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APARTMENT INVESTMENT & MANAGEMENT CO (AIV)·Q3 2020 Earnings Summary

Executive Summary

  • Q3 2020 was pressured by urban-market weakness and COVID-related headwinds: rental and other property revenues fell to $215.5M, GAAP diluted EPS was $(0.17), and same-store NOI declined 6.3% year-over-year; pro forma FFO per share was $0.61, down 5% YoY .
  • Management executed balance sheet actions: Aimco sold a 39% interest in a $2.4B California portfolio (4.2% implied cap rate, 97% of pre-COVID valuation), reducing net leverage by ~$1B; Net Leverage/Adjusted EBITDAre improved to 7.4x vs 8.1x in Q2 .
  • Board-led separation plan announced: splitting into AIR (stabilized communities) and new Aimco (development/redevelopment, non-traditional assets) with a targeted additional $1B leverage reduction by year-end, plus a $8.20 special dividend (10% cash, 90% stock) and reverse split to neutralize dilution .
  • Operational cadence showed green shoots late in Q3 and October: leasing pace up 20% YoY, ADO stabilized and began improving, and collections held steady; suburban portfolio resilience offset continued urban softness (e.g., LA, Philadelphia, NorCal) .
  • Estimates context: Unable to retrieve S&P Global consensus due to SPGI rate limits; thus, we cannot determine beat/miss vs Wall Street estimates for Q3 2020.

What Went Well and What Went Wrong

What Went Well

  • Balance sheet de-risking: ~$1B net leverage reduction from the California JV; leverage metrics improved (Net Leverage/Adj. EBITDAre 7.4x current quarter vs 8.1x in Q2) .
  • Portfolio validation: California JV valuation at 4.2% implied cap rate, 97% of pre-COVID valuation, “validating Aimco’s published NAV” .
  • Operational momentum: “We have seen steady improvement during the third quarter. We expect that trend to continue…” – Terry Considine, highlighting recovery trajectory; leasing pace +20% YoY and forward occupancy indicators improved .
  • Suburban strength: Same-store suburban ADO 95.7%, blended rates near flat, residential net rental income +0.6% in Q3 .
  • Development progress: Parc Mosaic 97% leased at underwriting rents; The Fremont and 707 Leahy lease-ups ~80%+ of delivered units; Eldridge Townhomes substantially complete and leased .

What Went Wrong

  • Urban-market weakness: ADO 89.5%, blended rates −6.7%, residential net rental income −7.1% in urban submarkets (e.g., Philadelphia virtual semesters; LA rent-free ordinances; NorCal WFH impacts) .
  • COVID impacts: incremental Q3 FFO/AFFO headwinds totaled $9.5M ($0.05/sh), including $3.7M bad debt and $2.8M net incremental interest expense; YTD impacts $22.6M ($0.16/sh) .
  • Occupancy and pricing pressure: Same-store revenue −4.9% YoY and −2.4% sequential; weighted-average rent change −3.0% in Q3 due to new lease rates −7.6% .
  • GAAP earnings: net (loss) income attributable to common stockholders of $(25.0)M and diluted EPS $(0.17), driven by prepayment penalties and separation costs .
  • Collections higher delinquencies: bad debt at 190 bps of billed revenue in Q3 (vs 160 bps in Q2), with 130 bps from residents protected by local ordinances .

Financial Results

MetricQ3 2019Q2 2020Q3 2020
Rental and Other Property Revenues ($USD Millions)$229.8 $218.8 $215.5
Net Income Diluted EPS ($)$0.01 $0.26 $(0.17)
NAREIT FFO per Share - Diluted ($)$0.61 $0.57 $0.45
Pro forma FFO per Share - Diluted ($)$0.64 $0.63 $0.61
AFFO per Share - Diluted ($)$0.56 $0.55 $0.53

Same-Store Operating Results (Proportionate)

MetricQ3 2019Q2 2020Q3 2020
Revenue, before utility reimbursements ($USD Millions)$169.7 $165.4 $161.4
Expenses, net of utility reimbursements ($USD Millions)$47.4 $45.2 $46.8
Net Operating Income ($USD Millions)$122.3 $120.2 $114.6
ADO (%)96.7% 95.6% 93.9%

Segment Breakdown (Consolidated, Revenues before utility reimbursements)

SegmentQ3 2019 ($MM)Q2 2020 ($MM)Q3 2020 ($MM)
Total Revenues$214.2 $210.7 $204.9
Same Store$183.9 $181.1 $174.5
Redevelopment/Development$11.1 $11.6 $12.5
Acquisition & Other Real Estate$19.2 $18.0 $17.8

Key Performance Indicators

KPIQ3 2019Q2 2020Q3 2020
Weighted Avg Lease Rate Change (Blended, %)+3.6% +1.8% −3.0%
New Lease Rate Change (%)+2.3% −2.4% −7.6%
Renewal Lease Rate Change (%)+4.8% +5.1% +2.6%
Residential Revenue Recognized (% of billed)—98.4% 98.1%
Cash Collected (% of billed, as of reporting date)—97.2% (as of 7/31) 96.7% (as of 10/23)
Bad Debt (% of billed)—1.6% 1.9%
Net Leverage / Adjusted EBITDAre (x)7.0x TTM 8.1x 7.4x
Liquidity ($USD Billions)—$1.2 >$1.0
Portfolio NOI Margin (%)71% —70%

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
DividendQ4 2020Regular quarterly $0.41/share (Q2 declaration) Special dividend $8.20/share (10% cash = $0.82, 90% stock) payable 11/30; reverse split to neutralize dilution Introduced special dividend; accelerated next dividend
Leverage Reduction PlanFY 2020Target Net Leverage/Adj. EBITDAre <7.0x Reduce leverage by $2B: ~$1B via CA JV done; ~$1B with separation before year-end Raised deleveraging actions and timeline
Corporate StructureFY 2020 closeN/ASeparate into AIR (stabilized) and new Aimco (development, non-traditional assets) before year-end New strategic separation
Bad Debt Normalization2021N/AExpect bad debt to normalize to ~30 bps in 2021 New qualitative guidance
Development MilestonesQ4 2020–Q1 2021The Fremont Q4 2020; Prism Q1 2021 (as of Q2) Fremont Q4 2020; Prism Q1 2021; Parc Mosaic 97% leased at underwriting; 707 Leahy and Eldridge progressing Maintained timelines; progress update

Earnings Call Themes & Trends

TopicQ1 2020 (Prior)Q2 2020 (Prior)Q3 2020 (Current)Trend
Macro/COVIDStrong start to year; pivot to safety/liquidity; paused short-cycle projects; ~$1.2B liquidity targeted AFFO +8% YoY; collections resilient; incremental COVID costs $8.0M; liquidity ~$1.2B Urban disruptions (virtual universities, WFH, rent regulation); management sees “worst behind” and steady improvement Stabilization with cautious optimism
Urban vs SuburbanPortfolio diversified; ADO 97.6% Emerging urban pressure; ADO 95.5% Suburban resilience; Urban ADO 89.5%, blended rates −6.7% Urban weakness persists; suburbs steady
Collections/Bad DebtRevised bad debt methodology; early impacts Recognized 98.4% revenue; bad debt 1.6% of billed Recognized 98.1%; bad debt 1.9%; expect normalization to ~30 bps in 2021 Elevated but trending to normalize
AI/Tech OpsN/AN/ASmart home tech in every unit; AI improving productivity; centralized execution Technology-enabled operations highlighted
Strategic ActionsN/ARefinanced, term loan, addressed maturities; leverage high but manageable California JV, $1B deleveraging; separation into AIR/new Aimco; special dividend/reverse split Accelerated de-risking and simplification

Management Commentary

  • “The third quarter 2020 was filled with challenges and successes… While the experience of this year makes me cautious, it seems that the worst is behind us. We have seen steady improvement during the third quarter.” – Terry Considine, Chairman & CEO .
  • “Third quarter pro forma FFO of $0.61 per share was down 5% year-over-year… lower occupancy and COVID-related impacts detailed on page three” – Paul Beldin, CFO .
  • “New leasing pace rebounded and was up 20% year-over-year… our best forward indicator of occupancy increased by more 6% from July 1 to today.” – Keith Kimmel, EVP Property Operations .
  • “California JV priced… equal to 97% of Aimco’s pre-COVID estimated value, validating Aimco’s published NAV and… reducing leverage by a $1 billion.” – Terry Considine .
  • “Aimco made a $50 million commitment to IQHQ… and acquired Hamilton on the Bay in Miami ($90M) with optionality for ~380 additional units.” – Wes Powell, EVP Redevelopment .

Q&A Highlights

  • Separation rationale and independence: Management emphasized market preference for FFO-focused stabilized REIT (AIR) vs NAV-creation development platform (new Aimco); full details via upcoming Form 10s .
  • Urban vs suburban classification: Based on physical location and performance (e.g., Latrobe in DC urban; Broadway Lofts in San Diego) .
  • Life sciences investment: $50M commitment to IQHQ to collaborate on multifamily components; pipeline expected to be substantial; funded with project financing/private equity .
  • Miami acquisition pricing: Basis improved 10–15% vs initial engagement due to seller circumstances and market conditions; large-unit asset with redevelopment upside .
  • Operations recovery and concessions: Confidence in bottom driven by improved ADO and leasing; disciplined resident selection and targeted use of concessions to preserve long-term cash flows .

Guidance Changes

See table above. Additional details:

  • Special dividend mechanics (record date Nov 4; VWAP-based share count; reverse split post-payment to keep shares outstanding flat) .
  • Continued compliance with covenants; fixed charge coverage 1.93x vs 1.40x covenant .

Estimates Context

  • S&P Global consensus estimates were unavailable due to SPGI daily limit constraints; therefore, we cannot assess beat/miss vs Street for Q3 2020. Future comparisons will use S&P Global consensus once accessible.

Key Takeaways for Investors

  • The California JV validated NAV and lowered leverage, supporting the separation into AIR/new Aimco; expect further de-risking and potential valuation unlock on simplification .
  • Operational headwinds are concentrated in urban nodes; late-Q3 and October indicators (leasing pace, ADO, collections stability) suggest trends are bottoming with gradual recovery .
  • Near-term earnings remain pressured by bad debt and pricing in urban markets, but management expects normalization to ~30 bps bad debt in 2021 and improved occupancy/rate dynamics .
  • Suburban exposure (~70% of same-store homes) provides ballast, with flat-to-positive net rental income, aiding NOI stability during recovery .
  • Special dividend and reverse split are mechanical but create near-term trading catalysts; monitor investor reception and separation timeline .
  • Liquidity remains strong (> $1B) with investment-grade footing and no 2020 maturities; deleveraging actions reduced weighted-average cost of leverage and improved coverage .
  • Medium-term: AIR should benefit from lower vacancy loss and reduced execution risk; new Aimco offers higher-return development/redevelopment optionality and non-traditional assets (e.g., Parkmerced mezzanine) .

Notes: All figures cited from company filings and call transcript as referenced.