Published: 2021-11-09 00:00:00 ET

HTTP/1.1 200 OK HTTP/1.1 200 OK X-Crawlera-Slave: 66.84.92.146:3128 X-Crawlera-Version: 1.60.1 accept-ranges: bytes content-type: text/html last-modified: Tue, 09 Nov 2021 22:28:10 GMT server: AmazonS3 x-amz-id-2: cedxlokjB7Elea8QYiTnjvUj3sAHbfoyw1UIlqRFxWvguKz0hgL/BU+n14j9D7sdBAXFi/0vfv4= x-amz-meta-mode: 33188 x-amz-meta-s3cmd-attrs: uid:504/gname:fitrprnt/uname:fitrprnt/gid:504/mode:33184/mtime:1636496879/atime:1636496885/md5:8ec7607b63d6506fad200caf409188d4/ctime:1636496883 x-amz-replication-status: COMPLETED x-amz-request-id: 4BHH29MCDXNNYCR8 x-amz-version-id: ajexgF4SubgfKvbxC7M2WUr8o14SwUTS x-content-type-options: nosniff x-frame-options: SAMEORIGIN x-xss-protection: 1; mode=block x-akamai-transformed: 9 - 0 pmb=mTOE,2 expires: Thu, 06 Apr 2023 23:35:06 GMT cache-control: max-age=0, no-cache, no-store pragma: no-cache date: Thu, 06 Apr 2023 23:35:06 GMT vary: Accept-Encoding akamai-x-true-ttl: -1 strict-transport-security: max-age=31536000 ; includeSubDomains ; preload set-cookie: ak_bmsc=E117E915020CC0CFAB1A1092B68FBE77~000000000000000000000000000000~YAAQCGIoFxgkh1eHAQAAw37sWBOi93qxp4mQK2ib+hHMuQukH5lp672CgBCgTz8DYx082AnZgDL3aeqk+Iy+4qvpTZTV2c7OZlM3F9tdEolMxvwNg+z1qPFjbIvJ28+tPXB4wVg1k2bRuNOF7tqME7CUOm9q9tKq8bvOTJb5Vuzp1/B/U8S/lGwGLKK+8MoV1mJkvr/QspQIK9IR89l8UqoLYLIKBb4TJ+K71NR/1lSmGDexKei1QfoS5NpyHq2Lflhbncr2faUsogenT6MVaXC4FO31jdUi8X8ZyHCiU4fIerUPipSqCANp04Ud9C0N6lFWO1j9CLyFTx2bXdYyy1AG0YspzBp0yTEQCrI5G0IjlnbeBU6VRdRPQqFZKNMSbY4S/TOj; Domain=.sec.gov; Path=/; Expires=Fri, 07 Apr 2023 01:35:06 GMT; Max-Age=7200; HttpOnly set-cookie: bm_mi=1B0E95CB018779A6CDF051719DCEF762~YAAQCGIoFxkkh1eHAQAAw37sWBPYZ3wUk9UbMERLADePfc6LuBtEhdsd8SSTYB4Oik0zrU7CEEW7ijLlIR5G4Cbg8u9ZAXJQjLLYHkzuLHhs11kvF2aR9vIY5gUETYvCcmNkIAjNkbfOUpQStL1RWeIAz9BGRyckb4AkaEMtcM1GK/pWrUA6k5jnR5gaKAytjE6oXAEZwAxBjw7i4wyb/6/bypGaktUeFVjpRGUBeQ7HLSbj5lVX6EO5ZYPRklmxvx/JMvwM57nADmBBSXgoKxwj5smOFYvQMO8ezqyCvUatYgf+ht5Hq3emV7VOaQX4oBmFkAq3JkE/FMtSQB97rxxZt4fw1vTWUnCPqRCK0oob7YwHum9JYCU8o53jMPUiywddTEpTF5PXqNJT~1; Domain=.sec.gov; Path=/; Expires=Thu, 06 Apr 2023 23:35:06 GMT; Max-Age=0; Secure Transfer-Encoding: chunked Proxy-Connection: close Connection: close

Table of Contents

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

Form 10-Q

(Mark One)

For the quarterly period ended September 30, 2021  

OR

For the transition period from          to

Commission File Number: 1-13232 (Apartment Investment and Management Company)

Commission File Number: 0-56223 (Aimco OP L.P.)

Apartment Investment and Management Company

Aimco OP L.P.

(Exact name of registrant as specified in its charter)

 

 

(303) 224-7900

(Registrant’s telephone number, including area code)

Not Applicable

(Former name, former address, and former fiscal year, if changed since last report)

 

Securities registered pursuant to Section 12(b) of the Act:

 

 

Securities registered pursuant to Section 12(g) of the Act:

 

None (Apartment Investment and Management Company)

Partnership Common Units (Aimco OP L.P.)

(title of each class)

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.

 

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

 

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Apartment Investment and Management Company:

 

 

Aimco OP L.P.:

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

 

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

 

---

Table of Contents

 

 

The number of shares of Apartment Investment and Management Company Class A Common Stock outstanding as of November 8, 2021: 152,237,788

 

 

 

 

---

Table of Contents

 

 

EXPLANATORY NOTE

On December 15, 2020, Apartment Investment and Management Company (“Aimco” or “the Company”) completed the separation of its business into two, separate and distinct, publicly traded companies, Aimco and Apartment Income REIT Corp. (“AIR”). The separation was effected by way of a pro rata distribution, in which stockholders of Aimco received one share of Class A common stock of AIR for every one share of Class A common stock of Aimco held as of the close of business on December 5, 2020. Apartment Income REIT, L.P. (“AIR Operating Partnership”), formerly known as “Aimco Properties, L.P.” until July 7, 2021, also completed a pro rata distribution of all of the outstanding common limited partnership units of Aimco OP L.P. (“Aimco Operating Partnership” and such units, “Aimco OP Units”) to holders of AIR Operating Partnership common limited partnership units and AIR Operating Partnership Class I High Performance partnership units as of the close of business on December 5, 2020. The transactions described in this paragraph are collectively referred to as the “Separation” and are governed by the terms of the Separation and Distribution Agreement (the “Separation Agreement”).

Notwithstanding the legal form of the Separation, for accounting and financial reporting purposes, Aimco is presented as being spun-off from AIR. This presentation is in accordance with generally accepted accounting principles in the United States and is due primarily to the relative significance of Aimco’s business, as measured in terms of revenue, net income, assets, and other relevant indicators, as compared to those indicators for AIR before the Separation. Therefore, Aimco is considered “spun” for accounting purposes and AIR is considered the divesting entity and treated as the accounting spinner, or accounting predecessor. A separate capital structure did not exist since the assets, liabilities and operations of Aimco prior to the Separation (Aimco and AIR together, as they existed prior to the Separation, “Aimco Predecessor”) were spread across multiple legal entities. Events noted in this filing as occurring before December 15, 2020 were those entered into by Aimco Predecessor. The historical financial statements of Aimco do not represent the financial position and results of operations of one legal entity, but rather a combination of entities under common control that have been “carved out” from Aimco Predecessor’s financial statements.

This filing combines the quarterly reports on Form 10-Q for the quarterly period ended September 30, 2021, of Aimco and Aimco Operating Partnership. Where it is important to distinguish between the two entities, we refer to them specifically. Otherwise, references to “we,” “us,” or “our” mean, collectively, Aimco, Aimco Operating Partnership, and their consolidated entities.

Aimco, a Maryland corporation, is a self-administered and self-managed real estate investment trust, or REIT. Aimco, through a wholly-owned subsidiary, is the general partner and directly is the special limited partner of Aimco Operating Partnership. As of September 30, 2021, Aimco owned 93.1% of the legal interest in the common partnership units of Aimco Operating Partnership and 95.0% of the economic interest in Aimco Operating Partnership. The remaining 6.9% legal interest is owned by limited partners. As the sole general partner of Aimco Operating Partnership, Aimco has exclusive control of Aimco Operating Partnership’s day-to-day management.

Aimco Operating Partnership holds all of Aimco’s assets and manages the daily operations of Aimco’s business. Pursuant to Aimco Operating Partnership agreement, Aimco is required to contribute to Aimco Operating Partnership all proceeds from the offerings of its securities. In exchange for the contribution of such proceeds, Aimco receives additional interests in Aimco Operating Partnership with similar terms (e.g., if Aimco contributes proceeds of a stock offering, Aimco receives partnership units with terms substantially similar to the stock issued by Aimco).

We believe combining the periodic reports of Aimco and Aimco Operating Partnership into this single report provides the following benefits:

We operate Aimco and Aimco Operating Partnership as one enterprise; the management of Aimco directs the management and operations of Aimco Operating Partnership; and Aimco OP GP, LLC, Aimco Operating Partnership’s general partner, is managed by Aimco.

We believe it is important to understand the few differences between Aimco and Aimco Operating Partnership in the context of how Aimco and Aimco Operating Partnership operate as a consolidated company. Aimco has no assets or liabilities other than its investment in Aimco Operating Partnership. Also, Aimco is a corporation that issues publicly traded equity from time to time, whereas Aimco Operating Partnership is a partnership that has no publicly traded equity. Except for the net proceeds from stock offerings by Aimco, which are contributed to Aimco Operating Partnership in exchange for additional

1

---

Table of Contents

 

limited partnership interests (of a similar type and in an amount equal to the shares of stock sold in the offering), Aimco Operating Partnership generates all remaining capital required by its business. These sources include Aimco Operating Partnership’s working capital, net cash provided by operating activities, borrowings under its revolving credit facility, the issuance of debt and equity securities, including additional partnership units, and proceeds received from the sale of real estate.

Equity, partners’ capital, and noncontrolling interests are the main areas of difference between the condensed consolidated financial statements of Aimco and those of Aimco Operating Partnership. Interests in Aimco Operating Partnership held by entities other than Aimco, which we refer to as Aimco OP Units, are classified within partners’ capital in Aimco Operating Partnership’s condensed consolidated financial statements and as noncontrolling interests in Aimco’s condensed consolidated financial statements.

To help investors understand the differences between Aimco and Aimco Operating Partnership, this report provides: separate condensed consolidated financial statements for Aimco and Aimco Operating Partnership; a single set of condensed consolidated notes to such financial statements that includes separate discussions of each entity’s earnings per share or earnings per unit, as applicable; and a combined Management’s Discussion and Analysis of Financial Condition and Results of Operations section that includes discrete information related to each entity, where appropriate.

This report also includes separate Part I, Item 4. Controls and Procedures sections and separate Exhibits 31 and 32 certifications for Aimco and Aimco Operating Partnership in order to establish that the requisite certifications have been made and that Aimco and Aimco Operating Partnership are both compliant with Rule 13a-15 or Rule 15d-15 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and 18 U.S.C. §1350.

 

2

---

Table of Contents

 

 

APARTMENT INVESTMENT AND MANAGEMENT COMPANY

AIMCO OP L.P.

 

TABLE OF CONTENTS

 

FORM 10-Q

 

 

3

---

Table of Contents

 

 

PART I. FINANCIAL INFORMATION

 

ITEM 1. FINANCIAL STATEMENTS

APARTMENT INVESTMENT AND MANAGEMENT COMPANY

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share data)

(Unaudited)

 

 

See notes to condensed consolidated financial statements.

4

 

---

Table of Contents

 

 

APARTMENT INVESTMENT AND MANAGEMENT COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)

(Unaudited)

 

 

 

 

See notes to condensed consolidated financial statements.

5

 

---

Table of Contents

 

 

APARTMENT INVESTMENT AND MANAGEMENT COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY

For the Three Months Ended September 30, 2021 and 2020

(In thousands)

(Unaudited)

 

 

 

 

See notes to condensed consolidated financial statements.

6

 

---

Table of Contents

 

 

APARTMENT INVESTMENT AND MANAGEMENT COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY

For the Nine Months Ended September 30, 2021 and 2020

(In thousands)

(Unaudited)

 

 

 

 

 

 

 

 

 

 

See notes to condensed consolidated financial statements.

7

 

---

Table of Contents

 

 

APARTMENT INVESTMENT AND MANAGEMENT COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

 

 

See notes to condensed consolidated financial statements.

8

 

---

Table of Contents

 

 

AIMCO OP L.P.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands)

(Unaudited)

 

 

See notes to condensed consolidated financial statements.

9

 

---

Table of Contents

 

 

AIMCO OP L.P.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per unit data)

(Unaudited)

 

 

 

 

 

 

 

 

See notes to condensed consolidated financial statements.

10

 

---

Table of Contents

 

 

AIMCO OP L.P.

CONDENSED CONSOLIDATED STATEMENTS OF PARTNERS’ CAPITAL

For the Three Months Ended September 30, 2021 and 2020

(In thousands)

(Unaudited)

 

 

 

 

 

 

 

See notes to condensed consolidated financial statements.

11

 

---

Table of Contents

 

 

AIMCO OP L.P.

CONDENSED CONSOLIDATED STATEMENTS OF PARTNERS’ CAPITAL

For the Nine Months Ended September 30, 2021 and 2020

(In thousands)

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

See notes to condensed consolidated financial statements.

12

 

---

Table of Contents

 

 

AIMCO OP L.P.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

 

 

 

 

See notes to condensed consolidated financial statements.

13

 

---

Table of Contents

 

 

APARTMENT INVESTMENT AND MANAGEMENT COMPANY

AIMCO OP L.P.

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2021

(Unaudited)

 

Note 1 — Organization

Apartment Investment and Management Company (“Aimco”), a Maryland corporation incorporated on January 10, 1994, is a self-administered and self-managed real estate investment trust (“REIT”). Aimco, through a wholly-owned subsidiary, is the general and special limited partner of Aimco OP L.P. (“Aimco Operating Partnership”).

Except as the context otherwise requires, “we,” “our,” and “us” refer to Aimco, Aimco Operating Partnership, and their consolidated subsidiaries, collectively.

The Separation

On December 15, 2020, Aimco completed the separation of its businesses (the “Separation”), creating two, separate and distinct, publicly traded companies, Aimco and Apartment Income REIT Corp. (“AIR”) (Aimco and AIR together, as they existed prior to the Separation, “Aimco Predecessor”).

Prior to the Separation, the condensed consolidated financial statements were prepared on a carve-out basis and reflect significant assumptions and allocations. The condensed consolidated financial statements reflect our historical consolidated financial position, results of operations, and cash flows in conformity with generally accepted accounting principles in the United States (“GAAP”). The historical financial statements of Aimco do not represent the financial position and results of operations of one legal entity, but rather a combination of entities under common control that have been “carved out” from Aimco Predecessor’s financial statements. All significant intercompany balances have been eliminated in consolidation.

All separation related transactions between Aimco and Aimco Predecessor are considered effectively settled through partners’ capital in our condensed consolidated financial statements, other than the notes payable to AIR as discussed in Note 3. The settlement of these transactions is reflected as contributions from Aimco Predecessor, net in our condensed consolidated statements of equity and partners’ capital and as a net change in Aimco Predecessor investment in financing activity in our condensed consolidated statements of cash flows.

Business

As of September 30, 2021, Aimco owned 93.1% of the legal interest in the common partnership units of Aimco Operating Partnership and 95.0% of the economic interest in Aimco Operating Partnership. The remaining 6.9% legal interest is owned by limited partners. As the sole general partner of Aimco Operating Partnership, Aimco has exclusive control of Aimco Operating Partnership’s day-to-day management.

We own or lease a portfolio of real estate investments focused primarily on the U.S. multifamily sector. These real estate investments include a portfolio of 24 operating apartment communities with 6,067 apartment homes, diversified by both geography and price point, in 12 states; one commercial office building owned as part of a land assemblage; a recently acquired operating community with 58 townhomes; three residential apartment communities, with 1,331 planned apartment homes, a single family rental community, with 16 planned homes plus eight accessory dwelling units, and one hotel, with 106 planned rooms, that we are actively developing or redeveloping; land parcels held for development; and three residential apartment communities, with 499 apartment homes, for which we have completed the redevelopment and are in lease-up, but have not achieved stabilization. In addition, we own an interest in four unconsolidated operating apartment communities.

Note 2 — Basis of Presentation and Summary of Significant Accounting Policies

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X. Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted in accordance with such rules and regulations, although management believes the disclosures are adequate to prevent the information presented from being misleading. In the opinion of management, all adjustments, consisting of normal recurring items, considered necessary for a

14

 

---

Table of Contents

 

fair presentation have been included. Operating results for the three and nine months ended September 30, 2021, are not necessarily indicative of the results that may be expected for the year ending December 31, 2021.

The condensed consolidated balance sheets of Aimco and Aimco Operating Partnership as of December 31, 2020, have been derived from their respective audited financial statements at that date, but do not include all of the information and disclosures required by GAAP for complete financial statements. For further information, refer to the financial statements and notes thereto included in Aimco’s and Aimco Operating Partnership’s combined Annual Report on Form 10-K for the year ended December 31, 2020. Except where indicated, the footnotes refer to both Aimco and Aimco Operating Partnership.

Principles of Consolidation

Aimco’s accompanying condensed consolidated financial statements include the accounts of Aimco, Aimco Operating Partnership, and their consolidated subsidiaries. Aimco Operating Partnership’s condensed consolidated financial statements include the accounts of Aimco Operating Partnership and its consolidated subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation.

We consolidate a variable interest entity (“VIE”) in which we are considered the primary beneficiary. The primary beneficiary is the entity that has (i) the power to direct the activities that most significantly impact the entity's economic performance and (ii) the obligation to absorb losses of the VIE or the right to receive benefits from the VIE that could be significant to the VIE.

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 of a limited liability company.

Certain reclassifications have been made to prior period amounts to conform to the current period condensed consolidated financial statement presentation with no effect on the Company’s previously reported results of operations, financial position, or cash flows.  

Allocations

The 2020 condensed consolidated statements of operations include allocations of general and administrative expenses from Aimco Predecessor. We consider the basis on which expenses have been allocated to be a reasonable reflection of the utilization of services provided to or the benefit received by us during the periods presented. However, the allocations may not include all of the actual expenses that we would have incurred and may not reflect our consolidated results of operations, financial position, and cash flows had it been a stand-alone company during the periods presented. Actual costs that might have been incurred had we been a stand-alone company would depend on a number of factors, including the chosen organizational structure, what functions we might have performed ourselves or outsourced, and strategic decisions we might have made in areas such as information technology and infrastructure. Following the Separation, AIR, through its subsidiaries, provides Aimco with certain property management and other services, and we perform certain functions using our own resources or purchase services from third parties.

Common Noncontrolling Interests in Aimco Operating Partnership

Common noncontrolling interests in Aimco Operating Partnership consist of common Aimco Operating Partnership Units (“OP Units”) and are reflected in Aimco’s accompanying condensed consolidated balance sheets as common noncontrolling interests in Aimco Operating Partnership.  Aimco Operating Partnership’s income or loss is allocated to the holders of common OP Units, other than Aimco, based on the weighted-average number of common OP Units (including Aimco) outstanding during the period.  For all periods presented, the holders of common OP Units had a weighted-average economic ownership interest in Aimco Operating Partnership of approximately 5.0%. Substantially all of the assets and liabilities of Aimco are held by Aimco Operating Partnership.

Redeemable Noncontrolling Interest in Consolidated Real Estate Partnership

Redeemable noncontrolling interest consists of equity interests held by a limited partner in a consolidated real estate partnership that has a finite life. We generally attribute to noncontrolling interests their share of income or loss of consolidated partnerships based on their proportionate interest in the results of operations of the partnerships, including their share of losses even if such attribution results in a deficit noncontrolling interest balance within our equity accounts.

If a consolidated real estate partnership includes redemption rights that are not within our control, the noncontrolling interest is included as temporary equity. If the redemption right is not currently redeemable but probable of being redeemable in the future, changes in redemption value are recognized each quarter with the change in value being reflected in additional paid-in-capital.

15

 

---

Table of Contents

 

The assets of our consolidated real estate partnerships must first be used to settle the liabilities of the consolidated real estate partnerships. The consolidated real estate partnerships’ creditors do not have recourse to the general credit of Aimco Operating Partnership.

The following table presents a reconciliation of our redeemable noncontrolling interest in consolidated real estate partnership from December 31, 2020, to September 30, 2021 (in thousands):

Balance at December 31, 2020		$	4,263
Net income			41
Balance at September 30, 2021		$	4,304

 

Revenue from Leases

The majority of lease payments we receive from our residents and tenants are fixed. We receive variable payments from our residents and commercial tenants primarily for utility reimbursements and other services. For the three and nine months ended September 30, 2021 and 2020, our total lease income was comprised of the following amounts for all operating leases (in thousands):

		Three Months Ended September 30,								Nine Months Ended September 30,
		2021				2020				2021				2020
Fixed lease income		$	39,382			$	34,744			$	113,726			$	104,737
Variable lease income			3,046				2,572				8,760				7,803
Total lease income		$	42,428			$	37,316			$	122,486			$	112,540

Lessee Arrangements

We, as lessee, and AIR, as lessor, have entered into finance leases on five properties currently under construction or in lease-up. Four leases commenced January 1, 2021, two of which have rent escalations that start at the point the property reaches stabilization. Three of the leases have a term of 25 years and one has a term of 10 years. During the nine months ended September  30, 2021, we, as lessee, and AIR, as lessor, entered into a finance lease for a 15-acre plot of land in the San Francisco Bay Area on which we began construction of 16 single family rental homes and 8 accessory dwelling units in June 2021. The lease commenced on June 1, 2021 and has a term of 25 years.

We have provided AIR with residual value guarantees aggregating to $250.8 million, which provide that if the residual value of the leased assets are less than the specified residual value guarantees at the earlier of lease expiration or termination, we are required to pay the difference. See Note 3 for further details.

As of September 30, 2021, operating and financing right-of-use lease assets of $5.2 million and $434.0 million, respectively, are included in the condensed consolidated balance sheets. For the three months and nine months ended September 30, 2021, amortization related to our finance leases was $2.1 million and $5.5 million, respectively, net of amounts capitalized. For the three months and nine months ended September 30, 2021, interest expense related to our finance leases was $2.2 million and $6.1 million, respectively, net of amounts capitalized.  

As of September 30, 2021, Aimco’s operating leases and finance leases have weighted-average remaining terms of 7.6 years, and 38.6 years, respectively, and weighted-average discount rates of 3.1% and 5.4%, respectively.

16

 

---

Table of Contents

 

Combined minimum annual lease payments, under operating and financing leases, reconciled to the lease liabilities in our condensed consolidated balance sheets, are as follows (in thousands):

	Sublease Income				Operating Lease Future Minimum Rent				Financing Leases Future Minimum Payments
Remainder of 2021	$	347			$	420			$	6,699
2022		1,393				1,891				27,197
2023		1,403				1,922				27,597
2024		1,413				1,935				28,597
2025		1,423				1,930				29,208
Thereafter		4,959				6,575				1,644,138
Total	$	10,938				14,673				1,763,436
Less: Discount						(1,702	)			(1,327,521	)
Total lease liabilities					$	12,971			$	435,915

For the three and nine months ended September 30, 2021, we capitalized $5.8 million and $18.5 million of lease costs associated with active development and redevelopment projects on certain of the underlying property and ground lease assets. No lease costs were capitalized on leased assets for the three and nine months ended September 30, 2020.

Mezzanine Investment

On November 26, 2019, Aimco made a five-year, $275.0 million mezzanine loan to Maximus PM Mezzanine A LLC, the partnership owning the “Parkmerced Apartments”, located in southwest San Francisco (the “Mezzanine Investment”). The loan bears interest at a 10% annual rate, accruing if not paid from property operations.

The Separation Agreement provides for AIR to transfer ownership of the subsidiaries that originated and hold the mezzanine loan, a related equity option to acquire a 30% interest in the partnership owning Parkmerced Apartments and the interest rate option, or swaption, that provides partial protection against future refinancing risk through 2024 to Aimco. At the time of the Separation and as of the date of this filing, legal title of these subsidiaries had not yet transferred to Aimco. Until legal title of the subsidiaries is transferred, AIR is obligated to pass payments on such loan to us, and we are obligated to indemnify AIR against any costs and expenses related thereto. We have the risks and rewards of ownership of the Mezzanine Investment and have recognized an asset related to our right to receive the Mezzanine Investment from AIR.

We recognize as income the net amounts recognized by AIR on its equity investment that are due to be paid to us when collected, which primarily represent the interest accrued under the terms of the underlying mezzanine loan.

The loan is subject to certain risks, including, but not limited to, those resulting from the ongoing disruption due to the COVID-19 pandemic and associated response, and any similar events that might occur in the future, which may result in all or a portion of the loan not being repaid. In the event we determine that a portion of the Mezzanine Investment is not recoverable, we will recognize an impairment.

Income Tax Benefit

Certain of our operations, including our Development and Redevelopment activities, are conducted through taxable REIT subsidiaries, or TRS entities. Additionally, our TRS entities hold investments in one of our apartment communities and 1001 Brickell Bay Drive.  

Our income tax benefit calculated in accordance with GAAP includes income taxes associated with the income or loss of our TRS entities.  Income taxes, as well as changes in valuation allowance and incremental deferred tax items in conjunction with intercompany asset transfers and internal restructurings (if applicable), are included in income tax benefit in our condensed consolidated statements of operations.

Consolidated GAAP income or loss subject to tax consists of pretax income or loss of our taxable entities and gains retained by the REIT. For the three and nine months ended September 30, 2021, we had consolidated net losses subject to tax of $7.9 million and $26.4 million, respectively. For the three and nine months ended September 30, 2020, we had consolidated net losses subject to tax of $5.7 million and $14.5 million, respectively.

For the three months ended September 30, 2021, we recognized income tax benefit of $2.0 million compared to $2.7 million, during the same period ended 2020. The change is due primarily to lower losses at our TRS entities.

17

 

---

Table of Contents

 

For the nine months ended September 30, 2021, we recorded income tax benefit of $9.9 million, compared to $6.7 million during the same period ended 2020. The change is due primarily to income tax benefit associated with internal restructuring, changes to our effective state rate expected to apply to the reversal of our existing deferred items, and higher losses at our TRS entities.

Use of Estimates

The preparation of our condensed 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.

Cash Equivalents

We classify highly liquid investments with an original maturity of three months or less as cash equivalents. We maintain cash equivalents in financial institutions in excess of insured limits. We have not experienced any losses in these accounts in the past and believe that we are not exposed to significant credit risk because our accounts are deposited with major financial institutions.

Restricted Cash

Restricted cash consists of tenant security deposits, capital replacement reserves, insurance reserves, and cash restricted as required by our debt agreements.

Other Assets, net

Other assets were comprised of the following amounts (in thousands):

	September 30, 2021				December 31, 2020
Notes receivable	$	37,893			$	37,045
Deferred costs, deposits, and other		25,585				17,557
Interest rate options		29,778				13,315
Corporate fixed assets		10,536				12,860
Unconsolidated real estate partnerships		12,974				12,829
Investment in IQHQ		24,591				12,500
Prepaid expenses and other		17,974				10,493
Intangible lease assets, net		4,756				7,264
Due from affiliates		3,155				4,333
Accounts receivable, net of allowances of $1,378 and $1,467 respectively		4,075				2,660
Total other assets, net	$	171,317			$	130,856

 

 

Note 3 —Significant Transactions

Transactions with AIR

In conjunction with the Separation, we entered into various separation and transition services agreements with AIR that provide for a framework of our relationship with AIR after the Separation, including: (i) a separation agreement setting forth the mechanics of the Separation, the key provisions relating to the separation of our assets and liabilities from those of AIR, and certain organizational matters and conditions; (ii) an employee matters agreement to allocate liabilities and responsibilities relating to employment matters, employee compensation, benefits plans and programs, and other related matters (the “Employee Matters Agreement”); (iii) agreements pursuant to which AIR will provide property management and related services to us (collectively, the “Property Management Agreements”); (iv) an agreement pursuant to which AIR will provide us with customary administrative and support services on an ongoing basis (the “Master Services Agreement”); and (v) a master leasing agreement where we may enter into leases with AIR with the option to develop, redevelop, or lease-up the subject leased properties, and under which we will have certain lease termination rights (the “Master Leasing Agreement”).

18

 

---

Table of Contents

 

Master Services Agreement

We and AIR entered into a Master Services Agreement, in which AIR will provide us with customary administrative and support services. We are obligated to pay AIR the fully burdened costs in performing the services. We may terminate any or all services on 60 days’ prior written notice, and AIR may terminate individual services, at any time after December 31, 2023.  During the three and nine months ended September 30, 2021, we incurred administrative and support fees of $0.7 million and $1.8 million, respectively, which are included in general and administrative expenses in our condensed consolidated statements of operations.  We did not incur any fees for the three and nine months ended September 30, 2020.

Property Management Agreements

We entered into several Property Management Agreements with AIR, pursuant to which AIR will provide us with certain property management, property accounting and related services for the majority of our operating properties, and we will pay AIR a property management fee equal to 3% of each respective property’s revenue collected and such other fees as may be mutually agreed upon for various other services. The initial term of each Property Management Agreement is one-year, with automatic one-year renewal periods, unless either party elects to terminate upon delivery of 60 days’ prior written notice to the other party before the end of the term. Neither party is obligated to pay to the other party a termination fee or other penalty upon such termination.    

During the three and nine months ended September 30, 2021, we recorded property management and property accounting fees of $1.3 million and $3.8 million, respectively, which we included in property operating expenses in our condensed consolidated statements of operations.  We did not incur any fees for the three and nine months ended September 30, 2020.

Notes Payable to AIR

On December 14, 2020, we entered into $534.1 million of notes payable to AIR that are secured by a pledge of the equity interest in the entity that holds a portfolio of assets, however, the assets secure existing senior loans of $243.4 million as of September 30, 2021.  The notes mature on January 31, 2024 and bear interest at 5.2%, with accrued interest payable quarterly on January 1, April 1, July 1 and October 1, commencing on April 1, 2021. For the three and nine months ended September 30, 2021, we recognized interest expense of $6.9 million and $20.8 million, respectively associated with the notes payable to AIR. We made interest payments of $6.9 million in the quarter which are included in interest payments on notes payable to AIR in operating activities in the condensed consolidated statement of cash flows for the nine months ended September 30, 2021   

Master Leasing Agreement

The Master Leasing Agreement governs the current and any future leasing arrangements between us, as lessee, and AIR, as lessor. The initial term of the Master Leasing Agreement is 18 months (expiring on or about June 14, 2022), with automatic annual extensions (subject to each party’s right to terminate upon notice prior to the end of any such extension term). The Master Leasing Agreement provides that each time the parties thereto wish to execute a lease for a particular property, such parties will cause their applicable affiliates to execute a stand-alone lease. The initial annual rent for any leased property is based on the then-current fair market value of the subject property and market NOI cap rates, subject to certain adjustments, and is further subject to periodic escalation as set forth in the applicable lease, and the other terms thereof, including the initial term and extensions. We have the right to terminate any such lease prior to the end of its term once the leased property is stabilized. In connection with such an early termination, AIR will generally have an option (and not an obligation) to pay us an amount equal to the difference between the property’s fair value at stabilization and the initial value of the leasehold interest, at a five percent discount thereto; if AIR does not exercise such option, we will have the right to cause such property to be sold to a third party, with AIR guaranteed to receive an amount equal to the difference between the property’s fair market value at stabilization and the initial value of the leasehold interest and we will retain any excess proceeds. In the event of such sale of the property, we may also elect to purchase the property at a purchase price equal to the fair market value as agreed upon at the time of lease inception (and may subsequently sell the property to a third party, subject to AIR’s right of first refusal during the first year following our acquisition). If AIR elects not to pay the fee for the development or redevelopment-related improvements, and we decline to purchase the property or cause its sale to a third party, we may elect to rescind our termination of the applicable lease and instead continue such lease in effect in accordance with its terms.

We, as lessee, and AIR, as lessor, have entered into leases of five properties currently under construction or in lease-up. Four of the property leases commenced on January 1, 2021: (i) North Tower at Flamingo Point in Miami Beach, Florida; (ii) The Fremont Residences on the Anschutz Medical Campus in Aurora, Colorado; (iii) Prism in Cambridge, Massachusetts; and (iv) 707 Leahy Apartments in Redwood City, California. According to the terms of the respective lease agreements, we had the option to complete the on-going development and redevelopment of such properties and their lease-ups, which we elected on January 1, 2021. The term of each lease is 25 years except for Prism, which has a lease term of 10 years. During the nine months ended September 30, 2021, we, as lessee, and AIR, as lessor, entered into a 25 year finance lease for a 15-acre plot of

19

 

---

Table of Contents

 

land in the San Francisco Bay Area on which we began construction of 16 single family rental homes and eight accessory dwelling units in June 2021.

The initial fair market values of the leased assets at the time of lease inception was determined to be $475.1 million in the aggregate. In connection with the commencement of the leases, we assumed $70.8 million of estimated obligations pursuant to certain construction contracts. As of September 30, 2021, the estimated obligations pursuant to the construction contracts assumed with these leases was $16.4 million.

Due to and from AIR

As of September 30, 2021, we have amounts due to and from AIR of $14.2 million and $3.2 million, respectively. The amounts due to AIR primarily consist of invoices paid on our behalf and accrued interest on the notes payable to AIR. The amounts due from AIR primarily consist of net cash flows generated by our operating properties.

Terry Considine Service Agreement/AIR Reimbursement

In conjunction with the Separation, we entered into an arrangement with AIR with respect to the services of Terry Considine, an Aimco board member and our former Chief Executive Officer, for services to be rendered by Mr. Considine separate from his services as a board member, including, but not limited to: (i) short and long term strategic direction and advice; (ii) transition and executive support to officers; and (iii) advice and consultation with respect to strategic growth and acquisition activities. We are obligated for all base salary, short-term incentive amounts and long-term incentive amounts payable to Mr. Considine for the calendar year 2021 under the terms of his employment agreement with AIR that are in excess of $1 million, collectively.

During the three months ended September 30, 2021, the Independent Directors set Mr. Considine’s target total compensation for 2021 (including base compensation, short-term incentive, and long-term incentive) at $1.8 million, to be paid out in cash and equity. In addition, we estimate the total 2021 reimbursement to AIR to be $4.0 million for a combined total of $5.8 million. For the three and nine months ended September 30, 2021, we recorded $1.2 million and $4.1 million of expense related to the arrangements and included in general and administrative expense in our condensed consolidated statements of operations. As of September 30, 2021, $3.0 million is included in the amount due to AIR.

Guarantee Liability

Legal liabilities that relate to occurrences prior to the Separation, including environmental liabilities related to properties that were no longer owned by Aimco or AIR at the time of the Separation, pursuant to the terms of the Separation Agreement, are borne by Aimco Operating Partnership up to the first $17.5 million of such liabilities, in the aggregate, and borne by AIR Operating Partnership for any such liabilities in excess of $17.5 million.

On the date of Separation, we recognized a guarantee liability of $16.4 million based on an estimate of the expected future cash flows required to settle the legal liabilities, including, but not limited to, remediation, settlement and legal costs, discounted by an estimated market discount rate of 4.25%. The guarantee liability is systematically reduced as costs related to the legal liabilities are incurred, which we estimate will occur through 2023.  For the nine months ended September 30, 2021, the guarantee liability was reduced by $3.4 million. As of September 30, 2021, the guarantee liability of $13.0 million is included in accrued liabilities and other in our condensed consolidated balance sheets. 

Acquisitions from AIR

In February 2021, we acquired from AIR the Benson Hotel and Faculty Club. In August 2021, we acquired from AIR the Eldridge Townhomes.  Refer to Note 5 for further details regarding these acquisitions.

Other Significant Transactions

Non-recourse Property Debt

On July 2, 2021, we entered into a $13.1 million ten-year non-recourse property note at a fixed interest rate of 4.20% with a maturity date of August 1, 2031 that is secured by one of our operating properties. We recorded deferred financing cost of $0.2 million, which will be amortized over the ten-year note.

On August 20, 2021, we entered into a $46.7 million ten-year non-recourse property note at a fixed interest rate of 2.78% with a maturity date of September 1, 2031 that is secured by one of our operating properties. We recorded deferred financing cost of $0.5 million, which will be amortized over the ten-year note.

20

 

---

Table of Contents

 

Proceeds from the two non-recourse loans were used to fund the purchase of Eldridge Townhomes for $40.0 million and other investment opportunities.

Construction Loans

On April 15, 2021, we entered into a $150 million variable-rate non-recourse construction loan collateralized by our leasehold interest and AIR’s fee ownership interest in Flamingo North Tower. The initial term of the loan is three years and bears interest at one month LIBOR plus 360 basis points subject to a minimum all-in per annum interest rate of 3.85%.  As of September 30, 2021, we had $118.8 million of principal outstanding. Certain consolidated subsidiaries have indemnified AIR for any losses it incurs as a result of a default on the loan by Aimco. We recorded $3.8 million of deferred financing costs which will be amortized over the three year term of the loan.

On June 21, 2021, we entered into a $100.7 million variable-rate non-recourse construction loan collateralized by our fee ownership interest in Hamilton on the Bay. The initial term of the loan is three years and bears interest at one month LIBOR plus 320 basis points subject to a minimum all-in per annum interest rate of 3.45%.  As of September 30, 2021, we had $25.0 million of principal outstanding. We recorded $2.3 million of deferred financing costs which will be amortized over the three year term of the loan.

If LIBOR ceases to exist during the term of these agreements, the documents associated with these agreements contain language to address a transition to another bench mark rate. It is anticipated LIBOR will be replaced with SOFR, however, if SOFR were to not be available the agreements contain alternate provisions.

Fort Lauderdale Consolidated Joint Venture

In July 2021, Aimco entered into a joint venture with Kushner Companies to purchase three undeveloped land parcels located in downtown Fort Lauderdale, Florida. The total contract price for the land is $49 million ($25 million at Aimco’s 51% share). Current zoning allows for the development of approximately three million square feet of multifamily homes and commercial space. The land purchase is expected to close in January 2022. We have paid $2.4 million of the $25 million commitment, related to our share of the contract price.

 

Note 4 — Commitments and Contingencies

Commitments

In connection with our development, redevelopment, and other capital additions activities, we have entered into various construction-related contracts and we have made commitments to complete development and redevelopment of certain real estate, pursuant to financing or other arrangements. As of September 30, 2021, our commitments related to these capital activities totaled approximately $294.2 million, most of which we expect to incur during the next 24 months.

We enter into certain commitments for future purchases of goods and services in connection with the operations of our apartment communities. Those commitments generally have terms of one year or less and reflect expenditure levels comparable to our historical expenditures.

We have a commitment to fund an additional $25.4 million to IQHQ and currently expect to contribute this investment through the end of 2022. During the nine months ended September 30, 2021, we contributed a total of $12.1 million. We also have unfunded commitments related to three investments in privately held entities that develop technology related to the real estate industry (“RETV”). During the nine months ended September 30, 2021, we contributed a total of $0.1 million to RETV, leaving an additional funding commitment in the amount of $1.0 million, the timing of which is uncertain.

Legal Matters

From time to time, the Company may be a party to certain legal proceedings, incidental to the normal course of business.  While the outcome of the legal proceedings cannot be predicted with certainty, the Company believes there are no legal proceedings pending that would have a material effect upon our financial condition or results of operations.

Note 5 — Acquisitions

During the three months ended September 30, 2021, we acquired from AIR the Eldridge Townhomes for $40 million based on an independent opinion of its value. The Eldridge Townhomes are a 58-unit townhome community located on 3.6 acres of land contiguous to our Elm Creek community in Elmhurst, Illinois, a western suburb of Chicago. To fund the acquisition of Eldridge Townhomes, we used proceeds from debt placement on the unencumbered Evanston Place asset in Evanston, Illinois.

21

 

---

Table of Contents

 

Number of townhomes		58
Purchase price	$	40,000
Consideration allocated to land	$	3,483
Consideration allocated to building and improvements		35,630
Consideration allocated to intangible assets (1)		913
Consideration allocated to below-market lease liabilities (2)		(26	)
Total consideration	$	40,000

(1)

Intangible assets include in-place leases and leasing costs with a weighted-average term of six months.

(2)

Below-market leases have a weighted average term of six months.

During the nine months ended September 30, 2021, we acquired eight land parcels adjacent to our Hamilton on the Bay apartment community, located in Miami’s Edgewater neighborhood, for $19.3 million and we began major redevelopment of the existing apartment building at Hamilton on the Bay.  The scope of our investment will completely renew the waterfront high-rise, which benefits from spacious apartment homes (averaging 1,411 square feet) and an abundance of outdoor and amenity space that was previously underutilized.

In February 2021, we acquired The Benson Hotel and Faculty Club development property for $6.2 million, net of outstanding construction liabilities of $0.9 million. The development property consists of land and initial construction costs.  The project is expected to be completed in the first quarter of 2023.

Note 6 — Earnings and Dividends per Share and Unit

Aimco and Aimco Operating Partnership calculate basic earnings per share of common stock and basic earnings per common unit based on the weighted-average number of shares of common stock and common partnership units outstanding. We calculate diluted earnings per share of common stock and diluted earnings per unit taking into consideration dilutive shares of common stock and common partnership unit equivalents and dilutive convertible securities outstanding during the period.

The shares of common stock and common partnership units outstanding at the Separation date are reflected as outstanding for all periods prior to the Separation for purposes of determining earnings per share and per unit. Each of our executives and AIR’s executives received one share of AIV stock and one share of AIR stock at the Separation date for unvested shares. We include AIR’s executives’ rights to receive AIV shares upon vesting in our dilutive calculations.

Our common stock and common partnership unit equivalents include options to purchase shares of common stock, which, if exercised, would result in Aimco’s issuance of additional shares of common stock and Aimco Operating Partnership’s issuance to Aimco of additional common partnership units equal to the number of shares of common stock purchased under the options. These equivalents also include unvested TSR restricted stock awards that do not meet the definition of participating securities, which would result in an increase in the number of shares of common stock and common partnership units outstanding equal to the number of the shares that vest. Common partnership unit equivalents also include unvested long-term incentive partnership units. We include in the denominator securities with dilutive effect in calculating diluted earnings per share and per unit during these periods.

Our time-based restricted stock awards receive non-forfeitable dividends similar to shares of common stock and common partnership units prior to vesting, and our TSR LTIP I units and TSR LTIP II units receive non-forfeitable distributions based on specified percentages of the distributions paid to common partnership units prior to vesting and conversion. The unvested restricted shares and units related to these awards are participating securities. We include the effect of participating securities in basic and diluted earnings per share and unit computations using the two-class method of allocating distributed and undistributed earnings when the two-class method is more dilutive than the treasury stock method. No such items were included in the computation of diluted loss per share for the three or nine months ended September 30, 2021 because the effect of inclusion would be anti-dilutive.

22

 

---

Table of Contents

 

Reconciliations of the numerator and denominator in the calculations of basic and diluted earnings per share and per unit for the three and nine months ended September 30, 2021 and 2020, are as follows (in thousands, except per share and per unit data):  

	Three Months Ended September 30,								Nine Months Ended September 30,
	2021				2020				2021				2020
Earnings per share
Numerator:
Net (loss) income attributable to Aimco	$	(5,016	)		$	2,011			$	(4,492	)		$	9,502
Net (loss) income attributable to participating securities		—				(1	)			—				(6	)
Net (loss) income attributable to Aimco common stockholders	$	(5,016	)		$	2,010			$	(4,492	)		$	9,496
Denominator – shares:
Basic weighted-average common stock outstanding		149,762				148,549				149,517				148,549
Diluted share equivalents outstanding		—				20				—				20
Diluted weighted-average common stock outstanding		149,762				148,569				149,517				148,569
Earnings per share – basic	$	(0.03	)		$	0.01			$	(0.03	)		$	0.06
Earnings per share – diluted	$	(0.03	)		$	0.01			$	(0.03	)		$	0.06
Earnings per unit
Numerator:
Net (loss) income attributable to Aimco Operating Partnership	$	(5,269	)		$	2,118			$	(4,701	)		$	10,009
Net (loss) income attributable to participating securities		—				(4	)			—				(17	)
Net (loss) income attributable to Aimco Operating Partnership's Common unit holders	$	(5,269	)		$	2,114			$	(4,701	)		$	9,992
Denominator – units
Basic weighted-average common partnership units outstanding		157,806				156,480				157,873				156,480
Diluted partnership unit equivalents outstanding		—				20				—				20
Diluted weighted-average common partnership units outstanding		157,806				156,500				157,873				156,500
Earnings per unit – basic	$	(0.03	)		$	0.01			$	(0.03	)		$	0.06
Earnings per unit – diluted	$	(0.03	)		$	0.01			$	(0.03	)		$	0.06

 

Note 7 — Fair Value Measurements

Recurring Fair Value Measurements

In 2020, we paid an upfront premium of $12.1 million for the option to enter into a $1.5 billion notional amount interest rate swap at a future date. This interest rate option, or swaption, provides partial protection against exposure to rising interest rates between now and October 2024. We receive a cash settlement in the future if the prevailing interest rate is higher than the 1.68% five year swap strike price. The amount of future cash settlement is capped if the prevailing interest rate exceeds 2.78%. Alternatively, if interest rates were to decrease below the specified strike price we would not receive a cash settlement, nor would we have any requirement to make a payment.

During the nine months ended September 30, 2021, we paid an upfront premium of $5.6 million (including transaction costs) for the option to enter into a $500 million notional amount interest rate swap at a future date. This interest rate option, or swaption, provides partial protection against our refinancing interest rate risk relative to our notes payable to AIR and is intended to mitigate interest rate increases between now and January 2024. We receive a cash settlement in the future if the prevailing interest rate is higher than the 3% strike price on the five year swap rate.  Alternatively, if interest rates were to decrease below the specified strike price we would not receive a cash settlement, nor would we have any requirement to make a payment.

 

From time to time we purchase interest rate caps to provide protection against increases in interest rates on our floating rate debt. The fair value of these interest rate caps are included in the fair value table below.

We measure at fair value on a recurring basis our interest rate options, which are presented in other assets in our condensed consolidated balance sheets. Our interest rate options are classified within Level 2 of the GAAP fair value hierarchy, and we estimate their fair value using pricing models that rely on observable market information, including contractual terms, market

23

 

---

Table of Contents

 

prices, and interest rate yield curves. The fair value adjustment is included in earnings in Unrealized gains on interest rate options in our condensed consolidated statements of operations. Changes in fair value are reflected as a non-cash transaction in adjustments to arrive at cash flows from operations, and the upfront premium is reflected in purchase of interest rate option in our condensed consolidated statements of cash flows.

We have investments of $4.5 million in RETV consisting of three privately held entities that develop technology related to the real estate industry. These investments are measured at net asset value (“NAV”) as a practical expedient.

The following table summarizes fair value for our interest rate options and our investment in RETV (in thousands):

		As of September 30, 2021																As of December 31, 2020
		Total				Level 1				Level 2				Level 3				Total				Level 1				Level 2				Level 3
Interest rate options		$	29,547			$	—			$	29,547			$	—			$	13,315			$	—			$	13,315			$	—
Investment in RETV (1)			4,497				—				—				—				2,293				—				—				—

(1)

Investments measured at fair value using the NAV practical expedient are not classified in the fair value hierarchy.

Fair Value Disclosures

We believe that the carrying value of the consolidated amounts of cash and cash equivalents, restricted cash, accounts receivable and payables approximated their fair value as of September 30, 2021, and December 31, 2020, due to their relatively short-term nature and high probability of realization. We estimate the fair value of our non-recourse property debt, construction loans, and notes payable to AIR using an income and market approach, including comparison of the contractual terms to observable and unobservable inputs such as market interest rate risk spreads, contractual interest rates, remaining periods to maturity, debt service coverage ratios, and loan to value ratios. We classify the fair value of our non-recourse property debt and construction loans debt within Level 2 of the GAAP fair value hierarchy based on the significance of certain of the unobservable inputs used to estimate its fair value.

The carrying amount of the notes payable to AIR approximated their fair value at both September 30, 2021 and December 31, 2020.

The following table summarizes carrying value and fair value for our non-recourse property debt and construction loans debt (in thousands):

	As of September 30, 2021								As of December 31, 2020
	Carrying Value				Fair Value				Carrying Value				Fair Value
Non-recourse property debt	$	488,576			$	505,215			$	449,510			$	467,010
Construction loans debt		143,742				143,742				—				—

 

 

Note 8 — Variable Interest Entities

Aimco consolidates Aimco Operating Partnership, a VIE of which Aimco is the primary beneficiary. Aimco, through Aimco Operating Partnership, consolidates all VIEs for which it is the primary beneficiary. Substantially all of the assets and liabilities of Aimco are that of Aimco Operating Partnership.

24

 

---

Table of Contents

 

The VIEs that Aimco Operating Partnership consolidates own interests in real estate or commitments to acquire real estate. We are the primary beneficiary of the VIEs because we have the power to direct the activities that most significantly impact the entities’ economic performance and have a substantial economic interest. We have six unconsolidated VIEs for which we are not the primary beneficiary because we are not the decision maker. The six unconsolidated VIE’s include four unconsolidated real estate partnerships that hold four apartment communities in San Diego, California, the Mezzanine Investment, and one other that is insignificant to our condensed consolidated balance sheets for both periods presented.

The details of our consolidated and unconsolidated VIEs, excluding those of Aimco Operating Partnership, are summarized in the table below as of September 30, 2021 and December 31, 2020 (in thousands, except for VIE count):

 

	September 30, 2021								December 31, 2020
	Consolidated				Unconsolidated				Consolidated				Unconsolidated
Count of VIEs	9				6				2				6
Assets
Real estate, net	$	527,065			$	—			$	310,552			$	—
Mezzanine investment		—				330,016				—				307,362
Right-of-use lease assets		433,983				—				92,709				—
Other assets, net		29,615				37,565				16,949				25,329
Liabilities
Deferred tax liabilities		126,851				—				133,842				—
Accrued liabilities and other		24,789				—				7,106				—
Construction loans, net		143,742				—				—				—
Lease liabilities		435,916				—				86,781				—

As of September 30, 2021, two of our consolidated VIEs closed construction loans. In conjunction with these loans, we made customary guarantees. In certain situations, the lenders may have recourse to our general credit. As of September 30, 2021, we estimate the maximum exposure equals the $143.7 million outstanding loan balances. Other consolidated VIE’s creditors do not have recourse to our general credit.

Unconsolidated Real Estate Partnerships

We own an interest in four apartment communities in San Diego, California, of which we are not the primary beneficiary. Our investment balance of $13.0 million as of September 30, 2021, represents our maximum exposure to loss in these VIE’s.

Mezzanine Investment

Our investment balance of $330 million as of September 30, 2021, reflected in Mezzanine investment in our consolidated balance sheets, represents our maximum exposure to loss in this VIE.

 

 

Note 9 — Business Segments

We have three segments: (i) Development and Redevelopment; (ii) Operating Portfolio; and (iii) Other.

Our Development and Redevelopment segment consists of properties that are under construction or have not achieved stabilization, as well as land assemblages that are being held for development adjacent to our Hamilton on the Bay community and other land purchases. Our Operating Portfolio segment includes 24 majority owned residential communities that have achieved stabilized level of operations as of January 1, 2020 and maintained it throughout the current year and comparable period. We aggregate all our apartment communities that have reached stabilization into our Operating Portfolio. Our Other segment consists of properties that are not included in our Developments and Redevelopment or Operating segment.  We realigned our segments during the fourth quarter 2020 and have restated historical periods to conform with current segment presentation.

Our chief operating decision maker (“CODM”) uses cash flow, construction timeline to completion and actual versus budgeted results to evaluate our properties in our Development and Redevelopment segment. Our CODM uses proportionate property net operating income to assess the operating performance of our Operating Portfolio. Proportionate property net operating income is defined as our share of rental and other property revenues, excluding reimbursements, less direct property

25

 

---

Table of Contents

 

operating expenses, net of utility reimbursements, for consolidated communities. In our condensed consolidated statements of operations, utility reimbursements are included in rental and other property revenues, in accordance with GAAP.

As of September 30, 2021, our Development and Redevelopment segment includes five real estate investments: Upton Place, Hamilton on the Bay, The Benson Hotel, land parcels adjacent to our Hamilton on the Bay community and land purchased in Colorado Springs, Colorado. The Development and Redevelopment segment also includes our five leased properties of which, two are under construction and three are in lease-up but have not achieved stabilization.  Our Operating Portfolio segment includes 24 consolidated apartment communities with 6,067 apartment homes. Our Other segment includes our recent Eldridge Townhomes acquisition, stabilized but not owned for the comparable reporting period, and 1001 Brickell Bay Drive, our only office building.

The following tables present the revenues, proportionate property net operating income, and income before income tax benefit of our segments on a proportionate basis, excluding amounts related to our proportionate share of four apartment communities with apartment homes that we neither manage nor consolidate, for the three and nine months ended September 30, 2021 and 2020 (in thousands):

 

	Development and Redevelopment				Operating Portfolio				Other				Proportionate and Other Adjustments (1)				Corporate and Amounts Not Allocated to Segments				Consolidated
Three months ended September 30, 2021:
Rental and other property revenues	$	3,196			$	34,591			$	3,360			$	1,746			$	—			$	42,893
Property operating expenses		2,026				11,257				1,047				1,723				2,102				18,155
Other operating expenses not allocated    to segments (2)		—				—				—				—				30,577				30,577
Total operating expenses		2,026				11,257				1,047				1,723				32,679				48,732
Proportionate property net operating    income (loss)		1,170				23,334				2,313				23				(32,679	)			(5,839	)
Other items included in income before    income tax benefit (3)		—				—				—				—				(1,028	)			(1,028	)
Income (loss) before income tax benefit	$	1,170			$	23,334			$	2,313			$	23			$	(33,707	)		$	(6,867	)

 

	Development and Redevelopment				Operating Portfolio				Other				Proportionate and Other Adjustments (1)				Corporate and Amounts Not Allocated to Segments				Consolidated
Three months ended September 30, 2020:
Rental and other property revenues	$	—			$	32,376			$	3,107			$	1,845			$	—			$	37,328
Property operating expenses		—				10,182				1,077				1,584				2,308				15,151
Other operating expenses not allocated    to segments (2)		—				—				—				—				20,848				20,848
Total operating expenses		—				10,182				1,077				1,584				23,156				35,999
Proportionate property net operating    income (loss)		—				22,194				2,030				261				(23,156	)			1,329
Other items included in income before    income tax benefit (3)		—				—				—				—				(2,006	)			(2,006	)
Income (loss) before income tax benefit	$	—			$	22,194			$	2,030			$	261			$	(25,162	)		$	(677	)

 

	Development and Redevelopment				Operating Portfolio				Other				Proportionate and Other Adjustments (1)				Corporate and Amounts Not Allocated to Segments				Consolidated
Nine months ended September 30, 2021:
Rental and other property revenues	$	7,889			$	100,609			$	9,489			$	5,128			$	—			$	123,115
Property operating expenses		5,956				33,386				3,108				4,930				4,120				51,500
Other operating expenses not allocated    to segments (2)		—				—				—				—				85,627				85,627
Total operating expenses		5,956				33,386				3,108				4,930				89,747				137,127
Proportionate property net operating    income (loss)		1,933				67,223				6,381				198				(89,747	)			(14,012	)
Other items included in income before    income tax benefit (3)		—				—				—				—				333				333
Income (loss) before income tax benefit	$	1,933			$	67,223			$	6,381			$	198			$	(89,414	)		$	(13,679	)

26

 

---

Table of Contents

 

 

 

 

	Development and Redevelopment				Operating Portfolio				Other				Proportionate and Other Adjustments (1)				Corporate and Amounts Not Allocated to Segments				Consolidated
Nine months ended September 30, 2020:
Rental and other property revenues	$	—			$	98,336			$	9,458			$	5,008			$	—			$	112,802
Property operating expenses		—				31,088				3,022				4,505				7,207				45,822
Other operating expenses not allocated    to segments (2)		—				—				—				—				62,612				62,612
Total operating expenses		—				31,088				3,022				4,505				69,819				108,434
Proportionate property net operating    income (loss)		—				67,248				6,436				503				(69,819	)			4,368
Other items included in income before    income tax benefit (3)		—				—				—				—				(1,432	)			(1,432	)
Income (loss) before income tax benefit	$	—			$	67,248			$	6,436			$	503			$	(71,251	)		$	2,936

(1)

Represents adjustments for the redeemable noncontrolling interest in consolidated real estate partnership’s share of the results of consolidated communities in our segments, which are included in the related consolidated amounts, but excluded from proportionate property net operating income for our segment evaluation. Also includes the reclassification of utility reimbursements from revenues to property operating expenses for the purpose of evaluating segment results. Utility reimbursements are included in rental and other property revenues in our condensed consolidated statements of operations prepared in accordance with GAAP.

(2)

Other operating expenses not allocated to segments consists of depreciation and amortization, general and administrative expense, and miscellaneous other expenses.

(3)

Other items included in income before income tax benefit consists primarily of interest expense, unrealized gain on our interest rate options and mezzanine investment income, net.

Net real estate and non-recourse property debt, net, of our segments were as follows (in thousands):

	Development and Redevelopment				Operating Portfolio				Other				Total
As of September 30, 2021:
Buildings and improvements	$	225,043			$	780,606			$	196,630			$	1,202,279
Land		82,132				298,459				153,501				534,092
Total real estate		307,175				1,079,065				350,131				1,736,371
Accumulated depreciation		(2,185	)			(506,065	)			(37,249	)			(545,499	)
Net real estate	$	304,990			$	573,000			$	312,882			$	1,190,872
Non-recourse property debt and construction loans, net	$	138,439			$	485,116			$	—			$	623,555

 

	Development and Redevelopment				Operating Portfolio				Other				Total
As of December 31, 2020:
Buildings and improvements	$	61,813			$	772,786			$	160,517			$	995,116
Land		56,676				298,459				150,018				505,153
Total real estate		118,489				1,071,245				310,535				1,500,269
Accumulated depreciation		(447	)			(469,873	)			(24,690	)			(495,010	)
Net real estate	$	118,042			$	601,372			$	285,845			$	1,005,259
Non-recourse property debt, net	$	—			$	447,967			$	—			$	447,967

 

 

In addition to the amounts disclosed in the tables above, the Development and Redevelopment segment right-of-use lease assets and lease liabilities as of September 30, 2021 aggregated to $434.0 million and $435.9 million, respectively, related to our investments in Upton Place, North Tower of Flamingo Point, 707 Leahy, The Fremont, Prism, and Oak shore.  As of December 31, 2020, the Development and Redevelopment segment right-of-use lease assets and lease liabilities totaled $92.7 million and $86.8 million, respectively, related to our investment in Upton Place.

27

 

---

Table of Contents

 

Note 10 – Subsequent Events

 

We have evaluated subsequent events through the date of this filing. Based on the evaluation, there were no subsequent events to report.

28

 

---

Table of Contents

 

 

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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 Quarterly Report on Form 10-Q contains or may contain information that is forward-looking, within the meaning of the federal securities laws, including, without limitation, statements regarding: the ongoing relationship between Aimco and AIR (the “Separate Entities”) following the Separation; the impact of the COVID-19 pandemic, including on our ability to maintain current or meet projected occupancy, rental rate and property operating results; the effect of acquisitions, dispositions, developments, and redevelopments; our ability to meet budgeted costs and timelines, and achieve budgeted rental rates related to our development and redevelopment investments; expectations regarding sales of our apartment communities and the use of proceeds thereof; the availability and cost of corporate debt; and our ability to comply with debt covenants, including financial coverage ratios.

These forward-looking statements are based on management’s judgment as of this date, which is subject to risks and uncertainties. Risks and uncertainties that could cause actual results to differ materially from our expectations include, but are not limited to: the effects of the coronavirus pandemic on Aimco’s business and on the global and U.S. economies generally, and the ongoing, dynamic and uncertain nature and duration of the pandemic, all of which heightens the impact of the other risks and factors described herein, and the impact on entities in which Aimco holds a partial interest, including its indirect interest in the partnership that owns Parkmerced Apartments, and the impact of coronavirus related governmental lockdowns on Aimco’s residents, commercial tenants, and operations; real estate and operating risks, including fluctuations in real estate values and the general economic climate in the markets in which we operate and competition for residents in such markets; national and local economic conditions, including the pace of job growth and the level of unemployment; the amount, location and quality of competitive new housing supply; the timing and effects of acquisitions, dispositions, developments and redevelopments; expectations regarding sales of apartment communities and the use of proceeds thereof; insurance risks, including the cost of insurance, and natural disasters and severe weather such as hurricanes; supply chain disruptions, particularly with respect to raw materials such as lumber, steel, and concrete; financing risks, including the availability and cost of financing; the risk that cash flows from operations may be insufficient to meet required payments of principal and interest; the risk that earnings may not be sufficient to maintain compliance with debt covenants, including financial coverage ratios; legal and regulatory risks, including costs associated with prosecuting or defending claims and any adverse outcomes; the terms of laws and governmental regulations that affect us and interpretations of those laws and regulations; possible environmental liabilities, including costs, fines or penalties that may be incurred due to necessary remediation of contamination of real estate presently or previously owned by Aimco; the relationship between Aimco and Separate Entities after the Separation; the ability and willingness of the Separate Entities and their subsidiaries to meet and/or perform their obligations under the contractual arrangements that were entered into among the parties in connection with the Separation and any of their obligations to indemnify, defend and hold the other party harmless from and against various claims, litigation and liabilities; and the ability to achieve some or all the benefits that we expect to achieve from the Separation; and such other risks and uncertainties described from time to time in our filings with the Securities and Exchange Commission (“SEC”).

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 of 1986, as amended (the “Code”) and depends on our ability to meet the various requirements imposed by the 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 Item 1A. Risk Factors in Part II of this report. These factors should not be construed as exhaustive and should be read in conjunction with the other cautionary statements that are included elsewhere in this Quarterly Report on Form 10-Q. We undertake no obligation to publicly update or review any forward-looking statement, whether as a result of new information, future developments or otherwise, except as required by law.

Readers should also carefully review the section entitled “Risk Factors” described in Item 1A of Apartment Investment and Management Company’s and Aimco OP L.P.’s combined Annual Report on Form 10-K for the year ended December 31, 2020, and subsequent documents we file from time to time with the SEC.

As used herein and except as the context otherwise requires, “we,” “our,” and “us” refer to Apartment Investment and Management Company (which we refer to as Aimco), Aimco OP L.P. (which we refer to as Aimco Operating Partnership) and their consolidated subsidiaries, collectively.

Certain financial and operating measures found herein and used by management are not defined under accounting principles generally accepted in the United States, or GAAP. These measures are defined and reconciled to the most comparable GAAP measures under the Non-GAAP Measures heading.

Executive Overview

Our mission is to make real estate investments, primarily focused on the multifamily sector within the continental United States, where outcomes are enhanced through our human capital so that substantial value is created for investors, teammates, and the communities in which we operate.

Our value proposition includes our national platform organized around four regional and two satellite offices, consisting of a cohesive, talented, and tenured team and our proven investment process; a diversified portfolio, consisting of high-performing in-process value-add investments, a deep and growing pipeline, alternative investments, and stabilized assets; and our capital

29

 

---

Table of Contents

 

redeployment plan of reallocating Aimco equity to higher returning investments and prudent recycling of capital. Our primary goal is outsized risk adjusted returns and accelerating growth for Aimco shareholders.

We are focused on providing superior total-return performance to shareholders, primarily through capital appreciation driven by accretive investment and active portfolio management over multi-year periods. We plan to reinvest earnings to facilitate growth and, therefore, do not presently intend to pay a regular cash dividend.

Our financial objectives are to create value and produce superior, project-level, risk-adjusted returns on equity as measured by the investment period Internal Rate of Return (IRR) and the project-level Multiple on Invested Capital (MOIC). We measure broader performance based on Net Asset Value (NAV) growth over time.

Our capital allocation strategy has been designed to leverage the Aimco investment platform and optimize risk adjusted returns for Aimco shareholders.  

Overall, we target a growth-oriented capital allocation, primarily weighted toward direct investment in ‘Value Add’ and ‘Opportunistic’ multifamily real estate.  

From time to time, we will allocate a defined portion of our capital into alternative investments including passive debt and equity investments (both direct and indirect). Aimco also plans to utilize its established platform and existing relationships to generate fees through service offerings.

We have policies in place that support our strategy, guide our investment allocations, and manage risk, including to hold at all times a sizeable portion of its net equity in a diversified portfolio of ‘Core’ and ‘Core-Plus’ assets and before starting a project, require cash or committed credit necessary for completion.  

 Given our stated strategy, it is expected that at any point in time the value-creation process will be ongoing at numerous of our investments. Over time, we expect the Aimco enterprise to produce superior returns on equity on a risk-adjusted basis and it is our plan to do so by:

We have corporate headquarters in Denver, Colorado, and Bethesda, Maryland. Our investment platform is managed by experienced professionals based in four regions: West Coast, Central and Mountain West, Mid-Atlantic and Northeast, and Southeast. By regionalizing this platform, we are able to leverage the in-depth local market knowledge of each regional leader, creating a comparative advantage when sourcing, evaluating, and executing investment opportunities.

Our dedicated team will source and execute development and redevelopment projects, and various other direct investment strategies, across our national platform. The Aimco Development and Redevelopment portfolio currently includes $1.0 billion of projects in construction and lease-up, located across five major US markets. In addition, we currently have $2 billion worth of pipeline opportunities under Aimco control and have the opportunity to add to our investment pipeline based on strategic relationships and through sourcing by regional investment teams. Generally, we seek direct investment opportunities in locations where barriers to entry are high, target customers can be clearly defined and where we have a comparative advantage over others in the market.

  Our current allocation to alternative investments includes: our indirect interest mezzanine loan to the Parkmerced partnership which owns 3,165 apartment homes and future development rights in San Francisco, California; our passive equity investments in IQHQ, Inc. (“IQHQ”), a privately-held life sciences real estate development company;

30

 

---

Table of Contents

 

and RET Ventures, an early-stage real estate technology fund. We expect to allocate a portion of our capital to passive debt and equity investments, both directly and at the entity level. These prove attractive when warranted by risk adjusted returns, when we have special knowledge or expertise relevant to the particular investment or when the opportunity exists for positive asymmetric outcomes whether through strategic partnerships or otherwise. In addition, from time to time, we will use our established platform and existing relationships to generate fees through service offerings to third party real estate investors, owners, and capital allocators. 

Our current operating portfolio includes 29 apartment communities (25 consolidated properties and 4 unconsolidated properties) located in ten major US markets and with average rents in line with local market averages (generally defined as B class). We also own one commercial office building that is part of an assemblage with an adjacent apartment building. The target composition of our stabilized portfolio will continue to include primarily B multifamily assets, spread across a nationally diversified portfolio and with a bias toward long established residential neighborhoods that rank highly in regard to schools, employment fundamental and state and regional governance. Core Plus opportunities offer the opportunity for incremental capital investment while maintaining stabilized cashflow to accelerate income growth and improve asset values.

At all times, we will guard our liquidity by maintaining sufficient cash and committed credit.

From time-to-time we will allocate capital to financial assets designed to mitigate risks elsewhere in the Aimco enterprise.  Existing examples include our option to acquire an interest rate swap designed to protect against repricing risk on maturing Aimco liabilities.  

We expect to capitalize our activities through a combination of non-recourse property debt, construction loans, third-party equity, and the recycling of Aimco equity, including retained earnings. We plan to limit the use of recourse leverage, with a strong preference towards non-recourse property-level debt in order to limit risk to the Aimco enterprise. When warranted, we plan to seek equity capital from joint venture partners to improve our cost of capital, further leverage Aimco equity, reduce exposure to a single investment and, in certain cases, for strategic benefits.  

Results for the Three Months and Nine Months Ended September 30, 2021

The results from the execution of our business plan during the three and nine months ended September 30, 2021, are described below.

Financial Results and Recent Highlights

Our business is organized around defined areas of strategic focus: value add and opportunistic real estate; alternative investments; investment activity; operating properties; balance sheet; and team and culture.

Value Add, Opportunistic and Alternative Investments

Development and Redevelopment

During the three and nine months ended September 30, 2021, we made total capitalized investments of $54 million and $162 million, respectively, in our development and redevelopment projects.

Construction Activity

31

 

---

Table of Contents

 

 

Lease-up Progress

Alternative Investments

Investment Activity

Leasehold Agreements

Acquisitions

32

 

---

Table of Contents

 

 

Operating Property Results

We own a geographically diversified portfolio of operating properties that produces stable cash flow and serves to balance the risk and highly variable cash flows associated with its portfolio of development and redevelopments and value-add investments. Our operating portfolio produced solid results for the three and nine months ended September 30, 2021.

Highlights for the three months ended September 30, 2021 include:

We measure residential rent collection as the amount of payments received as a percentage of all residential amounts owed. During the three months ended September 30, 2021, we collected 98.2% of all amounts owed by Aimco residents and recognized 99.2% of revenue, reserving 80 basis points as bad debt.

1001 Brickell Bay Drive, a waterfront office building in Miami, Florida owned as part of a larger assemblage, was 73% occupied on September 30, 2021.

Balance Sheet

Aimco capitalizes its activities through a combination of non-recourse property debt, construction loans, third-party equity, and the recycling of Aimco equity, including retained earnings. We plan to limit the use of recourse leverage, with a strong preference towards non-recourse property-level debt in order to limit risk to the Aimco enterprise. When warranted, we plan to seek equity capital from joint venture partners to improve its cost of capital, further leverage Aimco equity, reduce exposure to a single investment and, in certain cases, for strategic benefits.

We are highly focused on maintaining ample liquidity. As of September 30, 2021, we had access to $413 million, including $253 million of cash on hand, $10 million of restricted cash, and the capacity to borrow up to $150 million on our revolving credit facility. Please refer to the Liquidity and Capital Resources section for additional information regarding our leverage.

In evaluating our financial condition and operating performance we use non-GAAP measures, including Adjusted EBITDAre, which we believe is useful to investors and creditors as a supplemental measure of our ability to incur and service debt. Our Adjusted EBITDAre for the three and nine months ended September 30, 2021 was $17.6 million and $53.8 million, respectively. Please refer to the Non-GAAP Measures section for further information about the calculation of Adjusted EBITDAre and our leverage ratios. Please refer to the Liquidity and Capital Resources section for additional information regarding our leverage.

33

 

---

Table of Contents

 

Financing Activity

On April 15, 2021, the Company entered into a $150 million variable-rate non-recourse construction loan collateralized by our leasehold interest and AIR’s fee ownership interest in Flamingo North Tower. The initial term of the loan is three years and bears interest at one month LIBOR plus 360 basis points subject to a minimum all-in per annum interest rate of 3.85%.  As of September 30, 2021, we had $118.8 million of principal outstanding. Certain consolidated subsidiaries have indemnified AIR for any losses it incurs as a result of a default on the loan by Aimco.

On June 21, 2021, we entered into a $100.7 million variable-rate non-recourse construction loan collateralized by our fee ownership interest in Hamilton on the Bay. The initial term of the loan is three years and bears interest at one month LIBOR plus 320 basis points subject to a minimum all-in per annum interest rate of 3.45%. As of September 30, 2021, we had $25 million of principal outstanding.

During the three months ended September 30, 2021, we closed on two non-recourse loans for $60 million. The loans have 10-year terms and a weighted average fixed interest rate of 3.09%. Proceeds from the loans were used to fund the acquisition of Eldridge Townhomes and other investment activities.

If LIBOR ceases to exist during the term of these agreements, the documents associated with these agreements contain language to address a transition to another bench mark rate. It is anticipated LIBOR will be replaced with SOFR, however, if SOFR were to not be available the agreements contain alternate provisions.

Financial Results of Operations

We have three segments: (i) Development and Redevelopment; (ii) Operating Portfolio; and (iii) Other. Our Development and Redevelopment segment includes properties that are under construction, in pre-construction, or have not achieved stabilization, as well as land assemblages that are being held for development adjacent to our Hamilton on the Bay community and other land purchases. The Development and Redevelopment segment also includes our five leased properties; two are under construction and three are operational but have not achieved stabilization. Our Operating Portfolio segment includes majority owned residential communities that have achieved stabilized levels of operations as of January 1, 2020 and maintained it throughout the current year and comparable period. Our Other segment includes our recent Eldridge Townhomes acquisition, stabilized but not owned for a comparable reporting period, and 1001 Brickell Bay Drive, our only office building.

The following discussion and analysis of the results of our operations and financial condition should be read in conjunction with the accompanying condensed consolidated financial statements included in Item 1.

Net income decreased by $6.8 million and $13.5 million during the three and nine months ended September 30, 2021, respectively, compared to the same periods in 2020, as described more fully below.

Detailed Results of Operations for the three and nine months ended September 30, 2021, compared to the three and nine months ended September 30, 2020.

Property Results

As of September 30, 2021, our Development and Redevelopment segment included five properties that were under construction and three properties in lease-up.  Our Operating Portfolio segment included 24 communities with 6,067 apartment homes, and our Other segment includes our recent Eldridge Townhomes acquisition, and one office building.

We use proportionate property net operating income to assess the operating performance of our segments. Proportionate property net operating income is defined as our share of rental and other property revenues, excluding utility reimbursements, less direct property operating expenses, net of utility reimbursements, for consolidated communities. In our condensed consolidated statements of operations, utility reimbursements are included in rental and other property revenues, in accordance with GAAP. Accordingly, the results of operations of our segments discussed below are presented on a proportionate basis and exclude the results of four apartment communities with an aggregate 142 apartment homes that we neither manage nor consolidate, notes receivable, our investment in IQHQ and the Mezzanine Investment.

We do not include property management costs and casualty gains or losses, reported in consolidated amounts, in our assessment of segment performance. Accordingly, these items are not allocated to our segment results discussed below.

Please refer to Note 9 to the condensed consolidated financial statements in Item 1 for further discussion regarding our segments, including a reconciliation of these proportionate amounts to consolidated rental and other property revenues and property operating expenses.

34

 

---

Table of Contents

 

Proportionate Property Net Operating Income

The results of our segments for the three months ended September 30, 2021 and 2020, as presented below, are based on segment classifications as of September 30, 2021.

For the three months ended September 30, 2021, compared to 2020, our Operating Portfolio proportionate property net operating income increased by $1.1 million, or 5.1%. The increase was attributable to a $2.2 million, or 6.8% increase in rental and other property revenues due to higher average revenues of $72 per apartment home, and a 280-basis point increase in occupancy, offset partially by a $1.1 million, or 10.6%, increase in property operating expenses due primarily to higher real estate taxes and insurance.

For the three months ended September 30, 2021, compared to 2020, total proportionate property net operating income increased by $2.6 million, or 10.7%.

The results of our segments for the nine months ended September 30, 2021 and 2020, as presented below, are based on segment classifications as of September 30, 2021.

For the nine months ended September 30, 2021, compared to 2020, our Operating Portfolio proportionate property net operating income was flat year over year. This was the result of a $2.3 million, or 2.3%, increase in rental and other property revenues due to higher average revenues of $17 per apartment home, and a 140-basis point increase in occupancy, offset by increases in property operating expenses due primarily to higher real estate taxes and insurance.

For the nine months ended September 30, 2021, compared to 2020, total proportionate property net operating income increased by $1.9 million, or 2.5%.

35

 

---

Table of Contents

 

Non-Segment Real Estate Operations

Operating income amounts not attributed to our segments include offsite costs associated with property management, casualty losses, write-off of straight-line rent receivables, and the results of apartment communities sold or held for sale, reported in consolidated amounts, which we do not allocate to our segments for purposes of evaluating segment performance.

Depreciation and Amortization

For the three and nine months ended September 30, 2021 depreciation and amortization expense was higher by $2.4 million and $5.4 million, respectively, when compared to the same periods in 2020, primarily due to additional assets being placed into service.

General and Administrative Expenses

For the three and nine months ended September 30, 2021, compared to the same periods in 2020, general and administrative expenses increased by $7.3 million and $17.6 million, respectively, due primarily to the difference of allocating costs in 2020 and the actual costs experienced running the separate business in 2021.

Interest Expense

For the three and nine months ended September 30, 2021, compared to the same periods in 2020, interest expense increased by $5.6 million, or 78.5%, and $19.4 million, or 104.7%, respectively, mainly due to interest associated with the notes payable to AIR entered into in conjunction with the Separation.

Mezzanine Investment Income, Net

On November 26, 2019, we made a five-year, $275.0 million mezzanine loan to a partnership owning Parkmerced Apartments, located in southwest San Francisco. The loan is junior to a $1.5 billion first mortgage position and bears interest at a 10% annual rate, accruing if not paid from property operations. As of September 30, 2021, the total receivable including accrued and unpaid interest was $330.0 million. During the three and nine months ended September 30, 2021, we recognized $7.6 million and $22.7 million, respectively, of income in connection with the mezzanine loan, compared to $6.9 million and $20.6 million during the three and nine months ended September 30, 2020, respectively.

Unrealized Gains (Losses) on Interest Rate Options

We are required to adjust our interest rate options to fair value on a quarterly basis. As a result of the mark to market adjustment we recorded an unrealized gain in the amount of $2.2 million and an unrealized gain in the amount of $10.6 million during the three and nine months ended September 30, 2021, respectively, and we recorded an unrealized loss in the amount of $1.0 million and $2.1 million during the three and nine months ended September 30, 2020.

Other Income (Expense), Net

Other income (expense), net, includes costs associated with our risk management activities, partnership administration expenses, fee income, and certain non-recurring items such as service revenue. For the three and nine months ended September 30, 2021, compared to the same periods in 2020, other expenses, net decreased by $2.6 million and $6.4 million, respectively, due primarily to $1.0 million and $3.3 million of service fee revenue earned during the three and nine months ended September 30, 2021 with the remaining differences being RETV valuation changes.

Income Tax Benefit

Certain of our operations, including our Development and Redevelopment activities, are conducted through taxable REIT subsidiaries, or TRS entities. Additionally, our TRS entities hold investments in one of our apartment communities and 1001 Brickell Bay Drive.

Our income tax benefit calculated in accordance with GAAP includes income taxes associated with the income or loss of our TRS entities. Income taxes, as well as changes in valuation allowance and incremental deferred tax items in conjunction with intercompany asset transfers and internal restructurings (if applicable), are included in income tax benefit in our condensed consolidated statements of operations.

Consolidated GAAP income or loss subject to tax consists of pretax income or loss of our taxable entities and gains retained by the REIT. For the three and nine months ended September 30, 2021, we had consolidated net losses subject to tax of $7.9 million and $26.4 million, respectively. For the three and nine months ended September 30, 2020, we had consolidated net losses subject to tax of $5.7 million and $14.5 million, respectively.

36

 

---

Table of Contents

 

For the three months ended September 30, 2021, we recognized income tax benefit of $2.0 million, compared to $2.7 million during the same period in 2020. The change is due primarily to lower losses at our TRS entities.  

For the nine months ended September 30, 2021, we recognized income tax benefit of $9.9 million, compared to $6.7 million during the same period ended 2020. The change is due primarily to income tax benefit associated with internal restructuring, changes to our effective state rate expected to apply to the reversal of our existing deferred items, and higher losses at our TRS entities.

Critical Accounting Policies and Estimates

We prepare our condensed consolidated financial statements in accordance with GAAP, which requires us to make estimates and assumptions. We believe that the critical accounting policies that involve our more significant judgments and estimates used in the preparation of our condensed consolidated financial statements relate to the impairment of long-lived assets and capitalized costs.

Our critical accounting policies are described in more detail in Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, of Aimco’s and Aimco Operating Partnership’s combined Annual Report on Form 10-K for the year ended December 31, 2020. There have been no significant changes in our critical accounting policies from those reported in our Form 10-K and we believe that the related judgments and assessments have been consistently applied and produce financial information that fairly depicts the financial condition, results of operations, and cash flows for all periods presented.

Non-GAAP Measures

We use EBITDAre and Adjusted EBITDAre in managing our business and in evaluating our financial condition and operating performance. These key financial indicators are non-GAAP measures and are defined and described below. We provide reconciliations of the non-GAAP financial measures to the most comparable financial measure computed in accordance with GAAP.

Earnings Before Interest Expense, Income Taxes, Depreciation and Amortization for Real Estate (EBITDAre)

EBITDAre and Adjusted EBITDAre are non-GAAP measures, which we believe are useful to investors, creditors, and rating agencies as a supplemental measure of our ability to incur and service debt because they are recognized measures of performance by the real estate industry and allow for comparison of our credit strength to different companies. EBITDAre and Adjusted EBITDAre should not be considered alternatives to net income (loss) as determined in accordance with GAAP as indicators of liquidity. There can be no assurance that our method of calculating EBITDAre and Adjusted EBITDAre is comparable with that of other real estate investment trusts. Nareit defines EBITDAre as net income computed in accordance with GAAP, before interest expense, income taxes, depreciation, and amortization expense, further adjusted for:

EBITDAre is defined by Nareit and provides for an additional performance measure independent of capital structure for greater comparability between real estate investment trusts. We define Adjusted EBITDAre as EBITDAre adjusted to exclude the effect of net income attributable to noncontrolling interests in consolidated real estate partnerships and EBITDAre adjustments attributable to noncontrolling interests, and unrealized gain on interest rate options, which we believe allow investors to compare a measure of our earnings before the effects of our capital structure and indebtedness with that of other companies in the real estate industry. Additionally, we exclude interest income recognized on our Mezzanine Investment that was accrued but not paid during the three and nine months ended September 30, 2021 and 2020.

37

 

---

Table of Contents

 

The reconciliation of net (loss) income to EBITDAre and Adjusted EBITDAre for the three and nine months ended September 30, 2021 and 2020, is as follows (in thousands):

 

 

 

Liquidity and Capital Resources

Liquidity

Liquidity is the ability to meet present and future financial obligations. Our primary sources of liquidity are cash flows from operations and borrowing capacity under our loan agreements.

As of September 30, 2021, our available liquidity was $413 million, which consisted of:

We have commitments for, and expect to spend, approximately $294.2 million on development and redevelopment projects underway, with $281.2 million undrawn on our construction loans as of September 30, 2021.

Our principal uses for liquidity include normal operating activities, payments of principal and interest on outstanding debt, capital expenditures, and future investments.

In the event that our cash and cash equivalents, revolving secured credit facility, and cash provided by operating activities are not sufficient to cover our liquidity needs, we have the means to generate additional liquidity, such as from additional property financing activity and proceeds from apartment community sales. We expect to meet our long-term liquidity requirements, including debt maturities, development and redevelopment spending, and future investment activity, primarily through property financing activity, cash generated from operations, and the recycling of Aimco equity. Our revolving secured credit facility matures in December 2023, prior to consideration of its two one-year extension options.

Leverage and Capital Resources

The availability and cost of credit and its related effect on the overall economy may affect our liquidity and future financing activities, both through changes in interest rates and access to financing. Currently, interest rates are low compared to historical levels, and financing is readily available.  Any adverse changes in the lending environment could negatively affect our

38

 

---

Table of Contents

 

liquidity. We have taken steps to mitigate a portion of our repricing risk.  However, if property or development financing options become unavailable, we may consider alternative sources of liquidity, such as reductions in capital spending or apartment community dispositions.

As of September 30, 2021, approximately 42% of our leverage consisted of property-level, non-recourse, amortizing debt. Approximately 89% of our property-level debt is fixed-rate, which provides a hedge against increases in interest rates, capitalization rates, and inflation. The weighted-average remaining term to maturity of our non-recourse property-level debt was 5.7 years at a weighted-average interest rate of 3.09%.

While our primary source of leverage is property-level debt, we also have a credit facility with a syndicate of financial institutions and construction loans. As of September 30, 2021, we had no outstanding borrowings under our revolving secured credit facility, swingline loan sub-facility and letter of credit sub-facility and had capacity to borrow up to $150 million.

As of September 30, 2021, approximately 46% of our leverage consisted of notes payable to AIR, with a fixed interest rate of 5.2% and a term to maturity of 2.3 years, and approximately 12% consisted of our variable-rate non-recourse construction loans.

Under our revolving secured credit facility, we have agreed to maintain a fixed charge coverage ratio of at least 1.25x, minimum tangible net worth of $625 million, and maximum leverage of 60% as defined in the credit agreement. We are currently in compliance and expect to remain in compliance with these covenants.

Changes in Cash, Cash Equivalents, and Restricted Cash

The following discussion relates to changes in consolidated cash, cash equivalents, and restricted cash due to operating, investing and financing activities, which are presented in our condensed consolidated statements of cash flows in Item 1 of this report.

Operating Activities

For the nine months ended September 30, 2021, net cash provided by operating activities was $22.1 million. Our operating cash flow is primarily affected by rental rates, occupancy levels, and operating expenses related to our portfolio of apartment communities and general and administrative costs. Cash provided by operating activities for the nine months ended September 30, 2021, decreased by $19.2 million compared to the same period ended in 2020 due to higher operating and general and administrative expenses.

Investing Activities

For the nine months ended September 30, 2021, our net cash used in investing activities of $216.6 million consisted primarily of capital expenditures and cash used in the purchase of The Benson Hotel, the Eldridge Townhomes, and construction costs on our development properties.

Total capital additions totaled $134.9 million and $15.3 million during the nine months ended September 30, 2021 and 2020, respectively. We have generally funded capital additions with available cash and cash provided by operating activities.

We exclude the amounts of capital spending related to commercial spaces and to apartment communities sold or classified as held for sale at the end of the period from the foregoing measures. We have also excluded from these measures indirect capitalized costs, which are not yet allocated to communities with capital additions, and their related capital spending categories.

For further details regarding our development and redevelopment activities, including apartment communities constructed and delivered refer to the Executive Overview section above.

Financing Activities

Net cash from financing activities for the nine months ended September 30, 2021 increased by $93.2 million compared to the nine months ended September 30, 2020, due primarily to draws on construction loans, and proceeds from the $59.8 million non-recourse property loans entered into during the nine months ended September 30, 2021.

Future Capital Needs

We expect to fund any future acquisitions, redevelopment, development, and other capital spending principally with operating cash flows, short-term borrowings, and debt and equity financing. Our near-term business plan does not contemplate

39

 

---

Table of Contents

 

the issuance of equity. We believe, based on the information available at this time, that we have sufficient cash on hand and access to additional sources of liquidity to meet our operational needs for 2021 and beyond.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

As of September 30, 2021, on a consolidated basis, we had approximately $55.0 million of variable-rate property-level debt outstanding in addition to two variable rate construction loans that totaled $143.7 million. We estimate that a change in 30-day LIBOR of 100 basis points with constant credit risk spreads would reduce or increase interest expense by approximately $2.0 million.

In 2020, we paid an upfront premium of $12.1 million for the option to enter into a $1.5 billion notional amount interest rate swap at a future date. This interest rate option, or swaption, provides partial protection against exposure to rising interest rates between now and October 2024. We receive a cash settlement in the future if the prevailing interest rate is higher than the 1.68% strike price on the five-year swap. The amount of a future cash settlement is capped if the prevailing interest rate exceeds 2.78%. Alternatively, if interest rates were to decrease below the specified strike price, we would not receive a cash settlement nor would we have any liability to make a payment.

During the first quarter of 2021, we paid an upfront premium of $5.6 million (including transaction costs) for the option to enter into a $500 million notional amount interest rate swap at a future date.  This interest rate option, or swaption, provides partial protection against our refinancing interest rate risk relative to our notes payable to AIR, and is intended to mitigate interest rate increases between now and January 2024.  We receive a cash settlement in the future if the prevailing interest rate is higher than the 3% strike price on the five year swap. Alternatively, if interest rates were to decrease below the specified strike price, we would not receive a cash settlement nor would we have any liability to make a payment.

During the nine months ended September 30, 2021, we paid an upfront premium of $0.3 million for interest rate caps for the entire amounts on our Flamingo and Hamilton construction loans. These interest rate caps, provide protection if one month LIBOR exceeds 3% during the initial term of the loans.

 

ITEM 4. CONTROLS AND PROCEDURES

Aimco

Disclosure Controls and Procedures

Aimco’s management, with the participation of Aimco’s chief executive officer and chief financial officer, has evaluated the effectiveness of Aimco’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this report. Based on such evaluation, Aimco’s chief executive officer and chief financial officer have concluded that, as of the end of such period, Aimco’s disclosure controls and procedures were effective.

Changes in Internal Control Over Financial Reporting

There has been no change in Aimco’s internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the third quarter of 2021 that has materially affected, or is reasonably likely to materially affect, Aimco’s internal control over financial reporting.

Aimco Operating Partnership

Disclosure Controls and Procedures

Aimco Operating Partnership’s management, with the participation of the chief executive officer and chief financial officer of both Aimco and Aimco OP GP, LLC, Aimco Operating Partnership’s general partner, has evaluated the effectiveness of Aimco Operating Partnership’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange) as of the end of the period covered by this report. Based on such evaluation, the chief executive officer and chief financial officer of Aimco OP GP, LLC have concluded that, as of the end of such period, Aimco Operating Partnership’s disclosure controls and procedures are effective.

40

 

---

Table of Contents

 

Changes in Internal Control Over Financial Reporting

There has been no change in Aimco Operating Partnership’s internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the third quarter of 2021 that has materially affected, or is reasonably likely to materially affect, Aimco Operating Partnership’s internal control over financial reporting.

 

41

 

---

Table of Contents

 

 

PART II. OTHER INFORMATION

ITEM 1A. RISK FACTORS

As of the date of this report, there have been no material changes from the risk factors in Aimco’s and Aimco Operating Partnership’s combined Annual Report on Form 10-K for the year ended December 31, 2020.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Aimco

Unregistered Sales of Equity Securities

From time to time, Aimco may issue shares of common stock in exchange for OP Units, defined under the Aimco Operating Partnership heading below. Such shares are issued based on an exchange ratio of one share for each common OP Unit. Aimco may also issue shares of common stock in exchange for limited partnership interests in consolidated real estate partnerships. During the three months ended September 30, 2021, Aimco issued approximately 140,000 shares of common stock in exchange for OP Units in these transactions. Such shares were issued in reliance on Section 4(a)(2) of the Securities Act of 1933, as amended.

Repurchases of Equity Securities

There were no repurchases by Aimco of its common equity securities during the three months ended September 30, 2021. Aimco’s board of directors has, from time to time, authorized Aimco to repurchase shares of its outstanding common stock. As of September 30, 2021, Aimco was authorized to repurchase approximately 10.4 million shares. This authorization has no expiration date. These repurchases may be made from time to time in the open market or in privately negotiated transactions.

Aimco Operating Partnership

Unregistered Sales of Equity Securities

Aimco Operating Partnership did not issue any unregistered OP Units during the three months ended September 30, 2021.

Repurchases of Equity Securities

Aimco Operating Partnership’s Partnership Agreement generally provides that after holding common OP Units for one-year, limited partners other than Aimco have the right to redeem their common OP Units for cash or, at our election, shares of Aimco Common Stock on a one-for-one basis (subject to customary antidilution adjustments). During the three months ended September 30, 2021, approximately 140,000 of common OP Units were redeemed in exchange for shares of Common Stock.

The following table summarizes Aimco Operating Partnership’s repurchases, or redemptions in exchange for cash, of common OP Units for the three months ended September 30, 2021.

Dividend and Distribution Payments

As a REIT, Aimco is required to distribute annually to holders of its Common Stock at least 90% of its “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. Aimco’s board of directors determines and declares its dividends. In making a dividend determination, Aimco’s board of directors considers a variety of factors, including REIT distribution requirements; current market conditions; liquidity needs; and other uses of cash, such as deleveraging and accretive investment

42

 

---

Table of Contents

 

activities. Aimco plans to reinvest earnings to facilitate growth and, therefore, does not presently intend to pay a regular quarterly cash dividend.

 

43

 

---

Table of Contents

 

 

ITEM 6. EXHIBITS

The following exhibits are filed with this report:

 

 

44

 

---

Table of Contents

 

 

SIGNATURES

Pursuant to the requirements 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.

 

 

 

Date: November 9, 2021

45