e10vk
UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C.
20549
Form 10-K
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(Mark One)
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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, 2008
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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 o
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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
$2.8 billion as of June 30, 2008. As of
February 25, 2009, there were 117,298,253 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 27, 2009, 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, 2008
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
Annual 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 these
forward-looking statements and, in addition, will be affected by
a variety of risks and factors, some of which are beyond our
control, including, without limitation: financing risks,
including the availability and cost of financing and the risk
that our cash flows from operations may be insufficient to meet
required payments of principal and interest; earnings may not be
sufficient to maintain compliance with debt covenants; national
and local economic conditions; energy costs; the terms of
governmental regulations that affect us and interpretations of
those regulations; the competitive environment in which we
operate; real estate risks, including fluctuations in real
estate values and the general economic climate in the markets in
which we operate and competition for tenants in such markets;
insurance risk; acquisition and development risks, including
failure of such acquisitions to perform in accordance with
projections; the timing of acquisitions and dispositions;
natural disasters and severe weather such as hurricanes;
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, 2008, we owned or managed a real estate
portfolio of 992 apartment properties containing 162,807
apartment units located in 44 states, the District of
Columbia and Puerto Rico. We are one of the largest owners and
operators 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
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properties through a partnership syndication or other fund. Our
equity holdings and managed properties are as follows as of
December 31, 2008:
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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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514
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117,719
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Unconsolidated properties
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85
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9,613
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Property management
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3,252
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Asset management
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359
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32,223
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Total
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992
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162,807
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Through our wholly-owned subsidiaries, AIMCO-GP, Inc. and
AIMCO-LP Trust, we own a majority of the ownership interests in
AIMCO Properties, L.P., which we refer to as the Aimco Operating
Partnership. As of December 31, 2008, 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, 2008, we had 101,176,232 shares
of our Common Stock outstanding and the Aimco Operating
Partnership had 9,484,191 common OP Units and equivalents
outstanding for a combined total of 110,660,423 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, 2008, our portfolio of owned
and/or
managed properties consists of 992 properties with 162,807
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 2008, 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 investment management
(portfolio strategy, capital allocation, joint ventures, tax
credit syndication, acquisitions, dispositions and other
transaction activities). For further information on these
segments, see Note 18 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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portfolio management allocating capital among
geographic markets and apartment property types such as
Class A, Class B and Class C with redevelopment
potential;
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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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earning fee income from providing investment management services
such as property management, financial management, accounting,
investor reporting, property debt financings, tax credit
syndication, redevelopment and construction management;
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managing our cost and risk of capital by using leverage that is
largely long-term, laddered in maturity, non-recourse and
property specific; and
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reducing our general and administrative and certain other costs
consistent with the reduced size of our portfolio.
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Our business is organized around three core activities: Property
Operations, Redevelopment, and Investment 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 310 properties with 93,444 units. Our affordable
operations consist of 289 properties with 33,888 units,
with rents that are generally paid, in whole or part, by a
government agency. Affordable properties tend to have relatively
more stable rents and higher occupancy due to government rent
payments and thus are much less affected by market fluctuations.
We operate a broad range of property types, from suburban
garden-style to urban high-rise properties in 44 states,
the District of Columbia and Puerto Rico at a broad range of
average monthly rental rates, with most between $700 and $1,200
per month, and reaching as high as $10,000 per month at some of
our premier properties. This diversification insulates us, to
some degree, from inevitable downturns in any one market.
Our property operations currently are organized into five areas,
which are further subdivided according to our target markets,
which are the largest 20 U.S. markets as measured by total
market capitalization, or the total market value of
institutional-grade apartment properties in a particular market.
To manage our nationwide portfolio more efficiently and to
increase the benefits from our local management expertise, we
have given direct responsibility for operations within each area
to an Area Vice President, or AVP, with regular senior
management reviews. To enable the AVPs to focus on sales and
service, as well as to improve financial control and budgeting,
we have dedicated an area financial officer to support each AVP,
and with the exception of routine maintenance, our specialized
Construction Services group manages all
on-site
improvements, thus reducing the need for AVPs to spend time on
oversight of construction projects.
We seek to improve our corporate-level oversight of property
operations by developing better systems, standardizing business
goals, operational measurements and internal reporting, and
enhancing financial controls over field operations. Our
objectives are to focus on the areas discussed below:
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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 property
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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 standardized residential financial stability requirements
and have policies and monitoring practices to maintain our
resident quality.
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Revenue Management. For our conventional
properties, we are focusing on people, processes and technology
to build a revenue management model that is competitive with the
best in our industry. 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. During 2008, we established a
centralized revenue management team with leaders from the
airline, hospitality and property management industries, and
centralized our rental rate pricing function in partnership with
our area portfolio management teams.
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Controlling Expenses. Cost controls are
accomplished by local focus at the area level and by taking
advantage of economies of scale at the corporate level. As a
result of the size of our portfolio and our area 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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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 2008, we spent
$101.4 million (Aimcos share), or $799 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
$124.9 million (Aimcos share), or $985 per owned
apartment unit, 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 have historically
undertaken a range of redevelopment projects: from those in
which a substantial number of all available units are vacated
for significant renovations to the property, to those in which
there is significant renovation, such as exteriors, common areas
or unit improvements, typically done upon lease expirations
without the need to vacate units on any wholesale or substantial
basis. We have a specialized Redevelopment and Construction
Services group, which includes developers, engineers, architects
and construction managers, to oversee these projects.
Our share of 2008 redevelopment expenditures on active and
completed projects totaled $226.3 million and
$113.9 million in conventional and affordable redevelopment
projects, respectively. During 2008, we completed redevelopment
projects at 13 conventional properties and 21 affordable
properties with 6,524 and 2,903 units, respectively. During
2008, we delivered 4,817 conventional and 1,780 affordable
redeveloped units, respectively, some of which are part of
redevelopment projects completed in 2008 and some of which are
part of ongoing
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projects. As of December 31, 2008, we had 37 conventional
and four affordable redevelopment projects at various stages of
completion.
In 2009, we expect to decrease our redevelopment expenditures,
with an investment between $50.0 and $75.0 million in
conventional redevelopment projects and between $30.0 and
$45.0 million in affordable redevelopment projects,
predominantly funded by third-party tax credit equity.
Investment
Management
Investment management includes activities related to our owned
portfolio of properties as well as services provided to
affiliated partnerships. Activities and services that fall
within Investment Management include portfolio strategy, capital
allocation, joint ventures, tax credit syndication,
acquisitions, dispositions and other transaction activities.
Within our owned portfolio, we refer to these activities as
Portfolio Management and they include strategic
portfolio and capital allocation decisions through 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 adjust Aimcos
investments to reflect our decisions regarding target
allocations to geographic markets and to investment types. 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. For
affiliated partnerships, we refer to these activities as
Asset Management, and they include property
management, financial management, accounting, investor
reporting, property debt financings, tax credit syndication,
redevelopment and construction management. When we provide these
services to affiliated partnerships, we are separately
compensated through fees paid by third party investors. Those
fees may be recognized in a subsequent period upon the
occurrence of a current transaction or a transaction expected to
close within twelve months, or improvement in operations that
generates sufficient cash to pay the fees. Although 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 Investment Management 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 our target markets. We believe these markets to be
deep, relatively liquid and to possess desirable long-term
growth characteristics. They are primarily coastal markets, and
also include a number of Sun Belt cities and Chicago, Illinois.
We may also invest in other markets on an opportunistic basis.
Following this strategy through dispositions, acquisitions and
redevelopment spending, we have reduced our investment in
markets outside our target markets and increased our investment
in our target markets. We expect that increased geographic focus
will also add to our investment knowledge and increase operating
efficiencies based on local economies of scale.
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 other corporate purposes, such as debt reduction, preferred
stock redemptions or purchases and special dividends. In 2008,
we sold 130 conventional properties generating net cash proceeds
to us, after repayment of existing debt, payment of transaction
costs and distributions to limited partners, of
$852.2 million. In 2008, we exited six markets, and as of
December 31, 2008, our conventional portfolio included 310
properties with 93,444 units in 40 markets.
As of December 31, 2008, conventional properties in our
target markets comprised 84.2% of our Net Asset Value (which is
the estimated fair value of our assets, net of debt, or NAV)
attributable to our conventional properties. Our top five
markets by NOI contribution include the metropolitan areas of
Washington, D.C.; Los Angeles, California;
Other Florida (which is comprised of
Ft. Lauderdale, Jacksonville, Orlando, Palm Beach County
and Tampa); Chicago, Illinois and Boston, Massachusetts.
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During 2008, we invested in our conventional portfolio primarily
by funding redevelopment. In 2008, we invested
$226.3 million in redevelopment of properties in our
conventional portfolio. We also completed acquisitions of three
conventional properties, containing approximately 470
residential units for an aggregate purchase price of
approximately $111.5 million (excluding transaction costs).
These properties are located in San Jose, California,
Brighton, Massachusetts and Seattle, Washington.
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.
Affordable
Portfolio Management
The portfolio management strategy for our affordable portfolio
is similar to that for our conventional portfolio. During 2008,
we invested $113.9 million in redevelopment of affordable
properties, funded primarily by proceeds from the sale of tax
credits to institutional partners. As with conventional
properties, we also seek to dispose of properties that are
inconsistent with our long-term investment and operating
strategies. During 2008, we sold 25 properties from our
affordable portfolio, including six unconsolidated properties,
generating net cash proceeds to us, after repayment of existing
debt, payment of transaction costs and distributions to limited
partners, of $169.8 million. As of December 31, 2008,
our affordable portfolio included 289 properties with
33,888 units.
Financial
Strategy
We are focused on improving liquidity and balancing our sources
and uses of cash. During 2008, using proceeds from asset
dispositions, we repaid in full our $75.0 million term loan
which was scheduled for payment in September 2009, repaid all of
the outstanding amounts due on our revolving credit facility and
repurchased approximately $27.0 million of outstanding
variable rate preferred stock. Also during 2008, in connection
with property dispositions, we repaid approximately
$1.1 billion in non-recourse property debt. As of
December 31, 2008, the amount available under our revolving
credit facility, which matures in May 2010 (inclusive of a
one-year extension option we expect to exercise), was
$578.8 million (after giving effect to $56.2 million
outstanding for undrawn letters of credit issued under the
revolving credit facility). Additionally, we had
$72.0 million of available capacity on our
$200.0 million non-recourse secured credit facility which,
inclusive of two one-year extension options, matures in October
2012. During 2009, we intend to use proceeds from asset
dispositions to continue to reduce the remaining balance on our
term loan, which matures in March 2011. That term loan has an
outstanding balance of $350.0 million after we repaid
$50.0 million in January 2009. Other than the term loan and
any borrowings under the revolving credit facility, we have no
recourse corporate debt.
Our revolving credit facility includes customary financial
covenants, including the maintenance of specified ratios with
respect to total indebtedness to gross asset value, total
secured indebtedness to gross asset value, aggregate recourse
indebtedness to gross asset value, variable rate debt to total
indebtedness, debt service coverage and fixed charge coverage;
the maintenance of a minimum adjusted tangible net worth; and
limitations regarding the amount of cross-collateralized debt.
The credit facility includes other customary covenants,
including a restriction on distributions and other restricted
payments, but permits distributions during any four consecutive
fiscal quarters in an aggregate amount of up to 95% of our funds
from operations for such period, subject to certain non-cash
adjustments, or such amount as may be necessary to maintain our
REIT status. These covenants are calculated on a quarterly basis
and are monitored as various strategic decisions are considered.
We were in compliance with all such covenants as of
December 31, 2008.
We are also 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. We use floating rate property
and corporate debt to provide lower interest costs over time at
a level that considers acceptable earnings volatility. During
2008, we closed property loans totaling $962.2 million at
an average interest rate of 5.51%, which included the
refinancing of property loans totaling $472.9 million with
prior interest rates averaging 5.58%. In addition to the
refinancing activity, the property loans included new financings
on existing properties, redevelopment loans and the modification
of terms on existing property debt. In 2009, 2010 and 2011, 38
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property loans will mature and our share of these maturities
totals $273.9 million, $279.9 million and
$102.3 million, respectively. We expect to refinance a
number of such loans in the first half of 2009.
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 condominiums and single-family homes that are available for
rent or purchase in the markets in which our properties are
located. Principal factors of competition include rent or price
charged, attractiveness of the location and property and quality
and breadth of services. The number of competitive properties
relative to demand in a particular area has a material effect on
our ability to lease apartment units at our properties and on
the rents we charge. In certain markets there exists oversupply
of single family homes and condominiums and household
consolidation, both of which affect the pricing and occupancy of
our rental apartments. Additionally, we compete with other real
estate investors, including other apartment REITs, pension and
investment funds, partnerships and investment companies in
acquiring, redeveloping and managing apartment properties. This
competition affects our ability to acquire properties we want to
add to our portfolio and the price that we pay in such
acquisitions.
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 relate
to organizational structure, distribution levels, diversity of
stock ownership and certain restrictions with regard to owned
assets and categories of income. If we qualify for taxation as a
REIT, we will generally not be subject to United States Federal
corporate income tax on our taxable income that is currently
distributed to stockholders. This treatment substantially
eliminates the double taxation (at the corporate and
stockholder levels) that generally results from an investment in
a corporation.
Even if we qualify as a REIT, we may be subject to United States
Federal income and excise taxes in various situations, such as
on our undistributed income. We also will be required to pay a
100% tax on any net income on non-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, such as
legislation that has been considered in New York, or other laws
regulating multifamily housing may reduce rental revenue or
increase operating costs in particular markets.
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
At December 31, 2008, we had approximately
4,500 employees, of which approximately 3,400 were at the
property level, performing various
on-site
functions, with the balance managing corporate and area
operations, including investment and debt transactions, legal,
financial reporting, accounting, information systems, human
resources and other support functions. Unions represent
approximately 120 of our employees. We have never experienced a
work stoppage and believe we maintain satisfactory relations
with our employees.
As further described in Note 3 to the consolidated
financial statements in Item 8, we initiated an
organizational restructuring during 2008. As a result of the
restructuring, we plan to eliminate approximately 300 jobs on or
before March 1, 2009, with reductions in staffing within
corporate, redevelopment and construction services, property
management and investment management functions. Approximately
half of the planned job eliminations had been completed at
December 31, 2008.
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.
Our
existing and future debt financing could render us unable to
operate, result in foreclosure on our properties, prevent us
from making distributions on our equity or otherwise adversely
affect our liquidity.
We are subject to the risk that our cash flow from operations
will be insufficient to make required payments of principal and
interest, and the risk that existing indebtedness may not be
refinanced or that the terms of any refinancing will not be as
favorable as the terms of existing indebtedness. If we fail to
make required payments of principal and interest on secured
debt, our lenders could foreclose on the properties and other
collateral securing such debt, which would result in loss of
income and asset value to us. As of December 31, 2008,
substantially all of the properties that we owned or controlled
were encumbered by debt. Our organizational documents do not
limit the amount of debt that we may incur, and we have
significant amounts of debt outstanding. Payments of principal
and interest may leave us with insufficient cash resources to
operate our properties or pay distributions required to be paid
in order to maintain our qualification as a REIT.
Our strategy is generally to incur debt to increase the return
on our equity while maintaining acceptable coverage ratios. For
the year ended December 31, 2008, 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 1.43:1. For the year ended December 31, 2008,
as calculated based on the provisions in our credit agreement,
which is further
9
discussed in Note 7 to the consolidated financial
statements in Item 8, we had a ratio of earnings before
interest, taxes and depreciation and amortization to debt
service of 1.63:1 and a ratio of earnings to fixed charges of
1.43:1.
At December 31, 2008, we had swap positions with two
financial institutions totaling $422.1 million. The related
swap agreements provide for collateral calls to maintain
specified loan-to-value ratios. In the event the values of the
real estate properties serving as collateral under these
agreements decline, we may be required to provide additional
collateral pursuant to the swap agreements, which would
adversely affect our cash flows.
Disruptions
in the financial markets could affect our ability to obtain
financing and the cost of available financing and could
adversely affect our liquidity.
Our ability to obtain financing and the cost of such financing
depends on the overall condition of the United States credit
markets and the level of involvement of certain government
sponsored entities, specifically, Federal Home Loan Mortgage
Corporation, or Freddie Mac, and Federal National Mortgage
Association, or Fannie Mae, in secondary credit markets.
Recently the United States credit markets have experienced
significant liquidity disruptions, which have caused the spreads
on debt financings to widen considerably and have made obtaining
financing, both non-recourse property debt and corporate
borrowings, such as our term loan or revolving credit facility,
more difficult.
Further or prolonged disruptions in the credit markets could
result in Freddie Mac or Fannie Mae reducing their level of
involvement in secondary credits markets which would adversely
affect our ability to obtain non-recourse property debt
financing. Additionally, further or prolonged disruptions in the
credit markets could lead to the failure of additional financial
companies, some of which may have financial commitments within
our revolving credit facility. This may affect our access to
liquidity through our credit facilitys scheduled maturity
in May 2010 (inclusive of a one-year extension option we expect
to exercise). When the revolving credit facility matures,
disruptions in the credit markets may also affect our ability to
renew such credit facility with similar commitments.
If our ability to obtain financing is adversely affected, we may
be unable to satisfy scheduled maturities on existing financing
through other sources of liquidity, which could result in lender
foreclosure on the properties securing such debt and loss of
income and asset value, each of which would adversely affect our
liquidity.
Increases
in interest rates would increase our interest expense and reduce
our profitability.
As of December 31, 2008, we had approximately
$1,309.5 million of variable-rate indebtedness outstanding
and $73.0 million of variable rate preferred stock
outstanding. Of the total debt subject to variable interest
rates, floating rate tax-exempt bond financing was
$563.4 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 1989
has averaged 69% of the
30-day LIBOR
rate. If this historical relationship continues, we estimate
that an increase in
30-day LIBOR
of 1.0% (0.69% in tax-exempt interest rates) with constant
credit risk spreads would result in our income before minority
interests being reduced by $11.6 million and our income
attributable to common stockholders being reduced by
$11.1 million on an annual basis. At December 31,
2008, we had approximately $717.2 million in cash and cash
equivalents, restricted cash and notes receivable, the majority
of which bear interest. We also had approximately
$127.3 million of variable rate debt associated with our
redevelopment activities, for which we capitalize a portion of
the interest expense. The effect of our interest-bearing assets
and of capitalizing interest on variable rate debt associated
with our redevelopment activities would partially reduce the
effect of an increase in variable interest rates. Considering
these offsets, the same increase in
30-day LIBOR
would result in our income before minority interests being
reduced by $3.1 million and our income attributable to
common stockholders being reduced by $4.3 million on an
annual basis.
Failure
to generate sufficient net operating income may limit our
ability to fund necessary capital expenditures or adversely
affect our ability to pay dividends.
Our ability to fund necessary capital expenditures on our
properties depends on our ability to generate net operating
income in excess of required debt payments. If we are unable to
fund capital expenditures on our properties, we may not be able
to preserve the competitiveness of our properties, which could
adversely affect our net operating income.
10
Our ability to make payments to our investors depends on our
ability to generate net operating income in excess of required
debt payments and capital expenditure requirements. Our net
operating income and liquidity may be adversely affected by
events or conditions beyond our control, including:
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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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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, subject to certain non-cash adjustments, or such amount
as may be necessary to maintain our REIT status. Our outstanding
classes of preferred stock prohibit the payment of dividends on
our Common Stock if we fail to pay the dividends to which the
holders of the preferred stock are entitled.
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. We also intend to use proceeds from
property sales to repay our corporate debt. Our ability to
dispose of assets in the future will depend on prevailing
economic and market conditions, including the cost and
availability of financing. This could have a material adverse
effect on our financial condition or results of operations.
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.
Our
subsidiaries may be prohibited from making distributions and
other payments 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 cash flows and may be subject to
statutory or contractual limitations. As an equity investor in
our subsidiaries, our right to receive assets upon their
liquidation or reorganization will be effectively subordinated
to the claims of their creditors. To the extent that we are
recognized
11
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.
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 a 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.
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 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.
12
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. 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, such as rental revenues paid by government
agencies.
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. Failure to comply with these
requirements and restrictions may result in financial penalties
or loss of benefits. We usually need to obtain the approval of
HUD in order to acquire or dispose of a significant interest in
or manage a HUD-assisted property. We may not always receive
such approval.
During 2008, 2007 and 2006, for continuing and discontinued
operations, our rental revenues include $119.1 million,
$123.8 million and $135.2 million, respectively, of
subsidies from government agencies. Any loss of such benefits
would adversely affect our liquidity and results of operations.
13
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, including lead-based paint. Such laws often impose
liability without regard to whether the owner or operator knew
of, or was responsible for, the release or presence of the
hazardous substances. The presence of, or the failure to manage
or remedy properly, hazardous substances may adversely affect
occupancy at affected apartment communities and the ability to
sell or finance affected properties. In addition to the costs
associated with investigation and remediation actions brought by
government agencies, and potential fines or penalties imposed by
such agencies in connection therewith, the presence of hazardous
substances on a property could result in claims by private
plaintiffs for personal injury, disease, disability or other
infirmities. Various laws also impose liability for the cost of
removal, remediation or disposal of hazardous substances through
a licensed disposal or treatment facility. Anyone who arranges
for the disposal or treatment of hazardous substances is
potentially liable under such laws. These laws often impose
liability whether or not the person arranging for the disposal
ever owned or operated the disposal facility. In connection with
the ownership, operation and management of properties, we could
potentially be liable for environmental liabilities or costs
associated with our properties or properties we acquire or
manage in the future.
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 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.
14
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 generally limit the amount of cash we retain for other
business purposes, including amounts to fund our growth. We
generally must distribute annually at least 90% of our
net REIT taxable income, excluding any net capital gain, in
order for our distributed earnings not to be subject to
corporate income tax. We intend to make distributions to our
stockholders to comply with the requirements of the Code.
However, differences in timing between the recognition of
taxable income and the actual receipt of cash could require us
to sell assets or borrow funds on a short-term or long-term
basis to meet the 90% distribution requirement of the Code.
We
have in the past chosen, and may in the future choose, to pay
dividends in our own stock, in which case you may be required to
pay income taxes in excess of the cash dividends you
receive.
We have in the past distributed, and may in the future
distribute, taxable dividends that are payable in cash and
shares of our Common Stock. Stockholders subject to the payment
of income tax receiving such dividends will be required to
include the full amount of the dividend as taxable income to the
extent of our current and accumulated earnings and profits for
U.S. Federal income tax purposes. As a result, a
U.S. stockholder may be required to pay income taxes with
respect to such dividends in excess of the cash dividends
received. If a U.S. stockholder sells the stock it receives
as a dividend in order to pay this tax, the sales proceeds may
be less than the amount included in income with respect to the
dividend, depending on the market price of our stock at the time
of the sale. Furthermore, with respect to
non-U.S. stockholders,
we may be required to withhold U.S. tax with respect to
such dividends, including in respect of all or a portion of such
dividend that is payable in stock. In addition, if a significant
number of our stockholders determine to sell shares of our
Common Stock in order to pay taxes owed on dividends, it may put
downward pressure on the trading price of our Common Stock.
Further, various aspects of such a taxable cash/stock dividend
are uncertain and have not yet been addressed by the IRS. No
assurance can be given that the IRS will not impose additional
requirements in the future with respect to taxable cash/stock
dividends, including on a retroactive basis, or assert that the
requirements for such taxable cash/stock dividends have not been
met.
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
15
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.
|
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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|
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.
|
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, 2008,
426,157,736 shares were classified as Common Stock, of
which 101,176,232 were outstanding, and 84,429,764 shares
were classified as preferred stock, of which 24,950,146 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
16
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,
|
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.
|
To date, we have not made any of the elections described above.
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Item 1B.
|
Unresolved
Staff Comments
|
None.
Our properties are located in 44 states, the District of
Columbia and Puerto Rico. Our geographic allocation strategy
focuses on target markets which are grouped by region below. The
following table sets forth information on all of our property
operations as of December 31, 2008 and 2007:
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|
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2008
|
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2007
|
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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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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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|
|
|
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|
|
|
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|
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Pacific
|
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|
38
|
|
|
|
10,504
|
|
|
|
39
|
|
|
|
10,616
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|
Northeast
|
|
|
66
|
|
|
|
20,169
|
|
|
|
70
|
|
|
|
23,490
|
|
Sunbelt
|
|
|
104
|
|
|
|
30,928
|
|
|
|
144
|
|
|
|
39,554
|
|
Chicago
|
|
|
19
|
|
|
|
5,555
|
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|
|
22
|
|
|
|
6,344
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Total target markets
|
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227
|
|
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67,156
|
|
|
|
275
|
|
|
|
80,004
|
|
Opportunistic and other markets
|
|
|
83
|
|
|
|
26,288
|
|
|
|
164
|
|
|
|
47,528
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Total conventional owned and managed
|
|
|
310
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|
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|
93,444
|
|
|
|
439
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|
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|
127,532
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Affordable owned and managed
|
|
|
289
|
|
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|
33,888
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|
|
|
312
|
|
|
|
37,104
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|
Property management
|
|
|
34
|
|
|
|
3,252
|
|
|
|
36
|
|
|
|
3,228
|
|
Asset management
|
|
|
359
|
|
|
|
32,223
|
|
|
|
382
|
|
|
|
35,176
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
992
|
|
|
|
162,807
|
|
|
|
1,169
|
|
|
|
203,040
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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At December 31, 2008, we owned an equity interest in and
consolidated 514 properties containing 117,719 apartment units,
which we refer to as consolidated properties. These
consolidated properties contain, on average, 229 apartment
units, with the largest property containing 2,113 apartment
units. These properties offer residents a range of amenities,
including swimming pools, clubhouses, spas, fitness centers and
tennis courts. Many of the apartment units offer features such
as vaulted ceilings, fireplaces, washer and dryer
hook-ups,
cable television,
17
balconies and patios. Additional information on our consolidated
properties is contained in Schedule III
Real Estate and Accumulated Depreciation in this Annual
Report on
Form 10-K.
At December 31, 2008, we held an equity interest in and did
not consolidate 85 properties containing 9,613 apartment units,
which we refer to as unconsolidated properties. In
addition, we provided property management services for 34
properties containing 3,252 apartment units, and asset
management services for 359 properties containing 32,223
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, 2008, our
consolidated properties classified as held for use in our
consolidated balance sheet were encumbered by aggregate mortgage
indebtedness totaling $6,281.1 million having an aggregate
weighted average interest rate of 5.55%. Such mortgage
indebtedness was secured by 497 properties with a combined net
book value of $8,005.6 million. Included in the 497
properties, we had a total of 37 mortgage loans on 25
properties, with an aggregate principal balance outstanding of
$483.7 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).
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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.
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Item 4.
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Submission
of Matters to a Vote of Security Holders
|
No matters were submitted to a vote of security holders during
the fourth quarter of 2008.
18
PART II
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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:
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Dividends
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Dividends
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Declared
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Declared
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(per share,
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Quarter Ended
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High(2)
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Low(2)
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(per share)
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adjusted)(3)
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2008
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|
|
|
|
|
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|
|
|
|
|
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December 31, 2008(1)
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$
|
43.67
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|
|
$
|
7.01
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|
|
$
|
3.88
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|
|
$
|
3.17
|
|
September 30, 2008(1)
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|
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42.28
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|
|
29.25
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|
|
3.00
|
|
|
|
2.13
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|
June 30, 2008
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|
|
41.24
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|
|
|
33.33
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|
|
|
0.60
|
|
|
|
0.43
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|
March 31, 2008
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|
|
41.11
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|
|
|
29.91
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|
|
|
0.00
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|
|
|
0.00
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2007
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2007(1)
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|
$
|
49.15
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|
|
$
|
33.97
|
|
|
$
|
3.11
|
|
|
$
|
2.10
|
|
September 30, 2007
|
|
|
51.62
|
|
|
|
38.65
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|
|
|
0.60
|
|
|
|
0.41
|
|
June 30, 2007
|
|
|
58.98
|
|
|
|
47.10
|
|
|
|
0.60
|
|
|
|
0.41
|
|
March 31, 2007
|
|
|
65.79
|
|
|
|
54.08
|
|
|
|
0.00
|
|
|
|
0.00
|
|
|
|
|
(1) |
|
During 2007 and 2008, our Board of Directors declared special
dividends which were paid part in cash and part in shares of
Common Stock as noted below. Our Board of Directors declared the
dividends to address taxable gains from 2007 and 2008 property
sales. |
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|
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|
Effective
|
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|
|
|
|
|
|
|
|
|
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|
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|
|
|
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|
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Increase in
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Shares on
|
|
|
|
Payment
|
|
|
Dividend
|
|
|
Total
|
|
|
Portion Paid
|
|
|
Portion Paid
|
|
|
Shares
|
|
|
Record
|
|
Declaration Date
|
|
Date
|
|
|
Declared
|
|
|
Dividend
|
|
|
in Cash
|
|
|
in Stock
|
|
|
Issued
|
|
|
Date
|
|
|
December 21, 2007
|
|
|
January 30, 2008
|
|
|
$
|
2.51
|
|
|
$
|
232.9 million
|
|
|
$
|
55.0 million
|
|
|
$
|
177.9 million
|
|
|
|
4,594,074
|
|
|
|
4.95
|
%
|
July 18, 2008
|
|
|
August 29, 2008
|
|
|
$
|
3.00
|
|
|
$
|
256.9 million
|
|
|
$
|
51.4 million
|
|
|
$
|
205.5 million
|
|
|
|
5,731,310
|
|
|
|
6.70
|
%
|
October 16, 2008
|
|
|
December 1, 2008
|
|
|
$
|
1.80
|
|
|
$
|
159.6 million
|
|
|
$
|
53.2 million
|
|
|
$
|
106.4 million
|
|
|
|
12,572,267
|
|
|
|
14.18
|
%
|
December 18, 2008
|
|
|
January 29, 2009
|
|
|
$
|
2.08
|
|
|
$
|
210.4 million
|
|
|
$
|
60.6 million
|
|
|
$
|
149.8 million
|
|
|
|
15,627,330
|
|
|
|
15.45
|
%
|
|
|
|
(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 dividends 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 dividends discussed in Note
(1) above. |
Our Board of Directors determines and declares our dividends. In
making a dividend determination, the Board of Directors
considers a variety of factors, including: REIT distribution
requirements; current market conditions; liquidity needs and
other uses of cash, such as for deleveraging and accretive
investment activities, including the repurchase of our common
and preferred shares. We have previously announced that we
intend to adjust the regular annual per share dividend from
$2.40 (or $0.60 per quarter) to $1.00 (or $0.25 per quarter).
The Board of Directors may further adjust the dividend amount or
the frequency with which the dividend is paid based on then
prevailing facts and circumstances.
On February 25, 2009, the closing price of our Common Stock
was $5.47 per share, as reported on the NYSE, and there were
117,298,253 shares of Common Stock outstanding, held by
3,018 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.
19
As a REIT, we are required to distribute annually to holders of
common stock at least 90% of our real estate investment
trust taxable income, which, as defined by the Code and
United States Department of Treasury regulations, is generally
equivalent to net taxable ordinary income.
From time to time, we 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, 2008, approximately 4,400 and
160,000 shares of Common Stock were issued in exchange for
common OP Units, respectively. During the three and twelve
months ended December 31, 2008, no shares of Common Stock
were issued in exchange for preferred OP Units.
The following table summarizes repurchases of our equity
securities in the quarter ended December 31, 2008(1):
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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, 2008
|
|
|
2,018,471
|
|
|
$
|
24.77
|
|
|
|
2,660,765
|
|
|
$
|
18.81
|
|
|
|
2,018,471
|
|
|
|
19,324,299
|
|
November 1 November 30, 2008
|
|
|
|
|
|
|
N/A
|
|
|
|
|
|
|
|
N/A
|
|
|
|
|
|
|
|
19,324,299
|
|
December 1 December 31, 2008
|
|
|
|
|
|
|
N/A
|
|
|
|
|
|
|
|
N/A
|
|
|
|
|
|
|
|
19,324,299
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
2,018,471
|
|
|
$
|
24.77
|
|
|
|
2,660,765
|
|
|
$
|
18.81
|
|
|
|
2,018,471
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Our Board of Directors has, from time to time, authorized us to
repurchase shares of our outstanding capital stock. As of
December 31, 2008, we were authorized to repurchase
approximately 19.3 million additional shares. This
authorization has no expiration date. These repurchases may be
made from time to time in the open market or in privately
negotiated transactions. |
|
(2) |
|
During the year ended December 31, 2008, we repurchased
approximately 13.9 million shares of Common Stock for
approximately $473.5 million, or $34.02 per share, or
19.3 million shares for $24.48 per share, as adjusted for
the special dividends. |
|
(3) |
|
The number of shares authorized for repurchase was not affected
by the special dividends. |
|
(4) |
|
Since we began repurchasing shares in the third quarter of 2006,
we have repurchased approximately 23.7 million shares, or
approximately 24.3% of the shares outstanding on July 31,
2006, at an average price of $38.84, or 33.7 million shares
for $27.19 per share, as adjusted for the special dividends. |
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, subject to certain non-cash adjustments, 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
20
calculated to exclude companies as they are acquired and add
them to the index calculation as they become publicly traded
companies. All companies of the definitional criteria in
existence at the point in time presented are included in the
index calculations. The graph assumes the investment of $100 in
our Common Stock and in each index on December 31, 2003,
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
|
|
2003
|
|
|
2004
|
|
|
2005
|
|
|
2006
|
|
|
2007
|
|
|
2008
|
|
|
Aimco
|
|
|
100.00
|
|
|
|
120.39
|
|
|
|
127.96
|
|
|
|
198.59
|
|
|
|
144.33
|
|
|
|
88.40
|
|
NASDAQ Composite
|
|
|
100.00
|
|
|
|
108.59
|
|
|
|
110.08
|
|
|
|
120.56
|
|
|
|
132.39
|
|
|
|
78.72
|
|
SNL REIT Residential Index
|
|
|
100.00
|
|
|
|
132.64
|
|
|
|
150.68
|
|
|
|
210.79
|
|
|
|
158.12
|
|
|
|
117.89
|
|
MSCI US REIT
|
|
|
100.00
|
|
|
|
131.49
|
|
|
|
147.44
|
|
|
|
200.40
|
|
|
|
166.70
|
|
|
|
103.40
|
|
S&P 500
|
|
|
100.00
|
|
|
|
110.88
|
|
|
|
116.33
|
|
|
|
134.70
|
|
|
|
142.10
|
|
|
|
89.53
|
|
Source: (other than with respect to S&P 500) SNL
Financial LC, Charlottesville, VA
©2009.
The Performance Graph will not be deemed to be incorporated by
reference into any filing by the Company under the Securities
Act of 1933, as amended, or the Securities Exchange Act of 1934,
as amended, except to the extent that the Company specifically
incorporates the same by reference.
The information required by Item 5 with respect to
securities authorized for issuance under equity compensation
plans is incorporated by reference in Part III,
Item 12 of this Annual Report.
21
|
|
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,
|
|
|
|
2008
|
|
|
2007(1)
|
|
|
2006(1)
|
|
|
2005(1)
|
|
|
2004(1)
|
|
|
|
(Dollar amounts in thousands, except per share data)
|
|
|
OPERATING DATA:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
1,457,918
|
|
|
$
|
1,376,820
|
|
|
$
|
1,274,163
|
|
|
$
|
1,058,290
|
|
|
$
|
950,894
|
|
Total operating expenses
|
|
|
(1,253,151
|
)
|
|
|
(1,135,065
|
)
|
|
|
(1,044,052
|
)
|
|
|
(873,442
|
)
|
|
|
(759,647
|
)
|
Operating income
|
|
|
204,767
|
|
|
|
241,755
|
|
|
|
230,111
|
|
|
|
184,848
|
|
|
|
191,247
|
|
Income (loss) from continuing operations(2)
|
|
|
(129,298
|
)
|
|
|
(53,184
|
)
|
|
|
(50,104
|
)
|
|
|
(31,957
|
)
|
|
|
46,933
|
|
Income from discontinued operations, net(3)
|
|
|
544,761
|
|
|
|
83,095
|
|
|
|
226,891
|
|
|
|
102,939
|
|
|
|
220,521
|
|
Cumulative effect of change in accounting principle
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,957
|
)
|
Net income
|
|
|
415,463
|
|
|
|
29,911
|
|
|
|
176,787
|
|
|
|
70,982
|
|
|
|
263,497
|
|
Net income attributable to preferred stockholders
|
|
|
53,708
|
|
|
|
66,016
|
|
|
|
81,132
|
|
|
|
87,948
|
|
|
|
88,804
|
|
Net income (loss) attributable to common stockholders
|
|
|
361,755
|
|
|
|
(36,105
|
)
|
|
|
95,655
|
|
|
|
(16,966
|
)
|
|
|
174,693
|
|
Earnings (loss) per common share basic and
diluted(4):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations (net of income attributable to
preferred stockholders)
|
|
$
|
(1.51
|
)
|
|
$
|
(0.85
|
)
|
|
$
|
(0.93
|
)
|
|
$
|
(0.87
|
)
|
|
$
|
(0.31
|
)
|
Net income (loss) attributable to common stockholders
|
|
$
|
2.98
|
|
|
$
|
(0.26
|
)
|
|
$
|
0.68
|
|
|
$
|
(0.12
|
)
|
|
$
|
1.28
|
|
BALANCE SHEET INFORMATION:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate, net of accumulated depreciation
|
|
$
|
8,102,368
|
|
|
$
|
7,887,042
|
|
|
$
|
7,325,217
|
|
|
$
|
6,546,302
|
|
|
$
|
6,028,863
|
|
Total assets
|
|
|
9,403,157
|
|
|
|
10,606,532
|
|
|
|
10,289,775
|
|
|
|
10,019,160
|
|
|
|
10,074,316
|
|
Total indebtedness
|
|
|
6,777,121
|
|
|
|
6,402,972
|
|
|
|
5,612,045
|
|
|
|
4,874,966
|
|
|
|
4,249,107
|
|
Stockholders equity
|
|
|
1,418,434
|
|
|
|
1,749,704
|
|
|
|
2,339,892
|
|
|
|
2,716,103
|
|
|
|
3,008,160
|
|
OTHER INFORMATION:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends declared per common share(4)
|
|
$
|
5.73
|
|
|
$
|
2.92
|
|
|
$
|
1.63
|
|
|
$
|
2.03
|
|
|
$
|
1.63
|
|
Total consolidated properties (end of period)
|
|
|
514
|
|
|
|
657
|
|
|
|
703
|
|
|
|
619
|
|
|
|
676
|
|
Total consolidated apartment units (end of period)
|
|
|
117,719
|
|
|
|
153,758
|
|
|
|
162,432
|
|
|
|
158,548
|
|
|
|
169,932
|
|
Total unconsolidated properties (end of period)
|
|
|
85
|
|
|
|
94
|
|
|
|
102
|
|
|
|
264
|
|
|
|
330
|
|
Total unconsolidated apartment units (end of period)
|
|
|
9,613
|
|
|
|
10,878
|
|
|
|
11,791
|
|
|
|
35,269
|
|
|
|
44,728
|
|
Units managed (end of period)(5)
|
|
|
35,475
|
|
|
|
38,404
|
|
|
|
42,190
|
|
|
|
46,667
|
|
|
|
49,074
|
|
|
|
|
(1) |
|
Certain reclassifications have been made to conform to the 2008
presentation. These reclassifications primarily represent
presentation changes related to discontinued operations in
accordance with Statement of Financial Accounting Standards
No. 144. |
|
(2) |
|
Loss from continuing operations for the year ended
December 31, 2008, includes a $107.5 million pre-tax
provision for impairment losses on real estate development
assets, which is discussed further in Managements
Discussion and Analysis of Financial Condition and Results of
Operations in Item 7. |
|
(3) |
|
Income from discontinued operations for the year ended
December 31, 2008, includes $618.2 million in gains on
disposition of real estate, net of minority partners
interest, resulting from the sale of 151 properties, which is
discussed further in Managements Discussion and
Analysis of Financial Condition and Results of Operations in
Item 7. |
|
(4) |
|
Per share amounts for each of the periods presented have been
retroactively adjusted for the effect of shares of Common Stock
issued in connection with special dividends paid during 2008 and
in January 2009 (see Note 1 to the consolidated financial
statements in Item 8 for further discussion of the special
dividends). |
|
(5) |
|
The years ended 2008, 2007, 2006, 2005 and 2004 include 32,223,
35,176, 38,617, 41,421 and 41,233 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. |
22
|
|
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 acquisition,
ownership, management and redevelopment of apartment properties.
Our property operations are characterized by diversification of
product, location and price point. As of December 31, 2008,
we owned or managed 992 apartment properties containing
162,807 units located in 44 states, the District of
Columbia and Puerto Rico. Our primary sources of income and cash
are rents associated with apartment leases.
The key financial indicators that we use in managing our
business and in evaluating our financial condition and operating
performance are: NAV; Funds From Operations, or FFO; Adjusted
Funds From Operations, or AFFO, which is FFO less spending for
Capital Replacements; same store property operating results; net
operating income; net operating income less spending for Capital
Replacements, or Free Cash Flow; Economic Income; financial
coverage ratios; and leverage as shown on our balance sheet. FFO
and Capital Replacements are defined and further described in
the sections captioned Funds From Operations and
Capital Expenditures below. The key macro-economic
factors and non-financial indicators that affect our financial
condition and operating performance are: rates of job growth;
single-family and multifamily housing starts; interest rates;
and availability and cost of financing.
Because our operating results depend primarily on income from
our properties, the supply and demand for apartments influences
our operating results. Additionally, the level of expenses
required to operate and maintain our properties, the pace and
price at which we redevelop, acquire and dispose of our
apartment properties, and the volume and timing of fee
transactions affect our operating results. Our cost of capital
is affected by the conditions in the capital and credit markets
and the terms that we negotiate for our equity and debt
financings.
As the financial and economic environment became more
challenging during 2008, we focused on: serving and retaining
residents; controlling costs and increasing efficiency through
improved business processes and automation; controlling capital
spending; minimizing our cost of capital, building cash and
reducing leverage; and upgrading the quality of our portfolio
through portfolio management. Additionally, in connection with
2008 property sales and expected reductions in redevelopment and
transactional activities, we initiated an organizational
restructuring during the fourth quarter of 2008. We expect 2009
to continue to be very difficult and will continue to evaluate
our activities and organizational structure, and intend to
adjust as necessary.
Our portfolio management strategy includes property dispositions
and acquisitions aimed at concentrating our portfolio in our
target markets. Over the next two years and subject to market
conditions and various REIT requirements, we expect to sell
approximately $2.0 billion of conventional and affordable
assets located primarily outside these target markets.
The following discussion and analysis of the results of our
operations and financial condition should be read in conjunction
with the accompanying consolidated financial statements in
Item 8.
23
Results
of Operations
Overview
2008
compared to 2007
We reported net income of $415.5 million and net income
attributable to common stockholders of $361.8 million for
the year ended December 31, 2008, compared to net income of
$29.9 million and net loss attributable to common
stockholders of $36.1 million for the year ended
December 31, 2007, increases of $385.6 million and
$397.9 million, respectively. These increases were
principally due to the following items, all of which are
discussed in further detail below:
|
|
|
|
|
an increase in income from discontinued operations, primarily
related to higher net gains on sales of real estate;
|
|
|
|
an increase in gain on dispositions of unconsolidated real
estate and other, primarily related to our disposition in 2008
of interests in two unconsolidated real estate
partnerships; and
|
|
|
|
an increase in net operating income associated with property
operations, reflecting improved operations of our same store
properties and other properties.
|
The effects of these items on our operating results were
partially offset by:
a provision for impairment losses on real estate
development assets;
|
|
|
|
|
an increase in depreciation and amortization expense, primarily
related to completed redevelopments; and
|
|
|
|
a restructuring provision recognized during the fourth quarter
of 2008.
|
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, primarily due
to decreases in net gains on dispositions of real estate;
|
|
|
|
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, primarily
related to completed redevelopments and newly consolidated
properties.
|
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; and
|
|
|
|
the recognition in 2007 of deferred debt extinguishment gains in
connection with the refinancing of certain mortgage loans that
had been restructured in a 1997 bankruptcy settlement.
|
The following paragraphs discuss these and other items affecting
the results of our operations in more detail.
Business
Segment Operating Results
We have two reportable segments: real estate (owning, operating
and redeveloping apartments) and investment management
(portfolio strategy, capital allocation, joint ventures, tax
credit syndication, acquisitions, dispositions and other
transaction activities). Several members of our executive
management team comprise our chief operating decision maker, as
defined in FASB Statement of Financial Accounting Standards
No. 131, Disclosures About
24
Segments of an Enterprise and Related Information, and
use various generally accepted industry financial measures to
assess the performance and financial condition of the business,
including: NAV; FFO; AFFO; same store property operating
results; net operating income; Free Cash Flow; Economic Income;
financial coverage ratios; and leverage as shown on our balance
sheet. The chief operating decision maker emphasizes net
operating income as a key measurement of segment profit or loss.
Segment net operating income is generally defined as segment
revenues less direct segment operating expenses.
Real
Estate Segment
Our real estate segment involves the ownership and operation of
properties that generate rental and other property-related
income through the leasing of apartment units. Our real estate
segments net operating income also includes income from
property management services performed for unconsolidated
partnerships and unrelated parties.
The following table summarizes our real estate segments
net operating income for the years ended December 31, 2008,
2007 and 2006 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Real estate segment revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
Rental and other property revenues
|
|
$
|
1,350,950
|
|
|
$
|
1,296,142
|
|
|
$
|
1,212,958
|
|
Property management revenues, primarily from affiliates
|
|
|
6,345
|
|
|
|
6,923
|
|
|
|
12,312
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,357,295
|
|
|
|
1,303,065
|
|
|
|
1,225,270
|
|
Real estate segment expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Property operating expenses
|
|
|
626,001
|
|
|
|
596,902
|
|
|
|
549,716
|
|
Property management expenses
|
|
|
5,385
|
|
|
|
6,678
|
|
|
|
6,289
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
631,386
|
|
|
|
603,580
|
|
|
|
556,005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate segment net operating income
|
|
$
|
725,909
|
|
|
$
|
699,485
|
|
|
$
|
669,265
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
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,
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
Change
|
|
|
Consolidated same store revenues.
|
|
$
|
837,748
|
|
|
$
|
821,287
|
|
|
|
2.0
|
%
|
Consolidated same store expenses
|
|
|
325,514
|
|
|
|
329,122
|
|
|
|
(1.1
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Same store net operating income
|
|
|
512,234
|
|
|
|
492,165
|
|
|
|
4.1
|
%
|
Reconciling items(1)
|
|
|
213,675
|
|
|
|
207,320
|
|
|
|
3.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate segment net operating income
|
|
$
|
725,909
|
|
|
$
|
699,485
|
|
|
|
3.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Same store operating statistics:
|
|
|
|
|
|
|
|
|
|
|
|
|
Properties
|
|
|
219
|
|
|
|
219
|
|
|
|
|
|
Apartment units
|
|
|
69,565
|
|
|
|
69,565
|
|
|
|
|
|
Average physical occupancy
|
|
|
94.9
|
%
|
|
|
94.7
|
%
|
|
|
0.2
|
%
|
Average rent/unit/month
|
|
$
|
970
|
|
|
$
|
954
|
|
|
|
1.7
|
%
|
25
|
|
|
(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, 2008, compared to the year
ended December 31, 2007, consolidated same store net
operating income increased $20.1 million, or 4.1%. Revenues
increased $16.5 million, or 2.0%, primarily due to higher
average rent (up $16 per unit) and an increase in average
physical occupancy. Expenses decreased by $3.6 million, or
1.1%, primarily due to decreases of $2.2 million in repair
and maintenance expense, $1.4 million in turnover expense
and $1.9 million in employee compensation and related
expenses, offset by an increase of $2.0 million in
utilities expense.
For the year ended December 31, 2008, compared to the year
ended December 31, 2007, consolidated real estate segment
net operating income related to consolidated properties other
than same store properties increased by $6.4 million, or
3.1%. Increases in net operating income attributable to
affordable, acquisition and redevelopment properties contributed
to the increase, and were partially offset by increases in
casualty losses of $6.5 million, including
$2.7 million related to Tropical Storm Fay and Hurricane
Ike during the year ended December 31, 2008.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
Change
|
|
|
Consolidated same store revenues
|
|
$
|
821,287
|
|
|
$
|
780,052
|
|
|
|
5.3
|
%
|
Consolidated same store expenses
|
|
|
329,122
|
|
|
|
315,461
|
|
|
|
4.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Same store net operating income
|
|
|
492,165
|
|
|
|
464,591
|
|
|
|
5.9
|
%
|
Reconciling items(1)
|
|
|
207,320
|
|
|
|
204,674
|
|
|
|
1.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate segment net operating income
|
|
$
|
699,485
|
|
|
$
|
669,265
|
|
|
|
4.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Same store operating statistics:
|
|
|
|
|
|
|
|
|
|
|
|
|
Properties
|
|
|
219
|
|
|
|
219
|
|
|
|
|
|
Apartment units
|
|
|
69,565
|
|
|
|
69,565
|
|
|
|
|
|
Average physical occupancy
|
|
|
94.7
|
%
|
|
|
94.7
|
%
|
|
|
|
|
Average rent/unit/month
|
|
$
|
954
|
|
|
$
|
914
|
|
|
|
4.4
|
%
|
|
|
|
(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 $27.6 million, or 5.9%. Revenues
increased $41.2 million, or 5.3%, primarily due to higher
average rent (up $40 per unit) and a $6.4 million increase
in utility reimbursements. Expenses increased by
$13.7 million, or 4.3%, primarily due to increases of
$5.1 million in employee compensation and related expenses,
$2.5 million in contract services expense,
$2.3 million in marketing expense, $2.1 million in
taxes and $2.0 million in insurance expense.
For the year ended December 31, 2007, compared to the year
ended December 31, 2006, consolidated real estate segment
net operating income related to consolidated properties other
than same store properties increased by $2.6 million, or
1.3%. Increases in net operating income attributable to
affordable, acquisition and redevelopment properties contributed
to the increase, and were partially offset by an unfavorable
change in casualty losses, resulting from casualty gains
recognized in 2006.
Investment
Management Segment
Our investment management segment includes activities and
services related to our owned portfolio of properties as well as
services provided to affiliated partnerships. Activities and
services that fall within investment management include
portfolio strategy, capital allocation, joint ventures, tax
credit syndication, acquisitions, dispositions and other
transaction activities. Within our owned portfolio, we refer to
these activities as Portfolio
26
Management, and their benefit is seen in property
operating results and in investment gains. For affiliated
partnerships, we refer to these activities as Asset
Management, for which we are separately compensated
through fees paid by third party investors. The expenses of this
segment consist primarily of the costs of departments that
perform these activities. These activities are conducted in part
by our taxable subsidiaries, and the related net operating
income may be subject to income taxes.
Transactions occur on varying timetables; thus, the income
varies from period to period. We have affiliated real estate
partnerships for which we have identified a pipeline of
transactional opportunities. As a result, we view asset
management fees as a predictable part of our core business
strategy. Asset management revenue includes certain fees that
were earned in a prior period, but not recognized at that time
because collectibility was not reasonably assured. Those fees
may be recognized in a subsequent period upon occurrence of a
transaction or a high level of the probability of occurrence of
a transaction within twelve months, or improvement in operations
that generates sufficient cash to pay the fees.
The following table summarizes the net operating income from our
investment management segment for the years ended
December 31, 2008, 2007 and 2006 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Asset management and tax credit revenues
|
|
$
|
100,623
|
|
|
$
|
73,755
|
|
|
$
|
48,893
|
|
Investment management expenses
|
|
|
21,389
|
|
|
|
20,514
|
|
|
|
14,742
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment segment net operating income(1)
|
|
$
|
79,234
|
|
|
$
|
53,241
|
|
|
$
|
34,151
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Excludes certain items of income and expense, which are included
in our consolidated statements of income in: other expenses,
net; interest expense; interest income; (loss) gain on
dispositions of unconsolidated real estate and other; and
minority interest in consolidated real estate partnerships. |
For the year ended December 31, 2008, compared to the year
ended December 31, 2007, net operating income from
investment management increased $26.0 million, or 48.8%.
This increase is attributable to a $30.7 million increase
in promote income, which is income earned in connection with the
disposition of properties owned by our consolidated joint
ventures, and a $9.2 million increase in other general
partner transactional fees, partially offset by a
$7.4 million decrease in asset management fees, a
$0.9 million increase in investment management expenses and
a $5.0 million decrease in revenues associated with our
affordable housing tax credit syndication business, including
syndication fees and other revenue earned in connection with
these arrangements.
For the year ended December 31, 2007, compared to the year
ended December 31, 2006, net operating income from
investment management increased $19.1 million, or 55.9%.
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 general partner transactional fees.
Other
Operating Expenses (Income)
Depreciation
and Amortization
For the year ended December 31, 2008, compared to the year
ended December 31, 2007, depreciation and amortization
increased $54.8 million, or 13.6%. This increase reflects
depreciation of $74.8 million for newly acquired
properties, completed redevelopments and other capital projects
recently placed in service. This increase was partially offset
by a decrease of $25.7 million in depreciation adjustments
necessary to reduce the carrying amount of buildings and
improvements to their estimated disposition value, or zero in
the case of a planned demolition (see Impairment of
Long-Lived Assets in Note 2 to the consolidated
financial statements in Item 8).
For the year ended December 31, 2007, compared to the year
ended December 31, 2006, depreciation and amortization
increased $35.0 million, or 9.5%. This increase reflects
depreciation of $23.7 million for newly acquired
properties, completed redevelopments and other capital projects
recently placed in service. Depreciation
27
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
Impairment of Long-Lived Assets in Note 2 to the
consolidated financial statements in Item 8).
General
and Administrative Expenses
For the year ended December 31, 2008, compared to the year
ended December 31, 2007, general and administrative
expenses increased $8.4 million, or 9.2%. This increase is
primarily attributable to higher personnel and related expenses
of $6.1 million and an increase of $1.5 million in
information technology communications costs.
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.
Other
Expenses, Net
Other expenses, net includes franchise taxes, risk management
activities, partnership administration expenses and certain
non-recurring items.
For the year ended December 31, 2008, compared to the year
ended December 31, 2007, other expenses, net changed
unfavorably by $3.4 million. The net unfavorable change
includes a $5.4 million write-off of certain communications
hardware and capitalized costs during 2008 (see Capitalized
Software Costs in Note 2 to the consolidated financial
statements in Item 8) and a $1.2 million
write-off of redevelopment costs associated with a change in the
planned use of a property during 2008. The net unfavorable
change also reflects $3.6 million of income recognized in
2007 related to the transfer of certain property rights to an
unrelated party. These unfavorable changes were partially offset
by a $3.7 million reduction in expenses of our self
insurance activities (net of $2.8 million of costs in 2008
related to Tropical Storm Fay and Hurricane Ike) and a net
decrease of $2.0 million in costs related to certain
litigation matters.
For the year ended December 31, 2007, compared to the year
ended December 31, 2006, other expenses, net changed
unfavorably by $3.6 million. The net unfavorable change is
primarily attributable to 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. These unfavorable changes
were partially offset by favorable changes related to 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
$1.7 million charge for one-time benefits to certain
employees terminated in 2006 that did not recur in 2007. Other
expenses, net for the year ended December 31, 2007, also
includes $3.6 million of income related to the transfer of
certain property rights to an unrelated party.
Restructuring
Costs
In connection with 2008 property sales and an expected reduction
in redevelopment and transactional activities, during the three
months ended December 31, 2008, we initiated an
organizational restructuring program that included reductions in
workforce and related costs, reductions in leased corporate
facilities and abandonment of certain redevelopment projects and
business pursuits. As a result, we recognized a restructuring
charge of $22.8 million ($20.5 million net of tax),
which consists of: severance costs of $12.9 million;
unrecoverable lease obligations and related costs of
$6.4 million related to space that we will no longer use;
and the write-off of deferred transaction costs totaling
$3.5 million associated with certain acquisitions and
redevelopment opportunities that we will no longer pursue. No
comparable restructuring costs were incurred during the years
ended December 31, 2007 or 2006.
28
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, 2008, compared to the year
ended December 31, 2007, interest income decreased
$23.8 million, or 58.1%. The decrease is primarily
attributable to a decrease of $16.0 million due to lower
interest rates on notes receivable, cash and restricted cash
balances and lower average balances. The decrease also includes
the effect of a $5.8 million net adjustment to accretion on
certain discounted notes during the year ended December 31,
2008, resulting from a change in the estimated timing and amount
of collection, and $1.5 million of accretion income
recognized during the year ended December 31, 2007, related
to the prepayment of principal on certain discounted loans
collateralized by properties in West Harlem in New York City,
which were funded in November 2006.
For the year ended December 31, 2007, as compared to the
year ended December 31, 2006, interest income increased
$8.7 million, or 27.1%. 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.
Interest
Expense
For the year ended December 31, 2008, compared to the year
ended December 31, 2007, interest expense, which includes
the amortization of deferred financing costs, increased
$13.3 million, or 3.7%. Interest on property loans payable
increased $19.1 million due to higher balances resulting
primarily from refinancing activities, offset by lower average
interest rates. Interest expense also increased by
$4.6 million due to decreases in capitalized interest
related to redevelopment activities. These increases were
partially offset by a $10.4 million decrease in corporate
interest expense primarily due to lower average interest rates.
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
$29.4 million, or 9.0%. Interest on property debt increased
$32.5 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.
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, 2008, compared to the year
ended December 31, 2007, deficit distributions to minority
partners increased $10.4 million. Deficit distributions to
minority partners increased in 2008 partially due to
$17.0 million in deficit distributions to minority
interests in the Aimco Operating Partnership, resulting from
higher cash distributions associated with Aimco Operating
Partnerships special distributions discussed in
Note 1 to the consolidated financial statements in
Item 8. This increase was partially offset by lower levels
of distributions to minority interests in consolidated real
estate partnerships in 2008, including distributions in
connection with debt refinancing transactions.
For the year ended December 31, 2007, compared to the year
ended December 31, 2006, deficit distributions to minority
partners increased $17.1 million. This increase reflects
higher levels of distributions to minority interests in
consolidated real estate partnerships in 2007, including several
large distributions in connection with debt refinancing
transactions.
29
Provision
for Operating Real Estate Impairment Losses
Real estate and other long-lived assets to be held and used are
stated at cost, less accumulated depreciation and amortization,
unless the carrying amount of the asset is not recoverable. If
events or circumstances indicate that the carrying amount of a
property may not be recoverable, we make an assessment of its
recoverability by comparing the carrying amount to our estimate
of the undiscounted future cash flows, excluding interest
charges, of the property. If the carrying amount exceeds the
estimated aggregate undiscounted future cash flows, we recognize
an impairment loss to the extent the carrying amount exceeds the
estimated fair value of the property.
For the year ended December 31, 2008, compared to the year
ended December 31, 2007, provision for operating real
estate impairment losses increased by $4.0 million, from
$1.6 million to $5.6 million. This increase is
primarily attributed to a reduction in the estimated holding
period for certain assets anticipated to sell within twelve
months, but that did not otherwise meet the criteria to be
classified as held for sale at December 31, 2008.
For the year ended December 31, 2007, compared to the year
ended December 31, 2006, provision for operating real
estate impairment losses increased by $2.4 million, from a
recovery of $0.8 million in 2006 to a provision of
$1.6 million in 2007. This increase is attributable to
impairment losses recognized during 2007 on four properties
classified as held for use relative to recoveries on previously
recorded impairment losses recognized in 2006.
Provision
for Impairment Losses on Real Estate Development
Assets
In connection with the preparation of our annual financial
statements, we assessed the recoverability of our investment in
our Lincoln Place property, located in Venice, California. Based
upon the recent decline in land values in Southern California
and the expected timing of our redevelopment efforts, we
determined that the total carrying amount of the property was no
longer probable of full recovery and, accordingly, during the
three months ended December 31, 2008, recognized an
impairment loss of $85.4 million ($55.6 million net of
tax).
Similarly, we assessed the recoverability of our investment in
Pacific Bay Vistas (formerly Treetops), a vacant property
located in San Bruno, California, and determined that the
carrying value for the property exceeded its estimated fair
value. Accordingly, we recognized an impairment loss of
$5.7 million for this property during the three months
ended December 31, 2008.
As part of the March 2002 acquisition of Casden Properties,
Inc., we invested $50.0 million for a 20% passive interest
in Casden Properties LLC, an entity organized to buy, re-entitle
and develop land parcels in Southern California. Based upon the
profit allocation agreement, we account for this investment as a
note receivable and have been amortizing the discounted value of
the investment to the $50.0 million previously estimated to
be collectible through January 2, 2009, the initial
dissolution date of the entity. The managing member is seeking
to extend the dissolution date. In connection with the
preparation of our annual financial statements and as a result
of the aforementioned decline in Southern California land
values, we determined our recorded investment of
$47.1 million is not fully recoverable, and accordingly
recognized an impairment loss of $16.3 million
($10.0 million net of tax) during the three months ended
December 31, 2008.
The impairments discussed above totaled $107.5 million and
are included in provisions for impairment losses on real estate
development assets in our consolidated statement of income for
the year ended December 31, 2008 included in Item 8.
We recognized no comparable impairments on real estate
development assets during the years ended December 31, 2007
or 2006.
Gain
on Dispositions of Unconsolidated Real Estate and
Other
Gain on dispositions of unconsolidated real estate and other
includes our share of gains related to dispositions of real
estate by unconsolidated real estate partnerships, gains on
disposition of interests in unconsolidated real estate
partnerships, gains on dispositions of land and other
non-depreciable assets and 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
30
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, 2008, compared to the year
ended December 31, 2007, gain on dispositions of
unconsolidated real estate and other increased
$67.5 million. This increase is primarily attributable to a
$98.4 million net gain on the disposition of interests in
two unconsolidated real estate partnerships and a
$1.7 million gain on the sale of an undeveloped land parcel
during the year ended December 31, 2008. During 2007, we
recognized a $6.0 million non-refundable option and
extension fee resulting from the termination of rights under an
option agreement to sell the North and Central towers of our
Flamingo South Beach property, approximately $6.7 million
of net gains on dispositions of land parcels and our share of
gains on dispositions of properties by unconsolidated real
estate partnerships, and 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).
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
$4.3 million. 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), the
recognition of a $6.0 million non-refundable option and
extension fee resulting from the termination of rights under an
option agreement to sell the North and Central towers of our
Flamingo South Beach property, and approximately
$6.7 million of net gains on dispositions of land parcels
and our share of gains on dispositions of properties by
unconsolidated real estate partnerships in 2007, as compared to
net gains of $27.7 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.
Income
Tax Benefit
Certain of our operations, such as property management, asset
management and risk management, are conducted through, and
certain of our properties are owned by, taxable 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. We also use TRS entities to hold
investments in certain properties. Income taxes related to the
results of continuing operations of our TRS entities are
included in income tax benefit in our consolidated statements of
income.
For the year ended December 31, 2008, compared to the year
ended December 31, 2007, income tax benefit increased by
$33.5 million. This increase was primarily attributed to
$36.1 million of income tax benefit recognized in 2008
related to the impairments of our Lincoln Place property and our
investment in Casden Properties LLC, both of which are owned
through TRS entities.
For the year ended December 31, 2007, compared to the year
ended December 31, 2006, income tax benefit increased by
$8.7 million. This increase was primarily attributable to
an increase in losses from continuing operations of our TRS
entities, due largely to favorable results from our
self-insurance
activities, which reduced losses of our TRS entities during 2006.
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, 2008, compared to the year
ended December 31, 2007, minority interest in consolidated
real estate partnerships changed favorably by
$20.9 million. The change includes a $9.1 million
favorable change relating to the minority interest share of
losses for real estate partnerships consolidated during the
fourth quarter of 2007, and the remainder relates to increases
in the minority partners share of losses of our other
consolidated real estate partnerships.
31
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
$13.6 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 an increase
in the minority interest partners share of losses of other
consolidated real estate partnerships.
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, 2008, 2007 and 2006,
income from discontinued operations, net totaled
$544.8 million, $83.1 million and $226.9 million,
respectively. The $461.7 million increase in income from
discontinued operations from 2007 to 2008 was principally due to
a $515.3 million increase in gain on dispositions of real
estate, net of minority partners interest and income
taxes, a $31.2 million decrease in interest expense and a
$36.3 million increase in recovery of deficit distributions
to minority partners, partially offset by a $39.4 million
decrease in operating income, a $19.1 million increase in
real estate impairment losses, a $41.1 million increase in
minority interest in Aimco Operating Partnership and a decrease
of $22.8 million attributable to a 2007 gain on debt
extinguishment related to eight properties in the VMS
partnership. The $143.8 million decrease in income from
discontinued operations from 2006 to 2007 was principally due to
a $163.4 million decrease in gain on dispositions of real
estate, net of minority partners interest and income
taxes, a $16.6 million decrease in recovery of deficit
distributions to minority partners, a $12.0 million
decrease in operating income and a $5.3 million increase in
real estate impairment losses, partially offset by a $21.7
decrease in interest expense, a $15.7 million decrease in
minority interest in Aimco Operating Partnership and an increase
of $22.8 million attributable to a 2007 gain on debt
extinguishment related to eight properties in the VMS
partnership.
During 2008, we sold 151 consolidated properties, resulting in a
net gain on sale of approximately $578.2 million (which is
net of $40.0 million of related income taxes).
Additionally, we recognized $24.0 million in impairment
losses on assets sold or classified as held for sale in 2008 and
$30.1 million of net recoveries of deficit distributions to
minority partners. During 2007, we sold 73 consolidated
properties, resulting in a net gain on sale of approximately
$62.9 million (which is net of $2.1 million of related
income taxes). Additionally, we recognized $4.9 million in
impairment losses on assets sold or classified as held for sale
in 2007 and $6.2 million 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
$226.3 million (which is net of $32.6 million of
related income taxes). Additionally, we recognized
$0.4 million in impairment recoveries on assets sold in
2006 and $10.4 million of net recoveries of deficit
distributions to minority partners. For the years ended
December 31, 2008, 2007 and 2006, income from discontinued
operations includes the operating results of the properties sold
or classified as held for sale as of December 31, 2008.
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
32
the following critical accounting policies involve our more
significant judgments and estimates used in the preparation of
our consolidated financial statements.
Impairment
of Long-Lived Assets
Real estate and other long-lived assets to be held and used are
stated at cost, less accumulated depreciation and amortization,
unless the carrying amount of the asset is not recoverable. If
events or circumstances indicate that the carrying amount of a
property may not be recoverable, we make an assessment of its
recoverability by comparing the carrying amount to our estimate
of the undiscounted future cash flows, excluding interest
charges, of the property. If the carrying amount exceeds the
estimated aggregate undiscounted future cash flows, we recognize
an impairment loss to the extent the carrying amount exceeds the
estimated fair value of the property.
From time to time, we have non-revenue producing properties that
we hold for future redevelopment. We assess the recoverability
of the carrying amount of these redevelopment properties by
comparing our estimate of undiscounted future cash flows based
on the expected service potential of the redevelopment property
upon completion to the carrying amount. In certain instances, we
use a probability-weighted approach to determine our estimate of
undiscounted future cash flows when alternative courses of
action are under consideration. As discussed in Provision for
Impairment Losses on Real Estate Development Assets within
the preceding discussion of Results of Operations, during 2008
we recognized impairment losses on our Lincoln Place and Pacific
Bay Vistas properties of $85.4 million ($55.6 million
net of tax) and $5.7 million, respectively.
Real estate investments are subject to varying degrees of risk.
Several factors may adversely affect the economic performance
and value of our real estate investments. These factors include:
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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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|
availability and cost of financing;
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|
changes in market capitalization rates; and
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|
the relative illiquidity of such investments.
|
Any adverse changes in these and other factors could cause an
impairment in our long-lived assets, including real estate and
investments in unconsolidated real estate partnerships. In
addition to the impairments of Lincoln Place and Pacific Bay
Vistas discussed above and our investment in Casden Properties
LLC discussed below, based on periodic tests of recoverability
of long-lived assets, for the years ended December 31, 2008
and 2007, we recorded net impairment losses of $5.6 million
and $1.6 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
consist of notes receivable from unrelated third parties. The
ultimate repayment of these notes is subject to a number of
variables, including the performance and value of the underlying
real estate and the claims of unaffiliated mortgage lenders. Our
notes receivable include loans extended by us that we carry at
the face amount plus accrued interest, which we refer to as
33
par value notes, and loans extended by predecessors,
some of whose positions we generally acquired at a discount,
which we refer to as discounted notes.
We record interest income on par value notes as earned in
accordance with the terms of the related loan agreements. We
discontinue the accrual of interest on such notes when the notes
are impaired, as discussed below, or when there is otherwise
significant uncertainty as to the collection of interest. We
record income on such nonaccrual loans using the cost recovery
method, under which we apply cash receipts first to the recorded
amount of the loan; thereafter, any additional receipts are
recognized as income.
We recognize interest income on discounted notes receivable
based upon whether the amount and timing of collections are both
probable and reasonably estimable. We consider collections to be
probable and reasonably estimable when the borrower has closed
transactions or has entered into certain pending transactions
(which include real estate sales, refinancings, foreclosures and
rights offerings) that provide a reliable source of repayment.
In such instances, we recognize accretion income, on a
prospective basis using the effective interest method over the
estimated remaining term of the loans, equal to the difference
between the carrying amount of the discounted notes and the
estimated collectible value. We record income on all other
discounted notes using the cost recovery method. Accretion
income recognized in any given period is based on our ability to
complete transactions to monetize the notes receivable and the
difference between the carrying value and the estimated
collectible amount of the notes; therefore, accretion income
varies on a period by period basis and could be lower or higher
than in prior periods.
Allowance
for Losses on Notes Receivable
We assess the collectibility of notes receivable on a periodic
basis, which assessment consists primarily of an evaluation of
cash flow projections of the borrower to determine whether
estimated cash flows are sufficient to repay principal and
interest in accordance with the contractual terms of the note.
We recognize impairments on notes receivable when it is probable
that principal and interest will not be received in accordance
with the contractual terms of the loan. The amount of the
impairment to be recognized generally is based on the fair value
of the partnerships real estate that represents the
primary source of loan repayment. In certain instances where
other sources of cash flow are available to repay the loan, the
impairment is measured by discounting the estimated cash flows
at the loans original effective interest rate.
During the years ended December 31, 2008, 2007 and 2006 we
recorded net provisions for losses on notes receivable of
$4.2 million, $4.0 million and $2.8 million,
respectively. We will continue to evaluate the collectibility of
these notes, and we will adjust related allowances in the future
due to changes in market conditions and other factors.
Additionally, as discussed in Provision for Impairment Losses
on Real Estate Development Assets within the preceding
discussion of Results of Operations, during 2008 we recognized
an impairment loss of $16.3 million ($10.0 million net
of tax) on our investment in Casden Properties LLC, which we
account for as a note receivable.
Capitalized
Costs
We capitalize costs, including certain indirect costs, incurred
in connection with our capital expenditure activities, including
redevelopment and construction projects, other tangible property
improvements and replacements of existing property components.
Included in these capitalized costs are payroll costs associated
with time spent by site employees in connection with the
planning, execution and control of all capital expenditure
activities at the property level. We characterize as
indirect costs an allocation of certain department
costs, including payroll, at the area operations and corporate
levels that clearly relate to capital expenditure activities. We
capitalize interest, property taxes and insurance during periods
in which redevelopment and construction projects are in
progress. We charge to expense as incurred costs that do not
relate to capital expenditure activities, including ordinary
repairs, maintenance, resident turnover costs and general and
administrative expenses (see Capital Expenditures and Related
Depreciation in Note 2 to the consolidated financial
statements in Item 8).
For the years ended December 31, 2008, 2007 and 2006, for
continuing and discontinued operations, we capitalized
$25.7 million, $30.8 million and $24.7 million of
interest costs, respectively, and $78.1 million,
$78.1 million and $66.2 million of site payroll and
indirect costs, respectively.
34
Funds
From Operations
FFO is a non-GAAP financial measure that we believe, when
considered with the financial statements determined in
accordance with GAAP, is helpful to investors in understanding
our performance because it captures features particular to real
estate performance by recognizing that real estate generally
appreciates over time or maintains residual value to a much
greater extent than do other depreciable assets such as
machinery, computers or other personal property. The Board of
Governors of the National Association of Real Estate Investment
Trusts, or NAREIT, defines FFO as net income (loss), computed in
accordance with GAAP, excluding gains from sales of depreciable
property, plus depreciation and amortization, and after
adjustments for unconsolidated partnerships and joint ventures.
Adjustments for unconsolidated partnerships and joint ventures
are calculated to reflect FFO on the same basis. We compute FFO
for all periods presented in accordance with the guidance set
forth by NAREITs April 1, 2002, White Paper, which we
refer to as the White Paper. We calculate FFO (diluted) by
subtracting redemption or repurchase related preferred stock
issuance costs and dividends on preferred stock and adding back
dividends/distributions on dilutive preferred securities,
discounts on preferred stock redemptions or repurchases 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, 2008, 2007 and 2006, our
FFO is calculated as follows (in thousands):
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2008
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2007
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|
|
2006
|
|
|
Net income (loss) attributable to common stockholders(1)
|
|
$
|
361,755
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|
|
$
|
(36,105
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)
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|
$
|
95,655
|
|
Adjustments:
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|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization(2)
|
|
|
458,595
|
|
|
|
403,786
|
|
|
|
368,783
|
|
Depreciation and amortization related to non-real estate assets
|
|
|
(18,012
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)
|
|
|
(20,815
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)
|
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|
(22,898
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)
|
Depreciation of rental property related to minority partners and
unconsolidated entities(3)(4)
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|
|
(36,571
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)
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|
|
(22,277
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)
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|
|
1,973
|
|
Depreciation of rental property related to minority
partners interest adjustment(5)
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|
|
|
|
|
|
|
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7,377
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|
Gain on dispositions of unconsolidated real estate and other
|
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|
(99,602
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)
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|
|
(32,061
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)
|
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|
(27,730
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)
|
Income tax arising from disposition of unconsolidated real
estate and other
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(433
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)
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|
(17
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)
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Gain on dispositions of non-depreciable assets and debt
extinguishment gain
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1,670
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|
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|
26,702
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|
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|
11,526
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|
Deficit distributions to minority partners(6)
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|
43,013
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|
32,599
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|
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|
15,519
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|
Discontinued operations:
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|
|
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|
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Gain on dispositions of real estate, net of minority
partners interest(3)
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(618,168
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)
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|
|
(65,076
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)
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|
|
(258,970
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)
|
Depreciation of rental property, net of minority partners
interest(3)(4)
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|
50,786
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|
|
|
65,334
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|
|
|
107,545
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|
Deficit distributions (recovery of deficit distributions) to
minority partners, net(6)
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|
(30,127
|
)
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|
|
6,161
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|
|
|
(10,441
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)
|
Income tax arising from disposals
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|
43,146
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|
|
|
2,135
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|
|
|
32,918
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|
Minority interest in Aimco Operating Partnerships share of
above adjustments(7)
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|
18,574
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|
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|
(36,830
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)
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|
|
(21,721
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)
|
Preferred stock dividends
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|
|
55,190
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|
|
|
63,381
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|
|
|
74,284
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|
Preferred stock redemption related (gains) costs
|
|
|
(1,482
|
)
|
|
|
2,635
|
|
|
|
6,848
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funds From Operations
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|
$
|
228,334
|
|
|
$
|
389,552
|
|
|
$
|
380,668
|
|
Preferred stock dividends
|
|
|
(55,190
|
)
|
|
|
(63,381
|
)
|
|
|
(74,284
|
)
|
Preferred stock redemption related gains (costs)
|
|
|
1,482
|
|
|
|
(2,635
|
)
|
|
|
(6,848
|
)
|
Dividends/distributions on dilutive preferred securities
|
|
|
4,850
|
|
|
|
1,875
|
|
|
|
202
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funds From Operations attributable to common
stockholders diluted
|
|
$
|
179,476
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|
|
$
|
325,411
|
|
|
$
|
299,738
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares, common share
equivalents and dilutive preferred securities outstanding(8):
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|
|
|
|
|
|
|
|
|
|
|
|
Common shares and equivalents(9)
|
|
|
121,672
|
|
|
|
143,307
|
|
|
|
144,774
|
|
Dilutive preferred securities
|
|
|
2,314
|
|
|
|
856
|
|
|
|
105
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
123,986
|
|
|
|
144,163
|
|
|
|
144,879
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes:
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|
|
(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 |
35
|
|
|
|
|
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. |
|
(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 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) |
|
During the years ended December 31, 2008, 2007 and 2006,
the Aimco Operating Partnership had 7,191,199, 7,367,440 and
7,853,174 common OP Units outstanding and 2,367,629, 2,379,084
and 2,379,084 High Performance Units outstanding. |
|
(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 shares of
Common Stock issued in connection with the special dividends
paid during 2008 and in January 2009, which are further
discussed in Note 1 to the consolidated financial
statements in Item 8. |
|
(9) |
|
Represents the denominator for earnings per common
share diluted, calculated in accordance with GAAP,
plus additional common share equivalents that are dilutive for
FFO. |
Liquidity
and Capital Resources
Liquidity is the ability to meet present and future financial
obligations. Our primary source of liquidity is cash flow from
our operations. Additional sources are proceeds from property
sales and proceeds from refinancings of existing mortgage loans
and borrowings under new mortgage loans.
Our principal uses for liquidity include normal operating
activities, payments of principal and interest on outstanding
debt, capital expenditures, 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 cash
provided by operating activities are not sufficient to cover our
short-term liquidity demands, we have additional means, such as
short-term borrowing availability and proceeds from property
sales and refinancings, to help us meet our short-term liquidity
demands. We may use our revolving credit facility for general
corporate purposes and to fund investments on an interim basis.
We expect to meet our long-term liquidity requirements, such as
debt maturities and property acquisitions, through long-term
borrowings, both secured and unsecured, the issuance of debt or
equity securities (including OP Units), the sale of
properties and cash generated from operations.
36
The current state of credit markets and related effect on the
overall economy may have an adverse affect on our liquidity,
both through increases in interest rates and credit risk
spreads, and access to financing. As further discussed in
Item 7A, Quantitative and Qualitative Disclosures About
Market Risk, we are subject to interest rate risk associated
with certain variable rate liabilities, preferred stock and
assets. Based on our net variable rate liabilities, preferred
stock and assets outstanding at December 31, 2008, we
estimate that a 1.0% increase in
30-day LIBOR
with constant credit risk spreads would reduce our income
attributable to common stockholders by approximately
$4.3 million on an annual basis. From January 1, 2008
to December 31, 2008, both the SIFMA (previously the Bond
Market Association index) and
30-day LIBOR
rates, the predominant interest rates to which our variable rate
debt obligations are indexed, decreased, with the SIFMA rate
decreasing from 3.06% to 1.25% and the
30-day LIBOR
rate decreasing from 4.57% to 0.45%. Although base interest
rates have decreased, the tightening of credit markets has
affected the credit risk spreads charged over base interest
rates on, and the availability of, mortgage loan financing. For
future refinancing activities, our liquidity and cost of funds
may be affected by increases in base interest rates or higher
credit risk spreads. If timely property financing options are
not available for maturing debt, we may consider alternative
sources of liquidity, such as reductions in certain capital
spending or proceeds from asset dispositions.
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 SIFMA rate for tax-exempt
bonds payable and the
30-day LIBOR
rate for notes payable, plus a credit 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
total rate of return swaps require specified loan-to-value
ratios. In the event the values of the real estate properties
serving as collateral under these agreements decline, we may be
required to provide additional collateral pursuant to the swap
agreements, which would adversely affect our cash flows. The
underlying borrowings are generally callable at our option, with
no prepayment penalty, with 30 days advance notice, and the
swaps generally have a term of less than five years. At
December 31, 2008, we had total rate of return swap
positions with two financial institutions totaling
$422.1 million and had provided $3.2 million in cash
collateral pursuant to the swap agreements to satisfy the
loan-to-value ratio requirements.
The total rate of return swaps have a contractually defined
termination value generally equal to the difference between the
fair value and the counterpartys purchased value of the
underlying borrowings (which is typically par value or contract
value), which may require payment by us if the fair value is
less than the purchased value, or to us if the fair value
exceeds the purchased value. In the event we are unable to
extend the arrangements at their maturities, the counterparty,
who is also the creditor on the related borrowings, may desire
to sell the borrowings. If the counterpartys purchased
value of the underlying borrowings exceeds the fair value of the
underlying borrowings at the date of the swap maturities, we may
elect to purchase the borrowings at counterpartys
purchased value to avoid incurring a termination payment under
the swap arrangements. In such event, we would be required to
refinance the borrowings or find other sources of liquidity to
repay the borrowings.
We periodically evaluate counterparty credit risk associated
with these arrangements. At the current time, we have concluded
we do not have material exposure. In the event a counterparty
were to default under these arrangements, loss of the net
interest benefit we generally receive under these arrangements,
which is equal to the difference between the fixed rate we
receive and the variable rate we pay, may adversely affect our
operating cash flows. See Derivative Financial Instruments
in Note 2 to the consolidated financial statements in
Item 8 for additional discussion of these arrangements,
including the current swap maturity dates.
As of December 31, 2008, the amount available under our
revolving credit facility was $578.8 million. For the years
ending December 31, 2009 and 2010, we have non-recourse
property debt maturities of $288.0 million and
$284.7 million, respectively, at an average estimated
loan-to-value of approximately 52% and 51%, respectively. Our
total outstanding unsecured term debt of $400.0 million at
December 31, 2008, matures in March 2011. In January 2009,
we prepaid $50.0 million of the balance outstanding on the
unsecured term debt. Additionally, we have limited obligations
to fund redevelopment commitments during the year ending
December 31, 2009, and no development commitments.
37
At December 31, 2008, we had $299.7 million in cash
and cash equivalents, an increase of $89.2 million from
December 31, 2007. At December 31, 2008, we had
$258.3 million of restricted cash, primarily consisting of
reserves and escrows held by lenders for bond sinking funds,
capital expenditures, property taxes and insurance. In addition,
cash, cash equivalents and restricted cash are held by
partnerships that are not presented on a consolidated basis. The
following discussion relates to changes in cash due to
operating, investing and financing activities, which are
presented in our consolidated statements of cash flows in
Item 8.
Operating
Activities
For the year ended December 31, 2008, our net cash provided
by operating activities of $421.5 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 $44.1 million
compared with the year ended December 31, 2007, driven
primarily by a $48.3 million decrease in operating income
of our consolidated properties, including those classified in
discontinued operations, which was attributable to property
sales in 2008 and 2007.
Investing
Activities
For the year ended December 31, 2008, our net cash provided
by investing activities of $1.3 billion consisted primarily
of proceeds from disposition of real estate and interests in
unconsolidated real estate partnerships, partially offset by
capital expenditures and purchases of real estate.
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, 2008, we sold 151
consolidated properties. These properties were sold for an
aggregate sales price of $2.4 billion and generated
proceeds totaling $2.3 billion, after the payment of
transaction costs and debt prepayment penalties. The
$2.3 billion in proceeds is inclusive of promote income
which is generated by the disposition of properties owned by our
consolidated joint ventures, debt assumed by buyers and sales
proceeds placed into escrows for tax-free exchanges and other
purposes, all of which are excluded from proceeds from
disposition of real estate in the consolidated statement of cash
flows. Sales proceeds were used to repay property debt, repay
borrowings under our revolving credit facility, repurchase
shares of our Common Stock and preferred stock and for other
corporate purposes.
Our portfolio management strategy includes property acquisitions
and dispositions to concentrate our portfolio in our target
markets. We are currently marketing for sale certain properties
that are inconsistent with this long-term investment strategy.
Additionally, from time to time, we may market certain
properties that are consistent with this strategy but offer
attractive returns. We plan to use our share of the net proceeds
from such dispositions to reduce debt, fund capital expenditures
on existing assets, fund acquisitions, and for other operating
needs and corporate purposes.
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 exclude 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, 2008, we spent a total of $101.4 million,
38
$124.9 million, $22.8 million, $340.3 million and
$24.2 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, 2008, on a per unit and total dollar
basis. Per unit numbers for CR and CI are based on approximately
126,834 average units for the year, including 109,956
conventional units and 16,879 affordable units. Average units
are weighted for the portion of the period that we owned an
interest in the property, represent ownership-adjusted effective
units, and exclude non-managed units. Total capital expenditures
are reconciled to our 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
|
|
$
|
40,516
|
|
|
$
|
319
|
|
Turnover related
|
|
|
45,724
|
|
|
|
361
|
|
Capitalized site payroll and indirect costs
|
|
|
15,128
|
|
|
|
119
|
|
|
|
|
|
|
|
|
|
|
Our share of Capital Replacements
|
|
$
|
101,368
|
|
|
$
|
799
|
|
|
|
|
|
|
|
|
|
|
Capital Replacements:
|
|
|
|
|
|
|
|
|
Conventional
|
|
$
|
94,574
|
|
|
$
|
860
|
|
Affordable
|
|
|
6,794
|
|
|
$
|
403
|
|
|
|
|
|
|
|
|
|
|
Our share of Capital Replacements
|
|
|
101,368
|
|
|
$
|
799
|
|
|
|
|
|
|
|
|
|
|
Capital Improvements:
|
|
|
|
|
|
|
|
|
Conventional
|
|
|
113,870
|
|
|
$
|
1,036
|
|
Affordable
|
|
|
11,016
|
|
|
$
|
653
|
|
|
|
|
|
|
|
|
|
|
Our share of Capital Improvements
|
|
|
124,886
|
|
|
$
|
985
|
|
|
|
|
|
|
|
|
|
|
Casualties(1):
|
|
|
|
|
|
|
|
|
Conventional
|
|
|
21,228
|
|
|
|
|
|
Affordable
|
|
|
1,615
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Our share of casualties
|
|
|
22,843
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Redevelopment:
|
|
|
|
|
|
|
|
|
Conventional projects
|
|
|
226,307
|
|
|
|
|
|
Tax credit projects
|
|
|
113,945
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Our share of redevelopment
|
|
|
340,252
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Entitlement
|
|
|
24,156
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Our share of capital expenditures
|
|
|
613,505
|
|
|
|
|
|
Plus minority partners share of consolidated spending
|
|
|
52,504
|
|
|
|
|
|
Less our share of unconsolidated spending
|
|
|
(776
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total capital expenditures per consolidated statement of cash
flows
|
|
$
|
665,233
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Casualties for the year ended December 31, 2008, reflect
the portion of the anticipated spending related to Tropical
Storm Fay and Hurricane Ike incurred as of December 31,
2008. |
Included in the above spending for CI, casualties, redevelopment
and entitlement, was approximately $63.1 million of our
share of capitalized site payroll and indirect costs related to
these activities for the year ended December 31, 2008.
39
We funded all of the above capital expenditures with cash
provided by operating activities, working capital and property
sales as discussed below.
Financing
Activities
For the year ended December 31, 2008, net cash used in
financing activities of $1.7 billion was primarily
attributed to debt principal payments, distributions to minority
interests, payment of common and preferred dividends and
repurchases of Common Stock and preferred stock. Proceeds from
property loans and tax-exempt bond financing partially offset
the cash outflows.
Mortgage
Debt
At December 31, 2008 and 2007, we had $6.3 billion and
$7.0 billion, respectively, in consolidated mortgage debt
outstanding, which included $52.0 million and
$1.1 billion, respectively, of mortgage debt classified
within liabilities related to assets held for sale. During the
year ended December 31, 2008, we refinanced or closed
mortgage loans on 71 properties (including one unconsolidated
property) generating $962.2 million of proceeds from
borrowings with a weighted average interest rate of 5.51%. Our
share of the net proceeds after repayment of existing debt,
payment of transaction costs and distributions to limited
partners, was $430.9 million. We used these total net
proceeds for capital expenditures and other corporate purposes.
We intend to continue to refinance mortgage debt primarily as a
means of extending current and near term maturities.
Term
Loans and 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. In September 2008, we entered into a fifth
amendment to the Credit Facility that modifies certain
provisions related to letters of credit.
During the year ended December 31, 2008, we repaid in full
our $75.0 million term loan which was due for payment in
September 2009. Following this repayment, the aggregate amount
of commitments and loans under the Credit Agreement is
$1.035 billion, comprised of a $400.0 million term
loan and $635.0 million of revolving loan commitments. The
$635.0 million of revolving loan commitments is after the
elimination of a $15.0 million commitment held by Lehman
Commercial Paper Inc. The $400.0 million term loan bears
interest at LIBOR plus 1.5%, or at our option, a base rate equal
to the prime rate, and matures March 2011. Our revolving credit
facility matures May 2009, and may be extended for an additional
year, subject to a 20.0 basis point fee on the total
commitments. Borrowings under the revolver bear interest based
on a pricing grid determined by leverage (currently at LIBOR
plus 1.125%).
At December 31, 2008, the term loan had an outstanding
principal balance of $400.0 million and a weighted average
interest rate of 2.94%. In January 2009, we prepaid
$50.0 million of the outstanding balance on the term debt.
The amount available under the revolving credit facility at
December 31, 2008, was $578.8 million (after giving
effect to $56.2 million outstanding for undrawn letters of
credit issued under the revolving credit facility). The proceeds
of revolving loans are generally permitted to be used to fund
working capital and for other corporate purposes.
Fair
Value Measurements
We enter into total rate of return swaps on various fixed rate
secured tax-exempt bonds payable and fixed rate notes payable to
convert these borrowings from a fixed rate to a variable rate
and provide an efficient financing product to lower our cost of
borrowing. 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.
Our method used to calculate the fair value of the total rate of
return swaps generally results in changes in fair value that are
equal to the changes in fair value of the related borrowings,
which is consistent with our hedging strategy. We believe that
these financial instruments are highly effective in offsetting
the changes in fair value of the
40
related borrowings during the hedging period, and accordingly,
changes in the fair value of these instruments have no material
impact on our liquidity, results of operations or capital
resources.
During the year ended December 31, 2008, changes in the
fair values of these financial instruments resulted in decreases
of $20.1 million in the carrying amount of the hedged
borrowings and equal increases in accrued liabilities and other
for total rate of return swaps. At December 31, 2008, the
cumulative recognized changes in the fair value of these
financial instruments resulted in a $29.5 million reduction
in the carrying amount of the hedged borrowings offset by an
equal increase in accrued liabilities and other for total rate
of return swaps. The current and cumulative decreases in the
fair values of the hedged borrowings and related swaps reflect
the recent uncertainty in the credit markets which has decreased
demand and increased pricing for similar debt instruments.
During the year ended December 31, 2008, we received net
cash receipts of $16.7 million under the total return
swaps, which positively impacted our liquidity. To the extent
interest rates increase above the fixed rates on the underlying
borrowings, our obligations under the total return swaps will
negatively affect our liquidity. During the year ended
December 31, 2008, we provided $3.2 million of cash
collateral to satisfy certain loan-to-value requirements under
the total rate of return swap agreements, which negatively
affected our liquidity. In the event the values of the real
estate properties serving as collateral under these agreements
decline, we may be required to provide additional collateral
pursuant to the swap agreements, which would adversely affect
our liquidity.
See Note 2 to the consolidated financial statements in
Item 8 for more information on our total rate of return
swaps and related borrowings.
Equity
Transactions
During the year ended December 31, 2008, we paid cash
dividends totaling $55.2 million and $212.3 million to
preferred and common stockholders, respectively. Additionally,
pursuant to the special dividends discussed in Note 1 to
the consolidated financial statements in Item 8, during the
year ended December 31, 2008, we paid dividends totaling
$489.8 million to common stockholders through the issuance
of approximately 22.9 million shares.
During September 2008, we repurchased 54 shares, or
$27.0 million in liquidation preference, of our
Series A Community Reinvestment Act Perpetual Preferred
Stock, $0.01 par value per share, for cash totaling
$24.8 million.
In April 2008, we and the Aimco Operating Partnership filed a
new shelf registration statement to replace the existing shelf
(which was due to expire later in 2008) that provides for
the issuance of debt and equity securities by Aimco and debt
securities by the Aimco Operating Partnership.
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, 2008, we repurchased approximately
13.9 million shares of Common Stock (19.3 million
shares after the effect of the special dividend) for
approximately $473.5 million. As of December 31, 2008,
we were authorized to repurchase approximately 19.3 million
additional shares of our Common Stock under an authorization
that has no expiration date. Future repurchases may be made from
time to time in the open market or in privately negotiated
transactions.
41
Contractual
Obligations
This table summarizes information contained elsewhere in this
Annual Report regarding payments due under contractual
obligations and commitments as of December 31, 2008
(amounts in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less than
|
|
|
|
|
|
|
|
|
More than
|
|
|
|
Total
|
|
|
One Year
|
|
|
1-3 Years
|
|
|
3-5 Years
|
|
|
5 Years
|
|
|
Scheduled long-term debt maturities
|
|
$
|
6,377,121
|
|
|
$
|
407,893
|
|
|
$
|
718,724
|
|
|
$
|
1,094,021
|
|
|
$
|
4,156,483
|
|
Term loan(1)
|
|
|
400,000
|
|
|
|
|
|
|
|
400,000
|
|
|
|
|
|
|
|
|
|
Redevelopment and other construction commitments
|
|
|
70,279
|
|
|
|
68,752
|
|
|
|
1,527
|
|
|
|
|
|
|
|
|
|
Leases for space occupied(2)
|
|
|
31,935
|
|
|
|
7,904
|
|
|
|
12,316
|
|
|
|
7,622
|
|
|
|
4,093
|
|
Other obligations(3)
|
|
|
5,595
|
|
|
|
5,595
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
6,884,930
|
|
|
$
|
490,144
|
|
|
$
|
1,132,567
|
|
|
$
|
1,101,643
|
|
|
$
|
4,160,576
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
After payment of $50.0 million in January 2009, the term
loan had an outstanding balance of $350.0 million. |
|
(2) |
|
Inclusive of leased space that has been abandoned as part of our
organizational restructuring in 2008 (see Restructuring Costs
in Note 3 to the consolidated financial statements in
Item 8). |
|
(3) |
|
Represents a commitment to fund $5.6 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, capital
improvements and capital replacement principally with proceeds
from property sales (including tax-free exchange proceeds),
short-term borrowings, debt and equity financing (including tax
credit equity) and operating cash flows.
In 2009, inclusive of the redevelopment commitments discussed in
Contractual Obligations above, we expect to invest between $50.0
and $75.0 million in conventional redevelopment projects
and between $30.0 and $45.0 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 base
interest rates, mortgage spreads and availability of credit. 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
42
the refunding and repricing risks of short-term borrowings. We
use short-term debt financing and working capital primarily to
fund short-term uses and acquisitions and generally expect to
refinance such borrowings with cash from operating activities,
property sales proceeds, long-term debt or equity financings. We
use total rate-of-return swaps to obtain the benefit of variable
rates on certain of our fixed rate debt instruments. We make
limited use of other derivative financial instruments and we do
not use them for trading or other speculative purposes.
We had $1,309.5 million of floating rate debt and
$73.0 million of floating rate preferred stock outstanding
at December 31, 2008. Of the total floating rate debt, the
major components were floating rate tax-exempt bond financing
($563.4 million), floating rate secured notes
($335.6 million) and a term loan ($400.0 million). At
December 31, 2008, we had approximately $717.2 million
in cash and cash equivalents, restricted cash and notes
receivable, the majority of which bear interest. We also had
approximately $127.3 million of variable rate debt
associated with our redevelopment activities, for which we
capitalize a portion of the interest expense. The effect of our
interest bearing assets and of capitalizing interest on variable
rate debt associated with our redevelopment activities would
partially reduce the effect of an increase in variable interest
rates. Historically, changes in tax-exempt interest rates have
been at a ratio of less than 1:1 with changes in taxable
interest rates. Floating rate tax-exempt bond financing is
benchmarked against the SIFMA rate (previously the Bond Market
Association index), which since 1989 has averaged 69% of the
30-day LIBOR
rate. If this historical relationship continues, on an annual
basis, we estimate that an increase in
30-day LIBOR
of 1.0% (0.69% in tax-exempt interest rates) with constant
credit risk spreads would result in our income before minority
interests being reduced by $3.1 million and our income
attributable to common stockholders being reduced by
$4.3 million.
We estimate the fair value for our debt instruments using
present value techniques that include income and market
valuation approaches with market rates for debt with the same or
similar terms. Present value calculations vary depending on the
assumptions used, including the discount rate and estimates of
future cash flows. In many cases, the fair value estimates may
not be realizable in immediate settlement of the instruments.
The estimated aggregate fair value of our consolidated debt
(including amounts reported in liabilities related to assets
held for sale) was approximately $6.7 billion and
$7.6 billion at December 31, 2008 and 2007,
respectively. The combined carrying value of our consolidated
debt (including amounts reported in liabilities related to
assets held for sale) was approximately $6.8 billion and
$7.5 billion at December 31, 2008 and 2007,
respectively. See Note 6 and Note 7 to the
consolidated financial statements in Item 8 for further
details on our consolidated debt. Refer to Derivative
Financial Instruments in Note 2 to the consolidated
financial statements in Item 8 for further discussion
regarding certain of our fixed rate debt that is subject to
total rate of return swap instruments. If market rates for our
fixed-rate debt were higher by 1.0% with constant credit risk
spreads, the estimated fair value of our debt discussed above
would have decreased from $6.7 billion to
$6.4 billion. If market rates for our debt discussed above
were lower by 1.0% with constant credit risk spreads, the
estimated fair value of our fixed-rate debt would have increased
from $6.7 billion to $6.9 billion.
At December 31, 2008, we had swap positions with two
financial institutions totaling $422.1 million. The related
swap agreements provide for collateral calls to maintain
specified loan-to-value ratios, pursuant to which we had
provided $3.2 million of collateral as of December 31,
2008. In the event the values of the real estate properties
serving as collateral under these agreements decline, we may be
required to provide additional collateral pursuant to the swap
agreements, which would adversely affect our cash flows.
|
|
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.
43
|
|
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, 2008. 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, 2008, 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 has been no change in our internal control over financial
reporting (as defined in
Rules 13a-15(f)
and
15d-15(f)
under the Exchange Act) during the fourth quarter of 2008 that
has materially affected, or is reasonably likely to materially
affect, our internal control over financial reporting.
44
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, 2008, 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, the Company maintained, in all material
respects, effective internal control over financial reporting as
of December 31, 2008, based on the COSO criteria.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
consolidated balance sheets of the Company as of
December 31, 2008 and 2007, and the related consolidated
statements of income, stockholders equity, and cash flows
for each of the three years in the period ended
December 31, 2008, and our report dated February 26,
2009 expressed an unqualified opinion thereon.
Denver, Colorado
February 26, 2009
45
|
|
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 Executive Officers,
Corporate Governance Matters Code of
Ethics, Other Matters Section 16(a)
Beneficial Ownership Reporting Compliance, Corporate
Governance Matters Nominating and Corporate
Governance Committee, Corporate Governance
Matters Audit Committee and Corporate
Governance Matters Audit Committee Financial
Expert in the proxy statement for our 2009 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 & Analysis,
Compensation and Human Resources Committee Report to
Stockholders, Summary Compensation Table,
Grants of Plan-Based Awards in 2008,
Outstanding Equity Awards at Fiscal Year End 2008,
Option Exercises and Stock Vested in 2008,
Potential Payments Upon Termination or Change in
Control and Corporate Governance Matters
Director Compensation in the proxy statement for our 2009
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 2009 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 2009 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 2009 annual meeting of stockholders
and is incorporated herein by reference.
46
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
|
|
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)
|
47
|
|
|
|
|
Exhibit No.
|
|
Description
|
|
|
10
|
.8
|
|
Fifth Amendment to Senior Secured Credit Agreement, dated as of
September 9, 2008, 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 11, 2008, is incorporated herein by this
reference)
|
|
10
|
.9
|
|
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
|
.10
|
|
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
|
.11
|
|
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
|
.12
|
|
Employment Contract executed on December 29, 2008, by and
between AIMCO Properties, L.P. and Terry Considine
(Exhibit 10.1 to Aimcos Current Report on
Form 8-K,
filed December 29, 2008, is incorporated herein by this
reference)*
|
|
10
|
.13
|
|
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
|
.14
|
|
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
|
.15
|
|
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
|
.16
|
|
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
|
.17
|
|
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
|
.18
|
|
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
|
.19
|
|
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
|
48
|
|
|
|
|
Exhibit No.
|
|
Description
|
|
|
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. |
|
(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 |
49
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 and
Chief Executive Officer
Date: February 27, 2009
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 and
Chief Executive Officer
(principal executive officer)
|
|
February 27, 2009
|
|
|
|
|
|
/s/ Thomas
M. Herzog
Thomas
M. Herzog
|
|
Executive Vice President and
Chief Financial Officer
(principal financial officer)
|
|
February 27, 2009
|
|
|
|
|
|
/s/ Paul
Beldin
Paul
Beldin
|
|
Senior Vice President and
Chief Accounting Officer
(principal accounting officer)
|
|
February 27, 2009
|
|
|
|
|
|
/s/ James
N. Bailey
James
N. Bailey
|
|
Director
|
|
February 27, 2009
|
|
|
|
|
|
/s/ Richard
S. Ellwood
Richard
S. Ellwood
|
|
Director
|
|
February 27, 2009
|
|
|
|
|
|
/s/ Thomas
L. Keltner
Thomas
L. Keltner
|
|
Director
|
|
February 27, 2009
|
|
|
|
|
|
/s/ J.
Landis Martin
J.
Landis Martin
|
|
Director
|
|
February 27, 2009
|
|
|
|
|
|
/s/ Robert
A. Miller
Robert
A. Miller
|
|
Director
|
|
February 27, 2009
|
|
|
|
|
|
/s/ Thomas
L. Rhodes
Thomas
L. Rhodes
|
|
Director
|
|
February 27, 2009
|
|
|
|
|
|
/s/ Michael
A. Stein
Michael
A. Stein
|
|
Director
|
|
February 27, 2009
|
50
(This page
intentionally left blank)
APARTMENT
INVESTMENT AND MANAGEMENT COMPANY
INDEX TO
FINANCIAL STATEMENTS
|
|
|
|
|
|
|
Page
|
|
Financial Statements:
|
|
|
|
|
|
|
|
F-2
|
|
|
|
|
F-3
|
|
|
|
|
F-4
|
|
|
|
|
F-5
|
|
|
|
|
F-6
|
|
|
|
|
F-8
|
|
Financial Statement Schedule:
|
|
|
|
|
|
|
|
F-54
|
|
All other schedules are omitted because they are not applicable
or the required information is shown in the financial statements
or notes thereto
|
|
|
|
|
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, 2008 and 2007, and
the related consolidated statements of income,
stockholders equity and cash flows for each of the three
years in the period ended December 31, 2008. 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 the Company at December 31, 2008 and
2007, and the consolidated results of its operations and its
cash flows for each of the three years in the period ended
December 31, 2008, 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.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
Companys internal control over financial reporting as of
December 31, 2008, based on criteria established in
Internal Control Integrated Framework issued
by the Committee of Sponsoring Organizations of the Treadway
Commission and our report dated February 26, 2009 expressed
an unqualified opinion thereon.
Denver, Colorado
February 26, 2009
F-2
APARTMENT
INVESTMENT AND MANAGEMENT COMPANY
CONSOLIDATED
BALANCE SHEETS
As of December 31, 2008 and 2007
(In thousands, except share data)
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
ASSETS
|
Real estate:
|
|
|
|
|
|
|
|
|
Buildings and improvements
|
|
$
|
8,552,635
|
|
|
$
|
7,893,171
|
|
Land
|
|
|
2,332,457
|
|
|
|
2,355,103
|
|
|
|
|
|
|
|
|
|
|
Total real estate
|
|
|
10,885,092
|
|
|
|
10,248,274
|
|
Less accumulated depreciation
|
|
|
(2,782,724
|
)
|
|
|
(2,361,232
|
)
|
|
|
|
|
|
|
|
|
|
Net real estate
|
|
|
8,102,368
|
|
|
|
7,887,042
|
|
Cash and cash equivalents
|
|
|
299,676
|
|
|
|
210,461
|
|
Restricted cash
|
|
|
258,303
|
|
|
|
313,694
|
|
Accounts receivable, net
|
|
|
89,132
|
|
|
|
71,463
|
|
Accounts receivable from affiliates, net
|
|
|
33,536
|
|
|
|
34,958
|
|
Deferred financing costs, net
|
|
|
59,473
|
|
|
|
65,888
|
|
Notes receivable from unconsolidated real estate partnerships,
net
|
|
|
22,567
|
|
|
|
35,186
|
|
Notes receivable from non-affiliates, net
|
|
|
136,633
|
|
|
|
143,054
|
|
Investment in unconsolidated real estate partnerships
|
|
|
109,312
|
|
|
|
117,217
|
|
Other assets
|
|
|
196,671
|
|
|
|
207,857
|
|
Deferred income tax assets, net
|
|
|
28,326
|
|
|
|
14,426
|
|
Assets held for sale
|
|
|
67,160
|
|
|
|
1,505,286
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
9,403,157
|
|
|
$
|
10,606,532
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY
|
Property tax-exempt bond financing
|
|
$
|
721,971
|
|
|
$
|
756,442
|
|
Property loans payable
|
|
|
5,559,169
|
|
|
|
5,096,473
|
|
Term loans
|
|
|
400,000
|
|
|
|
475,000
|
|
Other borrowings
|
|
|
95,981
|
|
|
|
75,057
|
|
|
|
|
|
|
|
|
|
|
Total indebtedness
|
|
|
6,777,121
|
|
|
|
6,402,972
|
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
|
64,241
|
|
|
|
65,235
|
|
Accrued liabilities and other
|
|
|
411,114
|
|
|
|
441,042
|
|
Deferred income
|
|
|
195,997
|
|
|
|
200,199
|
|
Security deposits
|
|
|
43,277
|
|
|
|
41,141
|
|
Liabilities related to assets held for sale
|
|
|
56,341
|
|
|
|
1,151,198
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
7,548,091
|
|
|
|
8,301,787
|
|
|
|
|
|
|
|
|
|
|
Minority interest in consolidated real estate partnerships
|
|
|
348,484
|
|
|
|
441,778
|
|
Minority interest in Aimco Operating Partnership
|
|
|
88,148
|
|
|
|
113,263
|
|
Commitments and contingencies (Note 8)
|
|
|
|
|
|
|
|
|
Stockholders equity:
|
|
|
|
|
|
|
|
|
Perpetual Preferred Stock
|
|
|
696,500
|
|
|
|
723,500
|
|
Class A Common Stock, $.01 par value,
426,157,736 shares authorized, 116,180,877 and
135,210,365 shares issued and outstanding, at
December 31, 2008 and 2007, respectively
|
|
|
1,162
|
|
|
|
1,352
|
|
Additional paid-in capital
|
|
|
3,056,550
|
|
|
|
3,508,342
|
|
Notes due on common stock purchases
|
|
|
(3,607
|
)
|
|
|
(5,441
|
)
|
Distributions in excess of earnings
|
|
|
(2,332,171
|
)
|
|
|
(2,478,049
|
)
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
1,418,434
|
|
|
|
1,749,704
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
9,403,157
|
|
|
$
|
10,606,532
|
|
|
|
|
|
|
|
|
|
|
See notes to consolidated financial statements.
F-3
APARTMENT
INVESTMENT AND MANAGEMENT COMPANY
CONSOLIDATED
STATEMENTS OF INCOME
For the Years Ended December 31, 2008, 2007 and 2006
(In thousands, except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
REVENUES:
|
|
|
|
|
|
|
|
|
|
|
|
|
Rental and other property revenues
|
|
$
|
1,350,950
|
|
|
$
|
1,296,142
|
|
|
$
|
1,212,958
|
|
Property management revenues, primarily from affiliates
|
|
|
6,345
|
|
|
|
6,923
|
|
|
|
12,312
|
|
Asset management and tax credit revenues
|
|
|
100,623
|
|
|
|
73,755
|
|
|
|
48,893
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
1,457,918
|
|
|
|
1,376,820
|
|
|
|
1,274,163
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING EXPENSES:
|
|
|
|
|
|
|
|
|
|
|
|
|
Property operating expenses
|
|
|
626,001
|
|
|
|
596,902
|
|
|
|
549,716
|
|
Property management expenses
|
|
|
5,385
|
|
|
|
6,678
|
|
|
|
6,289
|
|
Investment management expenses
|
|
|
21,389
|
|
|
|
20,514
|
|
|
|
14,742
|
|
Depreciation and amortization
|
|
|
458,595
|
|
|
|
403,786
|
|
|
|
368,783
|
|
General and administrative expenses
|
|
|
99,040
|
|
|
|
90,667
|
|
|
|
91,571
|
|
Other expenses, net
|
|
|
19,939
|
|
|
|
16,518
|
|
|
|
12,951
|
|
Restructuring costs
|
|
|
22,802
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
1,253,151
|
|
|
|
1,135,065
|
|
|
|
1,044,052
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
204,767
|
|
|
|
241,755
|
|
|
|
230,111
|
|
Interest income
|
|
|
17,130
|
|
|
|
40,887
|
|
|
|
32,173
|
|
Provision for losses on notes receivable, net
|
|
|
(4,179
|
)
|
|
|
(3,951
|
)
|
|
|
(2,785
|
)
|
Interest expense
|
|
|
(368,709
|
)
|
|
|
(355,440
|
)
|
|
|
(326,060
|
)
|
Deficit distributions to minority partners
|
|
|
(43,013
|
)
|
|
|
(32,599
|
)
|
|
|
(15,519
|
)
|
Equity in losses of unconsolidated real estate partnerships
|
|
|
(4,601
|
)
|
|
|
(277
|
)
|
|
|
(2,070
|
)
|
(Provision for) recoveries of operating real estate impairment
losses
|
|
|
(5,617
|
)
|
|
|
(1,637
|
)
|
|
|
813
|
|
Provision for impairment losses on real estate development assets
|
|
|
(107,459
|
)
|
|
|
|
|
|
|
|
|
Gain on dispositions of unconsolidated real estate and other
|
|
|
99,602
|
|
|
|
32,061
|
|
|
|
27,730
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income taxes, minority interests and discontinued
operations
|
|
|
(212,079
|
)
|
|
|
(79,201
|
)
|
|
|
(55,607
|
)
|
Income tax benefit
|
|
|
53,371
|
|
|
|
19,840
|
|
|
|
11,095
|
|
Minority interests:
|
|
|
|
|
|
|
|
|
|
|
|
|
Minority interest in consolidated real estate partnerships
|
|
|
22,052
|
|
|
|
1,123
|
|
|
|
(12,464
|
)
|
Minority interest in Aimco Operating Partnership, preferred
|
|
|
(7,646
|
)
|
|
|
(7,128
|
)
|
|
|
(7,153
|
)
|
Minority interest in Aimco Operating Partnership, common
|
|
|
15,004
|
|
|
|
12,182
|
|
|
|
14,025
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total minority interests
|
|
|
29,410
|
|
|
|
6,177
|
|
|
|
(5,592
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations
|
|
|
(129,298
|
)
|
|
|
(53,184
|
)
|
|
|
(50,104
|
)
|
Income from discontinued operations, net
|
|
|
544,761
|
|
|
|
83,095
|
|
|
|
226,891
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
415,463
|
|
|
|
29,911
|
|
|
|
176,787
|
|
Net income attributable to preferred stockholders
|
|
|
53,708
|
|
|
|
66,016
|
|
|
|
81,132
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to common stockholders
|
|
$
|
361,755
|
|
|
$
|
(36,105
|
)
|
|
$
|
95,655
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) per common share basic and diluted:
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations (net of preferred dividends)
|
|
$
|
(1.51
|
)
|
|
$
|
(0.85
|
)
|
|
$
|
(0.93
|
)
|
Income from discontinued operations
|
|
|
4.49
|
|
|
|
0.59
|
|
|
|
1.61
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to common stockholders
|
|
$
|
2.98
|
|
|
$
|
(0.26
|
)
|
|
$
|
0.68
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding basic and
diluted
|
|
|
121,213
|
|
|
|
140,137
|
|
|
|
141,053
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends declared per common share
|
|
$
|
5.73
|
|
|
$
|
2.92
|
|
|
$
|
1.63
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See notes to consolidated financial statements.
F-4
APARTMENT
INVESTMENT AND MANAGEMENT COMPANY
CONSOLIDATED
STATEMENTS OF STOCKHOLDERS EQUITY
For the Years Ended December 31, 2008, 2007 and 2006
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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, 2005 (before special
dividends)
|
|
|
38,325
|
|
|
$
|
1,010,250
|
|
|
|
100,473
|
|
|
$
|
1,004
|
|
|
$
|
3,258,773
|
|
|
$
|
(25,911
|
)
|
|
$
|
(1,528,013
|
)
|
|
$
|
2,716,103
|
|
Common Stock issued pursuant to special dividends (Note 1)
|
|
|
|
|
|
|
|
|
|
|
40,845
|
|
|
|
408
|
|
|
|
458,908
|
|
|
|
|
|
|
|
(459,316
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at December 31, 2005
|
|
|
38,325
|
|
|
|
1,010,250
|
|
|
|
141,318
|
|
|
|
1,412
|
|
|
|
3,717,681
|
|
|
|
(25,911
|
)
|
|
|
(1,987,329
|
)
|
|
|
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
|
|
|
|
|
|
|
|
|
|
|
146
|
|
|
|
1
|
|
|
|
4,560
|
|
|
|
|
|
|
|
|
|
|
|
4,561
|
|
Repurchases of Common Stock
|
|
|
|
|
|
|
|
|
|
|
(3,397
|
)
|
|
|
(34
|
)
|
|
|
(120,225
|
)
|
|
|
|
|
|
|
|
|
|
|
(120,259
|
)
|
Repayment of notes receivable from officers
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21,844
|
|
|
|
|
|
|
|
21,844
|
|
Officer and employee stock awards and purchases, net
|
|
|
|
|
|
|
|
|
|
|
674
|
|
|
|
7
|
|
|
|
676
|
|
|
|
(647
|
)
|
|
|
|
|
|
|
36
|
|
Stock options exercised
|
|
|
|
|
|
|
|
|
|
|
4,172
|
|
|
|
42
|
|
|
|
107,562
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
|
|
|
|
|
|
|
|
11
|
|
|
|
|
|
|
|
479
|
|
|
|
|
|
|
|
|
|
|
|
479
|
|
Amortization of stock option and restricted stock compensation
cost
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15,874
|
|
|
|
|
|
|
|
|
|
|
|
15,874
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
176,787
|
|
|
|
176,787
|
|
Cash dividends declared on Common Stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(232,185
|
)
|
|
|
(232,185
|
)
|
Preferred Stock dividends
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(87,135
|
)
|
|
|
(87,135
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at December 31, 2006
|
|
|
26,855
|
|
|
|
823,500
|
|
|
|
142,924
|
|
|
|
1,428
|
|
|
|
3,731,400
|
|
|
|
(4,714
|
)
|
|
|
(2,211,722
|
)
|
|
|
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
|
|
|
|
|
|
|
|
|
|
|
695
|
|
|
|
7
|
|
|
|
27,846
|
|
|
|
|
|
|
|
|
|
|
|
27,853
|
|
Repayment of notes receivable from officers
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,659
|
|
|
|
|
|
|
|
1,659
|
|
Officer and employee stock awards and purchases, net
|
|
|
|
|
|
|
|
|
|
|
466
|
|
|
|
5
|
|
|
|
2,553
|
|
|
|
(2,386
|
)
|
|
|
|
|
|
|
172
|
|
Stock options exercised
|
|
|
|
|
|
|
|
|
|
|
2,070
|
|
|
|
21
|
|
|
|
53,698
|
|
|
|
|
|
|
|
|
|
|
|
53,719
|
|
Repurchases of Common Stock
|
|
|
|
|
|
|
|
|
|
|
(10,945
|
)
|
|
|
(109
|
)
|
|
|
(325,713
|
)
|
|
|
|
|
|
|
|
|
|
|
(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
|
|
Cash dividends declared on Common Stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(228,022
|
)
|
|
|
(228,022
|
)
|
Preferred Stock dividends
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(64,817
|
)
|
|
|
(64,817
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at December 31, 2007
|
|
|
24,950
|
|
|
|
723,500
|
|
|
|
135,210
|
|
|
|
1,352
|
|
|
|
3,508,342
|
|
|
|
(5,441
|
)
|
|
|
(2,478,049
|
)
|
|
|
1,749,704
|
|
Repurchase of Preferred Stock
|
|
|
|
|
|
|
(27,000
|
)
|
|
|
|
|
|
|
|
|
|
|
678
|
|
|
|
|
|
|
|
1,482
|
|
|
|
(24,840
|
)
|
Redemption of Aimco Operating Partnership units for Common Stock
|
|
|
|
|
|
|
|
|
|
|
160
|
|
|
|
2
|
|
|
|
4,180
|
|
|
|
|
|
|
|
|
|
|
|
4,182
|
|
Repayment of notes receivable from officers
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,458
|
|
|
|
|
|
|
|
1,458
|
|
Officer and employee stock awards and purchases, net
|
|
|
|
|
|
|
|
|
|
|
348
|
|
|
|
3
|
|
|
|
824
|
|
|
|
(613
|
)
|
|
|
|
|
|
|
214
|
|
Stock options exercised
|
|
|
|
|
|
|
|
|
|
|
19
|
|
|
|
|
|
|
|
481
|
|
|
|
|
|
|
|
|
|
|
|
481
|
|
Forfeitures of officer and employee stock awards
|
|
|
|
|
|
|
|
|
|
|
(207
|
)
|
|
|
(2
|
)
|
|
|
(1,027
|
)
|
|
|
989
|
|
|
|
|
|
|
|
(40
|
)
|
Repurchases of Common Stock
|
|
|
|
|
|
|
|
|
|
|
(19,349
|
)
|
|
|
(193
|
)
|
|
|
(473,319
|
)
|
|
|
|
|
|
|
|
|
|
|
(473,512
|
)
|
Amortization of stock option and restricted stock compensation
cost
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17,603
|
|
|
|
|
|
|
|
|
|
|
|
17,603
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,212
|
)
|
|
|
|
|
|
|
|
|
|
|
(1,212
|
)
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
415,463
|
|
|
|
415,463
|
|
Cash dividends declared on Common Stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(215,853
|
)
|
|
|
(215,853
|
)
|
Preferred Stock dividends
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(55,214
|
)
|
|
|
(55,214
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at December 31, 2008
|
|
|
24,950
|
|
|
$
|
696,500
|
|
|
|
116,181
|
|
|
$
|
1,162
|
|
|
$
|
3,056,550
|
|
|
$
|
(3,607
|
)
|
|
$
|
(2,332,171
|
)
|
|
$
|
1,418,434
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See notes to consolidated financial statements.
F-5
APARTMENT
INVESTMENT AND MANAGEMENT COMPANY
CONSOLIDATED
STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 2008, 2007 and 2006
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
CASH FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
415,463
|
|
|
$
|
29,911
|
|
|
$
|
176,787
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustments to reconcile net income to net cash provided by
operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
458,595
|
|
|
|
403,786
|
|
|
|
368,783
|
|
Deficit distributions to minority partners
|
|
|
43,013
|
|
|
|
32,599
|
|
|
|
15,519
|
|
Equity in losses of unconsolidated real estate partnerships
|
|
|
4,601
|
|
|
|
277
|
|
|
|
2,070
|
|
Provision for impairment losses on real estate development assets
|
|
|
107,459
|
|
|
|
|
|
|
|
|
|
Real estate impairment losses (recoveries), net
|
|
|
5,617
|
|
|
|
1,637
|
|
|
|
(813
|
)
|
Gain on dispositions of unconsolidated real estate and other
|
|
|
(99,602
|
)
|
|
|
(32,061
|
)
|
|
|
(27,730
|
)
|
Deferred income tax benefit
|
|
|
(53,371
|
)
|
|
|
(19,840
|
)
|
|
|
(11,095
|
)
|
Minority interest in consolidated real estate partnerships
|
|
|
(22,052
|
)
|
|
|
(1,123
|
)
|
|
|
12,464
|
|
Minority interest in Aimco Operating Partnership
|
|
|
(7,358
|
)
|
|
|
(5,054
|
)
|
|
|
(6,872
|
)
|
Stock-based compensation expense
|
|
|
13,833
|
|
|
|
14,921
|
|
|
|
12,314
|
|
Amortization of deferred loan costs and other
|
|
|
10,694
|
|
|
|
9,827
|
|
|
|
14,893
|
|
Distributions of earnings from unconsolidated entities
|
|
|
14,619
|
|
|
|
4,239
|
|
|
|
3,578
|
|
Distributions of earnings to minority interest in consolidated
real estate partnerships
|
|
|
(18,887
|
)
|
|
|
(17,406
|
)
|
|
|
(13,369
|
)
|
Discontinued operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
57,288
|
|
|
|
96,554
|
|
|
|
129,994
|
|
Gain on disposition of real estate, net of minority
partners interest
|
|
|
(618,168
|
)
|
|
|
(65,076
|
)
|
|
|
(258,970
|
)
|
Other adjustments to income from discontinued operations
|
|
|
82,911
|
|
|
|
1,047
|
|
|
|
42,844
|
|
Changes in operating assets and operating liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
4,848
|
|
|
|
7,453
|
|
|
|
(3,178
|
)
|
Other assets
|
|
|
53,699
|
|
|
|
(9,751
|
)
|
|
|
45,332
|
|
Accounts payable, accrued liabilities and other
|
|
|
(31,721
|
)
|
|
|
13,596
|
|
|
|
16,359
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total adjustments
|
|
|
6,018
|
|
|
|
435,625
|
|
|
|
342,123
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
421,481
|
|
|
|
465,536
|
|
|
|
518,910
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of real estate
|
|
|
(112,655
|
)
|
|
|
(201,434
|
)
|
|
|
(153,426
|
)
|
Capital expenditures
|
|
|
(665,233
|
)
|
|
|
(689,719
|
)
|
|
|
(512,564
|
)
|
Proceeds from dispositions of real estate
|
|
|
2,060,344
|
|
|
|
431,863
|
|
|
|
958,604
|
|
Change in funds held in escrow from tax-free exchanges
|
|
|
345
|
|
|
|
25,863
|
|
|
|
(19,021
|
)
|
Cash from newly consolidated properties
|
|
|
241
|
|
|
|
7,549
|
|
|
|
23,269
|
|
Proceeds from sale of interests and distributions from real
estate partnerships
|
|
|
94,277
|
|
|
|
198,998
|
|
|
|
45,662
|
|
Purchases of partnership interests and other assets
|
|
|
(28,121
|
)
|
|
|
(86,204
|
)
|
|
|
(37,570
|
)
|
Originations of notes receivable
|
|
|
(6,911
|
)
|
|
|
(10,812
|
)
|
|
|
(94,640
|
)
|
Proceeds from repayment of notes receivable
|
|
|
8,929
|
|
|
|
14,370
|
|
|
|
9,604
|
|
Other investing activities
|
|
|
(6,347
|
)
|
|
|
37,927
|
|
|
|
13,122
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) investing activities
|
|
|
1,344,869
|
|
|
|
(271,599
|
)
|
|
|
233,040
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from property loans
|
|
|
949,549
|
|
|
|
1,552,048
|
|
|
|
1,185,670
|
|
Principal repayments on property loans
|
|
|
(1,291,543
|
)
|
|
|
(850,484
|
)
|
|
|
(1,004,142
|
)
|
Proceeds from tax-exempt bond financing
|
|
|
50,100
|
|
|
|
82,350
|
|
|
|
75,568
|
|
Principal repayments on tax-exempt bond financing
|
|
|
(217,361
|
)
|
|
|
(70,029
|
)
|
|
|
(229,287
|
)
|
(Payments on) borrowings under term loans
|
|
|
(75,000
|
)
|
|
|
75,000
|
|
|
|
|
|
Net repayments on revolving credit facility
|
|
|
|
|
|
|
(140,000
|
)
|
|
|
(77,000
|
)
|
Proceeds from (payments on) other borrowings
|
|
|
21,367
|
|
|
|
(8,468
|
)
|
|
|
(22,838
|
)
|
Proceeds from issuance of preferred stock, net
|
|
|
|
|
|
|
|
|
|
|
97,491
|
|
Repurchases and redemptions of preferred stock
|
|
|
(24,840
|
)
|
|
|
(102,000
|
)
|
|
|
(286,750
|
)
|
Repurchase of Class A Common Stock
|
|
|
(502,296
|
)
|
|
|
(307,382
|
)
|
|
|
(109,937
|
)
|
Proceeds from Class A Common Stock option exercises
|
|
|
481
|
|
|
|
53,719
|
|
|
|
107,603
|
|
Principal repayments received on notes due on Class A
Common Stock purchases
|
|
|
1,458
|
|
|
|
1,659
|
|
|
|
21,844
|
|
Payment of Class A Common Stock dividends
|
|
|
(212,286
|
)
|
|
|
(230,806
|
)
|
|
|
(231,697
|
)
|
Payment of preferred stock dividends
|
|
|
(55,215
|
)
|
|
|
(67,100
|
)
|
|
|
(74,700
|
)
|
Payment of distributions to minority interest
|
|
|
(311,695
|
)
|
|
|
(180,684
|
)
|
|
|
(117,216
|
)
|
Other financing activities
|
|
|
(9,854
|
)
|
|
|
(21,123
|
)
|
|
|
(18,465
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in financing activities
|
|
|
(1,677,135
|
)
|
|
|
(213,300
|
)
|
|
|
(683,856
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
|
|
|
89,215
|
|
|
|
(19,363
|
)
|
|
|
68,094
|
|
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR
|
|
|
210,461
|
|
|
|
229,824
|
|
|
|
161,730
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH AND CASH EQUIVALENTS AT END OF YEAR
|
|
$
|
299,676
|
|
|
$
|
210,461
|
|
|
$
|
229,824
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See notes to consolidated financial statements.
F-6
APARTMENT
INVESTMENT AND MANAGEMENT COMPANY
CONSOLIDATED
STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 2008, 2007 and 2006
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
SUPPLEMENTAL CASH FLOW INFORMATION:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest paid
|
|
$
|
434,645
|
|
|
$
|
452,324
|
|
|
$
|
423,456
|
|
Cash paid for income taxes
|
|
|
13,780
|
|
|
|
2,994
|
|
|
|
9,807
|
|
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
|
|
Issuance of OP Units for interests in unconsolidated real estate
partnerships and acquisitions of real estate
|
|
|
|
|
|
|
2,998
|
|
|
|
13
|
|
Non-cash transactions associated with the disposition of real
estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
Secured debt assumed in connection with the disposition of real
estate
|
|
|
157,394
|
|
|
|
27,929
|
|
|
|
|
|
Issuance of notes receivable connection with the disposition of
real estate
|
|
|
10,372
|
|
|
|
|
|
|
|
|
|
Non-cash transactions associated with consolidation of real
estate partnerships:
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate, net
|
|
|
25,830
|
|
|
|
56,877
|
|
|
|
675,621
|
|
Investments in and notes receivable primarily from affiliated
entities
|
|
|
4,497
|
|
|
|
84,545
|
|
|
|
(219,691
|
)
|
Restricted cash and other assets
|
|
|
5,483
|
|
|
|
8,545
|
|
|
|
94,380
|
|
Secured debt
|
|
|
22,036
|
|
|
|
41,296
|
|
|
|
503,342
|
|
Accounts payable, accrued and other liabilities
|
|
|
14,020
|
|
|
|
48,602
|
|
|
|
41,580
|
|
Other non-cash transactions:
|
|
|
|
|
|
|
|
|
|
|
|
|
Redemption of common OP Units for Class A Common Stock
|
|
|
4,182
|
|
|
|
27,810
|
|
|
|
4,362
|
|
Conversion of preferred OP Units for Class A Common Stock
|
|
|
|
|
|
|
43
|
|
|
|
199
|
|
Origination of notes receivable from officers for Class A
Common Stock purchases, net of cancellations
|
|
|
(385
|
)
|
|
|
2,386
|
|
|
|
647
|
|
See notes to consolidated financial statements.
F-7
APARTMENT
INVESTMENT AND MANAGEMENT COMPANY
December 31,
2008
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, 2008, we owned or managed a real estate
portfolio of 992 apartment properties containing 162,807
apartment units located in 44 states, the District of
Columbia and Puerto Rico. We are one of the largest owners and
operators of apartment properties in the United States.
As of December 31, 2008, we:
|
|
|
|
|
owned an equity interest in and consolidated 117,719 units
in 514 properties (which we refer to as consolidated
properties), of which 114,966 units were also managed
by us;
|
|
|
|
owned an equity interest in and did not consolidate
9,613 units in 85 properties (which we refer to as
unconsolidated properties), of which
4,546 units were also managed by us; and
|
|
|
|
provided services for or managed 35,475 units in 393
properties, primarily pursuant to long-term agreements
(including 32,223 units in 359 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 Trust, we own a majority of the ownership interests in
AIMCO Properties, L.P., which we refer to as the Aimco Operating
Partnership. As of December 31, 2008, 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 and Class I High Performance 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 2008, 2007 and 2006, the weighted average
ownership interest in the Aimco Operating Partnership held by
the common OP Unit holders was approximately 8%, 9% and
10%, respectively. Preferred OP Units entitle the holders
thereof to a preference with respect to distributions or upon
liquidation. At December 31, 2008, 101,176,232 shares
of our Common Stock were outstanding (before the effect of the
January 29, 2009, special dividend discussed below) and the
Aimco Operating Partnership had 9,484,191 common OP Units
and equivalents outstanding for a combined total of
110,660,423 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.
In December 2007, July 2008, October 2008, and December 2008,
the Aimco Operating Partnership declared special distributions
payable on January 30, 2008, August 29, 2008,
December 1, 2008, and January 29, 2009, respectively,
to holders of record of common OP Units and High
Performance Units on December 31, 2007, July 28, 2008,
October 27, 2008, and December 29, 2008, respectively.
The special distributions were paid on common OP Units and
High Performance Units in the amounts listed below. The Aimco
Operating Partnership distributed to us common OP Units
equal to the number of shares we issued pursuant to our
corresponding special dividends
F-8
(discussed below) in addition to approximately $0.60 per unit in
cash. Holders of common OP Units other than us and holders
of High Performance Units received the distribution entirely in
cash, in the amounts noted below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 2008
|
|
|
August 2008
|
|
|
December 2008
|
|
|
January 2009
|
|
|
|
Special
|
|
|
Special
|
|
|
Special
|
|
|
Special
|
|
Aimco Operating Partnership Special Distributions
|
|
Distribution
|
|
|
Distribution
|
|
|
Distribution
|
|
|
Distribution
|
|
|
Distribution per unit
|
|
$
|
2.51
|
|
|
$
|
3.00
|
|
|
$
|
1.80
|
|
|
$
|
2.08
|
|
Total distribution
|
|
$
|
257.2 million
|
|
|
$
|
285.5 million
|
|
|
$
|
176.6 million
|
|
|
$
|
230.1 million
|
|
Common OP Units and High Performance Units outstanding on record
date
|
|
|
102,478,510
|
|
|
|
95,151,333
|
|
|
|
98,136,520
|
|
|
|
110,654,142
|
|
Common OP Units held by Aimco
|
|
|
92,795,891
|
|
|
|
85,619,144
|
|
|
|
88,650,980
|
|
|
|
101,169,951
|
|
Total distribution on Aimco common OP Units
|
|
$
|
232.9 million
|
|
|
$
|
256.9 million
|
|
|
$
|
159.6 million
|
|
|
$
|
210.4 million
|
|
Cash distribution to Aimco
|
|
$
|
55.0 million
|
|
|
$
|
51.4 million
|
|
|
$
|
53.2 million
|
|
|
$
|
60.6 million
|
|
Portion of distribution paid to Aimco through issuance of common
OP Units
|
|
$
|
177.9 million
|
|
|
$
|
205.5 million
|
|
|
$
|
106.4 million
|
|
|
$
|
149.8 million
|
|
Common OP Units issued to Aimco pursuant to distributions
|
|
|
4,594,074
|
|
|
|
5,731,310
|
|
|
|
12,572,267
|
|
|
|
15,627,330
|
|
Cash distributed to common OP Units and High Performance Units
other than Aimco
|
|
$
|
24.3 million
|
|
|
$
|
28.6 million
|
|
|
$
|
17.0 million
|
|
|
$
|
19.7 million
|
|
Also in December 2007, July 2008, October 2008, and December
2008, our Board of Directors declared corresponding special
dividends payable on January 30, 2008, August 29,
2008, December 1, 2008, and January 29, 2009,
respectively, to holders of record of our Common Stock on
December 31, 2007, July 28, 2008, October 27,
2008, and December 29, 2008, respectively. A portion of the
special dividends in the amount of $0.60 per share represents
payment of the regular dividend for the quarters ended
December 31, 2007, June 30, 2008, September 30,
2008, and December 31, 2008, and the remaining amount per
share represents an additional dividend associated with taxable
gains from property dispositions. The special dividends were
paid in the amounts listed in the table below. Portions of the
special dividends were paid through the issuance of shares of
Common Stock.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 2008
|
|
|
August 2008
|
|
|
December 2008
|
|
|
January 2009
|
|
|
|
Special
|
|
|
Special
|
|
|
Special
|
|
|
Special
|
|
Aimco Special Dividends
|
|
Dividend
|
|
|
Dividend
|
|
|
Dividend
|
|
|
Dividend
|
|
|
Dividend per share
|
|
$
|
2.51
|
|
|
$
|
3.00
|
|
|
$
|
1.80
|
|
|
$
|
2.08
|
|
Outstanding shares of Common Stock on the record date
|
|
|
92,795,891
|
|
|
|
85,619,144
|
|
|
|
88,650,980
|
|
|
|
101,169,951
|
|
Total dividend
|
|
$
|
232.9 million
|
|
|
$
|
256.9 million
|
|
|
$
|
159.6 million
|
|
|
$
|
210.4 million
|
|
Portion of dividend paid in cash
|
|
$
|
55.0 million
|
|
|
$
|
51.4 million
|
|
|
$
|
53.2 million
|
|
|
$
|
60.6 million
|
|
Portion of dividend paid through issuance of shares
|
|
$
|
177.9 million
|
|
|
$
|
205.5 million
|
|
|
$
|
106.4 million
|
|
|
$
|
149.8 million
|
|
Shares issued pursuant to dividend
|
|
|
4,594,074
|
|
|
|
5,731,310
|
|
|
|
12,572,267
|
|
|
|
15,627,330
|
|
Effective increase in outstanding shares on record date
|
|
|
4.95
|
%
|
|
|
6.70
|
%
|
|
|
14.18
|
%
|
|
|
15.45
|
%
|
Average share price on determination date
|
|
$
|
38.71
|
|
|
$
|
35.84
|
|
|
$
|
8.46
|
|
|
$
|
9.58
|
|
Amounts after elimination of the effects of shares of Common
Stock held by consolidated subsidiaries:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding shares of Common Stock on the record date
|
|
|
92,379,751
|
|
|
|
85,182,665
|
|
|
|
88,186,456
|
|
|
|
100,642,817
|
|
Total dividend
|
|
$
|
231.9 million
|
|
|
$
|
255.5 million
|
|
|
$
|
158.7 million
|
|
|
$
|
209.3 million
|
|
Portion of dividend paid in cash
|
|
$
|
54.8 million
|
|
|
$
|
51.1 million
|
|
|
$
|
52.9 million
|
|
|
$
|
60.3 million
|
|
Portion of dividend paid through issuance of shares
|
|
$
|
177.1 million
|
|
|
$
|
204.4 million
|
|
|
$
|
105.8 million
|
|
|
$
|
149.0 million
|
|
Shares issued pursuant to dividend
|
|
|
4,573,735
|
|
|
|
5,703,265
|
|
|
|
12,509,657
|
|
|
|
15,548,996
|
|
F-9
The effect of the issuance of additional shares of Common Stock
pursuant to the special dividends 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 prior to
the ex-dividend date of the special dividends, including share
issuances, repurchases and forfeitures, have been adjusted to
reflect the effective increases in the number of shares, except
in limited instances where noted otherwise.
The following table reconciles our shares issued and outstanding
at December 31, 2008, to our shares outstanding at
December 31, 2008, per the consolidated financial
statements:
|
|
|
|
|
Common shares issued and outstanding
|
|
|
101,176,232
|
|
Shares issued January 29, 2009, pursuant to the special
dividend
|
|
|
15,627,330
|
|
Elimination of shares owned by consolidated subsidiaries (prior
to January 2009 special dividend)
|
|
|
(527,134
|
)
|
Elimination of shares issued to consolidated subsidiaries
pursuant to the January 2009 special dividend
|
|
|
(78,334
|
)
|
Forfeitures and other activity not yet processed by transfer
agent
|
|
|
(17,217
|
)
|
|
|
|
|
|
Common shares outstanding at December 31, 2008, per
consolidated financial statements
|
|
|
116,180,877
|
|
|
|
|
|
|
|
|
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. We consolidate all variable interest
entities for which we are the primary beneficiary. Generally, we
consolidate real estate partnerships and other entities that are
not variable interest entities when we own, directly or
indirectly, a majority voting interest in the entity or are
otherwise able to control the entity. All significant
intercompany balances and transactions have been eliminated in
consolidation.
Interests in the Aimco Operating Partnership that are held by
limited partners other than Aimco are reflected in the
accompanying balance sheets as minority interest in Aimco
Operating Partnership. Interests in partnerships consolidated
into the Aimco Operating Partnership that are held by third
parties are reflected in the accompanying balance sheets as
minority interest in consolidated real estate partnerships. The
assets of consolidated real estate partnerships owned or
controlled by us generally are not available to pay creditors of
Aimco or the Aimco Operating Partnership.
As used herein, and except where the context otherwise requires,
partnership refers to a limited partnership or a
limited liability company and partner refers to a
partner in a limited partnership or a member in a limited
liability company.
Variable
Interest Entities
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.
F-10
In determining whether we are the primary beneficiary of a VIE,
we consider qualitative and quantitative factors, including, but
not limited to: the amount and characteristics of our
investment; the obligation or likelihood for us or other
investors to provide financial support; our and the other
investors ability to control or significantly influence
key decisions for the VIE; and the similarity with and
significance to the business activities of us and the other
investors. Significant judgments related to these
determinations include estimates about the current and future
fair values and performance of real estate held by these VIEs
and general market conditions.
As of December 31, 2008, we were the primary beneficiary
of, and therefore consolidated, 93 VIEs, which owned 70
apartment properties with 10,096 units. Real estate with a
carrying value of $796.7 million collateralized
$472.0 million of debt of those VIEs. The creditors of the
consolidated VIEs do not have recourse to our general credit. As
of December 31, 2008, we also held variable interests in
130 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 181
apartment properties with 11,181 units. We are involved
with those VIEs as an equity holder, lender, management agent,
or through other contractual relationships. At December 31,
2008, 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 $5.6 million. We may be
subject to additional losses to the extent of any financial
support that we voluntarily provide in the future. Additionally,
the provision of financial support in the future may require us
to consolidate a VIE.
Adoption
of EITF
04-5
In June 2005, the Financial Accounting Standards Board, or FASB,
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
22 percent.
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, accounting principles
generally accepted in the United States of America, or 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
F-11
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 $24.4 million.
Adoption
of SFAS 157
In September 2006, the FASB issued Statement of Financial
Accounting Standards No. 157, Fair Value
Measurements, or SFAS 157. SFAS 157 defines fair
value as the price that would be received to sell an asset or
paid to transfer a liability in an orderly transaction between
market participants at the measurement date. SFAS 157
applies whenever other standards require assets or liabilities
to be measured at fair value and does not expand the use of fair
value in any new circumstances. SFAS 157 establishes a
hierarchy that prioritizes the information used in developing
fair value estimates and requires disclosure of fair value
measurements by level within the fair value hierarchy. The
hierarchy gives the highest priority to quoted prices in active
markets (Level 1 measurements) and the lowest priority to
unobservable data (Level 3 measurements), such as the
reporting entitys own data, and to nonrecurring fair value
measurements of non-financial assets and non-financial
liabilities for fiscal years beginning after November 15,
2008. The provisions of SFAS 157 are applicable to
recurring and nonrecurring fair value measurements of financial
assets and liabilities for fiscal years beginning after
November 15, 2007, including interim periods within those
fiscal years. We adopted the provisions of SFAS 157 that
apply to recurring and nonrecurring fair value measurements of
financial assets and liabilities effective January 1, 2008,
and at that time determined no transition adjustment was
required.
Basis
of Fair Value Measurement (Valuation Hierarchy)
SFAS 157 establishes a three-level valuation hierarchy for
disclosure of fair value measurements. The valuation hierarchy
is based upon the transparency of inputs to the valuation of an
asset or liability as of the measurement date. The three levels
are defined as follows:
|
|
|
Level 1
|
|
Unadjusted quoted prices for identical and unrestricted assets
or liabilities in active markets
|
Level 2
|
|
Quoted prices for similar assets and liabilities in active
markets, and inputs that are observable for the asset or
liability, either directly or indirectly, for substantially the
full term of the financial instrument
|
Level 3
|
|
Unobservable inputs that are significant to the fair value
measurement
|
A financial instruments categorization within the
valuation hierarchy is based upon the lowest level of input that
is significant to the fair value measurement.
Following is a description of the valuation methodologies used
for our significant financial instruments measured at fair value
on a recurring or nonrecurring basis. Although some of the
valuation methodologies use
F-12
observable market inputs in limited instances, the majority of
inputs we use are unobservable and are therefore classified
within Level 3 of the valuation hierarchy.
|
|
|
Fair Value Measurement
|
|
Valuation Methodologies
|
|
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 real estate, the collateral for the loan, which
represents the primary source of loan repayment. The fair value
of the collateral, such as real estate or interests in real
estate partnerships, is estimated through income and market
valuation approaches using information such as broker estimates,
purchase prices for recent transactions on comparable assets and
net operating income capitalization analyses using observable
and unobservable inputs such as capitalization rates, asset
quality grading, geographic location analysis, and local supply
and demand observations.
|
Total rate of return swaps
|
|
Our total rate of return swaps have contractually-defined
termination values generally equal to the difference between the
fair value and the counterpartys purchased value of the
underlying borrowings. Upon termination, we are required to pay
the counterparty the difference if the fair value is less than
the purchased value, and the counterparty is required to pay us
the difference if the fair value is greater than the purchased
value. The underlying borrowings are generally callable, at our
option, at face value prior to maturity and with no prepayment
penalty. Due to our control of the call features in the
underlying borrowings, we believe the inherent value of any
differential between the fixed and variable cash payments due
under the swaps would be significantly discounted by a market
participant willing to purchase or assume any rights and
obligations under these contracts.
|
|
|
The swaps are generally cross-collateralized with other swap
contracts with the same counterparty and do not allow transfer
or assignment, thus there is no alternate or secondary market
for these instruments. Accordingly, our assumptions of the fair
value that a willing market participant would assign in valuing
these instruments are based on a hypothetical market in which
the highest and best use of these contracts is in-use in
combination with the related borrowings, similar to how we use
the contracts. Based on these assumptions, we believe the
termination value, or exit value, of the swaps approximates the
fair value that would be assigned by a willing market
participant. We calculate the termination value using a market
approach by reference to estimates of the fair value of the
underlying borrowings, which are discussed below, and an
evaluation of potential changes in the credit quality of the
counterparties to these arrangements. We compare our estimates
of fair value of the swaps and related borrowings to valuations
provided by the counterparties on a quarterly basis.
|
|
|
Our method for calculating fair value of the swaps generally
results in changes in fair value equal to the changes in fair
value of the related borrowings. We believe these instruments
are highly effective in offsetting the changes in fair value of
the borrowings during the hedging period.
|
Changes in fair value of borrowings subject to total rate of
return swaps
|
|
We recognize changes in the fair value of certain borrowings
subject to total rate of return swaps, which we have designated
as fair value hedges in accordance with Statement of Financial
Accounting Standards No. 133, Accounting for Derivative
Instruments and Hedging Activities, or SFAS 133.
|
F-13
|
|
|
Fair Value Measurement
|
|
Valuation Methodologies
|
|
|
|
We estimate the fair value of debt instruments using an income
and market approach, including comparison of the contractual
terms to observable and unobservable inputs such as market
interest rate risk spreads, collateral quality and loan-to-value
ratios on similarly encumbered assets within our portfolio.
These borrowings are collateralized and non-recourse to us;
therefore, we believe changes in our credit rating will not
materially affect a market participants estimate of the
borrowings fair value.
|
The methods described above may produce a fair value calculation
that may not be indicative of net realizable value or reflective
of future fair values. Furthermore, although we believe our
valuation methods are appropriate and consistent with other
market participants, the use of different methodologies or
assumptions to determine the fair value of certain financial
instruments could result in a different estimate of fair value
at the reporting date.
Amounts subject to SFAS 157 reported at fair value in our
consolidated balance sheet at December 31, 2008, all of
which are based on significant unobservable inputs classified
within Level 3 of the fair value hierarchy, are summarized
below (in thousands):
|
|
|
|
|
|
|
Assets (Liabilities)
|
|
|
Total rate of return swaps
|
|
$
|
(29,495
|
)
|
Cumulative reduction of carrying amount of debt instruments
subject to total rate of return swaps
|
|
$
|
29,495
|
|
Changes
in Level 3 Fair Value Measurements
The table below presents the balance sheet amounts at
December 31, 2007 and 2008 (and the changes in fair value
between such dates) for fair value measurements classified
within Level 3 of the valuation hierarchy (in thousands).
When a determination is made to classify a fair value
measurement within Level 3 of the valuation hierarchy, the
determination is based upon the significance of the unobservable
factors to the overall fair value measurement. However,
Level 3 fair value measurements typically include, in
addition to the unobservable or Level 3 components,
observable components that can be validated to observable
external sources; accordingly, the changes in fair value in the
table below are due in part to observable factors that are part
of the valuation methodology.
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|
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Fair value at
|
|
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Unrealized Gains
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|
|
Realized gains
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|
|
Fair value at
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|
|
December 31,
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|
(Losses) included
|
|
|
(losses) included
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|
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December 31,
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|
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2007
|
|
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in earnings(1)
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|
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in earnings(2)
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|
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2008
|
|
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Total rate of return swaps
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|
$
|
(9,420
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)
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$
|
(20,075
|
)(3)
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|
$
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|
|
|
$
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(29,495
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)
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Changes in fair value of debt instruments subject to total rate
of return swaps
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|
|
9,420
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|
|
|
20,075
|
(3)
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|
|
|
|
|
|
29,495
|
|
|
|
|
|
|
|
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|
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|
|
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Total
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$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
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|
(1) |
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Unrealized gains (losses) relate to periodic revaluations of
fair value and have not resulted from the settlement of a swap
position. |
|
(2) |
|
For total rate of return swaps, realized gains (losses) occur
upon the settlement, resulting from the repayment of the
underlying borrowings or the early termination of the swap, and
include any net amounts paid or received upon such settlement.
During the year ended December 31, 2008, we terminated
total rate of return swaps with notional amounts totaling
$90.3 million in connection with the sale of four
properties and repayment of the related hedged debt. We repaid
the debt at the swap counterpartys purchased value, and
accordingly we incurred no termination payments upon termination
of the related swaps. |
|
(3) |
|
Included in interest expense in the accompanying consolidated
statements of income. |
F-14
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,
2008, due to their relatively short-term nature and high
probability of realization. We estimate fair value for our notes
receivable and debt instruments using present value techniques
that include income and market valuation approaches with market
rates for debt with the same or similar terms. Present value
calculations vary depending on the assumptions used, including
the discount rate and estimates of future cash flows. In many
cases, the fair value estimates may not be realizable in
immediate settlement of the instruments. The estimated aggregate
fair value of our notes receivable was approximately
$161.6 million and $191.5 million at December 31,
2008 and 2007, respectively. See Note 5 for further
information on notes receivable. The estimated aggregate fair
value of our consolidated debt (including amounts reported in
liabilities related to assets held for sale) was approximately
$6.7 billion and $7.6 billion at December 31,
2008 and 2007, respectively. The combined carrying value of our
consolidated debt (including amounts reported in liabilities
related to assets held for sale) and our outstanding term loans
was approximately $6.8 billion and $7.5 billion at
December 31, 2008 and 2007, respectively. See Note 6
and Note 7 for further details on our consolidated debt.
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.
Adoption
of SFAS 159
In February 2007, the FASB issued Statement of Financial
Accounting Standards No. 159, The Fair Value Option for
Financial Assets and Financial Liabilities, or
SFAS 159. SFAS 159 permits entities to choose to
measure many financial instruments and certain other items at
fair value that are not currently required to be measured at
fair value. The objective is to improve financial reporting by
providing entities with the opportunity to mitigate volatility
in reported earnings caused by measuring related assets and
liabilities differently without having to apply complex hedge
accounting provisions. SFAS 159 also establishes
presentation and disclosure requirements designed to facilitate
comparisons between entities that choose different measurement
attributes for similar types of assets and liabilities.
SFAS 159 is effective for fiscal years beginning after
November 15, 2007. We implemented SFAS 159 on
January 1, 2008, and at that time did not elect the fair
value option for any of our financial instruments or other items
within the scope of SFAS 159.
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 of 1986, as amended, which we refer to
as the 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 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.
We have 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. 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 determined that these partnerships are most
appropriately accounted for by us as wholly owned subsidiaries.
We also determined 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, and
these
F-15
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 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.
During the years ended December 31, 2008, 2007 and 2006, we
recognized syndication fee income of $3.4 million,
$13.8 million and $12.7 million, respectively, and
revenue associated with the delivery of tax benefits of
$29.4 million, $24.0 million and $16.0 million,
respectively. At December 31, 2008 and 2007,
$159.6 million and $149.2 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, 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:
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1.
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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.
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2.
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The estimated unamortized portion of avoided leasing commissions
and other costs that ordinarily would be incurred to acquire the
in-place leases.
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3.
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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 depreciation and amortization 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, 2008 and 2007, deferred income in our
consolidated balance sheets includes below-market lease values
totaling $36.2 million and $45.0 million, respectively
which are net of accumulated amortization of
F-16
$16.6 million and $12.2 million, respectively.
Additions to below-market leases resulting from acquisitions
during the year ended December 31, 2007 totaled
$18.9 million, and there were no such additions during the
years ended December 31, 2008 or 2006. During the years
ended December 31, 2008, 2007 and 2006, we included
amortization of below-market leases of $4.4 million,
$4.6 million and $2.8 million, respectively, in rental
and other property revenues in our consolidated statements of
income. During the year ended December 31, 2008, we revised
the estimated fair value of assets acquired and liabilities
assumed in acquisitions completed in 2007, resulting in a
$4.4 million reduction of below-market lease values and a
corresponding reduction in buildings and improvements. At
December 31, 2008, our below-market leases had a weighted
average amortization period of 7.3 years and estimated
aggregate amortization expense for each of the five succeeding
years as follows:
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|
|
|
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2009
|
|
$
|
4.4
|
|
2010
|
|
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3.9
|
|
2011
|
|
|
3.6
|
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2012
|
|
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3.2
|
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2013
|
|
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2.8
|
|
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 area operations and corporate
levels that clearly relate to capital expenditure activities. We
capitalize interest, property taxes and insurance during periods
in which redevelopment and construction projects are in
progress. We charge to expense as incurred costs that do not
relate to capital expenditure activities, including ordinary
repairs, maintenance, resident turnover costs and general and
administrative expenses.
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. All capitalized
site payroll and indirect costs are allocated proportionately,
based on direct costs, among capital projects and depreciated
over the estimated useful lives of such projects.
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, 2008, 2007 and 2006, for
continuing and discontinued operations, we capitalized
$25.7 million, $30.8 million and $24.7 million,
respectively, of interest costs, and $78.1 million,
$78.1 million and $66.2 million, respectively, of site
payroll and indirect costs, respectively.
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, 2008 and 2007, we recorded operating real
estate impairment losses of $5.6 million and
$1.6 million, respectively, related to properties to be
held and used. For
F-17
the year ended December 31, 2006, we recorded net
recoveries of previously recorded operating real estate
impairment losses of $0.8 million.
In connection with the preparation of our annual financial
statements, we assessed the recoverability of our investment in
our Lincoln Place property, located in Venice, California. Based
upon the recent decline in land values in Southern California
and the expected timing of our redevelopment efforts, we
determined that the total carrying amount of the property was no
longer probable of full recovery and, accordingly, during the
three months ended December 31, 2008, recognized an
impairment loss of $85.4 million ($55.6 million net of
tax).
Similarly, we assessed the recoverability of our investment in
Pacific Bay Vistas (formerly Treetops), a vacant property
located in San Bruno, California, and determined that the
carrying value for the property exceeded its estimated fair
value. Accordingly, we recognized an impairment loss of
$5.7 million for this property during the three months
ended December 31, 2008.
The impairment losses related to Lincoln Place, Pacific Bay
Vistas and our investment in Casden Properties LLC (see
Note 5), are included in provision for impairment losses on
real estate development assets in our consolidated statement of
income for the year ended December 31, 2008.
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 $10.7 million,
$33.8 million and $31.2 million, and resulted in
decreases in basic and diluted earnings per share of $0.09,
$0.24 and $0.22, for the years ended December 31, 2008,
2007 and 2006, 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 $3.3 million and $3.1 million as of
December 31, 2008 and 2007, 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
F-18
of allowances for doubtful accounts of approximately
$5.0 million and $4.6 million as of December 31,
2008 and 2007, 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
$5.6 million and $5.3 million as of December 31,
2008 and 2007, 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 depreciation and amortization.
Advertising
Costs
We generally expense all advertising costs as incurred to
property operating expense. For the years ended
December 31, 2008, 2007 and 2006, for both continuing and
discontinued operations, total advertising expense was
$36.0 million, $38.0 million and $34.7 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
F-19
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. See
Note 5 for further discussion of Notes Receivable.
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.
Intangible
Assets
At December 31, 2008 and 2007, 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 2008, 2007 or 2006.
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, 2008, 2007 and 2006, we capitalized software
development costs totaling $20.9 million,
$11.9 million and $6.5 million, respectively. At
December 31, 2008 and 2007, other assets included
$35.7 million and $29.0 million of net capitalized
software, respectively. During the years ended December 31,
2008, 2007 and 2006, we recognized amortization of capitalized
software of $10.0 million, $10.8 million and
$14.5 million, respectively, which is included in
depreciation and amortization in our consolidated statements of
income.
During the year ended December 31, 2008, we reassessed our
approach to communication technology needs at our properties,
which resulted in the discontinuation of an infrastructure
project and a $5.4 million write-off of related hardware
and capitalized internal and consulting costs included in other
assets. The write-off, which is net of sales proceeds, is
included in other (income) expenses, net. During the year ended
December 31, 2008, we additionally recorded a
$1.6 million write-off of certain software and hardware
assets that are no longer consistent with our information
technology strategy. This write-off is included in depreciation
and amortization. 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 year ended
December 31, 2006.
F-20
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, 2008, 2007 and 2006, we recorded charges for
partnership losses resulting from depreciation of approximately
$9.0 million, $12.2 million and $31.8 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
$348.5 million at December 31, 2008. 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, 2008. 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, or SFAS 123R (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.
F-21
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
tax-exempt bonds payable and the
30-day LIBOR
rate for notes payable, plus a risk spread. These swaps
generally have a second or third lien on the property
collateralized by the related borrowings and the obligations
under certain of these swaps are cross-collateralized with
certain of the other swaps with a particular counterparty. The
underlying borrowings are generally callable at our option, with
no prepayment penalty, with 30 days advance notice, and the
swaps generally have a term of less than five years. The total
rate of return swaps have a contractually defined termination
value generally equal to the difference between the fair value
and the counterpartys purchased value of the underlying
borrowings, which may require payment by us or to us for such
difference. Accordingly, we believe fluctuations in the fair
value of the borrowings from the inception of the hedging
relationship generally will be offset by a corresponding
fluctuation in the fair value of the total rate of return swaps.
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 $421.7 million
and $487.2 million at December 31, 2008 and 2007,
respectively, are reflected as variable rate borrowings in
Note 6. During the years ended December 31, 2008 and
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 $20.1 million
and $9.4 million respectively, and increased accrued
liabilities and other by the same amount, with no net impact on
net income. During 2006 there were no material adjustments for
changes in fair value for the hedged debt or total rate of
return swaps. See Adoption of SFAS 157 in
Note 2 for further discussion of fair value measurements
related to these arrangements. During 2008, 2007 and 2006, we
determined these hedges were fully effective and accordingly we
made no adjustments to interest expense for ineffectiveness.
F-22
At December 31, 2008, the weighted average fixed receive
rate under the total return swaps was 6.8% and the weighted
average variable pay rate was 1.8%, based on the applicable
SIFMA and
30-day LIBOR
rates effective as of that date. Further information related to
our total return swaps as of December 31, 2008 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
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Maturity
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December 31,
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(millions)
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Maturity
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Interest Rate
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(millions)
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Date
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2008
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$
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26.1
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2009
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9.0
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%
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$
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26.3
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2009
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2.1
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%
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60.0
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2012
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7.5
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%
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60.0
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2012
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2.7
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%
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24.0
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2015
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6.9
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%
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24.0
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2011
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1.7
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%
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14.2
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2018
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7.3
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%
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14.2
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2011
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1.7
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%
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12.3
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2021
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6.2
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%
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12.3
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2012
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1.7
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%
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12.0
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2024
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6.3
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%
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12.0
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2011
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1.7
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%
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54.6
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2025
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5.5
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%
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54.4
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2011
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1.3
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%
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47.9
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2026
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7.4
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%
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47.9
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2011
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1.7
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%
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45.0
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2031
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7.4
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%
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45.0
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2011
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1.7
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%
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100.6
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2036
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6.2
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%
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101.0
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2010-2012
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1.7
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%
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12.5
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2038
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6.5
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%
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12.5
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2011
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1.9
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%
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12.5
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2048
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5.5
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%
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12.5
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2011
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1.9
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%
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$
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421.7
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$
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422.1
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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.
Income
Taxes
We have elected to be taxed as a REIT under 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 an
investment in a corporation.
Even if we qualify as a REIT, we may be subject to United States
Federal income and excise taxes in various situations, such as
on our undistributed income. We also will be required to pay a
100% tax on any net income on non-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
F-23
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. We also use TRS entities to hold
investments in certain properties.
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. We recognize the tax
consequences associated with intercompany transfers between the
REIT and TRS entities when the related assets are sold to third
parties, impaired or otherwise disposed of for financial
reporting purposes.
In March 2008, we were notified by the Internal Revenue Service
that it intended to examine the 2006 Federal tax return for the
Aimco Operating Partnership. During June 2008, the IRS issued
AIMCO-GP, Inc., the general and tax matters partner of the Aimco
Operating Partnership, a summary report including the IRSs
proposed adjustments to the Aimco Operating Partnerships
2006 Federal tax return. We do not expect the proposed
adjustments to have any material effect on our unrecognized tax
benefits, financial condition or results of operations.
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, August 29, 2008,
December 1, 2008, and January 29, 2009, pursuant to
the special dividends. Earnings per share amounts for each
period presented reflect the retroactively adjusted weighted
average share and equivalent counts.
Concentration
of Credit Risk
Financial instruments that potentially could subject us to
significant concentrations of credit risk consist principally of
notes receivable and total rate of return swaps. As discussed in
Note 5, a significant portion of our notes receivable at
December 31, 2008, are collateralized by properties in the
West Harlem area of New York City. There are no other
significant concentrations of credit risk with respect to our
notes receivable due to the large number of partnerships that
are borrowers under the notes and the geographic diversity of
the properties that collateralize the notes.
At December 31, 2008, we had total rate of return swap
positions with two financial institutions totaling
$422.1 million. The swap positions with one counterparty
are comprised of $409.8 million of fixed rate debt
effectively converted to variable rates using total rate of
return swaps, including $349.8 million of tax-exempt bonds
indexed to SIFMA and $60.0 million of taxable second
mortgage notes indexed to LIBOR. Additionally, the swap
agreements with this counterparty provide for collateral calls
to maintain specified loan-to-value ratios. As of
December 31, 2008, we had provided this counterparty
$3.2 million in cash collateral, which is included in other
assets in our consolidated balance sheet. We have one swap
position with another counterparty that is comprised of
$12.3 million of fixed rate tax-exempt bonds indexed to
SIFMA. We periodically evaluate counterparty credit risk
associated with these arrangements. At the current time, we have
concluded we do not have material exposure. In the event either
counterparty were to default under these arrangements, loss of
the net interest benefit we generally receive under these
arrangements, which is equal to the difference between the fixed
rate we receive and the variable rate we pay, may adversely
impact our results of operations and operating cash flows. In
the event the values of the real estate properties serving as
collateral under these agreements decline, we may be required to
provide additional collateral pursuant to the swap agreements,
which would adversely affect our cash flows.
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.
F-24
Reclassifications
Certain items included in the 2007 and 2006 financial statements
amounts have been reclassified to conform to the 2008
presentation.
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NOTE 3
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Real
Estate and Partnership Acquisitions and Other Significant
Transactions
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Real
Estate Acquisitions
During the year ended December 31, 2008, we acquired three
conventional properties with a total of 470 units, located
in San Jose, California, Brighton, Massachusetts and
Seattle, Washington. The aggregate purchase price of
$111.5 million, excluding transaction costs, was funded
using $39.0 million in proceeds from mortgage loans,
$41.9 million in tax-free exchange proceeds (provided by
2008 real estate dispositions) and the remainder in cash.
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, excluding transaction 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, excluding 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.
Acquisitions
of Partnership Interests
During the years ended December 31, 2008 and 2007, we
acquired limited partnership interests in 22 and 50 partnerships
respectively, in which our affiliates served as general partner.
In connection with such acquisitions, we paid cash of
approximately $2.0 million and $47.4 million,
including transaction costs. The cost of the acquisitions was
approximately $2.4 million and $43.6 million in excess
of the carrying amount of minority interest in such limited
partnerships, which excess we generally assigned to real estate.
Disposition
of Unconsolidated Real Estate
During the year ended December 31, 2008, we disposed of our
interest in unconsolidated real estate partnerships that owned
two properties with 671 units. Our net gain on the
disposition of these interests totaled $98.4 million and is
included in gain on dispositions of unconsolidated real estate
and other in the accompanying statements of income for the year
ended December 31, 2008.
Casualty
Loss Related to Tropical Storm Fay and Hurricane
Ike
During 2008, Tropical Storm Fay and Hurricane Ike caused severe
damage to certain of our properties located primarily in Florida
and Texas, respectively. We estimated total losses of
approximately $33.9 million, including property damage
replacement cost and
clean-up
cost. After consideration of estimated third party insurance
proceeds and the minority interest partners share of
losses for consolidated real estate partnerships, the net effect
of these casualties on net income, after the effect of minority
interest in Aimco Operating Partnership, was a loss of
approximately $5.0 million.
Restructuring
Costs
In connection with 2008 property sales and an expected reduction
in redevelopment and transactional activities, during the three
months ended December 31, 2008, we initiated an
organizational restructuring program that included reductions in
workforce and related costs, reductions in leased corporate
facilities and abandonment of
F-25
certain redevelopment projects and business pursuits. As a
result, during the three months ended December 31, 2008, we
recognized a restructuring charge of $22.8 million, which
consists primarily of: severance costs of $12.9 million;
unrecoverable lease obligations of $6.4 million related to
space that we will no longer use; and the write-off of deferred
transaction costs totaling $3.5 million associated with
certain acquisitions and redevelopment opportunities that we
will no longer pursue. Of the amounts included in the
restructuring charge, approximately $2.9 million of the
severance costs and the $3.5 million of transaction costs
had been paid as of December 31, 2008. We anticipate
eliminating the remaining jobs associated with the severance
amounts discussed above by March 1, 2009. The amounts
related to this restructuring have not been allocated to our
reportable segments based on the methods used to evaluate
segment performance.
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.