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Text: These statements are subject to certain risks and uncertainties, a description of which can be found in our SEC filings.
Actual results may differ materially from what may be discussed today.
We will also discuss certain non-GAAP financial measures such as AFFO and FFO.
We have a lot to talk about.
Third quarter was filled with unusual challenges and a great many successes.
Here are three headlines.
Aimco operations does well in difficult times.
Aimco reduces leverage by a $1 billion.
And Aimco unlocked shareholder value, reducing risk, leverage, and costs by separating into two entities.
Here's the rest of the story.
The challenges were the continued effects of the pandemic.
Following the second quarter collapse of the economy, third quarter GDP rebound strong but uneven.
Many sectors remain at historic lows.
For example, many universities are now virtual and many office buildings stand empty as workers now work from home.
For apartments, we are now subject to unprecedented government regulation of rent setting and rent collections.
In many of our markets, we've experienced rioting, violence in camps for the homeless, targeting of police, and a general challenge to public order.
And the public health outlook continues uncertain with COVID-19 cases spiking across the country, including several of the markets in which we operate.
Through it all, Keith and his team worked hard and successfully to provide homes for the individuals and families who live in Aimco apartment homes.
They provide safety and refuge from the virus, good neighbors, respectful treatment for all and a helping hand to those in need.
As Keith and Paul will discuss later in detail, the economy took its toll.
As in previous recessions, some residents could no longer afford their rent.
With their departures, occupancy dropped and bad debt increased.
In other instances, and this is unprecedented, local ordinances gave residents the option to live rent free.
Two-thirds of Aimco bad debt in the third quarter is owed by residents who've lived rent free for the past six months.
While cautious about a second spike in the pandemic, it seems that the worst is behind for Aimco.
For example, lease space is up and available to let is dramatically down.
The rate of new delinquencies has been steadily declining.
Some important properties in urban settings remain impacted but the largest portion of our portfolio is returning to its normal performance and steady improvement.
As we move forward, we'll benefit from Keith's disciplined adherence to providing world-class customer service as graded by our customers and maintaining this customary high standards for selecting customers who will be good neighbors and stay longer.
Notwithstanding the turbulence, Wes and his team advanced our long cycle redevelopments and found a few new opportunities for future growth including acquisition of a bayfront community in Miami and formation of an interesting venture with IQHQ, a dynamic life science campus developer.
Patti Fielding sold a minority joint venture stake at a portfolio of 12 California properties to a passive institutional investor.
The $2.4 billion joint venture was priced in September at 4.2% cap rate equal to 97% of Aimco's pre-COVID estimated value, validating Aimco's published net asset value and taking an important step to rebalance the Aimco portfolio.
The same JV was also the source of funds to reduce leverage by a $1 billion, significantly improving Aimco's strong and flexible balance sheet.
With personal and family concerns from the pandemic in school closings and with the business challenge of difficult markets and changing regulations, the Aimco team maintained their focus and did excellent work.
I'm proud of their successes and grateful for the chance to work together.
The Aimco board of directors was, as always, highly engaged.
While total shareholder returns for past one, three and five years have been competitive with coastal peers, the board would like them to be better and seized the share price discount to net asset value is offering the opportunity for outperformance.
The board goal is to create a simple, transparent and low-cost public vehicle to invest in stabilized multifamily properties.
The board plan is to simplify the business and reduce execution risk, allocate to a second entity roughly 10% of total capital for development, redevelopment and nontraditional assets, and hold 90% of Aimco capital in the high-quality diversified portfolio of stabilized apartment communities, to reduce financial risk, by lowering leverage by $2 billion sourced from the joint venture and from the separation, to increase FFO and dividends per share by substantial reductions in vacancy loss and G&A costs related to redevelopment, and to replenish the tax bases to reduce the need for future stock dividends and enhance our flexibility in capital allocation.
After the separation, shareholders were on the same asset before and after.
But shareholders will then have the ability to make individual allocations to the entity owning only stabilized apartment communities to be known as AIR and to the entity with more complicated longer cycle development and redevelopment and nontraditional assets to be known as Aimco or New Aimco.
Full SEC descriptions of these plans are expected in Form 10 filings expected to be published in the next few days.
Until then, I'll not be able to add much on this subject beyond what I've already said.
The third quarter brought in mix of challenge, uncertainty and promise.
Encouraging signs make us highly optimistic about recovery and the long-term outlook for our business.
New leasing pace rebounded and was up 20% year-over-year.
As a result, lease percentage, our best forward indicator of occupancy increased by more 6% from July 1 to today.
And our units to lease have been cut in half.
Our high standards for resident selections are paying dividends, as collections have been consistently high since April.
Our customer service remains world-class with residents giving its 4.3 stars on 19,000 service.
And at the same time, we achieved 2.6% rate growth on renewals, this all despite an environment with constant changes in employment, schools, courts, and regulations.
One measure of the health of our core businesses is residential net rental income.
Simply put, this is our occupancy in average rate of apartment homes, which was down 2.5% in the third quarter.
Average daily occupancy was 93.9%, down 280 basis points from last year, blended lease rates were down 3% with new lease rates down 7.6% and renewals up 2.6%.
Bad debt expense was 190 basis points, including 130 basis points attributable to court closures in recent Los Angeles regulations.
Same-store revenues declined 4.9% in the third quarter, while expenses were down 1.3% due to increased efficiencies from our team and lower net utility costs as our energy initiatives drive value.
As a result, same-store third quarter net operating income decreased 6.3% year-over-year.
With that said, results in the quarter depended on geography.
In our stable suburban markets, operations were largely business as usual.
These communities distributed across the country totaled 19,100 units.
Our occupancy was 95.7%.
Blended rates were nearly flat.
And residential net rental income was up 60 basis points.
In our 8,500 units located in urban areas, demand was down and lease rates were more frequent, leading to turnover of 47%.
Occupancy of 89.5% and blended lease rates were negative 6.7% and residential net rental income was down 7.1%.
In each urban neighborhood, cumulative local conditions led to this performance and the reversal of those conditions will fuel growth next year.
In Philadelphia, University City felt the impact when new UPENN and Drexel announced the fall semester was virtual.
In Center City, many offices were empty including both Comcast Towers.
We expect Philadelphia to turn around shortly when students return to class and employees return to their office.
In Mid-Wilshire in West Los Angeles, the interruptions to the entertainment industry and shutdown of the city nearly eliminated demand in the spring.
While rate remains pressured and losses were compounded by local laws allowing residents to live rent free, we see blue skies coming with leasing up 44% year-over-year in the third quarter and up 150% in October.
Occupancy is anticipated to fully recover by year-end.
On the Peninsula in Northern California, work-from-home policies of tech companies changed the demand for apartments.
The Pacific neighborhood weakened and has since stabilized while San Mateo and Redwood City continue to face challenges with demand and rate and will likely remain tough in 2021.
Our exposure to these submarkets is limited and our diversified portfolio in Northern California includes solid performances in San Jose, Marin and East Bay.
In October, business continues to improve, leasing pace is still running ahead of last year, average daily occupancy for the month is 94.2% and we expect further increases through the end of the year and into 2021.
Pricing remains challenged with new lease rates down 10%, renewals up 1.4% and blended lease rates down 6.7%.
For some context on new lease rates, we've signed 95% of our leases for the year and in our suburban market rates are healthier and improving.
In our urban markets, rates have been tough but we've also seen them stabilize.
And with our suburban markets full, urban leasing has made up an increasing share of the transaction dollars each month since July.
We anticipate that these three trends will hold through the winter months as we believe we've reached the bottom.
Lastly, October collections were consistent with recent months.
New delinquencies are slowing with more of our accounts receivable growth coming from residents who have been delinquent since the beginning of the pandemic.
We anticipate an improvement in bad debt once local emergency ordinances and closures unwind sometime next year.
In a moment Paul will provide more details on our collections and bad debt.
We continue to focus on the long game, keeping a steady hand on the wheel and building sustainable revenue growth for the coming year.
We have a strong operational architecture in place today with smart home technology in every unit.
Artificial intelligence is delivering productivity and improved results, a centralized team driving consistent execution, relentless innovation enabling us to hold our expenses flat, in-depth analytics guiding our decision-making, and most importantly our field team members that consistently deliver exceptional service and outstanding results.
Amid this year's challenges, the Aimco team has sourced new investment opportunities, advanced construction on our major projects, and worked hard to fill newly delivered apartment homes with high-quality residents.
First, I'll touch on new investments made during the quarter and we'll then turn to our redevelopment and development activities.
In August, Aimco acquired Hamilton on the Bay located in Miami's Edgewater neighborhood for a price of $90 million.
The acquisition included a waterfront apartment building containing 271 units averaging over 1,400 square feet plus an adjacent development site.
Combining the parcels will allow for more than 380 additional residential units under the current zoning.
We are planning to invest as much as $50 million and a substantial redevelopment of the existing building and the second phase focused on unlocking the value of the available development rights is being explored.
Also during the quarter, Aimco made a $50 million commitment to invest in IQHQ, a premier life sciences real estate development company.
In addition to our investment in the company, Aimco secured the right to collaborate on the multifamily portions of future IQHQ development sites.
Post-separation, we expect these new investments will be strong contributors to the growth of Aimco's development business, and we are actively pursuing additional opportunities with plans to further grow our pipeline.
Now, turning to our ongoing redevelopment and development projects; here are some highlights as of the end of October.
At Parc Mosaic in Boulder, Colorado, where construction was completed earlier in the year, Keith and his team have leased 97% of the apartment homes.
Our townhouse project in Elmhurst, Illinois is now substantially complete, with all 58 homes delivered and 57 of those being leased.
At 707 Leahy in Redwood City, we've delivered 60 homes, over 80% of them leased, and the remaining 50 are scheduled to complete before year-end.
At The Fremont on the Anschutz Medical Campus, just over 100 homes have been delivered, here too, 80% have been leased and the remainder will be completed in the coming months.
Our final two long cycle projects, Prism in Cambridge, and the North Tower at Flamingo in Miami Beach, remain on track for initial delivery in early and mid-2021 respectively.
Initial rental rate performance on those projects currently in lease-up has averaged 98% of our original expectations.
However, we believe that NOI yields will meet or exceed our underwriting as the impacts of continuing onsite construction and strained local market conditions lift.
Today, I will discuss Aimco's balance sheet, third quarter financial results, rent collections and bad debt, and then wrap up with a brief discussion of Aimco's previously announced special dividend.
As Terry mentioned, in 2020, we expect to reduce leverage by $2 billion, $1 billion from the September closing of the California joint venture and a $1 billion from the separation transaction.
The $1 billion leverage reduction reduced third quarter leverage-to-EBITDA on a trailing 12-month basis to 7.0 times.
Now, on the Aimco financial results; third quarter pro forma FFO of $0.61 per share was down $0.03 or 5% year-over-year.
We estimate lower occupancy and other COVID-related impacts reduced third quarter FFO by $0.09 year-over-year.
Offsetting the COVID-related impacts was $0.04 of increased interest income associated with the Parkmerced mezzanine loan and $0.03 of lower offsite costs.
The remaining $0.01 decline is attributable to the net impact of property sales and lower interest expense.
Next, I'd like to spend a minute discussing Aimco rent collections and bad debt.
Residential revenue includes apartment rents and also such items as storage rents, parking rents and related fees owed by residents.
In the third quarter, Aimco recognized 98.1% of all residential revenue.
Of the 98.1%, 96.7% was paid in cash, 30 basis points better than the second quarter's collection percentage as of the same date.
60 basis points is subject to recovery by offset against security deposits and $1.6 million or 80 basis points is considered collectible based on Aimco review of individual customers' credit.
Aimco does not expect to collect, and therefore did not recognize revenue on 190 basis points of third quarter billings.
These amounts are reflected as bad debt in our quarterly financial statements.
The majority of this amount, approximately 130 basis points, is attributed to residents who have not paid April and subsequent rents.
Prior to the enactment of restrictive city ordinances and closed courthouses, these residents would have been evicted in ordinary course, and therefore the bad debt would not have continued for the past six months.
The remaining amount, approximately 60 basis points, reflects residents, whose initial delinquency occurred during the third quarter.
This is elevated reflecting stress in the economy, but the rate of initial delinquencies has been steadily declining since July.
We expect the decline to continue until reaching a more normal 30 basis points in 2021.
As we look forward, we also expect the emergency ordinances that allow residents to live rent-free to unwind, providing us with the opportunity to rerent these apartments to rent-paying residents.
Lastly, as previously announced, the Aimco board of directors declared a special dividend on October 21 to distribute the taxable gains resulting from the partial sale of assets in the California joint venture and other 2020 dispositions.
$8.20 per share dividend consists of 10% cash or $0.82 per share, which covers Aimco's regular scheduled quarterly dividend and the acceleration of the next dividend typically paid in February.
The remaining 90% will be paid in common stock.
Shareholders of record on November 4 allowed the option to elect to receive either cash or shares of common stock.
If either option is oversubscribed, the shareholder will receive a prorated amount of cash and common stock.
Special dividend will be payable on November 30, concurrent with the reverse stock split effectively neutralizing the per share impact of the additional common shares issued in the dividend.
Post-separation, it is expected that the need for special dividends to distribute taxable gain on sale at AIR will be reduced or eliminated due to the refreshed tax basis.
Rocco, I'll turn over to you for the first question.

user
aim q3 pro forma ffo per share $0.61.
q3 pro forma ffo per share $0.61.

assistant