
four loans, totaling $171.7 million ($101.2 million
Aimco’s share), at their maturity.
As of December 31, 2009, we had a $180.0 million
revolving credit facility and borrowings available of
$136.2 million (after giving effect to $43.8 million
outstanding for undrawn letters of credit). The revolving credit
facility matures in May 2011 and has a one year extension
option, subject to certain terms.
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In attracting and retaining residents to occupy our properties
we compete with numerous other housing alternatives. Our
properties compete directly with other rental apartments as well
as condominiums and single-family homes that are available for
rent or purchase in the markets in which our properties are
located. Principal factors of competition include rent or price
charged, attractiveness of the location and property and quality
and breadth of services. The number of competitive properties
relative to demand in a particular area has a material effect on
our ability to lease apartment units at our properties and on
the rents we charge. In certain markets there exists oversupply
of single family homes and condominiums and a reduction of
households, both of which affect the pricing and occupancy of
our rental apartments. Additionally, we compete with other real
estate investors, including other apartment REITs, pension and
investment funds, partnerships and investment companies in
acquiring, redeveloping and managing apartment properties. This
competition affects our ability to acquire properties we want to
add to our portfolio and the price that we pay in such
acquisitions.
We have elected to be taxed as a REIT under the Internal Revenue
Code of 1986, as amended, which we refer to as the Code,
commencing with our taxable year ended December 31, 1994,
and intend to continue to operate in such a manner. Our current
and continuing qualification as a REIT depends on our ability to
meet the various requirements imposed by the Code, which relate
to organizational structure, distribution levels, diversity of
stock ownership and certain restrictions with regard to owned
assets and categories of income. If we qualify for taxation as a
REIT, we will generally not be subject to United States Federal
corporate income tax on our taxable income that is currently
distributed to stockholders. This treatment substantially
eliminates the “double taxation” (at the corporate and
stockholder levels) that generally results from an investment in
a corporation.
Even if we qualify as a REIT, we may be subject to United States
Federal income and excise taxes in various situations, such as
on our undistributed income. We also will be required to pay a
100% tax on any net income on non-arm’s length transactions
between us and a TRS (described below) and on any net income
from sales of property that was property held for sale to
customers in the ordinary course. We and our stockholders may be
subject to state or local taxation in various state or local
jurisdictions, including those in which we transact business or
our stockholders reside. In addition, we could also be subject
to the alternative minimum tax, or AMT, on our items of tax
preference. The state and local tax laws may not conform to the
United States Federal income tax treatment. Any taxes imposed on
us reduce our operating cash flow and net income.
Certain of our operations or a portion thereof, including
property management, asset management and risk are conducted
through taxable REIT subsidiaries, each of which we refer to as
a TRS. A TRS is a C-corporation that has not elected REIT status
and, as such, is subject to United States Federal corporate
income tax. We use TRS entities to facilitate our ability to
offer certain services and activities to our residents and
investment partners, as these services and activities generally
cannot be offered directly by the REIT.
Apartment properties and their owners are subject to various
laws, ordinances and regulations, including those related to
real estate broker licensing and regulations relating to
recreational facilities such as swimming pools, activity centers
and other common areas. Changes in laws increasing the potential
liability for environmental conditions existing on properties or
increasing the restrictions on discharges or other conditions,
as well as changes in laws affecting development, construction
and safety requirements, may result in significant unanticipated
expenditures, which would adversely affect our net income and
cash flows from operating activities. In addition, future
enactment of rent control or rent stabilization laws, such as
legislation that has been considered in New York, or other laws
regulating multifamily housing may reduce rental revenue or
increase operating costs in particular markets.
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Various Federal, state and local laws subject property owners or
operators to liability for management, and the costs of removal
or remediation, of certain hazardous substances present on a
property. Such laws often impose liability without regard to
whether the owner or operator knew of, or was responsible for,
the release or presence of the hazardous substances. In
connection with the ownership, operation and management of
properties, we could potentially be liable for environmental
liabilities or costs associated with our properties or
properties we acquire or manage in the future. These and other
risks related to environmental matters are described in more
detail in Item 1A, “Risk Factors.”
Our primary lines of insurance coverage are property, general
liability, and workers’ compensation. We believe that our
insurance coverages adequately insure our properties against the
risk of loss attributable to fire, earthquake, hurricane,
tornado, flood, terrorism and other perils, and adequately
insure us against other risk. Our coverage includes deductibles,
retentions and limits that are customary in the industry. We
have established loss prevention, loss mitigation, claims
handling, litigation management and loss reserving procedures to
manage our exposure.
Employees
At December 31, 2009, we had approximately
3,500 employees, of which approximately 2,800 were at the
property level, performing various
on-site
functions, with the balance managing corporate and area
operations, including investment and debt transactions, legal,
financial reporting, accounting, information systems, human
resources and other support functions. As of December 31,
2009, unions represented 115 of our employees. We have never
experienced a work stoppage and believe we maintain satisfactory
relations with our employees.
The risk factors noted in this section and other factors noted
throughout this Annual Report, describe certain risks and
uncertainties that could cause our actual results to differ
materially from those contained in any forward-looking statement.
We are subject to the risk that our cash flow from operations
will be insufficient to make required payments of principal and
interest, and the risk that existing indebtedness may not be
refinanced or that the terms of any refinancing will not be as
favorable as the terms of existing indebtedness. If we fail to
make required payments of principal and interest on secured
debt, our lenders could foreclose on the properties and other
collateral securing such debt, which would result in loss of
income and asset value to us. As of December 31, 2009,
substantially all of the properties that we owned or controlled
were encumbered by debt. Our organizational documents do not
limit the amount of debt that we may incur, and we have
significant amounts of debt outstanding. Payments of principal
and interest may leave us with insufficient cash resources to
operate our properties or pay distributions required to be paid
in order to maintain our qualification as a REIT.
Our strategy is generally to incur debt to increase the return
on our equity while maintaining acceptable coverage ratios. For
the year ended December 31, 2009, as calculated based on
the provisions in our credit agreement, which is further
discussed in Note 7 to the consolidated financial
statements in Item 8, we had a ratio of earnings before
interest, taxes and depreciation and amortization to debt
service of 1.59:1 and a ratio of earnings to fixed charges of
1.36:1. On February 3, 2010, we and our lenders agreed to
reduce the covenant ratios of earnings before interest, taxes
and depreciation and amortization to debt service and earnings
to fixed charges from 1.50:1 and 1.30:1, respectively, to 1.40:1
and 1.20:1, respectively. We expect to remain in compliance with
these covenants.
At December 31, 2009, we had swap positions with two
financial institutions totaling $353.1 million. The related
swap agreements provide for collateral calls to maintain
specified
loan-to-value
ratios. In the event the
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values of the real estate properties serving as collateral under
these agreements decline, we may be required to provide
additional collateral pursuant to the swap agreements, which
would adversely affect our cash flows.
Our ability to obtain financing and the cost of such financing
depends on the overall condition of the United States credit
markets and, to an important extent in 2009, on the level of
involvement of certain government sponsored entities,
specifically, Federal Home Loan Mortgage Corporation, or Freddie
Mac, and Federal National Mortgage Association, or Fannie Mae,
in secondary credit markets. During 2009, the United States
credit markets (outside of multi-family) experienced significant
liquidity disruptions, which caused the spreads on debt
financings to widen considerably and made obtaining financing,
both non-recourse property debt and corporate borrowings, such
as our term loan or revolving credit facility, more difficult.
Further or prolonged disruptions in the credit markets could
result in Freddie Mac or Fannie Mae reducing their level of
involvement in secondary credit markets which would adversely
affect our ability to obtain non-recourse property debt
financing. Additionally, further or prolonged disruptions in the
credit markets may also affect our ability to renew our credit
facility with similar commitments when it matures in May 2012
(inclusive of a one year extension option).
If our ability to obtain financing is adversely affected, we may
be unable to satisfy scheduled maturities on existing financing
through other sources of liquidity, which could result in lender
foreclosure on the properties securing such debt and loss of
income and asset value, each of which would adversely affect our
liquidity.
As of December 31, 2009, we had approximately
$654.6 million of variable-rate indebtedness outstanding
and $67.0 million of variable rate preferred stock
outstanding. Of the total debt subject to variable interest
rates, floating rate tax-exempt bond financing was about
two-thirds, or $433.9 million. Floating rate tax-exempt
bond financing is benchmarked against the Securities Industry
and Financial Markets Association Municipal Swap Index, or
SIFMA, rate, which since 1989 has averaged 73% of the
30-day LIBOR
rate. At December 31, 2009, we had approximately
$440.9 million in cash and cash equivalents, restricted
cash and notes receivable, the majority of which bear interest.
The effect of our interest-bearing assets would partially reduce
the effect of an increase in variable interest rates. If this
historical relationship continues, we estimate that an increase
in 30-day
LIBOR of 100 basis points (73 basis points for
tax-exempt interest rates) with constant credit risk spreads
would result in net income being reduced by $1.1 million
and income attributable to Aimco common stockholders being
reduced by $1.5 million on an annual basis.
Our ability to fund necessary capital expenditures on our
properties depends on, among other things, our ability to
generate net operating income in excess of required debt
payments. If we are unable to fund capital expenditures on our
properties, we may not be able to preserve the competitiveness
of our properties, which could adversely affect our net
operating income.
Our ability to make payments to our investors depends on our
ability to generate net operating income in excess of required
debt payments and capital expenditure requirements. Our net
operating income and liquidity may be adversely affected by
events or conditions beyond our control, including:
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Some of our debt and other securities contain covenants that
restrict our ability to make distributions or other payments to
our investors unless certain financial tests or other criteria
are satisfied. Our credit facility provides, among other things,
that we may make distributions to our investors during any four
consecutive fiscal quarters in an aggregate amount that does not
exceed the greater of 95% of our Funds From Operations for such
period, subject to certain non-cash adjustments, or such amount
as may be necessary to maintain our REIT status. Our outstanding
classes of preferred stock prohibit the payment of dividends on
our Common Stock if we fail to pay the dividends to which the
holders of the preferred stock are entitled.
Real estate investments are relatively illiquid and cannot
always be sold quickly. Our freedom to sell properties is also
restricted by REIT tax rules. Thus, we may not be able to change
our portfolio promptly in response to changes in economic or
other market conditions. Our ability to dispose of assets in the
future will depend on prevailing economic and market conditions,
including the cost and availability of financing. This could
have a material adverse effect on our financial condition or
results of operations.
Our apartment properties compete for residents with other
housing alternatives, including other rental apartments,
condominiums and single-family homes that are available for
rent, as well as new and existing condominiums and single-family
homes for sale. Competitive residential housing in a particular
area could adversely affect our ability to lease apartments and
to increase or maintain rental rates. The current challenges in
the credit and housing markets have increased housing inventory
that competes with our apartment properties.
All of our properties are owned, and all of our operations are
conducted, by the Aimco Operating Partnership and our other
subsidiaries. As a result, we depend on distributions and other
payments from our subsidiaries in order to satisfy our financial
obligations and make payments to our investors. The ability of
our subsidiaries to make such distributions and other payments
depends on their earnings and cash flows and may be subject to
statutory or contractual limitations. As an equity investor in
our subsidiaries, our right to receive assets upon their
liquidation or reorganization will be effectively subordinated
to the claims of their creditors. To the extent that we are
recognized as a creditor of such subsidiaries, our claims may
still be subordinate to any security interest in or other lien
on their assets and to any of their debt or other obligations
that are senior to our claims.
We intend to continue to redevelop certain of our properties.
These activities are subject to the following risks:
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We are insured for a portion of our consolidated
properties’ exposure to casualty losses resulting from
fire, earthquake, hurricane, tornado, flood and other perils,
which insurance is subject to deductibles and self-insurance
retention. We recognize casualty losses or gains based on the
net book value of the affected property and the amount of and
any related insurance proceeds. In many instances, the actual
cost to repair or replace the property may exceed its net book
value and any insurance proceeds. We also insure certain
unconsolidated properties for a portion of their exposure to
such losses. With respect to our consolidated properties, we
recognize the uninsured portion of losses as part of casualty
losses in the periods in which they are incurred. In addition,
we are self-insured for a portion of our exposure to third-party
claims related to our employee health insurance plans,
workers’ compensation coverage and general liability
exposure. With respect to our insurance obligations to
unconsolidated properties and our exposure to claims of third
parties, we establish reserves at levels that reflect our known
and estimated losses. The ultimate cost of losses and the impact
of unforeseen events may vary materially from recorded reserves,
and variances may adversely affect our operating results and
financial condition. We purchase insurance (or reinsurance where
we insure unconsolidated properties) to reduce our exposure to
losses and limit our financial losses on large individual risks.
The availability and cost of insurance are determined by market
conditions outside our control. No assurance can be made that we
will be able to obtain and maintain insurance at the same levels
and on the same terms as we do today. If we are not able to
obtain or maintain insurance in amounts we consider appropriate
for our business, or if the cost of obtaining such insurance
increases materially, we may have to retain a larger portion of
the potential loss associated with our exposures to risks.
Natural disasters and severe weather such as hurricanes may
result in significant damage to our properties. The extent of
our casualty losses and loss in operating income in connection
with such events is a function of the severity of the event and
the total amount of exposure in the affected area. When we have
geographic concentration of exposures, a single catastrophe
(such as an earthquake) or destructive weather event (such as a
hurricane) affecting a region may have a significant negative
effect on our financial condition and results of operations. We
cannot accurately predict natural disasters or severe weather,
or the number and type of such events that will affect us. As a
result, our operating and financial results may vary
significantly from one period to the next. Although we
anticipate and plan for losses, there can be no assurance that
our financial results will not be adversely affected by our
exposure
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to losses arising from natural disasters or severe weather in
the future that exceed our previous experience and assumptions.
Our success depends upon the retention of our senior management,
including Terry Considine, our chief executive officer. We have
a succession planning and talent development process that is
designed to identify potential replacements and develop our team
members to provide depth in the organization and a bench of
talent on which to draw. However, there are no assurances that
we would be able to find qualified replacements for the
individuals who make up our senior management if their services
were no longer available. The loss of services of one or more
members of our senior management team could have a material
adverse effect on our business, financial condition and results
of operations. We do not currently maintain key-man life
insurance for any of our employees.
The selective acquisition of properties is a component of our
strategy. However, we may not be able to complete transactions
successfully in the future. Although we seek to acquire
properties when such acquisitions increase our net income, Funds
From Operations or net asset value, such transactions may fail
to perform in accordance with our expectations. In particular,
following acquisition, the value and operational performance of
a property may be diminished if obsolescence or neighborhood
changes occur before we are able to redevelop or sell the
property.
We have engaged in, and intend to continue to engage in, the
selective acquisition of interests in partnerships controlled by
us that own apartment properties. In some cases, we have
acquired the general partner of a partnership and then made an
offer to acquire the limited partners’ interests in the
partnership. In these transactions, we may be subject to
litigation based on claims that we, as the general partner, have
breached our fiduciary duty to our limited partners or that the
transaction violates the relevant partnership agreement or state
law. Although we intend to comply with our fiduciary obligations
and the relevant partnership agreements, we may incur additional
costs in connection with the defense or settlement of this type
of litigation. In some cases, this type of litigation may
adversely affect our desire to proceed with, or our ability to
complete, a particular transaction. Any litigation of this type
could also have a material adverse effect on our financial
condition or results of operations.
We own consolidated and unconsolidated equity interests in
certain properties and manage other properties that benefit from
governmental programs intended to provide housing to people with
low or moderate incomes. These programs, which are usually
administered by the U.S. Department of Housing and Urban
Development, or HUD, or state housing finance agencies,
typically provide mortgage insurance, favorable financing terms,
tax-credit equity, or rental assistance payments to the property
owners. As a condition of the receipt of assistance under these
programs, the properties must comply with various requirements,
which typically limit rents to pre-approved amounts and impose
restrictions on resident incomes. Failure to comply with these
requirements and restrictions may result in financial penalties
or loss of benefits. We usually need to obtain the approval of
HUD in order to acquire or dispose of a significant interest in
or manage a HUD-assisted property. We may not always receive
such approval.
During 2009, 2008 and 2007, for continuing operations, our
rental revenues include $140.3 million, $132.3 million
and $121.4 million, respectively, of subsidies from
government agencies. Any loss of such benefits would adversely
affect our liquidity and results of operations.
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Under the Americans with Disabilities Act of 1990, or ADA, all
places intended to be used by the public are required to meet
certain Federal requirements related to access and use by
disabled persons. Likewise, the Fair Housing Amendments Act of
1988, or FHAA, requires apartment properties first occupied
after March 13, 1990, to be accessible to the handicapped.
These and other Federal, state and local laws may require
modifications to our properties, or affect renovations of the
properties. Noncompliance with these laws could result in the
imposition of fines or an award of damages to private litigants
and also could result in an order to correct any non-complying
feature, which could result in substantial capital expenditures.
Although we believe that our properties are substantially in
compliance with present requirements, we may incur unanticipated
expenses to comply with the ADA and the FHAA in connection with
the ongoing operation or redevelopment of our properties.
Various Federal, state and local laws subject property owners or
operators to liability for management, and the costs of removal
or remediation, of certain hazardous substances present on a
property, including lead-based paint. Such laws often impose
liability without regard to whether the owner or operator knew
of, or was responsible for, the release or presence of the
hazardous substances. The presence of, or the failure to manage
or remedy properly, hazardous substances may adversely affect
occupancy at affected apartment communities and the ability to
sell or finance affected properties. In addition to the costs
associated with investigation and remediation actions brought by
government agencies, and potential fines or penalties imposed by
such agencies in connection therewith, the presence of hazardous
substances on a property could result in claims by private
plaintiffs for personal injury, disease, disability or other
infirmities. Various laws also impose liability for the cost of
removal, remediation or disposal of hazardous substances through
a licensed disposal or treatment facility. Anyone who arranges
for the disposal or treatment of hazardous substances is
potentially liable under such laws. These laws often impose
liability whether or not the person arranging for the disposal
ever owned or operated the disposal facility. In connection with
the ownership, operation and management of properties, we could
potentially be liable for environmental liabilities or costs
associated with our properties or properties we acquire or
manage in the future.
We have been named as a defendant in lawsuits that have alleged
personal injury and property damage as a result of the presence
of mold. In addition, we are aware of lawsuits against owners
and managers of multifamily properties asserting claims of
personal injury and property damage caused by the presence of
mold, some of which have resulted in substantial monetary
judgments or settlements. We have only limited insurance
coverage for property damage loss claims arising from the
presence of mold and for personal injury claims related to mold
exposure. We have implemented policies, procedures, third-party
audits and training, and include a detailed moisture intrusion
and mold assessment during acquisition due diligence. We believe
these measures will prevent or eliminate mold exposure from our
properties and will minimize the effects that mold may have on
our residents. To date, we have not incurred any material costs
or liabilities relating to claims of mold exposure or to abate
mold conditions. Because the law regarding mold is unsettled and
subject to change, we can make no assurance that liabilities
resulting from the presence of or exposure to mold will not have
a material adverse effect on our consolidated financial
condition or results of operations.
If we fail to qualify as a REIT, we will not be allowed a
deduction for dividends paid to our stockholders in computing
our taxable income, and we will be subject to Federal income tax
at regular corporate rates, including any applicable alternative
minimum tax. This would substantially reduce our funds available
for payment to our investors. Unless entitled to relief under
certain provisions of the Code, we also would be disqualified
from taxation as a REIT for the four taxable years following the
year during which we ceased to qualify as a REIT. In addition,
our failure to qualify as a REIT would place us in default under
our primary credit facilities.
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We believe that we operate, and have always operated, in a
manner that enables us to meet the requirements for
qualification as a REIT for Federal income tax purposes. Our
continued qualification as a REIT will depend on our
satisfaction of certain asset, income, investment,
organizational, distribution, stockholder ownership and other
requirements on a continuing basis. Our ability to satisfy the
asset tests depends upon our analysis of the fair market values
of our assets, some of which are not susceptible to a precise
determination, and for which we will not obtain independent
appraisals. Our compliance with the REIT income and quarterly
asset requirements also depends upon our ability to manage
successfully the composition of our income and assets on an
ongoing basis. Moreover, the proper classification of an
instrument as debt or equity for Federal income tax purposes may
be uncertain in some circumstances, which could affect the
application of the REIT qualification requirements. Accordingly,
there can be no assurance that the Internal Revenue Service, or
the IRS, will not contend that our interests in subsidiaries or
other issuers constitutes a violation of the REIT requirements.
Moreover, future economic, market, legal, tax or other
considerations may cause us to fail to qualify as a REIT, or our
Board of Directors may determine to revoke our REIT status.
As a REIT, we are subject to annual distribution requirements,
which generally limit the amount of cash we retain for other
business purposes, including amounts to fund our growth. We
generally must distribute annually at least 90% of our net REIT
taxable income, excluding any net capital gain, in order for our
distributed earnings not to be subject to corporate income tax.
We intend to make distributions to our stockholders to comply
with the requirements of the Code. However, differences in
timing between the recognition of taxable income and the actual
receipt of cash could require us to sell assets or borrow funds
on a short-term or long-term basis to meet the 90% distribution
requirement of the Code.
We have in the past distributed, and may in the future
distribute, taxable dividends that are payable in cash and
shares of our Common Stock. Stockholders subject to the payment
of income tax receiving such dividends will be required to
include the full amount of the dividend as taxable income to the
extent of our current and accumulated earnings and profits for
U.S. Federal income tax purposes. As a result, a
U.S. stockholder may be required to pay income taxes with
respect to such dividends in excess of the cash dividends
received. If a U.S. stockholder sells the stock it receives
as a dividend in order to pay this tax, the sales proceeds may
be less than the amount included in income with respect to the
dividend, depending on the market price of our stock at the time
of the sale. Furthermore, with respect to
non-U.S. stockholders,
we may be required to withhold U.S. tax with respect to
such dividends, including in respect of all or a portion of such
dividend that is payable in stock. In addition, if a significant
number of our stockholders determine to sell shares of our
Common Stock in order to pay taxes owed on dividends, it may put
downward pressure on the trading price of our Common Stock.
No assurance can be given that the IRS will not impose
additional requirements in the future with respect to taxable
cash/stock dividends, including on a retroactive basis, or
assert that the requirements for such taxable cash/stock
dividends have not been met.
Our charter limits ownership of our Common Stock by any single
stockholder (applying certain “beneficial ownership”
rules under the Federal securities laws) to 8.7% of our
outstanding shares of Common Stock, or 15% in the case of
certain pension trusts, registered investment companies and
Mr. Considine. Our charter also limits ownership of our
Common Stock and preferred stock by any single stockholder to
8.7% of the value of the outstanding Common Stock and preferred
stock, or 15% in the case of certain pension trusts, registered
investment companies and Mr. Considine. The charter also
prohibits anyone from buying shares of our capital stock if the
purchase would result in us losing our REIT status. This could
happen if a transaction results in fewer than 100 persons
owning all of our shares of capital stock or results in five or
fewer persons (applying certain attribution
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rules of the Code) owning 50% or more of the value of all of our
shares of capital stock. If anyone acquires shares in excess of
the ownership limit or in violation of the ownership
requirements of the Code for REITs:
We may purchase the shares of capital stock held in trust at a
price equal to the lesser of the price paid by the transferee of
the shares or the then current market price. If the trust
transfers any of the shares of capital stock, the affected
person will receive the lesser of the price paid for the shares
or the then current market price. An individual who acquires
shares of capital stock that violate the above rules bears the
risk that the individual:
The 8.7% ownership limit discussed above may have the effect of
delaying or precluding acquisition of control of us by a third
party without the consent of our Board of Directors. Our charter
authorizes our Board of Directors to issue up to
510,587,500 shares of capital stock. As of
December 31, 2009, 426,157,736 shares were classified
as Common Stock, of which 116,479,791 were outstanding, and
84,429,764 shares were classified as preferred stock, of
which 24,950,134 were outstanding. Under our charter, our Board
of Directors has the authority to classify and reclassify any of
our unissued shares of capital stock into shares of capital
stock with such preferences, conversion or other rights, voting
powers restrictions, limitations as to dividends, qualifications
or terms or conditions of redemptions as our Board of Directors
may determine. The authorization and issuance of a new class of
capital stock could have the effect of delaying or preventing
someone from taking control of us, even if a change in control
were in our stockholders’ best interests.
The
Maryland General Corporation Law may limit the ability of a
third party to acquire control of us.
As a Maryland corporation, we are subject to various Maryland
laws that may have the effect of discouraging offers to acquire
us and increasing the difficulty of consummating any such
offers, even if an acquisition would be in our
stockholders’ best interests. The Maryland General
Corporation Law, specifically the Maryland Business Combination
Act, restricts mergers and other business combination
transactions between us and any person who acquires, directly or
indirectly, beneficial ownership of shares of our stock
representing 10% or more of the voting power without our Board
of Directors’ prior approval. Any such business combination
transaction could not be completed until five years after the
person acquired such voting power, and generally only with the
approval of stockholders representing 80% of all votes entitled
to be cast and
662/3%
of the votes entitled to be cast, excluding the interested
stockholder, or upon payment of a fair price. The Maryland
General Corporation Law, specifically the Maryland Control Share
Acquisition Act, provides generally that a person who acquires
shares of our capital stock representing 10% or more of the
voting power in electing directors will have no voting rights
unless approved by a vote of two-thirds of the shares eligible
to vote. Additionally, the Maryland General Corporation Law
provides, among other things, that the board of directors has
broad discretion in adopting stockholders’ rights plans and
has
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the sole power to fix the record date, time and place for
special meetings of the stockholders. To date, we have not
adopted a shareholders’ rights plan. In addition, the
Maryland General Corporation Law provides that corporations that:
may elect in their charter or bylaws or by resolution of the
board of directors to be subject to all or part of a special
subtitle that provides that:
To date, we have not made any of the elections described above.
None.
Our portfolio includes garden style, mid-rise and high-rise
properties located in 44 states, the District of Columbia
and Puerto Rico. Our geographic allocation strategy focuses on
target markets which are grouped by region below. The following
table sets forth information on all of our properties as of
December 31, 2009 and 2008:
At December 31, 2009, we owned an equity interest in and
consolidated 426 properties containing 95,202 apartment units,
which we refer to as “consolidated properties.” These
consolidated properties contain, on average,
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223 apartment units, with the largest property containing 2,113
apartment units. These properties offer residents a range of
amenities, including swimming pools, clubhouses, spas, fitness
centers and tennis courts. Many of the apartment units offer
features such as vaulted ceilings, fireplaces, washer and dryer
hook-ups,
cable television, balconies and patios. Additional information
on our consolidated properties is contained in
“Schedule III — Real Estate and Accumulated
Depreciation” in this Annual Report on
Form 10-K.
At December 31, 2009, we held an equity interest in and did
not consolidate 77 properties containing 8,478 apartment units,
which we refer to as “unconsolidated properties.” In
addition, we provided property management services for 22
properties containing 2,095 apartment units, and asset
management services for 345 properties containing 29,879
apartment units. In certain cases, we may indirectly own
generally less than one percent of the economic interest in such
properties through a partnership syndication or other fund.
Substantially all of our consolidated properties are encumbered
by property debt. At December 31, 2009, our consolidated
properties classified as held for use in our consolidated
balance sheet were encumbered by aggregate property debt
totaling $5,547.3 million having an aggregate weighted
average interest rate of 5.50%. Such property debt was
collateralized by 412 properties with a combined net book value
of $6,867.8 million. Included in the 412 properties, we had
a total of 31 property loans on 15 properties, with an aggregate
principal balance outstanding of $366.1 million, that were
each collateralized by property and cross-collateralized with
certain (but not all) other property loans within this group of
property loans (see Note 6 of the consolidated financial
statements in Item 8 for additional information about our
property debt).
None.
No matters were submitted to a vote of security holders during
the fourth quarter of 2009.
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Our Common Stock has been listed and traded on the NYSE under
the symbol “AIV” since July 22, 1994. The
following table sets forth the quarterly high and low sales
prices of our Common Stock, as reported on the NYSE, and the
dividends declared in the periods indicated:
Our Board of Directors determines and declares our dividends. In
making a dividend determination, the Board of Directors
considers a variety of factors, including: REIT distribution
requirements; current market conditions; liquidity needs and
other uses of cash, such as for deleveraging and accretive
investment activities. The Board of Directors may adjust the
dividend amount or the frequency with which the dividend is paid
based on then prevailing facts and circumstances.
On February 24, 2010, the closing price of our Common Stock
was $16.73 per share, as reported on the NYSE, and there were
117,140,672 shares of Common Stock outstanding, held by
3,270 stockholders of record. The number of holders does not
include individuals or entities who beneficially own shares but
whose shares are held of record by a broker or clearing agency,
but does include each such broker or clearing agency as one
recordholder.
As a REIT, we are required to distribute annually to holders of
common stock at least 90% of our “real estate investment
trust taxable income,” which, as defined by the Code and
United States Department of Treasury regulations, is generally
equivalent to net taxable ordinary income.
From time to time, we may issue shares of Common Stock in
exchange for common and preferred OP Units tendered to the
Aimco Operating Partnership for redemption in accordance with
the terms and provisions of the agreement of limited partnership
of the Aimco Operating Partnership. Such shares are issued based
on an exchange ratio of one share for each common OP Unit
or the applicable conversion ratio for preferred OP Units.
The shares are generally issued in exchange for OP Units in
private transactions exempt from registration under the
Securities Act of 1933, as amended, pursuant to
Section 4(2) thereof. During the three and twelve months
ended December 31, 2009, approximately 379,400 and
518,800 shares of Common Stock were issued in exchange for
common OP Units, respectively. During the three and twelve
months ended December 31, 2009, no shares of Common Stock
were issued in exchange for preferred OP Units.
Our Board of Directors has, from time to time, authorized us to
repurchase shares of our outstanding capital stock. There were
no repurchases of our equity securities during the year ended
December 31, 2009. As of December 31, 2009, we were
authorized to repurchase approximately 19.3 million
additional shares. This authorization has no expiration date.
These repurchases may be made from time to time in the open
market or in privately negotiated transactions.
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Our Credit Agreement includes customary covenants, including a
restriction on dividends and other restricted payments, but
permits dividends during any four consecutive fiscal quarters in
an aggregate amount of up to 95% of our Funds From Operations
for such period, subject to certain non-cash adjustments, or
such amount as may be necessary to maintain our REIT status.
The following graph compares cumulative total returns for our
Common Stock, the Standard & Poor’s 500 Total
Return Index (the “S&P 500”) and the MSCI US REIT
Index. The MSCI US REIT Index is published by Morgan Stanley
Capital International Inc., a provider of equity indices. The
indices are weighted for all companies that fit the definitional
criteria of the particular index and are calculated to exclude
companies as they are acquired and add them to the index
calculation as they become publicly traded companies. All
companies of the definitional criteria in existence at the point
in time presented are included in the index calculations. The
graph assumes the investment of $100 in our Common Stock and in
each index on December 31, 2004, and that all dividends
paid have been reinvested. The historical information set forth
below is not necessarily indicative of future performance.
Total
Return Performance
Source: (other than with respect to S&P 500) SNL
Financial LC, Charlottesville, VA
©2010
The Performance Graph will not be deemed to be incorporated by
reference into any filing by the Company under the Securities
Act of 1933, as amended, or the Securities Exchange Act of 1934,
as amended, except to the extent that the Company specifically
incorporates the same by reference.
The information required by Item 5 with respect to
securities authorized for issuance under equity compensation
plans is incorporated by reference in Part III,
Item 12 of this Annual Report.
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The following selected financial data is based on our audited
historical financial statements. This information should be read
in conjunction with such financial statements, including the
notes thereto, and “Management’s Discussion and
Analysis of Financial Condition and Results of Operations”
included herein or in previous filings with the Securities and
Exchange Commission.
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We are a self-administered and self-managed real estate
investment trust, or REIT, engaged in the acquisition,
ownership, management and redevelopment of apartment properties.
Our property operations are characterized by diversification of
product, location and price point. We primarily invest in the 20
largest U.S. markets, as measured by total market
capitalization, which is the total market value of
institutional-grade apartment properties in a particular market.
We define these markets as “target markets” and they
possess the following characteristics: a high concentration of
population and apartment units; geographic and employment
diversification; and historically strong returns with reduced
volatility as part of a diversified portfolio. We are one of the
largest owners and operators of apartment properties in the
United States. As of December 31, 2009, we owned or managed
870 apartment properties containing 135,654 units located
in 44 states, the District of Columbia and Puerto Rico. Our
primary sources of income and cash are rents associated with
apartment leases.
The key financial indicators that we use in managing our
business and in evaluating our financial condition and operating
performance are: NAV; Funds From Operations, or FFO; Adjusted
FFO, or AFFO, which is FFO less spending for Capital
Replacements; same store property operating results; net
operating income; Free Cash Flow, which is net operating income
less spending for Capital Replacements; financial coverage
ratios; and leverage as shown on our balance sheet. FFO and
Capital Replacements are defined and further described in the
sections captioned “Funds From Operations” and
“Capital Additions” below. The key macro-economic
factors and non-financial indicators that affect our financial
condition and operating performance are: household formations;
rates of job growth; single-family and multifamily housing
starts; interest rates; and availability and cost of financing.
Because our operating results depend primarily on income from
our properties, the supply and demand for apartments influences
our operating results. Additionally, the level of expenses
required to operate and maintain our properties and the pace and
price at which we redevelop, acquire and dispose of our
apartment properties affect our operating results. Our cost of
capital is affected by the conditions in the capital and credit
markets and the terms that we negotiate for our equity and debt
financings.
During the challenging financial and economic environment in
2009, we focused on: serving and retaining residents;
continually improving our portfolio; reducing leverage and
financial risk; and simplifying our business model.
We are focused on owning and operating B/B+ quality apartments
concentrated in our target markets. We intend to upgrade the
quality of our portfolio through the sale of approximately 5% to
10% of our portfolio annually, with the proceeds generally used
to increase our allocation of capital to well located properties
within our target markets through capital investments,
redevelopment or acquisitions.
The following discussion and analysis of the results of our
operations and financial condition should be read in conjunction
with the accompanying consolidated financial statements in
Item 8.
Overview
We reported net loss attributable to Aimco of $64.3 million
and net loss attributable to Aimco common stockholders of
$114.8 million for the year ended December 31, 2009,
compared to net income attributable to Aimco of
$412.0 million and net income attributable to Aimco common
stockholders of $351.3 million for the year ended
December 31, 2008, decreases of $476.3 million and
$466.1 million, respectively. These decreases were
principally due to the following items, all of which are
discussed in further detail below:
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The effects of these items on our operating results were
partially offset by:
We reported net income attributable to Aimco of
$412.0 million and net income attributable to Aimco common
stockholders of $351.3 million for the year ended
December 31, 2008, compared to net income attributable to
Aimco of $29.9 million and net loss attributable to Aimco
common stockholders of $40.6 million for the year ended
December 31, 2007, increases of $382.1 million and
$391.9 million, respectively. These increases were
principally due to the following items, all of which are
discussed in further detail below:
The effects of these items on our operating results were
partially offset by:
The following paragraphs discuss these and other items affecting
the results of our operations in more detail.
We have two reportable segments: real estate (owning, operating
and redeveloping apartments) and investment management
(portfolio management and asset management). Our chief operating
decision maker uses various generally accepted industry
financial measures to assess the performance and financial
condition of the business,
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including: NAV; FFO; AFFO; same store property operating
results; net operating income; Free Cash Flow; financial
coverage ratios; and leverage as shown on our balance sheet. Our
chief operating decision maker emphasizes net operating income
as a key measurement of segment profit or loss. Segment net
operating income is generally defined as segment revenues less
direct segment operating expenses.
Our real estate segment involves the ownership and operation of
properties that generate rental and other property-related
income through the leasing of apartment units. Our real estate
segment’s net operating income also includes income from
property management services performed for unconsolidated
partnerships and unrelated parties.
The following table summarizes our real estate segment’s
net operating income for the years ended December 31, 2009,
2008 and 2007 (in thousands):
For the year ended December 31, 2009, compared to the year
ended December 31, 2008, real estate segment net operating
income increased $9.2 million, or 1.5%. This increase was
due to an increase in real estate segment revenues of
$1.6 million, or 0.1% and a decrease in real estate segment
expenses of $7.6 million, or 1.4%.
The increase in revenues from our real estate segment during the
year ended December 31, 2009, was primarily attributed to
an increase of $10.0 million in revenues related to our
conventional redevelopment properties based on more units in
service at these properties in 2009, $7.5 million in
revenues related to our affordable properties, primarily due to
higher average rents partially offset by lower physical
occupancy during 2009, and $2.3 million of revenues related
to properties acquired during the latter half of 2008.
These increases were partially offset by a $14.8 million,
or 2.0%, decrease in revenues from our conventional same store
properties, due to a decrease of 50 basis points in average
physical occupancy and lower average rent (approximately $23 per
unit). Conventional same store property revenues in our target
markets, which represented approximately 78% of our total
conventional same store revenues, decreased by 2.7% due to
decreases in average physical occupancy (80 basis points)
and average rent (approximately $31 per unit). The decrease in
revenues associated with these target markets were primarily
attributed to revenue decreases of 4.9% in our Pacific markets,
attributed to 140 basis points in lower occupancy and $73
per unit in lower rents, and 3.3% in our Sunbelt market,
attributed to 40 basis points in lower occupancy and $35
per unit in lower rents. Conventional same store revenues
related to our other markets decreased by 1.7%, due to
130 basis points in lower occupancy and $14 per unit in
lower rents.
For the year ended December 31, 2009, compared to the year
ended December 31, 2008, the decrease in our real estate
segment expenses was primarily attributed to property management
expenses. Property management expenses related to our
consolidated properties, which are shown in the table above as a
component of property operating expenses, decreased by
$8.2 million, and property management expenses related to
our unconsolidated properties decreased by $2.5 million,
both due primarily to reductions in personnel and related costs
resulting from our organizational restructurings. These
decreases in our real estate segment expenses were partially
offset by
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increases of $0.6 million related to our conventional same
store properties, primarily due to increases in employee
compensation, insurance, repair and maintenance, and real estate
tax expenses, offset by decreases in administrative and
marketing expenses, $0.6 million related to our
conventional redevelopment properties, primarily due to more
units placed in service, $0.5 million related to our
affordable properties, primarily due to properties that were
newly consolidated in 2008 and $0.8 million related to
properties acquired during the latter half of 2008.
For the year ended December 31, 2008, compared to the year
ended December 31, 2007, real estate segment net operating
income increased $22.6 million, or 3.8%. This increase was
due to an increase in real estate segment revenues of
$43.6 million, or 4.0%, offset by an increase in real
estate segment expenses of $21.1 million, or 4.1%.
The increase in revenues from our real estate segment during the
year ended December 31, 2008, was primarily attributed to
an increase of $19.8 million in revenues from our
conventional same store properties, due to an increase of
80 basis points in average physical occupancy and higher
average rent (approximately $18 per unit), $13.0 million in
revenues related to our affordable properties, primarily due to
newly consolidated properties, and $8.8 million in revenues
related to our conventional redevelopment properties based on
more units in service and higher rental rates.
For the year ended December 31, 2008, compared to the year
ended December 31, 2007, the increase in expense was
primarily attributed to increases of $9.3 million related
to our affordable properties, primarily due to properties that
were newly consolidated, $5.2 million related to our
conventional redevelopment properties, primarily due to more
units placed in service, $3.1 million of property
management expenses related to consolidated properties, which
are shown in the table above as a component of property
operating expenses, and $0.2 million related to our
conventional same store properties, primarily due to increases
in utilities and real estate taxes, offset by decreases in
employee compensation, repairs and maintenance, and turnover
expenses. These increases in property expenses were in addition
to an increase of $4.2 million in casualty losses during
2008, primarily related to properties damaged by Tropical Storm
Fay and Hurricane Ike.
Our investment management segment includes activities and
services related to our owned portfolio of properties as well as
services provided to affiliated partnerships. Activities and
services that fall within investment management include
portfolio strategy, capital allocation, joint ventures, tax
credit syndication, acquisitions, dispositions and other
transaction activities. Within our owned portfolio, we refer to
these activities as “Portfolio Management,” and their
benefit is seen in property operating results and in investment
gains. For affiliated partnerships, we refer to these activities
as asset management, for which we are separately compensated
through fees paid by third party investors. The expenses of this
segment consist primarily of the costs of departments that
perform these activities. These activities are conducted in part
by our taxable subsidiaries, and the related net operating
income may be subject to income taxes.
Asset management revenue includes certain fees that were earned
in a prior period, but not recognized at that time because
collectibility was not reasonably assured. Those fees may be
recognized in a subsequent period upon occurrence of a
transaction or a high level of the probability of occurrence of
a transaction, or improvement in operations that generates
sufficient cash to pay the fees.
The following table summarizes the net operating income from our
investment management segment for the years ended
December 31, 2009, 2008 and 2007 (in thousands):
For the year ended December 31, 2009, compared to the year
ended December 31, 2008, net operating income from
investment management decreased $40.0 million, or 52.4%.
This decrease is primarily attributable to a $42.8 million
decrease in promote income, which is income earned in connection
with the disposition of properties
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owned by our consolidated joint ventures, due to fewer related
sales in 2009 and a $7.6 million decrease in other general
partner transactional fees, partially offset by a
$9.0 million decrease in investment management expenses,
primarily due to reductions in personnel and related costs from
our organizational restructurings and a reduction in transaction
costs, and a $3.9 million increase in revenues associated
with our affordable housing tax credit syndication business,
including syndication fees and other revenue earned in
connection with these arrangements.
For the year ended December 31, 2008, compared to the year
ended December 31, 2007, net operating income from
investment management increased $23.2 million, or 43.6%.
This increase is primarily attributable to a $30.7 million
increase in promote income, which is income earned in connection
with the disposition of properties owned by our consolidated
joint ventures, and a $9.2 million increase in other
general partner transactional fees. These increases are offset
by a decrease of $7.4 million in asset management fees, a
decrease of $5.0 million in revenues associated with our
affordable housing tax credit syndication business, including
syndication fees and other revenue earned in connection with
these arrangements, and an increase of $4.3 million in
investment management expenses, inclusive of $3.5 million
in deferred acquisition costs.
Other
Operating Expenses (Income)
For the year ended December 31, 2009, compared to the year
ended December 31, 2008, depreciation and amortization
increased $51.4 million, or 13.1%. This increase primarily
consists of depreciation related to properties acquired during
the latter part of 2008, completed redevelopments and other
capital projects recently placed in service.
For the year ended December 31, 2008, compared to the year
ended December 31, 2007, depreciation and amortization
increased $45.5 million, or 13.1%. This increase reflects
depreciation of $65.3 million for newly acquired
properties, completed redevelopments and other capital projects
recently placed in service. This increase was partially offset
by a decrease of $25.7 million in depreciation adjustments
necessary to reduce the carrying amount of buildings and
improvements to their estimated disposition value, or zero in
the case of a planned demolition, primarily due to a property
that became fully depreciated during 2007.
Real estate and other long-lived assets to be held and used are
stated at cost, less accumulated depreciation and amortization,
unless the carrying amount of the asset is not recoverable. If
events or circumstances indicate that the carrying amount of a
property may not be recoverable, we make an assessment of its
recoverability by comparing the carrying amount to our estimate
of the undiscounted future cash flows, excluding interest
charges, of the property. If the carrying amount exceeds the
estimated aggregate undiscounted future cash flows, we recognize
an impairment loss to the extent the carrying amount exceeds the
estimated fair value of the property.
For the years ended December 31, 2009 and 2007, we
recognized impairment losses of $2.3 million and
$1.1 million, respectively, related to properties
classified as held for use as of December 31, 2009. We
recognized no such impairment losses during the year ended
December 31, 2008.
In connection with the preparation of our 2008 annual financial
statements, we assessed the recoverability of our investment in
our Lincoln Place property, located in Venice, California. Based
upon the decline in land values in Southern California during
2008 and the expected timing of our redevelopment efforts, we
determined that the total carrying amount of the property was no
longer probable of full recovery and, accordingly, during the
three months ended December 31, 2008, recognized an
impairment loss of $85.4 million ($55.6 million net of
tax).
Similarly, we assessed the recoverability of our investment in
Pacific Bay Vistas (formerly Treetops), a vacant property
located in San Bruno, California, and determined that the
carrying amount of the property was no longer probable of full
recovery and, accordingly, we recognized an impairment loss of
$5.7 million for this property during the three months
ended December 31, 2008.
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The impairments discussed above totaled $91.1 million and
are included in provisions for impairment losses on real estate
development assets in our consolidated statement of income for
the year ended December 31, 2009 included in Item 8.
We recognized no similar impairments on real estate development
assets during the years ended December 31, 2009 or 2007.
For the year ended December 31, 2009, compared to the year
ended December 31, 2008, general and administrative
expenses decreased $29.6 million, or 29.8%. This decrease
is primarily attributable to reductions in personnel and related
expenses associated with our organizational restructurings (see
Note 3 to the consolidated financial statements in
Item 8), pursuant to which we eliminated approximately 400,
or 36%, of our offsite positions between December 31, 2008
and December 31, 2009.
For the year ended December 31, 2008, compared to the year
ended December 31, 2007, general and administrative
expenses increased $8.5 million, or 9.4%. This increase is
primarily attributable to higher personnel and related expenses
of $6.1 million and an increase of $1.5 million in
information technology communications costs.
Other expenses, net includes franchise taxes, risk management
activities, partnership administration expenses and certain
non-recurring items.
For the year ended December 31, 2009, compared to the year
ended December 31, 2008, other expenses, net decreased by
$4.7 million. The decrease is primarily attributable to a
$5.4 million write-off during 2008 of certain
communications hardware and capitalized costs in 2008, and a
$5.3 million reduction in expenses of our self insurance
activities, including a decrease in casualty losses on less than
wholly owned properties from 2008 to 2009. These decreases are
partially offset by an increase of $4.3 million in costs
related to certain litigation matters.
For the year ended December 31, 2008, compared to the year
ended December 31, 2007, other expenses, net increased by
$3.2 million. The increase includes a $5.4 million
write-off of certain communications hardware and capitalized
costs during 2008 and a $1.2 million write-off of
redevelopment costs associated with a change in the planned use
of a property during 2008. The net unfavorable change also
reflects $3.6 million of income recognized in 2007 related
to the transfer of certain property rights to an unrelated
party. These increases were partially offset by a
$3.7 million reduction in expenses of our self insurance
activities (net of costs in 2008 related to Tropical Storm Fay
and Hurricane Ike) and a net decrease of $1.7 million in
costs related to certain litigation matters.
For the year ended December 31, 2009, we recognized
restructuring costs of $11.2 million, as compared to
$22.8 million in the year ended December 31, 2008,
related to our organizational restructurings, which are further
discussed in Note 3 to the consolidated financial
statements in Item 8. We recognized no restructuring costs
during the year ended December 31, 2007.
Interest income consists primarily of interest on notes
receivable from non-affiliates and unconsolidated real estate
partnerships, interest on cash and restricted cash accounts, and
accretion of discounts on certain notes receivable from
unconsolidated real estate partnerships. Transactions that
result in accretion occur infrequently and thus accretion income
may vary from period to period.
For the year ended December 31, 2009, compared to the year
ended December 31, 2008, interest income decreased
$10.6 million, or 53.1%. Interest income decreased by
$8.8 million due to lower interest rates on notes
receivable, cash and restricted cash balances and lower average
balances and by $4.1 million due to a decrease in accretion
income related to our note receivable from Casden Properties LLC
for which we ceased accretion following impairment of the note
in 2008. These decreases were partially offset by a
$2.3 million increase in
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accretion income related to other notes during the year ended
December 31, 2008, resulting from a change in the timing
and amount of collection.
For the year ended December 31, 2008, as compared to the
year ended December 31, 2007, interest income decreased
$23.3 million, or 53.9%. Interest income decreased by
$16.0 million due to lower interest rates on notes
receivable, cash and restricted cash balances and lower average
balances. Interest income also decreased by $5.8 million
due to an adjustment of accretion on certain discounted notes
during the year ended December 31, 2008, resulting from a
change in the estimated timing and amount of collection, and by
$1.5 million for accretion income recognized during the
year ended December 31, 2007, related to the prepayment of
principal on certain discounted loans collateralized by
properties in West Harlem in New York City.
During the years ended December 31, 2009, 2008 and 2007, we
recognized net provisions for losses on notes receivable of
$21.5 million, $17.6 million and $2.0 million,
respectively. The provisions for losses on notes receivable for
the years ended December 31, 2009 and 2008, primarily
consist of impairments related to our investment in Casden
Properties LLC, which are discussed further below.
As part of the March 2002 acquisition of Casden Properties,
Inc., we invested $50.0 million for a 20% passive interest
in Casden Properties LLC, an entity organized to acquire,
re-entitle and develop land parcels in Southern California.
Based upon the profit allocation agreement, we account for this
investment as a note receivable and through 2008 were amortizing
the discounted value of the investment to the $50.0 million
previously estimated to be collectible, through January 2,
2009, the initial dissolution date of the entity. In 2009, the
managing member extended the dissolution date. In connection
with the preparation of our 2008 annual financial statements and
as a result of a decline in land values in Southern California,
we determined our recorded investment amount was not fully
recoverable, and accordingly recognized an impairment loss of
$16.3 million ($10.0 million net of tax) during the
three months ended December 31, 2008. In connection with
the preparation of our 2009 annual financial statements and as a
result of continued declines in land values in Southern
California, we determined our then recorded investment amount
was not fully recoverable, and accordingly recognized an
impairment loss of $20.7 million ($12.4 million net of
tax) during the three months ended December 31, 2009.
In addition to the impairments related to Casden Properties LLC
discussed above, we recognized provisions for losses on notes
receivable totaling $0.8 million, $1.3 million and
$2.0 million during the years ended December 31, 2009,
2008 and 2007, respectively.
For the years ended December 31, 2009 and December 31,
2008, interest expense, which includes the amortization of
deferred financing costs, totaled $324.2 million and
$324.1 million, respectively. Interest expense increased by
$15.0 million due to a reduction in redevelopment activity
during 2009, which resulted in a reduction in capitalized
interest. In addition, interest expense increased by
$1.2 million due to an increase in prepayment penalties
associated with refinancing activities, from $2.8 million
in 2008 to $4.0 million in 2009, and by $3.3 million
related to non-recourse property loans, from $311.2 million
to $314.5 million, primarily due to higher average interest
rates partially offset by lower average balances during 2009.
These increases in interest expense were substantially offset by
decreases in corporate interest expense. Interest expense
related to corporate debt, which is primarily floating rate,
decreased by $19.4 million, from $34.8 million to
$15.4 million, primarily due to lower average balances and
interest rates during 2009.
For the year ended December 31, 2008, compared to the year
ended December 31, 2007, interest expense increased
$11.1 million, or 3.5%. Interest expense related to
non-recourse property loans increased by $17.1 million,
from $294.1 million to $311.2 million, primarily due
to higher average balances partially offset by lower average
interest rates during 2008. In addition, interest expense
increased by $4.4 million, due to a decrease in capitalized
interest from $29.1 million in 2007 to $24.7 million
in 2008, resulting from more units in service and lower interest
rates. These increases were partially offset by a decrease in
interest expense related to corporate debt, which is primarily
floating rate and which decreased by $10.4 million, from
$45.2 million to $34.8 million, primarily due to lower
average balances and interest rates during 2008.
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Equity in losses of unconsolidated real estate partnerships
includes our share of net losses of our unconsolidated real
estate partnerships and is primarily driven by depreciation
expense in excess of the net operating income recognized by such
partnerships.
During the years ended December 31, 2009, 2008 and 2007, we
recognized equity in losses of unconsolidated real estate
partnerships of $12.0 million, $4.6 million and
$3.3 million, respectively. The $7.4 million increase
in our equity in losses from 2008 to 2009 was primarily due to
our sale in late 2008 of an interest in an unconsolidated real
estate partnership that generated $3.0 million of equity in
earnings during the year ended December 31, 2008, and our
sale during 2009 of our interest in an unconsolidated group
purchasing organization which resulted in a decrease of equity
in earnings of approximately $1.2 million. The increase in
equity in losses also includes additional losses recognized
during 2009 related to the underlying investment properties of
certain tax credit syndications we consolidated during 2009 and
2008.
Impairment losses related to unconsolidated real estate
partnerships includes our share of impairment losses recognized
by our unconsolidated real estate partnerships. For the year
ended December 31, 2009, compared to the year ended
December 31, 2008, impairment losses related to
unconsolidated real estate partnerships decreased
$2.3 million, and for the year ended December 31,
2008, compared to the year ended December 31, 2007,
impairment losses related to unconsolidated real estate
partnerships increased $2.7 million. This decrease and
increase are primarily attributable to impairment losses
recognized by unconsolidated partnerships on their underlying
real estate properties during 2008.
Gain on dispositions of unconsolidated real estate and other
includes our share of gains related to dispositions of real
estate by unconsolidated real estate partnerships, gains on
disposition of interests in unconsolidated real estate
partnerships, gains on dispositions of land and other
non-depreciable assets and costs related to asset disposal
activities. Changes in the level of gains recognized from period
to period reflect the changing level of disposition activity
from period to period. Additionally, gains on properties sold
are determined on an individual property basis or in the
aggregate for a group of properties that are sold in a single
transaction, and are not comparable period to period.
For the year ended December 31, 2009, compared to the year
ended December 31, 2008, gain on dispositions of
unconsolidated real estate and other decreased
$77.4 million. This decrease is primarily attributable to a
gain of $98.4 million on our disposition in 2008 of
interests in two unconsolidated real estate partnerships. This
decrease was partially offset by $18.7 million of gains on
the disposition of interests in unconsolidated partnerships
during 2009. Gains recognized in 2009 consist of
$8.6 million related to our receipt in 2009 of additional
proceeds related to our disposition during 2008 of one of the
partnership interests discussed above (see Note 3 to the
consolidated financials statements in Item 8),
$4.0 million from the disposition of our interest in a
group purchasing organization (see Note 3 to the
consolidated financial statements in Item 8), and
$6.1 million from our disposition in 2009 of interests in
unconsolidated real estate partnerships.
For the year ended December 31, 2008, compared to the year
ended December 31, 2007, gain on dispositions of
unconsolidated real estate and other increased
$75.4 million. This increase is primarily attributable to a
$98.4 million net gain on the disposition of interests in
two unconsolidated real estate partnerships during the year
ended December 31, 2008. During 2007, we recognized a
$6.0 million non-refundable option and extension fee
resulting from the termination of rights under an option
agreement to sell the North and Central towers of our Flamingo
South Beach property, approximately $6.4 million of net
gains on dispositions of land parcels and our share of gains on
dispositions of properties by unconsolidated real estate
partnerships in 2007, and a $10.6 million gain on debt
extinguishment related to properties in the VMS partnership (see
Note 3 to the consolidated financial statements in
Item 8).
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Certain of our operations or a portion thereof, such as property
management, asset management and risk management, are conducted
through, and certain of our properties are owned by, taxable
REIT subsidiaries, each of which we refer to as a TRS. A TRS is
a C-corporation that has not elected REIT status and, as such,
is subject to United States Federal corporate income tax. We use
TRS entities to facilitate our ability to offer certain services
and conduct certain activities that generally cannot be offered
directly by the REIT. We also use TRS entities to hold
investments in certain properties. Income taxes related to the
results of continuing operations of our TRS entities are
included in income tax benefit in our consolidated statements of
income.
For the year ended December 31, 2009, compared to the year
ended December 31, 2008, income tax benefit decreased by
$34.5 million. This decrease was primarily attributed to
$36.1 million of income tax benefit recognized in 2008
related to the impairments of our Lincoln Place property and our
investment in Casden Properties LLC, both of which are owned
through TRS entities, partially offset by $8.1 million of
income tax benefit recognized in 2009 related to the impairment
of our investment in Casden Properties LLC.
For the year ended December 31, 2008, compared to the year
ended December 31, 2007, income tax benefit increased by
$33.4 million. This increase was primarily attributed to
$36.1 million of income tax benefit recognized in 2008
related to the impairments of our Lincoln Place property and our
investment in Casden Properties LLC.
Income
from Discontinued Operations, Net
The results of operations for properties sold during the period
or designated as held for sale at the end of the period are
generally required to be classified as discontinued operations
for all periods presented. The components of net earnings that
are classified as discontinued operations include all
property-related revenues and operating expenses, depreciation
expense recognized prior to the classification as held for sale,
property-specific interest expense and debt extinguishment gains
and losses to the extent there is secured debt on the property.
In addition, any impairment losses on assets held for sale and
the net gain or loss on the eventual disposal of properties held
for sale are reported in discontinued operations.
For the years ended December 31, 2009 and 2008, income from
discontinued operations totaled $152.2 million and
$744.9 million, respectively. The $592.7 million
decrease in income from discontinued operations was principally
due to a $541.2 million decrease in gain on dispositions of
real estate, net of income taxes, primarily attributable to
fewer properties sold in 2009 as compared to 2008, and a
$111.8 million decrease in operating income (inclusive of a
$27.1 million increase in real estate impairment losses),
partially offset by a $58.8 million decrease in interest
expense.
For the years ended December 31, 2008 and 2007, income from
discontinued operations totaled $744.9 million and
$171.6 million, respectively. The $573.3 million
increase in income from discontinued operations was principally
due to a $641.7 million increase in gain on dispositions of
real estate, net of income taxes, primarily attributable to more
properties sold in 2008 as compared to 2007 and a
$27.9 million decrease in interest expense. These increases
were partially offset by a $66.1 million decrease in
operating income (inclusive of a $22.0 million increase in
real estate impairment losses) and a $31.6 million decrease
related to a 2007 gain on debt extinguishment related to
properties in the VMS partnership.
During the year ended December 31, 2009, we sold 89
consolidated properties for gross proceeds of $1.3 billion
and net proceeds of $432.7 million, resulting in a net gain
on sale of approximately $216.0 million (which is net of
$5.8 million of related income taxes). During the year
ended December 31, 2008, we sold 151 consolidated
properties for gross proceeds of $2.4 billion and net
proceeds of $1.1 billion, resulting in a net gain on sale
of approximately $757.2 million (which is net of
$43.1 million of related income taxes). During the year
ended December 31, 2007, we sold 73 consolidated properties
for gross proceeds of $480.0 million and net proceeds of
$203.8 million, resulting in a net gain on sale of
approximately $115.5 million (which is net of
$2.1 million of related income taxes).
For the years ended December 31, 2009, 2008 and 2007,
income from discontinued operations includes the operating
results of the properties sold or classified as held for sale as
of December 31, 2009.
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Changes in the level of gains recognized from period to period
reflect the changing level of our disposition activity from
period to period. Additionally, gains on properties sold are
determined on an individual property basis or in the aggregate
for a group of properties that are sold in a single transaction,
and are not comparable period to period (see Note 13 of the
consolidated financial statements in Item 8 for additional
information on discontinued operations).
Noncontrolling interests in consolidated real estate
partnerships reflects the non-Aimco partners’, or
noncontrolling partners’, share of operating results of
consolidated real estate partnerships. This generally includes
the noncontrolling partners’ share of property management
fees, interest on notes and other amounts eliminated in
consolidation that we charge to such partnerships. As discussed
in Note 2 to the consolidated financial statements in
Item 8, we adopted the provisions of SFAS 160, which
are now codified in the Financial Accounting Standards
Board’s Accounting Standards Codification, or FASB ASC,
Topic 810, effective January 1, 2009. Prior to our adoption
of SFAS 160, we generally did not recognize a benefit for
the noncontrolling interest partners’ share of partnership
losses for partnerships that have deficit noncontrolling
interest balances and we generally recognized a charge to our
earnings for distributions paid to noncontrolling partners for
partnerships that had deficit noncontrolling interest balances.
Under the updated provisions of FASB ASC Topic 810, we are
required to attribute losses to noncontrolling interests even if
such attribution would result in a deficit noncontrolling
interest balance and we are no longer required to recognize a
charge to our earnings for distributions paid to noncontrolling
partners for partnerships that have deficit noncontrolling
interest balances.
For the year ended December 31, 2009, compared to the year
ended December 31, 2008, net earnings attributed to
noncontrolling interests in consolidated real estate
partnerships decreased by $133.2 million. This decrease is
primarily attributable to a reduction of $108.7 million
related to the noncontrolling interests in consolidated real
estate partnerships’ share of gains on dispositions of real
estate, due primarily to fewer sales in 2009 as compared to
2008, $5.5 million of losses allocated to noncontrolling
interests in 2009 that we would not have allocated to the
noncontrolling interest partners in 2008 because to do so would
have resulted in deficits in their noncontrolling interest
balances, and approximately $3.8 million related to deficit
distribution charges recognized as a reduction to our earnings
in 2008, for which we did not recognize similar charges in 2009
based on the change in accounting discussed above. These
decreases are in addition to the noncontrolling interest
partners’ share of increased losses of our consolidated
real estate partnerships in 2009 as compared to 2008.
For the year ended December 31, 2008, compared to the year
ended December 31, 2007, net income attributed to
noncontrolling interests in consolidated real estate
partnerships increased by $63.6 million. This increase is
primarily attributable to an increase of $106.5 million
related to the noncontrolling interests in consolidated real
estate partnerships’ share of gains on dispositions of real
estate, due primarily to more sales in 2008 as compared to 2007,
partially offset by increases of $42.9 million in net
recoveries of deficit distributions.
As discussed in Note 2 to the consolidated financial
statements in Item 8, during the first quarter 2010, we
will adopt new accounting guidance related to accounting for
variable interest entities. This change in accounting guidance
may result in our consolidation of certain previously
unconsolidated entities as well as our deconsolidation of
certain we currently consolidate. At this time, we have not yet
determined the effect this accounting change will have on our
consolidated financial statements.
Noncontrolling interests in Aimco Operating Partnership consist
of common OP Units, High Performance Units and preferred
OP Units. We allocate the Aimco Operating
Partnership’s income or loss to the holders of common
OP Units and High Performance Units based on the weighted
average number of common OP Units and High Performance
Units outstanding during the period. Holders of the preferred
OP Units participate in the Aimco Operating
Partnership’s income or loss only to the extent of their
preferred distributions.
For the year ended December 31, 2009, compared to the year
ended December 31, 2008, the effect on our earnings of
income or loss attributable to noncontrolling interests in the
Aimco Operating Partnership changed favorably by
$62.3 million. This favorable change is attributable to a
decrease of $50.8 million related to the
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noncontrolling interests in the Aimco Operating
Partnership’s share of income from discontinued operations
(net of noncontrolling interests in consolidated real estate
partnerships), due primarily to larger gains on sales in 2008
relative to 2009 and $11.5 million in deficit distribution
charges recognized during 2008 due to distributions in excess of
the positive balance in noncontrolling interest. These changes
were also affected by a decrease in the noncontrolling interests
in the Aimco Operating Partnership’s effective ownership
interest from 2008 to 2009.
For the year ended December 31, 2008, compared to the year
ended December 31, 2007, the effect on our earnings of
income or loss attributable to noncontrolling interests in the
Aimco Operating Partnership changed unfavorably by
$55.8 million. This unfavorable change is attributable to
an increase of $48.1 million related to the noncontrolling
interests in the Aimco Operating Partnership’s share of
income from discontinued operations (net of noncontrolling
interests in consolidated real estate partnerships), due
primarily to larger gains on sales in 2008 relative to 2007,
$11.5 million in deficit distribution charges recognized
during 2008 due to distributions in excess of the positive
balance in noncontrolling interest, and a $0.5 million
increase in distributions to holders of preferred OP Units.
These unfavorable changes were partially offset by a
$4.3 million increase in noncontrolling interests in the
Aimco Operating Partnership’s share of losses from
continuing operations (net of noncontrolling interests in
consolidated real estate partnerships) in 2008 as compared to
2007.
We prepare our consolidated financial statements in accordance
with accounting principles generally accepted in the United
States of America, or GAAP, which requires us to make estimates
and assumptions. We believe that the following critical
accounting policies involve our more significant judgments and
estimates used in the preparation of our consolidated financial
statements.
Real estate and other long-lived assets to be held and used are
stated at cost, less accumulated depreciation and amortization,
unless the carrying amount of the asset is not recoverable. If
events or circumstances indicate that the carrying amount of a
property may not be recoverable, we make an assessment of its
recoverability by comparing the carrying amount to our estimate
of the undiscounted future cash flows, excluding interest
charges, of the property. If the carrying amount exceeds the
estimated aggregate undiscounted future cash flows, we recognize
an impairment loss to the extent the carrying amount exceeds the
estimated fair value of the property.
From time to time, we have non-revenue producing properties that
we hold for future redevelopment. We assess the recoverability
of the carrying amount of these redevelopment properties by
comparing our estimate of undiscounted future cash flows based
on the expected service potential of the redevelopment property
upon completion to the carrying amount. In certain instances, we
use a probability-weighted approach to determine our estimate of
undiscounted future cash flows when alternative courses of
action are under consideration. As discussed in Provision for
Impairment Losses on Real Estate Development Assets within
the preceding discussion of our Results of Operations, during
2008 we recognized impairment losses on our Lincoln Place and
Pacific Bay Vistas properties of $85.4 million
($55.6 million net of tax) and $5.7 million,
respectively.
Real estate investments are subject to varying degrees of risk.
Several factors may adversely affect the economic performance
and value of our real estate investments. These factors include:
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Any adverse changes in these and other factors could cause an
impairment in our long-lived assets, including real estate and
investments in unconsolidated real estate partnerships. In
addition to the impairments of Lincoln Place and Pacific Bay
Vistas discussed above, based on periodic tests of
recoverability of long-lived assets, for the years ended
December 31, 2009 and 2007, we recorded net impairment
losses of $2.3 million and $1.1 million, respectively,
related to properties classified as held for use, and during the
year ended December 31, 2008, we recorded no additional
impairments related to properties held for use.
Notes receivable from unconsolidated real estate partnerships
consist primarily of notes receivable from partnerships in which
we are the general partner. Notes receivable from non-affiliates
consist of notes receivable from unrelated third parties. The
ultimate repayment of these notes is subject to a number of
variables, including the performance and value of the underlying
real estate and the claims of unaffiliated mortgage lenders. Our
notes receivable include loans extended by us that we carry at
the face amount plus accrued interest, which we refer to as
“par value notes,” and loans extended by predecessors,
some of whose positions we generally acquired at a discount,
which we refer to as “discounted notes.”
We record interest income on par value notes as earned in
accordance with the terms of the related loan agreements. We
discontinue the accrual of interest on such notes when the notes
are impaired, as discussed below, or when there is otherwise
significant uncertainty as to the collection of interest. We
record income on such nonaccrual loans using the cost recovery
method, under which we apply cash receipts first to the recorded
amount of the loan; thereafter, any additional receipts are
recognized as income.
We recognize interest income on discounted notes receivable
based upon whether the amount and timing of collections are both
probable and reasonably estimable. We consider collections to be
probable and reasonably estimable when the borrower has closed
transactions or has entered into certain pending transactions
(which include real estate sales, refinancings, foreclosures and
rights offerings) that provide a reliable source of repayment.
In such instances, we recognize accretion income, on a
prospective basis using the effective interest method over the
estimated remaining term of the loans, equal to the difference
between the carrying amount of the discounted notes and the
estimated collectible value. We record income on all other
discounted notes using the cost recovery method. Accretion
income recognized in any given period is based on our ability to
complete transactions to monetize the notes receivable and the
difference between the carrying value and the estimated
collectible amount of the notes; therefore, accretion income
varies on a period by period basis and could be lower or higher
than in prior periods.
We assess the collectibility of notes receivable on a periodic
basis, which assessment consists primarily of an evaluation of
cash flow projections of the borrower to determine whether
estimated cash flows are sufficient to repay principal and
interest in accordance with the contractual terms of the note.
We recognize impairments on notes receivable when it is probable
that principal and interest will not be received in accordance
with the contractual terms of the loan. The amount of the
impairment to be recognized generally is based on the fair value
of the partnership’s real estate that represents the
primary source of loan repayment. In certain instances where
other sources of cash flow are available to repay the loan, the
impairment is measured by discounting the estimated cash flows
at the loan’s original effective interest rate.
During the years ended December 31, 2009, 2008 and 2007 we
recorded net provisions for losses on notes receivable of
$21.5 million, $17.6 million and $2.0 million,
respectively. As discussed in Provision for Losses on Notes
Receivable within the preceding discussion of our Results of
Operations, provisions for losses on notes receivable in 2009
and 2008 include impairment losses of $20.7 million
($12.4 million net of tax) and $16.3 million
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($10.0 million net of tax), respectively, on our investment
in Casden Properties LLC, which we account for as a note
receivable. We will continue to evaluate the collectibility of
these notes, and we will adjust related allowances in the future
due to changes in market conditions and other factors.
We capitalize costs, including certain indirect costs, incurred
in connection with our capital additions activities, including
redevelopment and construction projects, other tangible property
improvements and replacements of existing property components.
Included in these capitalized costs are payroll costs associated
with time spent by site employees in connection with the
planning, execution and control of all capital additions
activities at the property level. We characterize as
“indirect costs” an allocation of certain department
costs, including payroll, at the area operations and corporate
levels that clearly relate to capital additions activities. We
capitalize interest, property taxes and insurance during periods
in which redevelopment and construction projects are in
progress. We charge to expense as incurred costs that do not
relate to capital additions activities, including ordinary
repairs, maintenance, resident turnover costs and general and
administrative expenses (see Capital Additions and Related
Depreciation in Note 2 to the consolidated financial
statements in Item 8).
For the years ended December 31, 2009, 2008 and 2007, for
continuing and discontinued operations, we capitalized
$9.8 million, $25.7 million and $30.8 million of
interest costs, respectively, and $40.0 million,
$78.1 million and $78.1 million of site payroll and
indirect costs, respectively. The reduction is primarily due to
a reduced level of redevelopment activities.
Funds
From Operations
FFO is a non-GAAP financial measure that we believe, when
considered with the financial statements determined in
accordance with GAAP, is helpful to investors in understanding
our performance because it captures features particular to real
estate performance by recognizing that real estate generally
appreciates over time or maintains residual value to a much
greater extent than do other depreciable assets such as
machinery, computers or other personal property. The Board of
Governors of the National Association of Real Estate Investment
Trusts, or NAREIT, defines FFO as net income (loss), computed in
accordance with GAAP, excluding gains from sales of depreciable
property, plus depreciation and amortization, and after
adjustments for unconsolidated partnerships and joint ventures.
Adjustments for unconsolidated partnerships and joint ventures
are calculated to reflect FFO on the same basis. We compute FFO
for all periods presented in accordance with the guidance set
forth by NAREIT’s April 1, 2002, White Paper, which we
refer to as the White Paper. We calculate FFO attributable to
Aimco common stockholders (diluted) by subtracting redemption or
repurchase related preferred stock issuance costs and dividends
on preferred stock and adding back dividends/distributions on
dilutive preferred securities and premiums or discounts on
preferred stock redemptions or repurchases. FFO should not be
considered an alternative to net income or net cash flows from
operating activities, as determined in accordance with GAAP, as
an indication of our performance or as a measure of liquidity.
FFO is not necessarily indicative of cash available to fund
future cash needs. In addition, although FFO is a measure used
for comparability in assessing the performance of REITs, there
can be no assurance that our basis for computing FFO is
comparable with that of other REITs.
In addition to FFO, we compute an alternate measure of FFO,
which we refer to as Proforma FFO and which is FFO attributable
to Aimco common stockholders (diluted), excluding operating real
estate impairments and preferred stock redemption related
amounts (adjusted for the noncontrolling interests). Both
operating real estate impairment losses and preferred stock
redemption related amounts are recurring items that affect our
operating results. We exclude operating real estate impairment
losses, net of related income tax benefits and noncontrolling
interests, from our calculation of Proforma FFO because we
believe the inclusion of such losses in FFO is inconsistent with
the treatment of gains on the disposition of operating real
estate, which are not included in FFO. We exclude preferred
redemption related amounts (gains or losses) from our
calculation of Proforma FFO because such amounts are not
representative of our operating results. Similar to FFO, we
believe Proforma FFO is helpful to investors in understanding
our performance because it captures features particular to real
estate performance by recognizing that real estate generally
appreciates over time or maintains residual value to a much
greater extent than do other depreciating assets such as
machinery, computers or other personal property. Not all REITs
present an
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alternate measure of FFO similar to our Proforma FFO measure and
there can be no assurance our basis for calculating Proforma FFO
is comparable to those of other REITs.
For the years ended December 31, 2009, 2008 and 2007, our
FFO and Proforma FFO are calculated as follows (in thousands):
Notes:
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Liquidity
and Capital Resources
Liquidity is the ability to meet present and future financial
obligations. Our primary source of liquidity is cash flow from
our operations. Additional sources are proceeds from property
sales and proceeds from refinancings of existing property loans
and borrowings under new property loans.
Our principal uses for liquidity include normal operating
activities, payments of principal and interest on outstanding
debt, capital additions, dividends paid to stockholders and
distributions paid to noncontrolling interest partners,
repurchases of shares of our Common Stock, and acquisitions of,
and investments in, properties. We use our cash and cash
equivalents and our cash provided by operating activities to
meet short-term liquidity needs. In the event that our cash and
cash equivalents and cash provided by operating activities are
not sufficient to cover our
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short-term liquidity demands, we have additional means, such as
short-term borrowing availability and proceeds from property
sales and refinancings, to help us meet our short-term liquidity
demands. We may use our revolving credit facility for general
corporate purposes and to fund investments on an interim basis.
We expect to meet our long-term liquidity requirements, such as
debt maturities and property acquisitions, through long-term
borrowings, primarily secured, the issuance of equity securities
(including OP Units), the sale of properties and cash
generated from operations.
The state of credit markets and related effect on the overall
economy may have an adverse affect on our liquidity, both
through increases in interest rates and credit risk spreads, and
access to financing. As further discussed in Item 7A,
Quantitative and Qualitative Disclosures About Market Risk, we
are subject to interest rate risk associated with certain
variable rate liabilities, preferred stock and assets. Based on
our net variable rate liabilities, preferred stock and assets
outstanding at December 31, 2009, we estimate that a 1.0%
increase in
30-day LIBOR
with constant credit risk spreads would reduce our income
attributable to Aimco common stockholders by approximately
$1.5 million on an annual basis. Although base interest
rates have generally decreased relative to their levels prior to
the disruptions in the financial markets, the tightening of
credit markets has affected the credit risk spreads charged over
base interest rates on, and the availability of, property loan
financing. For future refinancing activities, our liquidity and
cost of funds may be affected by increases in base interest
rates or higher credit risk spreads. If timely property
financing options are not available for maturing debt, we may
consider alternative sources of liquidity, such as reductions in
certain capital spending or proceeds from asset dispositions.
As further discussed in Note 2 to our consolidated
financial statements in Item 8, we use total rate of return
swaps as a financing product to lower our cost of borrowing
through conversion of fixed rate tax-exempt bonds payable and
fixed rate notes payable to variable interest rates indexed to
the SIFMA rate for tax-exempt bonds payable and the
30-day LIBOR
rate for notes payable, plus a credit risk spread. The cost of
financing through these arrangements is generally lower than the
fixed rate on the debt. As of December 31, 2009, we had
total rate of return swap positions with two financial
institutions with notional amounts totaling $353.1 million.
Swaps with notional amounts of $307.9 million and
$45.2 million had maturity dates in May 2012 and October
2012, respectively.
The total rate of return swaps require specified
loan-to-value
ratios. In the event the values of the real estate properties
serving as collateral under these agreements decline or if we
sell properties in the collateral pool with low
loan-to-value
ratios, certain of our consolidated subsidiaries have an
obligation to pay down the debt or provide additional collateral
pursuant to the swap agreements, which may adversely affect our
cash flows. The obligation to provide collateral is limited to
these subsidiaries and is non-recourse to Aimco. At
December 31, 2009, these subsidiaries were not required to
provide cash collateral based on the
loan-to-value
ratios of the real estate properties serving as collateral under
these agreements.
We periodically evaluate counterparty credit risk associated
with these arrangements. At the current time, we have concluded
we do not have material exposure. In the event a counterparty
were to default under these arrangements, loss of the net
interest benefit we generally receive under these arrangements,
which is equal to the difference between the fixed rate we
receive and the variable rate we pay, may adversely affect our
operating cash flows.
See Derivative Financial Instruments in Note 2 to
the consolidated financial statements in Item 8 for
additional discussion of these arrangements, including the
current swap maturity dates.
As of December 31, 2009, the amount available under our
$180.0 million revolving credit facility was
$136.2 million (after giving effect to $43.8 million
outstanding for undrawn letters of credit). Our total
outstanding term loan of $90.0 million at December 31,
2009, matures in March 2011. We repaid an additional
$45.0 million on the term loan through February 26,
2010, leaving a remaining outstanding balance of
$45.0 million. Additionally, we have limited obligations to
fund redevelopment commitments during the year ending
December 31, 2010, and no development commitments.
At December 31, 2009, we had $81.3 million in cash and
cash equivalents, a decrease of $218.4 million from
December 31, 2008. At December 31, 2009, we had
$220.0 million of restricted cash, primarily consisting of
reserves and escrows held by lenders for bond sinking funds,
capital additions, property taxes and insurance. In addition,
cash, cash equivalents and restricted cash are held by
partnerships that are not presented on a consolidated
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basis. The following discussion relates to changes in cash due
to operating, investing and financing activities, which are
presented in our consolidated statements of cash flows in
Item 8.
For the year ended December 31, 2009, our net cash provided
by operating activities of $233.8 million was primarily
related to operating income from our consolidated properties,
which is affected primarily by rental rates, occupancy levels
and operating expenses related to our portfolio of properties,
in excess of payments of operating accounts payable and accrued
liabilities, including amounts related to our organizational
restructuring. Cash provided by operating activities decreased
$206.6 million compared with the year ended
December 31, 2008, primarily due to a $159.3 million
decrease in operating income related to consolidated properties
included in discontinued operations, which was attributable to
property sales in 2009 and 2008, a $42.8 million decrease
in promote income, which is generated by the disposition of
properties by consolidated real estate partnerships, and an
increase in payments on operating accounts payable and accrued
expenses, including payments related to our restructuring
accrual, in 2009 as compared to 2008.
For the year ended December 31, 2009, our net cash provided
by investing activities of $630.3 million consisted
primarily of proceeds from disposition of real estate and
partnership interests, partially offset by capital expenditures.
Although we hold all of our properties for investment, we sell
properties when they do not meet our investment criteria or are
located in areas that we believe do not justify our continued
investment when compared to alternative uses for our capital.
During the year ended December 31, 2009, we sold 89
consolidated properties. These properties were sold for an
aggregate sales price of $1.3 billion, or
$1.2 billion, after the payment of transaction costs and
debt prepayment penalties. The $1.2 billion is inclusive of
promote income and debt assumed by buyers. Net cash proceeds
from property sales were used primarily to repay term debt and
for other corporate purposes.
Capital
Additions
We classify all capital additions as Capital Replacements (which
we refer to as CR), Capital Improvements (which we refer to as
CI), casualties or redevelopment. Additions other than casualty
or redevelopment capital additions are apportioned between CR
and CI based on the useful life of the capital item under
consideration and the period we have owned the property.
CR represents the share of capital additions that are deemed to
replace the portion of acquired capital assets that was consumed
during the period we have owned the asset. CI represents the
share of additions that are made to enhance the value,
profitability or useful life of an asset as compared to its
original purchase condition. CR and CI exclude capital additions
for casualties and redevelopment. Casualty additions represent
capitalized costs incurred in connection with casualty losses
and are associated with the restoration of the asset. A portion
of the restoration costs may be reimbursed by insurance carriers
subject to deductibles associated with each loss. Redevelopment
additions represent additions that substantially upgrade the
property.
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The table below details our share of actual spending, on both
consolidated and unconsolidated real estate partnerships, for
CR, CI, casualties and redevelopment for the year ended
December 31, 2009, on a per unit and total dollar basis (in
thousands, except per unit amounts). Per unit numbers for CR and
CI are based on approximately 97,196 average units for the year,
including 81,135 conventional units and 16,061 affordable units.
Average units are weighted for the portion of the period that we
owned an interest in the property, represent ownership-adjusted
effective units, and exclude non-managed units.
Included in the above additions for CI, casualties and
redevelopment, was approximately $34.6 million of our share
of capitalized site payroll and indirect costs related to these
activities for the year ended December 31, 2009.
We generally fund capital additions with cash provided by
operating activities, working capital and property sales as
discussed below.
For the year ended December 31, 2009, net cash used in
financing activities of $1.1 billion was primarily
attributed to debt principal payments, dividends paid to common
and preferred stockholders and distributions to noncontrolling
interests, partially offset by proceeds from property loans.
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At December 31, 2009 and 2008, we had $5.6 billion and
$6.3 billion, respectively, in consolidated property debt
outstanding, which included $29.2 million and
$759.3 million, respectively, of property debt classified
within liabilities related to assets held for sale. During the
year ended December 31, 2009, we refinanced or closed
property loans on 55 properties generating $788.1 million
of proceeds from borrowings with a weighted average interest
rate of 5.78%. Our share of the net proceeds after repayment of
existing debt, payment of transaction costs and distributions to
limited partners, was $132.3 million. We used these total
net proceeds for capital expenditures and other corporate
purposes. We intend to continue to refinance property debt
primarily as a means of extending current and near term
maturities and to finance certain capital projects.
We have an Amended and Restated Senior Secured Credit Agreement,
as amended, with a syndicate of financial institutions, which we
refer to as the Credit Agreement.
As of December 31, 2009, the Credit Agreement consisted of
aggregate commitments of $270.0 million, comprised of our
$90.0 million outstanding balance on the term loan and
$180.0 million of revolving loan commitments. The term loan
bears interest at LIBOR plus 1.5%, or at our option, a base rate
equal to the prime rate, and matures March 2011. Borrowings
under the revolving credit facility bear interest based on a
pricing grid determined by leverage (either at LIBOR plus 4.25%
with a LIBOR floor of 2.00% or, at our option, a base rate equal
to the Prime rate plus a spread of 3.00%). The revolving credit
facility matures May 1, 2011, and may be extended for an
additional year, subject to certain conditions, including
payment of a 45.0 basis point fee on the total revolving
commitments and repayment of the remaining term loan balance by
February 1, 2011.
At December 31, 2009, the term loan had an outstanding
principal balance of $90.0 million and an interest rate of
1.73%. We repaid $45.0 million on the term loan through
February 26, 2010, leaving a remaining outstanding balance
of $45.0 million. At December 31, 2009, we had no
outstanding borrowings under the revolving credit facility. The
amount available under the revolving credit facility at
December 31, 2009, was $136.2 million (after giving
effect to $43.8 million outstanding for undrawn letters of
credit issued under the revolving credit facility). The proceeds
of revolving loans are generally permitted to be used to fund
working capital and for other corporate purposes.
We have entered into total rate of return swaps on various fixed
rate secured tax-exempt bonds payable and fixed rate notes
payable to convert these borrowings from a fixed rate to a
variable rate and provide an efficient financing product to
lower our cost of borrowing. We designate total rate of return
swaps as hedges of the risk of overall changes in the fair value
of the underlying borrowings. At each reporting period, we
estimate the fair value of these borrowings and the total rate
of return swaps and recognize any changes therein as an
adjustment of interest expense.
Our method used to calculate the fair value of the total rate of
return swaps generally results in changes in fair value that are
equal to the changes in fair value of the related borrowings,
which is consistent with our hedging strategy. We believe that
these financial instruments are highly effective in offsetting
the changes in fair value of the related borrowings during the
hedging period, and accordingly, changes in the fair value of
these instruments have no material impact on our liquidity,
results of operations or capital resources.
During the year ended December 31, 2009, changes in the
fair values of these financial instruments resulted in increases
of $5.2 million in the carrying amount of the hedged
borrowings and equal decreases in accrued liabilities and other
for total rate of return swaps. At December 31, 2009, the
cumulative recognized changes in the fair value of these
financial instruments resulted in a $24.3 million reduction
in the carrying amount of the hedged borrowings offset by an
equal increase in accrued liabilities and other for total rate
of return swaps. The cumulative changes in the fair values of
the hedged borrowings and related swaps reflect the recent
uncertainty in the credit markets which has decreased demand and
increased pricing for similar debt instruments.
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During the year ended December 31, 2009, we received net
cash receipts of $19.4 million under the total return
swaps, which positively affected our liquidity. To the extent
interest rates increase above the fixed rates on the underlying
borrowings, our obligations under the total return swaps will
negatively affect our liquidity. At December 31, 2009, we
were not required to provide cash collateral pursuant to the
total rate of return swaps. In the event the values of the real
estate properties serving as collateral under these agreements
decline, we may be required to provide additional collateral
pursuant to the swap agreements, which would adversely affect
our liquidity.
See Note 2 to the consolidated financial statements in
Item 8 for more information on our total rate of return
swaps and related borrowings.
During the year ended December 31, 2009, we paid cash
dividends or distributions totaling $52.2 million,
$95.3 million and $28.5 million to preferred
stockholders, common stockholders and noncontrolling interests
in the Aimco Operating Partnership, respectively. Additionally,
we paid dividends totaling $149.0 million to common
stockholders through the issuance of approximately
15.5 million shares. During the year ended
December 31, 2009, we paid distributions of
$91.9 million to noncontrolling interests in consolidated
real estate partnerships.
During the year ended December 31, 2009, we repurchased
12 shares, or $6.0 million in liquidation preference,
of CRA Preferred Stock for $4.2 million.
We and the Aimco Operating Partnership have a shelf registration
statement that provides for the issuance of debt and equity
securities by Aimco and debt securities by the Aimco Operating
Partnership.
This table summarizes information contained elsewhere in this
Annual Report regarding payments due under contractual
obligations and commitments as of December 31, 2009
(amounts in thousands):
In addition to the amounts presented in the table above, at
December 31, 2009, we had $690.5 million of
outstanding preferred stock outstanding with annual dividend
yields ranging from 1.5% (variable) to 9.4%, and
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$85.7 million of preferred units of the Aimco Operating
Partnership outstanding with annual distribution yields ranging
from 5.9% to 9.5%.
Additionally, we may enter into commitments to purchase goods
and services in connection with the operations of our
properties. Those commitments generally have terms of one year
or less and reflect expenditure levels comparable to our
historical expenditures.
In addition to the items set forth in “Contractual
Obligations” above, we expect to fund any future
acquisitions, additional redevelopment projects, capital
improvements and capital replacement principally with proceeds
from property sales (including tax-free exchange proceeds),
short-term borrowings, debt and equity financing (including tax
credit equity) and operating cash flows.
We own general and limited partner interests in unconsolidated
real estate partnerships, in which our total ownership interests
typically range from less than 1% to 50% and in some instances
may exceed 50%. There are no lines of credit, side agreements,
or any other derivative financial instruments related to or
between our unconsolidated real estate partnerships and us and
no material exposure to financial guarantees. Accordingly, our
maximum risk of loss related to these unconsolidated real estate
partnerships is limited to the aggregate carrying amount of our
investment in the unconsolidated real estate partnerships and
any outstanding notes receivable as reported in our consolidated
financial statements (see Note 4 of the consolidated
financial statements in Item 8 for additional information
about our investments in unconsolidated real estate
partnerships).
Our primary market risk exposure relates to changes in base
interest rates, credit risk spreads and availability of credit.
We are not subject to any other material market rate or price
risks. We use predominantly long-term, fixed-rate non-recourse
property debt in order to avoid the refunding and repricing
risks of short-term borrowings. We use short-term debt financing
and working capital primarily to fund short-term uses and
acquisitions and generally expect to refinance such borrowings
with cash from operating activities, property sales proceeds,
long-term debt or equity financings. We use total
rate-of-return
swaps to obtain the benefit of variable rates on certain of our
fixed rate debt instruments. We make limited use of other
derivative financial instruments and we do not use them for
trading or other speculative purposes.
We had $654.6 million of floating rate debt and
$67.0 million of floating rate preferred stock outstanding
at December 31, 2009. Of the total floating rate debt, the
major components were floating rate tax-exempt bond financing
($433.9 million), floating rate secured notes
($122.2 million) and a term loan ($90.0 million). At
December 31, 2009, we had approximately $440.9 million
in cash and cash equivalents, restricted cash and notes
receivable, the majority of which bear interest. The effect of
our interest-bearing assets would partially reduce the effect of
an increase in variable interest rates. Historically, changes in
tax-exempt interest rates have been at a ratio of less than 1:1
with changes in taxable interest rates. Floating rate tax-exempt
bond financing is benchmarked against the SIFMA rate, which
since 1989 has averaged 73% of the
30-day LIBOR
rate. If the historical relationship continues, on an annual
basis, we estimate that an increase in
30-day LIBOR
of 100 basis points (73 basis points for tax-exempt
interest rates) with constant credit risk spreads would result
in net income and our net income attributable to Aimco common
stockholders being reduced by $1.1 million and
$1.5 million, respectively.
We estimate the fair value for our debt instruments using
present value techniques that include income and market
valuation approaches with market rates for debt with the same or
similar terms. Present value calculations vary depending on the
assumptions used, including the discount rate and estimates of
future cash flows. In many cases, the fair value estimates may
not be realizable in immediate settlement of the instruments.
The estimated aggregate fair value of our consolidated debt
(including amounts reported in liabilities related to assets
held for sale) was approximately $5.7 billion and
$6.7 billion at December 31, 2009 and 2008,
respectively. The combined carrying value of our consolidated
debt (including amounts reported in liabilities related to
assets held for sale) was approximately $5.7 billion and
$6.8 billion at December 31, 2009 and 2008,
respectively. See Note 6 and Note 7 to
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the consolidated financial statements in Item 8 for further
details on our consolidated debt. Refer to Derivative
Financial Instruments in Note 2 to the consolidated
financial statements in Item 8 for further discussion
regarding certain of our fixed rate debt that is subject to
total rate of return swap instruments. If market rates for our
fixed-rate debt were higher by 100 basis points with
constant credit risk spreads, the estimated fair value of our
debt discussed above would have decreased from $5.7 billion
to $5.4 billion. If market rates for our debt discussed
above were lower by 100 basis points with constant credit
risk spreads, the estimated fair value of our fixed-rate debt
would have increased from $5.7 billion to $6.1 billion.
At December 31, 2009, we had swap positions with two
financial institutions totaling $353.1 million. The related
swap agreements provide for collateral calls to maintain
specified
loan-to-value
ratios. In the event the values of the real estate properties
serving as collateral under these agreements decline, we may be
required to provide additional collateral pursuant to the swap
agreements, which would adversely affect our cash flows. At
December 31, 2009, we were not required to provide cash
collateral based on the
loan-to-value
ratios of the real estate properties serving as collateral under
these agreements.
The independent registered public accounting firm’s report,
consolidated financial statements and schedule listed in the
accompanying index are filed as part of this report and
incorporated herein by this reference. See “Index to
Financial Statements” on
page F-1
of this Annual Report.
None.
Our management, with the participation of our chief executive
officer and chief financial officer, has evaluated the
effectiveness of our disclosure controls and procedures (as
defined in
Rules 13a-15(e)
and
15d-15(e)
under the Securities Exchange Act of 1934, as amended (the
“Exchange Act”)) as of the end of the period covered
by this report. Based on such evaluation, our chief executive
officer and chief financial officer have concluded that, as of
the end of such period, our disclosure controls and procedures
are effective.
Our management is responsible for establishing and maintaining
adequate internal control over financial reporting. Internal
control over financial reporting is defined in
Rule 13a-15(f)
and
15d-15(f)
under the Exchange Act as a process designed by, or under the
supervision of, our principal executive and principal financial
officers and effected by our Board of Directors, management and
other personnel to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles and includes those
policies and procedures that:
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Projections of any evaluation of effectiveness to future periods
are subject to the risks that controls may become inadequate
because of changes in conditions, or that the degree of
compliance with the policies or procedures may deteriorate.
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Management assessed the effectiveness of our internal control
over financial reporting as of December 31, 2009. In making
this assessment, management used the criteria set forth by the
Committee of Sponsoring Organizations of the Treadway Commission
(COSO) in Internal Control-Integrated Framework.
Based on their assessment, management concluded that, as of
December 31, 2009, our internal control over financial
reporting is effective.
Our independent registered public accounting firm has issued an
attestation report on our internal control over financial
reporting.
There has been no change in our internal control over financial
reporting (as defined in
Rules 13a-15(f)
and
15d-15(f)
under the Exchange Act) during the fourth quarter of 2009 that
has materially affected, or is reasonably likely to materially
affect, our internal control over financial reporting.
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Stockholders and Board of Directors Apartment Investment and
Management Company
We have audited Apartment Investment and Management
Company’s (the “Company”) internal control over
financial reporting as of December 31, 2009, based on
criteria established in Internal Control — Integrated
Framework issued by the Committee of Sponsoring Organizations of
the Treadway Commission (the COSO criteria). The Company’s
management is responsible for maintaining effective internal
control over financial reporting, and for its assessment of the
effectiveness of internal control over financial reporting
included in the accompanying Management’s Report on
Internal Control Over Financial Reporting. Our responsibility is
to express an opinion on the Company’s internal control
over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control
over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of
internal control over financial reporting, assessing the risk
that a material weakness exists, testing and evaluating the
design and operating effectiveness of internal control based on
the assessed risk, and performing such other procedures as we
considered necessary in the circumstances. We believe that our
audit provides a reasonable basis for our opinion.
A company’s internal control over financial reporting is a
process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles. A company’s
internal control over financial reporting includes those
policies and procedures that (1) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions
are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations of
management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use or disposition of the
company’s assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
In our opinion, the Company maintained, in all material
respects, effective internal control over financial reporting as
of December 31, 2009, based on the COSO criteria.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
consolidated balance sheets of the Company as of
December 31, 2009 and 2008, and the related consolidated
statements of income, equity, and cash flows for each of the
three years in the period ended December 31, 2009, and our
report dated February 26, 2010 expressed an unqualified
opinion thereon.
/s/ Ernst &
Young LLP
Denver, Colorado
February 26, 2010
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None.
The information required by this item is presented under the
captions “Board of Directors and Executive Officers,”
“Corporate Governance Matters — Code of
Ethics,” “Other Matters — Section 16(a)
Beneficial Ownership Reporting Compliance,” “Corporate
Governance Matters — Nominating and Corporate
Governance Committee,” “Corporate Governance
Matters — Audit Committee” and “Corporate
Governance Matters — Audit Committee Financial
Expert” in the proxy statement for our 2010 annual meeting
of stockholders and is incorporated herein by reference.
The information required by this item is presented under the
captions “Compensation Discussion &
Analysis,” “Compensation and Human Resources Committee
Report to Stockholders,” “Summary Compensation
Table,” “Grants of Plan-Based Awards in 2009,”
“Outstanding Equity Awards at Fiscal Year End 2009,”
“Option Exercises and Stock Vested in 2009,”
“Potential Payments Upon Termination or Change in
Control” and “Corporate Governance Matters —
Director Compensation” in the proxy statement for our 2010
annual meeting of stockholders and is incorporated herein by
reference.
The information required by this item is presented under the
captions “Security Ownership of Certain Beneficial Owners
and Management” and “Securities Authorized for
Issuance Under Equity Compensation Plans” in the proxy
statement for our 2010 annual meeting of stockholders and is
incorporated herein by reference.
The information required by this item is presented under the
caption “Certain Relationships and Related
Transactions” and “Corporate Governance
Matters — Independence of Directors” in the proxy
statement for our 2010 annual meeting of stockholders and is
incorporated herein by reference.
The information required by this item is presented under the
caption “Principal Accountant Fees and Services” in
the proxy statement for our 2010 annual meeting of stockholders
and is incorporated herein by reference.
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(a)(1) The financial statements listed in the Index
to Financial Statements on
Page F-1
of this report are filed as part of this report and incorporated
herein by reference.
(a)(2) The financial statement schedule listed in the
Index to Financial Statements on
Page F-1
of this report is filed as part of this report and incorporated
herein by reference.
(a)(3) The Exhibit Index is incorporated herein
by reference.
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48
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49
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Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
Apartment Investment
And
Management Company
Terry Considine
Chairman of the Board and
Chief Executive Officer
Date:
February 26, 2010
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons
on behalf of the registrant and in the capacities and on the
dates indicated.
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(This page
intentionally left blank)
APARTMENT
INVESTMENT AND MANAGEMENT COMPANY
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Stockholders and Board of Directors Apartment Investment and
Management Company
We have audited the accompanying consolidated balance sheets of
Apartment Investment and Management Company (the
“Company”) as of December 31, 2009 and 2008, and
the related consolidated statements of income, equity and cash
flows for each of the three years in the period ended
December 31, 2009. Our audits also included the financial
statement schedule listed in the accompanying Index to Financial
Statements. These financial statements and schedule are the
responsibility of the Company’s management. Our
responsibility is to express an opinion on these financial
statements and schedule based on our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the consolidated
financial position of the Company at December 31, 2009 and
2008, and the consolidated results of its operations and its
cash flows for each of the three years in the period ended
December 31, 2009, in conformity with United States
generally accepted accounting principles. Also, in our opinion,
the related financial statement schedule, when considered in
relation to the basic financial statements taken as a whole,
presents fairly, in all material respects the information set
forth therein.
The consolidated financial statements include retroactive
adjustments to reflect the adoption in 2009 of Statement of
Financial Accounting Standards No. 160, Noncontrolling
Interests in Consolidated Financial Statements, an amendment to
ARB 51 (codified in FASB ASC 810), Statement of Financial
Accounting Standards No. 141(R), Business
Combinations — a replacement of FASB Statement No 141
(codified in FASB ASC 805), FASB Staff Position
No. EITF 03-6-1,
Determining Whether Instruments Granted in Share-Based Payment
Transactions are Participating Securities (codified in FASB ASC
260), and FASB Accounting Standards Update
No. 2010-01,
Accounting for Distributions to Shareholders with Components of
Stock and Cash (codified in FASB ASC 505). Further, the Company
retrospectively adjusted the 2008 and 2007 consolidated
financial statements to reflect real estate assets that meet the
definition of a component and have been sold or meet the
criteria to be classified as held for sale at December 31,
2009 pursuant to Statement of Financial Accounting Standards
No. 144, Accounting for the Impairment or Disposal of
Long-Lived Assets (codified in FASB ASC 360), through
December 31, 2009. As discussed in Note 2 to the
consolidated financial statements, the consolidated statement of
income for the year ended December 31, 2008 has been
restated to reclassify provisions for impairment losses on real
estate development assets into operating income.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
Company’s internal control over financial reporting as of
December 31, 2009, based on criteria established in
Internal Control — Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission
and our report dated February 26, 2010 expressed an
unqualified opinion thereon.
/s/ ERNST &
YOUNG LLP
Denver, Colorado
February 26, 2010
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APARTMENT
INVESTMENT AND MANAGEMENT COMPANY
CONSOLIDATED BALANCE SHEETS As of December 31, 2009 and 2008 (In thousands, except share data)
See notes to consolidated financial statements.
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APARTMENT
INVESTMENT AND MANAGEMENT COMPANY
CONSOLIDATED STATEMENTS OF INCOME For the Years Ended December 31, 2009, 2008 and 2007 (In thousands, except per share data)
See notes to consolidated financial statements.
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APARTMENT
INVESTMENT AND MANAGEMENT COMPANY
CONSOLIDATED
STATEMENTS OF EQUITY
For the Years Ended December 31, 2009, 2008 and 2007 (In thousands)
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