What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-11-07 compared with 2024-08-07 · 91 added, 103 removed, 220 unchanged (47% of the section changed)

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• Platform, consisting of a cohesive, talented, and tenured team with diverse real estate industry experience combined with a disciplined and proven investment process;

• Diversified portfolio, consisting of $0.6 billion in-process value-add investments, a pipeline of approximately 13 million gross square feet of potential future development, a national portfolio of stabilized multifamily real estate and limited indirect and passive investments;

• Diversified portfolio, consisting of value-add investments, a pipeline of land held for potential future development, a national portfolio of stabilized multifamily real estate and limited indirect and passive investments;

• Capital redeployment plan which includes the prudent recycling of capital, reallocating our equity to higher returning investments, and return of capital to stockholders when appropriate.

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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.

• Owning a portfolio of stabilized core and core plus real estate

Our entire portfolio of operating properties includes 25 apartment communities (21 consolidated properties and four unconsolidated properties) 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 geographically diversified portfolio, with a bias toward long established residential neighborhoods that rank highly in regard to schools, employment fundamentals 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.

• Managing and investing in value-add and opportunistic real estate

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In any time period, the amount of our capital that is allocated to development activities may vary based on market conditions and other factors.

• Owning a portfolio of stabilized core and core plus real estate

We also own one commercial office building that is part of an assemblage with an adjacent apartment building.

Core-Plus opportunities offer the opportunity for incremental capital investment while maintaining stabilized cashflow to accelerate income growth and improve asset values.

• Managing and continuing to reduce our allocation to alternative investments, over time

We currently hold select alternative investments, the majority of which originated with Aimco Predecessor and, over time, plan to significantly reduce capital allocated to these investments.

Our current allocation to alternative investments includes:

our mezzanine loan to the Parkmerced partnership, which owns 3,165 apartment homes and future development rights in San Francisco, California, and our passive equity investments in IQHQ, a privately-held life sciences real estate development company, and in property technology funds consisting of entities that develop technology related to the real estate industry.

• Maintaining sufficient liquidity and utilizing safe financial leverage

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When warranted, we plan to seek equity capital from joint venture partners to improve our cost of capital, further leverage our equity, reduce exposure to a single investment and, in certain cases, for strategic benefits.

The results from the execution of our business plan during the three and six months ended June 30, 2024 are further described below.

The results from the execution of our business plan during the three and nine months ended September 30, 2024 are further described below.

Financial Results and Recent Highlights

• For the three and six months ended June 30, 2024, net loss attributable to Aimco common stockholders per share, on a fully dilutive basis, was ($0.43) and ($0.50), respectively, due primarily to a non-cash impairment charge related to our passive equity investment in IQHQ.

For the same periods in 2023, net loss attributable to Aimco common stockholders per share, on a fully dilutive basis, was ($0.02) and ($0.09), respectively.

• For the three months ended June 30, 2024, revenue and net operating income from our Operating segment were up 4.6% and 4.1% respectively, year-over-year, due primarily to higher average monthly revenue per apartment home of $2,392, up $101 year-over-year.

For the six months ended June 30, 2024, revenue and net operating income from our Operating segment were up 5.0% and 5.3%, respectively, year over year, with average monthly revenue per apartment home of $2,370, up $111 year over year.

• During the three months ended June 30, 2024, construction of Aimco's Strathmore Square and Oak Shore development projects advanced on plan.

Aimco has substantially completed construction at Upton Place in Upper Northwest Washington, D.C and, as of June 30, 2024, had leased 193 of the 689 units at rates ahead of underwriting.

• For the three months ended September 30, 2024, net loss attributable to Aimco common stockholders per share, on a fully dilutive basis, was ($0.16), due primarily to higher net contributions from multifamily property operations offset by increases in interest expense and depreciation related to advancing and completing development projects.

For the same period in 2023, net loss attributable to Aimco common stockholders per share, on a fully dilutive basis, was ($0.02).

• For the three months ended September 30, 2024, revenue and net operating income from our Operating segment were up 4.1% and 1.6% respectively, year-over-year, due primarily to higher average monthly revenue per apartment home of $2,415, up $57 year-over-year, and a 160-basis point increase in Average Daily Occupancy to 96.8%.

• During the three months ended September 30, 2024, we substantially completed construction on our Strathmore Square project located in Bethesda, Maryland and began construction on an ultra-luxury residential tower located at 640 34th Street ("34th Street") in the Edgewater neighborhood of Miami, Florida.

Operating Property Results

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We also own a commercial office building that is part of an assemblage with an adjacent apartment building.

Highlights for the three months ended June 30, 2024 include:

Highlights for the three months ended September 30, 2024 include:

• Revenue for our Operating segment was $39.3 million, up 4.1% year-over-year, resulting from a $57 increase in average monthly revenue per apartment home to $2,415 and a 160-basis point increase in Average Daily Occupancy to 96.8%.

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Our Value Add and Opportunistic investments may also target portfolio acquisitions, operational turnarounds, and re-entitlements.

As of June 30, 2024, we had two multifamily development projects under construction, a multifamily community that has been substantially completed and is now in lease-up, and a hotel that was completed in 2023 and is being stabilized.

As of September 30, 2024, we had two multifamily development projects under construction, two multifamily communities that have been substantially completed and are now in lease-up, and a hotel that was completed in 2023 and is being stabilized.

These projects remain on track, as measured by construction budget and lease-up metrics.

Additionally, we have a pipeline of future value-add opportunities totaling approximately 13 million gross square feet of development in our target markets of Southeast Florida, the Washington, D.C.

Additionally, we have a pipeline of future value-add opportunities in our target markets of Southeast Florida, the Washington, D.C.

Metro Area, and Colorado's Front Range.

During the three and six months ended June 30, 2024, $29.8 million and $72.6 million of capital was invested in development and redevelopment activities, respectively, primarily funded through construction loan draws, compared to $81.1 million and $145.9 million, respectively, during the same periods in 2023.

Highlights for the three months ended June 30, 2024 include:

During the three and nine months ended September 30, 2024, $29.6 million and $102.2 million of capital was invested in development and redevelopment activities, respectively, primarily funded through construction loan draws, compared to $74.4 million and $220.4 million, respectively, during the same periods in 2023.

Highlights for the three months ended September 30, 2024 include:

• In the third quarter, construction began in Miami’s Edgewater neighborhood on 34th Street, an ultra-luxury waterfront residential tower that will include a highly tailored amenity package and approximately 7,000 square feet of ground floor retail space.

The rental homes will average more than 2,500 square feet, feature 9 – 10 foot ceilings, oversized private terraces, top-of-the-line finishes, and unobstructed views of Biscayne Bay.

• In Upper Northwest Washington, D.C., construction is substantially complete at Upton Place.

As of June 30, 2024, we have delivered all 689 apartment homes with 193 units leased or pre-leased at rental rates greater than underwriting.

Additionally, as of June 30, 2024, more than 82% of the project's 105,000 square feet of retail space has been leased.

• In Bethesda, Maryland, construction is progressing on plan at the first phase of Strathmore Square.

As of June 30, 2024, we have delivered 146 of the total 220 highly tailored apartment homes and welcomed residents into their new homes.

The remaining apartment homes are on track for delivery in the second half of 2024.

As of September 30, 2024, we have delivered all 689 apartment homes with 284 units leased or pre-leased at rental rates greater than underwriting.

Additionally, as of September 30, 2024, 90% of the project's 105,000 square feet of retail space has been leased.

• In Bethesda, Maryland, construction is substantially complete at the first phase of Strathmore Square.

As of September 30, 2024, we have delivered all 220 highly tailored apartment homes with 64 units leased or preleased with rents ahead of our initial projections, and 46 homes were occupied.

• In Corte Madera, CA, construction is ongoing at Oak Shore where 16 luxury single family rental homes and eight accessory dwelling units are being developed.

As of June 30, 2024, ten residences had been delivered with nine leased or pre-leased at rental rates greater than underwriting.

• In the second quarter of 2024, we invested $3.3 million into programming, design, documentation, and entitlement efforts related to select pipeline projects located in South Florida and on the Anschutz Medical Campus in Aurora, Colorado.

As of September 30, 2024, 19 residences had been delivered with 14 leased or pre-leased at rental rates greater than underwriting.

• In the third quarter of 2024, we invested $0.4 million into programming, design, documentation, and entitlement efforts related to select pipeline projects located in South Florida and on the Anschutz Medical Campus in Aurora, Colorado.

Investment and Disposition Activity

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Consistent with our capital allocation philosophy, we monetize the value within our assets when accretive uses of the proceeds are identified and invest when the risk adjusted returns are superior to other uses of capital.

In the three months ended June 30, 2024, no new investment or disposition activity occurred.

In the three months ended September 30, 2024, no new investment or disposition activity occurred.

Balance Sheet and Financing Activities

We are highly focused on maintaining a strong balance sheet, including having at all times ample liquidity.

As of June 30, 2024, we had access to $259.4 million in liquidity, including $88.5 million of cash on hand, $20.9 million of restricted cash, and the capacity to borrow up to $150.0 million on our revolving credit facility.

As of September 30, 2024, we had access to $260.4 million in liquidity, including $82.6 million of cash on hand, $27.8 million of restricted cash, and the capacity to borrow up to $150.0 million on our revolving credit facility.

Refer to the Liquidity and Capital Resources section for additional information regarding our leverage.

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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.

Results of Operations for the three and six months ended June 30, 2024 and 2023

Net income attributable to Aimco common stockholders decreased by $56.9 million and $58.3 million, respectively, for the three and six months ended June 30, 2024, compared to the same period in 2023, as described more fully below.

Results of Operations for the three and nine months ended September 30, 2024 and 2023

Net income attributable to Aimco common stockholders decreased by $19.7 million and $78.0 million, respectively, for the three and nine months ended September 30, 2024, compared to the same periods in 2023, as described more fully below.

Property Results

As of June 30, 2024, our Development and Redevelopment segment includes 10 rental communities, two of which were under construction.

As of September 30, 2024, our Development and Redevelopment segment includes 10 properties, including two of which were under construction and two substantially completed and in lease-up.

Our Operating segment includes 21 residential apartment communities with approximately 5,600 apartment homes, and our Other segment includes 1001 Brickell Bay Drive, our only office building, and The Benson Hotel, our only hotel.

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Prior period segment information has been recast based upon our current segment population, and is consistent with how our CODM evaluates the business.

The recast conforms with our reportable segment classification as of June 30, 2024.

The recast conforms with our reportable segment classification as of September 30, 2024.

We use proportionate property net operating income to assess the operating performance of our segments.

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Proportionate Property Net Operating Income

The results of our segments for the three months ended June 30, 2024 and 2023, as presented below, are based on segment classifications as of June 30, 2024 ( dollars in thousands ).

Three Months Ended June 30,

The results of our segments for the three months ended September 30, 2024 and 2023, as presented below, are based on segment classifications as of September 30, 2024 ( dollars in thousands ).

Three Months Ended September 30,

Rental and other property revenues, before utility reimbursements:

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Development and Redevelopment

For the three months ended June 30, 2024, compared to the same period in 2023:

• Development and Redevelopment proportionate property net operating income increased by $0.2 million due primarily to the lease up of apartment homes at The Hamilton and delivery and initial lease-up of Upton Place.

For the three months ended September 30, 2024, compared to the same period in 2023:

• Development and Redevelopment proportionate property net operating income increased by $0.2 million, or 10.1%, due primarily to the delivery and initial lease-up of Upton Place and Strathmore Square.

• Operating proportionate property net operating income increased by $0.4 million, or 1.6%.

The increase was attributable primarily to a $1.6 million, or 4.1% increase in rental and other property revenues due to a $57 increase in average monthly revenue per apartment home to $2,415, and a 160-basis point increase in Average Daily Occupancy to 96.8%.

• Other proportionate property net operating income increased by $1.0 million, or 100.0%.

The increase was due primarily to The Benson Hotel commencing operations during the second quarter of 2023.

The results of our segments for the six months ended June 30, 2024 and 2023, as presented below, are based on segment classifications as of June 30, 2024 ( dollars in thousands ).

Six Months Ended June 30,

• Other proportionate property net operating income decreased by $0.5 million, or 30.0%.

The decrease was due primarily to vacated space at 1001 Brickell Bay Drive.

The results of our segments for the nine months ended September 30, 2024 and 2023, as presented below, are based on segment classifications as of September 30, 2024 ( dollars in thousands ).

Nine Months Ended September 30,

Rental and other property revenues, before utility reimbursements:

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Development and Redevelopment

For the six months ended June 30, 2024, compared to the same period in 2023:

• Development and Redevelopment proportionate property net operating income increased by $1.7 million due primarily to the lease up of apartment homes at The Hamilton.

• Operating proportionate property net operating income increased by $2.7 million, or 5.3% The increase was attributable primarily to a $3.7 million, or 5.0% increase in rental and other property revenues due to a $111 increase in average monthly revenue per apartment home to $2,370 .

For the nine months ended September 30, 2024, compared to the same period in 2023:

• Development and Redevelopment proportionate property net operating income increased by $2.0 million, or 38.8%, due primarily to the lease up of delivered apartment homes.

• Operating proportionate property net operating income increased by $3.1 million, or 4.0%.

The increase was attributable primarily to a $5.2 million, or 4.7% increase in rental and other property revenues due to a $93 increase in average monthly revenue per apartment home to $2,385.

• Other proportionate property net operating income increased by $0.2 million, or 3.9%.

The increase was due primarily to The Benson Hotel commencing operations during the second quarter of 2023.

The increase was due primarily to additional revenue in 2024 at The Benson Hotel partially offset by lower revenue at 1001 Brickell Bay Drive.

Non-Segment Real Estate Operations

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Depreciation and Amortization

For the three and six months ended June 30, 2024, compared to the same periods in 2023, Depreciation and amortization expense increased by $5.1 million, or 29.8%, and $8.3 million, or 24.9%, respectively, due primarily to substantial completion of Upton Place and the completion of The Benson Hotel during the second quarter of 2023.

For the three months ended September 30, 2024, compared to the same period in 2023, Depreciation and amortization expense increased by $5.7 million, or 32.2% due primarily to the substantial completion of Upton Place and Strathmore Square in 2024.

For the nine months ended September 30, 2024, compared to the same period in 2023, Depreciation and amortization expense increased $14.0 million, or 27.4% due primarily to the substantial completion of Upton Place and Strathmore Square, as well as the completion of The Benson Hotel during the second quarter of 2023.

General and Administrative Expenses

For the three and six months ended June 30, 2024, compared to the same periods in 2023, General and administrative expenses decreased by $0.3 million, or 4.0%, and $0.2 million, or 1.0%, respectively, due primarily to a decrease in expenses for consulting services per the Master Services Agreement with AIR, which concluded at December 31, 2023.

For the three and nine months ended September 30, 2024, compared to the same periods in 2023, General and administrative expenses decreased by $0.4 million, or 5.5%, and $0.6 million, or 2.5%, respectively, due primarily to a decrease in expenses for consulting services per the Master Services Agreement with AIR, which concluded at December 31, 2023.

Interest Income

For the three and six months ended June 30, 2024, compared to the same periods in 2023, Interest income increased by $0.1 million, or 2.3%, and $0.6 million, or 14.3%, respectively, due primarily to interest earned on seller financing provided in connection with the sale of a land parcel in December 2023, offset by a decrease earned on invested cash.

For the three months ended September 30, 2024, compared to the same period in 2023, Interest income decreased by $0.2 million, or 7.5%.

For the nine months ended September 30, 2024, compared to the same period in 2023, Interest income increased by $0.5 million, or 6.6%.

These changes were primarily due to interest earned on seller financing provided in connection with the sale of a land parcel in December 2023, partially offset by a reduction in invested cash.

Interest Expense

For the three and six months ended June 30, 2024, compared to the same periods in 2023, Interest expense increased by $7.2 million, or 74.2%, and $10.8 million, or 55.8%, respectively, due primarily to increased non-recourse construction loan draws and reduced capitalization as development projects are advanced and completed .

For the three and nine months ended September 30, 2024, compared to the same periods in 2023, Interest expense increased by $10.8 million and $21.6 million, respectively, due primarily to increased non-recourse construction loan draws and reduced capitalization as development projects are advanced and completed, partially offset by the repayment of certain non-recourse property debt in 2023 .

Realized and Unrealized Gains (Losses) on Interest Rate Contracts

We are required to adjust our interest rate contracts to fair value on a quarterly basis.

As a result of the mark-to-market adjustments, we recorded unrealized losses of $1.3 million and $1.5 million, respectively, for the three and six months ended June 30, 2024, compared to unrealized gains of $2.5 million and $0.6 million, respectively, for the same periods in 2023.

In addition, we realized gains of $1.9 million and $3.8 million for the three and six months ended June 30, 2024, respectively, compared to realized gains of $0.9 million and $1.7 million, respectively, for the same periods in 2023.

As a result of the mark-to-market adjustments, we recorded unrealized losses of $2.6 million and $4.1 million, respectively, for the three and nine months ended September 30, 2024, compared to unrealized losses of $0.5 million and unrealized gains of $0.1 million, respectively, for the same periods in 2023.

In addition, we realized gains of $1.5 million and $5.3 million for the three and nine months ended September 30, 2024, respectively, compared to realized gains of $1.5 million and $3.2 million, respectively, for the same periods in 2023.

Realized and Unrealized Gains (Losses) on Equity Investments

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In addition, we measure our investment in IQHQ at cost, less impairment if any needed, with subsequent adjustments for observable price changes of identical or similar investments of the same issuer since it does not have a readily determinable fair value.

As a result of changes in the values of these investments, we recorded unrealized losses of $47.3 million and $47.5 million, respectively, for the three and six months ended June 30, 2024, primarily due to a $47.0 million non-cash impairment recognized on our investment in IQHQ.

For the same periods in 2023, we recorded unrealized gains of $1.1 million $1.2 million, respectively.

As a result of changes in the values of these investments, we recorded unrealized losses of $0.6 million and $48.1 million, respectively, for the three and nine months ended September 30, 2024.

During the second

quarter of 2024, we recognized a $47.0 million non-cash impairment on our investment in IQHQ.

For the same periods in 2023, we recorded unrealized losses of $1.1 million and unrealized gains of $0.2 million, respectively.

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, as well as activity related to our Mezzanine Investment.

For the three months ended June 30, 2024, compared to the same period in 2023, Other income (expense), net decreased by $0.1 million, or 9.4%.

For the six months ended June 30, 2024, compared to the same period in 2023, Other income (expense), net decreased by $2.0 million, or 41.0%, primarily due to the incremental expense associated with pre-existing long-term incentive partnership units recorded upon the resignation of one of our board members in the prior period.

For the three months ended September 30, 2024, compared to the same period in 2023, Other income (expense), net changed by $1.9 million, or 95.0%, primarily due to a non-cash other than temporary impairment recognized on our investment in an unconsolidated investment in land held for development in the current period.

For the nine months ended September 30, 2024, compared to the same period in 2023, Other income (expense), net changed by $0.1 million, or 0.8%, primarily due to the incremental expense associated with pre-existing long-term incentive partnership units recorded upon the resignation of one of our board members in the prior period, partially offset by a non-cash other than temporary impairment recognized on our investment in an unconsolidated investment in land held for development in the current period.

Income Tax Benefit (Expense)

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Consolidated GAAP income or loss subject to tax consists of pretax income or loss of our taxable entities and income and gains retained by the REIT.

For the three and six months ended June 30, 2024, we had consolidated net losses subject to tax of $5.3 million and $11.9 million, respectively, compared to consolidated net losses subject to tax of $2.5 million and $7.4 million, respectively, for the same periods in 2023.

For the three months ended June 30, 2024, we recognized an income tax benefit of $2.2 million, compared to an income tax benefit of $0.4 million for the same period in 2023.

The increase is due primarily to the tax effect of fewer gains, increased depreciation, and interest expense associated with properties owned by, and activities of, our TRS entities.

For the six months ended June 30, 2024, we recognized an income tax benefit of $4.9 million, compared to an income tax benefit of $4.6 million for the same period in 2023.

The increase is due primarily to the tax effect of fewer gains, increased depreciation, and interest expense associated with properties owned by, and activities of, our TRS entities.

This increase was partially offset by a reduction to the effective state tax rate expected to apply to the reversal of our existing deferred items recognized during the three months ended March 31, 2023.

For the three and nine months ended September 30, 2024, we had consolidated net losses subject to tax of $9.7 million and $21.6 million, respectively, compared to consolidated net losses subject to tax of $5.0 million and $12.4 million, respectively, for the same periods in 2023.

For the three months ended September 30, 2024, we recognized an income tax benefit of $3.8 million, compared to an income tax benefit of $6.2 million for the same period in 2023.

The decrease is due primarily to a change in estimate associated with finalizing the 2022 tax returns in the third quarter of 2023.

For the nine months ended September 30, 2024, we recognized an income tax benefit of $8.7 million, compared to an income tax benefit of $10.8 million for the same period in 2023.

The decrease is due primarily to a change in estimate associated with finalizing the 2022 tax returns in third quarter of 2023, partially offset by the tax effect of fewer gains, increased depreciation, and interest expense associated with properties owned by, and activities of, our TRS entities.

Critical Accounting Estimates

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Our critical accounting estimates that involve our more significant judgments and estimates used in the preparation of our consolidated financial statements are detailed 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, 2023.

There have been no significant changes in our critical accounting estimates from those reported in our Form 10-K, other than as noted below, 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.

Investment in IQHQ

On a periodic basis, we perform a qualitative impairment assessment on our investment in IQHQ in accordance with GAAP.

We determined that our investment in IQHQ was impaired after consideration of factors, including adverse capital market conditions, increased real estate development costs, and IQHQ's financial condition.

As a result, we have recognized a $47.0 million non-cash impairment to reduce the carrying value of the investment in IQHQ to $12.7 million as of June 30, 2024.

The measurement of the impairment loss is based on the fair value of our investment in IQHQ.

Fair value determinations require considerable judgment and are sensitive to changes in underlying assumptions, estimates, and market factors.

Estimating the fair value of our investment in IQHQ incorporates various estimates, assumptions, and market data, the most significant being projected operational cash flow, capitalization rates, and discount rates.

We determine capitalization rates and discount rates using third-party market research analytics.

Property operational cash flows are based on historical, current and expected future operating results and take into consideration stated operational strategies.

These projections are adjusted to reflect current economic conditions and require considerable management judgment.

There have been no significant changes in our critical accounting estimates from those reported in our Form 10-K, other than as noted in our Form 10-Q for the period ended June 30, 2024, 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

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• the non-cash (income) loss recognized on our Mezzanine Investment.

• the non-cash (income) loss recognized on our investment in IQHQ.

The reconciliation of net income (loss) to EBITDAre and Adjusted EBITDAre for the three and six months ended June 30, 2024 and 2023, is as follows ( in thousands ):

Three Months Ended June 30,

Six Months Ended June 30,

• the non-cash (income) loss recognized on a passive equity investment.

The reconciliation of net income (loss) to EBITDAre and Adjusted EBITDAre for the three and nine months ended September 30, 2024 and 2023, is as follows ( in thousands ):

Three Months Ended September 30,

Nine Months Ended September 30,

Net income (loss)

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Gain on disposition of real estate

Unrealized (gains) losses from investment in unconsolidated partnerships

Depreciation and amortization

Adjustment related to EBITDAre of unconsolidated partnerships

Net (income) loss attributable to redeemable noncontrolling

interests in consolidated real estate partnerships

Net (income) loss attributable to noncontrolling interests

in consolidated real estate partnerships

Net (income) loss attributable to redeemable noncontrolling interests in consolidated real estate partnerships

Net (income) loss attributable to noncontrolling interests in consolidated real estate partnerships

EBITDAre adjustments attributable to noncontrolling interests

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Realized and unrealized (gains) losses on interest rate contracts

Unrealized (gains) losses on IQHQ investment

Unrealized (gains) losses on a passive equity investment

Adjusted EBITDAre

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Our primary sources of liquidity are cash flows from operations and borrowing capacity under our loan agreements.

As of June 30, 2024, our available liquidity was $259.4 million, which consisted of:

As of September 30, 2024, our available liquidity was $260.4 million, which consisted of:

• $82.6 million in cash and cash equivalents;

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• $150.0 million of available capacity to borrow under our revolving secured credit facility.

As of June 30, 2024, we had sufficient capacity on our non-recourse construction loans to cover our remaining commitments on development and redevelopment projects of approximately $17.4 million.

The initial allocations to our joint ventures have remaining unfunded commitments of $3.0 million.

As of September 30, 2024, we had sufficient capacity on our non-recourse construction loans to cover our remaining commitments on development and redevelopment projects of approximately $163.7 million.

We also have unfunded commitments in the amount of $1.5 million related to four investments in entities that develop technology related to the real estate industry.

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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 our equity.

Our revolving secured credit facility matures in December 2024, prior to consideration of its one-year extension option.

Our revolving secured credit facility matures in December 2024, prior to consideration of its one-year extension option that we intend to exercise.

Leverage and Capital Resources

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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 June 30, 2024, approximately 90% of our outstanding non-recourse property debt had a fixed interest rate and approximately 10% had a variable interest rate, all of which was hedged.

As of September 30, 2024, approximately 90% of our outstanding non-recourse property debt had a fixed interest rate and approximately 10% had a variable interest rate, all of which was hedged.

In addition, the weighted-average contractual rate on our non-recourse debt was 4.8% and 4.6% inclusive of interest rate caps, and the average remaining term to maturity was 5.9 years.

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While our primary sources of leverage are property-level debt and non-recourse construction loans, we also have a secured $150.0 million credit facility with a syndicate of financial institutions.

As of June 30, 2024, we had no outstanding borrowings under our revolving secured credit facility, which requires that we maintain a fixed charge coverage ratio of 1.25X, minimum tangible net worth of $625.0 million, and maximum leverage of 60.0% as defined in the credit agreement.

As of September 30, 2024, we had no outstanding borrowings under our revolving secured credit facility, which requires that we maintain a fixed charge coverage ratio of 1.25X, minimum tangible net worth of $625.0 million, and maximum leverage of 60.0% as defined in the credit agreement.

We are currently in compliance and expect to remain in compliance with these covenants during the next twelve months.

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Operating Activities

For the six months ended June 30, 2024, net cash provided by operating activities was $29.7 million.

For the nine months ended September 30, 2024, net cash provided by operating activities was $46.2 million.

Our operating cash flow is primarily affected by rental rates, occupancy levels, operating expenses related to our portfolio of apartment communities and general and administrative costs.

Cash provided by operating activities for the six months ended June 30, 2024, increased by $12.0 million compared to the same period in 2023, due primarily to increased net operating income driven by higher rents and the timing of balance sheet position changes, partially offset by increased interest expense.

Cash provided by operating activities for the nine months ended September 30, 2024, increased by $3.6 million compared to the same period in 2023, due primarily to increased net operating income driven by higher rents and the timing of balance sheet position changes, partially offset by increased interest expense.

Investing Activities

For the six months ended June 30, 2024, net cash used in investing activities of $77.4 million consisted primarily of capital expenditures.

Net cash used in investing activities for the six months ended June 30, 2024, decreased by $49.2 million compared to the same period in 2023, due primarily to decreased capital expenditures.

For the nine months ended September 30, 2024, net cash used in investing activities of $114.4 million consisted primarily of capital expenditures.

Net cash used in investing activities for the nine months ended September 30, 2024, decreased by $149.8 million compared to the same period in 2023, due primarily to decreased capital expenditures and the purchase of a short-term treasury bill in the prior period.

Financing Activities

For the six months ended June 30, 2024, net cash provided by financing activities of $17.9 million consisted primarily of proceeds from non-recourse construction loans, offset by common stock repurchases and distributions to redeemable noncontrolling interests.

Net cash provided by financing activities for the six months ended June 30, 2024, decreased by $53.7 million compared to the same period in 2023, due primarily to decreased proceeds from non-recourse construction loans, offset by decreased principal repayments on non-recourse property debt and increased common stock repurchases.

For the nine months ended September 30, 2024, net cash provided by financing activities of $39.3 million consisted primarily of proceeds from non-recourse construction loans, offset by common stock repurchases and distributions to redeemable noncontrolling interests.

Net cash provided by financing activities for the nine months ended September 30, 2024, decreased by $68.3 million compared to the same period in 2023, due primarily to decreased proceeds from non-recourse construction loans, the sale of a participation in the Mezzanine Investment and the monetization of interest rate options in the prior period, offset by decreased principal repayments on non-recourse property debt.

Future Capital Needs

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Our chief market risks are refunding risk, that is the availability of property debt or other cash sources to refund maturing property debt, and repricing risk, that is the possibility of increases in base interest rates and credit risk spreads.

We primarily use long-dated, fixed-rate, non-recourse property debt on stabilized properties in order to avoid the refunding and repricing risks of short-term borrowings.

We primarily use long-dated, fixed-rate, non-recourse property debt on stabilized properties in order to manage the refunding and repricing risks of short-term borrowings.

We use working capital primarily to fund short-term uses.

We use derivative financial instruments as a risk management tool and do not use them for trading or other speculative purposes.

As of June 30, 2024, on a consolidated basis, we had approximately $81.3 million of variable-rate property-level debt outstanding and $327.7 million of variable-rate construction loans.

The impact of rising interest rates in recent history has been mitigated by our use of interest rate caps, which as of June 30, 2024, provided protection for our variable interest rate debt.

As of September 30, 2024, on a consolidated basis, we had approximately $81.3 million of variable-rate property-level debt outstanding and $365.1 million of variable-rate construction loans.

The impact of rising interest rates in recent history has been mitigated by our use of interest rate caps, which as of September 30, 2024, provided protection for our variable interest rate debt.

Our use of interest rate caps may vary from quarter to quarter depending on lender requirements, recycling of interest rate caps between projects, and our view on forecasted interest rates.

As of June 30, 2024, we estimate an increase or decrease in our variable rate indices of 100 basis points with constant credit risk spreads, would have no material impact on interest expense.

As of June 30, 2024, we held interest rate caps with $627.4 million notional value.

These instruments were acquired for $5.7 million and at June 30, 2024, were valued at $3.7 million.

As of June 30, 2024, we had $109.4 million in cash and cash equivalents and restricted cash, a portion of which earns interest at variable rates.

As of September 30, 2024, we estimate an increase or decrease in our variable rate indices of 100 basis points with constant credit risk spreads, would have no material impact on interest expense.

As of September 30, 2024, we held interest rate caps with $799.4 million notional value.

These instruments were acquired for $6.3 million and at September 30, 2024, were valued at $1.7 million.

As of September 30, 2024, we had $110.4 million in cash and cash equivalents and restricted cash, a portion of which earns interest at variable rates.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis