e10vk
UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C.
20549
Form 10-K
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(Mark One)
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þ
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
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For the fiscal year ended
December 31, 2007
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or
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
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For the transition period
from to
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Commission File Number 1-13232
Apartment Investment and
Management Company
(Exact name of registrant as
specified in its charter)
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Maryland
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84-1259577
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(State or other jurisdiction
of
incorporation or organization)
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(I.R.S. Employer
Identification No.)
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4582 South Ulster Street Parkway, Suite 1100
Denver, Colorado
(Address of principal
executive offices)
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80237
(Zip Code)
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Registrants telephone number, including area code:
(303) 757-8101
Securities Registered Pursuant to Section 12(b) of the
Act:
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Title of Each Class
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Name of Each Exchange on Which Registered
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Class A Common Stock
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New York Stock Exchange
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Class G Cumulative Preferred Stock
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New York Stock Exchange
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Class T Cumulative Preferred Stock
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New York Stock Exchange
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Class U Cumulative Preferred Stock
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New York Stock Exchange
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Class V Cumulative Preferred Stock
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New York Stock Exchange
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Class Y Cumulative Preferred Stock
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New York Stock Exchange
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Securities Registered Pursuant to Section 12(g) of the
Act: none
Indicate by check mark if the registrant is a well-known
seasoned issuer, as defined by Rule 405 of the Securities
Act. Yes þ No o
Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or Section 15(d) of the
Act. Yes o No þ
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of
the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been
subject to such filing requirements for the past
90 days. Yes þ No o
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of
Regulation S-K
is not contained herein, and will not be contained, to the best
of registrants knowledge, in definitive proxy or
information statements incorporated by reference in
Part III of this
Form 10-K
or any amendment to this
Form 10-K. þ
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definitions of
large accelerated filer, accelerated
filer and smaller reporting company in
Rule 12b-2 of the Exchange Act. (Check one):
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Large accelerated
filer þ
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Accelerated filer
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Non-accelerated
filer o
(Do not check if a smaller reporting company)
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Smaller reporting
company o
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Indicate by check mark whether the registrant is a shell company
(as defined in
Rule 12b-2
of the
Act). Yes o No þ
The aggregate market value of the voting and non-voting common
stock held by non-affiliates of the registrant was approximately
$4.7 billion as of June 30, 2007. As of
February 25, 2008, there were 91,736,837 shares of
Class A Common Stock
outstanding.
DOCUMENTS
INCORPORATED BY REFERENCE
Portions of the registrants definitive proxy statement to
be issued in conjunction with the registrants annual
meeting of stockholders to be held April 28, 2008 are
incorporated by reference into Part III of this Annual
Report.
APARTMENT
INVESTMENT AND MANAGEMENT COMPANY
TABLE OF
CONTENTS
ANNUAL
REPORT ON
FORM 10-K
For the Fiscal Year Ended December 31, 2007
1
FORWARD-LOOKING
STATEMENTS
The Private Securities Litigation Reform Act of 1995 provides
a safe harbor for forward-looking statements in
certain circumstances. Certain information included in this
Report contains or may contain information that is
forward-looking, including, without limitation, statements
regarding the effect of acquisitions and redevelopments, our
future financial performance, including our ability to maintain
current or meet projected occupancy, rent levels and same store
results, and the effect of government regulations. Actual
results may differ materially from those described in the
forward-looking statements and, in addition, will be affected by
a variety of risks and factors that are beyond our control
including, without limitation: natural disasters such as
hurricanes; national and local economic conditions; the general
level of interest rates; energy costs; the terms of governmental
regulations that affect us and interpretations of those
regulations; the competitive environment in which we operate;
financing risks, including the risk that our cash flows from
operations may be insufficient to meet required payments of
principal and interest; real estate risks, including
fluctuations in real estate values and the general economic
climate in local markets and competition for residents in such
markets; insurance risks; acquisition and development risks,
including failure of such acquisitions to perform in accordance
with projections; the timing of acquisitions and dispositions;
litigation, including costs associated with prosecuting or
defending claims and any adverse outcomes; and possible
environmental liabilities, including costs, fines or penalties
that may be incurred due to necessary remediation of
contamination of properties presently owned or previously owned
by us. In addition, our current and continuing qualification as
a real estate investment trust involves the application of
highly technical and complex provisions of the Internal Revenue
Code and depends on our ability to meet the various requirements
imposed by the Internal Revenue Code, through actual operating
results, distribution levels and diversity of stock ownership.
Readers should carefully review our financial statements and the
notes thereto, as well as the section entitled Risk
Factors described in Item 1A of this Annual Report
and the other documents we file from time to time with the
Securities and Exchange Commission.
PART I
The
Company
Apartment Investment and Management Company, or Aimco, is a
Maryland corporation incorporated on January 10, 1994. We
are a self-administered and self-managed real estate investment
trust, or REIT, engaged in the acquisition, ownership,
management and redevelopment of apartment properties. As of
December 31, 2007, we owned or managed a real estate
portfolio of 1,169 apartment properties containing 203,040
apartment units located in 46 states, the District of
Columbia and Puerto Rico. Based on apartment unit data compiled
by the National Multi Housing Council, as of January 1,
2007, we were the largest owner and operator of apartment
properties in the United States. Our portfolio includes garden
style, mid-rise and high-rise properties.
We own an equity interest in, and consolidate the majority of,
the properties in our owned real estate portfolio. These
properties represent the consolidated real estate holdings in
our financial statements, which we refer to as consolidated
properties. In addition, we have an equity interest in, but do
not consolidate for financial statement purposes, certain
properties that are accounted for under the equity or cost
methods. These properties represent our investment in
unconsolidated real estate partnerships in our financial
statements, which we refer to as unconsolidated properties.
Additionally, we provide property management and asset
management services to certain properties, and in certain cases
we may indirectly own generally less than one percent of the
operations of such
2
properties through a partnership syndication or other fund. Our
equity holdings and managed properties are as follows as of
December 31, 2007:
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Total Portfolio
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Properties
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Units
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Consolidated properties
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657
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153,758
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Unconsolidated properties
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94
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10,878
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Property management
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36
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3,228
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Asset management
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382
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35,176
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Total
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1,169
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203,040
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Through our wholly-owned subsidiaries, AIMCO-GP, Inc. and
AIMCO-LP, Inc., we own a majority of the ownership interests in
AIMCO Properties, L.P., which we refer to as the Aimco Operating
Partnership. As of December 31, 2007, we held an interest
of approximately 91% in the common partnership units and
equivalents of the Aimco Operating Partnership. We conduct
substantially all of our business and own substantially all of
our assets through the Aimco Operating Partnership. Interests in
the Aimco Operating Partnership that are held by limited
partners other than Aimco are referred to as
OP Units. OP Units include common
OP Units, partnership preferred units, or preferred
OP Units, and high performance partnership units, or High
Performance Units. Generally after a holding period of twelve
months, holders of common OP Units may redeem such units
for cash or, at the Aimco Operating Partnerships option,
Aimco Class A Common Stock, which we refer to as Common
Stock. At December 31, 2007, we had 92,795,891 shares
of our Common Stock outstanding and the Aimco Operating
Partnership had 9,682,619 common OP Units and equivalents
outstanding for a combined total of 102,478,510 shares of
Common Stock and OP Units outstanding (excluding preferred
OP Units).
Since our initial public offering in July 1994, we have
completed numerous transactions, including purchases of
properties and interests in entities that own or manage
properties, expanding our portfolio of owned or managed
properties from 132 properties with 29,343 apartment units to a
peak of over 2,100 properties with 379,000 apartment units. As
of December 31, 2007, our portfolio of owned
and/or
managed properties consists of 1,169 properties with 203,040
apartment units.
Except as the context otherwise requires, we,
our, us and the Company
refer to Aimco, the Aimco Operating Partnership and their
consolidated entities, collectively. As used herein, and except
where the context otherwise requires, partnership
refers to a limited partnership or a limited liability company
and partner refers to a limited partner in a limited
partnership or a member in a limited liability company.
Available
Information
Our Annual Report on
Form 10-K,
our Quarterly Reports on
Form 10-Q,
our Current Reports on
Form 8-K
and any amendments to any of those reports that we file with the
Securities and Exchange Commission are available free of charge
as soon as reasonably practicable through our website at
www.aimco.com. The information contained on our website is not
incorporated into this Annual Report. Our Common Stock is listed
on the New York Stock Exchange under the symbol AIV.
In 2007, our chief executive officer submitted his annual
corporate governance listing standards certification to the New
York Stock Exchange, which certification was unqualified.
Financial
Information About Industry Segments
We operate in two reportable segments: real estate (owning,
operating and redeveloping apartments) and asset management
(providing asset management and investment services). For
further information on these segments, see Note 16 of the
consolidated financial statements in Item 8, and
Managements Discussion and Analysis in Item 7.
Business
Overview
Our principal financial objective is to increase long-term
stockholder value per share, as measured by Economic Income,
which consists of cash dividends and changes in Net Asset Value,
or NAV, which is the estimated fair value of our assets, net of
debt.
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We strive to meet our objectives through:
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property operations using scale and technology to
increase the effectiveness and efficiency of attracting and
retaining apartment residents;
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redevelopment of properties making substantial
upgrades to the physical plant and, sometimes, to the services
offered to residents;
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portfolio management allocating capital among
geographic markets and apartment property types such as
Class A, Class B, Class C with redevelopment
potential, and affordable;
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earning fee income from providing asset management services such
as property management, financial management, accounting,
investor reporting, property debt financing, tax credit
syndication, redevelopment and construction management;
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managing our cost of capital by using leverage that is largely
long-term, laddered in maturity, non-recourse and property
specific; and
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managing our general and administrative costs through increasing
productivity.
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Our business is organized around three core activities: Property
Operations, Redevelopment, and Asset Management. These three
core activities, along with our financial strategy, are
described in more detail below.
Property
Operations
Our portfolio is comprised of two business components:
conventional and affordable. Our conventional operations, which
are market-rate apartments with rents paid by the resident,
include 439 properties with 127,532 units. Our affordable
operations consist of 312 properties with 37,104 units,
with rents that are generally paid, in whole or part by a
government agency.
We operate a broad range of property types, from suburban
garden-style to urban high-rise properties in 46 states,
the District of Columbia and Puerto Rico at a broad range of
average monthly rental rates, with most between $700 and $1,000
per month, and reaching as high as $6,750 per month at some of
our premier properties. This diversification insulates us, to
some degree, from inevitable downturns in any one market.
Conventional
Our conventional operations currently are organized into four
divisions and are further divided into 17 regional operating
centers, or ROCs. A Regional Vice President, or RVP, supervises
each ROC. To manage our nationwide portfolio more efficiently
and to increase the benefits from our local management
expertise, we have given direct responsibility for operations to
the RVP with regular reviews with senior management. To enable
the RVPs to focus on sales and service, as well as to improve
financial control and budgeting, we have dedicated a regional
financial officer to support each RVP. In addition, with the
exception of routine maintenance, our specialized Construction
Services group manages all
on-site
improvements, thus reducing the need for RVPs to spend time on
oversight of construction projects. We seek to improve our
corporate-level oversight of conventional property operations by
developing better systems, standardizing business goals,
operational measurements and internal reporting, and enhancing
financial controls over field operations. Our objectives are to
focus on the areas discussed below:
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Customer Service. Our operating culture is
focused on our residents. Our goal is to provide our residents
with consistent service in clean, safe and attractive
communities. We evaluate our performance through a customer
satisfaction tracking system. In addition, we emphasize the
quality of our
on-site
employees through recruiting, training and retention programs,
which we believe contributes to improved customer service and
leads to increased occupancy rates and enhanced operational
performance.
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Resident Selection and Retention. In apartment
properties, neighbors are a meaningful part of the product,
together with the location of the property and the physical
quality of the apartment units. Part of our conventional
operations strategy is to focus on resident acquisition and
retention attracting and retaining credit-worthy
residents who are good neighbors. We have structured goals and
coaching for all of our sales personnel, a tracking system for
inquiries and a standardized renewal communication program. We
have
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standardized residential financial stability requirements and
have policies and monitoring practices to maintain our resident
quality.
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Revenue Increases. We seek to increase revenue
by optimizing the balance between rental and occupancy rates. We
are also focused on the automation of
on-site
operations, as we believe that timely and accurate collection of
property performance and resident profile data will enable us to
maximize revenue through better property management and leasing
decisions. We have standardized policies for new and renewal
pricing with timely data and analyses by floor-plan, thereby
enabling us to maximize our ability to modify pricing, even in
challenging sub-markets.
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Controlling Expenses. Cost controls are
accomplished by local focus at the ROC level and by taking
advantage of economies of scale at the corporate level. As a
result of the size of our portfolio and our regional
concentrations of properties, we have the ability to spread over
a large property base fixed costs for general and administrative
expenditures and certain operating functions, such as
purchasing, insurance and information technology.
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Ancillary Services. We believe that our
ownership and management of properties provide us with unique
access to a customer base that allows us to provide additional
services and thereby increase occupancy and rents, while also
generating incremental revenue. We currently provide cable
television, telephone services, appliance rental, and carport,
garage and storage space rental at certain properties.
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Affordable
We are among the largest owners and operators of affordable
properties in the United States. Affordable housing properties
are generally those properties for which all or a portion of the
rent is paid by the United States Department of Housing and
Urban Development, or HUD, and sometimes by state housing
agencies. Affordable properties tend to have stable rents and
occupancy due to government subsidies of rent payments and thus
are much less affected by market fluctuations.
Capital
Replacements and Capital Improvements
We believe that the physical condition and amenities of our
apartment properties are important factors in our ability to
maintain and increase rental rates. In 2007, we spent
$102.6 million, or $772 per owned apartment unit, for
Capital Replacements, which represent the share of expenditures
that are deemed to replace the consumed portion of acquired
capital assets. Additionally, we spent $123.7 million for
Capital Improvements, which are non-redevelopment capital
expenditures that are made to enhance the value, profitability
or useful life of an asset from its original purchase condition.
Redevelopment
In addition to maintenance and improvements of our properties,
we focus on the redevelopment of certain properties each year.
We believe redevelopment of certain properties in superior
locations provides advantages over
ground-up
development, enabling us to generate rents comparable to new
properties with lower financial risk, in less time and with
reduced delays associated with governmental permits and
authorizations. Redevelopment work also includes seeking
entitlements from local governments, which enhance the value of
our existing portfolio by increasing density, that is, the right
to add residential units to a site. We undertake a range of
redevelopment projects: from those in which a substantial number
of all available units are vacated for significant renovations
to the property to those in which there is significant
renovation, such as exteriors, common areas or unit
improvements, typically done upon lease expirations without the
need to vacate units on any wholesale or substantial basis. We
have specialized Redevelopment and Construction Services groups,
which include engineers, architects and construction managers,
to oversee these projects.
Our share of 2007 redevelopment expenditures on active and
completed projects totaled $290.9 million and
$61.9 million in conventional and affordable redevelopment
projects, respectively. During 2007, we completed redevelopment
projects at 16 conventional properties and one affordable
property. We also delivered approximately 4,900 conventional and
1,200 affordable redeveloped units, respectively, some of which
are part of redevelopment
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projects completed in 2007 and some of which are part of ongoing
projects. As of December 31, 2007, we had 48 conventional
and 11 affordable redevelopment projects at various stages of
completion as follows:
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Remaining
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Estimated
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Expenditures
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Properties
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(millions)
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Conventional redevelopment projects
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48
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$
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357.5
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Affordable redevelopment projects
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11
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64.9
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Total active redevelopment projects
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59
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$
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422.4
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In 2008, we expect to invest between $250.0 and
$300.0 million in conventional redevelopment projects and
we expect to invest approximately $72.0 million in
affordable redevelopment projects, predominantly funded by
third-party tax credit equity.
Asset
Management
Asset management includes activities related to our owned
portfolio of properties as well as services provided to
affiliated partnerships. Within our owned portfolio, these
activities include strategic capital allocation decisions and
portfolio management activities, that is, transactions to buy,
sell or modify our ownership interest in properties, including
through the use of partnerships and joint ventures. The purpose
of these transactions is to re-adjust Aimco investments to
reflect our decisions regarding target allocations to geographic
markets and to investment types. We provide similar services to
affiliated partnerships, together with such other services as
property management, financial management, accounting, investor
reporting, property debt financings, tax credit syndication,
redevelopment and construction management. When we provide these
services with respect to our own investments, there is no
separate compensation and their benefit is seen in property
operating results and in investment gains. When we provide these
services to affiliated third parties, they are separately
compensated by agreed fees. While many teams at Aimco are
involved in the delivery of these services, the negotiation of
transactions for Aimcos account and the oversight of
services provided to others is primarily the responsibility of
our Aimco Capital team.
Conventional
Portfolio Management
Portfolio management involves the ongoing allocation of
investment capital to meet our geographic and product type
goals. We target geographic balance in Aimcos diversified
portfolio in order to optimize risk-adjusted returns and to
avoid the risk of undue concentration in any particular market.
We also seek to balance the portfolio by product type, with both
high quality properties in excellent locations and also high
land value properties that support redevelopment activities.
During 2007, we refined our geographic allocation strategy to
focus on the top 20 U.S. markets as measured by total
market capitalization. We believe these markets to be deep,
relatively liquid and possessing desirable long-term growth
characteristics. They are primarily coastal markets, and also
include a number of Sun Belt cities and Chicago, Illinois. We
may also invest in other markets on an opportunistic basis. As
we implement this strategy, we expect to reduce our investment
in markets outside the top 20 markets and to increase our
investment in the top 20 markets both by making
acquisitions and by redevelopment spending. We expect too that
increased geographic focus will add to our investment knowledge
and increase operating efficiencies based on local economies of
scale.
During 2007, the top 20 U.S. markets contributed 70.8% of
our net operating income, or NOI, from conventional property
operations. Our top five markets by NOI contribution include the
metropolitan areas of Washington, D.C., Los Angeles,
California, Philadelphia, Pennsylvania, and Miami, Florida as
well as the New England region. In 2007, we exited 11 markets
and as of December 31, 2007, our conventional portfolio
included 439 properties with 127,532 units in 42 markets.
During 2007, we invested in our conventional portfolio both by
funding redevelopment and by making acquisitions. At different
times, we have made acquisitions through:
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the direct acquisition of a property or portfolio of properties,
or of ownership interests in such properties;
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a merger or business combination with an entity that owns or
controls a property, portfolio or other ownership interests in
properties being acquired; and
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the purchase from third parties of additional interests in
partnerships in which we own a general partnership interest.
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In 2007, we invested $290.9 million in redevelopment of
properties in our conventional portfolio. We also completed
acquisitions of 16 conventional properties, containing
approximately 1,300 residential units for an aggregate purchase
price of approximately $217.0 million (including
transaction costs). These properties are located in New York,
California, Florida and Illinois. We also acquired additional
interests in 48 partnerships (including VMS National Properties
Joint Venture) for an aggregate purchase price of
$219.8 million (including transaction costs, assumption of
debt and other consideration).
Portfolio management also includes dispositions of properties
located within markets we intend to exit, properties in less
favored locations within our target markets, and properties that
do not meet our long-term investment criteria. Property sales
proceeds are used to fund redevelopment spending, acquisitions,
and such other corporate purposes as debt reduction, preferred
stock redemption and, in January 2008, a special dividend. In
2007, we sold 46 conventional properties generating net cash
proceeds to us, after repayment of existing debt, payment of
transaction costs and distributions to limited partners, of
$125.5 million.
Portfolio management can include the use of partnerships and
joint ventures to allow us to attract and serve high quality
investment partners, and to rebalance efficiently our geographic
market allocation of capital while maintaining our local
operating platform and its operational scale. For example,
during 2007, we entered into a joint venture agreement that
provides for the co-ownership of three multi-family properties
with 1,382 units located in west Los Angeles. We retained a
53% ownership interest in the properties and sold a 47% interest
generating net cash proceeds of approximately
$202.0 million. We will provide a variety of asset
management services to our investment partner, including
continuing property management, in return for asset management
and other fees. During 2008, we plan to pursue similar joint
ventures.
During 2007, we earned $15.6 million in asset management
fees from 14 affiliated partnerships owning conventional
properties.
Affordable
Portfolio Management
The portfolio management strategy for our affordable portfolio
is similar to that for our conventional portfolio. During 2007,
we invested $61.9 million in redevelopment of affordable
properties, funded primarily by proceeds from the sale of tax
credits to institutional partners. We made no acquisitions of
affordable properties and we made $7.0 million of
acquisitions of partnership interests in partnerships owning
affordable properties. As with conventional properties, we also
seek to dispose of properties that are inconsistent with our
long-term investment and operating strategies. During 2007, we
sold 30 properties from our affordable portfolio, generating net
cash proceeds to us, after repayment of existing debt, payment
of transaction costs and distributions to limited partners, of
$15.4 million. As of December 31, 2007, our affordable
portfolio included 312 properties with 37,104 units.
During 2007, we earned $58.2 million in asset management
fees from 78 affiliated partnerships owning affordable
properties.
Financial
Strategy
We are focused on minimizing our cost of capital on a
risk-adjusted basis. We primarily use non-recourse property debt
with laddered maturities and minimize reliance on corporate
debt. The lower risk inherent in non-recourse property debt
permits us to operate with higher debt leverage and a lower
weighted average cost of capital. During 2007, we closed
property loans totaling $1,816.6 million at an average
interest rate of 6.10%, which included the refinancing of
property loans totaling $772.8 million with prior interest
rates averaging 7.05%. In addition to the refinancing activity,
the property loans included placing loans on newly acquired
properties, new financings on existing properties, redevelopment
loans and the modification of terms on existing property debt.
We use floating rate property and corporate debt to provide
lower interest costs over time at a level that considers
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acceptable earnings volatility. We are also focused on
maintaining liquidity, and as of December 31, 2007, had
available resources totaling $675 million.
Competition
In attracting and retaining residents to occupy our properties
we compete with numerous other housing alternatives. Our
properties compete directly with other rental apartments, as
well as with condominiums and single-family homes that are
available for rent or purchase in the markets in which our
properties are located. Principal factors of competition include
rent or price charged, attractiveness of the location and
property and quality and breadth of services. The number of
competitive properties relative to demand in a particular area
has a material effect on our ability to lease apartment units at
our properties and on the rents we charge. In certain markets
there exists oversupply of single family homes and condominiums
that affects the pricing and occupancy of our rental apartments.
Additionally, we compete with other real estate investors,
including other apartment REITs, pension and investment funds,
partnerships and investment companies in acquiring, redeveloping
and managing apartment properties. This competition affects our
ability to acquire properties we want to add to our portfolio
and the price that we pay in such acquisitions.
Taxation
We have elected to be taxed as a REIT under the Internal Revenue
Code of 1986, as amended, which we refer to as the Code,
commencing with our taxable year ended December 31, 1994,
and intend to continue to operate in such a manner. Our current
and continuing qualification as a REIT depends on our ability to
meet the various requirements imposed by the Code, which are
related to organizational structure, distribution levels,
diversity of stock ownership and certain restrictions with
regard to owned assets and categories of income. If we qualify
for taxation as a REIT, we will generally not be subject to
United States Federal corporate income tax on our taxable income
that is currently distributed to stockholders. This treatment
substantially eliminates the double taxation (at the
corporate and stockholder levels) that generally results from
investment in a corporation.
Even if we qualify as a REIT, we may be subject to United States
Federal income and excise taxes in various situations, such as
on our undistributed income. We also will be required to pay a
100% tax on any net income on non-arms length transactions
between us and a TRS (described below) and on any net income
from sales of property that was property held for sale to
customers in the ordinary course. We and our stockholders may be
subject to state or local taxation in various state or local
jurisdictions, including those in which we transact business or
our stockholders reside. In addition, we could also be subject
to the alternative minimum tax, or AMT, on our items of tax
preference. The state and local tax laws may not conform to the
United States Federal income tax treatment. Any taxes imposed on
us reduce our operating cash flow and net income.
Certain of our operations (property management, asset
management, risk, etc.) are conducted through taxable REIT
subsidiaries, each of which we refer to as a TRS. A TRS is a
C-corporation that has not elected REIT status and as such is
subject to United States Federal corporate income tax. We use
TRS entities to facilitate our ability to offer certain services
and activities to our residents and investment partners, as
these services and activities generally cannot be offered
directly by the REIT.
Regulation
General
Apartment properties and their owners are subject to various
laws, ordinances and regulations, including those related to
real estate broker licensing and regulations relating to
recreational facilities such as swimming pools, activity centers
and other common areas. Changes in laws increasing the potential
liability for environmental conditions existing on properties or
increasing the restrictions on discharges or other conditions,
as well as changes in laws affecting development, construction
and safety requirements, may result in significant unanticipated
expenditures, which would adversely affect our net income and
cash flows from operating activities. In addition, future
enactment of rent control or rent stabilization laws or other
laws regulating multifamily housing may reduce rental revenue or
increase operating costs in particular markets.
8
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. Such laws often impose liability without regard to
whether the owner or operator knew of, or was responsible for,
the release or presence of the hazardous substances. In
connection with the ownership, operation and management of
properties, we could potentially be liable for environmental
liabilities or costs associated with our properties or
properties we acquire or manage in the future. These and other
risks related to environmental matters are described in more
detail in Item 1A, Risk Factors.
Insurance
Our primary lines of insurance coverage are property, general
liability, and workers compensation. We believe that our
insurance coverages adequately insure our properties against the
risk of loss attributable to fire, earthquake, hurricane,
tornado, flood, terrorism and other perils and adequately insure
us against other risk. Our coverage includes deductibles,
retentions and limits that are customary in the industry. We
have established loss prevention, loss mitigation, claims
handling, litigation management and loss reserving procedures to
manage our exposure.
Employees
We currently have approximately 5,900 employees, of which
approximately 4,400 are at the property level, performing
various
on-site
functions, with the balance managing corporate and regional
operations, including investment and debt transactions, legal,
financial reporting, accounting, information systems, human
resources and other support functions. Unions represent
approximately 150 of our employees. We have never experienced a
work stoppage and believe we maintain satisfactory relations
with our employees.
The risk factors noted in this section and other factors noted
throughout this Annual Report, describe certain risks and
uncertainties that could cause our actual results to differ
materially from those contained in any forward-looking statement.
Failure
to generate sufficient net operating income may limit our
ability to pay dividends.
Our ability to make payments to our investors depends on our
ability to generate net operating income in excess of required
debt payments and capital expenditure requirements. Net
operating income may be adversely affected by events or
conditions beyond our control, including:
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the general economic climate;
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competition from other apartment communities and other housing
options;
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local conditions, such as loss of jobs or an increase in the
supply of apartments, that might adversely affect apartment
occupancy or rental rates;
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changes in governmental regulations and the related cost of
compliance;
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increases in operating costs (including real estate taxes) due
to inflation and other factors, which may not be offset by
increased rents;
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changes in tax laws and housing laws, including the enactment of
rent control laws or other laws regulating multifamily
housing; and
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changes in interest rates and the availability of financing.
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9
Redevelopment
and construction risks could affect our
profitability.
We intend to continue to redevelop certain of our properties.
These activities are subject to the following risks:
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we may be unable to obtain, or experience delays in obtaining,
necessary zoning, occupancy, or other required governmental or
third party permits and authorizations, which could result in
increased costs or the delay or abandonment of opportunities;
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we may incur costs that exceed our original estimates due to
increased material, labor or other costs;
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we may be unable to complete construction and lease up of a
property on schedule, resulting in increased construction and
financing costs and a decrease in expected rental revenues;
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occupancy rates and rents at a property may fail to meet our
expectations for a number of reasons, including changes in
market and economic conditions beyond our control and the
development by competitors of competing communities;
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we may be unable to obtain financing with favorable terms, or at
all, for the proposed development of a property, which may cause
us to delay or abandon an opportunity;
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we may abandon opportunities that we have already begun to
explore for a number of reasons, including changes in local
market conditions or increases in construction or financing
costs, and, as a result, we may fail to recover expenses already
incurred in exploring those opportunities;
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we may incur liabilities to third parties during the
redevelopment process, for example, in connection with resident
lease terminations, or managing existing improvements on the
site prior to resident lease terminations; and
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loss of a key member of project team could adversely affect our
ability to deliver redevelopment projects on time and within our
budget.
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If we
are not successful in our acquisition of properties, our results
of operations could be adversely affected.
The selective acquisition of properties is a component of our
strategy. However, we may not be able to complete transactions
successfully in the future. Although we seek to acquire
properties when such acquisitions increase our net income, Funds
From Operations or net asset value, such transactions may fail
to perform in accordance with our expectations. In particular,
following acquisition, the value and operational performance of
a property may be diminished if obsolescence or neighborhood
changes occur before we are able to redevelop or sell the
property.
Our
existing and future debt financing could render us unable to
operate, result in foreclosure on our properties or prevent us
from making distributions on our equity.
Our strategy is generally to incur debt to increase the return
on our equity while maintaining acceptable interest coverage
ratios. For the year ended December 31, 2007, we had a
ratio of free cash flow (net operating income less spending for
capital replacements) to combined interest expense and preferred
stock dividends of 1.6:1. Our organizational documents do not
limit the amount of debt that we may incur, and we have
significant amounts of debt outstanding. Payments of principal
and interest may leave us with insufficient cash resources to
operate our properties or pay distributions required to be paid
in order to maintain our qualification as a REIT. We are also
subject to the risk that our cash flow from operations will be
insufficient to make required payments of principal and
interest, and the risk that existing indebtedness may not be
refinanced or that the terms of any refinancing will not be as
favorable as the terms of existing indebtedness. If we fail to
make required payments of principal and interest on secured
debt, our lenders could foreclose on the properties securing
such debt, which would result in loss of income and asset value
to us. As of December 31, 2007, substantially all of the
properties that we owned or controlled were encumbered by debt.
10
Increases
in interest rates would increase our interest
expense.
As of December 31, 2007, we had approximately
$1,754.4 million of variable-rate indebtedness outstanding.
Of the total debt subject to variable interest rates, floating
rate tax-exempt bond financing was $698.4 million. Floating
rate tax-exempt bond financing is benchmarked against the
Securities Industry and Financial Markets Association Municipal
Swap Index, or SIFMA, rate (previously the Bond Market
Association index), which since 1981 has averaged 68% of the
30-day LIBOR
rate. If this relationship continues, an increase in
30-day LIBOR
of 1.0% (0.68% in tax-exempt interest rates) would result in our
income before minority interests and cash flows being reduced by
$15.3 million on an annual basis. This would be offset by
variable rate interest income earned on certain assets,
including cash and cash equivalents and notes receivable, as
well as interest that is capitalized on a portion of this
variable rate debt incurred in connection with our redevelopment
activities. Considering these offsets, the same increase in
30-day LIBOR
would result in our income before minority interests being
reduced by $6.5 million on an annual basis.
Covenant
restrictions may limit our ability to make payments to our
investors.
Some of our debt and other securities contain covenants that
restrict our ability to make distributions or other payments to
our investors unless certain financial tests or other criteria
are satisfied. Our credit facility provides, among other things,
that we may make distributions to our investors during any four
consecutive fiscal quarters in an aggregate amount that does not
exceed the greater of 95% of our Funds From Operations for such
period or such amount as may be necessary to maintain our REIT
status. Our outstanding classes of preferred stock prohibit the
payment of dividends on our Common Stock if we fail to pay the
dividends to which the holders of the preferred stock are
entitled.
Competition
could limit our ability to lease apartments or increase or
maintain rents.
Our apartment properties compete for residents with other
housing alternatives, including other rental apartments,
condominiums and single-family homes that are available for
rent, as well as new and existing condominiums and single-family
homes for sale. Competitive residential housing in a particular
area could adversely affect our ability to lease apartments and
to increase or maintain rental rates. The current challenges in
the credit and housing markets have increased housing inventory
that competes with our apartment properties.
We
depend on distributions and other payments from our subsidiaries
that they may be prohibited from making to us.
All of our properties are owned, and all of our operations are
conducted, by the Aimco Operating Partnership and our other
subsidiaries. As a result, we depend on distributions and other
payments from our subsidiaries in order to satisfy our financial
obligations and make payments to our investors. The ability of
our subsidiaries to make such distributions and other payments
depends on their earnings and may be subject to statutory or
contractual limitations. As an equity investor in our
subsidiaries, our right to receive assets upon their liquidation
or reorganization will be effectively subordinated to the claims
of their creditors. To the extent that we are recognized as a
creditor of such subsidiaries, our claims may still be
subordinate to any security interest in or other lien on their
assets and to any of their debt or other obligations that are
senior to our claims.
Because
real estate investments are relatively illiquid, we may not be
able to sell properties when appropriate.
Real estate investments are relatively illiquid and cannot
always be sold quickly. Our freedom to sell properties is also
restricted by REIT tax rules. Thus, we may not be able to change
our portfolio promptly in response to changes in economic or
other market conditions. Our ability to dispose of assets in the
future will depend on prevailing economic and market conditions.
This could have a material adverse effect on our financial
condition or results of operations.
We may
be subject to litigation associated with partnership
acquisitions that could increase our expenses and prevent
completion of beneficial transactions.
We have engaged in, and intend to continue to engage in, the
selective acquisition of interests in partnerships controlled by
us that own apartment properties. In some cases, we have
acquired the general partner of a partnership
11
and then made an offer to acquire the limited partners
interests in the partnership. In these transactions, we may be
subject to litigation based on claims that we, as the general
partner, have breached our fiduciary duty to our limited
partners or that the transaction violates the relevant
partnership agreement or state law. Although we intend to comply
with our fiduciary obligations and the relevant partnership
agreements, we may incur additional costs in connection with the
defense or settlement of this type of litigation. In some cases,
this type of litigation may adversely affect our desire to
proceed with, or our ability to complete, a particular
transaction. Any litigation of this type could also have a
material adverse effect on our financial condition or results of
operations.
We are
self-insured for certain risks and the cost of insurance,
increased claims activity or losses resulting from catastrophic
events may affect our operating results and financial
condition.
We are self-insured for a portion of our consolidated
properties exposure to casualty losses resulting from
fire, earthquake, hurricane, tornado, flood and other perils. We
recognize casualty losses or gains based on the net book value
of the affected property and any related insurance proceeds. In
many instances, the actual cost to repair or replace the
property may exceed its net book value and any insurance
proceeds. We also insure certain unconsolidated properties for a
portion of their exposure to such losses. In addition, we are
self-insured for a portion of our exposure to third-party claims
related to our employee health insurance plans, workers
compensation coverage, and general liability exposure. With
respect to our insurance obligations to unconsolidated
properties and our exposure to claims of third parties, we
establish reserves at levels that reflect our known and
estimated losses. The ultimate cost of losses and the impact of
unforeseen events may vary materially from recorded reserves,
and variances may adversely affect our operating results and
financial condition. We purchase insurance (or reinsurance where
we insure unconsolidated properties) to reduce our exposure to
losses and limit our financial losses on large individual risks.
The availability and cost of insurance are determined by market
conditions outside our control. No assurance can be made that we
will be able to obtain and maintain insurance at the same levels
and on the same terms as we do today. If we are not able to
obtain or maintain insurance in amounts we consider appropriate
for our business, or if the cost of obtaining such insurance
increases materially, we may have to retain a larger portion of
the potential loss associated with our exposures to risks. The
extent of our losses in connection with catastrophic events is a
function of the severity of the event and the total amount of
exposure in the affected area. When we have geographic
concentration of exposures, a single catastrophe (such as an
earthquake) or destructive weather trend affecting a region may
have a significant impact on our financial condition and results
of operations. We cannot accurately predict catastrophes, or the
number and type of catastrophic events that will affect us. As a
result, our operating and financial results may vary
significantly from one period to the next. While we anticipate
and plan for losses, there can be no assurance that our
financial results will not be adversely affected by our exposure
to losses arising from catastrophic events in the future that
exceed our previous experience and assumptions.
We
depend on our senior management.
Our success depends upon the retention of our senior management,
including Terry Considine, our chief executive officer and
president. There are no assurances that we would be able to find
qualified replacements for the individuals who make up our
senior management if their services were no longer available.
The loss of services of one or more members of our senior
management team could have a material adverse effect on our
business, financial condition and results of operations. We do
not currently maintain key-man life insurance for any of our
employees. The loss of any member of senior management could
adversely affect our ability to pursue effectively our business
strategy.
Government
housing regulations may limit the opportunities at some of our
properties and failure to comply with resident qualification
requirements may result in financial penalties and/or loss of
benefits.
We own consolidated and unconsolidated equity interests in
certain properties and manage other properties that benefit from
governmental programs intended to provide housing to people with
low or moderate incomes. These programs, which are usually
administered by HUD or state housing finance agencies, typically
provide mortgage insurance, favorable financing terms,
tax-credit equity, or rental assistance payments to the property
owners. As a condition of the receipt of assistance under these
programs, the properties must comply with various requirements,
which typically limit rents to pre-approved amounts and impose
restrictions on resident incomes.
12
Failure to comply with these requirements and restrictions may
result in financial penalties or loss of benefits. We usually
need to obtain the approval of HUD in order to manage, or
acquire a significant interest in, a HUD-assisted property. We
may not always receive such approval.
Laws
benefiting disabled persons may result in our incurrence of
unanticipated expenses.
Under the Americans with Disabilities Act of 1990, or ADA, all
places intended to be used by the public are required to meet
certain Federal requirements related to access and use by
disabled persons. Likewise, the Fair Housing Amendments Act of
1988, or FHAA, requires apartment properties first occupied
after March 13, 1990, to be accessible to the handicapped.
These and other Federal, state and local laws may require
modifications to our properties, or affect renovations of the
properties. Noncompliance with these laws could result in the
imposition of fines or an award of damages to private litigants
and also could result in an order to correct any non-complying
feature, which could result in substantial capital expenditures.
Although we believe that our properties are substantially in
compliance with present requirements, we may incur unanticipated
expenses to comply with the ADA and the FHAA in connection with
the ongoing operation or redevelopment of our properties.
Potential
liability or other expenditures associated with potential
environmental contamination may be costly.
Various Federal, state and local laws subject property owners or
operators to liability for management, and the costs of removal
or remediation, of certain hazardous substances present on a
property. Such laws often impose liability without regard to
whether the owner or operator knew of, or was responsible for,
the release or presence of the hazardous substances. The
presence of, or the failure to manage or remedy properly,
hazardous substances may adversely affect occupancy at affected
apartment communities and the ability to sell or finance
affected properties. In addition to the costs associated with
investigation and remediation actions brought by government
agencies, and potential fines or penalties imposed by such
agencies in connection therewith, the presence of hazardous
substances on a property could result in claims by private
plaintiffs for personal injury, disease, disability or other
infirmities. Various laws also impose liability for the cost of
removal, remediation or disposal of hazardous substances through
a licensed disposal or treatment facility. Anyone who arranges
for the disposal or treatment of hazardous substances is
potentially liable under such laws. These laws often impose
liability whether or not the person arranging for the disposal
ever owned or operated the disposal facility. In connection with
the ownership, operation and management of properties, we could
potentially be liable for environmental liabilities or costs
associated with our properties or properties we acquire or
manage in the future.
Moisture
infiltration and resulting mold remediation may be
costly.
We have been named as a defendant in lawsuits that have alleged
personal injury and property damage as a result of the presence
of mold. In addition, we are aware of lawsuits against owners
and managers of multifamily properties asserting claims of
personal injury and property damage caused by the presence of
mold, some of which have resulted in substantial monetary
judgments or settlements. We have only limited insurance
coverage for property damage loss claims arising from the
presence of mold and for personal injury claims related to mold
exposure. We have implemented policies, procedures, third-party
audits and training, and include a detailed moisture intrusion
and mold assessment during acquisition due diligence. We believe
these measures will prevent or eliminate mold exposure from our
properties and will minimize the effects that mold may have on
our residents. To date, we have not incurred any material costs
or liabilities relating to claims of mold exposure or to abate
mold conditions. Because the law regarding mold is unsettled and
subject to change we can make no assurance that liabilities
resulting from the presence of or exposure to mold will not have
a material adverse effect on our consolidated financial
condition or results of operations.
We may
fail to qualify as a REIT.
If we fail to qualify as a REIT, we will not be allowed a
deduction for dividends paid to our stockholders in computing
our taxable income, and we will be subject to Federal income tax
at regular corporate rates, including any applicable alternative
minimum tax. This would substantially reduce our funds available
for payment to our investors. Unless entitled to relief under
certain provisions of the Code, we also would be disqualified
from taxation
13
as a REIT for the four taxable years following the year during
which we ceased to qualify as a REIT. In addition, our failure
to qualify as a REIT would place us in default under our primary
credit facilities.
We believe that we operate, and have always operated, in a
manner that enables us to meet the requirements for
qualification as a REIT for Federal income tax purposes. Our
continued qualification as a REIT will depend on our
satisfaction of certain asset, income, investment,
organizational, distribution, stockholder ownership and other
requirements on a continuing basis. Our ability to satisfy the
asset tests depends upon our analysis of the fair market values
of our assets, some of which are not susceptible to a precise
determination, and for which we will not obtain independent
appraisals. Our compliance with the REIT income and quarterly
asset requirements also depends upon our ability to manage
successfully the composition of our income and assets on an
ongoing basis. Moreover, the proper classification of an
instrument as debt or equity for Federal income tax purposes may
be uncertain in some circumstances, which could affect the
application of the REIT qualification requirements. Accordingly,
there can be no assurance that the Internal Revenue Service, or
the IRS, will not contend that our interests in subsidiaries or
other issuers constitutes a violation of the REIT requirements.
Moreover, future economic, market, legal, tax or other
considerations may cause us to fail to qualify as a REIT, or our
Board of Directors may determine to revoke our REIT status.
REIT
distribution requirements limit our available
cash.
As a REIT, we are subject to annual distribution requirements,
which limit the amount of cash we retain for other business
purposes, including amounts to fund our growth. We generally
must distribute annually at least 90% of our net REIT
taxable income, excluding any net capital gain, in order for our
distributed earnings not to be subject to corporate income tax.
We intend to make distributions to our stockholders to comply
with the requirements of the Code. However, differences in
timing between the recognition of taxable income and the actual
receipt of cash could require us to sell assets or borrow funds
on a short-term or long-term basis to meet the 90% distribution
requirement of the Code.
Limits
on ownership of shares in our charter may result in the loss of
economic and voting rights by purchasers that violate those
limits.
Our charter limits ownership of our Common Stock by any single
stockholder (applying certain beneficial ownership
rules under the Federal securities laws) to 8.7% of our
outstanding shares of Common Stock, or 15% in the case of
certain pension trusts, registered investment companies and
Mr. Considine. Our charter also limits ownership of our
Common Stock and preferred stock by any single stockholder to
8.7% of the value of the outstanding Common Stock and preferred
stock, or 15% in the case of certain pension trusts, registered
investment companies and Mr. Considine. The charter also
prohibits anyone from buying shares of our capital stock if the
purchase would result in us losing our REIT status. This could
happen if a transaction results in fewer than 100 persons
owning all of our shares of capital stock or results in five or
fewer persons (applying certain attribution rules of the Code)
owning 50% or more of the value of all of our shares of capital
stock. If anyone acquires shares in excess of the ownership
limit or in violation of the ownership requirements of the Code
for REITs:
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the transfer will be considered null and void;
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we will not reflect the transaction on our books;
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we may institute legal action to enjoin the transaction;
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we may demand repayment of any dividends received by the
affected person on those shares;
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we may redeem the shares;
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the affected person will not have any voting rights for those
shares; and
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the shares (and all voting and dividend rights of the shares)
will be held in trust for the benefit of one or more charitable
organizations designated by us.
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We may purchase the shares of capital stock held in trust at a
price equal to the lesser of the price paid by the transferee of
the shares or the then current market price. If the trust
transfers any of the shares of capital stock, the affected
person will receive the lesser of the price paid for the shares
or the then current market price. An individual who acquires
shares of capital stock that violate the above rules bears the
risk that the individual:
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may lose control over the power to dispose of such shares;
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14
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may not recognize profit from the sale of such shares if the
market price of the shares increases;
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may be required to recognize a loss from the sale of such shares
if the market price decreases; and
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may be required to repay to us any distributions received from
us as a result of his or her ownership of the shares.
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Our
charter may limit the ability of a third party to acquire
control of us.
The 8.7% ownership limit discussed above may have the effect of
precluding acquisition of control of us by a third party without
the consent of our Board of Directors. Our charter authorizes
our Board of Directors to issue up to 510,587,500 shares of
capital stock. As of December 31, 2007,
426,157,736 shares were classified as Common Stock, of
which 92,795,891 were outstanding, and 84,429,764 shares
were classified as preferred stock, of which 24,950,200 were
outstanding. Under our charter, our Board of Directors has the
authority to classify and reclassify any of our unissued shares
of capital stock into shares of capital stock with such
preferences, rights, powers and restrictions as our Board of
Directors may determine. The authorization and issuance of a new
class of capital stock could have the effect of delaying or
preventing someone from taking control of us, even if a change
in control were in our stockholders best interests.
Maryland
business statutes may limit the ability of a third party to
acquire control of us.
As a Maryland corporation, we are subject to various Maryland
laws that may have the effect of discouraging offers to acquire
us and increasing the difficulty of consummating any such
offers, even if an acquisition would be in our
stockholders best interests. The Maryland General
Corporation Law restricts mergers and other business combination
transactions between us and any person who acquires beneficial
ownership of shares of our stock representing 10% or more of the
voting power without our Board of Directors prior
approval. Any such business combination transaction could not be
completed until five years after the person acquired such voting
power, and generally only with the approval of stockholders
representing 80% of all votes entitled to be cast and
662/3%
of the votes entitled to be cast, excluding the interested
stockholder, or upon payment of a fair price. Maryland law also
provides generally that a person who acquires shares of our
capital stock that represent 10% or more of the voting power in
electing directors will have no voting rights unless approved by
a vote of two-thirds of the shares eligible to vote.
Additionally, Maryland law provides, among other things, that
the board of directors has broad discretion in adopting
stockholders rights plans and has the sole power to fix
the record date, time and place for special meetings of the
stockholders. In addition, Maryland law provides that
corporations that:
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have at least three directors who are not employees of the
entity or related to an acquiring person; and
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are subject to the reporting requirements of the Securities
Exchange Act of 1934,
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may elect in their charter or bylaws or by resolution of the
board of directors to be subject to all or part of a special
subtitle that provides that:
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the corporation will have a staggered board of directors;
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any director may be removed only for cause and by the vote of
two-thirds of the votes entitled to be cast in the election of
directors generally, even if a lesser proportion is provided in
the charter or bylaws;
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the number of directors may only be set by the board of
directors, even if the procedure is contrary to the charter or
bylaws;
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vacancies may only be filled by the remaining directors, even if
the procedure is contrary to the charter or bylaws; and
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the secretary of the corporation may call a special meeting of
stockholders at the request of stockholders only on the written
request of the stockholders entitled to cast at least a majority
of all the votes entitled to be cast at the meeting, even if the
procedure is contrary to the charter or bylaws.
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To date, we have not made any of the elections described above.
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Item 1B.
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Unresolved
Staff Comments
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None.
15
Our properties are located in 46 states, the District of
Columbia and Puerto Rico. As of December 31, 2007, our
conventional properties are operated through 17 regional
operating centers and our affordable properties are operated
through three regional operating centers. The following table
sets forth information on all of our property operations as of
December 31, 2007 and 2006:
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2007
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2006
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Number of
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Number
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Number of
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Number
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Regional Operating Center(1)
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Properties
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of Units
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Properties
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of Units
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Conventional:
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Atlanta, GA
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|
|
(2)
|
|
|
|
(2)
|
|
|
32
|
|
|
|
8,286
|
|
Boston, MA
|
|
|
16
|
|
|
|
5,745
|
|
|
|
16
|
|
|
|
5,745
|
|
Chicago, IL
|
|
|
27
|
|
|
|
7,835
|
|
|
|
30
|
|
|
|
8,339
|
|
Columbus, OH
|
|
|
28
|
|
|
|
9,185
|
|
|
|
34
|
|
|
|
9,664
|
|
Dallas, TX
|
|
|
31
|
|
|
|
6,934
|
|
|
|
36
|
|
|
|
8,026
|
|
Denver, CO
|
|
|
30
|
|
|
|
7,616
|
|
|
|
33
|
|
|
|
7,487
|
|
Houston, TX
|
|
|
30
|
|
|
|
8,008
|
|
|
|
37
|
|
|
|
9,776
|
|
Indianapolis, IN
|
|
|
28
|
|
|
|
11,107
|
|
|
|
33
|
|
|
|
12,318
|
|
Los Angeles, CA
|
|
|
43
|
|
|
|
11,370
|
|
|
|
39
|
|
|
|
10,867
|
|
Mid-Atlantic
|
|
|
43
|
|
|
|
12,203
|
|
|
|
|
|
|
|
|
|
New York, NY
|
|
|
22
|
|
|
|
957
|
|
|
|
12
|
|
|
|
589
|
|
Orlando, FL
|
|
|
31
|
|
|
|
8,187
|
|
|
|
29
|
|
|
|
8,041
|
|
Philadelphia, PA
|
|
|
14
|
|
|
|
5,216
|
|
|
|
16
|
|
|
|
7,493
|
|
Phoenix, AZ
|
|
|
23
|
|
|
|
6,051
|
|
|
|
28
|
|
|
|
7,544
|
|
Rockville, MD
|
|
|
27
|
|
|
|
10,758
|
|
|
|
29
|
|
|
|
12,157
|
|
South Florida
|
|
|
16
|
|
|
|
5,857
|
|
|
|
15
|
|
|
|
5,300
|
|
Tampa, FL
|
|
|
20
|
|
|
|
5,231
|
|
|
|
21
|
|
|
|
5,787
|
|
Tidewater, VA
|
|
|
|
(2)
|
|
|
|
(2)
|
|
|
28
|
|
|
|
7,618
|
|
East Redevelopment (3)
|
|
|
9
|
|
|
|
5,020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total conventional owned and managed
|
|
|
438
|
|
|
|
127,280
|
|
|
|
468
|
|
|
|
135,037
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Affordable:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Central
|
|
|
98
|
|
|
|
9,834
|
|
|
|
121
|
|
|
|
12,726
|
|
Northeast
|
|
|
64
|
|
|
|
9,348
|
|
|
|
87
|
|
|
|
12,551
|
|
West
|
|
|
83
|
|
|
|
11,022
|
|
|
|
63
|
|
|
|
6,908
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total affordable owned and managed
|
|
|
245
|
|
|
|
30,204
|
|
|
|
271
|
|
|
|
32,185
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owned but not managed
|
|
|
68
|
|
|
|
7,152
|
|
|
|
66
|
|
|
|
7,001
|
|
Property management
|
|
|
36
|
|
|
|
3,228
|
|
|
|
41
|
|
|
|
3,573
|
|
Asset management
|
|
|
382
|
|
|
|
35,176
|
|
|
|
410
|
|
|
|
38,617
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
1,169
|
|
|
|
203,040
|
|
|
|
1,256
|
|
|
|
216,413
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
As our portfolio changes due to property acquisitions and
dispositions, we periodically evaluate the organization of our
regional operating centers, or ROCs. During 2006, we combined
the Austin, TX and Dallas, TX ROCs and added a ROC in New York,
NY. |
|
(2) |
|
During 2007, we combined the Atlanta, GA and Tidewater, VA ROCs
to form the Mid-Atlantic ROC. |
|
(3) |
|
This management team is dedicated to the operations of certain
properties being redeveloped. |
At December 31, 2007, we owned an equity interest in and
consolidated 657 properties containing 153,758 apartment units,
which we refer to as consolidated. These
consolidated properties contain, on average, 234 apartment
units, with the largest property containing 2,877 apartment
units. These properties offer residents a range of amenities,
including swimming pools, clubhouses, spas, fitness centers and
tennis courts. Many of the apartment units offer features such
as vaulted ceilings, fireplaces, washer and dryer
hook-ups,
cable television, balconies and patios. Additional information
on our consolidated properties is contained in
Schedule III Real Estate and
16
Accumulated Depreciation in this Annual Report. At
December 31, 2007, we held an equity interest in and did
not consolidate 94 properties containing 10,878 apartment units,
which we refer to as unconsolidated. In addition, we
provided property management services for 36 properties
containing 3,228 apartment units, and asset management services
for 382 properties containing 35,176 apartment units. In certain
cases we may indirectly own generally less than one percent of
the operations of such properties through a partnership
syndication or other fund.
Substantially all of our consolidated properties are encumbered
by mortgage indebtedness. At December 31, 2007, our
consolidated properties were encumbered by aggregate mortgage
indebtedness totaling $6,981.7 million having an aggregate
weighted average interest rate of 5.86%. Such mortgage
indebtedness was secured by 634 properties with a combined net
book value of $9,203.7 million. Included in the 634
properties, we had a total of 53 mortgage loans on 47
properties, with an aggregate principal balance outstanding of
$763.5 million, that were each secured by property and
cross-collateralized with certain (but not all) other mortgage
loans within this group of mortgage loans (see Note 6 of
the consolidated financial statements in Item 8 for
additional information about our indebtedness).
|
|
Item 3.
|
Legal
Proceedings
|
See the information under the caption Legal Matters
in Note 8 of the consolidated financial statements in
Item 8 for information regarding legal proceedings, which
information is incorporated by reference in this Item 3.
|
|
Item 4.
|
Submission
of Matters to a Vote of Security Holders
|
No matters were submitted to a vote of security holders during
the fourth quarter of 2007.
17
PART II
|
|
Item 5.
|
Market
for the Registrants Common Equity, Related Stockholder
Matters and Issuer Purchases of Equity Securities
|
Our Common Stock has been listed and traded on the NYSE under
the symbol AIV since July 22, 1994. The
following table sets forth the quarterly high and low sales
prices of our Common Stock, as reported on the NYSE, and the
dividends declared in the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends
|
|
|
|
|
|
|
|
|
|
Dividends
|
|
|
Declared
|
|
|
|
|
|
|
|
|
|
Declared
|
|
|
(per share,
|
|
Quarter Ended
|
|
High(2)
|
|
|
Low(2)
|
|
|
(per share)
|
|
|
adjusted)(3)
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2007(1)
|
|
$
|
49.15
|
|
|
$
|
33.97
|
|
|
$
|
3.11
|
|
|
$
|
2.97
|
|
September 30, 2007
|
|
|
51.62
|
|
|
|
38.65
|
|
|
|
0.60
|
|
|
|
0.57
|
|
June 30, 2007
|
|
|
58.98
|
|
|
|
47.10
|
|
|
|
0.60
|
|
|
|
0.57
|
|
March 31, 2007
|
|
|
65.79
|
|
|
|
54.08
|
|
|
|
0.00
|
|
|
|
0.00
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2006(4)
|
|
$
|
59.17
|
|
|
$
|
52.63
|
|
|
$
|
1.20
|
|
|
$
|
1.15
|
|
September 30, 2006
|
|
|
54.96
|
|
|
|
43.67
|
|
|
|
0.60
|
|
|
|
0.57
|
|
June 30, 2006
|
|
|
47.23
|
|
|
|
41.41
|
|
|
|
0.60
|
|
|
|
0.57
|
|
March 31, 2006
|
|
|
48.38
|
|
|
|
37.76
|
|
|
|
0.00
|
|
|
|
0.00
|
|
|
|
|
(1) |
|
On December 21, 2007, our Board of Directors declared a
special dividend of $2.51 per common share that was paid on
January 30, 2008, to stockholders of record on
December 31, 2007. This special dividend totaling
approximately $232.9 million was paid part in cash
(approximately $55.0 million) and part in shares of Common
Stock (approximately $177.9 million, or
4,594,074 shares). Our Board of Directors declared the
dividend during 2007 as a result of taxable gains from 2007
joint venture and property sales. Our Board of Directors
anticipates that quarterly dividend declarations for the
remainder of 2008 will occur on a schedule and in amounts
consistent with 2007 (other than the special dividend). 2008
cash dividends at a $2.40 rate would be an effective 4.95%
increase from 2007 cash dividends due to additional shares
issued to holders pursuant to the special dividend. |
|
(2) |
|
High and low sales prices of our Common Stock have not been
retroactively adjusted for the effect of additional shares of
Common Stock issued pursuant to the special dividend discussed
in Note (1) above. |
|
(3) |
|
Dividends declared per share have been retroactively adjusted
for the effect of additional shares of Common Stock issued
pursuant to the special dividend discussed in Note
(1) above, which amounted to an approximate 4.95% stock
dividend based on the outstanding shares of Common Stock as of
the record date. |
|
(4) |
|
On December 19, 2006, our Board of Directors declared a
quarterly cash dividend of $0.60 per common share for the
quarter ended December 31, 2006, that was paid on
January 31, 2007, to stockholders of record on
December 31, 2006. Our Board of Directors declared the
dividend during 2006 as a result of taxable gains from 2006
property sales. |
On February 25, 2008, the closing price of our Common Stock
was $37.32 per share, as reported on the NYSE, and there were
91,736,837 shares of Common Stock outstanding, held by
3,728 stockholders of record. The number of holders does not
include individuals or entities who beneficially own shares but
whose shares are held of record by a broker or clearing agency,
but does include each such broker or clearing agency as one
recordholder.
As a REIT, we are required to distribute annually to holders of
common stock at least 90% of our real estate investment
trust taxable income, which, as defined by the Code and
United States Department of Treasury regulations, is generally
equivalent to net taxable ordinary income. We measure our
profitability through Economic Income, which consists of cash
dividends and changes in NAV. Future payment of dividends are at
the discretion of our Board of Directors and will depend on
numerous factors including our financial condition, capital
requirements,
18
the annual distribution requirements under the provisions of the
Code applicable to REITs and such other factors as our Board of
Directors deems relevant.
From time to time, we issue shares of Common Stock in exchange
for common and preferred OP Units tendered to the Aimco
Operating Partnership for redemption in accordance with the
terms and provisions of the agreement of limited partnership of
the Aimco Operating Partnership. Such shares are issued based on
an exchange ratio of one share for each common OP Unit or
the applicable conversion ratio for preferred OP Units. The
shares are generally issued in exchange for OP Units in
private transactions exempt from registration under the
Securities Act of 1933, as amended, pursuant to
Section 4(2) thereof. During the three and twelve months
ended December 31, 2007, approximately 1,000 and
493,000 shares of Common Stock were issued in exchange for
common OP Units. During the three and twelve months ended
December 31, 2007, zero and 900 shares of Common Stock
were issued in exchange for preferred OP Units,
respectively.
The following table summarizes repurchases of our equity
securities in the quarter ended December 31, 2007(1):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Number
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
Of Shares
|
|
|
Maximum Number
|
|
|
|
Total
|
|
|
|
|
|
Number
|
|
|
|
|
|
Purchased
|
|
|
of Shares that
|
|
|
|
Number
|
|
|
Average
|
|
|
of Shares
|
|
|
Average
|
|
|
As Part of Publicly
|
|
|
May Yet Be
|
|
|
|
of Shares
|
|
|
Price Paid
|
|
|
Purchased
|
|
|
Price Paid
|
|
|
Announced Plans or
|
|
|
Purchased Under
|
|
Fiscal period(2)
|
|
Purchased
|
|
|
per Share
|
|
|
(adjusted)
|
|
|
per Share (adjusted)
|
|
|
Programs
|
|
|
Plans or Programs (3)
|
|
|
October 1 October 31, 2007
|
|
|
0
|
|
|
|
N/A
|
|
|
|
0
|
|
|
|
N/A
|
|
|
|
0
|
|
|
|
12,278,216
|
|
November 1 November 30, 2007
|
|
|
2,083,400
|
|
|
$
|
37.86
|
|
|
|
2,186,528
|
|
|
$
|
36.07
|
|
|
|
2,083,400
|
|
|
|
10,194,816
|
|
December 1 December 31, 2007
|
|
|
1,951,400
|
|
|
|
36.67
|
|
|
|
2,047,994
|
|
|
|
34.94
|
|
|
|
1,951,400
|
|
|
|
8,243,416
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
4,034,800
|
|
|
$
|
37.28
|
|
|
|
4,234,522
|
|
|
$
|
35.52
|
|
|
|
4,034,800
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Our Board of Directors has, from time to time, authorized us to
repurchase shares of our outstanding capital stock. As of
December 31, 2007, we were authorized to repurchase
approximately 8.2 million additional shares. On
January 29, 2008, our Board of Directors increased the
number of shares authorized for repurchase by 25.0 million
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. Between January 1,
2008 and February 15, 2008, we repurchased approximately
5.1 million shares of Common Stock for approximately
$170.6 million, or $33.67 per share. |
|
(2) |
|
During the year ended December 31, 2007, we repurchased
approximately 7.5 million shares of Common Stock for
approximately $325.8 million, or $43.70 per share, or
7.8 million shares for $41.86 per share, as adjusted for
the special dividend. |
|
(3) |
|
The number of shares authorized for repurchase was not affected
by the special dividend. |
|
(4) |
|
Since we began repurchasing shares in the third quarter of 2006,
we have repurchased approximately 14.8 million shares, or
approximately 15.2% of the shares outstanding on July 31,
2006, at an average price of $41.60, or 15.3 million shares
for $40.40 per share, as adjusted for the special dividend. |
Dividend
Payments
Our Credit Agreement includes customary covenants, including a
restriction on dividends and other restricted payments, but
permits dividends during any four consecutive fiscal quarters in
an aggregate amount of up to 95% of our Funds From Operations
for such period or such amount as may be necessary to maintain
our REIT status.
Performance
Graph
The following graph compares cumulative total returns for our
Common Stock, the Standard & Poors 500 Total
Return Index (the S&P 500), the NASDAQ
Composite, the SNL REIT Residential Index and the MSCI US REIT
Index. The SNL REIT Residential Index was prepared by SNL
Securities, an independent research and publishing firm
specializing in the collection and dissemination of data on the
banking, thrift and financial services industries. The MSCI US
REIT Index is published by Morgan Stanley Capital International
Inc., a provider of equity indices. The indices are weighted for
all companies that fit the definitional criteria of the
particular index and are calculated to exclude companies as they
are acquired and add them to the index calculation as they
become
19
publicly traded companies. All companies of the definitional
criteria in existence at the point in time presented are
included in the index calculations. The graph assumes the
investment of $100 in our Common Stock and in each index on
December 31, 2002, and that all dividends paid have been
reinvested. The historical information set forth below is not
necessarily indicative of future performance.
Total
Return Performance
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31,
|
|
Index
|
|
2002
|
|
|
2003
|
|
|
2004
|
|
|
2005
|
|
|
2006
|
|
|
2007
|
|
|
Aimco
|
|
|
100.00
|
|
|
|
100.18
|
|
|
|
120.53
|
|
|
|
128.00
|
|
|
|
198.63
|
|
|
|
137.52
|
|
NASDAQ Composite
|
|
|
100.00
|
|
|
|
150.01
|
|
|
|
162.89
|
|
|
|
165.13
|
|
|
|
180.85
|
|
|
|
198.60
|
|
SNL REIT Residential Index
|
|
|
100.00
|
|
|
|
125.91
|
|
|
|
167.00
|
|
|
|
189.72
|
|
|
|
265.40
|
|
|
|
199.09
|
|
MSCI US REIT
|
|
|
100.00
|
|
|
|
136.74
|
|
|
|
179.80
|
|
|
|
201.61
|
|
|
|
274.03
|
|
|
|
227.95
|
|
S&P 500
|
|
|
100.00
|
|
|
|
128.68
|
|
|
|
142.69
|
|
|
|
149.70
|
|
|
|
173.34
|
|
|
|
182.86
|
|
Source: (other than with respect to S&P 500) SNL
Financial LC, Charlottesville, VA
©2008.
The Performance Graph will not be deemed to be incorporated by
reference into any filing by the Company under the Securities
Act of 1933 or the Securities Exchange Act of 1934, except to
the extent that the Company specifically incorporates the same
by reference.
20
|
|
Item 6.
|
Selected
Financial Data
|
The following selected financial data is based on our audited
historical financial statements. This information should be read
in conjunction with such financial statements, including the
notes thereto, and Managements Discussion and
Analysis of Financial Condition and Results of Operations
included herein or in previous filings with the Securities and
Exchange Commission.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31,
|
|
|
|
2007
|
|
|
2006(1)
|
|
|
2005(1)
|
|
|
2004(1)
|
|
|
2003(1)
|
|
|
|
(Dollar amounts in thousands, except per share data)
|
|
|
OPERATING DATA:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
1,721,184
|
|
|
$
|
1,601,705
|
|
|
$
|
1,345,692
|
|
|
$
|
1,218,067
|
|
|
$
|
1,149,762
|
|
Total operating expenses
|
|
|
(1,373,926
|
)
|
|
|
(1,282,440
|
)
|
|
|
(1,078,550
|
)
|
|
|
(946,796
|
)
|
|
|
(808,200
|
)
|
Operating income
|
|
|
347,258
|
|
|
|
319,265
|
|
|
|
267,142
|
|
|
|
271,271
|
|
|
|
341,562
|
|
Income (loss) from continuing operations
|
|
|
(48,054
|
)
|
|
|
(42,475
|
)
|
|
|
(24,095
|
)
|
|
|
57,505
|
|
|
|
54,732
|
|
Income from discontinued operations, net
|
|
|
77,965
|
|
|
|
219,262
|
|
|
|
95,077
|
|
|
|
209,949
|
|
|
|
104,125
|
|
Cumulative effect of change in accounting principle
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,957
|
)
|
|
|
|
|
Net income
|
|
|
29,911
|
|
|
|
176,787
|
|
|
|
70,982
|
|
|
|
263,497
|
|
|
|
158,857
|
|
Net income attributable to preferred stockholders
|
|
|
66,016
|
|
|
|
81,132
|
|
|
|
87,948
|
|
|
|
88,804
|
|
|
|
93,565
|
|
Net income (loss) attributable to common stockholders
|
|
|
(36,105
|
)
|
|
|
95,655
|
|
|
|
(16,966
|
)
|
|
|
174,693
|
|
|
|
65,292
|
|
OTHER INFORMATION:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total consolidated properties (end of period)
|
|
|
657
|
|
|
|
703
|
|
|
|
619
|
|
|
|
676
|
|
|
|
679
|
|
Total consolidated apartment units (end of period)
|
|
|
153,758
|
|
|
|
162,432
|
|
|
|
158,548
|
|
|
|
169,932
|
|
|
|
174,172
|
|
Total unconsolidated properties (end of period)
|
|
|
94
|
|
|
|
102
|
|
|
|
264
|
|
|
|
330
|
|
|
|
441
|
|
Total unconsolidated apartment units (end of period)
|
|
|
10,878
|
|
|
|
11,791
|
|
|
|
35,269
|
|
|
|
44,728
|
|
|
|
62,823
|
|
Units managed (end of period)(2)
|
|
|
38,404
|
|
|
|
42,190
|
|
|
|
46,667
|
|
|
|
49,074
|
|
|
|
50,565
|
|
Earnings (loss) per common share basic(3):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations (net of income
attributable to preferred stockholders)
|
|
$
|
(1.14
|
)
|
|
$
|
(1.23
|
)
|
|
$
|
(1.14
|
)
|
|
$
|
(0.32
|
)
|
|
$
|
(0.40
|
)
|
Net income (loss) attributable to common stockholders
|
|
$
|
(0.36
|
)
|
|
$
|
0.95
|
|
|
$
|
(0.17
|
)
|
|
$
|
1.79
|
|
|
$
|
0.67
|
|
Earnings (loss) per common share diluted(3):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations (net of income
attributable to preferred stockholders)
|
|
$
|
(1.14
|
)
|
|
$
|
(1.23
|
)
|
|
$
|
(1.14
|
)
|
|
$
|
(0.32
|
)
|
|
$
|
(0.40
|
)
|
Net income (loss) attributable to common stockholders
|
|
$
|
(0.36
|
)
|
|
$
|
0.95
|
|
|
$
|
(0.17
|
)
|
|
$
|
1.79
|
|
|
$
|
0.67
|
|
Dividends declared per common share(3)
|
|
$
|
4.11
|
|
|
$
|
2.29
|
|
|
$
|
2.86
|
|
|
$
|
2.29
|
|
|
$
|
2.71
|
|
BALANCE SHEET INFORMATION:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate, net of accumulated depreciation
|
|
$
|
9,348,692
|
|
|
$
|
8,758,689
|
|
|
$
|
7,916,808
|
|
|
$
|
7,391,386
|
|
|
$
|
6,803,957
|
|
Total assets
|
|
|
10,606,532
|
|
|
|
10,289,775
|
|
|
|
10,019,160
|
|
|
|
10,074,316
|
|
|
|
10,087,394
|
|
Total indebtedness
|
|
|
7,531,782
|
|
|
|
6,633,528
|
|
|
|
5,829,625
|
|
|
|
5,170,676
|
|
|
|
4,851,112
|
|
Stockholders equity
|
|
|
1,749,704
|
|
|
|
2,339,892
|
|
|
|
2,716,103
|
|
|
|
3,008,160
|
|
|
|
2,860,657
|
|
|
|
|
(1) |
|
Certain reclassifications have been made to conform to the 2007
presentation. These reclassifications primarily represent
presentation changes related to discontinued operations in
accordance with Statement of Financial Accounting Standards
No. 144. |
|
(2) |
|
The years ended 2007, 2006, 2005, 2004 and 2003 include 35,176,
38,617, 41,421, 41,233 and 39,428 units, respectively, for
which we provide asset management services only, although in
certain cases we may indirectly own generally less than one
percent of the operations of such properties through a
partnership syndication or other fund. |
|
(3) |
|
Per share amounts for each of the periods presented have been
retroactively adjusted for the effect of 4,573,735 shares
of Common Stock issued on January 30, 2008, pursuant to the
special dividend declared by our Board of Directors on
December 21, 2007 and paid to holders of record as of
December 31, 2007 (see Note 1 to the consolidated
financial statements in Item 8 for further discussion of
the special dividend). |
21
Item 7. Managements
Discussion and Analysis of Financial Condition and Results of
Operations
Executive
Overview
We are a self-administered and self-managed real estate
investment trust, or REIT, engaged in the ownership,
acquisition, management and redevelopment of apartment
properties. Our property operations are characterized by
diversification of product, location and price point. As of
December 31, 2007, we owned or managed 1,169 apartment
properties containing 203,040 units located in
46 states, the District of Columbia and Puerto Rico. Our
primary sources of income and cash are rents associated with
apartment leases.
The key financial indicators that we use in managing our
business and in evaluating our financial condition and operating
performance are: NAV; Funds From Operations, or FFO; FFO less
spending for Capital Replacements, or AFFO; same store property
operating results; net operating income; net operating income
less spending for Capital Replacements, or Free Cash Flow;
financial coverage ratios; and leverage as shown on our balance
sheet. FFO and Capital Replacement are defined and further
described in the sections captioned Funds From
Operations and Capital Expenditures below. The
key macro-economic factors and non-financial indicators that
affect our financial condition and operating performance are:
rates of job growth; single-family and multifamily housing
starts; and interest rates.
Because our operating results depend primarily on income from
our properties, the supply and demand for apartments influences
our operating results. Additionally, the level of expenses
required to operate and maintain our properties, the pace and
price at which we redevelop, acquire and dispose of our
apartment properties, and the volume and timing of fee
transactions affect our operating results. Our cost of capital
is affected by the conditions in the capital and credit markets
and the terms that we negotiate for our equity and debt
financings.
Our focus in 2007 has been to enhance operations to improve and
sustain resident satisfaction; obtain rate and occupancy
increases to improve profitability; upgrade the quality of our
portfolio through portfolio management, capital replacement,
capital improvement and redevelopment; increase efficiency
through improved business processes and automation; improve
liquidity through balance sheet management; expand our asset
management business and transactions activity; and minimize our
cost of capital. We believe that our efforts are having their
intended effect, and have resulted in positive operating results
and built the foundation for improved long-term operating
results. These initiatives and others have also resulted in
improved asset quality, and we will continue to seek
opportunities to reinvest in our properties through capital
expenditures and to manage our portfolio through property sales
and acquisitions.
For 2008, our focus will continue to include the following:
enhance operations to improve and sustain resident satisfaction;
obtain rate and occupancy increases to improve profitability;
upgrade the quality of our portfolio through portfolio
management, capital replacement, capital improvement and
redevelopment; increase efficiency through improved business
processes and automation; improve balance sheet flexibility;
expand the use of tax credit equity to generate fees and finance
redevelopment of affordable properties; and minimize our cost of
capital.
The following discussion and analysis of the results of our
operations and financial condition should be read in conjunction
with the accompanying financial statements in Item 8.
Results
of Operations
Overview
2007
compared to 2006
We reported net income of $29.9 million and net loss
attributable to common stockholders of $36.1 million for
the year ended December 31, 2007, compared to net income of
$176.8 million and net income attributable to common
stockholders of $95.7 million for the year ended
December 31, 2006, decreases of $146.9 million and
$131.8 million, respectively. These decreases were
principally due to the following items, all of which are
discussed in further detail below:
|
|
|
|
|
a decrease in income from discontinued operations, due primarily
to decreases in net gains on dispositions of real estate;
|
22
|
|
|
|
|
an increase in interest expense, reflecting higher loan
principal balances resulting from refinancings, share
repurchases and acquisitions; and
|
|
|
|
an increase in depreciation and amortization expense.
|
The effects of these items on our operating results were
partially offset by an increase in net operating income
associated with property operations, reflecting improved
operations of our same store properties and other properties.
2006
compared to 2005
We reported net income of $176.8 million and net income
attributable to common stockholders of $95.7 million for
the year ended December 31, 2006, compared to net income of
$71.0 million and net loss attributable to common
stockholders of $17.0 million for the year ended
December 31, 2005, increases of $105.8 million and
$112.7 million, respectively. These increases were
principally due to the following items, all of which are
discussed in further detail within this section:
|
|
|
|
|
an increase in net operating income associated with property
operations, reflecting improved operations of our same store
properties and other properties, and a large number of newly
consolidated properties;
|
|
|
|
an increase in income from discontinued operations, primarily
related to higher net gains on dispositions of real
estate; and
|
|
|
|
an increase in gain on disposition of unconsolidated real estate
and other, including higher gains on sale of land parcels.
|
These increases were partially offset by:
|
|
|
|
|
an increase in depreciation and amortization expense;
|
|
|
|
an increase in interest expense; and
|
|
|
|
unfavorable changes in the effects of minority interests in our
consolidated real estate partnerships.
|
Our reported operating results for 2006 were affected
significantly by our adoption of
EITF 04-5,
as discussed in Adoption of
EITF 04-5
in Note 2 to the consolidated financial statements in
Item 8. In accordance with the requirements of
EITF 04-5,
we consolidated 156 previously unconsolidated entities as of
January 1, 2006. The consolidation of these entities
contributed to increases in the reported amounts of certain
revenue and expenses.
The following paragraphs discuss these and other items affecting
the results of our operations in more detail.
Business
Segment Operating Results
We have two reportable segments: real estate (owning, operating
and redeveloping apartments) and asset management (providing
asset management and investment services). Our reportable
segments changed in 2007 as a result of the reorganization of
certain departments and functions. These changes include a
realignment of certain of our property management services from
the asset management segment to the real estate segment. In
addition, the asset management segment was expanded to include
certain departments involved in asset acquisitions,
dispositions, and other transactional activities. Prior to the
reorganization, those departments were considered to be general
and administrative functions and were not associated with any
operating segment.
Our chief operating decision maker is comprised of several
members of our executive management team who use several
generally accepted industry financial measures to assess the
performance of the business, including NAV, Free Cash Flow, net
operating income, FFO, and AFFO. 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.
Real
Estate Segment
Our real estate segment involves the ownership and operation of
properties that generate rental and other property-related
income through the leasing of apartment units. Our real estate
segments net operating income also
23
includes income from property management services performed for
unconsolidated partnerships and unrelated parties.
The following table summarizes our real estate segments
net operating income for the years ended December 31, 2007,
2006 and 2005 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Real estate segment revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
Rental and other property revenues
|
|
$
|
1,640,506
|
|
|
$
|
1,540,500
|
|
|
$
|
1,283,815
|
|
Property management revenues, primarily from affiliates
|
|
|
6,923
|
|
|
|
12,312
|
|
|
|
24,528
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,647,429
|
|
|
|
1,552,812
|
|
|
|
1,308,343
|
|
Real estate segment expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Property operating expenses
|
|
|
768,457
|
|
|
|
709,694
|
|
|
|
599,208
|
|
Property management expenses
|
|
|
5,506
|
|
|
|
5,111
|
|
|
|
7,499
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
773,963
|
|
|
|
714,805
|
|
|
|
606,707
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate segment net operating income
|
|
$
|
873,466
|
|
|
$
|
838,007
|
|
|
$
|
701,636
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Conventional
Same Store Property Operating Results
Same store operating results is a key indicator we use to assess
the performance of our property operations and to understand the
period over period operations of a consistent portfolio of
properties. We define consolidated same store
properties as our conventional properties (i) that we
manage, (ii) in which our ownership interest exceeds 10%,
(iii) the operations of which have been stabilized, and
(iv) that have not been sold or classified as held for
sale, in each case, throughout all periods presented. The
following tables summarize the operations of our consolidated
conventional rental property operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
Change
|
|
|
Consolidated same store revenues
|
|
$
|
1,110,079
|
|
|
$
|
1,060,897
|
|
|
|
4.6
|
%
|
Consolidated same store expenses
|
|
|
467,373
|
|
|
|
447,803
|
|
|
|
4.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Same store net operating income
|
|
|
642,706
|
|
|
|
613,094
|
|
|
|
4.8
|
%
|
Reconciling items(1)
|
|
|
230,760
|
|
|
|
224,913
|
|
|
|
2.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate segment net operating income
|
|
$
|
873,466
|
|
|
$
|
838,007
|
|
|
|
4.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Same store operating statistics:
|
|
|
|
|
|
|
|
|
|
|
|
|
Properties
|
|
|
347
|
|
|
|
347
|
|
|
|
|
|
Apartment units
|
|
|
103,629
|
|
|
|
103,629
|
|
|
|
|
|
Average physical occupancy
|
|
|
94.7
|
%
|
|
|
94.5
|
%
|
|
|
0.2
|
%
|
Average rent/unit/month
|
|
$
|
863
|
|
|
$
|
833
|
|
|
|
3.6
|
%
|
|
|
|
(1) |
|
Reflects property revenues and property operating expenses
related to consolidated properties other than same store
properties (e.g., affordable, acquisition, redevelopment and
newly consolidated properties) and casualty gains and losses. |
For the year ended December 31, 2007, compared to the year
ended December 31, 2006, consolidated same store net
operating income increased $29.6 million, or 4.8%. Revenues
increased $49.2 million, or 4.6%, primarily due to higher
average rent (up $30 per unit) and a $9.0 million increase
in utility reimbursements. Expenses increased by
$19.6 million, or 4.4%, primarily due to an
$8.5 million increase in employee compensation and related
expenses, $3.0 million increases in each of marketing
expense and contract service expense, a $2.5 million
increase in utilities and a $2.4 million increase in
property insurance expense.
24
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
|
|
|
2006
|
|
|
2005
|
|
|
Change
|
|
|
Consolidated same store revenues
|
|
$
|
960,887
|
|
|
$
|
901,121
|
|
|
|
6.6
|
%
|
Consolidated same store expenses
|
|
|
407,248
|
|
|
|
387,635
|
|
|
|
5.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Same store net operating income
|
|
|
553,639
|
|
|
|
513,486
|
|
|
|
7.8
|
%
|
Reconciling items(1)
|
|
|
284,368
|
|
|
|
188,150
|
|
|
|
51.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate segment net operating income
|
|
$
|
838,007
|
|
|
$
|
701,636
|
|
|
|
19.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Same store operating statistics:
|
|
|
|
|
|
|
|
|
|
|
|
|
Properties
|
|
|
315
|
|
|
|
315
|
|
|
|
|
|
Apartment units
|
|
|
95,227
|
|
|
|
95,227
|
|
|
|
|
|
Average physical occupancy
|
|
|
94.5
|
%
|
|
|
92.5
|
%
|
|
|
2.0
|
%
|
Average rent/unit/month
|
|
$
|
820
|
|
|
$
|
790
|
|
|
|
3.8
|
%
|
|
|
|
(1) |
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Reflects property revenues and property operating expenses
related to consolidated properties other than same store
properties (e.g., affordable, acquisition, redevelopment and
newly consolidated properties, including those properties
consolidated as a result of the adoption of EITF
04-5) and
casualty gains and losses. |
For the year ended December 31, 2006, compared to the year
ended December 31, 2005, consolidated same store net
operating income increased $40.2 million, or 7.8%. Revenues
increased $59.8 million, or 6.6%, primarily due to higher
occupancy (up 2.0%), higher average rent (up $30 per unit), and
a $6.9 million increase in utility reimbursements. Expenses
increased by $19.6 million, or 5.1%, primarily due to a
$5.9 million increase in administrative expenses, a
$5.8 million increase in real estate taxes, a
$5.4 million increase in utilities and a $3.8 million
increase in insurance.
Asset
Management Segment
Our asset management segment includes activities related to our
owned portfolio of properties as well as services provided to
affiliated partnerships. Within our owned portfolio, these
activities include strategic capital allocation decisions and
portfolio management activities. We provide similar services to
affiliated partnerships, together with such other services as
property management, asset management, financial management,
accounting, investor reporting, property debt financings, tax
credit syndication, redevelopment and construction management.
The expenses of this segment consist primarily of the costs of
departments that perform transactional activities and asset
management services. These activities are conducted in part by
our taxable subsidiaries, and the related net operating income
may be subject to income taxes.
Transactions occur on varying timetables; thus, the income
varies from period to period. We have affiliated real estate
partnerships for which we have identified a pipeline of
transactional opportunities. As a result, we view activity fees
as a predictable part of our core business strategy. Asset
management revenue is from the financial management of
partnerships, rather than management of day-to-day property
operations. Asset management revenue includes certain fees that
were earned in a prior period, but not recognized at that time
because collectibility was not reasonably assured. Those fees
may be recognized in a subsequent period upon occurrence of a
transaction or a high level of the probability of occurrence of
a transaction within twelve months, or improvement in operations
that generates sufficient cash to pay the fees.
The following table summarizes the net operating income from our
asset management segment for the years ended December 31,
2007, 2006 and 2005 (in thousands):
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Year Ended December 31,
|
|
|
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2007
|
|
|
2006
|
|
|
2005
|
|
|
Activity fees and asset management revenues
|
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$
|
73,755
|
|
|
$
|
48,893
|
|
|
$
|
37,349
|
|
Activity and asset management expenses
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23,102
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|
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17,342
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|
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19,316
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Asset management segment net operating income
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$
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50,653
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$
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31,551
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$
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18,033
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25
For the year ended December 31, 2007, compared to the year
ended December 31, 2006, net operating income from activity
fees and asset management increased $19.1 million, or
60.5%. This increase is primarily attributable to a
$9.6 million increase in promote income, an
$8.6 million increase in asset management fees and an
increase of $9.1 million in revenues associated with our
affordable housing tax credit syndication business, including
syndication fees and other revenue earned in connection with
these arrangements. These increases were partially offset by an
increase in expenses and a decrease in other transaction fees.
For the year ended December 31, 2006, compared to the year
ended December 31, 2005, net operating income from activity
fees and asset management increased $13.5 million, or
75.0%. This increase is primarily attributable to growth in our
affordable housing tax credit syndication business, including a
$4.3 million increase in syndication fees and a
$4.6 million increase in other revenue earned in connection
with these arrangements. The increase also reflects a
$2.4 million increase in promote distributions from
partnerships.
Other
Operating Expenses (Income)
Depreciation
and Amortization
For the year ended December 31, 2007, compared to the year
ended December 31, 2006, depreciation and amortization
increased $35.1 million, or 7.7%. This increase reflects
depreciation of $23.7 million for newly acquired
properties, completed redevelopments and other capital projects
recently placed in service. Depreciation also increased by
approximately $8.6 million as a result of depreciation
adjustments necessary to reduce the carrying amount of buildings
and improvements to their estimated disposition value or to zero
in connection with a planned demolition (see Capital
Expenditures and Related Depreciation in Note 2 to the
consolidated financial statements in Item 8).
For the year ended December 31, 2006, compared to the year
ended December 31, 2005, depreciation and amortization
increased $80.2 million, or 21.5%. This increase was
principally due to $31.0 million of depreciation for newly
consolidated properties, particularly properties that were
consolidated in 2006 in connection with the adoption of
EITF 04-5
(see Adoption of
EITF 04-5
in Note 2 to the consolidated financial statements in
Item 8) and $44.4 million of depreciation related
to assets recently placed in service, including acquired
properties, redevelopment projects and other capital
expenditures. Additionally, a $4.8 million increase
resulted from a change effective July 1, 2005 in estimated
useful lives that apply to capitalized payroll and certain
indirect costs (see Capital Expenditures and Related
Depreciation in Note 2 of the consolidated financial
statements in Item 8).
General
and Administrative Expenses
For the year ended December 31, 2007, compared to the year
ended December 31, 2006, general and administrative
expenses decreased $0.9 million, or 1.0%. This decrease is
primarily due to a reduction in variable compensation, partially
offset by an increase in salaries and benefits (net of
capitalization) related to additional redevelopment personnel
and an increase in director compensation resulting from the
addition of two new board members.
For the year ended December 31, 2006, compared to the year
ended December 31, 2005, general and administrative
expenses increased $7.1 million, or 8.6%. This increase
reflects a $9.6 million increase in employee compensation
and related costs, including higher stock-based compensation and
variable compensation based on achievement of established
performance targets. The increase was partially offset by a
$3.9 million decrease in legal, audit and consulting
expenses.
Other
Expenses (Income), Net
Other expenses (income), net includes the income tax
provision/benefit, franchise taxes, risk management activities,
partnership administration expenses and certain non-recurring
items.
For the year ended December 31, 2007, compared to the year
ended December 31, 2006, other expenses (income), net
changed favorably by $7.6 million. The net favorable change
reflects an $8.7 million increase in income tax benefits
related to losses of our taxable subsidiaries, a
$2.9 million charge recorded in 2006 related to the
valuation of the High Performance Units (see Note 10 to the
consolidated financial statements in Item 8) and a
26
$1.7 million charge for one-time benefits to certain
employees terminated in 2006 that did not recur in 2007. Other
expenses (income), net for the year ended December 31,
2007, also includes $3.6 million related to the transfer of
certain property rights to an unrelated party. These favorable
changes were partially offset by unfavorable changes related our
self insurance activities, including a $7.9 million
increase in claims on our consolidated properties in excess of
reimbursements from third parties, and the settlement of certain
litigation matters which resulted in a $2.5 million
unfavorable change during the year ended December 31, 2007.
For the year ended December 31, 2006, compared to the year
ended December 31, 2005, other expenses (income), net
changed unfavorably by $10.4 million. This decrease was
primarily attributable to a $4.2 million decrease in the
income tax benefit for our continuing operations, reflecting
smaller losses of our taxable subsidiaries, an increase of
$3.3 million in partnership expenses resulting from
properties newly consolidated in 2006, and a $2.9 million
charge recorded in 2006 related to the valuation of the High
Performance Units (see Note 10 to the consolidated
financial statements in Item 8).
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 year ended December 31, 2007, compared to the year
ended December 31, 2006, interest income increased
$8.5 million, or 25.0%. This increase is primarily due to
$5.9 million of interest income earned during 2007 on loans
collateralized by properties in West Harlem in New York City,
which were funded in November 2006, and an increase in interest
income earned on escrowed funds related to a tax exempt bond
financing transaction and certain property sales during 2007.
For the year ended December 31, 2006, as compared to the
year ended December 31, 2005, interest income increased
$2.6 million, or 8.1%. This increase reflects
$8.0 million in interest income on cash and restricted cash
balances of newly consolidated properties, particularly
properties consolidated as a result of adopting
EITF 04-5
in 2006 (see Adoption of
EITF 04-5
in Note 2 the consolidated financial statements in
Item 8). The increase also reflects a $4.6 million
increase in interest income related to increased balances of
notes receivable from non-affiliates (see Note 5 to the
consolidated financial statements in Item 8) and
$4.2 million of accretion income in connection with two
property sales in 2006. These increases were largely offset by
the elimination of $14.0 million in interest income on
notes receivable from real estate partnerships that were
consolidated in 2006 in connection with the adoption of
EITF 04-5.
Interest
Expense
For the year ended December 31, 2007, compared to the year
ended December 31, 2006, interest expense, which includes
the amortization of deferred financing costs, increased
$30.7 million, or 7.8%. Interest on property debt increased
$33.8 million primarily due to higher balances resulting
from refinancing activities and mortgage loans on newly acquired
properties, offset by lower weighted average rates. Corporate
interest increased by $3.1 million as a result of higher
weighted average rates and a higher average balance during the
year ended December 31, 2007. These increases were
partially offset by a $6.2 million increase in capitalized
interest related to increased levels of redevelopment and
entitlement activities.
For the year ended December 31, 2006, compared to the year
ended December 31, 2005, interest expense, which includes
the amortization of deferred financing costs, increased
$60.7 million, or 18.4%. This increase reflects
$28.4 million in interest expense of newly consolidated
properties, particularly those consolidated as a result of
adopting
EITF 04-5
in 2006 (see Adoption of
EITF 04-5
in Note 2 the consolidated financial statements in
Item 8). Additionally, interest expense on property debt
increased by $33.9 million due to higher interest rates on
variable rate loans, higher average balances related to
refinancings and acquisitions. Corporate interest increased by
$1.8 million as a result of higher weighted average rates
and a higher average balance during the year ended
December 31, 2006. These increases were partially offset by
a $6.8 million increase in capitalized interest, related to
increased levels of redevelopment and entitlement activities.
27
Deficit
Distributions to Minority Partners
When real estate partnerships that are consolidated in our
financial statements disburse cash to partners in excess of the
carrying amount of the minority interest, we record a charge
equal to the excess amount, even though there is no economic
effect or cost.
For the year ended December 31, 2007, compared to the year
ended December 31, 2006, deficit distributions to minority
partners increased $18.3 million, or 88.2%. This increase
reflects higher levels of distributions to minority interests in
2007, including several large distributions in connection with
debt refinancing transactions.
For the year ended December 31, 2006, compared to the year
ended December 31, 2005, deficit distributions to minority
partners increased $9.3 million, or 80.8%. This increase
reflects higher levels of distributions to minority interests in
2006, including several large distributions in connection with
debt refinancing transactions.
Gain
on Dispositions of Unconsolidated Real Estate and
Other
Gain on dispositions of unconsolidated real estate and other
includes our share of gains related to dispositions of real
estate by unconsolidated real estate partnerships, gains on
dispositions of land and other non-depreciable assets and costs
related to asset disposal activities. For the year ended
December 31, 2007, gain on dispositions of unconsolidated
real estate and other also includes a gain on extinguishment of
debt. Changes in the level of gains recognized from period to
period reflect the changing level of disposition activity from
period to period. Additionally, gains on properties sold are
determined on an individual property basis or in the aggregate
for a group of properties that are sold in a single transaction,
and are not comparable period to period.
For the year ended December 31, 2007, compared to the year
ended December 31, 2006, gain on dispositions of
unconsolidated real estate and other increased
$4.9 million, or 18.4%. This increase is primarily related
to a $19.4 million gain on debt extinguishment related to
seven properties in the VMS partnership (see Note 3 to the
consolidated financial statements in Item 8) and the
recognition of $7.2 million of non-refundable fees and
deposits related to certain property transactions (see
Note 3 to the consolidated financial statements in
Item 8) in 2007 relative to net gains of
$26.8 million during the year ended December 31, 2006,
on the sale of parcels of land, interests in unconsolidated real
estate properties and an interest in an unconsolidated joint
venture that owned and operated several student housing
properties.
For the year ended December 31, 2006, as compared to the
year ended December 31, 2005, gain on dispositions of
unconsolidated real estate and other increased
$9.7 million. This increase is primarily attributable to an
$11.0 million gain on the disposition of our interest in an
unconsolidated joint venture that owned and operated several
student housing properties.
Minority
Interest in Consolidated Real Estate Partnerships
Minority interest in consolidated real estate partnerships
reflects minority partners share of operating results of
consolidated real estate partnerships. This generally includes
the minority partners share of property management fees,
interest on notes and other amounts eliminated in consolidation
that we charge to such partnerships. However, we generally do
not recognize a benefit for the minority interest share of
partnership losses for partnerships that have deficits in
partners equity.
For the year ended December 31, 2007, compared to the year
ended December 31, 2006, minority interest in consolidated
real estate partnerships changed favorably by
$10.3 million. This change is primarily attributable to our
revised accounting treatment for tax credit arrangements (see
Tax Credit Arrangements in Note 2 to the
consolidated financial statements in Item 8) which
resulted in the reversal in 2006 of a previously recognized
benefit of $9.0 million for losses of tax credit
partnerships that were allocated to minority interests in prior
years, but which are absorbed by us under our revised accounting
treatment. This favorable change was in addition to a net
decrease in the minority interest share of other real estate
partnership losses.
For the year ended December 31, 2006, compared to the year
ended December 31, 2005, minority interest in consolidated
real estate partnerships changed unfavorably by
$17.2 million. This change is primarily attributable to our
recognition of $24.6 million for minority partners
share of losses of partnerships with deficits in equity as a
28
result of adopting
EITF 04-5
in 2006 (see Adoption of
EITF 04-5
in Note 2 to the consolidated financial statements in
Item 8). The change also reflects differences related to
our revised accounting treatment for tax credit arrangements
(see Tax Credit Arrangements in Note 2 to the
consolidated financial statements in Item 8), including
(i) the reversal in 2006 of a previously recognized benefit
of $9.0 million for losses of tax credit partnerships that
were allocated to minority interests in prior years, but which
are absorbed by us under our revised accounting treatment and
(ii) a $6.7 million benefit recognized in 2005 for
losses allocated to minority interests in tax credit
partnerships, while no comparable amount was recognized in 2006
under our revised accounting treatment. These unfavorable
changes were partially offset by a $23.1 million net
increase in the minority interest share of other real estate
partnership losses.
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,
and any related minority interest. In addition, any impairment
losses on assets held for sale and the net gain or loss on the
eventual disposal of properties held for sale are reported in
discontinued operations.
For the years ended December 31, 2007, 2006 and 2005,
income from discontinued operations, net totaled
$78.0 million, $219.3 million and $95.1 million,
respectively. The $141.3 million decrease in income from
discontinued operations from 2006 to 2007 was principally due to
a $194.5 million decrease in gain on dispositions of real
estate, net of minority partners interests and a
$19.5 million decrease in operating income, offset by a
$22.9 million decrease in interest expense, a
$30.8 million favorable change in income tax arising from
disposals and a $22.9 million gain on extinguishment of
debt related to mortgage loans secured by the eight VMS
properties sold to third parties during 2007 (see Note 3 to
the consolidated financial statements in Item 8). The
$124.2 million increase in income from discontinued
operations from 2005 to 2006 was principally due to a
$155.0 million increase in gain on dispositions of real
estate, net of minority partners interests, a
$26.4 million decrease in interest expense and an
impairment recovery of $0.4 million in 2006 versus an
impairment charge of $3.8 million in 2005, offset by a
$23.7 million decrease in operating income, a
$28.4 million increase in income tax arising from disposals
and a $12.6 million increase in minority interest in the
Aimco Operating Partnership.
During 2007, we sold 73 consolidated properties, resulting in a
net gain on sale of approximately $63.2 million (which is
net of $2.1 million of related income taxes). Additionally,
we recognized $0.1 million in impairment recoveries on
assets sold in 2007 and $0.4 million of net recoveries of
deficit distributions to minority partners. During 2006, we sold
77 consolidated properties and the South Tower of the Flamingo
South Beach property, resulting in a net gain on sale of
approximately $226.9 million (which is net of
$32.9 million of related income taxes). Additionally, we
recognized $0.4 million in impairment recoveries on assets
sold in 2006 and $15.7 million of net recoveries of deficit
distributions to minority partners. During 2005, we sold 83
consolidated properties, resulting in a net gain on sale of
approximately $100.3 million (which is net of
$4.5 million of related income taxes). Additionally, we
recognized $3.8 million in impairment losses on assets sold
or held for sale in 2005 and $14.5 million of net
recoveries of deficit distributions to minority partners. For
the years ended December 31, 2007, 2006 and 2005, income
from discontinued operations includes the operating results of
the properties sold during these years as well the operating
results of three properties classified as held for sale at
December 31, 2007.
Changes in the level of gains recognized from period to period
reflect the changing level of our disposition activity from
period to period. Additionally, gains on properties sold are
determined on an individual property basis or in the aggregate
for a group of properties that are sold in a single transaction,
and are not comparable period to period (see Note 13 of the
consolidated financial statements in Item 8 for additional
information on discontinued operations).
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
29
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
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.
At December 31, 2007, we evaluated our Lincoln Place
property in Venice, CA and determined that the carrying amount
of $189.3 million was recoverable based on our
probability-weighted assessment of undiscounted cash flows.
Plans to develop Lincoln Place have been the subject of
controversy and litigation, which reduces its market value and
may result in a future impairment.
Real estate investments are subject to varying degrees of risk.
Several factors may adversely affect the economic performance
and value of our real estate investments. These factors include:
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the general economic climate;
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competition from other apartment communities and other housing
options;
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local conditions, such as loss of jobs or an increase in the
supply of apartments, that might adversely affect apartment
occupancy or rental rates;
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changes in governmental regulations and the related cost of
compliance;
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increases in operating costs (including real estate taxes) due
to inflation and other factors, which may not be offset by
increased rents;
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changes in tax laws and housing laws, including the enactment of
rent control laws or other laws regulating multifamily housing;
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changes in market capitalization rates; and
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the relative illiquidity of such investments.
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Any adverse changes in these and other factors could cause an
impairment in our long-lived assets, including real estate and
investments in unconsolidated real estate partnerships. Based on
periodic tests of recoverability of long-lived assets, for the
years ended December 31, 2007 and 2005, we recorded net
impairment losses of $6.6 million and $6.1 million,
respectively, related to properties to be held and used. For the
year ended December 31, 2006, we recorded net recoveries of
previously recorded impairment losses of $0.8 million.
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
consists 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.
30
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 entered
into certain closed or 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 value of the notes; therefore,
accretion income varies on a period by period basis and could be
lower or higher than in prior periods.
Allowance
for Losses on Notes Receivable
We assess the collectibility of notes receivable on a periodic
basis, which assessment consists primarily of an evaluation of
cash flow projections of the borrower to determine whether
estimated cash flows are sufficient to repay principal and
interest in accordance with the contractual terms of the note.
We recognize impairments on notes receivable when it is probable
that principal and interest will not be received in accordance
with the contractual terms of the loan. The amount of the
impairment to be recognized generally is based on the fair value
of the partnerships real estate that represents the
primary source of loan repayment. In certain instances where
other sources of cash flow are available to repay the loan, the
impairment is measured by discounting the estimated cash flows
at the loans original effective interest rate.
During the years ended December 31, 2007 and 2006, we
recorded net provisions for losses on notes receivable of
$4.0 million and $2.8 million, respectively, and
during the year ended December 31, 2005, we recorded net
recoveries of previously recorded provisions for losses on notes
receivable of $1.4 million. We will continue to evaluate
the collectibility of these notes, and we will adjust related
allowances in the future due to changes in market conditions and
other factors.
Capitalized
Costs
We capitalize costs, including certain indirect costs, incurred
in connection with our capital expenditure activities, including
redevelopment and construction projects, other tangible property
improvements, and replacements of existing property components.
Included in these capitalized costs are payroll costs associated
with time spent by site employees in connection with the
planning, execution and control of all capital expenditure
activities at the property level. We characterize as
indirect costs an allocation of certain department
costs, including payroll, at the regional operating center and
corporate levels that clearly relate to capital expenditure
activities. We capitalize interest, property taxes and insurance
during periods in which redevelopment and construction projects
are in progress. Costs incurred in connection with capital
expenditure activities are capitalized where the costs of the
improvements or replacements exceed $250. We charge to expense
as incurred costs that do not relate to capital expenditure
activities, including ordinary repairs, maintenance, resident
turnover costs and general and administrative expenses (see
Capital Expenditures and Related Depreciation in
Note 2 to the consolidated financial statements in
Item 8).
For the years ended December 31, 2007, 2006 and 2005, for
continuing and discontinued operations, we capitalized
$30.8 million, $24.7 million and $18.1 million,
respectively, of interest costs, and $78.1 million,
$66.2 million and $53.3 million, respectively, of site
payroll and indirect costs, respectively.
31
Funds
From Operations
FFO is a non-GAAP financial measure that we believe, when
considered with the financial statements determined in
accordance with GAAP, is helpful to investors in understanding
our performance because it captures features particular to real
estate performance by recognizing that real estate generally
appreciates over time or maintains residual value to a much
greater extent than do other depreciable assets such as
machinery, computers or other personal property. The Board of
Governors of the National Association of Real Estate Investment
Trusts, or NAREIT, defines FFO as net income (loss), computed in
accordance with GAAP, excluding gains from sales of depreciable
property, plus depreciation and amortization, and after
adjustments for unconsolidated partnerships and joint ventures.
Adjustments for unconsolidated partnerships and joint ventures
are calculated to reflect FFO on the same basis. We compute FFO
for all periods presented in accordance with the guidance set
forth by NAREITs April 1, 2002, White Paper, which we
refer to as the White Paper. We calculate FFO (diluted) by
subtracting redemption related preferred stock issuance costs
and dividends on preferred stock and adding back
dividends/distributions on dilutive preferred securities and
interest expense on dilutive mandatorily redeemable convertible
preferred securities. FFO should not be considered an
alternative to net income or net cash flows from operating
activities, as determined in accordance with GAAP, as an
indication of our performance or as a measure of liquidity. FFO
is not necessarily indicative of cash available to fund future
cash needs. In addition, although FFO is a measure used for
comparability in assessing the performance of real estate
investment trusts, there can be no assurance that our basis for
computing FFO is comparable with that of other real estate
investment trusts.
For the years ended December 31, 2007, 2006 and 2005, our
FFO is calculated as follows (in thousands):
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2007
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2006
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|
2005
|
|
|
Net income (loss) attributable to common stockholders(1)
|
|
$
|
(36,105
|
)
|
|
$
|
95,655
|
|
|
$
|
(16,966
|
)
|
Adjustments:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization(2)
|
|
|
487,822
|
|
|
|
452,741
|
|
|
|
372,526
|
|
Depreciation and amortization related to non-real estate assets
|
|
|
(21,258
|
)
|
|
|
(25,511
|
)
|
|
|
(29,496
|
)
|
Depreciation of rental property related to minority partners and
unconsolidated entities(3)(4)
|
|
|
(32,150
|
)
|
|
|
(7,314
|
)
|
|
|
(8,131
|
)
|
Depreciation of rental property related to minority
partners interest adjustment(5)
|
|
|
|
|
|
|
7,377
|
|
|
|
|
|
Gain on dispositions of unconsolidated real estate and other
|
|
|
(31,777
|
)
|
|
|
(26,845
|
)
|
|
|
(17,152
|
)
|
Gain on dispositions of non-depreciable assets and debt
extinguishment gain
|
|
|
26,702
|
|
|
|
11,526
|
|
|
|
2,480
|
|
Deficit distributions to minority partners(6)
|
|
|
39,150
|
|
|
|
20,802
|
|
|
|
11,505
|
|
Discontinued operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain on dispositions of real estate, net of minority
partners interest(3)
|
|
|
(65,378
|
)
|
|
|
(259,855
|
)
|
|
|
(104,807
|
)
|
Depreciation of rental property, net of minority partners
interest(3)(4)
|
|
|
(8,385
|
)
|
|
|
35,487
|
|
|
|
63,083
|
|
Recovery of deficit distributions to minority partners, net(6)
|
|
|
(390
|
)
|
|
|
(15,724
|
)
|
|
|
(14,493
|
)
|
Income tax arising from disposals
|
|
|
2,135
|
|
|
|
32,918
|
|
|
|
4,481
|
|
Minority interest in Aimco Operating Partnerships share of
above adjustments
|
|
|
(36,830
|
)
|
|
|
(21,721
|
)
|
|
|
(28,382
|
)
|
Preferred stock dividends
|
|
|
63,381
|
|
|
|
74,284
|
|
|
|
86,825
|
|
Preferred stock redemption related costs
|
|
|
2,635
|
|
|
|
6,848
|
|
|
|
1,123
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funds From Operations
|
|
$
|
389,552
|
|
|
$
|
380,668
|
|
|
$
|
322,596
|
|
Preferred stock dividends
|
|
|
(63,381
|
)
|
|
|
(74,284
|
)
|
|
|
(86,825
|
)
|
Preferred stock redemption related costs
|
|
|
(2,635
|
)
|
|
|
(6,848
|
)
|
|
|
(1,123
|
)
|
Dividends/distributions on dilutive preferred securities
|
|
|
1,875
|
|
|
|
202
|
|
|
|
168
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funds From Operations attributable to common
stockholders diluted
|
|
$
|
325,411
|
|
|
$
|
299,738
|
|
|
$
|
234,816
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares, common share
equivalents and dilutive preferred securities outstanding(8):
|
|
|
|
|
|
|
|
|
|
|
|
|
Common shares and equivalents(7)
|
|
|
102,017
|
|
|
|
103,161
|
|
|
|
98,996
|
|
Dilutive preferred securities
|
|
|
609
|
|
|
|
75
|
|
|
|
78
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
102,626
|
|
|
|
103,236
|
|
|
|
99,074
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes:
|
|
|
(1) |
|
Represents the numerator for earnings per common share,
calculated in accordance with GAAP. |
|
(2) |
|
Includes amortization of management contracts where we are the
general partner. Such management contracts were established in
certain instances where we acquired a general partner interest
in either a consolidated or an unconsolidated partnership.
Because the recoverability of these management contracts depends
primarily on the operations of the real estate owned by the
limited partnerships, we believe it is consistent with the White
Paper to add back such amortization, as the White Paper directs
the add-back of amortization of assets uniquely significant to
the real estate industry. |
32
|
|
|
(3) |
|
Minority partners interest, means minority
interest in our consolidated real estate partnerships. |
|
(4) |
|
Adjustments related to minority partners share of
depreciation of rental property for the year ended
December 31, 2007, include the subtraction of
$15.1 million and $17.8 million for continuing
operations and discontinued operations, respectively, related to
the VMS debt extinguishment gains (see Note 3 to the
consolidated financial statements in Item 8). These
subtractions are required because we added back the minority
partners share of depreciation related to rental property
in determining FFO in prior periods. Accordingly, the net effect
of the VMS debt extinguishment gains on our FFO for the year
ended December 31, 2007, was an increase of
$9.3 million ($8.4 million after Minority Interest in
Aimco Operating Partnership). |
|
(5) |
|
Represents prior period depreciation of certain tax credit
redevelopment properties that Aimco included in an adjustment to
minority interest in real estate partnerships for the year ended
December 31, 2006 (see Tax Credit Arrangements in
Note 2 to the consolidated financial statements in
Item 8). This prior period depreciation is added back to
determine FFO in accordance with the NAREIT White Paper. |
|
(6) |
|
In accordance with GAAP, deficit distributions to minority
partners are charges recognized in our income statement when
cash is distributed to a non-controlling partner in a
consolidated real estate partnership in excess of the positive
balance in such partners capital account, which is
classified as minority interest on our balance sheet. We record
these charges for GAAP purposes even though there is no economic
effect or cost. Deficit distributions to minority partners occur
when the fair value of the underlying real estate exceeds its
depreciated net book value because the underlying real estate
has appreciated or maintained its value. As a result, the
recognition of expense for deficit distributions to minority
partners represents, in substance, either (a) our
recognition of depreciation previously allocated to the
non-controlling partner or (b) a payment related to the
non-controlling partners share of real estate
appreciation. Based on White Paper guidance that requires real
estate depreciation and gains to be excluded from FFO, we add
back deficit distributions and subtract related recoveries in
our reconciliation of net income to FFO. |
|
(7) |
|
Represents the denominator for earnings per common
share diluted, calculated in accordance with GAAP,
plus additional common share equivalents that are dilutive for
FFO. |
|
(8) |
|
Weighted average common shares, common share equivalents and
dilutive preferred securities amounts for the periods presented
have been retroactively adjusted for the effect of
4,573,735 shares of Common Stock issued pursuant to the
special dividend discussed in Note 1 to the consolidated
financial statements in Item 8. |
Liquidity
and Capital Resources
Liquidity is the ability to meet present and future financial
obligations either through the sale or maturity of existing
assets or by the acquisition of additional funds through working
capital management. Both the coordination of asset and liability
maturities and effective working capital management are
important to the maintenance of liquidity. Our primary source of
liquidity is cash flow from our operations. Additional sources
are proceeds from property sales and proceeds from refinancings
of existing mortgage loans and borrowings under new mortgage
loans.
Our principal uses for liquidity include normal operating
activities, payments of principal and interest on outstanding
debt, capital expenditures, dividends paid to stockholders and
distributions paid to partners, repurchases of shares of our
Common Stock, and acquisitions of, and investments in,
properties. We use our cash and cash equivalents and our cash
provided by operating activities to meet short-term liquidity
needs. In the event that our cash and cash equivalents and our
cash provided by operating activities is 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 use our revolving credit facility for general
corporate purposes and to fund investments on an interim basis.
We expect to meet our long-term liquidity requirements, such as
debt maturities and property acquisitions, through long-term
borrowings, both secured and unsecured, the issuance of debt or
equity securities (including OP Units), the sale of
properties and cash generated from operations.
At December 31, 2007, we had $210.5 million in cash
and cash equivalents, a decrease of $19.4 million from
December 31, 2006. At December 31, 2007, we had
$319.0 million of restricted cash, primarily consisting of
reserves and escrows held by lenders for bond sinking funds,
capital expenditures, property taxes and insurance. In addition,
cash, cash equivalents and restricted cash are held by
partnerships that are not presented on a consolidated
33
basis. The following discussion relates to changes in cash due
to operating, investing and financing activities, which are
presented in our consolidated statements of cash flows in
Item 8.
Operating
Activities
For the year ended December 31, 2007, our net cash provided
by operating activities of $465.5 million was primarily
from operating income from our consolidated properties, which is
affected primarily by rental rates, occupancy levels and
operating expenses related to our portfolio of properties. Cash
provided by operating activities decreased $53.4 million
compared with the year ended December 31, 2006, driven by
cash from changes in operating assets and liabilities of
$12.6 million in 2007 compared to $65.7 million in
2006.
Investing
Activities
For the year ended December 31, 2007, our net cash used in
investing activities of $271.6 million primarily resulted
from investments in our existing real estate assets through
capital spending as well as the acquisition of 16 properties and
purchases of interests in real estate partnerships (see
Note 3 to the consolidated financial statements in
Item 8 for further information on acquisitions), partially
offset by proceeds received from the sales of properties and the
sales of partnership interests.
Although we hold all of our properties for investment, we sell
properties when they do not meet our investment criteria or are
located in areas that we believe do not justify our continued
investment when compared to alternative uses for our capital.
During the year ended December 31, 2007, we sold 73
consolidated properties for an aggregate sales price of
$493.5 million, generating proceeds totaling
$431.9 million after the payment of transaction costs and
the buyers assumption of debt. Sales proceeds were used to
repay property level debt, repay borrowings under our revolving
credit facility, repurchase shares of our Common Stock and for
other corporate purposes.
We are currently marketing for sale certain properties that are
inconsistent with our long-term investment strategy.
Additionally, from time to time, we may market certain
properties that are consistent with our long-term investment
strategy but offer attractive returns. We plan to use our share
of the net proceeds from such dispositions to reduce debt, fund
capital expenditures on existing assets, fund property and
partnership acquisitions, repurchase shares of our Common Stock,
and for other operating needs and corporate purposes.
Capital
Expenditures
We classify all capital spending as Capital Replacements (which
we refer to as CR), Capital Improvements (which we refer to as
CI), casualties, redevelopment or entitlement. Expenditures
other than casualty, redevelopment and entitlement capital
expenditures are apportioned between CR and CI based on the
useful life of the capital item under consideration and the
period we have owned the property.
CR represents the share of capital expenditures that are deemed
to replace the portion of acquired capital assets that was
consumed during the period we have owned the asset. CI
represents the share of expenditures that are made to enhance
the value, profitability or useful life of an asset as compared
to its original purchase condition. CR and CI excludes capital
expenditures for casualties, redevelopment and entitlements.
Casualty expenditures represent capitalized costs incurred in
connection with casualty losses and are associated with the
restoration of the asset. A portion of the restoration costs may
be reimbursed by insurance carriers subject to deductibles
associated with each loss. Redevelopment expenditures represent
expenditures that substantially upgrade the property.
Entitlement expenditures represent costs incurred in connection
with obtaining local governmental approvals to increase density
and add residential units to a site. For the year ended
December 31, 2007, we spent a total of $102.6 million,
$123.7 million, $12.7 million, $352.8 million and
$26.3 million on CR, CI, casualties, redevelopment and
entitlement, respectively.
The table below details our share of actual spending, on both
consolidated and unconsolidated real estate partnerships, for
CR, CI, casualties, redevelopment and entitlements for the year
ended December 31, 2007, on a total dollar basis. Per unit
numbers for CR and CI are based on approximately 132,862 average
units for the year including 115,046 conventional units and
17,817 affordable units. Average units are weighted for the
portion of the period that we owned an interest in the property,
represent ownership-adjusted effective units, and exclude non-
34
managed units. Total capital expenditures are reconciled to our
consolidated statement of cash flows for the same period (in
thousands, except per unit amounts).
|
|
|
|
|
|
|
|
|
|
|
Aimcos Share of
|
|
|
|
|
|
|
Expenditures
|
|
|
Per Effective Unit
|
|
|
Capital Replacements Detail:
|
|
|
|
|
|
|
|
|
Building and grounds
|
|
$
|
43,579
|
|
|
$
|
328
|
|
Turnover related
|
|
|
45,635
|
|
|
|
343
|
|
Capitalized site payroll and indirect costs
|
|
|
13,398
|
|
|
|
101
|
|
|
|
|
|
|
|
|
|
|
Our share of Capital Replacements
|
|
$
|
102,612
|
|
|
$
|
772
|
|
|
|
|
|
|
|
|
|
|
Capital Replacements:
|
|
|
|
|
|
|
|
|
Conventional
|
|
$
|
95,329
|
|
|
$
|
829
|
|
Affordable
|
|
|
7,283
|
|
|
$
|
409
|
|
|
|
|
|
|
|
|
|
|
Our share of Capital Replacements
|
|
|
102,612
|
|
|
$
|
772
|
|
|
|
|
|
|
|
|
|
|
Capital Improvements:
|
|
|
|
|
|
|
|
|
Conventional
|
|
|
113,977
|
|
|
$
|
991
|
|
Affordable
|
|
|
9,684
|
|
|
$
|
544
|
|
|
|
|
|
|
|
|
|
|
Our share of Capital Improvements
|
|
|
123,661
|
|
|
$
|
931
|
|
|
|
|
|
|
|
|
|
|
Casualties:
|
|
|
|
|
|
|
|
|
Conventional
|
|
|
11,404
|
|
|
|
|
|
Affordable
|
|
|
1,313
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Our share of casualties
|
|
|
12,717
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Redevelopment:
|
|
|
|
|
|
|
|
|
Conventional projects
|
|
|
290,898
|
|
|
|
|
|
Tax credit projects
|
|
|
61,919
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Our share of redevelopment
|
|
|
352,817
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Entitlement
|
|
|
26,304
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Our share of capital expenditures
|
|
|
618,111
|
|
|
|
|
|
Plus minority partners share of consolidated spending
|
|
|
72,358
|
|
|
|
|
|
Less our share of unconsolidated spending
|
|
|
(750
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total capital expenditures per consolidated statement of cash
flows
|
|
$
|
689,719
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Included in the above spending for CI, casualties, redevelopment
and entitlement, was approximately $68.1 million of our
share of capitalized site payroll and indirect costs related to
these activities for the year ended December 31, 2007.
We funded all of the above capital expenditures with cash
provided by operating activities, working capital, property
sales and borrowings under our Credit Facility, as discussed
below.
Financing
Activities
For the year ended December 31, 2007, net cash used in
financing activities of $213.3 million primarily related to
repayments of property loans, distributions to minority
interests, payment of common and preferred dividends,
repurchases of Common Stock and redemption of the Class W
Cumulative Convertible Preferred Stock. Proceeds from property
loans and stock option exercises partially offset the cash
outflow.
Mortgage
Debt
At December 31, 2007 and 2006, we had $7.0 billion and
$6.3 billion, respectively, in consolidated mortgage debt
outstanding, which included $11.6 million and
$239.2 million, respectively, of mortgage debt classified
within liabilities related to assets held for sale. During the
year ended December 31, 2007, we refinanced or closed
mortgage loans on 144 consolidated properties generating
$1,795.5 million of proceeds from borrowings with a
35
weighted average interest rate of 6.09%. Our share of the net
proceeds after repayment of existing debt, payment of
transaction costs and distributions to limited partners, was
$864.2 million. We used these total net proceeds for
capital expenditures and other corporate purposes. We intend to
continue to refinance mortgage debt to generate proceeds in
amounts exceeding our scheduled amortizations and maturities,
generally not to increase loan-to-value, but as a means to
monetize asset appreciation.
Credit
Facility
We have an Amended and Restated Senior Secured Credit Agreement
with a syndicate of financial institutions, which we refer to as
the Credit Agreement.
During the year ended December 31, 2007, we amended various
terms in our Credit Agreement which included (i) an
increase in aggregate commitments; (ii) a modification of
the capitalization rate used in the calculation of certain
financial covenants; (iii) a modification to permit
proceeds of loans under the Credit Agreement to be used to
repurchase equity interests of the borrowers, including our
Common Stock, and provide that the purchase of such equity
interests is not restricted as long as no default or event of
default under the Credit Agreement exists; and
(iv) elimination of the limitation on incurrence of
indebtedness that is pari passu with the Credit Agreement.
The Credit Agreement was expanded from total commitments of
$850.0 million to $1.125 billion. Prior to the
amendments, the Credit Agreement was comprised of
$400.0 million in term loans and $450.0 million of
revolving loan commitments. In connection with the amendments,
we obtained an additional term loan of $75.0 million with a
one year term and pricing equal to LIBOR plus 1.375%, or a base
rate at our option, and additional revolving loan commitments
totaling $200.0 million with the same maturity and pricing
as the existing revolving loan commitments. We may extend the
$75.0 million term loan for one year, subject to the
satisfaction of certain conditions including the payment of a
12.5 basis point fee on the amount of the term loan then
outstanding. We are also permitted to increase the aggregate
commitments (which may be revolving or term loan commitments) by
an amount not to exceed $175.0 million, subject to receipt
of commitments from lenders and other customary conditions.
At December 31, 2007, the term loans had an outstanding
principal balance of $475.0 million and a weighted average
interest rate of 6.38%. At December 31, 2007, the revolving
loan commitments were $650.0 million and had no outstanding
principal balance. The amount available under the revolving loan
commitments at December 31, 2007, was $606.5 million
(after giving effect to $43.5 million outstanding for
undrawn letters of credit issued under the revolving loan
commitments).
Equity
Transactions
On December 21, 2007, our Board of Directors declared a
special dividend of $2.51 per share payable on January 30,
2008 to holders of record of our Common Stock on
December 31, 2007. Stockholders had the option to elect to
receive payment of the special dividend in cash, shares or a
combination of cash and shares, except that the aggregate amount
of cash payable to all stockholders in the special dividend was
limited to $55.0 million plus cash paid in lieu of
fractional shares. The special dividend, totaling
$232.9 million, was paid on 92,795,891 shares issued
and outstanding on the record date, which included
416,140 shares held by certain of our consolidated
subsidiaries. Approximately $177.9 million of the special
dividend was paid through the issuance of 4,594,074 shares
of Common Stock (including 20,339 shares issued to
consolidated subsidiaries holding our shares), which was
determined based on the average closing price of our Common
Stock on January
23-24, 2008,
or $38.71 per share.
After elimination of the effect of shares held by consolidated
subsidiaries, the special dividend totaled $231.9 million.
Approximately $177.1 million of the special dividend was
paid through the issuance of 4,573,735 shares of Common
Stock (excluding 20,339 shares issued to our consolidated
subsidiaries) to holders of 92,379,751 shares of our Common
Stock on the record date (excluding 416,140 shares held by
certain of our consolidated subsidiaries), representing an
increase of approximately 4.95% to the then outstanding shares.
The effect of the issuance of additional shares of Common Stock
pursuant to the special dividend has been retroactively
reflected in each of the historical periods presented as if
those shares were issued and outstanding at the beginning of
36
the earliest period presented; accordingly all activity
including share issuances, repurchases and forfeitures have been
adjusted to reflect the 4.95% increase in the number of shares,
except in limited instances where noted.
During the year ended December 31, 2007, we redeemed all
outstanding shares of our privately held 8.1% Class W
Cumulative Convertible Preferred Stock for an aggregate
redemption price of approximately $102.0 million, excluding
accrued and unpaid dividends through the date of redemption (see
Preferred Stock in Note 11 to the consolidated
financial statements in Item 8 for additional information
about our preferred stock transactions during 2007).
Under our shelf registration statement, as of December 31,
2007, we had available for issuance approximately
$877.0 million of debt and equity securities and the Aimco
Operating Partnership had available for issuance
$500.0 million of debt securities. At January 30,
2008, following the issuance of additional shares of Common
Stock pursuant to the special dividend discussed above, we had
available for issuance approximately $699.1 million of debt
and equity securities.
Our Board of Directors has, from time to time, authorized us to
repurchase shares of our outstanding capital stock. During the
year ended December 31, 2007, we repurchased approximately
7.5 million shares of Common Stock (7.8 million shares
after the effect of the special dividend) for approximately
$325.8 million. As of December 31, 2007, we were
authorized to repurchase approximately 8.2 million
additional shares of our Common Stock under an authorization
that has no expiration date. On January 29, 2008, our Board
of Directors increased the number of shares authorized for
repurchase by 25.0 million shares. Between January 1,
2008 and February 15, 2008, we repurchased approximately
5.1 million shares of Common Stock for approximately
$170.6 million, or $33.67 per share. Future repurchases may
be made from time to time in the open market or in privately
negotiated transactions.
Contractual
Obligations
This table summarizes information contained elsewhere in this
Annual Report regarding payments due under contractual
obligations and commitments as of December 31, 2007
(amounts in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less than
|
|
|
1-3
|
|
|
3-5
|
|
|
More than
|
|
|
|
Total
|
|
|
One Year
|
|
|
Years
|
|
|
Years
|
|
|
5 Years
|
|
|
Scheduled long-term debt maturities
|
|
$
|
7,056,782
|
|
|
$
|
455,776
|
|
|
$
|
1,170,581
|
|
|
$
|
983,860
|
|
|
$
|
4,446,565
|
|
Term loans
|
|
|
475,000
|
|
|
|
|
|
|
|
75,000
|
|
|
|
400,000
|
|
|
|
|
|
Redevelopment and other construction commitments
|
|
|
151,953
|
|
|
|
145,552
|
|
|
|
6,401
|
|
|
|
|
|
|
|
|
|
Leases for space occupied
|
|
|
39,668
|
|
|
|
9,001
|
|
|
|
13,766
|
|
|
|
10,214
|
|
|
|
6,687
|
|
Other obligations(1)
|
|
|
6,200
|
|
|
|
6,200
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
7,729,603
|
|
|
$
|
616,529
|
|
|
$
|
1,265,748
|
|
|
$
|
1,394,074
|
|
|
$
|
4,453,252
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Represents a commitment to fund $6.2 million in second
mortgage loans on certain properties in West Harlem, New York
City. |
In addition, we may enter into commitments to purchase goods and
services in connection with the operations of our properties.
Those commitments generally have terms of one year or less and
reflect expenditure levels comparable to our historical
expenditures.
Future
Capital Needs
In addition to the items set forth in Contractual
Obligations above, we expect to fund any future
acquisitions, additional redevelopment projects and capital
improvements 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.
37
In 2008, we expect to invest between $250.0 and
$300.0 million in conventional redevelopment projects and
we expect to invest approximately $72.0 million in
affordable redevelopment projects, predominantly funded by
third-party tax credit equity.
Off-Balance
Sheet Arrangements
We own general and limited partner interests in unconsolidated
real estate partnerships, in which our total ownership interests
range typically from less than 1% up to 50%. However, based on
the provisions of the relevant partnership agreements, we are
not deemed to be the primary beneficiary or to have control of
these partnerships sufficient to require or permit consolidation
for accounting purposes (see Note 2 of the consolidated
financial statements in Item 8). There are no lines of
credit, side agreements, or any other derivative financial
instruments related to or between our unconsolidated real estate
partnerships and us and no material exposure to financial
guarantees. Accordingly, our maximum risk of loss related to
these unconsolidated real estate partnerships is limited to the
aggregate carrying amount of our investment in the
unconsolidated real estate partnerships and any outstanding
notes receivable as reported in our consolidated financial
statements (see Note 4 of the consolidated financial
statements in Item 8 for additional information about our
investments in unconsolidated real estate partnerships).
|
|
Item 7A.
|
Quantitative
and Qualitative Disclosures About Market Risk
|
Our primary market risk exposure relates to changes in interest
rates. We are not subject to any foreign currency exchange rate
risk or commodity price risk, or any other material market rate
or price risks. We use predominantly long-term, fixed-rate
non-recourse mortgage debt in order to avoid the refunding and
repricing risks of short-term borrowings. We use short-term debt
financing and working capital primarily to fund short-term uses
and acquisitions and generally expect to refinance such
borrowings with cash from operating activities, property sales
proceeds, long-term debt or equity financings.
We had $1,754.4 million of floating rate debt outstanding
at December 31, 2007. Of the total floating rate debt, the
major components were floating rate tax-exempt bond financing
($698.4 million), floating rate secured notes
($572.5 million), and term loans ($475.0 million).
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 (previously the Bond Market Association index),
which since 1981 has averaged 68% of the
30-day LIBOR
rate. If this relationship continues, an increase in
30-day LIBOR
of 1.0% (0.68% in tax-exempt interest rates) would result in our
income before minority interests and cash flows being reduced by
$15.3 million on an annual basis. This would be offset by
variable rate interest income earned on certain assets,
including cash and cash equivalents and notes receivable, as
well as interest that is capitalized on a portion of this
variable rate debt incurred in connection with our redevelopment
activities. Considering these offsets, the same increase in
30-day LIBOR
would result in our income before minority interests and cash
flows being reduced by $6.5 million on an annual basis.
Comparatively, if
30-day LIBOR
had increased by 1% in 2006, our income before minority
interests and cash flows, after considering such offsets would
have been reduced by $8.5 million on an annual basis. The
potential reduction of income before minority interests was
higher in 2007 as compared to 2006 primarily due to higher
floating rate balances resulting from refinancing of certain
fixed rate mortgages and increases in our use of total rate of
return swaps to effectively convert higher fixed rate debt to
lower variable rates benchmarked against the BMA index (see
Note 2 to the consolidated financial statements in
Item 8 for further discussion of total rate of return
swaps).
We believe that the fair values of our floating rate secured
tax-exempt bond debt and floating rate secured long-term debt as
of December 31, 2007, approximate their carrying values.
The fair value for our fixed-rate debt agreements was estimated
based on the market rate for debt with the same or similar
terms. The combined carrying amount of our fixed-rate secured
tax-exempt bonds and fixed-rate secured notes payable at
December 31, 2007 was $5.7 billion compared to the
estimated fair value of $5.8 billion (see Note 2 to
the consolidated financial statements in Item 8). If market
rates for our fixed-rate debt were higher by 1%, the estimated
fair value of our fixed-rate debt would have decreased from
$5.8 billion to $5.5 billion. If market rates for our
fixed-rate debt were lower by 1%, the estimated fair value of
our fixed-rate debt would have increased from $5.8 billion
to $6.1 billion.
38
|
|
Item 8.
|
Financial
Statements and Supplementary Data
|
The independent registered public accounting firms report,
consolidated financial statements and schedule listed in the
accompanying index are filed as part of this report and
incorporated herein by this reference. See Index to
Financial Statements on
page F-1
of this Annual Report.
|
|
Item 9.
|
Changes
in and Disagreements With Accountants on Accounting and
Financial Disclosure
|
None.
39
|
|
Item 9A.
|
Controls
and Procedures
|
Disclosure
Controls and Procedures
Our management, with the participation of our chief executive
officer and chief financial officer, has evaluated the
effectiveness of our disclosure controls and procedures (as
defined in
Rules 13a-15(e)
and
15d-15(e)
under the Securities Exchange Act of 1934, as amended (the
Exchange Act)) as of the end of the period covered
by this report. Based on such evaluation, our chief executive
officer and chief financial officer have concluded that, as of
the end of such period, our disclosure controls and procedures
are effective.
Managements
Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining
adequate internal control over financial reporting. Internal
control over financial reporting is defined in
Rule 13a-15(f)
and
15d-15(f)
under the Exchange Act as a process designed by, or under the
supervision of, our principal executive and principal financial
officers and effected by our Board of Directors, management and
other personnel to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles and includes those
policies and procedures that:
|
|
|
|
|
pertain to the maintenance of records that in reasonable detail
accurately and fairly reflect the transactions and dispositions
of assets;
|
|
|
|
provide reasonable assurance that transactions are recorded as
necessary to permit preparation of financial statements in
accordance with generally accepted accounting principles, and
that receipts and expenditures are being made only in accordance
with authorizations of our management and directors; and
|
|
|
|
provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use or disposition of
assets that could have a material effect on the financial
statements.
|
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Projections of any evaluation of effectiveness to future periods
are subject to the risks that controls may become inadequate
because of changes in conditions, or that the degree of
compliance with the policies or procedures may deteriorate.
Management assessed the effectiveness of our internal control
over financial reporting as of December 31, 2007. In making
this assessment, management used the criteria set forth by the
Committee of Sponsoring Organizations of the Treadway Commission
(COSO) in Internal Control-Integrated Framework.
Based on their assessment, management concluded that, as of
December 31, 2007, our internal control over financial
reporting is effective.
Our independent registered public accounting firm has issued an
attestation report on our internal control over financial
reporting.
Changes
in Internal Control over Financial Reporting
There have been no significant changes in our internal control
over financial reporting (as defined in
Rules 13a-15(f)
and
15d-15(f))
under the Exchange Act) during fourth quarter 2007 that have
materially affected, or are reasonably likely to materially
affect, our internal control over financial reporting.
40
Report of
Independent Registered Public Accounting Firm
Stockholders and Board of Directors Apartment Investment and
Management Company
We have audited Apartment Investment and Management
Companys (the Company) internal control over
financial reporting as of December 31, 2007, based on
criteria established in Internal Control
Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (the COSO criteria).
The Companys management is responsible for maintaining
effective internal control over financial reporting, and for its
assessment of the effectiveness of internal control over
financial reporting included in the accompanying
Managements Report on Internal Control Over Financial
Reporting. Our responsibility is to express an opinion on the
Companys internal control over financial reporting based
on our audit.
We conducted our audit in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control
over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of
internal control over financial reporting, assessing the risk
that a material weakness exists, testing and evaluating the
design and operating effectiveness of internal control based on
the assessed risk, and performing such other procedures as we
considered necessary in the circumstances. We believe that our
audit provides a reasonable basis for our opinion.
A companys internal control over financial reporting is a
process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles. A companys
internal control over financial reporting includes those
policies and procedures that (1) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions
are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations of
management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the
companys assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
In our opinion, Apartment Investment and Management Company
maintained, in all material respects, effective internal control
over financial reporting as of December 31, 2007, based on
the COSO criteria.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
consolidated balance sheets of Apartment Investment and
Management Company as of December 31, 2007 and
December 31, 2006, and the related consolidated statements
of income, stockholders equity, and cash flows for each of
the three years in the period ended December 31, 2007, and
our report dated February 29, 2008 expressed an unqualified
opinion thereon.
Denver, Colorado
February 29, 2008
41
|
|
Item 9B.
|
Other
Information
|
None.
PART III
|
|
Item 10.
|
Directors,
Executive Officers and Corporate Governance
|
The information required by this item is presented under the
captions Board of Directors and Officers,
Corporate Governance Matters Code of
Ethics, Other Matters Section 16(a)
Beneficial Ownership Reporting Compliance, Corporate
Governance Matters Nominating and Corporate
Governance Committee, Corporate Governance
Matters Audit Committee, and Corporate
Governance Matters Audit Committee Financial
Expert in the proxy statement for our 2008 annual meeting
of stockholders and is incorporated herein by reference.
|
|
Item 11.
|
Executive
Compensation
|
The information required by this item is presented under the
captions Compensation Discussion and Analysis,
Compensation and Human Resources Committee Report to
Stockholders, Summary Compensation Table,
Grants of Plan-Based Awards in 2007,
Outstanding Equity Awards at Fiscal Year End 2007,
Option Exercises and Stock Vested, Potential
Payments Upon Termination or Change in Control, and
Corporate Governance Matters Director
Compensation in the proxy statement for our 2008 annual
meeting of stockholders and is incorporated herein by reference.
|
|
Item 12.
|
Security
Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters
|
The information required by this item is presented under the
captions Security Ownership of Certain Beneficial Owners
and Management and Securities Authorized for
Issuance Under Equity Compensation Plans in the proxy
statement for our 2008 annual meeting of stockholders and is
incorporated herein by reference.
|
|
Item 13.
|
Certain
Relationships and Related Transactions, and Director
Independence
|
The information required by this item is presented under the
caption Certain Relationships and Related
Transactions and Corporate Governance
Matters Independence of Directors in the proxy
statement for our 2008 annual meeting of stockholders and is
incorporated herein by reference.
|
|
Item 14.
|
Principal
Accountant Fees and Services
|
The information required by this item is presented under the
caption Principal Accountant Fees and Services in
the proxy statement for our 2008 annual meeting of stockholders
and is incorporated herein by reference.
42
PART IV
|
|
Item 15.
|
Exhibits
and Financial Statement Schedules
|
(a)(1) The financial statements listed in the Index to Financial
Statements on
Page F-1
of this report are filed as part of this report and incorporated
herein by reference.
(a)(2) The financial statement schedule listed in the Index to
Financial Statements on
Page F-1
of this report is filed as part of this report and incorporated
herein by reference.
(a)(3) The Exhibit Index is incorporated herein by
reference.
INDEX TO
EXHIBITS(1)(2)
|
|
|
|
|
Exhibit No.
|
|
Description
|
|
|
3
|
.1
|
|
Charter (Exhibit 3.1 to Aimcos Quarterly Report on
Form 10-Q
for the quarterly period ended June 30, 2006, is
incorporated herein by this reference)
|
|
3
|
.2
|
|
Bylaws (Exhibit 3.2 to Aimcos Quarterly Report on
Form 10-Q
for the quarterly period ended June 30, 2007, is
incorporated herein by this reference)
|
|
10
|
.1
|
|
Fourth Amended and Restated Agreement of Limited Partnership of
AIMCO Properties, L.P., dated as of July 29, 1994, as
amended and restated as of February 28, 2007
(Exhibit 10.1 to Aimcos Annual Report on
Form 10-K
for the year ended December 31, 2006, is incorporated
herein by this reference)
|
|
10
|
.2
|
|
First Amendment to Fourth Amended and Restated Agreement of
Limited Partnership of AIMCO Properties, L.P., dated as of
December 31, 2007 (Exhibit 10.1 to Aimcos
Current Report on
Form 8-K,
dated December 31, 2007, is incorporated herein by this
reference)
|
|
10
|
.3
|
|
Amended and Restated Secured Credit Agreement, dated as of
November 2, 2004, by and among Aimco, AIMCO Properties,
L.P., AIMCO/Bethesda Holdings, Inc., and NHP Management Company
as the borrowers and Bank of America, N.A., Keybank National
Association, and the Lenders listed therein (Exhibit 4.1 to
Aimcos Quarterly Report on
Form 10-Q
for the quarterly period ended September 30, 2004, is
incorporated herein by this reference)
|
|
10
|
.4
|
|
First Amendment to Amended and Restated Secured Credit
Agreement, dated as of June 16, 2005, by and among Aimco,
AIMCO Properties, L.P., AIMCO/Bethesda Holdings, Inc., and NHP
Management Company as the borrowers and Bank of America, N.A.,
Keybank National Association, and the Lenders listed therein
(Exhibit 10.1 to Aimcos Current Report on
Form 8-K,
dated June 16, 2005, is incorporated herein by this
reference)
|
|
10
|
.5
|
|
Second Amendment to Amended and Restated Senior Secured Credit
Agreement, dated as of March 22, 2006, by and among Aimco,
AIMCO Properties, L.P., and AIMCO/Bethesda Holdings, Inc., as
the borrowers, and Bank of America, N.A., Keybank National
Association, and the lenders listed therein (Exhibit 10.1
to Aimcos Current Report on
Form 10-K,
dated March 22, 2006, is incorporated herein by this
reference)
|
|
10
|
.6
|
|
Third Amendment to Senior Secured Credit Agreement, dated as of
August 31, 2007, by and among Apartment Investment and
Management Company, AIMCO Properties, L.P., and AIMCO/Bethesda
Holdings, Inc., as the Borrowers, the pledgors and guarantors
named therein, Bank of America, N.A., as administrative agent
and Bank of America, N.A., Keybank National Association and the
other lenders listed therein (Exhibit 10.1 to Aimcos
Current Report on
Form 8-K,
dated August 31, 2007, is incorporated herein by this
reference)
|
|
10
|
.7
|
|
Fourth Amendment to Senior Secured Credit Agreement, dated as of
September 14, 2007, by and among Apartment Investment and
Management Company, AIMCO Properties, L.P., and AIMCO/Bethesda
Holdings, Inc., as the Borrowers, the pledgors and guarantors
named therein, Bank of America, N.A., as administrative agent
and Bank of America, N.A., Keybank National Association and the
other lenders listed therein (Exhibit 10.1 to Aimcos
Current Report on
Form 8-K,
dated September 14, 2007, is incorporated herein by this
reference)
|
43
|
|
|
|
|
Exhibit No.
|
|
Description
|
|
|
10
|
.8
|
|
Master Indemnification Agreement, dated December 3, 2001,
by and among Apartment Investment and Management Company, AIMCO
Properties, L.P., XYZ Holdings LLC, and the other parties
signatory thereto (Exhibit 2.3 to Aimcos Current
Report on
Form 8-K,
filed December 6, 2001, is incorporated herein by this
reference)
|
|
10
|
.9
|
|
Tax Indemnification and Contest Agreement, dated
December 3, 2001, by and among Apartment Investment and
Management Company, National Partnership Investments, Corp., and
XYZ Holdings LLC and the other parties signatory thereto
(Exhibit 2.4 to Aimcos Current Report on
Form 8-K,
filed December 6, 2001, is incorporated herein by this
reference)
|
|
10
|
.10
|
|
Limited Liability Company Agreement of AIMCO JV Portfolio #1,
LLC dated as of December 30, 2003 by and among AIMCO
BRE I, LLC, AIMCO BRE II, LLC and SRV-AJVP#1, LLC
(Exhibit 10.54 to Aimcos Annual Report on
Form 10-K
for the year ended December 31, 2003, is incorporated
herein by this reference)
|
|
10
|
.11
|
|
Employment Contract executed on July 29, 1994 by and
between AIMCO Properties, L.P. and Terry Considine
(Exhibit 10.44C to Aimcos Annual Report on
Form 10-K
for the year ended December 31, 1994, is incorporated
herein by this reference)*
|
|
10
|
.12
|
|
Apartment Investment and Management Company 1997 Stock Award and
Incentive Plan (October 1999) (Exhibit 10.26 to
Aimcos Annual Report on
Form 10-K
for the year ended December 31, 1999, is incorporated
herein by this reference)*
|
|
10
|
.13
|
|
Form of Restricted Stock Agreement (1997 Stock Award and
Incentive Plan) (Exhibit 10.11 to Aimcos Quarterly
Report on
Form 10-Q
for the quarterly period ended September 30, 1997, is
incorporated herein by this reference)*
|
|
10
|
.14
|
|
Form of Incentive Stock Option Agreement (1997 Stock Award and
Incentive Plan) (Exhibit 10.42 to Aimcos Annual
Report on
Form 10-K
for the year ended December 31, 1998, is incorporated
herein by this reference)*
|
|
10
|
.15
|
|
2007 Stock Award and Incentive Plan (incorporated by reference
to Appendix A to Aimcos Proxy Statement on
Schedule 14A filed with the Securities and Exchange
Commission on March 20, 2007)*
|
|
10
|
.16
|
|
Form of Restricted Stock Agreement (Exhibit 10.2 to
Aimcos Current Report on
Form 8-K,
dated April 30, 2007, is incorporated herein by this
reference)*
|
|
10
|
.17
|
|
Form of Non-Qualified Stock Option Agreement (Exhibit 10.3
to Aimcos Current Report on
Form 8-K,
dated April 30, 2007, is incorporated herein by this
reference)*
|
|
10
|
.18
|
|
2007 Employee Stock Purchase Plan (incorporated by reference to
Appendix B to Aimcos Proxy Statement on
Schedule 14A filed with the Securities and Exchange
Commission on March 20, 2007)*
|
|
21
|
.1
|
|
List of Subsidiaries
|
|
23
|
.1
|
|
Consent of Independent Registered Public Accounting Firm
|
|
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 re: disclosure of long-term debt instruments
|
|
|
|
(1) |
|
Schedule and supplemental materials to the exhibits have been
omitted but will be provided to the Securities and Exchange
Commission upon request. |
44
|
|
|
(2) |
|
The file reference number for all exhibits is
001-13232,
and all such exhibits remain available pursuant to the Records
Control Schedule of the Securities and Exchange Commission. |
|
* |
|
Management contract or compensatory plan or arrangement |
45
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
Apartment Investment
and
Management Company
Terry Considine
Chairman of the Board,
Chief Executive Officer and President
Date: February 29, 2008
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons
on behalf of the registrant and in the capacities and on the
dates indicated.
|
|
|
|
|
|
|
Signature
|
|
Title
|
|
Date
|
|
/s/ Terry
Considine
Terry
Considine
|
|
Chairman of the Board, Chief Executive
Officer and President
(principal executive officer)
|
|
February 29, 2008
|
|
|
|
|
|
/s/ Thomas
M. Herzog
Thomas
M. Herzog
|
|
Executive Vice President and Chief
Financial Officer
(principal financial officer)
|
|
February 29, 2008
|
|
|
|
|
|
/s/ Scott
W. Fordham
Scott
W. Fordham
|
|
Senior Vice President and Chief
Accounting Officer
(principal accounting officer)
|
|
February 29, 2008
|
|
|
|
|
|
/s/ James
N. Bailey
James
N. Bailey
|
|
Director
|
|
February 29, 2008
|
|
|
|
|
|
/s/ Richard
S. Ellwood
Richard
S. Ellwood
|
|
Director
|
|
February 29, 2008
|
|
|
|
|
|
/s/ Thomas
L. Keltner
Thomas
L. Keltner
|
|
Director
|
|
February 29, 2008
|
|
|
|
|
|
/s/ J.
Landis Martin
J.
Landis Martin
|
|
Director
|
|
February 29, 2008
|
|
|
|
|
|
/s/ Robert
A. Miller
Robert
A. Miller
|
|
Director
|
|
February 29, 2008
|
|
|
|
|
|
/s/ Thomas
L. Rhodes
Thomas
L. Rhodes
|
|
Director
|
|
February 29, 2008
|
|
|
|
|
|
/s/ Michael
A. Stein
Michael
A. Stein
|
|
Director
|
|
February 29, 2008
|
46
APARTMENT
INVESTMENT AND MANAGEMENT COMPANY
INDEX TO
FINANCIAL STATEMENTS
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Page
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Financial Statements:
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F-2
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F-3
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F-4
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F-5
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F-6
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F-8
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Financial Statement Schedule:
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F-49
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All other schedules are omitted because they are not applicable
or the required information is shown in the financial statements
or notes thereto.
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F-1
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Stockholders and Board of Directors Apartment Investment and
Management Company
We have audited the accompanying consolidated balance sheets of
Apartment Investment and Management Company (the
Company) as of December 31, 2007 and 2006, and
the related consolidated statements of income,
stockholders equity and cash flows for each of the three
years in the period ended December 31, 2007. Our audits
also included the financial statement schedule listed in the
accompanying Index to Financial Statements. These financial
statements and schedule are the responsibility of the
Companys management. Our responsibility is to express an
opinion on these financial statements and schedule based on our
audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the consolidated
financial position of Apartment Investment and Management
Company at December 31, 2007 and 2006, and the consolidated
results of its operations and its cash flows for each of the
three years in the period ended December 31, 2007, in
conformity with United States generally accepted accounting
principles. Also, in our opinion, the related financial
statement schedule, when considered in relation to the basic
financial statements taken as a whole, presents fairly, in all
material respects the information set forth therein.
As discussed in Note 2 to the consolidated financial
statements, in 2006 the Company adopted the provisions of
Emerging Issues Task Force Issue
04-5,
Determining Whether a General Partner, or the General
Partners as a Group, Controls a Limited Partnership or Similar
Entity When the Limited Partners Have Certain Rights.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States),
Apartment Investment and Management Companys internal
control over financial reporting as of December 31, 2007,
based on criteria established in Internal Control
Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission and our report dated
February 29, 2008 expressed an unqualified opinion thereon.
Denver, Colorado
February 29, 2008
F-2
APARTMENT
INVESTMENT AND MANAGEMENT COMPANY
CONSOLIDATED
BALANCE SHEETS
As of December 31, 2007 and 2006
(In thousands, except share data)
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2007
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2006
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ASSETS
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Real estate:
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Buildings and improvements
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$
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9,724,669
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$
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9,105,284
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Land
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2,659,265
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2,355,497
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Total real estate
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12,383,934
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11,460,781
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Less accumulated depreciation
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(3,035,242
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)
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(2,702,092
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)
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Net real estate
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9,348,692
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8,758,689
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Cash and cash equivalents
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210,461
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229,824
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Restricted cash
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318,959
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346,029
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Accounts receivable, net
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71,463
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87,166
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Accounts receivable from affiliates, net
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34,958
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19,370
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Deferred financing costs
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79,923
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70,418
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Notes receivable from unconsolidated real estate partnerships,
net
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35,186
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40,641
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Notes receivable from non-affiliates, net
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143,054
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139,352
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Investment in unconsolidated real estate partnerships
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117,217
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39,000
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Other assets
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207,857
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202,759
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Deferred income tax assets, net
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14,426
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Assets held for sale
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24,336
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356,527
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Total assets
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$
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10,606,532
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$
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10,289,775
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LIABILITIES AND STOCKHOLDERS EQUITY
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Property tax-exempt bond financing
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$
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941,555
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$
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926,952
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Property loans payable
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6,040,170
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5,098,916
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Term loans
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475,000
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400,000
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Credit facility
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140,000
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Other borrowings
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75,057
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67,660
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Total indebtedness
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7,531,782
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6,633,528
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Accounts payable
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56,792
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54,972
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Accrued liabilities and other
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449,485
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409,990
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Deferred income
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202,392
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142,260
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Security deposits
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49,469
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42,401
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Deferred income tax liabilities, net
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4,379
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Liabilities related to assets held for sale
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11,867
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264,757
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Total liabilities
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8,301,787
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7,552,287
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Minority interest in consolidated real estate partnerships
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441,778
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212,149
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Minority interest in Aimco Operating Partnership
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113,263
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185,447
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Commitments and contingencies (Note 8)
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Stockholders equity:
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Preferred Stock, perpetual
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723,500
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723,500
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Preferred Stock, convertible
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100,000
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Class A Common Stock, $.01 par value,
426,157,736 shares authorized, 96,130,586 and
101,614,954 shares issued and outstanding, at
December 31, 2007 and 2006, respectively
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961
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1,016
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Additional paid-in capital
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3,049,417
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3,272,496
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Notes due on common stock purchases
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(5,441
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)
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(4,714
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Distributions in excess of earnings
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(2,018,733
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)
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(1,752,406
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)
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Total stockholders equity
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1,749,704
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2,339,892
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Total liabilities and stockholders equity
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$
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10,606,532
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$
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10,289,775
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See notes to consolidated financial statements.
F-3
APARTMENT
INVESTMENT AND MANAGEMENT COMPANY
CONSOLIDATED
STATEMENTS OF INCOME
For the Years Ended December 31, 2007, 2006 and 2005
(In thousands, except per share data)
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2007
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2006
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2005
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REVENUES:
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Rental and other property revenues
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$
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1,640,506
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$
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1,540,500
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$
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1,283,815
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Property management revenues, primarily from affiliates
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6,923
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12,312
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24,528
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Activity fees and asset management revenues
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73,755
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48,893
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37,349
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Total revenues
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1,721,184
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1,601,705
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1,345,692
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OPERATING EXPENSES:
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Property operating expenses
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768,457
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709,694
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599,208
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Property management expenses
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5,506
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5,111
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7,499
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Activity and asset management expenses
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23,102
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17,342
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19,316
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Depreciation and amortization
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487,822
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452,741
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372,526
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General and administrative expenses
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|
|
89,251
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|
|
90,149
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|
|
83,012
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Other expenses (income), net
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|
|
(212
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)
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|
|
7,403
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|
(3,011
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)
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Total operating expenses
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|
|
1,373,926
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|
|
|
1,282,440
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|
|
|
1,078,550
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|
|
|
|
|
|
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|
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Operating income
|
|
|
347,258
|
|
|
|
319,265
|
|
|
|
267,142
|
|
Interest income
|
|
|
42,539
|
|
|
|
34,043
|
|
|
|
31,489
|
|
Recovery of (provision for) losses on notes receivable, net
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|
|
(3,951
|
)
|
|
|
(2,785
|
)
|
|
|
1,365
|
|
Interest expense
|
|
|
(422,130
|
)
|
|
|
(391,465
|
)
|
|
|
(330,717
|
)
|
Deficit distributions to minority partners
|
|
|
(39,150
|
)
|
|
|
(20,802
|
)
|
|
|
(11,505
|
)
|
Equity in losses of unconsolidated real estate partnerships
|
|
|
(277
|
)
|
|
|
(2,070
|
)
|
|
|
(3,139
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)
|
Real estate impairment (losses) recoveries, net
|
|
|
(6,638
|
)
|
|
|
813
|
|
|
|
(6,120
|
)
|
Gain on dispositions of unconsolidated real estate and other
|
|
|
31,777
|
|
|
|
26,845
|
|
|
|
17,152
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before minority interests and discontinued operations
|
|
|
(50,572
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)
|
|
|
(36,156
|
)
|
|
|
(34,333
|
)
|
Minority interests:
|
|
|
|
|
|
|
|
|
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Minority interest in consolidated real estate partnerships
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|
|
(2,036
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)
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|
|
(12,338
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)
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|
|
4,820
|
|
Minority interest in Aimco Operating Partnership, preferred
|
|
|
(7,128
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)
|
|
|
(7,153
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)
|
|
|
(7,226
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)
|
Minority interest in Aimco Operating Partnership, common
|
|
|
11,682
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|
|
|
13,172
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|
|
12,644
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|
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|
Total minority interests
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|
|
2,518
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|
|
(6,319
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)
|
|
|
10,238
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|
|
|
|
|
|
|
|
|
|
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|
|
Loss from continuing operations
|
|
|
(48,054
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)
|
|
|
(42,475
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)
|
|
|
(24,095
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)
|
Income from discontinued operations, net
|
|
|
77,965
|
|
|
|
219,262
|
|
|
|
95,077
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
29,911
|
|
|
|
176,787
|
|
|
|
70,982
|
|
Net income attributable to preferred stockholders
|
|
|
66,016
|
|
|
|
81,132
|
|
|
|
87,948
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
Net income (loss) attributable to common stockholders
|
|
$
|
(36,105
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)
|
|
$
|
95,655
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|
|
$
|
(16,966
|
)
|
|
|
|
|
|
|
|
|
|
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|
|
|
Earnings (loss) per common share basic:
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations (net of preferred dividends)
|
|
$
|
(1.14
|
)
|
|
$
|
(1.23
|
)
|
|
$
|
(1.14
|
)
|
Income from discontinued operations
|
|
|
0.78
|
|
|
|
2.18
|
|
|
|
0.97
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to common stockholders
|
|
$
|
(0.36
|
)
|
|
$
|
0.95
|
|
|
$
|
(0.17
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) per common share diluted:
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations (net of preferred dividends)
|
|
$
|
(1.14
|
)
|
|
$
|
(1.23
|
)
|
|
$
|
(1.14
|
)
|
Income from discontinued operations
|
|
|
0.78
|
|
|
|
2.18
|
|
|
|
0.97
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to common stockholders
|
|
$
|
(0.36
|
)
|
|
$
|
0.95
|
|
|
$
|
(0.17
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding
|
|
|
99,629
|
|
|
|
100,280
|
|
|
|
98,397
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares and equivalents outstanding
|
|
|
99,629
|
|
|
|
100,280
|
|
|
|
98,397
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends declared per common share
|
|
$
|
4.11
|
|
|
$
|
2.29
|
|
|
$
|
2.86
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See notes to consolidated financial statements.
F-4
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Class A
|
|
|
|
|
|
Due on
|
|
|
|
|
|
|
|
|
|
Preferred Stock
|
|
|
Common Stock
|
|
|
Additional
|
|
|
Common
|
|
|
Distributions
|
|
|
|
|
|
|
Shares
|
|
|
|
|
|
Shares
|
|
|
|
|
|
Paid-in
|
|
|
Stock
|
|
|
in Excess of
|
|
|
|
|
|
|
Issued
|
|
|
Amount
|
|
|
Issued
|
|
|
Amount
|
|
|
Capital
|
|
|
Purchases
|
|
|
Earnings
|
|
|
Total
|
|
|
Balances at December 31, 2004 (before special
dividend)
|
|
|
39,575
|
|
|
$
|
1,041,500
|
|
|
|
94,854
|
|
|
$
|
949
|
|
|
$
|
3,050,333
|
|
|
$
|
(36,725
|
)
|
|
$
|
(1,047,897
|
)
|
|
$
|
3,008,160
|
|
Common Stock issued pursuant to special dividend (Note 1)
|
|
|
|
|
|
|
|
|
|
|
4,698
|
|
|
|
47
|
|
|
|
177,067
|
|
|
|
|
|
|
|
(177,114
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at December 31, 2004 (after special
dividend)
|
|
|
39,575
|
|
|
|
1,041,500
|
|
|
|
99,552
|
|
|
|
996
|
|
|
|
3,227,400
|
|
|
|
(36,725
|
)
|
|
|
(1,225,011
|
)
|
|
|
3,008,160
|
|
Redemption of Preferred Stock
|
|
|
(1,250
|
)
|
|
|
(31,250
|
)
|
|
|
|
|
|
|
|
|
|
|
1,123
|
|
|
|
|
|
|
|
(1,123
|
)
|
|
|
(31,250
|
)
|
Redemption of Aimco Operating Partnership units for Common Stock
|
|
|
|
|
|
|
|
|
|
|
447
|
|
|
|
4
|
|
|
|
16,890
|
|
|
|
|
|
|
|
|
|
|
|
16,894
|
|
Preferred Stock issuance costs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(409
|
)
|
|
|
|
|
|
|
|
|
|
|
(409
|
)
|
Repayment of notes receivable from officers
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,255
|
|
|
|
|
|
|
|
12,255
|
|
Officer and employee stock awards and purchases, net
|
|
|
|
|
|
|
|
|
|
|
398
|
|
|
|
4
|
|
|
|
2,219
|
|
|
|
(1,441
|
)
|
|
|
|
|
|
|
782
|
|
Stock options exercised
|
|
|
|
|
|
|
|
|
|
|
68
|
|
|
|
|
|
|
|
2,315
|
|
|
|
|
|
|
|
|
|
|
|
2,315
|
|
Purchase of Oxford warrants
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,050
|
)
|
|
|
|
|
|
|
|
|
|
|
(1,050
|
)
|
Common Stock issued as consideration for acquisition of interest
in real estate
|
|
|
|
|
|
|
|
|
|
|
8
|
|
|
|
|
|
|
|
310
|
|
|
|
|
|
|
|
|
|
|
|
310
|
|
Amortization of stock option and restricted stock compensation
cost
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,975
|
|
|
|
|
|
|
|
|
|
|
|
9,975
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
70,982
|
|
|
|
70,982
|
|
Common Stock dividends
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(284,254
|
)
|
|
|
(284,254
|
)
|
Preferred Stock dividends
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(88,607
|
)
|
|
|
(88,607
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at December 31, 2005
|
|
|
38,325
|
|
|
|
1,010,250
|
|
|
|
100,473
|
|
|
|
1,004
|
|
|
|
3,258,773
|
|
|
|
(25,911
|
)
|
|
|
(1,528,013
|
)
|
|
|
2,716,103
|
|
Cumulative effect of change in accounting principle
adoption of EITF
04-5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(75,012
|
)
|
|
|
(75,012
|
)
|
Issuance of 200 shares of CRA Preferred Stock
|
|
|
|
|
|
|
100,000
|
|
|
|
|
|
|
|
|
|
|
|
(2,509
|
)
|
|
|
|
|
|
|
|
|
|
|
97,491
|
|
Redemption of Preferred Stock
|
|
|
(11,470
|
)
|
|
|
(286,750
|
)
|
|
|
|
|
|
|
|
|
|
|
6,848
|
|
|
|
|
|
|
|
(6,848
|
)
|
|
|
(286,750
|
)
|
Redemption of Aimco Operating Partnership units for Common Stock
|
|
|
|
|
|
|
|
|
|
|
104
|
|
|
|
1
|
|
|
|
4,560
|
|
|
|
|
|
|
|
|
|
|
|
4,561
|
|
Repurchases of Common Stock
|
|
|
|
|
|
|
|
|
|
|
(2,415
|
)
|
|
|
(24
|
)
|
|
|
(120,235
|
)
|
|
|
|
|
|
|
|
|
|
|
(120,259
|
)
|
Repayment of notes receivable from officers
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21,844
|
|
|
|
|
|
|
|
21,844
|
|
Officer and employee stock awards and purchases, net
|
|
|
|
|
|
|
|
|
|
|
479
|
|
|
|
5
|
|
|
|
678
|
|
|
|
(647
|
)
|
|
|
|
|
|
|
36
|
|
Stock options exercised
|
|
|
|
|
|
|
|
|
|
|
2,966
|
|
|
|
30
|
|
|
|
107,574
|
|
|
|
|
|
|
|
|
|
|
|
107,604
|
|
Excess income tax benefits related to stock-based compensation
and other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
454
|
|
|
|
|
|
|
|
|
|
|
|
454
|
|
Common Stock issued as consideration for acquisition of interest
in real estate
|
|
|
|
|
|
|
|
|
|
|
8
|
|
|
|
|
|
|
|
479
|
|
|
|
|
|
|
|
|
|
|
|
479
|
|
Amortization of stock option and restricted stock compensation
cost
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15,874
|
|
|
|
|
|
|
|
|
|
|
|
15,874
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
176,787
|
|
|
|
176,787
|
|
Common Stock dividends
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(232,185
|
)
|
|
|
(232,185
|
)
|
Preferred Stock dividends
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(87,135
|
)
|
|
|
(87,135
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at December 31, 2006
|
|
|
26,855
|
|
|
|
823,500
|
|
|
|
101,615
|
|
|
|
1,016
|
|
|
|
3,272,496
|
|
|
|
(4,714
|
)
|
|
|
(1,752,406
|
)
|
|
|
2,339,892
|
|
Redemption of Preferred Stock
|
|
|
(1,905
|
)
|
|
|
(100,000
|
)
|
|
|
|
|
|
|
|
|
|
|
635
|
|
|
|
|
|
|
|
(2,635
|
)
|
|
|
(102,000
|
)
|
Cumulative effect of change in accounting principle
adoption of FIN 48
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(764
|
)
|
|
|
(764
|
)
|
Redemption of Aimco Operating Partnership units for Common Stock
|
|
|
|
|
|
|
|
|
|
|
494
|
|
|
|
5
|
|
|
|
27,848
|
|
|
|
|
|
|
|
|
|
|
|
27,853
|
|
Repayment of notes receivable from officers
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,659
|
|
|
|
|
|
|
|
1,659
|
|
Officer and employee stock awards and purchases, net
|
|
|
|
|
|
|
|
|
|
|
330
|
|
|
|
3
|
|
|
|
2,555
|
|
|
|
(2,386
|
)
|
|
|
|
|
|
|
172
|
|
Stock options exercised
|
|
|
|
|
|
|
|
|
|
|
1,473
|
|
|
|
15
|
|
|
|
53,704
|
|
|
|
|
|
|
|
|
|
|
|
53,719
|
|
Repurchases of Common Stock
|
|
|
|
|
|
|
|
|
|
|
(7,781
|
)
|
|
|
(78
|
)
|
|
|
(325,744
|
)
|
|
|
|
|
|
|
|
|
|
|
(325,822
|
)
|
Amortization of stock option and restricted stock compensation
cost
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19,224
|
|
|
|
|
|
|
|
|
|
|
|
19,224
|
|
Reversal of excess income tax benefits related to stock-based
compensation and other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,301
|
)
|
|
|
|
|
|
|
|
|
|
|
(1,301
|
)
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
29,911
|
|
|
|
29,911
|
|
Common Stock dividends
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(228,022
|
)
|
|
|
(228,022
|
)
|
Preferred Stock dividends
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(64,817
|
)
|
|
|
(64,817
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at December 31, 2007
|
|
|
24,950
|
|
|
$
|
723,500
|
|
|
|
96,131
|
|
|
$
|
961
|
|
|
$
|
3,049,417
|
|
|
$
|
(5,441
|
)
|
|
$
|
(2,018,733
|
)
|
|
$
|
1,749,704
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See notes to consolidated financial statements.
F-5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
CASH FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
29,911
|
|
|
$
|
176,787
|
|
|
$
|
70,982
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustments to reconcile net income to net cash provided by
operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
487,822
|
|
|
|
452,741
|
|
|
|
372,526
|
|
Deficit distributions to minority partners
|
|
|
39,150
|
|
|
|
20,802
|
|
|
|
11,505
|
|
Equity in losses of unconsolidated real estate partnerships
|
|
|
277
|
|
|
|
2,070
|
|
|
|
3,139
|
|
Real estate impairment losses (recoveries), net
|
|
|
6,638
|
|
|
|
(813
|
)
|
|
|
6,120
|
|
Gain on dispositions of unconsolidated real estate and other
|
|
|
(31,777
|
)
|
|
|
(26,845
|
)
|
|
|
(17,152
|
)
|
Deferred income tax provision (benefit)
|
|
|
(19,649
|
)
|
|
|
14,895
|
|
|
|
(19,146
|
)
|
Minority interest in consolidated real estate partnerships
|
|
|
2,036
|
|
|
|
12,338
|
|
|
|
(4,820
|
)
|
Minority interest in Aimco Operating Partnership
|
|
|
(4,554
|
)
|
|
|
(6,019
|
)
|
|
|
(5,418
|
)
|
Stock-based compensation expense
|
|
|
14,921
|
|
|
|
12,314
|
|
|
|
8,558
|
|
Amortization of deferred loan costs and other
|
|
|
14,066
|
|
|
|
18,471
|
|
|
|
1,700
|
|
Distributions of earnings to minority interest in consolidated
real estate partnerships
|
|
|
(17,406
|
)
|
|
|
(13,369
|
)
|
|
|
(7,979
|
)
|
Discontinued operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
12,518
|
|
|
|
46,036
|
|
|
|
77,972
|
|
Gain on dispositions of real estate, net of minority
partners interest
|
|
|
(65,378
|
)
|
|
|
(259,855
|
)
|
|
|
(104,807
|
)
|
Other adjustments to income from discontinued operations
|
|
|
(15,667
|
)
|
|
|
3,641
|
|
|
|
(2,356
|
)
|
Changes in operating assets and operating liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
7,453
|
|
|
|
(3,178
|
)
|
|
|
11,450
|
|
Other assets
|
|
|
(9,751
|
)
|
|
|
45,332
|
|
|
|
17,542
|
|
Accounts payable, accrued liabilities and other
|
|
|
14,926
|
|
|
|
23,562
|
|
|
|
(72,246
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total adjustments
|
|
|
435,625
|
|
|
|
342,123
|
|
|
|
276,588
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
465,536
|
|
|
|
518,910
|
|
|
|
347,570
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of real estate
|
|
|
(201,434
|
)
|
|
|
(153,426
|
)
|
|
|
(243,996
|
)
|
Capital expenditures
|
|
|
(689,719
|
)
|
|
|
(512,564
|
)
|
|
|
(443,882
|
)
|
Proceeds from dispositions of real estate
|
|
|
431,863
|
|
|
|
958,604
|
|
|
|
718,434
|
|
Change in funds held in escrow from tax-free exchanges
|
|
|
25,863
|
|
|
|
(19,021
|
)
|
|
|
(4,571
|
)
|
Cash from newly consolidated properties
|
|
|
7,549
|
|
|
|
23,269
|
|
|
|
4,186
|
|
Proceeds from sale of interests in real estate partnerships
|
|
|
194,329
|
|
|
|
45,662
|
|
|
|
57,706
|
|
Purchases of partnership interests and other assets
|
|
|
(86,204
|
)
|
|
|
(37,570
|
)
|
|
|
(125,777
|
)
|
Originations of notes receivable
|
|
|
(10,812
|
)
|
|
|
(94,640
|
)
|
|
|
(38,336
|
)
|
Proceeds from repayment of notes receivable
|
|
|
14,370
|
|
|
|
9,604
|
|
|
|
28,556
|
|
Other investing activities
|
|
|
42,596
|
|
|
|
13,122
|
|
|
|
(2,281
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by investing activities
|
|
|
(271,599
|
)
|
|
|
233,040
|
|
|
|
(49,961
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from property loans
|
|
|
1,552,048
|
|
|
|
1,185,670
|
|
|
|
721,414
|
|
Principal repayments on property loans
|
|
|
(850,484
|
)
|
|
|
(1,004,142
|
)
|
|
|
(735,816
|
)
|
Proceeds from tax-exempt bond financing
|
|
|
82,350
|
|
|
|
75,568
|
|
|
|
|
|
Principal repayments on tax-exempt bond financing
|
|
|
(70,029
|
)
|
|
|
(229,287
|
)
|
|
|
(78,648
|
)
|
Borrowings under term loans
|
|
|
75,000
|
|
|
|
|
|
|
|
100,000
|
|
Net (repayments) borrowings on revolving credit facility
|
|
|
(140,000
|
)
|
|
|
(77,000
|
)
|
|
|
148,300
|
|
Payments on other borrowings
|
|
|
(8,468
|
)
|
|
|
(22,838
|
)
|
|
|
|
|
Redemption of mandatorily redeemable preferred securities
|
|
|
|
|
|
|
|
|
|
|
(15,019
|
)
|
Proceeds from issuance of preferred stock, net
|
|
|
|
|
|
|
97,491
|
|
|
|
|
|
Redemptions of preferred stock
|
|
|
(102,000
|
)
|
|
|
(286,750
|
)
|
|
|
(31,250
|
)
|
Repurchase of Class A Common Stock
|
|
|
(307,382
|
)
|
|
|
(109,937
|
)
|
|
|
|
|
Proceeds from Class A Common Stock option exercises
|
|
|
53,719
|
|
|
|
107,603
|
|
|
|
2,315
|
|
Principal repayments received on notes due on Class A
Common Stock purchases
|
|
|
1,659
|
|
|
|
21,844
|
|
|
|
12,255
|
|
Payment of Class A Common Stock dividends
|
|
|
(230,806
|
)
|
|
|
(231,697
|
)
|
|
|
(226,815
|
)
|
Payment of preferred stock dividends
|
|
|
(67,100
|
)
|
|
|
(74,700
|
)
|
|
|
(86,582
|
)
|
Contributions from minority interest
|
|
|
1,370
|
|
|
|
458
|
|
|
|
34,990
|
|
Payment of distributions to minority interest
|
|
|
(180,684
|
)
|
|
|
(117,216
|
)
|
|
|
(70,760
|
)
|
Other financing activities
|
|
|
(22,493
|
)
|
|
|
(18,923
|
)
|
|
|
(15,606
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in financing activities
|
|
|
(213,300
|
)
|
|
|
(683,856
|
)
|
|
|
(241,222
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS
|
|
|
(19,363
|
)
|
|
|
68,094
|
|
|
|
56,387
|
|
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR
|
|
|
229,824
|
|
|
|
161,730
|
|
|
|
105,343
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH AND CASH EQUIVALENTS AT END OF YEAR
|
|
$
|
210,461
|
|
|
$
|
229,824
|
|
|
$
|
161,730
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See notes to consolidated financial statements.
F-6
APARTMENT
INVESTMENT AND MANAGEMENT COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 2007, 2006 and 2005
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
SUPPLEMENTAL CASH FLOW INFORMATION:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest paid
|
|
$
|
452,288
|
|
|
$
|
438,946
|
|
|
$
|
399,511
|
|
Cash paid for income taxes
|
|
|
2,994
|
|
|
|
9,807
|
|
|
|
4,785
|
|
Non-cash transactions associated with the acquisition of real
estate and interests in unconsolidated real estate partnerships:
|
|
|
|
|
|
|
|
|
|
|
|
|
Secured debt assumed in connection with purchase of real estate
|
|
|
16,000
|
|
|
|
47,112
|
|
|
|
38,740
|
|
Issuance of OP Units for interests in unconsolidated real estate
partnerships and acquisitions of real estate
|
|
|
2,998
|
|
|
|
13
|
|
|
|
125
|
|
Non-cash transactions associated with the disposition of real
estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
Secured debt assumed in connection with the disposition of real
estate
|
|
|
27,929
|
|
|
|
|
|
|
|
|
|
Non-cash transactions associated with consolidation of real
estate partnerships:
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate, net
|
|
|
56,877
|
|
|
|
675,621
|
|
|
|
201,492
|
|
Investments in and notes receivable primarily from affiliated
entities
|
|
|
84,545
|
|
|
|
(219,691
|
)
|
|
|
(72,341
|
)
|
Restricted cash and other assets
|
|
|
8,545
|
|
|
|
94,380
|
|
|
|
16,942
|
|
Secured debt
|
|
|
41,296
|
|
|
|
503,342
|
|
|
|
112,521
|
|
Accounts payable, accrued and other liabilities
|
|
|
48,602
|
|
|
|
41,580
|
|
|
|
17,326
|
|
Minority interest in consolidated real estate partnerships
|
|
|
67,618
|
|
|
|
57,157
|
|
|
|
6,834
|
|
Other non-cash transactions:
|
|
|
|
|
|
|
|
|
|
|
|
|
Redemption of common OP Units for Class A Common Stock
|
|
|
27,810
|
|
|
|
4,362
|
|
|
|
16,853
|
|
Conversion of preferred OP Units for Class A Common Stock
|
|
|
43
|
|
|
|
199
|
|
|
|
41
|
|
Origination of notes receivable from officers for Class A
Common Stock purchases, net of cancellations
|
|
|
2,386
|
|
|
|
647
|
|
|
|
1,441
|
|
Tenders payable for purchase of limited partner interests
|
|
|
|
|
|
|
|
|
|
|
950
|
|
See notes to consolidated financial statements.
F-7
APARTMENT
INVESTMENT AND MANAGEMENT COMPANY
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
December 31,
2007
Apartment Investment and Management Company, or Aimco, is a
Maryland corporation incorporated on January 10, 1994. We
are a self-administered and self-managed real estate investment
trust, or REIT, engaged in the acquisition, ownership,
management and redevelopment of apartment properties. As of
December 31, 2007, we owned or managed a real estate
portfolio of 1,169 apartment properties containing 203,040
apartment units located in 46 states, the District of
Columbia and Puerto Rico.
As of December 31, 2007, we:
|
|
|
|
|
owned an equity interest in and consolidated 153,758 units
in 657 properties (which we refer to as
consolidated), of which 152,475 units were also
managed by us;
|
|
|
|
owned an equity interest in and did not consolidate
10,878 units in 94 properties (which we refer to as
unconsolidated), of which 5,009 units were also
managed by us; and
|
|
|
|
provided services for or managed 38,404 units in 418
properties, primarily pursuant to long-term agreements
(including 35,176 units in 382 properties for which we
provide asset management services only, and not also property
management services). In certain cases we may indirectly own
generally less than one percent of the operations of such
properties through a partnership syndication or other fund.
|
Through our wholly-owned subsidiaries, AIMCO-GP, Inc. and
AIMCO-LP, Inc., we own a majority of the ownership interests in
AIMCO Properties, L.P., which we refer to as the Aimco Operating
Partnership. As of December 31, 2007, we held an interest
of approximately 91% in the common partnership units and
equivalents of the Aimco Operating Partnership. We conduct
substantially all of our business and own substantially all of
our assets through the Aimco Operating Partnership. Interests in
the Aimco Operating Partnership that are held by limited
partners other than Aimco are referred to as
OP Units. OP Units include common
OP Units, partnership preferred units, or preferred
OP Units, and high performance partnership units, or High
Performance Units. The Aimco Operating Partnerships income
is allocated to holders of common OP Units based on the
weighted average number of common OP Units outstanding
during the period. The Aimco Operating Partnership records the
issuance of common OP Units and the assets acquired in
purchase transactions based on the market price of Aimco
Class A Common Stock (which we refer to as Common Stock) at
the date of closing of the transaction. The holders of the
common OP Units receive distributions, prorated from the
date of issuance, in an amount equivalent to the dividends paid
to holders of Common Stock. Holders of common OP Units may
redeem such units for cash or, at the Aimco Operating
Partnerships option, Common Stock. During 2007, 2006 and
2005, the weighted average ownership interest in the Aimco
Operating Partnership held by the common OP Unit holders
was approximately 9%, 10% and 10%, respectively. Preferred
OP Units entitle the holders thereof to a preference with
respect to distributions or upon liquidation. At
December 31, 2007, after elimination of certain shares of
Common Stock held by consolidated subsidiaries,
96,130,586 shares of our Common Stock were outstanding
(after giving effect to the special dividend discussed below)
and the Aimco Operating Partnership had 9,682,619 common
OP Units and equivalents outstanding for a combined total
of 105,813,205 shares of Common Stock and OP Units
outstanding (excluding preferred OP Units).
Except as the context otherwise requires, we,
our, us and the Company
refer to Aimco, the Aimco Operating Partnership and their
consolidated entities, collectively.
On December 21, 2007, our Board of Directors declared a
special dividend of $2.51 per share payable on January 30,
2008, to holders of record of our Common Stock on
December 31, 2007. Stockholders had the option to elect to
receive payment of the special dividend in cash, shares or a
combination of cash and shares, except that the aggregate amount
of cash payable to all stockholders in the special dividend was
limited to $55.0 million plus cash paid in lieu of
fractional shares. The special dividend, totaling
$232.9 million, was paid on 92,795,891 shares issued
and outstanding on the record date, which included
416,140 shares held by certain of our consolidated
subsidiaries.
F-8
Approximately $177.9 million of the special dividend was
paid through the issuance of 4,594,074 shares of Common
Stock (including 20,339 shares issued to consolidated
subsidiaries holding our shares), which was determined based on
the average closing price of our Common Stock on January
23-24, 2008,
or $38.71 per share.
After elimination of the effect of shares held by consolidated
subsidiaries, the special dividend totaled $231.9 million.
Approximately $177.1 million of the special dividend was
paid through the issuance of 4,573,735 shares of Common
Stock (excluding 20,339 shares issued to our consolidated
subsidiaries) to holders of 92,379,751 shares of our Common
Stock on the record date (excluding 416,140 shares held by
certain of our consolidated subsidiaries), representing an
increase of approximately 4.95% to the then outstanding shares.
The effect of the issuance of additional shares of Common Stock
pursuant to the special dividend has been retroactively
reflected in each of the historical periods presented as if
those shares were issued and outstanding at the beginning of the
earliest period presented; accordingly all activity including
share issuances, repurchases and forfeitures have been adjusted
to reflect the 4.95% increase in the number of shares, except in
limited instances where noted.
During the year ended December 31, 2007, we purchased on
the open market 7,780,870 million shares of Common Stock at
an average price per share of approximately $41.86. Included in
accrued liabilities and other at December 31, 2007 and 2006
are liabilities of $28.7 million and $10.3 million for
share purchases that settled subsequent to those dates.
The following table summarizes activity in our Common Stock
during the year ended December 31, 2007:
|
|
|
|
|
Common shares outstanding, December 31, 2006
|
|
|
101,614,954
|
|
Purchases of Common Stock
|
|
|
(7,780,870
|
)
|
Stock options exercised
|
|
|
1,472,503
|
|
Common OP Units redeemed for Common Stock
|
|
|
494,185
|
|
Restricted stock grants, net of forfeitures
|
|
|
272,417
|
|
Officer stock loans, net of forfeitures, and other activity
|
|
|
57,397
|
|
|
|
|
|
|
Common shares outstanding, December 31, 2007
|
|
|
96,130,586
|
|
|
|
|
|
|
The following table reconciles our shares issued and outstanding
as of the record date to our shares outstanding at
December 31, 2007 per the consolidated financial statements:
|
|
|
|
|
Common shares issued and outstanding as of the record date
|
|
|
92,795,891
|
|
Shares issued January 30, 2008 pursuant to the special
dividend
|
|
|
4,594,074
|
|
Elimination of shares owned by consolidated subsidiaries (prior
to special dividend)
|
|
|
(416,140
|
)
|
Elimination of shares issued to consolidated subsidiaries
|
|
|
(20,339
|
)
|
pursuant to the special dividend
|
|
|
|
|
Shares repurchased in December 2007 settled in January 2008
|
|
|
(822,900
|
)
|
|
|
|
|
|
Common shares outstanding at December 31, 2007 per
consolidated financial statements
|
|
|
96,130,586
|
|
|
|
|
|
|
|
|
Note 2
|
Basis of
Presentation and Summary of Significant Accounting
Policies
|
Principles
of Consolidation
The accompanying consolidated financial statements include the
accounts of Aimco, the Aimco Operating Partnership, and their
consolidated entities. As used herein, and except where the
context otherwise requires, partnership refers to a
limited partnership or a limited liability company and
partner refers to a limited partner in a limited
partnership or a member in a limited liability company.
Interests held in consolidated real estate partnerships by
limited partners other than us are reflected as minority
interest in consolidated real estate partnerships. All
significant intercompany balances and transactions have been
eliminated in consolidation. The assets of consolidated real
estate partnerships owned or controlled by Aimco or the Aimco
Operating Partnership generally are not available to pay
creditors of Aimco or the Aimco Operating Partnership.
F-9
As discussed under Variable Interest Entities below, we
consolidate real estate partnerships and other entities that are
variable interest entities when 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. As discussed under Adoption of
EITF 04-5
below, we have applied new criteria after June 29,
2005, in determining whether we control and consolidate certain
partnerships.
Variable
Interest Entities
FASB Interpretation No. 46 (revised December 2003),
Consolidation of Variable Interest Entities, or
FIN 46, addresses the consolidation by business enterprises
of 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.
FIN 46 requires a VIE to be consolidated in the financial
statements of the entity that is determined to be the primary
beneficiary of the VIE. The primary beneficiary generally is the
entity that will receive a majority of the VIEs expected
losses, receive a majority of the VIEs expected residual
returns, or both.
As of December 31, 2007, we were the primary beneficiary
of, and therefore consolidated, 73 VIEs, which owned 59
apartment properties with 8,304 units. Real estate with a
carrying value of $568.8 million collateralized the debt of
those VIEs. The creditors of the consolidated VIEs do not have
recourse to our general credit. As of December 31, 2007, we
also held variable interests in 129 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 187 apartment properties with
11,765 units. We are involved with those VIEs as an equity
holder, lender, management agent, or through other contractual
relationships. At December 31, 2007, our maximum exposure
to loss as a result of our involvement with unconsolidated VIEs
is limited to our recorded investments in and receivables from
those VIEs totaling $117.2 million and our contractual
obligation to advance funds to certain VIEs totaling
$6.2 million. We may be subject to additional losses to the
extent of any financial support that we voluntarily provide in
the future.
Adoption
of EITF
04-5
In June 2005, the Financial Accounting Standards Board ratified
Emerging Issues Task Force Issue
04-5,
Determining Whether a General Partner, or the General
Partners as a Group, Controls a Limited Partnership or Similar
Entity When the Limited Partners Have Certain Rights, or
EITF 04-5.
EITF 04-5
provides an accounting model to be used by a general partner, or
group of general partners, to determine whether the general
partner(s) controls a limited partnership or similar entity in
light of substantive kick-out rights and substantive
participating rights held by the limited partners, and provides
additional guidance on what constitutes those rights.
EITF 04-5
was effective after June 29, 2005 for general partners of
(a) all newly formed limited partnerships and
(b) existing limited partnerships for which the partnership
agreements have been modified. We consolidated four partnerships
in the fourth quarter of 2005 based on
EITF 04-5
requirements. The consolidation of those partnerships had an
immaterial effect on our consolidated financial statements.
EITF 04-5
was effective on January 1, 2006, for general partners of
all limited partnerships and similar entities. We applied
EITF 04-5
as of January 1, 2006, using a transition method that does
not involve retrospective application to our financial
statements for prior periods.
We consolidated 156 previously unconsolidated partnerships as a
result of the application of
EITF 04-5
in 2006. Those partnerships own, or control other entities that
own, 149 apartment properties. Our direct and indirect interests
in the profits and losses of those partnerships range from less
than one percent to 50 percent, and average approximately
F-10
22 percent. The initial consolidation of those partnerships
resulted in increases (decreases), net of intercompany
eliminations, in amounts reported in our consolidated balance
sheet as of January 1, 2006, as follows (in thousands):
|
|
|
|
|
|
|
Increase
|
|
|
|
(Decrease)
|
|
|
Real estate, net
|
|
$
|
664,286
|
|
Accounts and notes receivable from affiliates
|
|
|
(150,057
|
)
|
Investment in unconsolidated real estate partnerships
|
|
|
(64,419
|
)
|
All other assets
|
|
|
122,545
|
|
|
|
|
|
|
Total assets
|
|
$
|
572,355
|
|
|
|
|
|
|
Total indebtedness
|
|
$
|
521,711
|
|
All other liabilities
|
|
|
81,950
|
|
Minority interest in consolidated real estate partnerships
|
|
|
53,258
|
|
Minority interest in Aimco Operating Partnership
|
|
|
(9,552
|
)
|
Stockholders equity
|
|
|
(75,012
|
)
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
572,355
|
|
|
|
|
|
|
Our income from continuing operations for the year ended
December 31, 2006, includes the following amounts for the
partnerships consolidated as of January 1, 2006, in
accordance with
EITF 04-5
(in thousands):
|
|
|
|
|
Revenues
|
|
$
|
137,475
|
|
Operating expenses
|
|
|
98,227
|
|
|
|
|
|
|
Operating income
|
|
|
39,248
|
|
Interest expense
|
|
|
(28,410
|
)
|
Interest income
|
|
|
3,709
|
|
|
|
|
|
|
Income (loss) before minority interests
|
|
$
|
14,547
|
|
|
|
|
|
|
In prior periods, we used the equity method to account for our
investments in the partnerships that we consolidated in 2006 in
accordance with
EITF 04-5.
Under the equity method, we recognized partnership income or
losses based generally on our percentage interest in the
partnership. 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, when a
partnership has a deficit in equity, GAAP may require 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
EITF 04-5
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 applied
EITF 04-5
in those prior periods. In accordance with our transition method
for the adoption of
EITF 04-5,
we recorded a $75.0 million charge to retained earnings as
of January 1, 2006, for the cumulative amount of additional
losses that we would have recognized had we applied
EITF 04-5
in prior periods. Substantially all of those losses were
attributable to real estate depreciation expense. As a result of
applying
EITF 04-5
for the year ended December 31, 2006, our income from
continuing operations includes partnership losses in addition to
losses that would have resulted from continued application of
the equity method of $24.6 million.
Tax
Credit Arrangements
We sponsor certain partnerships that own and operate apartment
properties that qualify for tax credits under Section 42 of
the Internal Revenue Code and for the U.S. Department of
Housing and Urban Development, or HUD, subsidized rents under
HUDs Section 8 program. These partnerships acquire,
develop and operate qualifying affordable housing properties and
are structured to provide for the pass-through of tax credits
and deductions to their partners. The tax credits are generally
realized ratably over the first ten years of the tax credit
arrangement and are subject to the partnerships compliance
with applicable laws and regulations for a period of
15 years. Typically, we are the general partner with a
legal ownership interest of one percent or less. We market
limited partner interests of at least 99 percent to
unaffiliated institutional investors (which we refer to as tax
credit investors or investors) and receive a syndication fee
from each investor upon such investors admission to the
partnership. At inception, each
F-11
investor agrees to fund capital contributions to the
partnerships. We agree to perform various services to the
partnerships in exchange for fees over the expected duration of
the tax credit service period. The related partnership
agreements generally require adjustment of each tax credit
investors required capital contributions if actual tax
benefits to such investor differ from projected amounts.
In connection with our adoption of FIN 46 as of
March 31, 2004, we determined that the partnerships in
these arrangements are variable interest entities and, where we
are general partner, we are the primary beneficiary that is
required to consolidate the partnerships. During the period
April 1, 2004, through June 30, 2006, we accounted for
these partnerships as consolidated subsidiaries with a
noncontrolling interest (minority interest) of at least
99 percent. Accordingly, we allocated to the minority
interest substantially all of the income or losses of the
partnerships, including the effect of fees that we charged to
the partnerships. In 2006, in consultation with our independent
registered public accounting firm, we determined that we were
required to revise our accounting treatment for tax credit
transactions to more fully comply with the requirements of
FIN 46. We also determined that our accounting treatment
did not fully reflect the economic substance of the arrangements
wherein we possess substantially all of the economic interests
in the partnerships. Based on the contractual arrangements that
obligate us to deliver tax benefits to the investors, and that
entitle us through fee arrangements to receive substantially all
available cash flow from the partnerships, we concluded that
these partnerships are most appropriately accounted for by us as
wholly owned subsidiaries. We also concluded that capital
contributions received by the partnerships from tax credit
investors represent, in substance, consideration that we receive
in exchange for our obligation to deliver tax credits and other
tax benefits to the investors. We have concluded that these
receipts are appropriately recognized as revenue in our
consolidated financial statements when our obligation to the
investors is relieved upon delivery of the expected tax benefits.
In summary, our revised accounting treatment recognizes the
income or loss generated by the underlying real estate based on
our economic interest in the partnerships. Proceeds received in
exchange for the transfer of the tax credits are recognized as
revenue proportionately as the tax benefits are delivered to the
tax credit investors and our obligation is relieved. Syndication
fees and related costs are recognized in income upon completion
of the syndication effort. We recognize syndication fees in
amounts determined based on a market rate analysis of fees for
comparable services, which generally fell within a range of 10%
to 15% of investor contributions during the periods presented.
Other direct and incremental costs incurred in structuring these
arrangements are deferred and amortized over the expected
duration of the arrangement in proportion to the recognition of
related income. Investor contributions in excess of recognized
revenue are reported as deferred income in our consolidated
balance sheets.
We have applied the revised accounting treatment described above
in our 2007 and 2006 financial statements. We recognized the
cumulative effect of retroactive application of this revised
accounting treatment in our operations for the year ended
December 31, 2006. Adjustments related to prior years had
the following effects on our net income for the year ended
December 31, 2006 (in thousands):
|
|
|
|
|
Revenues
|
|
$
|
(1,542
|
)
|
Operating expenses
|
|
|
3,054
|
|
Minority interest in consolidated real estate partnerships
|
|
|
(9,030
|
)
|
Minority interest in Aimco Operating Partnership
|
|
|
734
|
|
|
|
|
|
|
Net decrease in net income
|
|
$
|
(6,784
|
)
|
|
|
|
|
|
Under the revised accounting treatment described above, during
the years ended December 31, 2007 and 2006, we recognized
syndication fee income of $13.9 million and
$12.7 million, respectively, and revenue associated with
the delivery of tax benefits of $23.9 million and
$16.0 million, respectively. At December 31, 2007 and
2006, $149.2 million and $73.3 million, respectively,
of investor contributions in excess of the recognized revenue
were included in deferred income in our consolidated balance
sheets.
Acquisition
of Real Estate Assets and Related Depreciation and
Amortization
We capitalize the purchase price and incremental direct costs
associated with the acquisition of properties as the cost of the
assets acquired. In accordance with Statement of Financial
Accounting Standards No. 141, Business Combinations,
or SFAS 141, we allocate the cost of acquired properties to
tangible assets and identified intangible assets based on their
fair values. We determine the fair value of tangible assets,
such as land, building, furniture,
F-12
fixtures and equipment, on an as-if vacant basis,
generally using internal valuation techniques that consider
comparable market transactions, discounted cash flow techniques,
replacement costs and other available information. We determine
the fair value of identified intangible assets (or liabilities),
which typically relate to in-place leases, using internal
valuation techniques that consider the terms of the in-place
leases, current market data for comparable leases, and our
experience in leasing similar properties. The intangible assets
or liabilities related to in-place leases are comprised of:
|
|
|
|
1.
|
The value of the above- and below-market leases in-place. An
asset or liability is recognized based on the difference between
(a) the contractual amounts to be paid pursuant to the
in-place leases and (b) our estimate of fair market lease
rates for the corresponding in-place leases, measured over the
period, including estimated lease renewals for below-market
leases, that the leases are expected to remain in effect.
|
|
|
2.
|
The estimated unamortized portion of avoided leasing commissions
and other costs that ordinarily would be incurred to acquire the
in-place leases.
|
|
|
3.
|
The value associated with vacant units during the absorption
period (estimates of lost rental revenue during the expected
lease-up
periods based on current market demand and stabilized occupancy
levels).
|
The values of the above- and below-market leases are amortized
to rental revenue over the expected remaining terms of the
associated leases. Other intangible assets related to in-place
leases are amortized to operating expenses over the expected
remaining terms of the associated leases. Amortization is
adjusted, as necessary, to reflect any early lease terminations
that were not anticipated in determining amortization periods.
Depreciation for all tangible real estate assets is calculated
using the straight-line method over their estimated useful
lives. Acquired buildings and improvements are depreciated over
a composite life of 14 to 52 years, based on the age,
condition and other physical characteristics of the property. As
discussed under Impairment of Long Lived Assets below, we
may adjust depreciation of properties that are expected to be
disposed of or demolished prior to the end of their useful
lives. Furniture, fixtures and equipment associated with
acquired properties are depreciated over five years.
At December 31, 2007 and 2006, deferred income in our
consolidated balance sheets includes below-market lease values,
net of accumulated amortization, totaling $45.0 million and
$30.6 million, respectively. Additions to below-market
leases resulting from acquisitions during the years ended
December 31, 2007 totaled $18.9 million and there were
no such additions in the year ended December 31, 2006.
During the years ended December 31, 2007, 2006 and 2005, we
included amortization of below-market leases of
$4.6 million, $2.8 million and $2.8 million,
respectively, in rental and other property revenues in our
consolidated statements of income. At December 31, 2007,
the estimated aggregate amortization expense related to our
below-market leases for each of the five succeeding years was as
follows:
|
|
|
|
|
2008
|
|
$
|
5.2
|
|
2009
|
|
|
4.9
|
|
2010
|
|
|
4.6
|
|
2011
|
|
|
4.1
|
|
2012
|
|
|
3.7
|
|
Capital
Expenditures and Related Depreciation
We capitalize costs, including certain indirect costs, incurred
in connection with our capital expenditure activities, including
redevelopment and construction projects, other tangible property
improvements, and replacements of existing property components.
Included in these capitalized costs are payroll costs associated
with time spent by site employees in connection with the
planning, execution and control of all capital expenditure
activities at the property level. We characterize as
indirect costs an allocation of certain department
costs, including payroll, at the regional operating center and
corporate levels that clearly relate to capital expenditure
activities. We capitalize interest, property taxes and insurance
during periods in which redevelopment and construction projects
are in progress. Costs incurred in connection with capital
expenditure activities are capitalized where the costs of the
improvements or replacements exceed $250. We charge to expense
as incurred costs that do not relate to capital expenditure
activities, including ordinary repairs, maintenance, resident
turnover costs and general and administrative expenses.
F-13
We depreciate capitalized costs using the straight-line method
over the estimated useful life of the related component or
improvement, which is five, 15 or 30 years. Prior to
July 1, 2005, we recorded capitalized site payroll costs
and most capitalized indirect costs separately from other costs
of the related capital projects. We depreciated capitalized site
payroll costs over five years and capitalized indirect costs
associated with capital replacement and improvement projects
over five or 15 years. Capitalized indirect costs
associated with redevelopment projects, together with other
costs of the redevelopment projects, were depreciated over the
estimated useful lives of those projects, predominantly
30 years.
Effective July 1, 2005, we refined the estimated useful
lives for the capitalized site payroll and indirect costs that
were recorded separately from other costs of the related capital
projects. All capitalized site payroll and indirect costs
incurred after June 30, 2005 are allocated proportionately,
based on direct costs, among capital projects and depreciated
over the estimated useful lives of such projects. This change in
estimate is also being applied prospectively to the
June 30, 2005 carrying amounts, net of accumulated
depreciation, of previously incurred site payroll and indirect
costs. Those amounts, based on the periods in which the costs
were incurred, were allocated among capital projects that were
completed in the corresponding periods in proportion to the
original direct costs of such projects and are being depreciated
over the remaining useful lives of the projects. We anticipate
that these refinements will result in generally higher
depreciation expense in foreseeable future accounting periods.
For the year ended December 31, 2005, these changes in
estimated useful lives resulted in a decrease in net income of
approximately $4.6 million, and resulted in a decrease in
basic and diluted earnings per share of $0.05.
Certain homogeneous items that are purchased in bulk on a
recurring basis, such as carpeting and appliances, are
depreciated using group methods that reflect the average
estimated useful life of the items in each group. Except in the
case of property casualties, where the net book value of lost
property is written off in the determination of casualty gains
or losses, we generally do not recognize any loss in connection
with the replacement of an existing property component because
normal replacements are considered in determining the estimated
useful lives used in connection with our composite and group
depreciation methods.
For the years ended December 31, 2007, 2006 and 2005, for
continuing and discontinued operations, we capitalized
$30.8 million, $24.7 million and $18.1 million,
respectively, of interest costs, and $78.1 million,
$66.2 million and $53.3 million, respectively, of site
payroll and indirect costs, respectively.
Asset
Retirement Obligations
In March 2005, the FASB issued FASB Interpretation No. 47,
Accounting for Conditional Asset Retirement Obligations,
or FIN 47. FIN 47 clarifies the accounting for legal
obligations to perform asset retirement activity in which the
timing
and/or
method of settlement are conditional on future events.
FIN 47 requires the fair value of such conditional asset
retirement obligations to be recorded as incurred, if the fair
value of the liability can be reasonably estimated. We have
determined that FIN 47 applies to certain obligations that
we have based on laws that require property owners to remove or
remediate hazardous substances in certain circumstances. We
adopted the provisions of FIN 47 as of December 31,
2005 and determined that asset retirement obligations that are
required to be recognized under FIN 47 are immaterial to
our financial condition and results of operations. See
Note 8 for further discussion of asset retirement
obligations.
Impairment
of Long-Lived Assets
We apply the provisions of Statement of Financial Accounting
Standards No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets, or SFAS 144, to
determine whether our real estate and other long-lived assets
are impaired. Such 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
aggregate undiscounted future cash flows, we recognize an
impairment loss to the extent the carrying amount exceeds the
estimated fair value of the property. Based on periodic tests of
recoverability of long-lived assets, for the years ended
December 31, 2007 and 2005, we recorded net impairment
losses of $6.6 million and $6.1 million, respectively,
related to properties to be held and used. For the year ended
F-14
December 31, 2006, we recorded net recoveries of previously
recorded impairment losses of $0.8 million. The amounts
reported in continuing operations for real estate impairment
(losses) recoveries, net include impairment losses related to
consolidated properties to be held and used, as well as our
share of all impairment losses or recoveries related to
unconsolidated properties. We report impairment losses or
recoveries related to properties sold or classified as held for
sale in discontinued operations.
Our tests of recoverability address real estate assets that do
not currently meet all conditions to be classified as held for
sale, but are expected to be disposed of prior to the end of
their estimated useful lives. If an impairment loss is not
required to be recorded in accordance with SFAS 144, the
recognition of depreciation is adjusted prospectively, as
necessary, to reduce the carrying amount of the real estate to
its estimated disposition value over the remaining period that
the real estate is expected to be held and used. We also may
adjust depreciation prospectively to reduce to zero the carrying
amount of buildings that we plan to demolish in connection with
a redevelopment project. These depreciation adjustments, after
adjustments for minority interest in the Aimco Operating
Partnership, decreased net income by $33.8 million,
$31.2 million and $31.9 million, and resulted in
decreases in basic and diluted earnings per share of $0.34,
$0.31 and $0.32, for the years ended December 31, 2007,
2006 and 2005, respectively.
Cash
Equivalents
In accordance with GAAP, highly liquid investments with an
original maturity of three months or less are classified as cash
equivalents.
Restricted
Cash
Restricted cash includes capital replacement reserves, tax-free
exchange funds, completion repair reserves, bond sinking fund
amounts and tax and insurance escrow accounts held by lenders.
Accounts
Receivable and Allowance for Doubtful Accounts
Accounts receivable are generally comprised of amounts
receivable from residents, amounts receivable from
non-affiliated real estate partnerships for which we provide
property management and other services and other miscellaneous
receivables from non-affiliated entities. We evaluate
collectibility of accounts receivable from residents and
establish an allowance, after the application of security
deposits and other anticipated recoveries, for accounts greater
than 30 days past due for current residents and all
receivables due from former residents. Accounts receivable from
residents are stated net of allowances for doubtful accounts of
approximately $3.1 million and $1.9 million as of
December 31, 2007 and 2006, respectively.
We evaluate collectibility of accounts receivable from
non-affiliated entities and establish an allowance for amounts
that are considered to be uncollectible. Accounts receivable
relating to non-affiliated entities are stated net of allowances
for doubtful accounts of approximately $4.6 million and
$4.1 million as of December 31, 2007 and 2006,
respectively.
Accounts
Receivable and Allowance for Doubtful Accounts from
Affiliates
Accounts receivable from affiliates are generally comprised of
receivables related to property management and other services
provided to unconsolidated real estate partnerships in which we
have an ownership interest. We evaluate collectibility of
accounts receivable balances from affiliates on a periodic
basis, and establish an allowance for the amounts deemed to be
uncollectible. Accounts receivable from affiliates are stated
net of allowances for doubtful accounts of approximately
$5.3 million and $5.3 million as of December 31,
2007 and 2006, respectively.
Deferred
Costs
We defer lender fees and other direct costs incurred in
obtaining new financing and amortize the amounts over the terms
of the related loan agreements. Amortization of these costs is
included in interest expense.
We defer leasing commissions and other direct costs incurred in
connection with successful leasing efforts and amortize the
costs over the terms of the related leases. Amortization of
these costs is included in operating expenses.
F-15
Advertising
Costs
We generally expense all advertising costs as incurred to
property operating expense. For the years ended
December 31, 2007, 2006 and 2005, for both continuing and
discontinued operations, total advertising expense was
$38.0 million, $34.7 million and $36.1 million,
respectively.
Notes
Receivable from Unconsolidated Real Estate Partnerships and
Non-Affiliates and Related Interest Income and Provision for
Losses
Notes receivable from unconsolidated real estate partnerships
consist primarily of notes receivable from partnerships in which
we are the general partner but do not consolidate the
partnership under FIN 46 or
EITF 04-5.
The ultimate repayment of these notes and those from
non-affiliates is subject to a number of variables, including
the performance and value of the underlying real estate property
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
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 entered
into certain closed or 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.
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.
Investments
in Unconsolidated Real Estate Partnerships
We own general and limited partner interests in real estate
partnerships that own apartment properties. We generally account
for investments in real estate partnerships that we do not
consolidate under the equity method. Under the equity method,
our share of the earnings or losses of the entity for the
periods being presented is included in equity in earnings
(losses) from unconsolidated real estate partnerships, except
for our share of impairments and property disposition gains
related to such entities, which we report separately in the
consolidated statements of income. Certain investments in real
estate partnerships that were acquired in business combinations
were determined to have insignificant value at the acquisition
date and are accounted for under the cost method. Any
distributions received from such partnerships are recognized as
income when received.
The excess of the cost of the acquired partnership interests
over the historical carrying amount of partners equity or
deficit is ascribed generally to the fair values of land and
buildings owned by the partnerships. We amortize the excess cost
related to the buildings over the estimated useful lives of the
buildings. Such amortization is recorded as a component of
equity in earnings (losses) of unconsolidated real estate
partnerships.
F-16
Intangible
Assets
At December 31, 2007 and 2006, other assets included
goodwill associated with our real estate segment of
$81.9 million. We account for goodwill and other intangible
assets in accordance with the requirements of Statement of
Financial Accounting Standards No. 142, Goodwill and
Other Intangible Assets, or SFAS 142. SFAS 142
does not permit amortization of goodwill and other intangible
assets with indefinite lives, but requires an annual impairment
test of such assets. The impairment test compares the fair value
of reporting units with their carrying amounts, including
goodwill. Based on the application of the goodwill impairment
test set forth in SFAS 142, we determined that our goodwill
was not impaired in 2007, 2006 or 2005. During the year ended
December 31, 2005, we reduced goodwill by $6.2 million
in connection with the recognition of deferred income tax assets
that were acquired in connection with business combinations in
prior years.
Other assets also includes intangible assets for purchased
management contracts with finite lives that we amortize on a
straight-line basis over terms ranging from five to twenty years
and intangible assets for in-place leases as discussed under
Acquisition of Real Estate Assets and Related Depreciation
and Amortization.
Capitalized
Software Costs
Purchased software and other costs related to software developed
for internal use are capitalized during the application
development stage and are amortized using the straight-line
method over the estimated useful life of the software, generally
five years. We write off the costs of software development
projects when it is no longer probable that the software will be
completed and placed in service. For the years ended
December 31, 2007, 2006 and 2005, we capitalized software
development costs totaling $8.2 million, $6.3 million
and $9.9 million, respectively. At December 31, 2007
and 2006, other assets included $29.0 million and
$31.6 million of net capitalized software, respectively.
During the years ended December 31, 2007, 2006 and 2005, we
recognized amortization of capitalized software of
$14.6 million, $15.7 million and $16.2 million,
respectively, which is included in depreciation and amortization
in our consolidated statements of income.
During the year ended December 31, 2007 we abandoned
certain internal-use software development projects and recorded
a $4.2 million write-off of the capitalized costs of such
projects in depreciation and amortization. There were no similar
write-offs during the years ended December 31, 2006 and
2005.
Minority
Interest in Consolidated Real Estate Partnerships
We report unaffiliated partners interests in consolidated
real estate partnerships as minority interest in consolidated
real estate partnerships. Minority interest in consolidated real
estate partnerships represents the minority partners share
of the underlying net assets of our consolidated real estate
partnerships. When these consolidated real estate partnerships
make cash distributions to partners in excess of the carrying
amount of the minority interest, we generally record a charge
equal to the amount of such excess distribution, even though
there is no economic effect or cost. We report this charge in
the consolidated statements of income as deficit distributions
to minority partners. We allocate the minority partners
share of partnership losses to minority partners to the extent
of the carrying amount of the minority interest. We generally
record a charge when the minority partners share of
partnership losses exceed the carrying amount of the minority
interest, even though there is no economic effect or cost. We
report this charge in the consolidated statements of income
within minority interest in consolidated real estate
partnerships. We do not record charges for distributions or
losses in certain limited instances where the minority partner
has a legal obligation and financial capacity to contribute
additional capital to the partnership. For the years ended
December 31, 2007, 2006 and 2005, we recorded charges for
partnership losses resulting from depreciation of approximately
$12.2 million, $31.8 million and $9.5 million,
respectively, that were not allocated to minority partners
because the losses exceeded the carrying amount of the minority
interest.
Minority interest in consolidated real estate partnerships
consists primarily of equity interests held by limited partners
in consolidated real estate partnerships that have finite lives.
The terms of the related partnership agreements generally
require the partnership to be liquidated following the sale of
the partnerships real estate. As the general partner in
these partnerships, we ordinarily control the execution of real
estate sales and other events that could lead to the
liquidation, redemption or other settlement of minority
interests. The aggregate carrying value of minority interests in
consolidated real estate partnerships is approximately
$441.8 million at December 31, 2007.
F-17
The aggregate fair value of these interests varies based on the
fair value of the real estate owned by the partnerships. Based
on the number of classes of finite-life minority interests, the
number of properties in which there is direct or indirect
minority ownership, complexities in determining the allocation
of liquidation proceeds among partners and other factors, we
believe it is impracticable to determine the total required
payments to the minority interests in an assumed liquidation at
December 31, 2007. As a result of real estate depreciation
that is recognized in our financial statements and appreciation
in the fair value of real estate that is not recognized in our
financial statements, we believe that the aggregate fair value
of our minority interests exceeds their aggregate carrying
value. As a result of our ability to control real estate sales
and other events that require payment of minority interests and
our expectation that proceeds from real estate sales will be
sufficient to liquidate related minority interests, we
anticipate that the eventual liquidation of these minority
interests will not have an adverse impact on our financial
condition.
Revenue
Recognition
Our properties have operating leases with apartment residents
with terms generally of twelve months or less. We recognize
rental revenue related to these leases, net of any concessions,
on a straight-line basis over the term of the lease. We
recognize revenues from property management, asset management,
syndication and other services when the related fees are earned
and are realized or realizable.
Stock-Based
Compensation
On January 1, 2006, we adopted Statement of Financial
Accounting Standards No. 123 (revised 2004), Share-Based
Payment (see Note 12).
Discontinued
Operations
In accordance with SFAS 144, we classify certain properties
and related liabilities as held for sale (see Note 13). The
operating results of such properties as well as those properties
sold during the periods presented are included in discontinued
operations in both current periods and all comparable periods
presented. Depreciation is not recorded on properties held for
sale; however, depreciation expense recorded prior to
classification as held for sale is included in discontinued
operations. The net gain on sale and any impairment losses are
presented in discontinued operations when recognized.
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 these instruments are
reflected as assets or liabilities in the balance sheet, and
periodic changes in fair value are included in interest expense.
These instruments are not material to our financial position and
results of operations.
From time to time, we enter into total rate of return swaps on
various fixed rate secured tax-exempt bonds payable and fixed
rate notes payable to convert these borrowings from a fixed rate
to a variable rate and provide 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 (previously the Bond Market Association index) for 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. The
swaps generally have a term of less than five years, which may
be extended at no additional cost to us when an additional swap
is executed and cross-collateralized with other swaps in a
collateral pool. The total rate of return swaps have a
contractually defined termination value generally equal to
F-18
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.
In accordance with Statement of Financial Accounting Standards
No. 133, Accounting for Derivative Instruments and
Hedging Activities, or SFAS 133, we designate total
rate of return swaps as hedges of the risk of overall changes in
the fair value of the underlying borrowings. At each reporting
period, we estimate the fair value of these borrowings and the
total rate of return swaps and recognize any changes therein as
an adjustment of interest expense. We evaluate the effectiveness
of these fair value hedges at the end of each reporting period
and recognize an adjustment of interest expense as a result of
any ineffectiveness.
Borrowings payable subject to total rate of return swaps with
aggregate outstanding principal balances of $487.2 million
and $299.3 million at December 31, 2007 and 2006,
respectively, are reflected as variable rate borrowings in
Note 6. During the year ended December 31, 2007, due
to changes in the estimated fair values of certain of these debt
instruments and corresponding total rate of return swaps, we
reduced property loans payable by $9.4 million and
increased accrued liabilities and other by the same amount, with
no net impact on net income. During 2006 and 2005, there were no
material adjustments for changes in fair value for the hedged
debt or total rate of return swaps. During 2007, 2006 and 2005,
we determined these hedges were fully effective and accordingly
we made no adjustments to interest expense for ineffectiveness.
At December 31, 2007, the weighted average fixed receive
rate under the total return swaps was 6.5% and the weighted
average variable pay rate was 4.1%, based on the applicable
SIFMA and
30-day LIBOR
rates as of that date. Further information related to our total
return swaps as of December 31, 2007 is as follows:
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Weighted Average Swap
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Weighted
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Swap Notional
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Swap
|
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Variable Pay Rate at
|
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Debt Principal
|
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|
Year of Debt
|
|
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Average Debt
|
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Amount
|
|
|
Maturity
|
|
December 31,
|
|
(millions)
|
|
|
|
Maturity
|
|
|
Interest Rate
|
|
|
(millions)
|
|
|
Date
|
|
2007
|
|
|
$
|
29.1
|
|
|
|
|
2009
|
|
|
|
8.9
|
%
|
|
$
|
29.3
|
|
|
2008
|
|
|
4.2
|
%
|
|
9.4
|
|
|
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|
2011
|
|
|
|
7.7
|
%
|
|
|
9.4
|
|
|
2009
|
|
|
3.9
|
%
|
|
75.0
|
|
|
|
|
2012
|
|
|
|
7.5
|
%
|
|
|
75.0
|
|
|
2012
|
|
|
5.9
|
%
|
|
24.0
|
|
|
|
|
2015
|
|
|
|
6.3
|
%
|
|
|
24.0
|
|
|
2009
|
|
|
3.9
|
%
|
|
30.5
|
|
|
|
|
2016
|
|
|
|
5.9
|
%
|
|
|
30.5
|
|
|
2011
|
|
|
4.5
|
%
|
|
14.4
|
|
|
|
|
2018
|
|
|
|
6.7
|
%
|
|
|
14.4
|
|
|
2009
|
|
|
3.9
|
%
|
|
12.3
|
|
|
|
|
2021
|
|
|
|
6.2
|
%
|
|
|
12.3
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|
|
2012
|
|
|
3.8
|
%
|
|
12.0
|
|
|
|
|
2024
|
|
|
|
6.3
|
%
|
|
|
12.0
|
|
|
2009
|
|
|
3.9
|
%
|
|
65.6
|
|
|
|
|
2025
|
|
|
|
5.5
|
%
|
|
|
65.4
|
|
|
2009
|
|
|
3.2
|
%
|
|
69.2
|
|
|
|
|
2026
|
|
|
|
6.9
|
%
|
|
|
69.2
|
|
|
2009
|
|
|
3.9
|
%
|
|
45.0
|
|
|
|
|
2031
|
|
|
|
6.8
|
%
|
|
|
45.0
|
|
|
2009
|
|
|
3.9
|
%
|
|
100.7
|
|
|
|
|
2036
|
|
|
|
6.2
|
%
|
|
|
100.9
|
|
|
2009-2012
|
|
|
3.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
487.2
|
|
|
|
|
|
|
|
|
|
|
|
|
487.4
|
|
|
|
|
|
|
|
|
|
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|
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|
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Insurance
We believe that our insurance coverages insure our properties
adequately against the risk of loss attributable to fire,
earthquake, hurricane, tornado, flood, and other perils. In
addition, we have insurance coverage for substantial portions of
our property, workers compensation, health, and general
liability exposures. Losses are accrued based upon our estimates
of the aggregate liability for uninsured losses incurred using
certain actuarial assumptions followed in the insurance industry
and based on our experience.
F-19
Income
Taxes
We have elected to be taxed as a REIT under the Internal Revenue
Code of 1986, as amended, which we refer to as the Code,
commencing with our taxable year ended December 31, 1994,
and intend to continue to operate in such a manner. Our current
and continuing qualification as a REIT depends on our ability to
meet the various requirements imposed by the Code, which are
related to organizational structure, distribution levels,
diversity of stock ownership and certain restrictions with
regard to owned assets and categories of income. If we qualify
for taxation as a REIT, we will generally not be subject to
United States Federal corporate income tax on our taxable income
that is currently distributed to stockholders. This treatment
substantially eliminates the double taxation (at the
corporate and stockholder levels) that generally results from
investment in a corporation.
Even if we qualify as a REIT, we may be subject to United States
Federal income and excise taxes in various situations, such as
on our undistributed income. We also will be required to pay a
100% tax on any net income on non-arms length transactions
between us and a TRS (described below) and on any net income
from sales of property that was property held for sale to
customers in the ordinary course. We and our stockholders may be
subject to state or local taxation in various state or local
jurisdictions, including those in which we transact business or
our stockholders reside. In addition, we could also be subject
to the alternative minimum tax, or AMT, on our items of tax
preference. The state and local tax laws may not conform to the
United States Federal income tax treatment. Any taxes imposed on
us reduce our operating cash flow and net income.
Certain of our operations (including property management, asset
management and risk) are conducted through taxable REIT
subsidiaries, which are subsidiaries of the Aimco Operating
Partnership, and each of which we refer to as a TRS. A TRS is a
C-corporation that has not elected REIT status and as such is
subject to United States Federal corporate income tax. We use
TRS entities to facilitate our ability to offer certain services
and activities to our residents, as these services and
activities generally cannot be offered directly by the REIT.
For our taxable REIT subsidiaries, deferred income taxes result
from temporary differences between the carrying amounts of
assets and liabilities for financial reporting purposes and the
amounts used for Federal income tax purposes, and are measured
using the enacted tax rates and laws that are expected to be in
effect when the differences reverse. We reduce deferred tax
assets by recording a valuation allowance when we determine
based on available evidence that it is more likely than not that
the assets will not be realized.
Adoption
of FIN 48
In June 2006, the Financial Accounting Standards Board, or FASB,
issued FASB Interpretation No. 48, Accounting for
Uncertainty in Income Taxes an Interpretation of
FASB Statement No. 109, or FIN 48. FIN 48
prescribes a two-step process for the financial statement
recognition and measurement of income tax positions taken or
expected to be taken in a tax return. The first step involves
evaluation of a tax position to determine whether it is more
likely than not that the position will be sustained upon
examination, based on the technical merits of the position. The
second step involves measuring the benefit to recognize in the
financial statements for those tax positions that meet the
more-likely-than-not recognition threshold. FIN 48 also
provides guidance on derecognition, classification, interest and
penalties, accounting in interim periods, disclosure and
transition.
We adopted FIN 48 as of January 1, 2007. Upon
adoption, we recorded a $0.8 million charge to
distributions in excess of earnings to reflect our measurement
in accordance with FIN 48 of uncertain income tax positions
that affect net operating loss carryforwards recognized as
deferred tax assets. As of January 1, 2007, our
unrecognized tax benefits totaled approximately
$3.1 million. To the extent these unrecognized tax benefits
are ultimately recognized, they will affect the effective tax
rates in future periods. There were no significant changes in
unrecognized tax benefits during the year ended
December 31, 2007. We do not anticipate any material
changes in existing unrecognized tax benefits during the next
12 months. Because the statute of limitations has not yet
elapsed, our federal income tax returns for the year ended
December 31, 2004, and subsequent years and certain of our
state income tax returns for the year ended December 31,
2002, and subsequent years are currently subject to examination
by the Internal Revenue Service or other tax authorities. Our
policy is to include interest and penalties related to income
taxes in other expenses (income), net. See Note 9 for
further information related to income taxes and uncertain tax
positions.
F-20
Earnings
per Share
We calculate earnings per share based on the weighted average
number of shares of Common Stock, common stock equivalents, and
other potentially dilutive securities outstanding during the
period (see Note 14). As discussed in Note 1, weighted
average shares of Common Stock, common stock equivalents and
other potentially dilutive securities outstanding have been
retroactively adjusted for the effect of shares of Common Stock
issued January 30, 2008, pursuant to the special dividend.
Earnings per share amounts for each period presented reflect the
retroactively adjusted weighted average share and equivalent
counts.
Fair
Value of Financial Instruments
We believe that the aggregate fair value of our cash and cash
equivalents, receivables, payables and short-term secured debt
approximates their aggregate carrying value at December 31,
2007, due to their relatively short-term nature and high
probability of realization. We further believe that the
aggregate fair value of our variable rate secured tax-exempt
bond financing, variable rate property loans payable, term loans
and borrowings under our credit facility also approximate their
aggregate carrying value due to terms in the related agreements
that require periodic interest adjustments based on market
interest rates. For notes receivable, fixed rate secured
tax-exempt bond debt and secured long-term debt, we estimate
fair values using present value techniques. Present value
calculations vary depending on the assumptions used, including
the discount rate and estimates of future cash flows. We
estimate fair value for our fixed rate debt instruments based on
the market rate for debt with the same or similar terms. 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
$191.5 million and $181.5 million at December 31,
2007 and 2006, respectively. See Note 5 for further
information on notes receivable. The estimated aggregate fair
value of our secured tax-exempt bonds and property loans
payable, including amounts reported in liabilities related to
assets held for sale was approximately $7.1 billion and
$6.4 billion at December 31, 2007 and 2006,
respectively. The combined carrying value of our secured
tax-exempt bonds and property loans payable, including amounts
reported in liabilities related to assets held for sale, was
approximately $7.0 billion and $6.3 billion at
December 31, 2007 and 2006, respectively. See Note 6
for further details on secured tax-exempt bonds and secured
notes payable. Refer to Derivative Financial Instruments
for further discussion regarding certain of our fixed rate
debt that is subject to total rate of return swap instruments.
Concentration
of Credit Risk
Financial instruments that potentially could subject us to
significant concentrations of credit risk consist principally of
notes receivable. As discussed in Note 5, a significant
portion of our notes receivable at December 31, 2007 and
2006, are collateralized by properties in the West Harlem
district 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 diversity of the
properties that collateralize the notes.
Use of
Estimates
The preparation of our 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.
Reclassifications
Certain items included in the 2006 and 2005 financial statements
amounts have been reclassified to conform to the 2007
presentation.
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|
Note 3
|
Real
Estate and Partnership Acquisitions and Other Significant
Transactions
|
Real
Estate Acquisitions
During the year ended December 31, 2007, we completed the
acquisition of 16 conventional properties with approximately
1,300 units for an aggregate purchase price of
approximately $217.0 million, including transaction
F-21
costs. Of the 16 properties acquired, ten are located in New
York City, New York; two in Daytona Beach, Florida; one in Park
Forest, Illinois; one in Poughkeepsie, New York; one in Redwood
City, California; and one in North San Diego, California.
The purchases were funded with cash, tax-free exchange proceeds,
new debt and the assumption of existing debt.
During the year ended December 31, 2006, we completed
acquisitions of nine properties (including one property acquired
by an unconsolidated joint venture), containing approximately
1,700 residential units for an aggregate purchase price of
approximately $177.0 million, including transaction costs.
Of the nine properties acquired, three are located in Pacifica,
California; one in Chico, California; three in metro
Jacksonville, Florida; one in Tampa, Florida; and one in
Greenville, North Carolina. The purchases were funded with cash,
new debt and the assumption of existing debt.
During 2005, we completed acquisitions of six properties
(including Palazzo East at Park La Brea), containing
approximately 1,006 residential units and six retail spaces for
an aggregate purchase price of approximately
$283.6 million, including transaction costs. Of the six
properties acquired, four are located in the New York City area,
one in Los Angeles, and one in New Jersey. The purchases were
funded with cash, new debt and the assumption of existing debt.
Acquisitions
of Partnership Interests
During the year ended December 31, 2007, we acquired
limited partnership interests in 50 partnerships in which our
affiliates served as general partner. In connection with such
acquisitions, we paid cash of approximately $47.4 million,
including transaction costs. The cost of the acquisitions was
approximately $43.6 million in excess of the carrying
amount of minority interest in such limited partnerships, which
excess we generally assigned to real estate.
Transactions
Involving VMS National Properties Joint Venture
In January 2007, VMS National Properties Joint Venture, or VMS,
a consolidated real estate partnership in which we held a 22%
equity interest, refinanced mortgage loans secured by its 15
apartment properties. The existing loans had an aggregate
carrying amount of $110.0 million and an aggregate face
amount of $152.2 million. The $42.2 million difference
between the face amount and carrying amount resulted from a 1997
bankruptcy settlement in which the lender agreed to reduce the
principal amount of the loans subject to VMSs compliance
with the terms of the restructured loans. Because the reduction
in the loan amount was contingent on future compliance,
recognition of the inherent debt extinguishment gain was
deferred. Upon refinancing of the loans in January 2007, the
existing lender accepted the reduced principal amount in full
satisfaction of the loans, and VMS recognized the
$42.2 million debt extinguishment gain in earnings.
During the six months ended June 30, 2007, VMS sold eight
properties to third parties for an aggregate gain of
$22.7 million. Additionally, VMS contributed its seven
remaining properties to wholly-owned subsidiaries of Aimco in
exchange for consideration totaling $230.1 million,
consisting primarily of cash of $21.3 million, common
OP Units with a fair value of $9.8 million, the
assumption of $168.0 million in mortgage debt, and the
assumption of $30.9 million in mortgage participation
liabilities. This total consideration included
$50.7 million related to our 22% equity interest in VMS.
Exclusive of our share, the consideration paid for the seven
properties exceeded the carrying amount of the minority interest
in such properties by $44.9 million. This excess
consideration is reflected in our consolidated balance sheet as
an increase in the carrying amount of the seven properties.
Approximately $22.8 million of the $42.2 million debt
extinguishment gain related to the mortgage loans that were
secured by the eight properties sold to third parties and is
reported in discontinued operations for the year ended
December 31, 2007. The remaining $19.4 million portion
of the debt extinguishment gain related to the mortgage loans
that were secured by the seven VMS properties we purchased and
is reported in our continuing operations as gain on dispositions
of unconsolidated real estate and other. Although 78% of the
equity interests in VMS were held by unrelated minority
partners, no minority interest share of the gains on debt
extinguishment and sale of the properties was recognized in our
earnings. As required by GAAP, we had in prior years recognized
the minority partners share of VMS losses in excess of the
minority partners capital contributions. The amounts of
those previously recognized losses exceeded the minority
partners share of the gains on debt extinguishment and
F-22
sale of the properties; accordingly, the minority interest in
such gains recognized in our earnings was limited to the
minority interest in the Aimco Operating Partnership. For the
year ended December 31, 2007, the aggregate effect of the
gains on extinguishment of VMS debt and sale of VMS properties
was to decrease loss from continuing operations by
$17.6 million ($0.18 per diluted share) and increase net
income by $59.0 million ($0.59 per diluted share).
During the three months ended December 31, 2007, VMS
distributed its remaining cash, consisting primarily of
undistributed proceeds from the sale of its 15 properties
(including properties sold to us). Of the $42.4 million of
cash distributed to the unrelated limited partners,
$21.3 million represents the cash consideration we
contributed in exchange for the purchase of seven properties and
is presented in purchases of partnership interests and other
assets in the consolidated statement of cash flows for the year
ended December 31, 2007. The remainder of the cash
distributed to the unrelated limited partners is presented in
payment of distributions to minority interest in the
consolidated statement of cash flows.
Flamingo
South Beach Property
The Flamingo South Beach property consists of three towers. In
connection with sale of the South Tower in 2006, the buyer paid
to us a $5.0 million non-refundable payment for the option
to acquire the
614-unit
North Tower between September 1, 2006, and
February 28, 2007, and the
513-unit
Central Tower between December 1, 2007, and May 31,
2008. Pursuant to the purchase and sale agreement, the buyer
paid to us an additional $1.0 million non-refundable
payment to extend the option period for the buyers
purchase of the North Tower from February 28, 2007, to
October 31, 2007. In accordance with Statement of Financial
Accounting Standards No. 66, Accounting for Sales of
Real Estate, or SFAS 66, we deferred the recognition of
the non-refundable payments. In September 2007, the buyer
terminated its rights under the option agreement. We have no
further obligation under the option agreement and, accordingly,
recognized income of $6.0 million, or $5.5 million,
net of tax, during the year ended December 31, 2007, which
is presented in gain on dispositions of unconsolidated real
estate and other in the accompanying consolidated statement of
income.
Palazzo
Joint Venture
In December 2007, we entered into a joint venture agreement with
a third party investor which provides for the co-ownership of
three multi-family properties with 1,382 units located in
West Los Angeles. Under the agreement, we contributed three
wholly-owned properties, The Palazzo at Park La Brea, The
Palazzo East at Park La Brea and The Villas at Park
La Brea to the partnership, which we refer to as Palazzo,
at a value of $726.0 million, or approximately $525,000 per
unit. Palazzo has existing property debt of approximately
$296.0 million and an implied equity value of approximately
$430.0 million. We received $202.0 million from the
investor in exchange for an approximate 47% interest in Palazzo,
of which approximately $7.9 million was used to fund
escrows for capital improvements and various operating
requirements. We own the remaining interests in Palazzo,
including a managing interest, and will operate the properties
in exchange for a property management fee and certain other fees
over the term of the partnership.
We determined Palazzo is a VIE as defined by FIN 46R and
that we are the primary beneficiary who should consolidate this
partnership. In accordance with SFAS 66, we deferred
recognition of a gain on this transaction and recognized the
consideration received as an increase in minority interest in
consolidated real estate partnerships.
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|
Note 4
|
Investments
in Unconsolidated Real Estate Partnerships
|
We owned general and limited partner interests in unconsolidated
real estate partnerships owning approximately 94, 102 and 264
properties at December 31, 2007, 2006 and 2005,
respectively. We acquired these interests through various
transactions, including large portfolio acquisitions and offers
to individual limited partners. Our total ownership interests in
these unconsolidated real estate partnerships ranges typically
from less than 1% to 50%.
F-23
The following table provides selected combined financial
information for the unconsolidated real estate partnerships in
which we had investments accounted for under the equity method
as of and for the years ended December 31, 2007, 2006 and
2005 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Real estate, net of accumulated depreciation
|
|
$
|
128,950
|
|
|
$
|
146,400
|
|
|
$
|
763,219
|
|
Total assets
|
|
|
152,214
|
|
|
|
166,874
|
|
|
|
954,970
|
|
Secured and other notes payable
|
|
|
124,406
|
|
|
|
140,089
|
|
|
|
932,454
|
|
Total liabilities
|
|
|
168,573
|
|
|
|
199,082
|
|
|
|
1,248,450
|
|
Partners equity (deficit)
|
|
|
(16,359
|
)
|
|
|
(32,208
|
)
|
|
|
(293,480
|
)
|
Rental and other property revenues
|
|
|
40,486
|
|
|
|
99,708
|
|
|
|
311,429
|
|
Property operating expenses
|
|
|
(20,630
|
)
|
|
|
(49,451
|
)
|
|
|
(177,970
|
)
|
Depreciation expense
|
|
|
(9,692
|
)
|
|
|
(18,769
|
)
|
|
|
(63,056
|
)
|
Interest expense
|
|
|
(9,541
|
)
|
|
|
(24,146
|
)
|
|
|
(84,252
|
)
|
Gain on sale
|
|
|
|
|
|
|
2,980
|
|
|
|
106,465
|
|
Net income (loss)
|
|
|
(3,875
|
)
|
|
|
(1,443
|
)
|
|
|
82,123
|
|
The decreases in the 2007 and 2006 amounts relative to the 2005
amounts in the above table reflect dispositions of real estate
owned by the unconsolidated real estate partnerships and the
consolidation of certain partnerships previously accounted for
under the equity method, including 156 partnerships consolidated
in 2006 in connection with the adoption of
EITF 04-5.
As a result of our acquisition of interests in unconsolidated
real estate partnerships at a cost in excess of the historical
carrying amount of the partnerships net assets, our
aggregate investment in these partnerships at December 31,
2007 and 2006 of $117.2 million and $39.0 million,
respectively, exceeds our share of the underlying historical
partners deficit of the partnerships by approximately
$120.4 million and $44.8 million, respectively.
|
|
Note 5
|
Notes
Receivable
|
The following table summarizes our notes receivable at
December 31, 2007 and 2006 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
|
Unconsolidated
|
|
|
|
|
|
|
|
|
Unconsolidated
|
|
|
|
|
|
|
|
|
|
Real Estate
|
|
|
Non-
|
|
|
|
|
|
Real Estate
|
|
|
Non-
|
|
|
|
|
|
|
Partnerships
|
|
|
Affiliates
|
|
|
Total
|
|
|
Partnerships
|
|
|
Affiliates
|
|
|
Total
|
|
|
Par value notes
|
|
$
|
30,155
|
|
|
$
|
17,053
|
|
|
$
|
47,208
|
|
|
$
|
40,055
|
|
|
$
|
18,815
|
|
|
$
|
58,870
|
|
Discounted notes
|
|
|
10,045
|
|
|
|
127,422
|
|
|
|
137,467
|
|
|
|
6,064
|
|
|
|
120,537
|
|
|
|
126,601
|
|
Allowance for loan losses
|
|
|
(5,014
|
)
|
|
|
(1,421
|
)
|
|
|
(6,435
|
)
|
|
|
(5,478
|
)
|
|
|
|
|
|
|
(5,478
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total notes receivable
|
|
$
|
35,186
|
|
|
$
|
143,054
|
|
|
$
|
178,240
|
|
|
$
|
40,641
|
|
|
$
|
139,352
|
|
|
$
|
179,993
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Face value of discounted notes
|
|
$
|
41,668
|
|
|
$
|
142,062
|
|
|
$
|
183,730
|
|
|
$
|
41,781
|
|
|
$
|
145,024
|
|
|
$
|
186,805
|
|
Included in notes receivable from unconsolidated real estate
partnerships at December 31, 2007 and 2006, are
$4.3 million and $6.0 million, respectively, in notes
that were secured by interests in real estate or interests in
real estate partnerships. We earn interest on these secured
notes receivable at various annual interest rates ranging
between 9.0% and 12.0% and averaging 11.2%.
Included in the notes receivable from non-affiliates at
December 31, 2007 and 2006, are $87.6 million and
$87.6 million, respectively, in notes that were secured by
interests in real estate or interests in real estate
partnerships. We earn interest on these secured notes receivable
at various annual interest rates ranging between 4.0% and 7.4%
and averaging 7.2%.
Notes receivable from non-affiliates at December 31, 2007
and 2006 include notes receivable totaling $84.3 million
and $81.6 million, respectively, from 31 entities (the
borrowers) that are wholly owned by a single
individual. We originated these notes in November 2006 pursuant
to a loan agreement that provides for total funding of
approximately $110 million, including $14.4 million
for property improvements and an interest reserve, of which
F-24
$6.2 million had not been funded as of December 31,
2007. The notes mature in November 2016, bear interest at LIBOR
plus 2.0%, are partially guaranteed by the owner of the
borrowers, and are collateralized by second mortgages on 87
buildings containing 1,597 residential units and 42 commercial
spaces in West Harlem, New York City. In conjunction with the
loan agreement, we entered into a purchase option and put
agreement with the borrowers under which we may purchase some or
all of the buildings and, subject to achieving specified
increases in rental income, the borrowers may require us to
purchase the buildings. Our potential purchase of the buildings
pursuant to the purchase option and put agreement may ultimately
require cash payments
and/or
assumption of first mortgage debt totaling approximately
$149.0 million to $216.0 million, in addition to
amounts funded and committed under the loan agreement, depending
on rental income levels and real estate fair values. We
determined that the stated interest rate on the notes is a
below-market interest rate and recorded a $19.4 million
discount to reflect the estimated fair value of the notes based
on an estimated market interest rate of LIBOR plus 4.0%. The
discount was determined to be attributable to our real estate
purchase option, which we recorded separately in other assets.
Accretion of this discount totaled $1.5 million in 2007 and
is included in interest income. No accretion of this discount
was recorded in 2006. The unamortized potion of the purchase
option asset will be included in the cost of properties acquired
pursuant to the option or otherwise be charged to expense. We
determined that the borrowers are VIEs and, based on qualitative
and quantitative analysis, determined that the individual who
owns the borrowers and partially guarantees the notes is the
primary beneficiary.
Notes receivable from non-affiliates also includes a note
receivable totaling $42.9 million at December 31,
2007, representing a $50.0 million interest in Casden
Properties LLC made in connection with the March 2002
acquisition of Casden Properties, Inc. The difference between
the carrying amount of the note and the total investment of
$50.0 million represents a discount that will be amortized
as interest income, using a 13.3% imputed effective interest
rate, through the March 2009 maturity of the note.
Interest income from total non-impaired par value and certain
discounted notes for the years ended December 31, 2007,
2006 and 2005 totaled $11.7 million, $5.8 million and
$19.2 million, respectively. For the years ended
December 31, 2007, 2006 and 2005 we recognized accretion
income on certain discounted notes of approximately
$3.4 million, $6.7 million and $2.5 million,
respectively.
The activity in the allowance for loan losses in total for both
par value notes and discounted notes for the years ended
December 31, 2007 and 2006, is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
Balance at beginning of year
|
|
$
|
(5,478
|
)
|
|
$
|
(4,890
|
)
|
Provisions for losses on notes receivable
|
|
|
(6,018
|
)
|
|
|
(3,105
|
)
|
Recoveries of losses on notes receivable
|
|
|
2,067
|
|
|
|
320
|
|
Net reductions due to consolidation of real estate partnerships
and property dispositions
|
|
|
2,994
|
|
|
|
2,197
|
|
|
|
|
|
|
|
|
|
|
Balance at end of year
|
|
$
|
(6,435
|
)
|
|
$
|
(5,478
|
)
|
|
|
|
|
|
|
|
|
|
During the years ended December 31, 2007 and 2006, we
determined that an allowance for loan losses of
$4.0 million and $3.4 million, respectively, was
required on certain of our par value notes that had carrying
values of $9.5 million and $9.0 million, respectively.
The average recorded investment in the impaired par value notes
for the years ended December 31, 2007 and 2006 was
$8.3 million and $7.0 million, respectively. The
remaining $37.7 million in par value notes receivable at
December 31, 2007 is estimated to be collectible and,
therefore, interest income on these par value notes is
recognized as it is earned.
As of December 31, 2007 and 2006, we determined that an
allowance for loan losses of $2.4 million and
$2.0 million, respectively, was required on certain of our
discounted notes that had carrying values of $3.4 million
and $4.4 million, respectively. The average recorded
investment in the impaired discounted notes for the years ended
December 31, 2007 and 2006 was $3.4 million and
$4.6 million, respectively.
F-25
|
|
Note 6
|
Secured
Tax-Exempt Bond Financings, Property Loans Payable and Other
Borrowings
|
The following table summarizes our secured tax-exempt bond
financings at December 31, 2007 and 2006, the majority of
which is non-recourse to us (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average
|
|
|
|
|
|
|
|
|
|
Interest Rate
|
|
|
Principal Outstanding
|
|
|
|
2007
|
|
|
2007
|
|
|
2006
|
|
|
Fixed rate secured tax-exempt bonds payable
|
|
|
5.59
|
%
|
|
$
|
243,140
|
|
|
$
|
295,532
|
|
Variable rate secured tax-exempt bonds payable
|
|
|
3.65
|
%
|
|
|
698,415
|
|
|
|
631,420
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
$
|
941,555
|
|
|
$
|
926,952
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed rate secured tax-exempt bonds payable mature at various
dates through October 2045. Variable rate secured tax-exempt
bonds payable mature at various dates through December 2036.
Principal and interest on these bonds are generally payable in
semi-annual installments or in monthly interest-only payments
with balloon payments due at maturity. Certain of our tax-exempt
bonds at December 31, 2007, are remarketed periodically by
a remarketing agent to maintain a variable yield. If the
remarketing agent is unable to remarket the bonds, then the
remarketing agent can put the bonds to us. We believe that the
likelihood of this occurring is remote. At December 31,
2007, our secured tax-exempt bond financings were secured by 71
properties with a combined net book value of
$1,430.2 million. As discussed in Note 2, certain
fixed rate secured tax-exempt bonds payable have been converted
to variable rates using total rate of return swaps and are
presented above as variable rate debt.
The following table summarizes our property loans payable at
December 31, 2007 and 2006, the majority of which are
non-recourse to us (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average
|
|
|
|
|
|
|
|
|
|
Interest Rate
|
|
|
Principal Outstanding
|
|
|
|
2007
|
|
|
2007
|
|
|
2006
|
|
|
Fixed rate secured notes payable
|
|
|
6.15
|
%
|
|
$
|
5,467,650
|
|
|
$
|
4,626,975
|
|
Variable rate secured notes payable
|
|
|
6.45
|
%
|
|
|
417,740
|
|
|
|
361,953
|
|
Secured notes credit facility
|
|
|
5.38
|
%
|
|
|
154,780
|
|
|
|
109,988
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
$
|
6,040,170
|
|
|
$
|
5,098,916
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed rate secured notes payable mature at various dates through
August 2053. Variable rate secured notes payable mature at
various dates through July 2021. Principal and interest are
generally payable monthly or in monthly interest-only payments
with balloon payments due at maturity. At December 31,
2007, our secured notes payable were secured by 563 properties
with a combined net book value of $7,773.5 million. As
discussed in Note 2, certain fixed rate secured notes
payable have been converted to variable rates using total rate
of return swaps and are presented above as variable rate debt.
We had a secured revolving credit facility that provided for
borrowings of up to $250 million primarily to be used for
financing properties that we generally intended to hold for the
intermediate term, as well as properties that were designated
for redevelopment. The interest rate on the notes provided
through this facility was the Fannie Mae Discounted
Mortgage-Backed Security index plus 0.85% (for those loans with
debt coverage ratios greater than or equal to 1.70x) or 1.05%
(for those loans with debt service coverage ratios less than
1.70x), which interest rates reset monthly. Each such loan under
this facility was treated as a separate borrowing and was
collateralized by a specific property, and none of th