Attached files
file | filename |
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EX-31.1 - EXHIBIT 31.1 - Apartment Income REIT, L.P. | c91616exv31w1.htm |
EX-31.2 - EXHIBIT 31.2 - Apartment Income REIT, L.P. | c91616exv31w2.htm |
EX-99.1 - EXHIBIT 99.1 - Apartment Income REIT, L.P. | c91616exv99w1.htm |
EX-32.1 - EXHIBIT 32.1 - Apartment Income REIT, L.P. | c91616exv32w1.htm |
EX-32.2 - EXHIBIT 32.2 - Apartment Income REIT, L.P. | c91616exv32w2.htm |
Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(Mark One)
þ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 2009
OR
o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number 0-24497
AIMCO Properties, L.P.
(Exact name of registrant as specified in its charter)
Delaware | 84-1275621 | |
(State or other jurisdiction of | (I.R.S. Employer | |
incorporation or organization) | Identification No.) | |
4582 South Ulster Street Parkway, Suite 1100 | ||
Denver, Colorado | 80237 | |
(Address of principal executive offices) | (Zip Code) |
(303) 757-8101
(Registrants telephone number, including area code)
(Registrants telephone number, including area code)
Not Applicable
(Former name, former address, and former fiscal year, if changed since last report)
(Former name, former address, and former fiscal year, if changed since last report)
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 (§232.405 of this chapter) 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 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):
Large accelerated filer o | Accelerated filer þ | Non-accelerated filer o (Do not check if a smaller reporting company) | Smaller reporting company o |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of
the Exchange Act). Yes o No þ
The
number of Partnership Common Units outstanding as of October 28,
2009: 124,629,442
AIMCO PROPERTIES, L.P.
TABLE OF CONTENTS
FORM 10-Q
Page | ||||||||
2 | ||||||||
3 | ||||||||
4 | ||||||||
5 | ||||||||
21 | ||||||||
37 | ||||||||
37 | ||||||||
38 | ||||||||
38 | ||||||||
39 | ||||||||
40 | ||||||||
Exhibit 31.1 | ||||||||
Exhibit 31.2 | ||||||||
Exhibit 32.1 | ||||||||
Exhibit 32.2 | ||||||||
Exhibit 99.1 |
Table of Contents
PART I. FINANCIAL INFORMATION
ITEM 1. | Financial Statements |
AIMCO PROPERTIES, L.P.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited)
September 30, | December 31, | |||||||
2009 | 2008 | |||||||
ASSETS |
||||||||
Real estate: |
||||||||
Buildings and improvements |
$ | 7,999,462 | $ | 7,857,758 | ||||
Land |
2,243,403 | 2,232,541 | ||||||
Total real estate |
10,242,865 | 10,090,299 | ||||||
Less accumulated depreciation |
(2,802,531 | ) | (2,506,178 | ) | ||||
Net real estate |
7,440,334 | 7,584,121 | ||||||
Cash and cash equivalents |
107,034 | 299,676 | ||||||
Restricted cash |
246,764 | 255,836 | ||||||
Accounts receivable, net |
61,584 | 90,318 | ||||||
Accounts receivable from affiliates, net |
26,769 | 38,978 | ||||||
Deferred financing costs, net |
54,561 | 54,109 | ||||||
Notes receivable from unconsolidated real estate partnerships, net |
14,855 | 22,567 | ||||||
Notes receivable from non-affiliates, net |
143,102 | 139,897 | ||||||
Notes receivable from Aimco |
16,164 | 15,551 | ||||||
Investment in unconsolidated real estate partnerships |
111,479 | 117,905 | ||||||
Other assets |
204,331 | 198,640 | ||||||
Deferred income tax assets, net |
33,267 | 28,326 | ||||||
Assets held for sale |
29,758 | 610,797 | ||||||
Total assets |
$ | 8,490,002 | $ | 9,456,721 | ||||
LIABILITIES AND PARTNERS CAPITAL |
||||||||
Property tax-exempt bond financing |
$ | 605,055 | $ | 676,339 | ||||
Property loans payable |
5,206,788 | 5,224,350 | ||||||
Term loans |
260,000 | 400,000 | ||||||
Credit facility |
15,070 | | ||||||
Other borrowings |
85,683 | 95,981 | ||||||
Total indebtedness |
6,172,596 | 6,396,670 | ||||||
Accounts payable |
36,317 | 64,241 | ||||||
Accrued liabilities and other |
295,955 | 421,043 | ||||||
Deferred income |
177,754 | 194,379 | ||||||
Security deposits |
38,865 | 40,109 | ||||||
Liabilities related to assets held for sale |
48,153 | 441,578 | ||||||
Total liabilities |
6,769,640 | 7,558,020 | ||||||
Redeemable preferred units |
116,625 | 88,148 | ||||||
Commitments and contingencies (Note 5) |
| | ||||||
Partners capital: |
||||||||
Preferred units |
660,500 | 696,500 | ||||||
General Partner and Special Limited Partner |
553,354 | 694,805 | ||||||
Limited Partners |
95,372 | 82,271 | ||||||
High Performance Units |
(42,342 | ) | (39,687 | ) | ||||
Investment in Aimco Class A Common Stock |
(4,677 | ) | (5,109 | ) | ||||
Partners capital attributable to the Partnership |
1,262,207 | 1,428,780 | ||||||
Noncontrolling interests in consolidated real estate partnerships |
341,530 | 381,773 | ||||||
Total partners capital |
1,603,737 | 1,810,553 | ||||||
Total liabilities and partners capital |
$ | 8,490,002 | $ | 9,456,721 | ||||
See notes to condensed consolidated financial statements.
2
Table of Contents
AIMCO PROPERTIES, L.P.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per unit data)
(Unaudited)
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2009 | 2008 | 2009 | 2008 | |||||||||||||
REVENUES: |
||||||||||||||||
Rental and other property revenues |
$ | 307,907 | $ | 310,563 | $ | 925,363 | $ | 918,772 | ||||||||
Property management revenues, primarily from affiliates |
1,114 | 1,227 | 4,098 | 4,746 | ||||||||||||
Asset management and tax credit revenues |
10,325 | 32,624 | 32,469 | 83,651 | ||||||||||||
Total revenues |
319,346 | 344,414 | 961,930 | 1,007,169 | ||||||||||||
OPERATING EXPENSES: |
||||||||||||||||
Property operating expenses |
146,608 | 147,165 | 426,258 | 430,166 | ||||||||||||
Property management expenses |
510 | 1,603 | 2,415 | 4,192 | ||||||||||||
Investment management expenses |
4,213 | 7,850 | 12,719 | 18,044 | ||||||||||||
Depreciation and amortization |
122,362 | 107,374 | 355,680 | 304,668 | ||||||||||||
Provision for operating real estate impairment losses |
21,676 | | 24,666 | | ||||||||||||
General and administrative expenses |
15,676 | 27,383 | 53,598 | 75,754 | ||||||||||||
Other expenses, net |
8,548 | 1,343 | 14,567 | 18,926 | ||||||||||||
Total operating expenses |
319,593 | 292,718 | 889,903 | 851,750 | ||||||||||||
Operating (loss) income |
(247 | ) | 51,696 | 72,027 | 155,419 | |||||||||||
Interest income |
2,168 | 6,021 | 8,243 | 17,719 | ||||||||||||
Recovery of (provision for) losses on notes receivable, net |
1,233 | (842 | ) | (452 | ) | (1,107 | ) | |||||||||
Interest expense |
(83,179 | ) | (84,887 | ) | (256,746 | ) | (257,042 | ) | ||||||||
Equity in losses of unconsolidated real estate partnerships |
(4,198 | ) | (1,559 | ) | (7,934 | ) | (3,432 | ) | ||||||||
Impairment losses related to unconsolidated real estate partnerships |
| (1,131 | ) | | (1,131 | ) | ||||||||||
Gain on dispositions of unconsolidated real estate and other |
3,345 | 99,954 | 18,580 | 100,118 | ||||||||||||
(Loss) income before income taxes and discontinued operations |
(80,878 | ) | 69,252 | (166,282 | ) | 10,544 | ||||||||||
Income tax benefit |
2,410 | 6,062 | 7,195 | 10,862 | ||||||||||||
(Loss) income from continuing operations |
(78,468 | ) | 75,314 | (159,087 | ) | 21,406 | ||||||||||
Income from discontinued operations, net |
69,118 | 162,269 | 109,945 | 535,862 | ||||||||||||
Net (loss) income |
(9,350 | ) | 237,583 | (49,142 | ) | 557,268 | ||||||||||
Net income attributable to noncontrolling interests in consolidated
real estate partnerships |
(19,429 | ) | (46,183 | ) | (24,665 | ) | (108,157 | ) | ||||||||
Net (loss) income attributable to the Partnership |
(28,779 | ) | 191,400 | (73,807 | ) | 449,111 | ||||||||||
Net income attributable to the Partnerships preferred unitholders |
(14,731 | ) | (14,186 | ) | (42,189 | ) | (45,771 | ) | ||||||||
Net income attributable to participating securities |
| (1,725 | ) | | (4,298 | ) | ||||||||||
Net (loss) income attributable to the Partnerships common unitholders |
$ | (43,510 | ) | $ | 175,489 | $ | (115,996 | ) | $ | 399,042 | ||||||
Earnings (loss) attributable to the Partnership per common unit basic
and diluted (Note 6): |
||||||||||||||||
(Loss) income from continuing operations attributable to the
Partnerships common unitholders |
$ | (0.64 | ) | $ | 0.41 | $ | (1.36 | ) | $ | (0.27 | ) | |||||
Income from discontinued operations attributable to the
Partnerships
common unitholders |
0.29 | 0.96 | 0.43 | 3.28 | ||||||||||||
Net (loss) income attributable to the Partnerships common
unitholders |
$ | (0.35 | ) | $ | 1.37 | $ | (0.93 | ) | $ | 3.01 | ||||||
Weighted average common units outstanding, basic |
124,376 | 127,701 | 124,402 | 132,792 | ||||||||||||
Weighted average common units outstanding, diluted |
124,376 | 128,071 | 124,402 | 132,792 | ||||||||||||
Distributions declared per common unit |
$ | 0.10 | $ | 2.20 | $ | 0.20 | $ | 2.64 | ||||||||
See notes to condensed consolidated financial statements.
3
Table of Contents
AIMCO PROPERTIES, L.P.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Nine Months | ||||||||
Ended September 30, | ||||||||
2009 | 2008 | |||||||
CASH FLOWS FROM OPERATING ACTIVITIES: |
||||||||
Net (loss) income |
$ | (49,142 | ) | $ | 557,268 | |||
Adjustments to reconcile net (loss) income to net cash provided by operating activities: |
||||||||
Depreciation and amortization |
355,680 | 304,668 | ||||||
Gain on dispositions of unconsolidated real estate and other |
(18,580 | ) | (100,118 | ) | ||||
Discontinued operations |
(98,937 | ) | (440,725 | ) | ||||
Other adjustments |
54,803 | 32,489 | ||||||
Net changes in operating assets and operating liabilities |
(106,453 | ) | (4,764 | ) | ||||
Net cash provided by operating activities |
137,371 | 348,818 | ||||||
CASH FLOWS FROM INVESTING ACTIVITIES: |
||||||||
Purchases of real estate |
| (75,907 | ) | |||||
Capital expenditures |
(217,891 | ) | (476,030 | ) | ||||
Proceeds from dispositions of real estate |
562,743 | 1,419,909 | ||||||
Proceeds from sale of interests in and distributions from unconsolidated real estate
partnerships |
18,241 | 85,520 | ||||||
Purchases of partnership interests and other assets |
(3,954 | ) | (22,940 | ) | ||||
Originations of notes receivable from unconsolidated real estate partnerships |
(5,386 | ) | (5,887 | ) | ||||
Proceeds from repayment of notes receivable |
4,703 | 7,037 | ||||||
Distributions received from Aimco |
432 | 759 | ||||||
Other investing activities |
27,372 | 4,958 | ||||||
Net cash provided by investing activities |
386,260 | 937,419 | ||||||
CASH FLOWS FROM FINANCING ACTIVITIES: |
||||||||
Proceeds from property loans |
616,293 | 522,564 | ||||||
Principal repayments on property loans |
(844,696 | ) | (853,435 | ) | ||||
Proceeds from tax-exempt bond financing |
| 21,988 | ||||||
Principal repayments on tax-exempt bond financing |
(122,128 | ) | (89,287 | ) | ||||
Payments on term loans |
(140,000 | ) | | |||||
Net borrowings on revolving credit facility |
15,070 | 5,100 | ||||||
Repurchases of common OP units |
| (452,297 | ) | |||||
Repurchases of preferred units |
(4,200 | ) | (24,840 | ) | ||||
Payment of distributions to General Partner and Special Limited Partner |
(84,224 | ) | (159,589 | ) | ||||
Payment of distributions to Limited Partners |
(14,808 | ) | (43,734 | ) | ||||
Payment of distributions to High Performance Units |
(5,346 | ) | (14,536 | ) | ||||
Payment of distributions to preferred units |
(44,544 | ) | (47,269 | ) | ||||
Payment of distributions to noncontrolling interests |
(71,133 | ) | (151,153 | ) | ||||
Other financing activities |
(16,557 | ) | 8,837 | |||||
Net cash used in financing activities |
(716,273 | ) | (1,277,651 | ) | ||||
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS |
(192,642 | ) | 8,586 | |||||
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD |
299,676 | 210,461 | ||||||
CASH AND CASH EQUIVALENTS AT END OF PERIOD |
$ | 107,034 | $ | 219,047 | ||||
See notes to condensed consolidated financial statements.
4
Table of Contents
AIMCO PROPERTIES, L.P.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2009
(Unaudited)
September 30, 2009
(Unaudited)
NOTE 1 Organization
AIMCO Properties, L.P., a Delaware limited partnership, or the Partnership, and together with
its consolidated subsidiaries was formed on May 16, 1994 to conduct the business of acquiring,
redeveloping, leasing, and managing multifamily apartment properties. Our securities include
Partnership Common Units, or common OP Units, Partnership Preferred Units, or preferred OP Units,
and High Performance Partnership Units, or High Performance Units, which are collectively referred
to as OP Units. Apartment Investment and Management Company, or Aimco, is the owner of our
general partner, AIMCO-GP, Inc., or the General Partner, and special limited partner, AIMCO-LP
Trust, or the Special Limited Partner. The General Partner and Special Limited Partner hold common
OP Units and are the primary holders of outstanding preferred OP Units. Limited Partners refers
to individuals or entities that are our limited partners, other than Aimco, the General Partner or
the Special Limited Partner, and own common OP Units or preferred OP Units. Generally, after
holding the common OP Units for one year, the Limited Partners have the right to redeem their
common OP Units for cash, subject to our prior right to acquire some or all of the common OP Units
tendered for redemption in exchange for shares of Aimco Class A Common Stock. Common OP Units
redeemed for Aimco Class A Common Stock are generally exchanged on a one-for-one basis (subject to
antidilution adjustments). Preferred OP Units and High Performance Units may or may not be
redeemable based on their respective terms, as provided for in the Fourth Amended and Restated
Agreement of Limited Partnership of AIMCO Properties, L.P. as amended, or the Partnership
Agreement.
We, through our operating divisions and subsidiaries, hold substantially all of Aimcos assets
and manage the daily operations of Aimcos business and assets. Aimco is required to contribute
all proceeds from offerings of its securities to us. In addition, substantially all of Aimcos
assets must be owned through the Partnership; therefore, Aimco is generally required to contribute
all assets acquired to us. In exchange for the contribution of offering proceeds or assets, Aimco
receives additional interests in us with similar terms (e.g., if Aimco contributes proceeds of a
preferred stock offering, Aimco (through the General Partner and Special Limited Partner) receives
preferred OP Units with terms substantially similar to the preferred securities issued by Aimco).
Aimco frequently consummates transactions for our benefit. For legal, tax or other business
reasons, Aimco may hold title or ownership of certain assets until they can be transferred to us.
However, we have a controlling financial interest in substantially all of Aimcos assets in the
process of transfer to us. Except as the context otherwise requires, we, our and us refer to
the Partnership, and the Partnerships consolidated entities, collectively. Except as the context
otherwise requires, Aimco refers to Aimco and Aimcos consolidated entities, collectively.
As of September 30, 2009, we:
| owned an equity interest in and consolidated 104,301 units in 458 properties (which we
refer to as consolidated properties), of which 102,197 units were also managed by us; |
| owned an equity interest in and did not consolidate 8,657 units in 79 properties (which
we refer to as unconsolidated properties), of which 3,754 units were also managed by us;
and |
| provided services for or managed 33,623 units in 379 properties, primarily pursuant to
long-term agreements (including 31,458 units in 355 properties for which we provide asset
management services only, and not also property management services). In certain cases, we
may indirectly own generally less than one percent of the operations of such properties
through a partnership syndication or other fund. |
At September 30, 2009, after elimination of units held by
consolidated subsidiaries, we had outstanding 122,887,632 common OP
Units, 28,096,868 preferred OP
Units and 2,344,719 High Performance Units.
5
Table of Contents
NOTE 2 Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been prepared in
accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X. Certain
information and footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles in the United States
of America, or GAAP, have been condensed or omitted in accordance with such rules and
regulations, although management believes the disclosures are adequate to prevent the information
presented from being misleading. In the opinion of management, all adjustments (consisting of
normal recurring items) considered necessary for a fair presentation have been included. Operating
results for the three and nine months ended September 30, 2009, are not necessarily indicative of
the results that may be expected for the year ending December 31, 2009.
The balance sheet at December 31, 2008, has been derived from the audited financial statements
at that date, but does not include all of the information and disclosures required by GAAP for
complete financial statements. For further information, refer to the financial statements and
notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2008.
Certain 2008 financial statement amounts have been reclassified to conform to the 2009
presentation, including adjustments for discontinued operations.
Unit and per unit information for the periods presented has been retroactively adjusted for
the effect of common OP Units issued to Aimco in connection with special distributions paid during
2008 and January 2009.
Our management evaluated for subsequent events through the time this Quarterly Report on Form
10-Q was filed on October 30, 2009.
Principles of Consolidation
The accompanying condensed consolidated financial statements include the accounts of the
Partnership and its consolidated entities. Pursuant to a Management and Contribution Agreement
between the Partnership and Aimco, we have acquired, in exchange for interests in the Partnership,
the economic benefits of subsidiaries of Aimco in which we do not have an interest, and Aimco has
granted us a right of first refusal to acquire such subsidiaries assets for no additional
consideration. Pursuant to the agreement, Aimco has also granted us certain rights with respect to
assets of such subsidiaries. We consolidate all variable interest entities for which we are the
primary beneficiary. Generally, we consolidate real estate partnerships and other entities that
are not variable interest entities when we own, directly or indirectly, a majority voting interest
in the entity or are otherwise able to control the entity. All significant intercompany balances
and transactions have been eliminated in consolidation.
Interests in
consolidated real estate partnerships held by third parties are
reflected in the accompanying balance sheets as noncontrolling interests in consolidated real
estate partnerships. The assets of consolidated real estate partnerships, including variable
interest entities, owned or controlled by Aimco or us generally are not available to pay creditors
of Aimco or the Partnership.
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 partner in a limited
partnership or a member in a limited liability company.
FASB Accounting Standards Codification
In June 2009, the Financial Accounting Standards Board, or FASB, issued Statement of Financial
Accounting Standards No. 168, The FASB Accounting Standards Codification and the Hierarchy of
Generally Accepted Accounting Principles a replacement of FASB Statement No. 162, or SFAS 168,
which is effective for financial statements issued for interim and annual periods ending after
September 15, 2009. Upon the effective date of SFAS 168, the FASB Accounting Standards
Codification, or the FASB ASC, became the single source of authoritative GAAP recognized by the
FASB to be applied by nongovernmental entities. Rules and interpretive releases of the Securities
and Exchange Commission, or SEC, under authority of federal securities laws are also sources of
authoritative GAAP for SEC registrants. The FASB ASC superseded all then-existing non-SEC
accounting and reporting standards, and all other non-grandfathered non-SEC accounting literature
not included in the FASB ASC is now non-authoritative. Subsequent to the effective date of SFAS
168, the FASB will issue Accounting Standards Updates that serve to update the FASB ASC.
6
Table of Contents
Variable Interest Entities
We consolidate all variable interest entities for which we are the primary beneficiary.
Generally, a variable interest entity, or VIE, is an entity with one or more of the following
characteristics: (a) the total equity investment at risk is not sufficient to permit the entity to
finance its activities without additional subordinated financial support; (b) as a group, the
holders of the equity investment at risk lack (i) the ability to make decisions about an entitys
activities through voting or similar rights, (ii) the obligation to absorb the expected losses of
the entity, or (iii) the right to receive the expected residual
returns of the entity; or (c) the equity investors have voting rights that are not
proportional to their economic interests and substantially all of the entitys activities either
involve, or are conducted on behalf of, an investor that has disproportionately few voting rights.
The primary beneficiary of a VIE is generally the entity that will receive a majority of the VIEs
expected losses, receive a majority of the VIEs expected residual returns, or both.
In determining whether we are the primary beneficiary of a VIE, we consider qualitative and
quantitative factors, including, but not limited to: the amount and characteristics of our
investment; the obligation or likelihood for us or other investors to provide financial support;
our and the other investors ability to control or significantly influence key decisions for the
VIE; and the similarity with and significance to the business activities of us and the other
investors. Significant judgments related to these determinations include estimates about the
current and future fair values and performance of real estate held by these VIEs and general market
conditions.
As of September 30, 2009, we were the primary beneficiary of, and therefore consolidated, 90
VIEs, which owned 67 apartment properties with 9,652 units. Real estate with a carrying value of
$743.5 million collateralized $458.4 million of debt of those VIEs. The creditors of the
consolidated VIEs do not have recourse to our general credit. As of September 30, 2009, we also
held variable interests in 120 VIEs for which we were not the primary beneficiary. Those VIEs
consist primarily of partnerships that are engaged, directly or indirectly, in the ownership and
management of 172 apartment properties with 9,566 units. We are involved with those VIEs as an
equity holder, lender, management agent, or through other contractual relationships. At September
30, 2009, our maximum exposure to loss as a result of our involvement with unconsolidated VIEs is
limited to our recorded investments in and receivables from those VIEs totaling $108.2 million and
our contractual obligation to advance funds to certain VIEs totaling $4.8 million. We may be
subject to additional losses to the extent of any financial support that we voluntarily provide in
the future. Additionally, the provision of financial support in the future may require us to
consolidate a VIE.
Noncontrolling Interests
Effective January 1, 2009, we adopted the provisions of FASB Statement of Financial Accounting
Standards No. 160, Noncontrolling Interests in Consolidated Financial Statements an amendment of
ARB No. 51, or SFAS 160, which are codified in FASB ASC Topic 810. These provisions clarified that
a noncontrolling interest in a subsidiary is an ownership interest in a consolidated entity which
should be reported as equity in the parents consolidated financial statements. These provisions
require disclosure on the face of our consolidated income statements of the amounts of consolidated
net income and other comprehensive income attributable to controlling and noncontrolling interests,
eliminating the past practice of reporting amounts of income attributable to noncontrolling
interests as an adjustment in arriving at consolidated net income. These provisions also require
us to attribute to noncontrolling interests their share of losses even if such attribution results
in a deficit noncontrolling interest balance within our partners capital accounts, and in some
instances, recognize a gain or loss in net income when a subsidiary is deconsolidated.
At December 31, 2008, in connection with our adoption of these provisions, we reclassified
into our consolidated partners capital accounts the historical balances related to noncontrolling
interests in consolidated real estate partnerships. At December 31, 2008, the carrying amount of
noncontrolling interests in consolidated real estate partnerships was $381.8 million.
7
Table of Contents
Beginning in 2009, we no longer record a charge related to cash distributions to
noncontrolling interests in excess of the carrying amount of such noncontrolling interests, and we
attribute losses to noncontrolling interests even if such attribution results in a deficit
noncontrolling interest balance within our partners capital accounts. The following table
illustrates the pro forma amounts of loss from continuing operations, discontinued operations and
net loss that would have been attributed to the Partnerships common unitholders for the three and
nine months ended September 30, 2009, had we applied the provisions of Accounting Research Bulletin
No. 51, prior to their amendment by SFAS 160 (in thousands, except per unit amounts):
Three Months | Nine Months | |||||||
Ended | Ended | |||||||
September 30, | September 30, | |||||||
2009 | 2009 | |||||||
Loss from continuing operations attributable to the Partnerships
common unitholders |
$ | (79,895 | ) | $ | (194,557 | ) | ||
Income from discontinued operations attributable to the
Partnerships common unitholders |
44,165 | 59,165 | ||||||
Net loss attributable to the Partnerships common unitholders |
$ | (35,730 | ) | $ | (135,392 | ) | ||
Basic and diluted earnings (loss) per common unit: |
||||||||
Loss from continuing operations attributable to the Partnerships
common unitholders |
$ | (0.64 | ) | $ | (1.56 | ) | ||
Income from discontinued operations attributable to the
Partnerships common unitholders |
0.36 | 0.48 | ||||||
Net loss attributable to the Partnerships common unitholders |
$ | (0.28 | ) | $ | (1.08 | ) | ||
The following table presents a reconciliation of the December 31, 2008 and September 30, 2009
carrying amounts for redeemable preferred units, consolidated partners capital and the related
amounts of partners capital attributable to the Partnership and noncontrolling interests:
Temporary | ||||||||||||||||
Capital | Partners Capital | |||||||||||||||
Noncontrolling | ||||||||||||||||
Partners capital | interests in | |||||||||||||||
Redeemable | attributable to the | consolidated real | Total partners | |||||||||||||
preferred units | Partnership | estate partnerships | capital | |||||||||||||
Balance, December 31, 2008 |
$ | 88,148 | $ | 1,428,780 | $ | 381,773 | $ | 1,810,553 | ||||||||
Contributions |
| | 5,535 | 5,535 | ||||||||||||
Distributions |
(5,108 | ) | (64,658 | ) | (70,774 | ) | (135,432 | ) | ||||||||
Repurchases of common units |
| (163 | ) | | (163 | ) | ||||||||||
Repurchase of preferred units |
(1,724 | ) | (4,200 | ) | | (4,200 | ) | |||||||||
Reclassification of
redeemable preferred units
to temporary capital (Note 4) |
30,000 | (30,000 | ) | | (30,000 | ) | ||||||||||
Stock based compensation cost |
| 10,433 | | 10,433 | ||||||||||||
Other |
751 | 1,256 | (1,152 | ) | 104 | |||||||||||
Effect of changes in ownership |
| (1,279 | ) | 1,279 | | |||||||||||
Change in accumulated other
comprehensive loss |
| 403 | 204 | 607 | ||||||||||||
Net income (loss) |
4,558 | (78,365 | ) | 24,665 | (53,700 | ) | ||||||||||
Balance, September 30, 2009 |
$ | 116,625 | $ | 1,262,207 | $ | 341,530 | $ | 1,603,737 | ||||||||
The Partnerships redeemable preferred OP Units, which are generally redeemable at the
holders option and may be settled in cash or, at our discretion, shares of Aimco Class A Common
Stock, will continue to be classified within temporary capital in our consolidated balance sheets.
Business Combinations
We adopted the provisions of FASB Statement of Financial Accounting Standards No. 141(R),
Business Combinations a replacement of FASB Statement No. 141, or SFAS 141(R), which are codified
in FASB ASC Topic 805, effective January 1, 2009. These provisions apply to all transactions or
events in which an entity obtains control of one or more businesses, including those effected
without the transfer of consideration, for example by contract or through a lapse of minority veto
rights. These provisions require the acquiring entity in a business combination to recognize the full
fair value of assets acquired and liabilities assumed in the transaction (whether a full or partial
acquisition); establish the acquisition-date fair value as the measurement objective for all
assets acquired and liabilities assumed; and require expensing of most transaction and
restructuring costs.
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We believe most operating real estate assets meet the revised definition of a business.
Accordingly, beginning in 2009, we expense transaction costs associated with acquisitions of
operating real estate or interests therein when we consolidate
the asset. The FASB did not provide implementation guidance regarding the treatment of
acquisition costs incurred prior to December 31, 2008, for acquisitions that did not close until
2009. The SEC indicated any of the following three transition methods were acceptable, provided
that the method chosen is disclosed and applied consistently:
1) | expense acquisition costs in 2008 when it is probable that the acquisition will not close
in 2008; |
2) | expense acquisition costs January 1, 2009; or |
3) | give retroactive treatment to the acquisition costs January 1, 2009, by retroactively
adjusting prior periods to record acquisition costs in the prior periods in which they were
incurred. |
We elected to apply the third method and accordingly have retroactively adjusted our results
of operations for the year ended December 31, 2008, by $3.5 million, which also resulted in a
corresponding reduction to our December 31, 2008, partners capital balance. Approximately $2.1
million and $2.3 million of such acquisition costs were incurred during the three and nine months
ended September 30, 2008, respectively, and are reflected in investment management expenses in our
accompanying condensed consolidated statements of income for those periods. These retroactive
adjustments reduced basic and diluted earnings per unit by $0.02 for the three and nine months
ended September 30, 2008.
Participating Securities
Effective January 1, 2009, we adopted the provisions of FASB FSP EITF 03-6-1, Determining
Whether Instruments Granted in Share-Based Payment Transactions are Participating Securities, or
the FSP, which are codified in FASB ASC Topic 260. The FSP clarified that unvested share-based
payment awards that participate in dividends similar to shares of common stock or common
partnership units should be treated as participating securities. The FSP affects the computation
of basic and diluted earnings per share for unvested restricted stock awards and shares purchased
pursuant to officer stock loans, which serve as collateral for such loans, both of which entitle
the holders to dividends. Refer to Note 6, which details our calculation of earnings per unit and
the effect of treating these instruments as participating securities on earnings per unit. We do
not expect the FSP to have a material effect on future earnings per unit amounts.
Derivative Financial Instruments
We primarily use long-term, fixed-rate and self-amortizing non-recourse debt to avoid, among
other things, risk related to fluctuating interest rates. For our variable rate debt, we are
sometimes required by our lenders to limit our exposure to interest rate fluctuations by entering
into interest rate swap or cap agreements. The interest rate swap agreements moderate our exposure
to interest rate risk by effectively converting the interest on variable rate debt to a fixed rate
over the term of the swaps. The interest rate cap agreements effectively limit our exposure to
interest rate risk by providing a ceiling on the underlying variable interest rate.
At September 30, 2009 and December 31, 2008, we had interest rate swaps with aggregate
notional amounts of $52.3 million, and recorded fair values of $2.4 million and $2.6 million,
respectively, reflected in accrued liabilities and other in our condensed consolidated balance
sheets. At September 30, 2009, these interest rate swaps had a weighted average term of 11.4
years. We have designated these interest rate swaps as cash flow hedges and recognize any changes
in their fair value as an adjustment of accumulated other comprehensive income within partners
capital to the extent of their effectiveness. For the nine months ended September 30, 2009 and
2008, we recognized changes in fair value of $0.1 million and $0.3 million, respectively, of which
$0.6 million and $0.3 million resulted in an adjustment to consolidated partners capital. We
recognized $0.5 million of ineffectiveness as an adjustment of interest expense during the nine
months ended September 30, 2009 and we recognized no ineffectiveness during the nine months ended
September 30, 2008. Our consolidated comprehensive loss for the three and nine months ended
September 30, 2009, totaled $10.9 million and $48.6 million, respectively, and consolidated
comprehensive income for the three and nine months ended September 30, 2008, totaled $237.7 million
and $557.5 million, respectively, before the effects of noncontrolling interests. If the forward
rates at September 30, 2009 remain constant, we estimate that during the next twelve months, we
would reclassify into earnings approximately $1.5 million of the unrealized losses in accumulated
other comprehensive income.
From time to time, we enter 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 a financing product to lower our cost of borrowing. In exchange for
our receipt of a fixed rate generally equal to the underlying borrowings interest rate, the total
rate of return swaps require that we pay a variable rate, equivalent to the Securities Industry and
Financial Markets Association Municipal Swap Index, or SIFMA, rate for tax-exempt bonds payable and
the 30-day LIBOR rate for notes payable, plus a risk spread. These swaps generally have an
interest in the property collateralized by the related borrowings and the obligations under certain
of these swaps are cross-collateralized with certain of the other swaps with a particular
counterparty. The underlying borrowings are generally prepayable at our option, with no penalty,
with 30 days
advance notice, and the swaps generally have a term of less than five years. The total rate
of return swaps have a contractually defined termination value generally equal to the difference
between the fair value and the counterpartys purchased value of the underlying borrowings, which
may require payment by us or to us for such difference. Accordingly, we believe fluctuations in
the fair value of the borrowings from the inception of the hedging relationship generally will be
offset by a corresponding fluctuation in the fair value of the total rate of return swaps.
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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. We evaluate the effectiveness of these fair value hedges at the end of each
reporting period.
As of September 30, 2009 and December 31, 2008, we had borrowings payable subject to total
rate of return swaps with aggregate outstanding principal balances of $365.3 million and $421.7
million, respectively. At September 30, 2009, the weighted average fixed receive rate under the
total return swaps was 6.7% and the weighted average variable pay rate was 1.1%, based on the
applicable SIFMA and 30-day LIBOR rates effective as of that date. Information related to the fair
value of these instruments at September 30, 2009 and December 31, 2008, is discussed further below.
Fair Value Measurements
The table below presents (in thousands) the amounts at December 31, 2008 and September 30,
2009 (and the changes in fair value between such dates) for significant items measured in our
consolidated balance sheets at fair value. Certain of these fair value measurements are based on
significant unobservable inputs classified within Level 3 of the valuation hierarchy defined in
FASB ASC Topic 820. When a determination is made to classify a fair value measurement within Level
3 of the valuation hierarchy, the determination is based upon the significance of the unobservable
factors to the overall fair value measurement. However, such fair value measurements typically
include, in addition to the unobservable or Level 3 inputs, observable inputs that can be validated
to observable external sources; accordingly, the changes in fair value in the table below are due
in part to observable factors that are part of the valuation methodology.
Unrealized | ||||||||||||||||
Unrealized | gains (losses) | |||||||||||||||
Fair value at | gains (losses) | included in | Fair value at | |||||||||||||
December 31, | included in | partners | September 30, | |||||||||||||
2008 | earnings (1)(2) | capital | 2009 | |||||||||||||
Level 2: |
||||||||||||||||
Interest rate swaps (3) |
$ | (2,557 | ) | $ | (478 | ) | $ | 607 | $ | (2,428 | ) | |||||
Level 3: |
||||||||||||||||
Total rate of return swaps (4) |
(29,495 | ) | 3,395 | | (26,100 | ) | ||||||||||
Changes in fair value of debt
instruments subject to total
rate of return swaps (5) |
29,495 | (3,395 | ) | | 26,100 | |||||||||||
Total |
$ | (2,557 | ) | $ | (478 | ) | $ | 607 | $ | (2,428 | ) | |||||
(1) | Unrealized gains (losses) relate to periodic revaluations of fair value and have not
resulted from the settlement of a swap position. |
|
(2) | Included in interest expense in the accompanying condensed consolidated statements of
income. |
|
(3) | The fair value of interest rate swaps is estimated using an income approach with
primarily observable inputs including information regarding the hedged variable cash flows
and forward yield curves relating to the variable interest rates on which the hedged cash
flows are based. |
|
(4) | Total rate of return swaps have contractually-defined termination values generally equal
to the difference between the fair value and the counterpartys purchased value of the
underlying borrowings. We calculate the termination value, which we believe is
representative of the fair value, of total rate of return swaps using a market approach by
reference to estimates of the fair value of the underlying borrowings, which are discussed
below, and an evaluation of potential changes in the credit quality of the counterparties to
these arrangements. |
|
(5) | We estimate the fair value of debt instruments using an income and market approach,
including comparison of the contractual terms to observable and unobservable inputs such as
market interest rate risk spreads, collateral quality and loan-to-value ratios on similarly
encumbered assets within our portfolio. These borrowings are collateralized
and non-recourse to us; therefore, we believe changes in our credit rating will not
materially affect a market participants estimate of the borrowings fair value. |
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In addition to the amounts in the table above, during the three and nine months ended
September 30, 2009, we recognized $26.7 million and $43.6 million, respectively, of net provisions
for operating real estate impairment losses (including amounts in discontinued operations) to
reduce the carrying amounts of certain real estate properties to their estimated fair value (or
fair value less estimated costs to sell). We estimate the fair value of real estate using income
and market valuation techniques using information such as broker estimates, purchase prices for
recent transactions on comparable assets and net operating income capitalization analyses using
observable and unobservable inputs such as capitalization rates, asset quality grading, geographic
location analysis, and local supply and demand observations. Based on the significance of the
unobservable inputs, we classify these fair value measurements within Level 3 of the valuation
hierarchy.
We believe that the aggregate fair value of our cash and cash equivalents, receivables,
payables and short-term secured debt approximates their aggregate carrying value at September 30,
2009 and December 31, 2008, due to their relatively short-term nature and high probability of
realization. We estimate fair value for our notes receivable and debt instruments using present
value techniques that include income and market valuation approaches using observable inputs such
as market rates for debt with the same or similar terms and unobservable inputs such as collateral
quality and loan-to-value ratios on similarly encumbered assets. Because of the significance of
unobservable inputs to these fair value measurements, we classify them within Level 3 of the fair
value hierarchy. 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 notes receivable was approximately $152.7 million and $161.6 million at September 30, 2009 and
December 31, 2008, respectively, as compared to their carrying amounts of $158.0 million and $162.5
million. The estimated aggregate fair value of our consolidated debt (including amounts reported
in liabilities related to assets held for sale) was approximately $6.2 billion and $6.7 billion at
September 30, 2009 and December 31, 2008, respectively, as compared to aggregate carrying amounts
of $6.2 billion and $6.8 billion. The fair values of our derivative instruments at September 30,
2009 and December 31, 2008 are included in the table presented above.
Concentration of Credit Risk
Financial instruments that potentially could subject us to significant concentrations of
credit risk consist principally of notes receivable and total rate of return swaps. Approximately
$87.0 million of our notes receivable at September 30, 2009, are collateralized by properties in
the West Harlem area of New York City. There are no other significant concentrations of credit
risk with respect to our notes receivable due to the large number of partnerships that are
borrowers under the notes and the geographic diversification of the properties that collateralize
the notes.
At September 30, 2009, we had total rate of return swap positions with two financial
institutions totaling $365.4 million. 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 this 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 impact our results of operations
and operating cash flows.
Use of Estimates
The preparation of our condensed consolidated financial statements in conformity with GAAP
requires management to make estimates and assumptions that affect the reported amounts included in
the financial statements and accompanying notes thereto. Actual results could differ from those
estimates.
Income Taxes
In March 2008, we were notified by the Internal Revenue Service, or the IRS, that it intended
to examine our 2006 Federal tax return. During June 2008, the IRS issued AIMCO-GP, Inc., our
general partner and tax matters partner, a summary report including the IRSs proposed adjustments
to our 2006 Federal tax return. In addition, in May 2009, we were notified by the IRS that it
intended to examine our 2007 Federal tax return. A summary report related to the 2007 examination
has not yet been issued. We do not expect the 2006 proposed adjustments or the 2007 examination to
have any material effect on our unrecognized tax benefits, financial condition or results of
operations.
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NOTE 3 Real Estate Dispositions
Real Estate Dispositions (Discontinued Operations)
We are currently marketing for sale certain real estate properties that are inconsistent with
our long-term investment strategy. At the end of each reporting period, we evaluate whether such
properties meet the criteria to be classified as held for sale, including whether such properties
are expected to be sold within 12 months. Additionally, certain properties that do not meet all of
the criteria to be classified as held for sale at the balance sheet date may nevertheless be sold
and included in discontinued operations in the subsequent 12 months; thus, the number of properties
that may be sold during the subsequent 12 months could exceed the number classified as held for
sale. At September 30, 2009 and December 31, 2008, we had one and 58 properties, with an aggregate
of 700 and 14,105 units, respectively, classified as held for sale. Amounts classified as held for
sale in the accompanying condensed consolidated balance sheets are as follows (in thousands):
September 30, | December 31, | |||||||
2009 | 2008 | |||||||
Real estate, net |
$ | 28,369 | $ | 601,382 | ||||
Other assets |
1,389 | 9,415 | ||||||
Assets held for sale |
$ | 29,758 | $ | 610,797 | ||||
Property debt |
$ | 47,874 | $ | 432,461 | ||||
Other liabilities |
279 | 9,117 | ||||||
Liabilities related to assets held for sale |
$ | 48,153 | $ | 441,578 | ||||
During the nine months ended September 30, 2009, we sold 57 properties with an aggregate
of 13,405 units and during the year ended December 31, 2008, we sold 151 consolidated properties
with an aggregate of 37,202 units. For the three and nine months ended September 30, 2009 and
2008, discontinued operations includes the results of operations for the periods prior to the date
of sale for all properties sold and for properties classified as held for sale as of September 30,
2009.
The following is a summary of the components of income from discontinued operations and the
related amounts of income from discontinued operations attributable to the Partnership and to
noncontrolling interests for the three and nine months ended September 30, 2009 and 2008 (in
thousands):
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2009 | 2008 | 2009 | 2008 | |||||||||||||
Rental and other property revenues |
$ | 11,177 | $ | 82,477 | $ | 68,227 | $ | 319,282 | ||||||||
Property operating expenses |
(5,825 | ) | (40,100 | ) | (37,597 | ) | (157,847 | ) | ||||||||
Depreciation and amortization |
(2,448 | ) | (20,403 | ) | (18,698 | ) | (78,034 | ) | ||||||||
Provision for operating real estate
impairment losses |
(5,050 | ) | (3,429 | ) | (18,954 | ) | (9,965 | ) | ||||||||
Other expenses, net |
(1,355 | ) | (4,812 | ) | (5,743 | ) | (8,087 | ) | ||||||||
Operating (loss) income |
(3,501 | ) | 13,733 | (12,765 | ) | 65,349 | ||||||||||
Interest income |
3 | 534 | 56 | 1,320 | ||||||||||||
Interest expense |
(2,348 | ) | (15,739 | ) | (14,194 | ) | (59,531 | ) | ||||||||
(Loss) income before gain on
dispositions of real estate and income
tax |
(5,846 | ) | (1,472 | ) | (26,903 | ) | 7,138 | |||||||||
Gain on extinguishment of debt |
259 | | 259 | | ||||||||||||
Gain on dispositions of real estate |
70,890 | 169,160 | 133,431 | 549,550 | ||||||||||||
Income tax benefit (expense) |
3,815 | (5,419 | ) | 3,158 | (20,826 | ) | ||||||||||
Income from discontinued operations, net |
$ | 69,118 | $ | 162,269 | $ | 109,945 | $ | 535,862 | ||||||||
Income from discontinued operations
attributable to: |
||||||||||||||||
Noncontrolling interests in consolidated
real estate partnerships |
$ | (32,498 | ) | $ | (38,125 | ) | $ | (56,656 | ) | $ | (95,867 | ) | ||||
The Partnership |
$ | 36,620 | $ | 124,144 | $ | 53,289 | $ | 439,995 | ||||||||
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Gain on dispositions of real estate is reported net of incremental direct costs incurred in
connection with the transactions, including any prepayment penalties incurred upon repayment of
mortgage loans collateralized by the properties being sold. Such prepayment penalties totaled $7.6
million and $19.4 million for the three and nine months ended September 30, 2009, respectively, and
$20.8 million and $45.9 million for the three and nine months ended September 30, 2008,
respectively. We classify interest expense related to property debt within discontinued operations
when the related real estate asset is sold or classified as held for sale.
In connection with properties sold or classified as held for sale during the three and nine
months ended September 30, 2009, we allocated $3.5 million and $6.5 million of goodwill related to
our real estate segment to the carrying amounts of the properties sold or classified as held for
sale. Of these amounts, $2.2 million and $5.2 million were reflected as a reduction of gain on
dispositions of real estate during the three and nine months ended September 30, 2009,
respectively, and $1.3 million was reflected as an adjustment of impairment losses during the three
and nine months ended September 30, 2009. The amounts of goodwill allocated to these properties
were based on the relative fair values of the properties sold or classified as held for sale and
the retained portions of the reporting units to which the goodwill was allocated. During 2008, we
did not allocate any goodwill to properties sold or classified as held for sale as real estate
properties were not considered businesses under then applicable GAAP.
Gain on Dispositions of Unconsolidated Real Estate and Other
During the three months ended September 30, 2009, we recognized approximately $3.9 million of
gain on the disposition of our interest in a group purchasing organization (see Note 4), offset by
approximately $0.6 million of losses related to unconsolidated real estate partnerships. In
addition to these gains recognized during the three months ended September 30, 2009, during the
nine months ended September 30, 2009, we recognized approximately $11.8 million of gains on the
disposition of interests in unconsolidated real estate partnerships (of which $8.6 million relates
to our receipt in 2009 of additional proceeds related to our disposition during 2008 of an interest
in an unconsolidated real estate partnership) and approximately $2.9 million of gains related to
properties sold by unconsolidated real estate partnerships and the disposal of undeveloped land
parcels.
During the three months ended September 30, 2008, we disposed of our interests in
unconsolidated real estate partnerships that owned two properties with 671 units. Our net gain on
the disposition of these interests totaled $98.4 million and is included in gain on dispositions of
unconsolidated real estate and other in the accompanying statements of income for the three and
nine months ended September 30, 2008.
NOTE 4 Other Significant Transactions
Restructuring Costs
In connection with 2008 property sales and an expected reduction in redevelopment and
transactional activities, during the three months ended December 31, 2008, we initiated an
organizational restructuring program that included reductions in workforce and related costs,
reductions in leased corporate facilities and abandonment of certain redevelopment projects and
business pursuits. This restructuring effort resulted in a restructuring charge of $22.8 million,
which consisted of: severance costs of $12.9 million; unrecoverable lease obligations of $6.4
million related to space that we will no longer use; and the write-off of deferred transaction
costs totaling $3.5 million associated with certain acquisitions and redevelopment opportunities
that we will no longer pursue. We completed the workforce reductions by March 31, 2009. In
connection with the completion of the workforce reductions, we reversed approximately $1.7 million
of excess severance costs. Additionally, during the first quarter of 2009, we abandoned additional
leased corporate facilities and redevelopment projects, which resulted in an additional
restructuring charge of approximately $1.7 million.
In connection with continued repositioning of our portfolio, during the three months ended
September 30, 2009, we evaluated our organizational structure and eliminated additional positions.
This restructuring effort resulted in a restructuring charge of $2.8 million, which consisted of
severance and personnel related costs of $2.2 million and a $0.6 million adjustment to previously
estimated unrecoverable lease obligations related to space that we will no longer use.
As of September 30, 2009, the remaining accruals associated with the restructuring activity
are $6.3 million for estimated unrecoverable lease obligations, which will be paid over the
remaining terms of the affected leases, and $1.4 million for severance and personnel related costs,
which is anticipated to be paid during the fourth quarter of 2009.
The net effect of the restructuring activity reduced earnings by $2.8 million during the three
and nine months ended September 30, 2009, and is included in other expense, net in our consolidated
statements of income. The amounts related to
our restructuring charges have not been allocated to our reportable segments based on the
methods used to evaluate segment performance.
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Amended Credit Facility
On May 1, 2009, we entered into a Sixth Amendment to our Amended and Restated Senior Secured
Credit Agreement with a syndicate of financial institutions, which we refer to as the Credit
Agreement. The Sixth Amendment provides for a reduction in the aggregate amount of commitments and
loans under the Credit Agreement from $985.0 million, comprised of a $350.0 million term loan and
$635.0 million of revolving loan commitments to $530.0 million, comprised of a $350.0 million term
loan and $180.0 million of revolving loan commitments. Pursuant to the Sixth Amendment, our
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 $350.0 million term loan balance by February 1, 2011.
As of October 30, 2009, we have repaid $140.0 million of the term loan, leaving a remaining
outstanding balance of $210.0 million.
Repurchases of Series A Community Reinvestment Act Perpetual Preferred Stock
In June 2009, Aimco entered into an agreement to repurchase $36.0 million in liquidation
preference of its Series A Community Reinvestment Act Preferred Stock, or CRA Preferred Stock, at a
30% discount to the redemption value. Pursuant to this agreement, the holder of the CRA Preferred
Stock may require Aimco to repurchase 12 shares, or $6.0 million in liquidation preference, of its
CRA Preferred Stock for $4.2 million on June 30, 2009, and an additional 60 shares, or $30.0
million in liquidation preference, of its CRA Preferred Stock over the next three years, for $21.0
million. If required, these additional repurchases will be for up to $10.0 million in liquidation
preference in May 2010, 2011 and 2012. Upon any repurchases required of Aimco under this
agreement, we will repurchase from Aimco an equivalent number of our Series A Community
Reinvestment Act Perpetual Partnership Preferred Units, or CRA Preferred Units.
In June 2009, Aimco completed the first repurchase under this agreement. Concurrent with this
repurchase, we repurchased from Aimco an equivalent number of our CRA Preferred Units. We
reflected the $1.8 million excess of the carrying value over the repurchase price, offset by $0.2
million of issuance costs previously recorded as a reduction of partners capital, as a reduction
of net income attributable to preferred unitholders for the nine months ended September 30, 2009.
Based on the holders ability to require Aimco to repurchase an additional 60 shares of CRA
Preferred Stock pursuant to this agreement and our obligation to purchase from Aimco a
corresponding number of our CRA Preferred Units, $30.0 million in liquidation preference of CRA
Preferred Units, or the maximum redemption value of such perpetual preferred units, is classified
within temporary capital in our consolidated balance sheet at September 30, 2009.
During September 2008, Aimco repurchased 54 shares, or $27.0 million in liquidation
preference, of its CRA Preferred Stock for cash totaling $24.8 million. Concurrent with this
repurchase, we repurchased from Aimco an equivalent number of our CRA Preferred Units. We
reflected the $2.2 million excess of the carrying value over the redemption price, offset by $0.7
million of issuance costs previously recorded as a reduction of partners capital, as a reduction
of net income attributable to preferred unitholders for the three and nine months ended September
30, 2008.
Sale of Interest in Group Purchasing Organization
On September 16, 2009, we sold our interest in an unconsolidated group purchasing organization
to an unrelated entity for $5.9 million, resulting in the recognition of a gain on sale of $3.9
million, which is included in gain on disposition of unconsolidated real estate and other in our
consolidated statements of income for the three and nine months ended September 30, 2009. This
gain is partially offset by a $1.0 million provision for income tax. We also have a note
receivable from another principal in the group purchasing organization, which is collateralized by
their equity interest in the entity. In connection with the sale of our interest, we reevaluated
collectibility of the note receivable and reversed $1.4 million of previously recognized impairment
losses, which is reflected in provision for losses on notes receivable, net in our consolidated
statements of income for the three and nine months ended September 30, 2009. As of September 30,
2009, the carrying amount of the note receivable, which is due for repayment in 2010, totaled $1.4
million.
Casualty Loss Related to Tropical Storm Fay and Hurricane Ike
During the three months ended September 30, 2008, Tropical Storm Fay and Hurricane Ike caused
severe damage to certain of our properties located primarily in Florida and Texas, respectively.
We estimated total losses of approximately $29.6 million, including property damage replacement
cost and clean-up cost. After consideration of estimated third party
insurance proceeds and the noncontrolling partners share of losses for consolidated real
estate partnerships, the net effect of these casualties on net income available to common
unitholders for the three and nine months ended September 30, 2008 was a loss of approximately $5.0
million.
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Information Technology Hardware/Software Write-off
During the nine months ended September 30, 2008, we reassessed our approach to communication
technology needs at our properties, which resulted in the discontinuation of an infrastructure
project and a $4.8 million write-off of related hardware and capitalized internal and consulting
costs included in other assets. The write-off, which is net of estimated sales proceeds, is
included in other expense, net. During the nine months ended September 30, 2008, we additionally
recorded a $1.0 million write off of certain software and hardware assets that are no longer
consistent with our information technology strategy. This write-off is included in depreciation and
amortization.
Common Stock Repurchases
Aimcos board of directors has, from time to time, authorized Aimco to repurchase shares of
its outstanding Common Stock. During the nine months ended September 30, 2009, Aimco did not
repurchase any shares of its Class A Common Stock. During the nine months ended September 30,
2008, Aimco repurchased 16,681,298 shares of its Class A Common Stock for cash totaling $423.5
million. Concurrently, we repurchased from Aimco a corresponding number of common OP units. As of
September 30, 2009, Aimco was authorized to repurchase approximately 19.3 million additional
shares. In the event of any repurchases of shares of Aimco Class A Common Stock by Aimco, it is
expected that we would repurchase an equal number of common OP Units owned by Aimco.
NOTE 5 Commitments and Contingencies
Commitments
In connection with our redevelopment and capital improvement activities, we have commitments
of approximately $12.9 million related to construction projects, most of which we expect to incur
during the remainder of 2009. Additionally, we enter into certain commitments for future purchases
of 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.
We have committed to fund an additional $4.8 million in second mortgage loans on certain
properties in West Harlem in New York City. In certain circumstances, we also could be required to
acquire the properties for cash and/or assumption of first mortgage debt , for a total obligation
of approximately $149.0 million to $216.0 million, in addition to amounts funded and committed
under the related loan agreement.
We have a $30.0 million obligation under a sale-leaseback arrangement which we account for as
a financing in our consolidated balance sheets. Under the terms of the sale-leaseback arrangement,
the other party to this arrangement has the right to require us to purchase its interests in the
partnership that owns the properties under lease, thus effectively requiring us to repay the
obligation. Such put option expires on December 3, 2011.
Tax Credit Arrangements
We are required to manage certain consolidated real estate partnerships in compliance with
various laws, regulations and contractual provisions that apply to our historic and low-income
housing tax credit syndication arrangements. In some instances, noncompliance with applicable
requirements could result in projected tax benefits not being realized and require a refund or
reduction of investor capital contributions, which are reported as deferred income in our
consolidated balance sheet, until such time as our obligation to deliver tax benefits is relieved.
The remaining compliance periods for our tax credit syndication arrangements range from less than
one year to 15 years. We do not anticipate that any material refunds or reductions of investor
capital contributions will be required in connection with these arrangements.
Legal Matters
In addition to the matters described below, we are a party to various legal actions and
administrative proceedings arising in the ordinary course of business, some of which are covered by
our general liability insurance program, and none of which we expect to have a material adverse
effect on our consolidated financial condition, results of operations or cash flows.
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Limited Partnerships
In connection with our acquisitions of interests in real estate partnerships, we are sometimes
subject to legal actions, including allegations that such activities may involve breaches of
fiduciary duties to the partners of such real estate partnerships or violations of the relevant
partnership agreements. We may incur costs in connection with the defense or settlement of such
litigation. We believe that we comply with our fiduciary obligations and relevant partnership
agreements. Although the outcome of any litigation is uncertain, we do not expect any such legal
actions to have a material adverse effect on our consolidated financial condition, results of
operations or cash flows.
Environmental
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 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 determined that our legal obligations to remove or remediate hazardous substances may
be conditional asset retirement obligations, as defined in GAAP. Except in limited circumstances
where the asset retirement activities are expected to be performed in connection with a planned
construction project or property casualty, we believe that the fair value of our asset retirement
obligations cannot be reasonably estimated due to significant uncertainties in the timing and
manner of settlement of those obligations. Asset retirement obligations that are reasonably
estimable as of September 30, 2009, are immaterial to our consolidated financial condition, results
of operations and cash flows.
Mold
Aimco has 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, results of
operations or cash flows.
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NOTE 6 Earnings per Unit
We calculate earnings per unit based on the weighted average number of common OP Units,
participating securities, common OP unit equivalents and dilutive convertible securities
outstanding during the period. We consider both common OP Units and High Performance Units, which
have identical rights to distributions and undistributed earnings, to be common units for purposes
of the earnings per unit data presented below. The following table illustrates the calculation of
basic and diluted earnings per unit for the three and nine months ended September 30, 2009 and 2008
(in thousands, except per unit data):
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2009 | 2008 | 2009 | 2008 | |||||||||||||
Numerator: |
||||||||||||||||
(Loss) income from continuing operations |
$ | (78,468 | ) | $ | 75,314 | $ | (159,087 | ) | $ | 21,406 | ||||||
Loss (income) from continuing operations attributable
to noncontrolling interests |
13,069 | (8,058 | ) | 31,991 | (12,290 | ) | ||||||||||
Income attributable to the Partnerships preferred
unitholders |
(14,731 | ) | (14,186 | ) | (42,189 | ) | (45,771 | ) | ||||||||
(Income) loss attributable to participating securities |
| (285 | ) | | 993 | |||||||||||
(Loss) income from continuing operations
attributable to the Partnerships common
unitholders |
$ | (80,130 | ) | $ | 52,785 | $ | (169,285 | ) | $ | (35,662 | ) | |||||
Income from discontinued operations |
$ | 69,118 | $ | 162,269 | $ | 109,945 | $ | 535,862 | ||||||||
Income from discontinued operations attributable to
noncontrolling interests |
(32,498 | ) | (38,125 | ) | (56,656 | ) | (95,867 | ) | ||||||||
Income attributable to participating securities |
| (1,440 | ) | | (5,291 | ) | ||||||||||
Income from discontinued operations
attributable to the Partnerships common
unitholders |
$ | 36,620 | $ | 122,704 | $ | 53,289 | $ | 434,704 | ||||||||
Net (loss) income |
$ | (9,350 | ) | $ | 237,583 | $ | (49,142 | ) | $ | 557,268 | ||||||
Income attributable to noncontrolling interests |
(19,429 | ) | (46,183 | ) | (24,665 | ) | (108,157 | ) | ||||||||
Income attributable to the Partnerships preferred
unitholders |
(14,731 | ) | (14,186 | ) | (42,189 | ) | (45,771 | ) | ||||||||
Income attributable to participating securities |
| (1,725 | ) | | (4,298 | ) | ||||||||||
Net (loss) income attributable to the
Partnerships common unitholders |
$ | (43,510 | ) | $ | 175,489 | $ | (115,996 | ) | $ | 399,042 | ||||||
Denominator: |
||||||||||||||||
Denominator for basic earnings per unit weighted
average number of common units outstanding |
124,376 | 127,701 | 124,402 | 132,792 | ||||||||||||
Effect of dilutive securities: |
||||||||||||||||
Dilutive potential common units |
| 370 | | | ||||||||||||
Denominator for diluted earnings per unit |
124,376 | 128,071 | 124,402 | 132,792 | ||||||||||||
Earnings (loss) per common unit: |
||||||||||||||||
Basic and diluted earnings (loss) per common unit: |
||||||||||||||||
(Loss) income from continuing operations attributable
to the Partnerships common unitholders |
$ | (0.64 | ) | $ | 0.41 | $ | (1.36 | ) | $ | (0.27 | ) | |||||
Income from discontinued operations attributable to
the Partnerships common unitholders |
0.29 | 0.96 | 0.43 | 3.28 | ||||||||||||
Net (loss) income attributable to the
Partnerships common unitholders |
$ | (0.35 | ) | $ | 1.37 | $ | (0.93 | ) | $ | 3.01 | ||||||
As of September 30, 2009 and 2008, the common share equivalents that could potentially dilute
basic earnings per unit in future periods totaled 9.9 million and 10.5 million, respectively.
These securities, representing stock options to purchase shares of Aimco Class A Common Stock, have
been excluded from the earnings per unit computations for the three and nine months ended September
30, 2009 and 2008, because their effect would have been anti-dilutive. Participating securities,
consisting of unvested restricted shares of Aimco stock and shares of Aimco stock purchased
pursuant to officer loans, receive dividends similar to shares of Aimco Class A Common Stock and
common OP Units and totaled 0.9 million and 1.4 million at September 30, 2009 and 2008,
respectively. The effect of participating securities is reflected in basic and diluted earnings
per unit computations for the periods presented above using the two-class method of allocating
distributed and undistributed earnings.
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During the three and nine months ended September 30, 2009, the adjustment to compensation
expense recognized related to cumulative dividends on forfeited shares of Aimco restricted stock
exceeded the amount of dividends related to participating securities declared in the current
periods. Accordingly, distributed earnings attributed to participating
securities during these periods were reduced to zero for purposes of calculating earnings per
unit using the two-class method.
Various classes of redeemable preferred OP Units are outstanding. Depending on the terms of
each class, these preferred OP Units are convertible into common OP Units or redeemable for cash
or, at our option, shares of Aimco Class A Common Stock, and are paid distributions varying from
5.9% to 9.6% per annum per unit, or equal to the dividends paid on Aimcos Class A Common Stock
based on the conversion terms. As of September 30, 2009, a total of 3.1 million preferred OP Units
were outstanding with redemption values of $85.7 million and were redeemable for approximately 5.8
million shares of Aimco Class A Common Stock or cash at our option.
NOTE 7 Recent Accounting Developments
In June 2009, the FASB issued Statement of Financial Accounting Standards No. 167, Amendments
to FASB Interpretation No. 46(R), or SFAS 167, which is effective for fiscal years beginning after
November 15, 2009, and will be codified into FASB ASC Topic 810. SFAS 167 introduces a more
qualitative approach to evaluating VIEs for consolidation and requires a company to perform an
analysis to determine whether its variable interests give it a controlling financial interest in a
VIE. This analysis identifies the primary beneficiary of a VIE as the entity that has (a) the
power to direct the activities of the VIE that most significantly impact the VIEs economic
performance, and (b) the obligation to absorb losses or the right to receive benefits that could
potentially be significant to the VIE. In determining whether it has the power to direct the
activities of the VIE that most significantly affect the VIEs performance, SFAS 167 requires a
company to assess whether it has an implicit financial responsibility to ensure that a VIE operates
as designed. SFAS 167 requires continuous reassessment of primary beneficiary status rather than
periodic, event-driven assessments as previously required, and incorporates expanded disclosure
requirements. We have not yet determined the effect that SFAS 167 will have on our consolidated
financial statements.
NOTE 8 Business Segments
Our chief operating decision maker uses various generally accepted industry financial measures
to assess the performance of the business, including: Net Asset Value, which is the estimated fair
value of our assets, net of debt; Funds From Operations; Adjusted Funds From Operations, which is
Funds From Operations 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; Economic Income, which is changes in Net Asset Value plus cash dividends;
financial coverage ratios; and leverage as shown on our balance sheet. The 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.
We have two reportable segments: real estate and investment management.
Real Estate Segment
Our real estate segment owns and operates properties that generate rental and other
property-related income through the leasing of apartment units to a diverse base of residents. Our
real estate segments net operating income also includes income from property management services
performed for unconsolidated partnerships and unrelated parties.
Investment Management Segment
Our investment management segment 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 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. Our investment management segments operating results also include gains on
dispositions of non-depreciable assets, accretion of loan discounts resulting from transactional
activities and certain other income in arriving at income (loss) from continuing operations for the
segment.
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The following tables present the revenues, net operating income (loss) and income (loss) from
continuing operations of our real estate and investment management segments for the three and nine
months ended September 30, 2009 and 2008 (in thousands):
Corporate | ||||||||||||||||
Not Allocated | ||||||||||||||||
Investment | to Segments | |||||||||||||||
Real Estate | Management | and Certain | ||||||||||||||
Segment | Segment | Eliminations | Total | |||||||||||||
Three Months Ended September 30, 2009: |
||||||||||||||||
Rental and other property revenues |
$ | 307,907 | $ | | $ | | $ | 307,907 | ||||||||
Property management revenues, primarily from affiliates |
1,114 | | | 1,114 | ||||||||||||
Asset management and tax credit revenues |
| 10,750 | (425 | ) | 10,325 | |||||||||||
Total revenues |
309,021 | 10,750 | (425 | ) | 319,346 | |||||||||||
Property operating expenses |
146,608 | | | 146,608 | ||||||||||||
Property management expenses |
510 | | | 510 | ||||||||||||
Investment management expenses |
| 4,213 | | 4,213 | ||||||||||||
Depreciation and amortization (1) |
| | 122,362 | 122,362 | ||||||||||||
Provision for operating real estate impairment losses (1) |
| | 21,676 | 21,676 | ||||||||||||
General and administrative expenses |
| | 15,676 | 15,676 | ||||||||||||
Other expenses, net |
| | 8,548 | 8,548 | ||||||||||||
Total operating expenses |
147,118 | 4,213 | 168,262 | 319,593 | ||||||||||||
Net operating income (loss) |
161,903 | 6,537 | (168,687 | ) | (247 | ) | ||||||||||
Other items included in continuing operations (2) |
| (560 | ) | (77,661 | ) | (78,221 | ) | |||||||||
Income (loss) from continuing operations |
$ | 161,903 | $ | 5,977 | $ | (246,348 | ) | $ | (78,468 | ) | ||||||
Investment | Corporate | |||||||||||||||
Real Estate | Management | Not Allocated | ||||||||||||||
Segment | Segment | to Segments | Total | |||||||||||||
Three Months Ended September 30, 2008: |
||||||||||||||||
Rental and other property revenues |
$ | 310,563 | $ | | $ | | $ | 310,563 | ||||||||
Property management revenues, primarily from affiliates |
1,227 | | | 1,227 | ||||||||||||
Asset management and tax credit revenues |
| 32,755 | (131 | ) | 32,624 | |||||||||||
Total revenues |
311,790 | 32,755 | (131 | ) | 344,414 | |||||||||||
Property operating expenses |
147,165 | | | 147,165 | ||||||||||||
Property management expenses |
1,603 | | | 1,603 | ||||||||||||
Investment management expenses |
| 7,850 | | 7,850 | ||||||||||||
Depreciation and amortization (1) |
| | 107,374 | 107,374 | ||||||||||||
General and administrative expenses |
| | 27,383 | 27,383 | ||||||||||||
Other expenses, net |
| | 1,343 | 1,343 | ||||||||||||
Total operating expenses |
148,768 | 7,850 | 136,100 | 292,718 | ||||||||||||
Net operating income (loss) |
163,022 | 24,905 | (136,231 | ) | 51,696 | |||||||||||
Other items included in continuing operations (2) |
| 2,752 | 20,866 | 23,618 | ||||||||||||
Income (loss) from continuing operations |
$ | 163,022 | $ | 27,657 | $ | (115,365 | ) | $ | 75,314 | |||||||
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Corporate | |||||||||||||||||||
Not Allocated | |||||||||||||||||||
Investment | to Segments | ||||||||||||||||||
Real Estate | Management | and Certain | |||||||||||||||||
Segment | Segment | Eliminations | Total | ||||||||||||||||
Nine Months Ended September 30, 2009: |
|||||||||||||||||||
Rental and other property revenues |
$ | 925,363 | $ | | $ | | $ | 925,363 | |||||||||||
Property management revenues, primarily from
affiliates |
4,098 | | | 4,098 | |||||||||||||||
Asset management and tax credit revenues |
| 33,779 | (1,310 | ) | 32,469 | ||||||||||||||
Total revenues |
929,461 | 33,779 | (1,310 | ) | 961,930 | ||||||||||||||
Property operating expenses |
426,258 | | | 426,258 | |||||||||||||||
Property management expenses |
2,415 | | | 2,415 | |||||||||||||||
Investment management expenses |
| 12,719 | | 12,719 | |||||||||||||||
Depreciation and amortization (1) |
| | 355,680 | 355,680 | |||||||||||||||
Provision for operating real estate impairment
losses (1) |
| | 24,666 | 24,666 | |||||||||||||||
General and administrative expenses |
| | 53,598 | 53,598 | |||||||||||||||
Other expenses, net |
| | 14,567 | 14,567 | |||||||||||||||
Total operating expenses |
428,673 | 12,719 | 448,511 | 889,903 | |||||||||||||||
Net operating income (loss) |
500,788 | 21,060 | (449,821 | ) | 72,027 | ||||||||||||||
Other items included in continuing operations (2) |
| 1,986 | (233,100 | ) | (231,114 | ) | |||||||||||||
Income (loss) from continuing operations |
$ | 500,788 | $ | 23,046 | $ | (682,921 | ) | $ | (159,087 | ) | |||||||||
Investment | Corporate | |||||||||||||||
Real Estate | Management | Not Allocated | ||||||||||||||
Segment | Segment | to Segments | Total | |||||||||||||
Nine Months Ended September 30, 2008: |
||||||||||||||||
Rental and other property revenues |
$ | 918,772 | $ | | $ | | $ | 918,772 | ||||||||
Property management revenues, primarily from
affiliates |
4,746 | | | 4,746 | ||||||||||||
Asset management and tax credit revenues |
| 83,782 | (131 | ) | 83,651 | |||||||||||
Total revenues |
923,518 | 83,782 | (131 | ) | 1,007,169 | |||||||||||
Property operating expenses |
430,166 | | | 430,166 | ||||||||||||
Property management expenses |
4,192 | | | 4,192 | ||||||||||||
Investment management expenses |
| 18,044 | | 18,044 | ||||||||||||
Depreciation and amortization (1) |
| | 304,668 | 304,668 | ||||||||||||
General and administrative expenses |
| | 75,754 | 75,754 | ||||||||||||
Other expenses, net |
| | 18,926 | 18,926 | ||||||||||||
Total operating expenses |
434,358 | 18,044 | 399,348 | 851,750 | ||||||||||||
Net operating income (loss) |
489,160 | 65,738 | (399,479 | ) | 155,419 | |||||||||||
Other items included in continuing operations (2) |
| (177 | ) | (133,836 | ) | (134,013 | ) | |||||||||
Income (loss) from continuing operations |
$ | 489,160 | $ | 65,561 | $ | (533,315 | ) | $ | 21,406 | |||||||
(1) | Our chief operating decision maker assesses the performance of real estate using, among
other measures, net operating income, excluding depreciation and amortization and provision
for operating real estate impairment losses. Accordingly, we do not allocate depreciation
and amortization to the real estate segment. |
|
(2) | Other items in continuing operations for the investment management segment include
accretion income recognized on discounted notes receivable, other income items and income
taxes associated with transactional activities. Other items in continuing operations not
allocated to segments include: (i) interest income and expense;
(ii) recovery of or provision for losses on
notes receivable; (iii) equity in losses of unconsolidated real estate partnerships; and (iv)
gain on dispositions of unconsolidated real estate and other. |
The assets of our reportable segments are as follows (in thousands):
September 30, | December 31, | |||||||
2009 | 2008 | |||||||
Total assets for reportable segments (1) |
$ | 8,259,619 | $ | 9,073,541 | ||||
Corporate and other assets |
230,383 | 383,180 | ||||||
Total consolidated assets |
$ | 8,490,002 | $ | 9,456,721 | ||||
(1) | Total assets for reportable segments substantially relate to the real estate segment. |
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ITEM 2. | Managements Discussion and Analysis of Financial Condition and Results of Operations |
Forward Looking Statements
The Private Securities Litigation Reform Act of 1995 provides a safe harbor for
forward-looking statements in certain circumstances. Certain information included in this Report
contains or may contain information that is forward-looking, including, without limitation,
statements regarding the effect of 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 capital markets 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 tenants 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; redevelopment risks, including failure of such
redevelopments to perform in accordance with projections; the timing of acquisitions and
dispositions; insurance risk; 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, Aimcos 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 its 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 our Annual Report on Form 10-K for the year
ended December 31, 2008, and the other documents we file from time to time with the Securities and
Exchange Commission. As used herein and except as the context otherwise requires, we, our,
us and the Company refer to AIMCO Properties, L.P. (which we refer to as the Partnership) and
the Partnerships consolidated corporate subsidiaries and consolidated real estate partnerships,
collectively.
Executive Overview
We are a limited partnership engaged in the acquisition, ownership, management and
redevelopment of apartment properties. We are the operating partnership for Aimco, which is a
self-administered and self-managed real estate investment trust, or REIT. Our property operations
are characterized by diversification of product, location and price point. As of September 30,
2009, we owned or managed 916 apartment properties containing 146,581 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: Net Asset Value, which is the estimated fair
value of our assets, net of debt; Funds From Operations; Adjusted Funds From Operations, which is
Funds From Operations 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; Economic Income, which is changes in Net Asset Value plus cash dividends;
financial coverage ratios; and leverage as shown on our balance sheet. Funds From Operations and
Capital Replacements are defined and further described in the sections captioned Funds From
Operations and Capital Expenditures below. The key macro-economic factors and non-financial
indicators that affect our financial condition and operating performance are: 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, the pace and price at which we redevelop, acquire
and dispose of our apartment properties, and the volume and timing of fee transactions 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 debt financings.
During 2009, we are focused on serving customers effectively and efficiently; owning a
continually improving portfolio diversified by geography and by activity; reducing leverage and
financial risk; and simplifying the business model.
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During the three and nine months ended September 30, 2009 and 2008, as compared to the three
and nine months ended September 30, 2008, property operating income decreased by 1.3% and increased
by 2.1%, respectively. Declines in
conventional same store property operating income of 5.5% and 2.7% for the three and nine months
ended September 30, 2009, were partially offset by increases in property operating income related
to our conventional redevelopment properties and affordable properties. In addition to focusing on
property operating expense control, we have also been successful at reducing corporate general and
administrative expenses. During the three and nine months ended September 30, 2009, general and
administrative expenses have been reduced by 43% and 29%, respectively, from the 2008 comparative
periods.
During 2009, we have focused on reducing refunding risk by accelerating refinancing of
property loans maturing prior to 2012. At the beginning of the third quarter 2009, property debt
maturing during 2009 through 2011 was $309.0 million. During the third quarter, through
refinancing, repayment and property sales, we reduced these maturities by $43.6 million. As of
September 30, 2009, the balance of property debt maturing through 2011 totaled $265.4 million and
was related to nine loans. Of these loans, refunding risk has since been eliminated on all but
four loans totaling $234.5 million, which are expected to be refinanced at maturity in 2011.
At the beginning of the third quarter 2009, we had $350.0 million of term debt outstanding,
which is due the first quarter 2011. During the third quarter 2009, we repaid $90.0 million of the
term debt with proceeds from property sales and we made an additional $50.0 million payment during
October 2009, leaving a remaining outstanding balance of $210.0 million at October 30, 2009.
Our portfolio management strategy includes property dispositions and acquisitions aimed at
concentrating our portfolio in our target markets, which are the largest 20 U.S. markets as
measured by the total market value of institutional-grade apartment properties in a particular
market (total market capitalization). During the nine months ended September 30, 2009, we sold 58
properties (including one unconsolidated property), primarily outside these target markets, for
gross proceeds of $741.0 million; proceeds net of transaction related costs and debt repayments
were $263.0 million. We continue to increase our allocation of capital to well located properties
within our target markets. We intend to sell approximately $450.0 million of conventional
and affordable assets located primarily outside these target markets
by year end to fund the repayment of our
term debt. Once our term debt has been repaid, we intend to use future asset sales to increase the
allocation of capital to well located properties within our target markets.
We expect the financial and economic conditions for the remainder of 2009 and into 2010 to
continue to be very difficult and we will continue to evaluate our activities and organizational
structure.
The following discussion and analysis of the results of our operations and financial condition
should be read in conjunction with the accompanying condensed consolidated financial statements in
Item 1.
Results of Operations
Overview
Three and nine months ended September 30, 2009 compared to September 30, 2008
We reported net loss attributable to the Partnership of $28.8 million and net loss
attributable to the Partnerships common unitholders of $43.5 million for the three months ended
September 30, 2009, compared to net income attributable to the Partnership of $191.4 million and
net income attributable to the Partnerships common unitholders of $175.5 million for the three
months ended September 30, 2008, decreases of $220.2 million and $219.0 million, respectively.
For the nine months ended September 30, 2009, we reported net loss attributable to the
Partnership of $73.8 million and net loss attributable to the Partnerships common unitholders of
$116.0 million, compared to net income attributable to the Partnership of $449.1 million and net
income attributable to the Partnerships common unitholders of $399.0 million for the nine months
ended September 30, 2008, decreases of $522.9 million and $515.0 million, respectively.
These decreases were principally due to the following items, all of which are discussed in
further detail below:
| a decrease in income from discontinued operations, primarily related to the volume of
sales in 2008 and the related number of properties included in discontinued operations in
2008 as compared to 2009; |
| a decrease in gain on dispositions of unconsolidated real estate and other, primarily
due to a large gain on the sale of an interest in an unconsolidated partnership in 2008; |
| a decrease in asset management and tax credit revenues, primarily due to a reduction in
promote income, which is income earned in connection with the disposition of properties
owned by our consolidated joint ventures; |
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| an increase in operating real estate impairment losses; and |
| an increase in depreciation and amortization expense, primarily related to completed
redevelopments and capital expenditures. |
The effects of these items on our operating results were partially offset by:
| a decrease in earnings allocable to noncontrolling interests, primarily due to a
decrease in gains on sales in 2009 as compared to 2008; and |
| a decrease in general and administrative expenses, primarily related to reductions in
personnel and related expenses from our organizational restructuring initiated during the
fourth quarter 2008. |
The decreases for the nine months ended September 30, 2009, as compared to the nine months
ended September 30, 2008, were additionally affected by an increase in net operating income
associated with property operations, primarily related to affordable properties and completed
redevelopments.
The following paragraphs discuss these and other items affecting the results of our operations
in more detail.
Business Segment Operating Results
We have two reportable segments: real estate (owning, operating and redeveloping apartments)
and investment management (portfolio strategy, capital allocation, joint ventures, tax credit
syndication, acquisitions, dispositions and other transaction activities). Our chief operating
decision maker uses various generally accepted industry financial measures to assess the
performance and financial condition of the business, including: Net Asset Value; Funds From
Operations; Adjusted Funds From Operations; same store property operating results; net operating
income; Free Cash Flow; Economic Income; 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.
Real Estate Segment
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
segments net operating income also includes income from property management services performed for
unconsolidated partnerships and unrelated parties.
The following table summarizes our real estate segments net operating income for the three
and nine months ended September 30, 2009 and 2008 (in thousands):
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2009 | 2008 | 2009 | 2008 | |||||||||||||
Real estate segment revenues: |
||||||||||||||||
Rental and other property revenues |
$ | 307,907 | $ | 310,563 | $ | 925,363 | $ | 918,772 | ||||||||
Property management revenues,
primarily from affiliates |
1,114 | 1,227 | 4,098 | 4,746 | ||||||||||||
309,021 | 311,790 | 929,461 | 923,518 | |||||||||||||
Real estate segment expenses: |
||||||||||||||||
Property operating expenses |
146,608 | 147,165 | 426,258 | 430,166 | ||||||||||||
Property management expenses |
510 | 1,603 | 2,415 | 4,192 | ||||||||||||
147,118 | 148,768 | 428,673 | 434,358 | |||||||||||||
Real estate segment net operating
income |
$ | 161,903 | $ | 163,022 | $ | 500,788 | $ | 489,160 | ||||||||
For the three months ended September 30, 2009, compared to the three months ended September
30, 2008, real estate segment net operating income decreased $1.1 million, or 0.7%. This decrease
was due to a decrease in real estate segment revenues of $2.8 million, or 0.9%, offset by a
decrease in real estate segment expenses of $1.7 million, or 1.1%.
The decrease in revenues from our real estate segment during the three months ended September
30, 2009, was primarily attributed to a $6.2 million, or 3.1%, decrease in revenues from our
conventional same store properties, due to a decrease of 20 basis points in average physical
occupancy and lower average rent ($36 per unit). This decrease was partially offset by increases of
$2.6 million in revenues related to our conventional redevelopment properties based on more units
in service at
these properties in 2009 and $0.9 million in revenues related to our affordable properties,
primarily due to higher average physical occupancy and rents during 2009.
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For the three months ended September 30, 2009, compared to the three months ended September
30, 2008, expenses related to our conventional same store properties increased by $0.6 million due
primarily to increases in personnel and related costs and real estate taxes, expenses of our
affordable properties increased by $0.5 million due to properties newly consolidated during the
three months ended December 31, 2008 and expenses increased by $0.4 million related to properties
acquired during the latter half of 2008. These increases were offset by decreases in property
management expenses related to consolidated and unconsolidated properties of $3.7 million and $1.1
million, respectively, both due primarily to reductions in personnel and related costs resulting
from our organization restructuring (see Note 4 in our condensed consolidated financial statements
in Item 1). In addition, expenses related to our conventional redevelopment properties decreased by
$0.9 million primarily due reductions in marketing and administrative costs. Casualty losses
incurred by our consolidated properties increased by $2.2 million during the three months ended
September 30, 2009, as compared to the three months ended September 30, 2008.
For the nine months ended September 30, 2009, compared to the nine months ended September 30,
2008, real estate segment net operating income increased $11.6 million, or 2.4%. This increase was
due to an increase in real estate segment revenues of $5.9 million, or 0.6%, and a decrease in real
estate segment expenses of $5.7 million, or 1.3%.
Revenues from our conventional same store properties decreased by $11.1 million, or 1.8%, due
to a decrease of 120 basis points in average physical occupancy and lower average rent ($17 per
unit). The decrease in revenues from our conventional same store properties was more than offset
by increases in revenues from our conventional redevelopment and affordable properties. Revenues
related to our conventional redevelopment properties increased by $9.5 million based on more units
in service at these properties in 2009, and revenues related to our affordable properties increased
$6.6 million, primarily due to higher average physical occupancy and rents during 2009. Revenues
related to properties acquired subsequent to September 30, 2008 also resulted in a $3.4 million
increase in revenues during 2009.
For the nine months ended September 30, 2009, compared to the nine months ended September 30,
2008, expenses related to our conventional same store properties decreased by $1.0 million,
primarily due to decreases in administrative, marketing and contract services expenses. Property
management expenses related to consolidated and unconsolidated properties decreased by $5.9 million
and $1.8 million, respectively, both due primarily to reductions in personnel and related costs
resulting from our organization restructuring (see Note 4 in our condensed consolidated financial
statements in Item 1). These decreases were partially offset by increases of $1.0 million related
to our conventional redevelopment properties, primarily due to more units placed in service, $0.9
million related to our affordable properties, primarily due to properties that were newly
consolidated in 2009, and $1.2 million related to properties acquired during the latter half of
2008.
Investment Management Segment
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.
Transactions occur on varying timetables; thus, the income varies from period to period. We
have affiliated real estate partnerships for which we have identified a pipeline of transactional
opportunities. As a result, we view asset management fees as a predictable part of our core
business strategy. 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 within 12 months, or improvement in operations that
generates sufficient cash to pay the fees.
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The following table summarizes the net operating income from our investment management segment
for the three and nine months ended September 30, 2009 and 2008 (in thousands):
Three Months Ended, | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2009 | 2008 | 2009 | 2008 | |||||||||||||
Asset management and tax credit revenues |
$ | 10,750 | $ | 32,755 | $ | 33,779 | $ | 83,782 | ||||||||
Investment management expenses |
4,213 | 7,850 | 12,719 | 18,044 | ||||||||||||
Investment management segment net
operating income |
$ | 6,537 | $ | 24,905 | $ | 21,060 | $ | 65,738 | ||||||||
For the three months ended September 30, 2009, compared to the three months ended September
30, 2008, net operating income from investment management decreased $18.4 million. This decrease
is primarily attributable to a $16.9 million decrease in promote income, which is income earned in
connection with the disposition of properties owned by our consolidated joint ventures, and a $4.7
million decrease in other general partner transactional fees, partially offset by a $3.6 million
decrease in investment management expenses.
For the nine months ended September 30, 2009, compared to the nine months ended September 30,
2008, net operating income from investment management decreased $44.7 million. This decrease is
primarily attributable to a $47.0 million decrease in promote income, and a $3.2 million decrease
in other general partner transactional fees, partially offset by a $5.3 million decrease in
investment management expenses.
Other Operating Expenses (Income)
Depreciation and Amortization
For the three months ended September 30, 2009, compared to the three months ended September
30, 2008, depreciation and amortization increased $15.0 million, or 14.0%. This increase primarily
relates to depreciation for properties acquired subsequent to September 30, 2008, completed
redevelopments and other capital projects recently placed in service.
For the nine months ended September 30, 2009, compared to the nine months ended September 30,
2008, depreciation and amortization increased $51.0 million, or 16.7%. This increase primarily
relates to depreciation for properties acquired subsequent to September 30, 2008, completed
redevelopments and other capital projects recently placed in service.
Provision for Operating Real Estate Impairment Losses
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.
During the three and nine months ended September 30, 2009, we recognized impairment losses of
$21.7 million and $24.7 million respectively, related to properties classified as held for use as
of September 30, 2009. We recognized no such impairment losses during the three and nine months
ended September 30, 2008.
General and Administrative Expenses
For the three months ended September 30, 2009, compared to the three months ended September
30, 2008, general and administrative expenses decreased $11.7 million, or 42.8%. This decrease is
primarily attributable to reductions in personnel and related expenses associated with our
organizational restructurings (see Note 4 of the condensed consolidated financial statements in
Item 1 for additional information) and reduced incentive compensation costs.
For the nine months ended September 30, 2009, compared to the nine months ended September 30,
2008, general and administrative expenses decreased $22.2 million, or 29.2%. This decrease is
primarily attributable to reductions in personnel and related expenses.
For the year ending December 31, 2009, we estimate the reductions in personnel and related
expenses associated with our organizational restructurings will reduce our consolidated general and
administrative expenses by $22.0 million to $25.0 million as compared to the year
ended December 31, 2008.
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Other Expenses, Net
Other expenses, net includes franchise taxes, risk management activities, partnership
administration expenses and certain non-recurring items.
For the three months ended September 30, 2009, compared to the three months ended September
30, 2008, other expenses, net increased by $7.2 million. The increase is primarily attributable to
$2.8 million of restructuring costs incurred during the three months ended September 30, 2009 (see
Note 4 of the condensed consolidated financial statements in Item 1 for additional information) and
a net increase of $2.8 million in costs related to certain litigation matters.
For the nine months ended September 30, 2009, compared to the nine months ended September 30,
2008, other expenses, net decreased by $4.4 million. The decrease is primarily attributable to a
$4.8 million write-off of certain communications hardware and capitalized costs (see Note 4 to the
condensed consolidated financial statements in Item 1) 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 increases of
$2.8 million in restructuring costs incurred during the three months ended September 30, 2009 (see
Note 4 of the condensed consolidated financial statements in Item 1 for additional information) and
$0.8 million in costs related to certain litigation matters.
Interest Income
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 three months ended September 30, 2009, compared to the three months ended September
30, 2008, interest income decreased $3.9 million. The decrease is primarily attributable to a $1.5
million decrease in accretion income related to a note receivable for which we ceased accretion
following impairment of the note in 2008, and a decrease of $2.3 million due to lower interest
rates on notes receivable, cash and restricted cash balances and lower average balances during
2009.
For the nine months ended September 30, 2009, compared to the nine months ended September 30,
2008, interest income decreased $9.5 million. The decrease is primarily attributable to a decrease
of $7.4 million due to lower interest rates on notes receivable, cash and restricted cash balances
and lower average balances, and a $4.1 million decrease in accretion income related to a note
receivable for which we ceased accretion following impairment of the note in 2008. These decreases
were partially offset by a $2.2 million net adjustment to accretion on certain discounted notes
during the nine months ended September 30, 2008, resulting from a change in the timing and amount
of collection.
Recovery of (Provision for) Losses on Notes Receivable
During the three months ended September 30, 2009, we recognized a $1.2 million net recovery of
previously recognized provision for losses on notes receivable, as compared to a $0.8 million net
provision for losses on notes receivable during the three months ended September 30, 2008. For the
nine months ended September 30, 2009, as compared to the nine months ended September 30, 2008,
provision for losses on notes receivable decreased by $0.7 million. These favorable changes were
primarily due to our recovery in 2009 of $1.4 million of previously recognized impairment losses on
our note receivable related to a group purchasing organization (see Note 4 in our consolidated
financial statements in Item 1 for additional information).
Interest Expense
For the three months ended September 30, 2009, compared to the three months ended September 30, 2008, interest
expense, which includes the amortization of deferred financing costs, decreased by $1.7 million, or 2.0%. Interest
expense related to non-recourse property loans decreased by $0.5 million, from $82.5 million to $82.0 million,
primarily due to lower balances during 2009. Interest expense related to corporate debt, which is primarily floating
rate, decreased by $4.0 million, from $7.9 million to $3.9 million, primarily due to lower average balances and
interest rates during 2009. Interest expense also decreased due to a $0.3 million reduction in prepayment penalties
associated with refinancing activities, from $0.3 million in 2008 to less than $0.1 million in 2009. These decreases
were partially offset by a $3.1 million decrease in capitalized interest, from $5.8 million in 2008 to $2.7 million in
2009, resulting from reduced redevelopment activity in 2009.
For the nine months ended September 30, 2009, compared to the nine months ended September 30, 2008, interest
expense, which includes the amortization of deferred financing costs, decreased by $0.3 million, or 0.1%. Interest
expense related to corporate debt, which is primarily floating rate, decreased by $15.6 million, from $27.7 million to
$12.1 million, primarily due to lower average balances and interest rates during 2009. This decrease in corporate
interest was substantially offset by increases in interest on
property loans and prepayment penalties, and decreases in
capitalized interest. Interest expense related to non-recourse property loans increased by $2.3 million, from $245.9
million to $248.2 million, primarily due higher average interest rates partially offset by lower average balances
during 2009. In addition, interest expense increased by $0.5 million due to an increase in prepayment penalties
associated with refinancing activities, from $3.0 million in 2008 to $3.5 million in 2009. Interest expense increased
by $12.5 million due to a decrease in capitalized interest, from $19.6 million in 2008 to $7.1 million in 2009,
resulting from reduced redevelopment activity in 2009.
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Equity in Losses of Unconsolidated Real Estate Partnerships
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.
For the three and nine months ended September 30, 2009, compared to the three and nine months
ended September 30, 2008, equity in losses of unconsolidated real estate partnerships increased by
$2.6 million and $4.5 million, respectively. The increase in our share of losses during the nine
months ended September 30, 2009, was primarily due to our sale in late 2008 of an interest in an
unconsolidated real estate partnership that generated approximately $3.2 million of equity in
earnings during the nine months ended September 30, 2008.
Gain on Dispositions of Unconsolidated Real Estate and Other
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 certain 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 three months ended September 30, 2009, compared to the three months ended September
30, 2008, gain on dispositions of unconsolidated real estate and other decreased $96.6 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 a
$3.9 million gain on the disposition in 2009 of our interest in a group purchasing organization
(see Note 4 in our condensed consolidated financial statements in Item 1).
For the nine months ended September 30, 2009, compared to the nine months ended September 30,
2008, gain on dispositions of unconsolidated real estate and other decreased $81.5 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
$15.7 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 in our condensed consolidated financial statements in Item 1), $3.9 million from the
disposition of our interest in a group purchasing organization (see Note 4 in our condensed
consolidated financial statements in Item 1), and $3.2 million from our disposition of an interest
in an unconsolidated real estate partnership.
Income Tax Benefit
In conjunction with Aimcos UPREIT structure, certain of our operations, such as property
management, asset management and risk management, are conducted through, and certain of our
properties are owned by, taxable subsidiaries. Income taxes related to the results of continuing
operations of our taxable subsidiaries are included in income tax benefit in our consolidated
statements of income.
For the three and nine months ended September 30, 2009, compared to the three and nine months
ended September 30, 2008, income tax benefit decreased by $3.7 million. This decrease was primarily
attributed to a decrease in losses of our taxable subsidiaries.
Income from Discontinued Operations
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 and 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.
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For the three months ended September 30, 2009 and 2008, income from discontinued operations
totaled $69.1 million and $162.3 million, respectively. The $93.2 million decrease in income from
discontinued operations was principally due to a $91.0 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 $17.2 million decrease in operating income (inclusive of a $1.6 million
increase in real estate impairment losses), partially offset by a $13.4 million decrease in
interest expense.
For the nine months ended September 30, 2009 and 2008, income from discontinued operations
totaled $109.9 million and $535.9 million, respectively. The $426.0 million decrease in income
from discontinued operations was principally due to a $396.7 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 $78.1 million decrease in operating income (inclusive of a $9.0
million increase in real estate impairment losses), partially offset by a $45.3 million decrease in
interest expense.
During the three months ended September 30, 2009, we sold 28 consolidated properties for gross
proceeds of $366.6 million and net proceeds of $137.8 million, resulting in a net gain on sale of
approximately $74.1 million (which includes $3.2 million of related income taxes). During the
three months ended September 30, 2008, we sold 43 consolidated properties for gross proceeds of
$632.1 million and net proceeds of $299.5 million, resulting in a gain on sale of approximately
$165.1 million (which is net of $4.0 million of related income taxes).
During the nine months ended September 30, 2009, we sold 57 consolidated properties for gross
proceeds of $720.5 million and net proceeds of $259.6 million, resulting in a net gain on sale of
approximately $131.8 million (which is net of $1.7 million of related income taxes). During the
nine months ended September 30, 2008, we sold 88 consolidated properties for gross proceeds of
$1,589.6 million and net proceeds of $760.9 million, resulting in a gain on sale of approximately
$528.5 million (which is net of $21.1 million of related income taxes).
For the three and nine months ended September 30, 2009 and 2008, income from discontinued
operations includes the operating results of the properties sold or classified as held for sale as
of September 30, 2009.
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 3 of the condensed
consolidated financial statements in Item 1 for additional information on discontinued operations).
Noncontrolling Interests in Consolidated Real Estate Partnerships
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 condensed consolidated financial statements in Item 1,
we adopted the provisions of SFAS 160, which are now codified in 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 three months ended September 30, 2009, compared to the three months ended September
30, 2008, net earnings attributed to noncontrolling interests in consolidated real estate
partnerships decreased by $26.8 million. This decrease is attributable to a reduction of $1.7
million in 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 2009, and a
decrease of $20.4 million related to deficit distribution charges recognized as a reduction to our
earnings. These decreases are in addition to the noncontrolling interest partners share of
increased operating losses of other consolidated real estate partnerships in 2009 as compared to
2008.
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For the nine months ended September 30, 2009, compared to the nine months ended September 30,
2008, net earnings attributed to noncontrolling interests in consolidated real estate partnerships
decreased by $83.5 million. This decrease is primarily attributable to a reduction of $42.8
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 2009, $9.6 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 a decrease of $18.7
million related to deficit distribution charges recognized as a reduction to our earnings. These
decreases are in addition to the noncontrolling interest partners share of increased operating
losses of other consolidated real estate partnerships in 2009 as compared to 2008.
Critical Accounting Policies and Estimates
We prepare our consolidated financial statements in accordance with 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.
Impairment of Long-Lived Assets
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.
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:
| the general economic climate; |
| competition from other apartment communities and other housing options; |
| local conditions, such as loss of jobs or an increase in the supply of apartments, that
might adversely affect apartment occupancy or rental rates; |
| changes in governmental regulations and the related cost of compliance; |
| increases in operating costs (including real estate taxes) due to inflation and other
factors, which may not be offset by increased rents; |
| changes in tax laws and housing laws, including the enactment of rent control laws or
other laws regulating multifamily housing; |
| availability and cost of financing; |
| changes in market capitalization rates; and |
| the relative illiquidity of such investments. |
Any adverse changes in these and other factors could cause an impairment of our long-lived
assets, including real estate and investments in unconsolidated real estate partnerships. Based on
periodic tests of recoverability of long-lived assets, for the three and nine months ended
September 30, 2009, we recorded impairment losses of
$21.7 million and $24.7 million, respectively,
related to properties to be held and used, due to a reduction in the estimated holding period for
the properties. We recognized no such impairment losses during the three and nine months ended
September 30, 2008.
Other assets in our consolidated balance sheet in Item 1 includes $75.4 million of goodwill
related to our real estate segment as of September 30, 2009. We annually evaluate impairment of
intangible assets using an impairment test that compares the fair value of the reporting unit with
the carrying amounts, including goodwill. We performed our last impairment analysis during 2008
and concluded no impairment was necessary. We will perform our next impairment analysis during the
fourth quarter of 2009 and do not anticipate recognizing an impairment of goodwill in connection
with this analysis. As further discussed in Note 3 to the consolidated financial statements in
Item 1, we allocate goodwill to real estate properties when they are sold or classified as held for
sale, based on the relative fair values of these properties and the
retained properties in our real estate segment. During the nine months ended September 30,
2009, we wrote off $6.5 million of goodwill in connection with properties sold or classified as
held for sale.
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Notes Receivable and Interest Income Recognition
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.
Allowance for Losses on Notes Receivable
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
partnerships 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 loans original effective interest rate.
During the three months ended September 30, 2009 and 2008, we recorded a net recovery of
previously recognized provision for losses on notes receivable of $1.2 million and a provision for
losses on notes receivable of $0.8 million, respectively. During the nine months ended September
30, 2009 and 2008, we recorded provisions for losses on notes receivable of $0.5 million and $1.1
million respectively. 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.
Capitalized Costs
We capitalize costs, including certain indirect costs, incurred in connection with our capital
expenditure 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 expenditure 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 expenditure 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 expenditure activities, including ordinary repairs, maintenance, resident turnover costs
and general and administrative expenses.
For the three months ended September 30, 2009 and 2008, for continuing and discontinued
operations, we capitalized $2.7 million and $5.9 million of interest costs, respectively, and $7.8
million and $18.8 million of site payroll and indirect costs, respectively. For the nine months
ended September 30, 2009 and 2008, for continuing and discontinued operations,
we capitalized $7.1 million and $19.9 million of interest costs, respectively, and $32.9
million and $57.5 million of site payroll and indirect costs, respectively.
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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 NAREITs April 1, 2002, White Paper, which we refer to as
the White Paper. We calculate FFO (diluted) by subtracting redemption or repurchase related
preferred OP Unit issuance costs and distributions on preferred OP Units and adding back
distributions on dilutive preferred securities and discounts on preferred OP Unit 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 real estate investment trusts, there can be no assurance that our basis for computing FFO is
comparable with that of other real estate investment trusts.
For the three and nine months ended September 30, 2009 and 2008, our FFO is calculated as
follows (in thousands):
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2009 | 2008 | 2009 | 2008 | |||||||||||||
Net (loss) income attributable to the Partnerships common
unitholders (1) |
$ | (43,510 | ) | $ | 175,489 | $ | (115,996 | ) | $ | 399,042 | ||||||
Adjustments: |
||||||||||||||||
Depreciation and amortization |
122,362 | 107,374 | 355,680 | 304,668 | ||||||||||||
Depreciation and amortization related to non-real estate
assets |
(4,292 | ) | (3,879 | ) | (12,584 | ) | (12,499 | ) | ||||||||
Depreciation of rental property related to noncontrolling
partners and unconsolidated entities (2) |
(11,289 | ) | (13,569 | ) | (32,923 | ) | (23,155 | ) | ||||||||
Gain on dispositions of unconsolidated real estate and other |
(3,345 | ) | (99,954 | ) | (18,580 | ) | (100,118 | ) | ||||||||
Gain on dispositions of non-depreciable assets and
other |
3,195 | 1,252 | 6,330 | 1,237 | ||||||||||||
Deficit distributions to noncontrolling partners (3) |
| 18,869 | | 23,795 | ||||||||||||
Discontinued operations: |
||||||||||||||||
Gain on dispositions of real estate, net of noncontrolling
partners interest (2) |
(37,666 | ) | (128,289 | ) | (79,220 | ) | (443,590 | ) | ||||||||
Depreciation of rental property, net of noncontrolling
partners interest (2) |
2,020 | 17,879 | 16,126 | 68,840 | ||||||||||||
Recovery of deficit distributions to noncontrolling
partners (3) |
| (1,980 | ) | | (9,139 | ) | ||||||||||
Income tax (benefit) expense arising from disposals |
(3,181 | ) | 4,027 | 1,671 | 21,091 | |||||||||||
Preferred OP unit distributions |
14,731 | 15,668 | 43,838 | 47,253 | ||||||||||||
Preferred OP unit redemption related gains |
| (1,482 | ) | (1,649 | ) | (1,482 | ) | |||||||||
Amounts allocable to participating securities |
| 1,725 | | 4,298 | ||||||||||||
Funds From Operations |
$ | 39,025 | $ | 93,130 | $ | 162,693 | $ | 280,241 | ||||||||
Preferred OP unit distributions |
(14,731 | ) | (15,668 | ) | (43,838 | ) | (47,253 | ) | ||||||||
Preferred OP unit redemption related gains |
| 1,482 | 1,649 | 1,482 | ||||||||||||
Distributions on dilutive preferred securities |
| 1,758 | | 4,850 | ||||||||||||
Amounts allocable to participating securities |
(86 | ) | (600 | ) | (798 | ) | (2,266 | ) | ||||||||
Funds From Operations attributable to the Partnerships
common unitholders diluted |
$ | 24,208 | $ | 80,102 | $ | 119,706 | $ | 237,054 | ||||||||
Weighted average number of common units, common
unit equivalents and dilutive preferred securities
outstanding (4): |
||||||||||||||||
Common units and equivalents (5) |
124,388 | 128,071 | 124,407 | 133,131 | ||||||||||||
Dilutive preferred securities |
| 3,303 | | 3,086 | ||||||||||||
Total |
124,388 | 131,374 | 124,407 | 136,217 | ||||||||||||
Notes: | ||
(1) | Represents the numerator for earnings per common unit, calculated in accordance with
GAAP (see Note 6 to the condensed consolidated financial statements in Item 1). |
|
(2) | Noncontrolling partners refers to noncontrolling partners in our consolidated real
estate partnerships. |
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(3) | Prior to our adoption of SFAS 160 (see Note 2 to the condensed consolidated financial
statements in Item 1), we recognized deficit distributions to noncontrolling partners as
charges in our income statement when cash was distributed to a noncontrolling partner in a
consolidated partnership in excess of the positive balance in such partners noncontrolling
interest balance. We recorded these charges for GAAP purposes even though there is no
economic effect or cost. Deficit distributions to noncontrolling partners occurred when
the fair value of the underlying real estate exceeded its depreciated net book value
because the underlying real estate had appreciated or maintained its value. As a result,
the recognition of expense for deficit distributions to noncontrolling partners
represented, in substance, either (a) our recognition of depreciation previously allocated
to the noncontrolling partner or (b) a payment related to the noncontrolling partners
share of real estate appreciation. Based on White Paper guidance that requires real estate
depreciation and gains to be excluded from FFO, we added back deficit distributions and
subtracted related recoveries in our reconciliation of net income to FFO. Subsequent to
the adoption of SFAS 160, effective January 1, 2009, we may reduce the balance of
noncontrolling interests below zero in such situations and we are no longer required to
recognize such charges in our income statement. |
|
(4) | Weighted average common units, common unit equivalents and dilutive preferred
securities amounts for the periods presented have been retroactively adjusted for the
effect of common OP Units issued to Aimco in connection with the special distributions paid
during 2008 and in January 2009. |
|
(5) | Represents the denominator for earnings per common unit diluted, calculated in
accordance with GAAP, plus common unit equivalents that are dilutive for FFO. |
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 mortgage loans and borrowings under new mortgage loans.
Our principal uses for liquidity include normal operating activities, payments of principal
and interest on outstanding debt, capital expenditures, distributions paid to unitholders,
distributions paid to noncontrolling interest partners, repurchases of common OP Units from Aimco
in connection with Aimcos concurrent repurchase of shares of its Class A 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
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, both secured and
unsecured, the issuance of debt or 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 3, Quantitative and Qualitative Disclosures
About Market Risk, we are subject to interest rate risk associated with certain variable rate
liabilities, preferred units and assets. Based on our net variable rate liabilities, preferred
units and assets outstanding at September 30, 2009, we estimate that a 1.0% increase in 30-day
LIBOR with constant credit risk spreads would reduce our income attributable to the Partnerships
common unitholders by approximately $3.6 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, mortgage 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 condensed consolidated financial statements in Item 1,
at September 30, 2009, we had total rate of return swap positions with two financial institutions
with notional amounts totaling $365.4 million. 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
September 30, 2009, we had total rate of return swaps
with notional amounts totaling $320.2 million and $45.2 million, and maturity dates in May
2012 and October 2012, respectively.
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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, we have a non-recourse
obligation to provide additional collateral pursuant to the swap agreements, which may adversely
affect our cash flows. At September 30, 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.
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.
As of September 30, 2009, the amount available under our revolving credit facility was $119.5
million (after giving effect to $15.1 million of outstanding borrowings and $45.4 million
outstanding for undrawn letters of credit issued under the revolving credit facility). Our total
outstanding term loan of $260.0 million at September 30, 2009, matures in the first quarter 2011.
Additionally, we have limited obligations to fund redevelopment commitments during the year ending
December 31, 2009, and no development commitments.
At September 30, 2009, we had $107.0 million in cash and cash equivalents, a decrease of
$192.6 million from December 31, 2008. At September 30, 2009, we had $246.8 million of restricted
cash, primarily consisting of reserves and escrows held by lenders for bond sinking funds, capital
expenditures, property taxes and insurance. In addition, cash, cash equivalents and restricted
cash are held by partnerships that are not presented on a consolidated basis. The following
discussion relates to changes in cash due to operating, investing and financing activities, which
are presented in our condensed consolidated statements of cash flows in Item 1.
Operating Activities
For the nine months ended September 30, 2009, our net cash provided by operating activities of
$137.4 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 (see Note 4 to the
condensed consolidated financial statements in Item 1). Cash provided by operating activities
decreased $211.4 million compared with the nine months ended September 30, 2008, driven primarily
by a $120.3 million decrease in operating income of our consolidated properties, including those
classified in discontinued operations, which was attributable to property sales in 2009 and 2008, a
$47.0 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.
Investing Activities
For the nine months ended September 30, 2009, our net cash provided by investing activities of
$386.3 million consisted primarily of proceeds from disposition of real estate, 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 nine months ended
September 30, 2009, we sold 57 consolidated properties. These properties were sold for an
aggregate sales price of $723.2 million and generated proceeds totaling $689.0 million, after the
payment of transaction costs and debt prepayment penalties. The $689.0 million in proceeds is
inclusive of promote income and debt assumed by buyers, which are excluded from proceeds from
disposition of real estate in the consolidated statement of cash flows. Sales proceeds were used
primarily to repay property debt and for other corporate purposes.
Our portfolio management strategy includes property acquisitions and dispositions to
concentrate our portfolio in our target markets. We are currently marketing for sale certain
properties that are inconsistent with this long-term investment strategy. Additionally, from time
to time, we may market certain properties that are consistent with this strategy but offer
attractive returns. We plan to use our share of the net proceeds from such dispositions to reduce
debt, fund capital expenditures on existing assets, fund acquisitions, and for other operating
needs and corporate purposes.
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Capital Expenditures
We classify all capital spending as Capital Replacements (which we refer to as CR), Capital
Improvements (which we refer to as CI), casualties or redevelopment. Expenditures other than
casualty or redevelopment capital expenditures 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 expenditures 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 expenditures 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 expenditures for
casualties and redevelopment. Casualty expenditures 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 expenditures represent expenditures that substantially upgrade the
property. For the nine months ended September 30, 2009, we spent a total of $54.0 million, $40.8
million, $11.0 million and $97.4 million on CR, CI, casualties and redevelopment, respectively.
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 nine months ended
September 30, 2009, on a per unit and total dollar basis. Per unit numbers for CR and CI are based
on approximately 98,112 average units for the year, including 82,032 conventional units and 16,080
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. Total capital expenditures are reconciled to our condensed consolidated statement of cash
flows for the same period (in thousands, except per unit amounts).
Per | ||||||||
Our Share of | Effective | |||||||
Expenditures | Unit | |||||||
Capital Replacements Detail: |
||||||||
Building and grounds |
$ | 24,689 | $ | 252 | ||||
Turnover related |
23,503 | 240 | ||||||
Capitalized site payroll and indirect costs |
5,846 | 60 | ||||||
Our share of Capital Replacements |
$ | 54,038 | $ | 552 | ||||
Capital Replacements: |
||||||||
Conventional |
$ | 50,138 | $ | 611 | ||||
Affordable |
3,900 | $ | 243 | |||||
Our share of Capital Replacements |
54,038 | $ | 552 | |||||
Capital Improvements: |
||||||||
Conventional |
37,180 | $ | 453 | |||||
Affordable |
3,618 | $ | 225 | |||||
Our share of Capital Improvements |
40,798 | $ | 416 | |||||
Casualties: |
||||||||
Conventional |
10,735 | |||||||
Affordable |
217 | |||||||
Our share of casualties |
10,952 | |||||||
Redevelopment: |
||||||||
Conventional projects |
55,526 | |||||||
Tax credit projects (1) |
41,851 | |||||||
Our share of redevelopment |
97,377 | |||||||
Our share of capital expenditures |
203,165 | |||||||
Plus noncontrolling partners share of consolidated spending |
15,223 | |||||||
Less our share of unconsolidated spending |
(497 | ) | ||||||
Total capital expenditures per condensed consolidated
statement of cash flows |
$ | 217,891 | ||||||
(1) | Redevelopment spending on tax credit projects is substantially funded from tax credit
investor contributions. |
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Included in the above spending for CI, casualties and redevelopment, was approximately $30.3
million of our share of capitalized site payroll and indirect costs related to these activities for
the nine months ended September 30, 2009.
Financing Activities
For the nine months ended September 30, 2009, net cash used in financing activities of $716.3
million was primarily attributed to debt principal payments, distributions paid to common and
preferred unitholders and distributions to noncontrolling interests. Proceeds from property loans
partially offset the cash outflows.
Mortgage Debt
At September 30, 2009 and December 31, 2008, we had $5.9 billion and $6.3 billion,
respectively, in consolidated mortgage debt outstanding, which included $47.9 million and $432.5
million, respectively, of mortgage debt classified within liabilities related to assets held for
sale. During the nine months ended September 30, 2009, we refinanced or closed mortgage loans on
37 properties generating $681.2 million of proceeds from borrowings with a weighted average
interest rate of 5.75%. Our share of the net proceeds after repayment of existing debt, payment of
transaction costs and distributions to limited partners, was $43.6 million. We used these total
net proceeds for capital expenditures and other corporate purposes. We intend to continue to
refinance mortgage debt primarily as a means of extending current and near term maturities and to
finance certain capital projects.
As of September 30, 2009, the balance of property debt maturing through 2011 totaled $265.4
million and was related to nine loans. Of these loans, refunding risk has been eliminated on all
but four loans totaling $234.5 million, which are expected to be refinanced at maturity in 2011.
Fair Value Measurements
We enter 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 a 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 three and nine months ended September 30, 2009, changes in the fair values of these
financial instruments resulted in increases of $3.5 million and $3.4 million, respectively, in the
carrying amount of the hedged borrowings and equal decreases in accrued liabilities and other. At
September 30, 2009, the cumulative recognized changes in the fair value of these financial
instruments resulted in a $26.1 million reduction in the carrying amount of the hedged borrowings
offset by an equal increase in accrued liabilities and other. 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.
During the three and nine months ended September 30, 2009, we received net cash receipts of
$4.0 million and $13.0 million, respectively, 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 September 30, 2009, we were not required to provide cash collateral pursuant to the
total 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 of the condensed consolidated financial statements in Item 1 for additional
information on our total rate of return swaps and related borrowings.
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Term Loan and Credit Facility
We
have an Amended and Restated Senior Secured Credit Agreement, as
amended, which we refer to as the Credit Agreement. As of September 30, 2009, the Credit
Agreement consisted of aggregate commitments
of $440.0 million, comprised of a $260.0 million 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.
Pursuant to the Credit Agreement, while any balance under the term loan is outstanding, Aimcos
repurchase of shares of its Class A Common Stock are permitted with 50% of net asset sale proceeds
if the other 50% of such net asset sale proceeds are applied to repay the term loan. The Credit
Agreement permits us to increase revolving commitments by up to $320.0 million, subject to our
obtaining such commitments from eligible lenders.
On May 1, 2009, we entered into a letter agreement with certain financial institutions that
have revolving commitments under the Credit Agreement, which provides that, notwithstanding the
terms of the Credit Agreement, until the revolving loan commitments are further syndicated, we and
Aimco will not (i) request an increase in the revolving loan commitments under the Credit Agreement
which would result in the revolving loan commitments exceeding $200.0 million, (ii) incur recourse
debt, subject to certain exceptions, or (iii) purchase or otherwise acquire shares of Aimcos Class
A Common Stock.
At September 30, 2009, the term loan had an outstanding principal balance of $260.0 million
and a weighted average interest rate of 1.74% and we had outstanding borrowings under the revolving
credit facility of $15.1 million with a weighted average interest rate of 6.25% (based on the Prime
rate). The amount available under the revolving credit facility at September 30, 2009, was $119.5
million (after giving effect to $15.1 million of outstanding borrowings and $45.4 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; provided that pursuant to the Sixth Amendment, revolving loans are
generally not permitted to be used to fund Aimcos repurchase of shares of its Class A Common
Stock. During October 2009, we repaid $50.0 million of the outstanding balance of the term loan,
leaving a remaining balance of $210.0 million at October 30, 2009.
Partners Capital Transactions
During the nine months ended September 30, 2009, we paid cash distributions totaling $44.5
million and $104.4 million to preferred and common unitholders, respectively, and cash
distributions totaling $71.1 million to noncontrolling interest partners. Additionally, during
the nine months ended September 30, 2009, we paid distributions totaling $149.0 million to Aimco
through the issuance of approximately 15.5 million common OP units.
During the nine months ended September 30, 2009, Aimco repurchased 12 shares, or $6.0 million
in liquidation preference, of its CRA Preferred Stock for $4.2 million. Concurrent with Aimcos
repurchase, we repurchased from Aimco an equivalent number of our CRA Preferred Units.
We and Aimco have a shelf registration statement that provides for the issuance of debt
securities by us and debt and equity securities by Aimco.
Future Capital Needs
We expect to fund any future acquisitions, 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.
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ITEM 3. | Quantitative and Qualitative Disclosures About Market Risk |
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 mortgage 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 $937.7 million of floating rate debt and $67.0 million of floating rate preferred units
outstanding at September 30, 2009. Of the total floating rate debt, the major components were
floating rate tax-exempt bond financing ($474.7 million), floating rate secured notes ($179.4
million), revolving loans ($15.0 million) and term loans ($260.0 million). At September 30, 2009,
we had approximately $511.8 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 floating interest rates have been at a ratio of less than 1:1 with changes in taxable
floating 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, an increase in 30-day LIBOR of 1.0% (0.73% in tax-exempt interest
rates) with constant credit risk spreads would result in our net income and our net income
attributable to the Partnerships common unitholders being reduced by $3.2 million and $3.6
million, respectively.
The estimated aggregate fair value and carrying value of our consolidated debt (including
amounts reported in liabilities related to assets held for sale) was approximately $6.2 billion at
September 30, 2009. If market rates for our fixed-rate debt were higher by 1.0% with constant
credit risk spreads, the estimated fair value of our debt discussed above would decrease from $6.2
billion to $5.9 billion. If market rates for our debt discussed above were lower by 1.0% with
constant credit risk spreads, the estimated fair value of our fixed-rate debt would increase from
$6.2 billion to $6.6 billion.
ITEM 4. | Controls and Procedures |
Disclosure Controls and Procedures
The Partnerships management, with the participation of the chief executive officer and chief
financial officer of the General Partner, who are the equivalent of the Partnerships chief
executive officer and chief financial officer, respectively, 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, the chief executive officer and chief financial
officer of the General Partner have concluded that, as of the end of such period, our disclosure
controls and procedures are effective.
Changes in 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 third quarter of 2009 that has
materially affected, or is reasonably likely to materially affect, our internal control over
financial reporting.
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PART II. OTHER INFORMATION
ITEM 1A. | Risk Factors |
As of the date of this report, there have been no material changes from the risk factors in
the Companys Annual Report on Form 10-K for the year ended December 31, 2008.
ITEM 2. | Unregistered Sales of Equity Securities and Use of Proceeds |
(a) Unregistered Sales of Equity Securities. During the three months ended September 30,
2009, Aimco acquired noncontrolling limited partnership interests in a consolidated real estate
partnership in exchange for the issuance of approximately 6,300 shares of common stock. Concurrent
with Aimcos issuance of common stock, we issued to Aimco 6,300 common partnership units. This
issuance was exempt from registration pursuant to Section 4(2) of the Securities Act of 1933, as
amended.
(c) Repurchases of Equity Securities. Our Partnership Agreement generally provides that after
holding the common OP Units for one year, our Limited Partners have the right to redeem their
common OP Units for cash, subject to our prior right to cause Aimco to acquire some or all of the
common OP Units tendered for redemption in exchange for shares of Aimco Class A Common Stock.
Common OP Units redeemed for Aimco Class A Common Stock are generally on a one-for-one basis
(subject to antidilution adjustments). During the three months ended September 30, 2009, no common
OP Units were redeemed in exchange for Aimco Class A Common Stock. The following table summarizes
repurchases of our equity securities for the three months ended September 30, 2009.
Maximum Number | ||||||||||||||||
Total Number of | of Units that | |||||||||||||||
Total | Average | Units Purchased | May Yet Be | |||||||||||||
Number | Price | as Part of Publicly | Purchased Under | |||||||||||||
of Units | Paid | Announced Plans | the Plans or | |||||||||||||
Period | Purchased | per Unit | or Programs (1) | Programs (2) | ||||||||||||
July 1 July 31, 2009 |
6,947 | $ | 9.47 | N/A | N/A | |||||||||||
August 1 August 31, 2009 |
238 | $ | 9.91 | N/A | N/A | |||||||||||
September 1 September
30, 2009 |
2,027 | $ | 11.63 | N/A | N/A | |||||||||||
Total |
9,212 | $ | 9.96 | |||||||||||||
(1) | The terms of our Partnership Agreement do not provide for a maximum number of units that
may be repurchased, and other than the express terms of our Partnership Agreement, we have
no publicly announced plans or programs of repurchase. However, whenever Aimco repurchases
shares of its Class A Common Stock, it is expected that Aimco will fund the repurchase with
proceeds from a concurrent repurchase by us of common OP Units held by Aimco at a price per
unit that is equal to the price per share paid for the Class A Common Stock. |
|
(2) | Aimcos board of directors has, from time to time, authorized Aimco to repurchase shares
of Class A Common Stock. As of September 30, 2009, Aimco was 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. |
Distribution Payments. Our Credit Agreement includes customary covenants, including a
restriction on distributions and other restricted payments, but permits distributions during any
12-month period in an aggregate amount of up to 95% of our Funds From Operations, subject to
certain non-cash adjustments, for such period or such amount as may be necessary for Aimco to
maintain its REIT status.
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ITEM 6. | Exhibits |
The following exhibits are filed with this report:
EXHIBIT NO. (1) | ||||
10.1 | Seventh Amendment to Senior Secured Credit Agreement, dated as of
August 4, 2009, by and among Apartment Investment and Management
Company, AIMCO Properties, L.P., and AIMCO/Bethesda Holdings, Inc.,
as the Borrowers, the pledgors and guarantors named therein and the
lenders party thereto (Exhibit 10.1 to Aimcos Current Report on Form
8-K, filed on August 6, 2009, is incorporated herein by this
reference) |
|||
31.1 | Certification of Chief Executive Officer pursuant to Securities
Exchange Act Rules 13a-14(a)/15d-14(a), as Adopted Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002 |
|||
31.2 | Certification of Chief Financial Officer pursuant to Securities
Exchange Act Rules 13a-14(a)/15d-14(a), as Adopted Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002 |
|||
32.1 | Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002 |
|||
32.2 | Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002 |
|||
99.1 | Agreement Regarding Disclosure of Long-Term Debt Instruments |
(1) | Schedules and supplemental materials to the exhibits have been omitted but will be
provided to
the Securities and Exchange Commission upon request. |
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SIGNATURES
Pursuant to the requirements 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.
AIMCO PROPERTIES, L.P. | ||||
By: | AIMCO-GP, Inc., its general partner | |||
By: | /s/ DAVID ROBERTSON | |||
David Robertson | ||||
President, Chief Investment Officer
and Chief Financial Officer (duly authorized officer and principal financial officer) |
||||
By: | /s/ PAUL BELDIN | |||
Paul Beldin | ||||
Senior Vice President and Chief Accounting Officer |
Date: October 30, 2009
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Exhibit Index
EXHIBIT NO. (1) | ||||
10.1 | Seventh Amendment to Senior Secured Credit Agreement, dated as of
August 4, 2009, by and among Apartment Investment and Management
Company, AIMCO Properties, L.P., and AIMCO/Bethesda Holdings, Inc.,
as the Borrowers, the pledgors and guarantors named therein and the
lenders party thereto (Exhibit 10.1 to Aimcos Current Report on Form
8-K, filed on August 6, 2009, is incorporated herein by this
reference) |
|||
31.1 | Certification of Chief Executive Officer pursuant to Securities
Exchange Act Rules 13a-14(a)/15d-14(a), as Adopted Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002 |
|||
31.2 | Certification of Chief Financial Officer pursuant to Securities
Exchange Act Rules 13a-14(a)/15d-14(a), as Adopted Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002 |
|||
32.1 | Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002 |
|||
32.2 | Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002 |
|||
99.1 | Agreement Regarding Disclosure of Long-Term Debt Instruments |
(1) | Schedules and supplemental materials to the exhibits have been omitted but will be
provided to
the Securities and Exchange Commission upon request. |
41