Aimco reduces leverage by a $1 billion.
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.
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.
Full SEC descriptions of these plans are expected in Form 10 filings expected to be published in the next few days.
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.
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.
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.
These communities distributed across the country totaled 19,100 units.
Our occupancy was 95.7%.
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%.
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.
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 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.
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.
Initial rental rate performance on those projects currently in lease-up has averaged 98% of our original expectations.
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.
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.
The majority of this amount, approximately 130 basis points, is attributed to residents who have not paid April and subsequent rents.
The remaining amount, approximately 60 basis points, reflects residents, whose initial delinquency occurred during the third quarter.
We expect the decline to continue until reaching a more normal 30 basis points in 2021.
$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.

Summary:
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.