Attached files
file | filename |
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EX-32.2 - EXHIBIT 32.2 - Apartment Income REIT, L.P. | c03602exv32w2.htm |
EX-32.1 - EXHIBIT 32.1 - Apartment Income REIT, L.P. | c03602exv32w1.htm |
EX-31.1 - EXHIBIT 31.1 - Apartment Income REIT, L.P. | c03602exv31w1.htm |
EX-99.1 - EXHIBIT 99.1 - Apartment Income REIT, L.P. | c03602exv99w1.htm |
EX-31.2 - EXHIBIT 31.2 - Apartment Income REIT, L.P. | c03602exv31w2.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 June 30, 2010
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 | Smaller reporting company o | |||
(Do not check if a smaller reporting company) |
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 July 28,
2010: 123,021,611
AIMCO PROPERTIES, L.P.
TABLE OF CONTENTS
FORM 10-Q
Page | ||||||||
2 | ||||||||
3 | ||||||||
4 | ||||||||
5 | ||||||||
20 | ||||||||
32 | ||||||||
32 | ||||||||
33 | ||||||||
33 | ||||||||
34 | ||||||||
35 | ||||||||
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)
June 30, | December 31, | |||||||
2010 | 2009 | |||||||
ASSETS |
||||||||
Real estate: |
||||||||
Buildings and improvements |
$ | 7,461,121 | $ | 7,326,284 | ||||
Land |
2,179,744 | 2,161,010 | ||||||
Total real estate |
9,640,865 | 9,487,294 | ||||||
Less accumulated depreciation |
(2,830,247 | ) | (2,625,542 | ) | ||||
Net real estate ($913,051 and $855,170 related to VIEs) |
6,810,618 | 6,861,752 | ||||||
Cash and cash equivalents ($33,059 and $23,366 related to VIEs) |
78,318 | 81,260 | ||||||
Restricted cash ($58,346 and $56,183 related to VIEs) |
211,795 | 219,255 | ||||||
Accounts receivable, net ($19,782 and $20,766 related to VIEs) |
47,192 | 59,822 | ||||||
Accounts receivable from affiliates, net |
13,191 | 23,744 | ||||||
Deferred financing costs, net |
50,272 | 51,611 | ||||||
Notes receivable from unconsolidated real estate partnerships, net |
12,280 | 14,295 | ||||||
Notes receivable from non-affiliates, net |
129,427 | 125,269 | ||||||
Notes receivable from Aimco |
16,797 | 16,371 | ||||||
Investment in unconsolidated real estate partnerships ($109,463 and
$99,460 related to VIEs) |
113,418 | 104,193 | ||||||
Other assets |
184,597 | 185,816 | ||||||
Deferred income tax assets, net |
49,943 | 42,015 | ||||||
Assets held for sale |
6,050 | 136,736 | ||||||
Total assets |
$ | 7,723,898 | $ | 7,922,139 | ||||
LIABILITIES AND PARTNERS CAPITAL |
||||||||
Property tax-exempt bond financing ($215,236 and $211,691 related to VIEs) |
$ | 548,973 | $ | 574,926 | ||||
Property loans payable ($462,363 and $390,601 related to VIEs) |
5,010,995 | 4,884,233 | ||||||
Term loans |
25,000 | 90,000 | ||||||
Other borrowings ($19,733 and $15,665 related to VIEs) |
58,943 | 53,057 | ||||||
Total indebtedness |
5,643,911 | 5,602,216 | ||||||
Accounts payable |
27,647 | 29,819 | ||||||
Accrued liabilities and other ($92,638 and $62,503 related to VIEs) |
279,063 | 286,326 | ||||||
Deferred income |
158,402 | 180,656 | ||||||
Security deposits |
35,794 | 34,855 | ||||||
Liabilities related to assets held for sale |
3,276 | 121,237 | ||||||
Total liabilities |
6,148,093 | 6,255,109 | ||||||
Redeemable preferred units |
106,389 | 116,656 | ||||||
Commitments and contingencies (Note 5) |
| | ||||||
Partners capital: |
||||||||
Preferred units |
660,500 | 660,500 | ||||||
General Partner and Special Limited Partner |
397,335 | 521,692 | ||||||
Limited Partners |
116,038 | 95,990 | ||||||
High Performance Units |
(42,603 | ) | (40,313 | ) | ||||
Investment in Aimco Class A Common Stock |
(4,509 | ) | (4,621 | ) | ||||
Partners capital attributable to the Partnership |
1,126,761 | 1,233,248 | ||||||
Noncontrolling interests in consolidated real estate partnerships |
342,655 | 317,126 | ||||||
Total partners capital |
1,469,416 | 1,550,374 | ||||||
Total liabilities and partners capital |
$ | 7,723,898 | $ | 7,922,139 | ||||
See notes to condensed consolidated financial statements.
2
Table of Contents
AIMCO PROPERTIES, L.P.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per unit data)
(Unaudited)
Three Months Ended | Six Months Ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
REVENUES: |
||||||||||||||||
Rental and other property revenues |
$ | 285,395 | $ | 279,041 | $ | 570,622 | $ | 559,303 | ||||||||
Asset management and tax credit revenues |
9,596 | 12,606 | 13,853 | 22,144 | ||||||||||||
Total revenues |
294,991 | 291,647 | 584,475 | 581,447 | ||||||||||||
OPERATING EXPENSES: |
||||||||||||||||
Property operating expenses |
132,946 | 125,665 | 271,354 | 259,149 | ||||||||||||
Investment management expenses |
5,141 | 4,716 | 8,370 | 8,506 | ||||||||||||
Depreciation and amortization |
108,667 | 108,437 | 217,006 | 212,606 | ||||||||||||
Provision for operating real estate impairment losses |
| 1,569 | | 2,079 | ||||||||||||
General and administrative expenses |
15,184 | 14,577 | 26,919 | 30,837 | ||||||||||||
Other (income) expenses, net |
(6,693 | ) | 3,748 | (3,592 | ) | 5,229 | ||||||||||
Total operating expenses |
255,245 | 258,712 | 520,057 | 518,406 | ||||||||||||
Operating income |
39,746 | 32,935 | 64,418 | 63,041 | ||||||||||||
Interest income |
2,142 | 2,430 | 5,576 | 5,940 | ||||||||||||
Recovery of (provision for) losses on notes receivable, net |
148 | (1,534 | ) | (278 | ) | (1,685 | ) | |||||||||
Interest expense |
(79,499 | ) | (81,771 | ) | (159,294 | ) | (162,068 | ) | ||||||||
Equity in (losses) earnings of unconsolidated real estate partnerships |
(7,224 | ) | (1,696 | ) | 727 | (3,736 | ) | |||||||||
Gain on dispositions of unconsolidated real estate and other, net |
4,970 | 3,463 | 7,612 | 14,327 | ||||||||||||
Loss before income taxes and discontinued operations |
(39,717 | ) | (46,173 | ) | (81,239 | ) | (84,181 | ) | ||||||||
Income tax benefit |
3,598 | 2,473 | 7,369 | 4,949 | ||||||||||||
Loss from continuing operations |
(36,119 | ) | (43,700 | ) | (73,870 | ) | (79,232 | ) | ||||||||
Income from discontinued operations, net |
26,163 | 36,279 | 47,366 | 39,440 | ||||||||||||
Net loss |
(9,956 | ) | (7,421 | ) | (26,504 | ) | (39,792 | ) | ||||||||
Net loss (income) attributable to noncontrolling interests in
consolidated real estate partnerships |
2,716 | (11,692 | ) | (9,418 | ) | (5,411 | ) | |||||||||
Net loss attributable to the Partnership |
(7,240 | ) | (19,113 | ) | (35,922 | ) | (45,203 | ) | ||||||||
Net income attributable to the Partnerships preferred unitholders |
(11,811 | ) | (13,223 | ) | (26,426 | ) | (27,458 | ) | ||||||||
Net income attributable to participating securities |
(42 | ) | | | | |||||||||||
Net loss attributable to the Partnerships common unitholders |
$ | (19,093 | ) | $ | (32,336 | ) | $ | (62,348 | ) | $ | (72,661 | ) | ||||
Earnings (loss) per common unit basic and diluted (Note 6): |
||||||||||||||||
Loss from continuing operations attributable to the Partnerships
common unitholders |
$ | (0.30 | ) | $ | (0.39 | ) | $ | (0.74 | ) | $ | (0.72 | ) | ||||
Income from discontinued operations attributable to the
Partnerships
common unitholders |
0.15 | 0.13 | 0.24 | 0.12 | ||||||||||||
Net loss attributable to the Partnerships common unitholders |
$ | (0.15 | ) | $ | (0.26 | ) | $ | (0.50 | ) | $ | (0.60 | ) | ||||
Weighted average common units outstanding, basic and diluted |
124,663 | 124,333 | 124,521 | 121,997 | ||||||||||||
Distributions declared per common unit |
$ | 0.10 | $ | 0.10 | $ | 0.10 | $ | 0.10 | ||||||||
See notes to condensed consolidated financial statements.
3
Table of Contents
AIMCO PROPERTIES, L.P.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Six Months | ||||||||
Ended June 30, | ||||||||
2010 | 2009 | |||||||
CASH FLOWS FROM OPERATING ACTIVITIES: |
||||||||
Net loss |
$ | (26,504 | ) | $ | (39,792 | ) | ||
Adjustments to reconcile net loss to net cash provided by operating activities: |
||||||||
Depreciation and amortization |
217,006 | 212,606 | ||||||
Gain on dispositions of unconsolidated real estate and other |
(7,612 | ) | (14,327 | ) | ||||
Discontinued operations |
(44,120 | ) | (10,851 | ) | ||||
Other adjustments |
2,612 | 21,407 | ||||||
Net changes in operating assets and operating liabilities |
(30,419 | ) | (109,642 | ) | ||||
Net cash provided by operating activities |
110,963 | 59,401 | ||||||
CASH FLOWS FROM INVESTING ACTIVITIES: |
||||||||
Capital expenditures |
(79,023 | ) | (147,337 | ) | ||||
Proceeds from dispositions of real estate |
107,163 | 265,937 | ||||||
Purchases of partnership interests and other assets |
(3,291 | ) | (2,567 | ) | ||||
Originations of notes receivable from unconsolidated real estate partnerships |
(733 | ) | (4,111 | ) | ||||
Proceeds from repayment of notes receivable |
1,650 | 4,376 | ||||||
Proceeds from sales of interests in unconsolidated real estate partnerships |
9,132 | 12,596 | ||||||
Net increase in cash from consolidation and deconsolidation of entities (Note 2) |
13,118 | | ||||||
Distributions received from Aimco |
112 | 376 | ||||||
Other investing activities |
8,341 | 20,453 | ||||||
Net cash provided by investing activities |
56,469 | 149,723 | ||||||
CASH FLOWS FROM FINANCING ACTIVITIES: |
||||||||
Proceeds from property loans |
125,491 | 610,803 | ||||||
Principal repayments on property loans |
(124,794 | ) | (682,681 | ) | ||||
Principal repayments on tax-exempt bond financing |
(31,061 | ) | (70,774 | ) | ||||
Payments on term loans |
(65,000 | ) | (50,000 | ) | ||||
Proceeds from Aimco Class A Common Stock option exercises |
1,806 | | ||||||
Repurchases of preferred units |
(7,000 | ) | (4,200 | ) | ||||
Payment of distributions to General Partner and Special Limited Partner |
(23,446 | ) | (72,540 | ) | ||||
Payment of distributions to High Performance Units |
(468 | ) | (5,111 | ) | ||||
Payment of distributions to Limited Partners |
(1,212 | ) | (14,148 | ) | ||||
Payment of distributions to preferred units |
(29,204 | ) | (29,861 | ) | ||||
Payment of distributions to noncontrolling interests |
(23,568 | ) | (57,799 | ) | ||||
Other financing activities |
8,082 | (20,375 | ) | |||||
Net cash used in financing activities |
(170,374 | ) | (396,686 | ) | ||||
NET DECREASE IN CASH AND CASH EQUIVALENTS |
(2,942 | ) | (187,562 | ) | ||||
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD |
81,260 | 299,676 | ||||||
CASH AND CASH EQUIVALENTS AT END OF PERIOD |
$ | 78,318 | $ | 112,114 | ||||
See notes to condensed consolidated financial statements.
4
Table of Contents
AIMCO PROPERTIES, L.P.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2010
(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 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 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.
We are focused on the ownership and management of quality apartment communities located in
the 20 largest markets in the United States (as measured by total market capitalization, which is
the total market value of institutional-grade apartment properties in a particular market). We upgrade the quality of our
portfolio through the sale of communities with rents below average market rents and the
reinvestment of capital within these 20 target markets through redevelopment and acquisitions. Our
apartment properties are generally financed with property-level, non-recourse, long-dated,
fixed-rate, amortizing debt.
As of June 30, 2010, we:
| owned an equity interest in 232 conventional real estate properties with 71,909 units; |
| owned an equity interest in 254 affordable real estate properties with 29,540 units; and |
| provided services for or managed 27,901 units in 331 properties, primarily pursuant to
long-term asset management agreements. In certain cases, we may indirectly own generally
less than one percent of the operations of such properties through a syndication or other
fund. |
Of these properties, we consolidated 230 conventional properties with 70,605 units and 197
affordable properties with 23,901 units. These conventional and affordable properties generated
84% and 16%, respectively, of consolidated property net operating income (as defined in Note 7) during the six months
ended June 30, 2010, or 87% and 13%, respectively, after adjustments for our ownership in these
properties.
At June 30, 2010, after elimination of units held by consolidated subsidiaries, we had
outstanding 123,030,243 common OP Units, 28,076,133 preferred OP Units and 2,339,950 High
Performance Units. At June 30, 2010, Aimco owned 117,039,659 of the common OP Units and 24,940,114
of the preferred OP 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 accounting principles generally accepted 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 six
months ended June 30, 2010, are not necessarily indicative of the results that may be expected for
the year ending December 31, 2010.
The balance sheet at December 31, 2009, 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, 2009.
Certain 2009 financial statement amounts have been reclassified to conform to the 2010
presentation, including adjustments for discontinued operations, and certain 2009 unit and per unit
information has been revised as compared to the amounts reported in
our Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2009, as further discussed
in Note 6.
During the three months ended March 31, 2010, we reduced the investment and noncontrolling
interest balances for certain of our consolidated partnerships by $38.7 million related to excess
amounts allocated to the investments upon our consolidation of such partnerships. Additionally,
during the six months ended June 30, 2010, we reversed approximately $11.2 million of excess equity
in losses recognized during 2008 and 2009 related to these partnerships, with a corresponding
adjustment to net income attributed to noncontrolling interests in consolidated real estate
partnerships. These adjustments had no significant effect on partners capital attributed to the
Partnership or net income or loss attributable to the Partnership during the affected periods.
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 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.
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.
6
Table of Contents
Effective January 1, 2010, we adopted the provisions of FASB Accounting Standards Update
2009-17, Improvements to Financial Reporting by Enterprises Involved with Variable Interest
Entities, or ASU 2009-17, on a prospective basis. ASU 2009-17, which modified the guidance in FASB
ASC Topic 810, 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,
ASU 2009-17 requires a company to assess whether it has an implicit financial responsibility to
ensure that a VIE operates as designed, requires continuous reassessment of primary beneficiary
status rather than periodic, event-driven assessments as previously required, and incorporates
expanded disclosure requirements.
In determining whether we are the primary beneficiary of a VIE, we consider qualitative and
quantitative factors, including, but not limited to: which activities most significantly impact
the VIEs economic performance and which party controls such activities; the amount and
characteristics of our investment; the obligation or likelihood for us or other investors to
provide financial support; 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 a result of our adoption of ASU 2009-17, we concluded we are the primary beneficiary of,
and therefore consolidated, approximately 49 previously unconsolidated partnerships. Those
partnerships own, or control other entities that own, 31 apartment properties. Our direct and
indirect interests in the profits and losses of those partnerships range from less than 1% to 35%,
and average approximately 7%. We applied the practicability exception for initial measurement of
consolidated VIEs to partnerships that own 13 properties and accordingly recognized the
consolidated assets, liabilities and noncontrolling interests at fair value effective January 1,
2010 (refer to the Fair Value Measurements section for further information regarding certain of the
fair value amounts recognized upon consolidation). We deconsolidated partnerships that own ten
apartment properties in which we hold an average interest of approximately 55%. The initial
consolidation and deconsolidation of these partnerships resulted in increases (decreases), net of
intercompany eliminations, in amounts included in our consolidated balance sheet as of January 1,
2010, as follows (in thousands):
Consolidation | Deconsolidation | |||||||
Real estate, net |
$ | 144,292 | $ | (86,151 | ) | |||
Cash and cash equivalents and restricted cash |
25,047 | (7,425 | ) | |||||
Accounts and notes receivable |
(13,456 | ) | 6,002 | |||||
Investment in unconsolidated real estate partnerships |
47,974 | 11,302 | ||||||
Other assets |
4,190 | (1,084 | ) | |||||
Total assets |
$ | 208,047 | $ | (77,356 | ) | |||
Total indebtedness |
$ | 131,710 | $ | (56,938 | ) | |||
Accrued and other liabilities |
37,504 | (15,005 | ) | |||||
Total liabilities |
169,214 | (71,943 | ) | |||||
Cumulative effect of a change in accounting principle: |
||||||||
Noncontrolling interests |
76,051 | (8,501 | ) | |||||
The Partnership |
(37,218 | ) | 3,088 | |||||
Total partners capital |
38,833 | (5,413 | ) | |||||
Total liabilities and partners capital |
$ | 208,047 | $ | (77,356 | ) | |||
7
Table of Contents
In periods prior to 2009, when consolidated real estate partnerships made cash distributions
to partners in excess of the carrying amount of the noncontrolling interest, we generally recorded
a charge to earnings equal to the amount of such excess distribution, even though there was no
economic effect or cost. Also prior to 2009, we allocated the noncontrolling partners share of
partnership losses to noncontrolling partners to the extent of the carrying amount of the
noncontrolling interest. Consolidation of a partnership does not ordinarily result in a change to
the net amount of partnership income or loss that is recognized using the equity method. However,
prior to 2009, when a partnership had a deficit in equity, GAAP
may have required the controlling partner that consolidates the partnership to recognize any
losses that would otherwise be allocated to noncontrolling partners, in addition to the controlling
partners share of losses. Certain of the partnerships that we consolidated in accordance with ASU
2009-17 had deficits in equity that resulted from losses or deficit distributions during prior
periods when we accounted for our investment using the equity method. We would have been required
to recognize the noncontrolling partners share of those losses had we consolidated those
partnerships in those periods prior to 2009. In accordance with our prospective transition method
for the adoption of ASU 2009-17 related to our consolidation of previously unconsolidated
partnerships, we recorded a $37.2 million charge to our partners capital, the majority of which
was attributed to the cumulative amount of additional losses that we would have recognized had we
applied ASU 2009-17 in periods prior to 2009. Substantially all of those losses were attributable
to real estate depreciation expense.
Our consolidated statements of operations for the three and six months ended June 30, 2010,
include the following amounts for the entities and related real estate properties consolidated as
of January 1, 2010, in accordance with ASU 2009-17 (in thousands):
Three Months | Six Months | |||||||
Ended | Ended | |||||||
June 30, 2010 | June 30, 2010 | |||||||
Rental and other property revenues |
$ | 8,222 | $ | 16,272 | ||||
Operating expenses |
(4,577 | ) | (9,203 | ) | ||||
Depreciation and amortization |
(2,458 | ) | (4,685 | ) | ||||
Other income (expenses) |
258 | (328 | ) | |||||
Operating income |
1,445 | 2,056 | ||||||
Interest income |
| 16 | ||||||
Interest expense |
(2,258 | ) | (4,423 | ) | ||||
Equity in losses of unconsolidated real estate partnerships |
(5,787 | ) | (7,005 | ) | ||||
Gain on disposition of unconsolidated real estate and other |
3,819 | 5,167 | ||||||
Net loss |
(2,781 | ) | (4,189 | ) | ||||
Net loss attributable to noncontrolling interests in
consolidated real estate partnerships |
3,546 | 4,855 | ||||||
Net income attributable to the Partnership |
$ | 765 | $ | 666 | ||||
Our equity in the results of operations of the partnerships and related properties we
deconsolidated in connection with our adoption of ASU 2009-17 is included in equity in earnings or
losses of unconsolidated real estate partnerships in our consolidated statements of operations for
the three and six months ended June 30, 2010. Based on our effective ownership in these entities,
these amounts are not significant.
As of June 30, 2010, we were the primary beneficiary of, and therefore consolidated,
approximately 143 VIEs, which owned 102 apartment properties with 14,846 units. Real estate with a
carrying value of $913.1 million collateralized $677.6 million of debt of those VIEs. Any
significant amounts of assets and liabilities related to our consolidated VIEs are identified
parenthetically on our accompanying condensed consolidated balance sheets. The creditors of the
consolidated VIEs do not have recourse to our general credit.
As of June 30, 2010, we also held variable interests in 290 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 343 apartment properties with 21,572 units. We are
involved with those VIEs as an equity holder, lender, management agent, or through other
contractual relationships. The majority of our investments in unconsolidated VIEs, or
approximately $92.5 million at June 30, 2010, is held through consolidated tax credit funds that
are VIEs and in which we generally hold a 1% or less general partner or equivalent interest.
Accordingly, substantially all of the investment balances related to these unconsolidated VIEs is
attributed to the noncontrolling interests in the consolidated tax credit funds that hold the
investments in these unconsolidated VIEs. Our maximum risk of loss related to our investment in
these VIEs is generally limited to our equity interest in the consolidated tax credit funds, which
is insignificant. The remainder of our investment in unconsolidated VIEs, or approximately $17.0
million at June 30, 2010, is held through consolidated tax credit funds that are VIEs and in which
we hold substantially all of the economic interests. Our maximum risk of loss related to our
investment in these VIEs is limited to our $17.0 million recorded investment in such entities.
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In addition to our investments in these unconsolidated VIEs discussed above, at June 30, 2010,
we had in aggregate $101.3 million of receivables from these VIEs and we had a contractual
obligation to advance funds to certain VIEs totaling
$4.1 million. Our maximum risk of loss associated with our lending and management activities
related to these unconsolidated VIEs is limited to these amounts. We may be subject to additional
losses to the extent of any receivables relating to future provision of services to these entities
or financial support that we voluntarily provide.
Partners Capital (including Noncontrolling Interests)
The following table presents a reconciliation of our December 31, 2009 and June 30, 2010
consolidated partners capital accounts:
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, 2009 |
$ | 116,656 | $ | 1,233,248 | $ | 317,126 | $ | 1,550,374 | ||||||||
Contributions |
| | 4,498 | 4,498 | ||||||||||||
Distributions |
(3,376 | ) | (39,194 | ) | (23,568 | ) | (62,762 | ) | ||||||||
Repurchases of common units |
| (942 | ) | | (942 | ) | ||||||||||
Stock option exercises |
| 1,806 | | 1,806 | ||||||||||||
Repurchases of preferred units |
(10,267 | ) | 3,000 | | 3,000 | |||||||||||
Stock based compensation cost |
| 3,761 | | 3,761 | ||||||||||||
Effect of entities newly consolidated |
| | 6,324 | 6,324 | ||||||||||||
Adjustment of noncontrolling
interests related to revision of
investment balances |
| | (38,718 | ) | (38,718 | ) | ||||||||||
Cumulative effect of a change in
accounting principle |
| (34,130 | ) | 67,550 | 33,420 | |||||||||||
Change in accumulated other
comprehensive loss |
| (1,734 | ) | (272 | ) | (2,006 | ) | |||||||||
Other |
| 244 | 297 | 541 | ||||||||||||
Net income (loss) |
3,376 | (39,298 | ) | 9,418 | (29,880 | ) | ||||||||||
Balance, June 30, 2010 |
$ | 106,389 | $ | 1,126,761 | $ | 342,655 | $ | 1,469,416 | ||||||||
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.
The interest rate cap agreements effectively limit our exposure to interest rate risk by providing
a ceiling on the underlying variable interest rate. The fair values of the interest rate swaps are
reflected as assets or liabilities in the balance sheet, and periodic changes in fair value are
included in interest expense or partners capital, as appropriate. The interest rate caps are not
material to our financial position or results of operations.
At June 30, 2010 and December 31, 2009, we had interest rate swaps with aggregate notional
amounts of $52.3 million, and recorded fair values of $3.6 million and $1.6 million, respectively,
reflected in accrued liabilities and other in our condensed consolidated balance sheets. At June
30, 2010, these interest rate swaps had a weighted average term of 10.6 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 six months ended June 30, 2010 and 2009, we recognized changes in fair
value of $2.0 million and $1.7 million, respectively, of which $2.0 million and $2.2 million,
respectively, resulted in an adjustment to consolidated partners capital. We recognized less than
$0.1 million and $0.5 million of ineffectiveness as an adjustment of interest expense during the
six months ended June 30, 2010 and 2009, respectively. Our consolidated comprehensive loss for the
three and six months ended June 30, 2010, totaled $11.8 million and $28.5 million, respectively,
and consolidated comprehensive loss for the three and six months ended June 30, 2009, totaled $5.6
million and $37.6 million, respectively, before the effects of noncontrolling interests. If the
forward rates at June 30, 2010 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.
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We have entered into total rate of return swaps on various fixed-rate secured tax-exempt bonds
payable and fixed-rate notes payable to convert these borrowings from a fixed rate to a variable
rate and provide an efficient financing product to lower our cost of borrowing. 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 a second or third lien on 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
callable at our option, with no prepayment 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.
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.
As of June 30, 2010 and December 31, 2009, we had borrowings payable subject to total rate of
return swaps with aggregate outstanding principal balances of $307.7 million and $352.7 million. At
June 30, 2010, the weighted average fixed receive rate under the total return swaps was 6.8% and
the weighted average variable pay rate was 1.0%, 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
June 30, 2010 and December 31, 2009, is discussed further below.
Fair Value Measurements
We measure certain assets and liabilities in our consolidated financial statements at fair
value, both on a recurring and nonrecurring basis. 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, Level 3 fair value
measurements typically include, in addition to the unobservable or Level 3 components, observable
components 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.
The table below presents information regarding significant items measured in our consolidated
financial statements at fair value on a recurring basis (in thousands):
Level 2 | Level 3 | |||||||||||||||
Interest rate | Total rate of | Changes in fair | ||||||||||||||
swaps (1) | return swaps (2) | value of debt (3) | Total | |||||||||||||
Fair value at December 31, 2008 |
$ | (2,557 | ) | $ | (29,495 | ) | $ | 29,495 | $ | (2,557 | ) | |||||
Unrealized gains (losses)
included in earnings (4)(5) |
(440 | ) | (85 | ) | 85 | (440 | ) | |||||||||
Realized gains (losses)
included in earnings |
| | | | ||||||||||||
Unrealized gains (losses)
included in partners
capital |
2,164 | | | 2,164 | ||||||||||||
Fair value at June 30, 2009 |
$ | (833 | ) | $ | (29,580 | ) | $ | 29,580 | $ | (833 | ) | |||||
Fair value at December 31, 2009 |
$ | (1,596 | ) | $ | (24,307 | ) | $ | 24,307 | $ | (1,596 | ) | |||||
Unrealized gains (losses)
included in earnings (4)(5) |
(23 | ) | 907 | (907 | ) | (23 | ) | |||||||||
Realized gains (losses)
included in earnings |
| | | | ||||||||||||
Unrealized gains (losses)
included in partners
capital |
(2,006 | ) | | | (2,006 | ) | ||||||||||
Fair value at June 30, 2010 |
$ | (3,625 | ) | $ | (23,400 | ) | $ | 23,400 | $ | (3,625 | ) | |||||
(1) | 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. |
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(2) | 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. |
|
(3) | This represents changes in fair value of debt subject to our total rate of return swaps.
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. |
|
(4) | Unrealized gains (losses) relate to periodic revaluations of fair value and have not
resulted from the settlement of a swap position. |
|
(5) | These amounts are included in interest expense in the accompanying condensed consolidated
statements of operations. |
The table below presents information regarding amounts measured at fair value in our
consolidated financial statements on a nonrecurring basis during the six months ended June 30,
2010, all of which were based, in part, on significant unobservable inputs classified within Level
3 of the valuation hierarchy (in thousands):
Fair value | Total | |||||||
measurement | gain (loss) | |||||||
Real estate (impairments losses) (1) |
$ | 29,050 | $ | (6,883 | ) | |||
Real estate (newly consolidated) (2)(3) |
117,083 | 236 | ||||||
Property debt (newly consolidated) (2)(4) |
83,890 | |
(1) | During the six months ended June 30, 2010, we reduced the carrying amounts of real estate
assets classified as held for sale to their estimated fair value, less estimated costs to
sell. |
|
(2) | In connection with our adoption of ASU 2009-17 (see preceding discussion of Variable
Interest Entities) and reconsideration events during the six months ended June 30, 2010, we
consolidated 17 partnerships at fair value. With the exception of such partnerships
investments in real estate properties and related non-recourse property debt obligations, we
determined the carrying amounts of the related assets and liabilities approximated their
fair values. The difference between our recorded investments in such partnerships and the
fair value of the assets and liabilities recognized in consolidation, resulted in an
adjustment of consolidated partners capital (allocated between the Partnership and
noncontrolling interests) for those partnerships consolidated in connection with our
adoption of ASU 2009-17. For the partnerships we consolidated at fair value due to
reconsideration events during the six months ended June 30, 2010, the difference between our
recorded investments in such partnerships and the fair value of the assets, liabilities and
noncontrolling interests recognized upon consolidation resulted in our recognition of a
gain, which is included in gain on disposition of unconsolidated real estate and other in
our consolidated statement of operations for the six months ended June 30, 2010. |
|
(3) | 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. |
|
(4) | Refer to the recurring fair value measurements table for an explanation of the valuation
techniques we use to estimate the fair value of debt. |
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We believe that the aggregate fair value of our cash and cash equivalents, receivables,
payables and short-term secured debt approximates their aggregate carrying amounts at June 30, 2010
and December 31, 2009, 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 $128.7 million and $126.1 million at
June 30, 2010 and December 31, 2009, respectively, as compared to their carrying amounts of $141.7
million and $139.6 million. The estimated aggregate fair value of our consolidated debt (including
amounts reported in liabilities related to assets held for sale) was approximately $5.9 billion and
$5.7 billion at June 30, 2010 and December 31, 2009, respectively, as compared to aggregate
carrying amounts of $5.6 billion. The fair values of our derivative instruments at June 30, 2010
and December 31, 2009, 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
$88.4 million of our notes receivable at June 30, 2010, are collateralized by 84 buildings with
1,596 residential units 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 serve as the primary source of repayment of the notes.
At June 30, 2010, we had total rate of return swap positions with two financial institutions
totaling $308.0 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 either 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. Additionally, the swap agreements with a specific counterparty provide
for collateral calls to maintain specified loan-to-value ratios. As of June 30, 2010, we were not
required to provide cash collateral pursuant to the total rate of return swaps. In the event the
values of the real estate properties serving as collateral under these agreements decline, we may
be required to provide additional collateral pursuant to the swap agreements, which may adversely
affect our cash flows.
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. During November 2009, the IRS issued AIMCO-GP,
Inc. a summary report including the IRSs proposed adjustments to our 2007 Federal tax return. We
do not expect the 2006 or 2007 proposed adjustments to have any material effect on our unrecognized
tax benefits, financial condition or results of operations.
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.
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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 June 30, 2010 and December 31, 2009, we had one and 24 properties, with an aggregate of
198 and 3,745 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):
June 30, | December 31, | |||||||
2010 | 2009 | |||||||
Real estate, net |
$ | 5,725 | $ | 133,886 | ||||
Other assets |
325 | 2,850 | ||||||
Assets held for sale |
$ | 6,050 | $ | 136,736 | ||||
Property debt |
$ | 3,135 | $ | 117,271 | ||||
Other liabilities |
141 | 3,966 | ||||||
Liabilities related to assets held for sale |
$ | 3,276 | $ | 121,237 | ||||
During the six months ended June 30, 2010 and 2009, we sold 23 properties and 29 properties
with an aggregate of 3,547 units and 6,597 units, respectively. During the year ended December 31,
2009, we sold 89 consolidated properties with an aggregate of 22,503 units. For the three and six
months ended June 30, 2010 and 2009, 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 June 30, 2010.
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 six months ended June 30, 2010 and 2009 (in thousands):
Three Months Ended | Six Months Ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
Rental and other property revenues |
$ | 3,218 | $ | 56,872 | $ | 10,977 | $ | 118,186 | ||||||||
Property operating expenses |
(1,773 | ) | (29,015 | ) | (5,199 | ) | (61,262 | ) | ||||||||
Depreciation and amortization |
(453 | ) | (17,538 | ) | (1,925 | ) | (36,962 | ) | ||||||||
Provision for operating real estate
impairment losses |
(895 | ) | (17,268 | ) | (8,121 | ) | (13,904 | ) | ||||||||
Other expenses, net |
(194 | ) | (3,180 | ) | (1,046 | ) | (5,180 | ) | ||||||||
Operating (loss) income |
(97 | ) | (10,129 | ) | (5,314 | ) | 878 | |||||||||
Interest income |
81 | 46 | 107 | 188 | ||||||||||||
Interest expense |
(585 | ) | (10,898 | ) | (1,593 | ) | (23,343 | ) | ||||||||
Loss before gain on dispositions of
real estate and income tax |
(601 | ) | (20,981 | ) | (6,800 | ) | (22,277 | ) | ||||||||
Gain on dispositions of real estate |
26,982 | 57,991 | 53,321 | 62,538 | ||||||||||||
Income tax (expense) benefit |
(218 | ) | (731 | ) | 845 | (821 | ) | |||||||||
Income from discontinued operations, net |
$ | 26,163 | $ | 36,279 | $ | 47,366 | $ | 39,440 | ||||||||
Income from discontinued operations
attributable to: |
||||||||||||||||
Noncontrolling interests in
consolidated real estate partnerships |
$ | (7,107 | ) | $ | (20,662 | ) | $ | (17,800 | ) | $ | (25,182 | ) | ||||
The Partnership |
$ | 19,056 | $ | 15,617 | $ | 29,566 | $ | 14,258 | ||||||||
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
property loans collateralized by the properties being sold. Such prepayment penalties totaled $2.6
million and $3.2 million for the three and six months ended June 30, 2010, respectively, and $11.6
million and $11.7 million for the three and six months ended June 30, 2009, 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 six
months ended June 30, 2010, we allocated $1.5 million and $2.8 million, respectively, of goodwill
related to our conventional and affordable segments to the carrying amounts of the properties sold
or classified as held for sale. Of these amounts, $1.4 million and $2.6 million, respectively,
were treated as a reduction of gain on dispositions of real estate and $0.1 million and $0.2
million, respectively, were treated as an adjustment of impairment losses during the three and six
months ended June 30, 2010. In connection with properties sold or classified as held for sale
during the three and six months ended June 30, 2009, $3.0
million of goodwill was reflected as a reduction of gain on dispositions of real estate. 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.
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Gain on Dispositions of Unconsolidated Real Estate and Other
During the three and six months ended June 30, 2010, we recognized $5.0 million and $7.6
million, respectively, of gains on the disposition of interests in unconsolidated real estate
partnerships and other. These gains were primarily related to investments held by partnerships we
consolidated in accordance with our adoption of ASU 2009-17 (see Note 2) and in which we generally
hold a nominal general partner interest. Accordingly, these gains were primarily attributed to
noncontrolling interests in consolidated real estate partnerships.
During the three months ended June 30, 2009, we recognized $3.5 million of gains on the
disposition of unconsolidated real estate and other, $3.2 million of which related to our
disposition of an interest in an unconsolidated real estate partnership. During the six months
ended June 30, 2009, we recognized $14.3 million of gains on the disposition of unconsolidated real
estate and other. These gains consisted of $8.6 million resulting from our receipt in 2009 of
additional proceeds related to our disposition during 2008 of an interest in an unconsolidated real
estate partnership, $3.2 million related to our disposition of an interest in an unconsolidated
real estate partnership, and approximately $2.5 million of other gains related to dispositions of
interests in unconsolidated real estate partnerships or our equity in gains recognized by
unconsolidated real estate partnerships.
NOTE 4 Other Significant Transactions
Restructuring Costs
During 2009, in connection with the repositioning of our portfolio, we completed
organizational restructuring activities that included reductions in workforce and related costs and
the abandonment of additional leased corporate facilities and redevelopment projects. During the
six months ended June 30, 2010, we reduced our restructuring accruals by $1.2 million and $4.7
million related to payments on unrecoverable lease obligations and severance and personnel related
costs, respectively. As of June 30, 2010, the remaining accruals associated with our restructuring
activity are $5.7 million for estimated unrecoverable lease obligations, which will be paid over
the remaining terms of the affected leases.
NOTE 5 Commitments and Contingencies
Commitments
In connection with our redevelopment activities, we have commitments
of approximately $1.3 million related to construction projects that are expected to be completed
during 2010. 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 $4.1 million in loans on certain properties in West
Harlem in New York City. In certain circumstances, the obligor under these notes has the ability
to put properties to us, which would result in a cash payment between $30.0 million and $97.5
million and the assumption of approximately $119.0 million in property debt. The ability to
exercise the put and the amount of cash payment required upon exercise is dependent upon the
achievement of specified thresholds by the current owner of the properties.
In June 2009, Aimco entered into an agreement that allows the holder of its Series A Community
Reinvestment Act Preferred Stock, or CRA Preferred Stock, to require Aimco to repurchase a portion
of the CRA Preferred Stock at a 30% discount to the liquidation preference. In accordance with this
repurchase agreement, in May 2010, Aimco repurchased 20 shares, or $10.0 million in liquidation
preference, of CRA Preferred Stock for $7.0 million. Concurrent with this redemption, we
repurchased from Aimco an equivalent number of our Series A Community Reinvestment Act Perpetual
Preferred Units, or CRA Preferred Units. We reflected the $3.0 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 three and six months ended June 30, 2010.
As of June 30, 2010, Aimco had a remaining potential obligation under this agreement to
repurchase up to $20.0 million in liquidation preference of its CRA Preferred Stock. If required,
these additional repurchases will be for up to $10.0 million in liquidation preference in May 2011
and 2012. Upon any repurchases required of Aimco under this agreement, we will repurchase from
Aimco an equivalent number of our CRA Preferred Units. Based on the holders ability to require
Aimco to repurchase these amounts and our obligation to purchase from Aimco a corresponding
number of our CRA Preferred Units, the $20.0 million in liquidation preference of CRA Preferred
Units, or the maximum redemption value of such preferred units, is classified within temporary
capital in our consolidated balance sheet at June 30, 2010.
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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.
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 June 30, 2010, 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 (Loss) per Unit
We calculate earnings (loss) 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 (loss) per unit data presented below. The following table illustrates the
calculation of basic and diluted earnings (loss) per unit for the three and six months ended June
30, 2010 and 2009 (in thousands, except per unit data):
Three Months Ended | Six Months Ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
Numerator: |
||||||||||||||||
Loss from continuing operations |
$ | (36,119 | ) | $ | (43,700 | ) | $ | (73,870 | ) | $ | (79,232 | ) | ||||
Loss from continuing operations attributable to
noncontrolling interests |
9,823 | 8,970 | 8,382 | 19,771 | ||||||||||||
Income attributable to the Partnerships preferred
unitholders |
(11,811 | ) | (13,223 | ) | (26,426 | ) | (27,458 | ) | ||||||||
Income attributable to participating securities |
(42 | ) | | | | |||||||||||
Loss from continuing operations attributable to the
Partnerships common unitholders |
$ | (38,149 | ) | $ | (47,953 | ) | $ | (91,914 | ) | $ | (86,919 | ) | ||||
Income from discontinued operations |
$ | 26,163 | $ | 36,279 | $ | 47,366 | $ | 39,440 | ||||||||
Income from discontinued operations attributable to
noncontrolling interests |
(7,107 | ) | (20,662 | ) | (17,800 | ) | (25,182 | ) | ||||||||
Income from discontinued operations attributable to
the Partnerships common unitholders |
$ | 19,056 | $ | 15,617 | $ | 29,566 | $ | 14,258 | ||||||||
Net loss |
$ | (9,956 | ) | $ | (7,421 | ) | $ | (26,504 | ) | $ | (39,792 | ) | ||||
Loss (income) attributable to noncontrolling interests |
2,716 | (11,692 | ) | (9,418 | ) | (5,411 | ) | |||||||||
Income attributable to the Partnerships preferred
unitholders |
(11,811 | ) | (13,223 | ) | (26,426 | ) | (27,458 | ) | ||||||||
Income attributable to participating securities |
(42 | ) | | | | |||||||||||
Net loss attributable to the Partnerships common
unitholders |
$ | (19,093 | ) | $ | (32,336 | ) | $ | (62,348 | ) | $ | (72,661 | ) | ||||
Denominator: |
||||||||||||||||
Denominator for basic earnings per unit weighted
average number of common units outstanding |
124,663 | 124,333 | 124,521 | 121,997 | ||||||||||||
Effect of dilutive securities: |
||||||||||||||||
Dilutive potential common units |
| | | | ||||||||||||
Denominator for diluted earnings per unit |
124,663 | 124,333 | 124,521 | 121,997 | ||||||||||||
Earnings (loss) per common unit: |
||||||||||||||||
Basic and diluted earnings (loss) per common unit: |
||||||||||||||||
Loss from continuing operations attributable to the
Partnerships common unitholders |
$ | (0.30 | ) | $ | (0.39 | ) | $ | (0.74 | ) | $ | (0.72 | ) | ||||
Income from discontinued operations attributable to
the Partnerships common unitholders |
0.15 | 0.13 | 0.24 | 0.12 | ||||||||||||
Net loss attributable to the Partnerships common
unitholders |
$ | (0.15 | ) | $ | (0.26 | ) | $ | (0.50 | ) | $ | (0.60 | ) | ||||
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As of June 30, 2010 and 2009, the common unit equivalents that could potentially dilute basic
earnings per unit in future periods totaled 7.2 million and 10.9 million, respectively. These
securities, representing options to purchase shares of
Aimco Class A Common Stock, have been excluded from the earnings (loss) per unit computations
for the three and six months ended June 30, 2010 and 2009, because their effect would have been
anti-dilutive. Participating securities, consisting of unvested restricted shares of Aimco Class A
Common Stock and shares of Aimco Class A Common Stock purchased pursuant to officer loans, receive
dividends similar to shares of Aimco Class A Common Stock and common OP Units and totaled 0.6
million and 0.9 million at June 30, 2010 and 2009, respectively. The effect of participating
securities is reflected in basic and diluted earnings (loss) per unit computations for the periods
presented above using the two-class method of allocating distributed and undistributed earnings.
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
1.84% to 9.5% per annum per unit, or equal to the dividends paid on Aimco Class A Common Stock
based on the conversion terms. As of June 30, 2010, a total of 3.1 million preferred OP Units were
outstanding with redemption values of $85.4 million and were potentially redeemable for
approximately 4.4 million shares of Aimco Class A Common Stock (based on the period end market
price), or cash at our option. We have a redemption policy that requires cash settlement of
redemption requests for the preferred OP Units, subject to limited exceptions. The potential
dilutive effect of these securities would have been antidilutive in the periods presented; however,
based on our cash redemption policy, they may also be excluded from future earnings (loss) per unit
computations in periods during which their effect is dilutive.
In December 2009, we adopted the provisions of FASB Accounting Standards Update 2010-01,
Accounting for Distributions to Shareholders with Components of Stock and Cash, or ASU 2010-01,
which are codified in FASB ASC Topic 505. ASU 2010-01 requires that for distributions with
components of cash and stock, the portion distributed in stock should be accounted for
prospectively as a stock issuance with no retroactive adjustment to basic and diluted earnings per
share. In accordance with ASU 2010-01, we retrospectively revised the accounting treatment of our
special distribution paid in January 2009, resulting in a 2.4 million reduction in the number of
weighted average units outstanding and a $0.02 increase in the loss per unit attributed to the
Partnerships common unitholders for the six months ended June 30, 2009, as compared to the amounts
reported in our Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2009.
NOTE 7 Business Segments
Based on a planned reduction in our transactional activities, during the three months ended
March 31, 2010, we reevaluated our reportable segments and determined our investment management
reporting unit no longer meets the requirements for a reportable segment. Additionally, to provide
more meaningful information regarding our real estate operations, we elected to disaggregate
information for the prior real estate segment. Following these changes, we have two reportable
segments: conventional real estate operations and affordable real estate operations. Our
conventional real estate operations consist of market-rate apartments with rents paid by the
resident and include 232 properties with 71,909 units. Our affordable real estate operations
consist of 254 properties with 29,540 units, with rents that are generally paid, in whole or part,
by a government agency.
Our chief operating decision maker uses various generally accepted industry financial measures
to assess the performance of the business, including: property net operating income, which is rental and other property revenues less direct property operating expenses, including real estate taxes; Net Asset Value, which
is the estimated fair value of our assets, net of debt; Pro forma Funds From Operations, which is
Funds From Operations excluding operating real estate impairment losses and preferred unit
redemption related gains or losses; Adjusted Funds From Operations, which is Pro forma Funds From
Operations less spending for Capital Replacements; same store property operating results; Free Cash
Flow, which is net operating income less spending for Capital Replacements; 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.
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The following tables present the revenues, net operating income (loss) and income (loss) from
continuing operations of our conventional and affordable real estate operations segments for the
three and six months ended June 30, 2010 and 2009 (in thousands):
Corporate and | ||||||||||||||||
Conventional | Affordable | Amounts Not | ||||||||||||||
Real Estate | Real Estate | Allocated to | ||||||||||||||
Operations | Operations (1) | Segments | Total | |||||||||||||
Three Months Ended June 30, 2010: |
||||||||||||||||
Rental and other property revenues (2) |
$ | 230,267 | $ | 54,268 | $ | 860 | $ | 285,395 | ||||||||
Asset management and tax credit revenues |
| | 9,596 | 9,596 | ||||||||||||
Total revenues |
230,267 | 54,268 | 10,456 | 294,991 | ||||||||||||
Property operating expenses (2) |
89,735 | 26,363 | 16,848 | 132,946 | ||||||||||||
Investment management expenses |
| | 5,141 | 5,141 | ||||||||||||
Depreciation and amortization (2) |
| | 108,667 | 108,667 | ||||||||||||
General and administrative expenses |
| | 15,184 | 15,184 | ||||||||||||
Other income, net |
| | (6,693 | ) | (6,693 | ) | ||||||||||
Total operating expenses |
89,735 | 26,363 | 139,147 | 255,245 | ||||||||||||
Net operating income (loss) |
140,532 | 27,905 | (128,691 | ) | 39,746 | |||||||||||
Other items included in continuing operations |
| | (75,865 | ) | (75,865 | ) | ||||||||||
Income (loss) from continuing operations |
$ | 140,532 | $ | 27,905 | $ | (204,556 | ) | $ | (36,119 | ) | ||||||
Three Months Ended June 30, 2009: |
||||||||||||||||
Rental and other property revenues (2) |
$ | 229,048 | $ | 48,653 | $ | 1,340 | $ | 279,041 | ||||||||
Asset management and tax credit revenues |
| | 12,606 | 12,606 | ||||||||||||
Total revenues |
229,048 | 48,653 | 13,946 | 291,647 | ||||||||||||
Property operating expenses (2) |
90,518 | 22,078 | 13,069 | 125,665 | ||||||||||||
Investment management expenses |
| | 4,716 | 4,716 | ||||||||||||
Depreciation and amortization (2) |
| | 108,437 | 108,437 | ||||||||||||
Provision for operating real estate impairment losses (2) |
| | 1,569 | 1,569 | ||||||||||||
General and administrative expenses |
| | 14,577 | 14,577 | ||||||||||||
Other expenses, net |
| | 3,748 | 3,748 | ||||||||||||
Total operating expenses |
90,518 | 22,078 | 146,116 | 258,712 | ||||||||||||
Net operating income (loss) |
138,530 | 26,575 | (132,170 | ) | 32,935 | |||||||||||
Other items included in continuing operations |
| | (76,635 | ) | (76,635 | ) | ||||||||||
Income (loss) from continuing operations |
$ | 138,530 | $ | 26,575 | $ | (208,805 | ) | $ | (43,700 | ) | ||||||
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Corporate and | ||||||||||||||||
Conventional | Affordable | Amounts Not | ||||||||||||||
Real Estate | Real Estate | Allocated to | ||||||||||||||
Operations | Operations (1) | Segments | Total | |||||||||||||
Six Months Ended June 30, 2010: |
||||||||||||||||
Rental and other property revenues (2) |
$ | 461,075 | $ | 107,506 | $ | 2,041 | $ | 570,622 | ||||||||
Asset management and tax credit revenues |
| | 13,853 | 13,853 | ||||||||||||
Total revenues |
461,075 | 107,506 | 15,894 | 584,475 | ||||||||||||
Property operating expenses (2) |
186,019 | 54,121 | 31,214 | 271,354 | ||||||||||||
Investment management expenses |
| | 8,370 | 8,370 | ||||||||||||
Depreciation and amortization (2) |
| | 217,006 | 217,006 | ||||||||||||
General and administrative expenses |
| | 26,919 | 26,919 | ||||||||||||
Other income, net |
| | (3,592 | ) | (3,592 | ) | ||||||||||
Total operating expenses |
186,019 | 54,121 | 279,917 | 520,057 | ||||||||||||
Net operating income (loss) |
275,056 | 53,385 | (264,023 | ) | 64,418 | |||||||||||
Other items included in continuing operations |
| | (138,288 | ) | (138,288 | ) | ||||||||||
Income (loss) from continuing operations |
$ | 275,056 | $ | 53,385 | $ | (402,311 | ) | $ | (73,870 | ) | ||||||
Six Months Ended June 30, 2009: |
||||||||||||||||
Rental and other property revenues (2) |
$ | 460,918 | $ | 95,402 | $ | 2,983 | $ | 559,303 | ||||||||
Asset management and tax credit revenues |
| | 22,144 | 22,144 | ||||||||||||
Total revenues |
460,918 | 95,402 | 25,127 | 581,447 | ||||||||||||
Property operating expenses (2) |
183,498 | 45,959 | 29,692 | 259,149 | ||||||||||||
Investment management expenses |
| | 8,506 | 8,506 | ||||||||||||
Depreciation and amortization (2) |
| | 212,606 | 212,606 | ||||||||||||
Provision for operating real estate impairment
losses (2) |
| | 2,079 | 2,079 | ||||||||||||
General and administrative expenses |
| | 30,837 | 30,837 | ||||||||||||
Other expenses, net |
| | 5,229 | 5,229 | ||||||||||||
Total operating expenses |
183,498 | 45,959 | 288,949 | 518,406 | ||||||||||||
Net operating income (loss) |
277,420 | 49,443 | (263,822 | ) | 63,041 | |||||||||||
Other items included in continuing operations |
| | (142,273 | ) | (142,273 | ) | ||||||||||
Income (loss) from continuing operations |
$ | 277,420 | $ | 49,443 | $ | (406,095 | ) | $ | (79,232 | ) | ||||||
(1) | Net operating income amounts from our affordable real estate operations for 2010 are not
comparable to the 2009 amounts due to our adoption during 2010 of revised accounting guidance
regarding consolidation of variable interest entities (see Note 2). |
|
(2) | Our chief operating decision maker assesses the performance of our conventional and
affordable real estate operations using, among other measures, net operating income,
excluding property management revenues and certain property management expenses, casualty
gains and losses, depreciation and amortization and provision for operating real estate
impairment losses. Accordingly, we do not allocate these amounts to our segments. |
The assets of our reportable segments are as follows (in thousands):
June 30, | December 31, | |||||||
2010 | 2009 | |||||||
Conventional |
$ | 5,973,781 | $ | 6,096,911 | ||||
Affordable |
1,220,186 | 1,133,099 | ||||||
Corporate and other assets |
529,931 | 692,129 | ||||||
Total consolidated assets |
$ | 7,723,898 | $ | 7,922,139 | ||||
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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, within the meaning of the federal
securities laws, including, without limitation, statements regarding our ability to maintain current or meet
projected occupancy, rental rates and property operating results.
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 residents in such markets; national
and local economic conditions; the terms of governmental regulations that affect us and
interpretations of those regulations; the competitive environment in which we operate; the timing
of acquisitions and dispositions; insurance risk, including the cost of insurance; natural
disasters and severe weather such as hurricanes; litigation, including costs associated with
prosecuting or defending claims and any adverse outcomes; energy costs; and possible environmental
liabilities, including costs, fines or penalties that may be incurred due to necessary remediation
of contamination of properties presently owned or previously owned by us. In addition, 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, 2009, 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 focused on the ownership and management of quality apartment
communities located in the 20 largest markets in the United States (as measured by total market
capitalization, which is the total market value of institutional-grade apartment properties in a
particular market). We
upgrade the quality of our portfolio through the sale of communities with rents below average
market rents and the reinvestment of capital within these 20 target markets through redevelopment
and acquisitions. Our apartment properties are generally financed with property-level,
non-recourse, long-dated, fixed-rate, amortizing debt. We are the operating partnership for Aimco,
which is a self-administered and self-managed real estate investment trust, or REIT.
We are one of the countrys largest owners and operators of both conventional and affordable properties. As of June 30, 2010, we owned or managed 817 apartment properties containing 129,350 units
located in 43 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: property net operating income, which is rental and other property revenues less direct property operating expenses, including real estate taxes; Net Asset Value, which is
the estimated fair value of our assets, net of debt; Pro forma Funds From Operations, which is
Funds From Operations excluding operating real estate impairment losses and preferred unit
redemption related gains or losses; Adjusted Funds From Operations, which is Pro forma Funds From
Operations less spending for Capital Replacements; same store property operating results; Free Cash
Flow, which is net operating income less spending for Capital Replacements; financial coverage
ratios; and leverage as shown on our balance sheet. Funds From Operations represents 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. Capital
Replacements represent capital additions that are deemed to replace
the consumed portion of acquired capital assets. The key macro-economic factors and
non-financial indicators that affect our financial condition and operating performance are:
household formations; rates of job growth; single-family and multifamily housing starts; interest
rates; and availability and cost of financing.
Because our operating results depend primarily on income from our properties, the supply and
demand for apartments influences our operating results. Additionally, the level of expenses
required to operate and maintain our properties and the pace and price at which we redevelop,
acquire and dispose of our apartment properties affect our operating results. Our cost of capital
is affected by the conditions in the capital and credit markets and the terms that we negotiate for
our equity and debt financings.
Highlights of our results of
operations for the three months ended June 30, 2010 are summarized below:
| Average daily occupancy for our Conventional Same Store
properties remained high at 95.6%. |
||
| Conventional Same Store revenues for the three months ended June 30, 2010
decreased by 0.4% as compared to the three months ended June 30, 2009. Renewal rates are now positive in all
but one market, while new lease rates are positive in several markets for the first time in more than a year. |
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| Operating income related to our asset management,
tax credit and investment management activities have declined relative to 2009.
The market for tax credit syndications remains weak and as a result, during the three
months ended June 30, 2010, we decided to not proceed with the syndication of several tax
credit projects and wrote-off previously deferred costs associated with these projects. |
||
| Property sales declined
relative to 2009. We expect
property sales to continue to decline in the second half of 2010, as property sales completed through July allowed us to fully repay the remainder of our term debt. |
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 six months ended June 30, 2010 compared to June 30, 2009
We reported net loss attributable to the Partnership of $7.2 million and net loss attributable
to the Partnerships common unitholders of $19.1 million for the three months ended June 30, 2010,
compared to net loss attributable to the Partnership of $19.1 million and net loss attributable to
the Partnerships common unitholders of $32.3 million for the three months ended June 30, 2009,
decreases in losses of $11.9 million and $13.2 million, respectively.
These decreases in net loss were principally due to the following items, all of which are
discussed in further detail below:
| an increase in other income, primarily attributable to the settlement of certain
litigation matters; and |
| a decrease in earnings allocated to noncontrolling interests in consolidated real estate
partnerships, primarily due to their share of the decrease in gains on disposition of
consolidated real estate properties discussed below. |
The effects of these items on our operating results were partially offset by:
| a decrease in income from discontinued operations, primarily related to the volume of
sales in 2010 and the related number of properties included in discontinued operations in
2009 as compared to 2010; and |
| a decrease in operating
income related to asset
management, tax credit and investment
management activities. |
For the six months ended June 30, 2010, we reported net loss attributable to the Partnership
of $35.9 million and net loss attributable to the Partnerships common unitholders of $62.3
million, compared to net loss attributable to the Partnership of $45.2 million and net loss
attributable to the Partnerships common unitholders of $72.7 million for the six months ended June
30, 2009, decreases of $9.3 million and $10.4 million, respectively.
These decreases in net loss were principally due to the following items, all of which are
discussed in further detail below:
| an increase in other income, primarily attributable to the settlement of certain
litigation matters; and |
| an increase in income from discontinued operations, due primarily to a reduction in
depreciation and interest expense. |
The effects of these items on our operating
results were partially offset by a decrease in operating
income related to asset management, tax credit and investment
management activities.
The following paragraphs discuss these and other items affecting the results of our operations
in more detail.
Real Estate Operations
Our real estate portfolio is comprised of two business components: conventional real estate
operations and affordable real estate operations, which also represent our two reportable segments.
Our conventional real estate portfolio consists of market-rate apartments with rents paid by the
resident and includes 232 properties with 71,909 units. Our affordable real estate portfolio
consists of 254 properties with 29,540 units, with rents that are generally paid, in whole or part,
by a government agency. Our conventional and affordable properties contributed 87% and 13%,
respectively, of our ownership adjusted property net operating income amounts during the six months
ended June 30, 2010.
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The following table summarizes the net operating income of our real estate operations,
including our conventional and affordable segments, for the three and six months ended June 30,
2010 and 2009 (in thousands):
Three Months Ended | Six Months Ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
Rental and other property revenues: |
||||||||||||||||
Conventional real estate operations |
$ | 230,267 | $ | 229,048 | $ | 461,075 | $ | 460,918 | ||||||||
Affordable real estate operations |
54,268 | 48,653 | 107,506 | 95,402 | ||||||||||||
Corporate and amounts not allocated |
860 | 1,340 | 2,041 | 2,983 | ||||||||||||
Total |
285,395 | 279,041 | 570,622 | 559,303 | ||||||||||||
Property operating expenses: |
||||||||||||||||
Conventional real estate operations |
89,735 | 90,518 | 186,019 | 183,498 | ||||||||||||
Affordable real estate operations |
26,363 | 22,078 | 54,121 | 45,959 | ||||||||||||
Corporate and amounts not allocated |
16,848 | 13,069 | 31,214 | 29,692 | ||||||||||||
Total |
132,946 | 125,665 | 271,354 | 259,149 | ||||||||||||
Real estate operations net operating income: |
||||||||||||||||
Conventional real estate operations |
140,532 | 138,530 | 275,056 | 277,420 | ||||||||||||
Affordable real estate operations |
27,905 | 26,575 | 53,385 | 49,443 | ||||||||||||
Corporate and amounts not allocated |
(15,988 | ) | (11,729 | ) | (29,173 | ) | (26,709 | ) | ||||||||
Total |
$ | 152,449 | $ | 153,376 | $ | 299,268 | $ | 300,154 | ||||||||
For the three months ended June 30, 2010, compared to the three months ended June 30, 2009,
our real estate operations net operating income decreased by $0.9 million, or 0.6%, and consisted
of an increase in rental and other property revenues of $6.4 million, or 2.3%, and an offsetting
increase in property operating expenses of $7.3 million, or 5.8%.
Our conventional
segment consists of conventional properties we classify as same store,
redevelopment and other conventional properties. Same store properties are
properties we manage and that have reached and maintained a stabilized level of
occupancy during the current and prior year comparable period. Redevelopment
properties are those in which a substantial number of available units have been
vacated for major renovations or have not been stabilized in occupancy for at
least one year as of the earliest period presented, or for which other
significant non-unit renovations are underway or have been complete for less
than one year. Other conventional properties may include conventional
properties that have significant rent control restrictions, acquisition
properties, university housing properties and properties that are not
multifamily, such as commercial properties or fitness centers. Our conventional
segment’s net operating income increased $2.0 million, or 1.4%,
during the three months ended June 30, 2010 as compared to 2009.
Conventional same store net operating income decreased by $0.5 million, primarily due to a
$0.7 million reduction in revenues, resulting from lower average rent (approximately $47 per unit),
partially offset by an increase of 290 basis points in average physical occupancy. Our conventional
same store expenses decreased $0.2 million, partially offsetting the decrease in revenues. Rental
rates on new conventional same store leases transacted during the quarter were 2.3% lower than the
expiring lease rates, while renewal rates were 1.9% higher than the expiring lease rates. New and
renewal lease rates improved throughout the quarter, with June 2010 new lease rates 1.4% lower than
the expiring lease rates and renewal rates 2.4% higher than the expiring lease rates. June 2010
new and renewal lease rates also compared favorably to beginning of year new lease rates that were
8.9% lower than the expiring lease rates and renewal rates that were 0.7% lower than the expiring
lease rates.
The net operating income of our conventional redevelopment properties increased by $3.5
million, including a $2.5 million increase in revenues resulting from an 11% increase in the number
of units in service at these properties relative to 2009 and a $1.0 million decrease in expenses
primarily due to a reduction in payroll and marketing expenses.
The net operating income of our conventional other properties decreased by $1.0 million.
The net operating income of our affordable segment, which includes same store and
redevelopment properties, increased $1.3 million, or 5.0%, during the three months ended June 30,
2010 as compared to 2009. Revenues and expenses of our affordable properties increased by $5.6
million and $4.3 million, respectively, primarily due to properties we consolidated based on our
adoption of revised accounting guidance regarding consolidation of variable interest entities (see
Note 2 to our condensed consolidated financial statements in Item 1). Our June 2010 average
month-end occupancy for our affordable same store properties was 97.2%, a decrease of 10 basis
points from the comparable month in 2009, while average rent per unit increased 1.6% from $768 to $780
per unit.
For the six months ended June 30, 2010, compared to the six months ended June 30, 2009, our
real estate operations net operating income decreased by $0.9 million, or 0.3%, and consisted of an
increase in rental and other property revenues of $11.3 million, or 2.0%, and an offsetting
increase in property operating expenses of $12.2 million, or 4.7%.
Our conventional segment net operating income decreased $2.4 million, or 0.9%, during the six
months ended June 30, 2010 as compared to 2009.
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Our conventional same store net operating income decreased $6.6 million. This decrease was
attributed to a $4.2 million decrease in revenue, primarily due to lower average rent
(approximately $53 per unit) partially offset by an increase of 280 basis points in average
physical occupancy, and an increase of $2.4 million in expense, due to increases in payroll,
contract services, turnover and repair and maintenance expenses.
Conventional redevelopment net operating income increased by $6.0 million due to a $4.9
million increase in revenues resulting from a 12% increase in the number of units in service at
these properties relative to 2009, and a $1.1 million decrease in expense, primarily due to a
reduction in utility and marketing expenses.
Our conventional other net operating income decreased by $1.8 million primarily due to
increases in expenses, including real estate taxes and snow removal costs.
Our affordable segment net operating income increased $3.9 million, or 8.0%, during the six
months ended June 30, 2010 as compared to 2009. Revenues and expenses of our affordable properties
increased by $12.1 million and $8.2 million, respectively, primarily due to properties we
consolidated based on our adoption of revised accounting guidance regarding consolidation of
variable interest entities (see Note 2 to our condensed consolidated financial statements in Item
1).
Real estate operations net operating income amounts not attributed to our conventional or
affordable segments include property management revenues and expenses and casualty losses, which we
do not allocate to our conventional or affordable segments for purposes of evaluating segment
performance. For the three and six months ended June 30, 2010, as compared to the three and six
months ended June 30, 2009, property management revenues decreased by $0.5 million and $0.9
million, respectively, primarily due to the elimination of revenues related to properties
consolidated during 2010 in connection with our adoption of revised accounting guidance regarding
consolidation of variable interest entities discussed above. For the three and six months ended
June 30, 2010, as compared to the three and six months ended June 30, 2009, expenses not allocated
to our conventional or affordable segments increased by $3.8 million and $1.5 million,
respectively. These increases in expenses were due to $4.1 million and $4.3 million, respectively,
of increases in casualty losses, offset by decreases of $0.3 million and $2.8 million,
respectively, in property management expenses, resulting primarily from reductions in personnel and
related costs attributed to our restructuring activities (see Note 4 to the condensed consolidated
financial statements in Item 1).
Asset Management and Tax Credit Revenues
We perform activities and services for consolidated and unconsolidated real estate
partnerships, including 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 gains on dispositions. For affiliated partnerships, we refer to these
activities as asset management, for which we are separately compensated through fees paid by third
party investors. These activities are conducted in part by our taxable subsidiaries, and the
related net operating income may be subject to income taxes.
Asset management revenue may include certain fees that were earned in a prior period, but not
recognized at that time because collectibility was not reasonably assured. Those fees may be
recognized in a subsequent period upon occurrence of a transaction or a high level of the
probability of occurrence of a transaction, or improvement in operations that generates sufficient
cash to pay the fees.
For the three months ended June 30, 2010, compared to the three months ended June 30, 2009,
asset management and tax credit revenues decreased $3.0 million. This decrease is attributable to a
$1.3 million decrease in disposition and other fees we earn in connection with transactional
activities, a $0.9 million decrease in income related to our affordable housing tax credit
syndication business, which primarily relates to a reduction in amortization of deferred tax credit
income, a $0.5 million decrease in current asset management fees and a $0.3 million decrease in
promote income, which is income earned in connection with the disposition of properties owned by
our consolidated joint ventures.
For the six months ended June 30, 2010, compared to the six months ended June 30, 2009, asset
management and tax credit revenues decreased $8.3 million. This decrease is attributable to a $4.7
million decrease in income related to our affordable housing tax credit syndication business, which
includes a $2.4 million write off of syndication fees receivable we determined were uncollectible
during 2010 and a $2.1 million decrease in amortization of related tax credit income, primarily
related to adjustments in the amount and timing of anticipated cash flows for several tax credit
projects. The decrease in revenues also includes a $1.4 million decrease in disposition and other
fees we earn in connection with transactional activities, a $1.2 million decrease in promote
income, which is income earned in connection with the disposition of properties owned by our
consolidated joint ventures, and a $1.0 million decrease in current asset management fees,
primarily due to the elimination of fees associated with certain partnerships we consolidated
during 2010 (see Note 2 to our condensed consolidated financial statements in Item 1 discussing our
adoption of revised accounting guidance regarding the consolidation of variable interest entities).
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Investment Management Expenses
Investment management expenses consist primarily of the costs of departments that perform
asset management and tax credit activities. For the three months ended June 30, 2010, compared to
the three months ended June 30, 2009, investment management expenses increased $0.4 million. This
increase is primarily due to a $1.7 million increase in expenses, primarily related to our write
off of previously deferred costs related to tax credit projects we recently abandoned, partially offset by a
$1.2 million reduction in personnel and related costs from our organizational restructurings.
For the six months ended June 30, 2010, compared to the six months ended June 30, 2009,
investment management expenses decreased $0.1 million. This decrease is primarily due to a $2.3
million reduction in personnel and related costs from our organizational restructurings, partially
offset by a $2.2 million increase in expenses, primarily related to our write off of previously
deferred costs related to tax credit projects we recently abandoned.
Depreciation and Amortization
For the three and six months ended June 30, 2010, compared to the three and six months ended
June 30, 2009, depreciation and amortization increased $0.2 million, or 0.2%, and $4.4 million, or
2.1%, respectively. These increases primarily relate to 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.
For the three and six months ended June 30, 2009, we recognized impairment losses of $1.6
million and $2.1 million respectively, related to properties classified as held for use. We
recognized no such impairment losses related to properties classified as held for use during the
three and six months ended June 30, 2010.
General and Administrative Expenses
For the three months ended June 30, 2010, compared to the three months ended June 30, 2009,
general and administrative expenses increased $0.6 million, or 4.2%. This increase is primarily
attributable to an increase in personnel and related expenses.
For the six months ended June 30, 2010, compared to the six months ended June 30, 2009,
general and administrative expenses decreased $3.9 million, or 12.7%. This decrease is primarily
attributable to net reductions in personnel and related expenses associated with our organizational
restructuring activity (see Note 4 to the condensed consolidated financial statements in Item 1 for
additional information), partially offset by information technology outsourcing costs.
Other (Income) Expenses, Net
Other (income) expenses, net includes franchise taxes, risk management activities, partnership
administration expenses and certain non-recurring items. For the three and six months ended June
30, 2010, compared to the three and six months ended June 30, 2009, other (income) expenses, net
changed favorably by $10.4 million and $8.8 million, respectively. The net favorable changes are
primarily attributable to the settlement of certain litigation matters during the 2010 second
quarter.
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 June 30, 2010, compared to the three months ended June 30, 2009,
interest income decreased $0.3 million, or 11.9%, primarily due to lower interest rates on notes
receivable, cash and restricted cash balances and lower average balances.
For the six months ended June 30, 2010, compared to the six months ended June 30, 2009,
interest income decreased $0.4 million, or 6.1%, primarily due to lower interest rates on notes
receivable, cash and restricted cash balances and lower average balances.
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Recovery
of (Provision for) Losses on Notes Receivable, Net
During
the three months ended June 30, 2010, we recognized a $0.1 million net recovery of
previously recognized provision for losses on notes receivable, as compared to a $1.5 million net
provision for losses on notes receivable during the three months ended June 30, 2009. For the six
months ended June 30, 2010 and 2009, we recognized net provisions for losses on notes receivable of
$0.3 million and $1.7 million, respectively. The favorable changes in our losses on notes
receivable from 2009 to 2010 were primarily due to a $1.4 million provision for losses on a note
receivable in 2009, for which we recognized no comparable losses during 2010.
Interest Expense
For the three months ended June 30, 2010,
compared to the three months ended June 30, 2009, interest expense, which includes the amortization of deferred financing
costs, decreased by $2.3 million, or 2.8%. Interest expense decreased primarily due to a $1.6 million decrease in corporate
interest expense, primarily due to a decrease in average corporate borrowings. Property related interest expense
decreased by $0.7 million, primarily due to a $1.5 million decrease in prepayment penalties due to fewer refinancings
in 2010 as compared to 2009, offset by an increase of $0.8 million of interest expense related to properties newly
consolidated in 2010 (see Note 2 to our condensed consolidated financial statements in Item 1 for further discussion
of our adoption of ASU 2009-17).
For the six months ended June 30, 2010,
compared to the six months ended June 30, 2009, interest expense decreased by $2.8 million, or 1.7%. Interest expense
decreased primarily due to a $4.3 million decrease in corporate interest expense, primarily due to a decrease in
average corporate borrowings. The decrease in corporate interest expense was offset by a $1.5 million increase
in property related interest expense. Property related interest expense increased due to a $2.0 million increase
related to properties newly consolidated in 2010 and a $1.1 million increase related to higher average property
borrowings resulting primarily from 2009 refinancing activities, partially offset by a $1.3 million decrease in
prepayment penalties due to fewer refinancings in 2010 as compared to 2009.
Equity in (Losses) Earnings of Unconsolidated Real Estate Partnerships
Equity in (losses) earnings of unconsolidated real estate partnerships includes our share of
net earnings or 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 months ended June 30, 2010, compared to the three months ended June 30, 2009,
equity in losses of unconsolidated real estate partnerships increased $5.5 million, primarily due
to an increase in equity in losses recognized by certain partnerships we consolidated during 2010
(see Note 2 to our condensed consolidated financial statements in Item 1 for further discussion of
our adoption of ASU 2009-17).
For the six months ended June 30, 2010, we recognized net equity in earnings of unconsolidated
real estate partnerships of $0.7 million as compared to equity in losses of $3.7 million during the
six months ended June 30, 2009. This favorable variance of $4.4 million from 2009 to 2010 was
primarily due to our reversal during the three months ended March 31, 2010 of approximately $11.2
million of excess equity in losses recognized during 2008 and 2009, partially offset by an increase
in equity in losses recognized by certain partnerships we consolidated during 2010 (see Note 2 to
our condensed consolidated financial statements in Item 1 for further discussion of our adoption of
ASU 2009-17). These excess losses discussed above were attributed to noncontrolling interests in
our consolidated real estate partnerships that hold such investments and, accordingly, this
reversal had no significant effect on net income or loss attributable to the Partnership during the
affected periods.
Gain
on Dispositions of Unconsolidated Real Estate and Other, Net
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 June 30, 2010, compared to the three months ended June 30, 2009,
gain on dispositions of unconsolidated real estate and other increased $1.5 million. This increase
is primarily attributable to $5.0 million of gains on the disposition of interests in
unconsolidated real estate partnerships during the three months ended June 30, 2010 (the majority
of which is attributed to noncontrolling interests in the consolidated partnerships that held such
investments),
partially offset by a $3.2 million gain on sale of an interest in a certain unconsolidated
real estate partnership during the three months ended June 30, 2009.
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For the six months ended June 30, 2010, compared to the six months ended June 30, 2009, gain
on dispositions of unconsolidated real estate and other decreased $6.7 million. This decrease is
primarily attributable to $8.6 million of additional proceeds received in 2009 related to our
disposition during 2008 of an interest in an unconsolidated real estate partnership, for which
there were no comparable gains during 2010.
Income Tax Benefit
In conjunction with Aimcos UPREIT structure, certain of our operations or a portion thereof,
such as property management, asset management and risk management, are conducted through, and
certain of our properties are owned by, taxable 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 operations.
For the three and six months ended June 30, 2010, compared to the three and six months ended
June 30, 2009, income tax benefit increased by $1.1 million and $2.4 million, respectively,
primarily due to increases in losses of our TRS entities.
Income from Discontinued Operations, Net
The results of operations for properties sold during the period or designated as held for sale
at the end of the period are generally required to be classified as discontinued operations for all
periods presented. The components of net earnings that are classified as discontinued operations
include all property-related revenues and operating expenses, depreciation expense recognized prior
to the classification as held for sale, property-specific interest expense and debt extinguishment
gains and losses to the extent there is secured debt on the property. In addition, any impairment
losses on assets held for sale and the net gain or loss on the eventual disposal of properties held
for sale are reported in discontinued operations.
For the three months ended June 30, 2010 and 2009, income from discontinued operations totaled
$26.2 million and $36.3 million, respectively. The $10.1 million decrease in income from
discontinued operations was principally due to a $26.6 million decrease in gain on dispositions of
real estate, net of income taxes, partially offset by a $10.3 million decrease in interest expense
and a $10.0 million decrease in operating loss (inclusive of a $16.4 million decrease in real
estate impairment losses).
For the six months ended June 30, 2010 and 2009, income from discontinued operations totaled
$47.4 million and $39.4 million, respectively. The $8.0 million increase in income from
discontinued operations was principally due to a $21.8 million decrease in interest expense,
partially offset by a decrease of $6.2 million in operating income (inclusive of a $5.8 million
decrease in real estate impairment losses) and a decrease of $3.5 million in gain on dispositions
of real estate, net of income taxes.
During the three months ended June 30, 2010, we sold 11 consolidated properties for gross
proceeds of $102.2 million and net proceeds of $26.3 million, resulting in a net gain on sale of
approximately $26.8 million (which is net of $0.2 million of related income taxes). During the
three months ended June 30, 2009, we sold 19 consolidated properties for gross proceeds of $270.8
million and net proceeds of $107.2 million, resulting in a gain on sale of approximately $53.4
million (which is net of $4.6 million of related income taxes).
During the six months ended June 30, 2010, we sold 23 consolidated properties for gross
proceeds of $184.8 million and net proceeds of $47.4 million, resulting in a net gain on sale of
approximately $54.2 million (which includes $0.9 million of related income taxes). During the six
months ended June 30, 2009, we sold 29 consolidated properties for gross proceeds of $353.9 million
and net proceeds of $121.8 million, resulting in a gain on sale of approximately $57.7 million
(which is net of $4.9 million of related income taxes).
For the three and six months ended June 30, 2010 and 2009, income from discontinued operations
includes the operating results of the properties sold or classified as held for sale as of June 30,
2010.
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 to the condensed
consolidated financial statements in Item 1 for additional information on discontinued operations).
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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, as well as the noncontrolling partners share of property management
fees, interest on notes and other amounts that we charge to such partnerships.
For the three months ended June 30, 2010, we allocated net losses of $2.7 million to
noncontrolling interests in consolidated real estate partnerships, as compared to $11.7 million of
earnings allocated to these noncontrolling interests during the three months ended June 30, 2009,
or a favorable variance of $14.4 million. This favorable change was primarily due to a $13.6
million decrease in the noncontrolling interest partners share of income from discontinued
operations, which decreased primarily due to a reduction in gains on the disposition of real estate
from 2009 to 2010. The noncontrolling interest partners share of loss from continuing operations
increased by $0.8 million from 2009 to 2010, primarily due to an increase in losses allocated to
noncontrolling interests related to certain partnerships that were consolidated during 2010 (see
Note 2 to our condensed consolidated financial statements in Item 1 for further discussion of our
adoption of ASU 2009-17).
For the six months ended June 30, 2010, compared to the six months ended June 30, 2009, net
income attributed to noncontrolling interests in consolidated real estate partnerships increased by
$4.0 million. This increase was primarily due to an $11.4 million increase in the noncontrolling
interest partners share of income from continuing operations of our consolidated real estate
partnerships, due primarily to a reversal during 2010 of approximately $11.2 million of excess
equity in losses recognized during 2009 and 2008, partially offset by an increase in losses
allocated to noncontrolling interests related to certain partnerships that were consolidated during
2010 (see Note 2 to our condensed consolidated financial statements in Item 1 for further
discussion of our adoption of ASU 2009-17). This increase in noncontrolling interests was partially
offset by a $7.4 million decrease in the noncontrolling interest partners share of income from
discontinued operations, which decreased primarily due to a reduction in gains on the disposition
of real estate from 2009 to 2010.
Critical Accounting Policies and Estimates
We prepare our consolidated financial statements in accordance with accounting principles
generally accepted in the United States of America, or GAAP, which requires us to make estimates
and assumptions. We believe that the following critical accounting policies involve our more
significant judgments and estimates used in the preparation of our consolidated financial
statements.
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; and |
| changes in interest rates and the availability of financing. |
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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 six months ended June 30,
2010, we recorded no impairment losses related to properties to be held and used, and for the three
and six months ended June 30, 2009, we recognized impairment losses of $1.6 million and $2.1
million related to properties to be held and used.
Other assets in our condensed consolidated balance sheet in Item 1 include $69.0 million of
goodwill related to our conventional and affordable reportable segments as of June 30, 2010. We
annually evaluate impairment of intangible assets using an impairment test that compares the fair
value of the reporting units with the carrying amounts, including goodwill. We performed our last
impairment analysis during 2009 and concluded no impairment was necessary. We will perform our
next impairment analysis during the fourth quarter of 2010 and do not anticipate recognizing an
impairment of goodwill in connection with this analysis. As further discussed in Note 3 to the
condensed 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 each reportable segment.
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.
Provision 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 June 30, 2010, we recognized a $0.1 million net recovery of
previously recognized provision for losses on notes receivable, as compared to a $1.5 million net
provision for losses on notes receivable during the three months ended June 30, 2009. During the
six months ended June 30, 2010 and 2009, we recorded provisions for
losses on notes receivable of $0.3 million and $1.7 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.
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Capitalized Costs
We capitalize costs, including certain indirect costs, incurred in connection with our capital
additions activities, including redevelopment and construction projects, other tangible property
improvements and replacements of existing property components. Included in these capitalized costs
are payroll costs associated with time spent by site employees in connection with the planning,
execution and control of all capital additions activities at the property level. We characterize
as indirect costs an allocation of certain department costs, including payroll, at the area
operations and corporate levels that clearly relate to capital additions activities. We capitalize
interest, property taxes and insurance during periods in which redevelopment and construction
projects are in progress. We charge to expense as incurred costs that do not relate to capital
additions activities, including ordinary repairs, maintenance, resident turnover costs and general
and administrative expenses.
For the three months ended June 30, 2010 and 2009, for continuing and discontinued operations,
we capitalized $2.6 million and $2.0 million of interest costs, respectively, and $6.1 million and
$11.3 million of site payroll and indirect costs, respectively. For the six months ended June 30,
2010 and 2009, for continuing and discontinued operations, we capitalized $5.4 million and $4.3
million of interest costs, respectively, and $12.8 million and $25.1 million of site payroll and
indirect costs, respectively. The net increase in interest capitalized from 2009 to 2010 was
primarily due to our refinancing of the project financing on a large redevelopment project at a
higher interest rate, partially offset by a decrease in the average number of units subject to
capital projects. The decrease in the amounts of site payroll and indirect costs capitalized from
2009 to 2010 is primarily due to a reduced level of redevelopment activities.
Liquidity and Capital Resources
Liquidity is the ability to meet present and future financial obligations. Our primary source
of liquidity is cash flow from our operations. Additional sources are proceeds from property sales
and proceeds from refinancings of existing property loans and borrowings under new property loans.
Our principal uses for liquidity include normal operating activities, payments of principal
and interest on outstanding debt, capital expenditures, distributions paid to unitholders and
distributions paid to noncontrolling interest partners 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, primarily secured, the issuance of equity securities (including OP
Units), the sale of properties and cash generated from operations.
The availability of credit 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. Currently, base interest rates are at very low levels relative to historical
rates and the tightening of the credit markets is showing signs of easing. The availability of
property loan financing is increasing as many lenders have reentered the market. 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 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 June 30, 2010, we estimate that a 1.0 % increase in 30-day LIBOR with constant
credit risk spreads would reduce our income (or increase our loss) attributable to the
Partnerships common unitholders by approximately $0.7 million on an annual basis.
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As further discussed in Note 2 to our condensed consolidated financial statements in Item 1,
we use total rate of return swaps as a financing product to lower our cost of borrowing through
conversion of fixed-rate debt to variable-rates. The cost of financing through these arrangements
is generally lower than the fixed rate on the debt. As of June 30, 2010, we had total rate of
return swap positions with two financial institutions with notional amounts totaling $308.0
million. Swaps with
notional amounts totaling $278.8 million and $29.2 million have maturity dates in May 2012 and
October 2012, respectively. During the three and six months ended June 30, 2010, we received net
cash receipts of $7.1 million and $10.8 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.
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 liquidity.
The total rate of return swaps require specified loan-to-value ratios. In the event the
values of the real estate properties serving as collateral under these agreements decline or if we
sell properties in the collateral pool with low loan-to-value ratios, certain of our consolidated
subsidiaries have an obligation to pay down the debt or provide additional collateral pursuant to
the swap agreements, which may adversely affect our cash flows. The obligation to provide
collateral is limited to these subsidiaries and is non-recourse to the Partnership. At June 30,
2010, these subsidiaries were not required to provide cash collateral based on the loan-to-value
ratios of the real estate properties serving as collateral under these agreements.
As of June 30, 2010, the amount available under our revolving credit facility was $137.1
million (after giving effect to $42.9 million outstanding for undrawn letters of credit issued
under the revolving credit facility). Our total outstanding term loan of $25.0 million at June 30,
2010, was set to mature in the first quarter 2011; however, during July 2010, we repaid the
remaining outstanding balance.
At June 30, 2010, we had $78.3 million in cash and cash equivalents, a decrease of $2.9
million from December 31, 2009. At June 30, 2010, we had $211.8 million of restricted cash,
primarily consisting of reserves and escrows held by lenders for bond sinking funds, capital
additions, property taxes and insurance. In addition, cash, cash equivalents and restricted cash
are held by partnerships that are not presented on a consolidated 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 six months ended June 30, 2010, our net cash provided by operating activities of
$111.0 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
increased $51.6 million compared with the six months ended June 30, 2009, driven primarily by a
decrease in payments on operating accounts payable and accrued expenses, including payments related
to our restructuring accruals, in 2010 as compared to 2009.
Investing Activities
For
the six months ended June 30, 2010, our net cash provided by
investing activities of $56.5
million consisted primarily of proceeds from disposition of real estate and a net increase in cash
from partnerships consolidated and deconsolidated in connection with our adoption of ASU 2009-17
(see Note 2 to our condensed consolidated financial statements in Item 1), 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 six months ended June 30,
2010, we sold 23 consolidated properties for an aggregate sales price of $185.4 million, generating
proceeds totaling $177.6 million, after the payment of transaction costs and debt prepayment
penalties. The $177.6 million in proceeds is inclusive of debt assumed by buyers. Net cash
proceeds from property sales were used primarily to repay property debt and for other corporate
purposes.
Capital expenditures totaled $79.0 million
during the six months ended June 30, 2010, and consisted primarily of capital improvements and Capital Replacements,
and to a lesser extent included spending for redevelopment projects and casualties.
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Financing Activities
For the six months ended June 30, 2010, net cash used in financing activities of $170.4
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.
Property Debt
At June 30, 2010 and December 31, 2009, we had $5.6 billion in consolidated property debt
outstanding, which included $3.1 million and $117.3 million, respectively, of property debt
classified within liabilities related to assets held for sale. During the six months ended June
30, 2010, we refinanced or closed property loans on 11 properties generating $125.5 million of
proceeds from borrowings with a weighted average interest rate of 5.54%. Our share of the net
proceeds after repayment of existing debt, payment of transaction costs and distributions to
limited partners, was $72.6 million. We used these total net proceeds for capital additions and
other corporate purposes. We intend to continue to refinance property debt primarily as a means of
extending current and near term maturities and to finance certain capital projects.
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 June 30, 2010, the Credit Agreement consisted of aggregate
commitments of $205.0 million, comprised of a $25.0 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 was set to mature in March 2011; however, during July 2010,
we repaid the remaining outstanding balance. 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.
At June 30, 2010, the term loan had an outstanding principal balance of $25.0 million and an
interest rate of 1.85%. The amount available under the revolving credit facility at June 30, 2010,
was $137.1 million (after giving effect to $42.9 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.
Our Credit Agreement requires us to satisfy covenant ratios of earnings before interest, taxes
and depreciation and amortization to debt service and earnings to fixed charges of 1.40:1 and
1.20:1, respectively. For the twelve months ended June 30, 2010, as calculated based on the
provisions in our Credit Agreement, we had a ratio of earnings before interest, taxes and
depreciation and amortization to debt service of 1.57:1 and a ratio of earnings to fixed charges of
1.34:1.
Partners Capital Transactions
During the six months ended June 30, 2010, we paid cash distributions totaling $29.2 million,
$25.1 million and $23.6 million to preferred unitholders, common unitholders and noncontrolling
interests in consolidated real estate partnerships, respectively.
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 replacements 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.
Dodd-Frank Wall Street Reform and Consumer Protection Act
During July 2010,
the Dodd-Frank Wall Street Reform and Consumer Protection Act, or the Act, was signed into
federal law. The provisions of the Act include new regulations for over-the-counter derivatives
and substantially increased regulation and risk of liability for credit rating agencies, all
of which could increase our cost of capital. The Act also includes provisions concerning corporate governance
and executive compensation which, among other things, require additional executive compensation disclosures
and enhanced independence requirements for board compensation committees and related
advisors, as well as provide explicit authority for the Securities and Exchange Commission to
adopt proxy access, all of which could result in additional expenses in order to maintain compliance.
The Act is wide-ranging, and the provisions are broad with significant discretion given to
the many and varied agencies tasked with adopting and implementing the Act. The majority
of the provisions of the Act do not go into effect immediately and may be adopted and implemented over
many months or years. As such, we cannot predict the full impact of the Act on our financial condition
or results of operations.
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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 property debt in order to avoid the
refunding and repricing risks of short-term borrowings. We use short-term debt financing and
working capital primarily to fund short-term uses and acquisitions and generally expect to
refinance such borrowings with cash from operating activities, property sales proceeds, long-term
debt or equity financings. We use total rate-of-return swaps to obtain the benefit of variable
rates on certain of our fixed-rate debt instruments. We make limited use of other derivative
financial instruments and we do not use them for trading or other speculative purposes.
We had $536.1 million of floating rate debt and $57.0 million of floating rate preferred units
outstanding at June 30, 2010. Of the total floating rate debt, the major components were floating
rate tax-exempt bond financing ($404.9 million), floating rate secured notes ($95.4 million) and a
term loan ($25.0 million). At June 30, 2010, we had approximately $431.8 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 interest rates have been at a ratio of less
than 1:1 with changes in taxable interest rates. Floating rate tax-exempt bond financing is
benchmarked against the SIFMA rate, which since 1990 has averaged 74% of the 30-day LIBOR rate. If
the historical relationship continues, we estimate that an increase in 30-day LIBOR of 100 basis
points (74 basis points for tax-exempt interest rates) with constant credit risk spreads would
result in net income and net income attributable to the Partnerships common unitholders being
reduced (or the amounts of net loss and net loss attributable to the Partnerships common
unitholders being increased) by $0.2 million and $0.7 million, respectively, on an annual basis.
The estimated aggregate fair value and carrying amount of our consolidated debt (including
amounts reported in liabilities related to assets held for sale) was approximately $5.9 billion and
$5.6 billion, respectively at June 30, 2010. 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 $5.9 billion to $5.6 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 $5.9 billion to $6.3 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 second quarter of 2010 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, 2009.
ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds
(a) Unregistered Sales of Equity Securities. We did not issue any common OP Units in exchange
for shares of Aimco Class A Common stock during the three months ended June 30, 2010.
(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 exchanged on a one-for-one
basis (subject to antidilution adjustments). During the three months ended June 30, 2010, 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 June 30, 2010.
Total Number of | Maximum Number | |||||||||||||||
Total | Average | Units Purchased as | of Units that | |||||||||||||
Number | Price | Part of Publicly | May Yet Be | |||||||||||||
of Units | Paid | Announced Plans or | Purchased Under the | |||||||||||||
Period | Purchased | per Unit | Programs (1) | Plans or Programs (2) | ||||||||||||
April 1 April 30, 2010 |
3,047 | $ | 18.01 | N/A | N/A | |||||||||||
May 1 May 31, 2010 |
4,561 | 20.70 | N/A | N/A | ||||||||||||
June 1 June 30, 2010 |
8,548 | 20.64 | N/A | N/A | ||||||||||||
Total |
16,156 | $ | 20.16 | |||||||||||||
(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 its Class A Common Stock. |
|
(2) | Aimcos board of directors has, from time to time, authorized Aimco to repurchase shares
of its Class A Common Stock. As of June 30, 2010, 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 | Ninth Amendment to Amended and Restated Senior Secured Credit
Agreement, dated as of May 14, 2010, by and among Apartment
Investment and Management Company, AIMCO Properties, L.P., and
AIMCO/Bethesda Holdings, Inc., as the borrowers, the guarantors and
the pledgors named therein and the lenders party thereto (Exhibit
10.1 to Aimcos Quarterly Report on Form 10-Q for the quarterly
period ended June 30, 2010, 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/ ERNEST M. FREEDMAN
|
|||||
Executive Vice President and Chief Financial Officer | ||||||
(duly authorized officer and principal financial officer) | ||||||
By: | /s/ PAUL BELDIN
|
|||||
Senior Vice President and Chief Accounting Officer |
Date: July 30, 2010
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ITEM 6. Exhibits
Exhibit Index
EXHIBIT NO. (1) | ||||
10.1 | Ninth Amendment to Amended and Restated Senior Secured Credit
Agreement, dated as of May 14, 2010, by and among Apartment
Investment and Management Company, AIMCO Properties, L.P., and
AIMCO/Bethesda Holdings, Inc., as the borrowers, the guarantors and
the pledgors named therein and the lenders party thereto (Exhibit
10.1 to Aimcos Quarterly Report on Form 10-Q for the quarterly
period ended June 30, 2010, 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. |