What changed in this filing

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Item 2. Management’s Discussion and Analysis

2021-05-17 compared with 2020-11-02 · 223 added, 644 removed, 87 unchanged (91% of the section changed)

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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 contains or may contain information that is forward-looking, within the meaning of the federal securities laws, including, without limitation, statements regarding:

the separation of Aimco into two entities (“the Separate Entities”), including our portfolio composition and relationship between the Separate Entities following the separation and the anticipated timing, structure and costs and benefits of the separation;

the payment of dividends and distributions in the future;

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, redevelopments, and developments;

our ability to meet budgeted costs and timelines, and achieve budgeted rental rates related to our redevelopment and development investments;

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;

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Risks and uncertainties that could cause actual results to differ materially from our expectations include, but are not limited to:

whether or not Aimco completes the separation on the anticipated terms, timeline, or at all;

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 interest in the partnership that owns Parkmerced Apartments, and the impact of the lockdown on Aimco’s residents, commercial tenants, and operations;

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;

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the amount, location and quality of competitive new housing supply;

the timing and effects of acquisitions, dispositions, redevelopments and developments;

changes in operating costs, including energy costs;

negative economic conditions in our geographies of operation;

loss of key personnel;

ability to maintain current or meet projected occupancy, rental rate and property operating results;

ability to meet budgeted costs and timelines, and, if applicable, achieve budgeted rental rates related to redevelopment and development investments;

the timing and effects of acquisitions, dispositions, developments and redevelopments;

expectations regarding sales of apartment communities and the use of proceeds thereof;

the ability to successfully operate as two separate companies each with more narrowed focus;

insurance risks, including the cost of insurance, and natural disasters and severe weather such as hurricanes;

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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 apartment communities presently or previously owned by Aimco;

the relationship between the Separate Entities after the consummation of the separation;

the ability and willingness of the Separate Entities and their subsidiaries to meet and/or perform their obligations under any contractual arrangements that are 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 business separation;

and such other risks and uncertainties described from time to time in filings by Aimco or the Separate Entities with the Securities and Exchange Commission.

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 filings by Aimco or the Separate Entities 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.

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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 Properties, L.P.’s combined Annual Report on Form 10-K for the year ended December 31, 2019, and the other documents we file from time to time with the Securities and Exchange Commission.

Readers should also carefully review the “Risk Factors” section of the registration statements relating to the business separation, which are expected to be filed with the Securities and Exchange Commission.

These filings identify and address other important risks and uncertainties that could cause actual events and results to differ materially from those contained in the forward-looking statements.

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 Properties, L.P.

(which we refer to as the Aimco Operating Partnership) and their consolidated entities, collectively.

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 and include:

Nareit Funds from Operations, Pro forma Funds from Operations, Adjusted Funds from Operations, Free Cash Flow, Net Asset Value, Economic Income, and the measures used to compute our leverage ratios.

These measures are defined and reconciled to the most comparable GAAP measures under the Non-GAAP Measures heading.

Executive Overview

We are focused on the ownership, management, redevelopment, and some development of quality apartment communities located in several of the largest markets in the United States.

Our principal financial objective is to provide predictable and attractive returns to our equity holders.

We measure our long-term total return using Economic Income, defined as changes in the per share Net Asset Value, or NAV, growth plus dividends.

NAV is used by many investors because the value of company assets can be readily estimated, even for non-earning assets such as land or properties under development.

NAV has the advantage of incorporating the investment decisions of thousands of real estate investors, enhancing comparability among companies that have differences in their accounting and avoiding disparity that can result from application of GAAP to investment properties and various ownership structures.

NAV also provides real estate investors a basis for the perceived quality and predictability of future cash flows as well as their expected growth.

Some investors focus on multiples of Adjusted Funds from Operations, or AFFO, and Funds from Operations as defined by the National Association of Real Estate Investment Trusts, or Nareit FFO.

Our disclosure of AFFO, a measure of current return, complements our focus on Economic Income.

We also use Pro forma FFO as a secondary measure of operational performance.

Our Economic Income is the result of performance in five key business areas:

increase revenue based on high levels of resident retention, through superior customer selection and satisfaction, coupled with innovation resulting in sustained cost control, to further improve net operating income margins;

create value and future earnings growth by the renovation and repositioning of apartment communities through short-cycle and long-cycle redevelopments;

own an apartment portfolio diversified by geography and price point with a focus on properties with high land value located in submarkets with outsized future growth prospects, and diversify the portfolio by maintaining allocation to both “income” properties (high quality properties with predictable, “low beta” AFFO returns, usually with B or C+ rents) where we expect appreciation of the substantial land value will create opportunities for “high alpha” value creation through profitable redevelopment;

primarily utilize safe property debt that is low-cost, long-dated, amortizing, and non-recourse, limiting entity and refunding risk while maintaining flexibility to sell or redevelop properties;

emphasize an intentional culture that is collaborative and productive, based on respect for others and personal responsibility, strengthened by a preference for promotion from within and explicit talent development and succession planning to produce the strong, stable team that is the enduring foundation of our success.

Over our first 25 years as a public company, our Economic Income compounded at an annual rate of 14%.

On September 14, 2020, we announced a Board-led plan, informed by active and regular engagement with shareholders, to reduce financial risk and execution risk, and to increase FFO per share by division of the business between two public entities.

The first with 90% of our estimated fair value will be known as Apartment Income REIT or “AIR”.

It will own only stabilized apartment communities, eliminating vacancy loss during redevelopment and allowing substantial reduction in execution risk and offsite costs.

The second entity with 10% of our estimated fair value will be known as Aimco, or sometimes for clarity, as “new” Aimco.

It expects to hold the non-traditional assets, such as the Parkmerced loan and the Brickell land assembly.

New Aimco will continue and seek to grow the development and redevelopment business, including collaboration with IQHQ on multifamily opportunities, and it will complete the redevelopment projects now underway or about to be started.

After a defined transition period, the two businesses will be wholly separate.

From the start, each will have separate boards of directors and separate management teams.

The separation has been structured to refresh the tax basis of the properties to be held by AIR, eliminating or reducing the need for future stock dividends.

Shareholders will own the same assets before and after the separation transaction but will gain the opportunity to make individual allocations between the two businesses.

Impacts of COVID-19 and Governmental Lockdown

The impact of the COVID-19 pandemic and governmental lockdown continued into the third quarter of 2020.

As discussed in our Quarterly Report on Form 10-Q for the three months ended March 31, 2020, we formed a cross-functional committee that meets weekly to adjust to the changing conditions in order to keep our team and our residents safe.

We continued our commitment to employees by allowing flexible work arrangements, undertook to pay all costs associated with COVID-19 testing and treatment, kept our team intact without layoffs or pay cuts, and continued clear and frequent communication.

Utilizing our previous investment in technology and artificial intelligence, paired with policies providing flexibility, our team continued to lease apartments and fulfill service requests in a safe environment for both the team and our residents.

Our top priority is the health and safety of our residents and teammates.

Accordingly, w e implemented enhanced cleaning procedures as well as physical distancing and remote working guidelines at our communities and corporate offices .

Additionally, s eeing residents as individuals, each impacted differently by the pandemic and lockdown, our teammates have undertaken to speak to every resident in need, to listen, and to help each to solve his or her problems.

We also seek to assist the communities where our residents and employees live and work.

During the three and nine months ended September 30, 2020 we estimate that, in addition to decreased occupancy and lower rental rates, we incurred $9.5 million and $22.6 million of incremental costs, respectively.

The table below provides additional detail (in millions, except per share data):

Three Months Ended

Nine Months Ended

September 30, 2020

Incremental bad debt expense

Lower commercial revenue

Lower other income, due to local restrictions on charging late fees

Other COVID-related amounts

Property Level Impact

Net incremental interest expense

Write-off of commercial straight-line rent receivables

Deferred broker commissions

Total AFFO Impact

Residential Rent Collection Update

In response to the economic effects of the COVID-19 pandemic and governmental lockdown, most jurisdictions where our communities are located have enacted protections for residents and commercial tenants, including government-mandated rent deferrals, rent freezes, repayment extensions, fee abatement measures or concessions, and prohibitions on lease terminations or evictions for tenants.

Some states and municipalities are also implementing rental assistance programs and encouraging landlord-tenant negotiations.

Our strategy includes property development, redevelopment, and other opportunistic investments that offer the prospect of outsized returns on a risk-adjusted basis.

We invest where the talent of our business professionals, including their local market knowledge and insight, offers a comparative advantage.

We deploy a variety of project and property-level financing structures

to improve our returns on invested capital.

Additionally, we own a national portfolio of operating properties which offers diversification, capital allocation opportunity, and a stable source of cash flow from operations.

We rely on the skills and experience of our team in building a broad portfolio of value-add real estate investments, primarily focused on the multifamily sector and located within the continental United States.

We plan to fund our investment activities through the redeployment of Aimco equity in combination with debt and third-party equity in order to improve our returns on invested capital and to grow assets under management.

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 and will therefore be difficult to value.

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:

Managing and investing in the development and redevelopment of real property

Our dedicated team will source and execute development and redevelopment projects across our national platform.

Aimco will seek outsized returns on incremental capital invested, for itself and its partners, through our team’s local insights regarding sub-market fundamentals, the specific property location, a deep understanding of how best to meet the end users’ needs and wants, a disciplined commitment to mitigating risk during the construction process, and a passion for quality.

We believe that each of these components are critical to the creation of an investment platform that is both sustainable and viable independent of broader market conditions.

Managing and investing in other value-add activities (opportunistic investments)

We expect to have a broad set of investment opportunities due to our national platform, management’s deep connections in the local markets in which we invest, and various strategic relationships.

These opportunities may include, but are not limited to, portfolio acquisitions, programmatic joint ventures, debt placements, operational turnarounds, and re-entitlements.

Aimco will undertake such opportunistic value-add transactions when warranted by the prospect of outsized risk-adjusted returns.

Owning a portfolio of stabilized properties

We own a geographically diversified portfolio of stabilized properties that produces stable cash flow and serves to balance the risk and highly variable cashflows associated with our portfolio of development and redevelopments and value-add investments.

We expect to maintain, at any given time, an allocation of capital to stabilized operating properties of no less than 30% of Aimco equity.

Maintaining sufficient liquidity and utilizing financial leverage

We are highly focused on the importance of maintaining ample liquidity and of limiting our exposure to any single investment.

On March 31, 2021, our cash on hand plus capacity to borrow on our revolving credit facility equaled $385.3 million.

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 through retained earnings.

We plan to limit the use of recourse leverage, with a strong preference towards 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.

Benefiting from a national platform while leveraging local and regional expertise

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.

Results for the Three Months Ended March 31, 2021

The results from the execution of our business plan during the three months ended March 31, 2021, are further described below.

Financial Highlights

Net income attributable to Aimco common stockholders per common share, on a dilutive basis, was $0.14 per share, an increase of $0.11 during the three months ended March 31, 2021, compared to 2020, due primarily to unrealized gains on our interest rate options.

Our business is organized around five areas of strategic focus:

development and redevelopment;

asset management ;

investment activity ;

balance sheet;

and team and culture.

Development and Redevelopment

Construction Activity

During the three months ended March 31, 2021, we invested approximately $45.8 million at our development and redevelopment projects.

At the North Tower of Flamingo Point in Miami Beach, Florida, the major redevelopment continues on plan with approximately $43.0 million remaining to invest and a target to complete construction in 2022 and reach stabilization in 2023.

At Upton Place in Washington D.C., construction activities began in January 2021 and are progressing on budget with approximately $221.1 million remaining to complete construction and on schedule for completion in 2024.

As previously announced, we began construction on The Benson Hotel and Faculty Club on the Anschutz Medical Campus in Aurora, Colorado.

We expect a remaining investment of approximately $52.0 million with completion planned for the first quarter of 2023.

Lease-up Progress

During the three months ended March 31, 2021, Aimco held three properties where newly constructed or renovated homes had been delivered but stabilization had not yet been reached.

At 707 Leahy, in Redwood City, California, all apartment homes had been delivered and construction was complete as of 4Q 2020.

As of March 31, 2021, the 110-unit property was 71% leased.

At The Fremont on the Anschutz Medical Campus in Aurora, Colorado, all apartment homes had been delivered and construction was complete as of 4Q 2020.

As of March 31, 2021, the 253-unit property was 54% leased.

At Prism, located in Cambridge, Massachusetts, all apartment homes had been delivered and construction was complete as of 1Q 2021.

As of March 31, 2021 the 136-unit property was 22% leased.

The pace of absorption at these properties accelerated during April and early May as local economies reopen and we enter the prime leasing season.

In April, leasing volume increased by more than a third when compared to March, and leasing in May is projected to outpace April.

Asset Management

Operating Properties

We own a geographically diversified portfolio of operating properties that produces stable cash flow and serves to balance the risk and highly variable cashflows associated with its portfolio of development and redevelopments and value-add investments.

Our Operating Portfolio produced solid results for the three months ended March 31, 2021.

Highlights include:

Average daily occupancy at our Operating Portfolio of 97.6% for the three months ended March 31, 2021, a 70-basis point improvement from the three months ended December 31, 2020, and equal to the three months ended March 31, 2020.

Average revenue per occupied unit at our Operating Portfolio of $1,852 for the three months ended March 31, 2021, down 2.0% year over year and essentially flat to the three months ended December 31, 2020.

Revenue, before utility reimbursements, was $32.7 million for the three months ended March 31, 2021, down 2.0% year over year but up 0.6% from the three months ended December 31, 2020.

Expenses, net of utility reimbursements were $11.2 million for the three months ended March 31, 2021, up 6.3% year over year and up 5.2% from the three months ended December 31, 2020.

The year over year increase is due primarily to higher real estate taxes and insurance with the sequential increase due primarily to seasonal net utility costs and snow removal.

Sequentially, expenses outside of these seasonal items were favorable 50 basis points.

Net operating income for our Operating Portfolio decreased by 5.8% year over year, for the three months ended March 31, 2021, and down 1.6% from the three months ended December 31, 2020.

We measure residential rent collection as the amount of payments received as a percentage of all residential amounts owed.

The table below represents the percentage of residential billed amounts for the three months ended June 30, 2020 and September 30, 2020.

Three months ended

June 30, 2020

September 30, 2020

Payments received during the period

Payments received after period close

Total payments received as of

October 23, 2020

During the three months ended September 30, 2020, we recognized 98.1% of all residential revenue, treating the balance of 1.9% as bad debt.

Of the 98.1% of residential revenue recognized, we collected in cash all but 140 basis points.

The amounts uncollected and not reserved as bad debt include balances collateralized by security deposits, of approximately 60 basis points, and those considered collectable based on our review of individual customers’ credit, of approximately 80 basis points, or $1.6 million.

Of the 190 basis points of bad debt the majority, or approximately 130 basis points, is attributed to residents who have not paid April and subsequent rents.

Prior to the enactment of restrictive city ordinances and closed court houses, these residents would have paid rent or faced eviction in ordinary course.

The remaining amount, approximately 60 basis points, is attributed to non-payment of rent and other charges as might be expected in a difficult economy.

The bad debt associated with this latter category started to slow in August and has declined in each subsequent month.

Looking forward, we expect the decline to continue until reaching a more normal level of approximately 30 basis points in 2021.

We also expect the emergency ordinances that allow residents to live rent free to unwind providing the opportunity to re-rent these apartments to rent-paying residents.

October rent collections have been consistent with September collections at the same day of the month.

Results for the Three Months Ended September 30, 2020

The results from the execution of our business plan during the three months ended September 30, 2020, are further described below.

We own and operate a portfolio of apartment communities, diversified by both geography and price point.

As of September 30, 2020, our portfolio included 126 apartment communities with 33,209 apartment homes in which we held an average ownership of approximately 95%.

Aimco’s Same Store portfolio includes 93 apartment communities with 27,610 apartment homes.

Same Store highlights for the third quarter include:

Average revenue per home decreased approximately 200 basis points year-over-year due to an approximate 30 basis point year-over-year decrease in rental rates;

Average daily occupancy of 93.9%, a year-over-year decline of approximately 280 basis points due primarily to reduced demand resulting from COVID-19 and the governmental lockdown;

Elevated bad debt expense, resulting in a 140-basis point decline to same-store revenues, due primarily to COVID-19 and the governmental lockdown.

Aimco’s third quarter Same Store revenue declined 5%.

Our portfolio is intentionally diversified by geography and price point, it is also diversified with a mix of urban and suburban communities.

Revenue growth for the three months ended September 30, 2020, compared to the three months ended September 30, 2019, differed significantly based on geography and the density of the area surrounding the community.

Suburban properties include 19,083 units, or approximately 70% of our Same Store portfolio.

In these communities ADO was 95.7%, turnover was 39.6%, blended rates were near flat, and residential net rental income was up 0.6%.

Urban markets include 8,527 units of our Same Store portfolio.

In these communities ADO was 89.5%, turnover was 47.0%, blended rates were down 6.7%, and residential net rental income was down 7.1%.

Specifically, in Center City and University City Philadelphia, our communities have faced a sharp decline in demand from local universities announcing virtual learning for the fall semester;

fewer workers in downtown office buildings, including both Comcast towers, due to work from home policies;

and disruption to leasing activity from social unrest.

In Mid-Wilshire and West Los Angeles, bad debt has been elevated due to local regulations which have the effect of permitting residents to live rent-free.

Demand from the recovering entertainment industry is returning and leasing pace was up 44% year-over-year in the third quarter.

On the San Francisco Peninsula in Northern California, work from home policies at major tech companies disrupted demand in San Mateo and Redwood City.

The Pacifica neighborhood was impacted but has stabilized and our communities in San Jose, Marin County, and the East Bay have performed well.

Our focus on efficient operations through productivity initiatives such as centralization of administrative tasks, optimization of economies of scale at the corporate level, and increased automation has helped us control operating expenses.

These and other innovations contributed to a growth rate in Same Store controllable operating expense, which we define as property expenses less taxes, insurance, and utility expenses, compounding for the 12 years ended December 31, 2019, at an annual rate of negative 0.2%.

During the three months ended September 30, 2020, Same Store controllable operating expenses for the portfolio increased 0.3% compared to the three months ended September 30, 2019.

Redevelopment and Development

Our second line of business is the redevelopment and some development of apartment communities.

Through redevelopment activities, we expect to create value by repositioning communities within our portfolio.

We undertake ground-up development when warranted by risk-adjusted investment returns, either directly or in connection with the redevelopment of an existing apartment community.

When warranted, we rely on the expertise and credit of a third-party developer familiar with the local market to limit our exposure to construction risk.

We invest to earn risk-adjusted returns in excess of those expected from the apartment communities sold in “paired trades” to fund the redevelopment or development.

Of these two activities, we generally favor redevelopment because it permits adjustment of the scope and timing of spending to align with changing market conditions and customer preferences.

We execute redevelopments using a range of approaches.

We prefer to limit risk by executing redevelopments using a short-cycle approach, in which we renovate an apartment community in stages.

These short-cycle redevelopments can be completed one apartment home at a time, when that home is vacated and available for renovation, or one floor at a time, thereby limiting the number of down homes and lease-up risk.

As a result, s hort - cycle redevelopments provide us the flexibility to maintain current earnings while aligning the timing of the completed apartment homes with market demand.

When short-cycle redevelopments are not possible, we may engage in redevelopment activities where an entire building or community is vacated .

We refer to these as long-cycle redevelopments.

Redevelopment work may include seeking entitlements from local governments, which enhance the value of our existing portfolio by increasing density;

that is, the right to add apartment homes to a site.

During the three months ended September 30, 2020, we invested $56.7 million in redevelopment and development.

We continued five long-cycle redevelopment and development projects already under construction, including the full redevelopment of the North Tower at Flamingo Point and 707 Leahy;

and ground-up construction at The Fremont on the Anschutz Medical Campus;

Eldridge Townhomes;

Our estimated cost to complete these projects is $109.9 million, an amount readily funded from our liquidity.

We have continued construction on two resumed short-cycle redevelopments at Bay Parc and the Center Tower at Flamingo Point.

Our estimated cost to complete these projects is $9.6 million.

The following table summarizes our significant redevelopment and development communities as of September 30, 2020 (dollars in millions):

Redevelopment

Homes Completed

Total Planned Investment

Investment to Date

Expected Initial Occupancy (2)

Stabilization

Flamingo Point Center Tower

Miami Beach, FL

707 Leahy (4)

Redwood City, CA

Eldridge Townhomes (5)

Flamingo Point North Tower

Miami Beach, FL

The Fremont (6)

Denver, CO (MSA)

Parc Mosaic (7)

Cambridge, MA

Planned investment relates to the current phase of the redevelopment or development.

Delivery timing and stabilization is subject to change and are based on the best estimate at this time.

Represents the period in which we expect the communities to achieve stabilized rents and operating costs, generally five quarters after occupancy stabilization.

As of October 28, 2020, this community is 82% leased.

As of October 28, 2020, construction is complete and we have leased 57 out of 58 homes.

As of October 28, 2020, just over 100 apartment homes have been delivered and 82% have been leased.

Completion of this community is expected in the fourth quarter 2020.

Construction is complete and, as of October 28, 2020, we have leased 97% of the apartment homes at rents consistent with underwriting.

Completion of this community is expected in the first quarter of 2021.

As of September 30, 2020, our total estimated net investment at redevelopment and development communities is $561.1 million, of which we have funded $440.8 million.

We expect to fund the remaining estimated net investment of $120.3 million on these communities in 2020 and future years, on a leverage-neutral basis, with proceeds from sales of apartment communities with lower forecasted free cash flow, or FCF, internal rates of return.

During the three months ended September 30, 2020, we leased 144 redeveloped or newly developed apartment homes.

As of September 30, 2020, our exposure to lease-up at long-cycle redevelopment and development communities was 684 apartment homes;

36 homes where construction is complete, 171 homes expected to be completed before year-end, and 477 homes expected to be delivered in 2021.

Portfolio Management and Capital Allocation

Our portfolio of apartment communities is diversified across “A,” “B,” and “C+” price points, averaging “B/B+” in quality, and is also diversified across several of the largest markets in the United States.

We measure the quality of apartment

communities in our portfolio based on average rents of our apartment homes compared to local market average rents as reported by a third-party provider of commercial real estate performance data and analysis.

Under this rating system, we classify as “A” quality apartment communities those earning rents greater than 125% of local market average;

as “B” quality apartment communities those earning rents between 90% and 125% of local market average;

as “C+” quality apartment communities those earning rents greater than $1,100 per month, but lower than 90% of local market average;

and as “C” quality apartment communities those earning rents less than $1,100 per month and lower than 90% of local market average.

We classify as “B/B+” quality a portfolio that on average earns rents between 100% and 125% of local market average rents.

Although some companies and analysts within the multifamily real estate industry use apartment community quality ratings of “A,” “B,” and “C,” some of which are tied to local market rent averages, the metrics used to classify apartment community quality as well as the period for which local market rents are calculated may vary from company to company.

Accordingly, our rating system for measuring apartment community quality is neither broadly nor consistently used in the multifamily real estate industry .

The following table summarizes information about our portfolio relative to the market for the three months ended September 30, 2020:

Average revenue per Aimco apartment home (1)

Portfolio average rents as a percentage of local market average rents

Percentage A (average revenue per Aimco apartment home $2,872)

Percentage B (average revenue per Aimco apartment home $1,951)

Percentage C+ (average revenue per Aimco apartment home $1,771)

Represents average monthly rental and other property revenues (excluding resident reimbursement of utility cost) divided by the number of occupied apartment homes as of the end of the period.

Our average monthly revenue per apartment home was $2,212 for the three months ended September 30, 2020, representing a decrease of approximately 2% compared to the same period in 2019.

We follow a disciplined paired trade policy in making investments.

As part of our portfolio strategy, we seek to sell up to 10% of our portfolio annually and to reinvest the proceeds from such sales in accretive uses such as capital enhancements, redevelopments, some developments, and selective acquisitions with projected FCF internal rates of return higher than expected from the communities being sold.

We prefer well-located real estate where land is a significant percentage of total value and provides potential upside from development or redevelopment.

Through this disciplined approach to capital recycling, we increase the quality and expected growth rate of our portfolio.

As we execute our portfolio strategy, we expect to increase average revenue per Aimco apartment home at a rate greater than market rent growth, increase FCF margins, and maintain sufficient geographic and price point diversification to limit volatility and concentration risk.

During the three months ended September 30, 2020, we acquired for $89.6 million Hamilton on the Bay, located in Miami’s Edgewater neighborhood.

The acquisition includes a 271-apartment home community located on the waterfront, approximately one mile north of our Bay Parc apartments, plus an adjacent development site.

Current zoning allows for the construction of more than 380 additional apartment homes on the combined sites.

We are now in planning to invest as much as $50 million in a substantial renovation of the existing building.

We continue to search for accretive acquisitions, including development opportunities.

During the three months ended September 30, 2020, we sold no apartment communities.

During the three months ended September 30, 2020, we received a non-refundable deposit securing a contract to purchase an apartment community, which is expected to be sold later in the fourth quarter at a price of approximately $126 million, 3% better than its estimated gross asset value at December 31, 2019.

Proceeds from this transaction are expected to be used to reduce leverage.

As of September 30, 2020, we classified the apartment community as held for sale.

Joint Venture Transaction

On September 8, 2020, we formed a joint venture with a passive institutional investor to own a portfolio of 12 multi-family communities with 4,051 apartment homes located in California.

The communities were valued at $2.4 billion, or approximately $592,000 per unit, equivalent to an implied NOI cap rate of approximately 4.2%.

The valuation is equal to 97% of our pre-COVID-19 valuation of the communities and confirms our previously published NAV.

The joint venture has existing property

debt of $1.22 billion and an implied equity value of $1.18 billion.

In exchange for a 39% interest subject to $475 million of property debt, we received $461 million .

We retain ownership of 61% of the joint venture and will control and operate the communities in exchange for property and asset management fees.

In the three months ending March 31, 2021, we collected 97.5% of all amounts owed by Aimco residents and recognized 98.4% of revenue, reserving 160 basis points as bad debt.

1001 Brickell Bay Drive , a waterfront office building in Miami, FL owned as part of a larger assemblage, is currently 72.4% occupied with 100% of rents due collected, in the first quarter.

Other Investments

Parkmerced Mezzanine Investment :

On November 26, 2019, Aimco Predecessor made a five-year, $275.0 million mezzanine loan to a partnership owning 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 May 17, 2021 , 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.

The loan is subject to certain risks, including, but not limited to, those resulting from the severe downturn in San Francisco rents, the ongoing disruption due to the COVID-19 pandemic and associated governmental response, and the current economic situation 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, if appropriate.

Life Science Developer Investment :

During the three months ended September 30, 2020, we made a $50 million commitment to IQHQ, a privately-held life-sciences real estate development company.

In addition, we gained the right to collaborate with IQHQ on any multifamily component at its future development sites.

In the third quarter of 2020, Aimco made a $50 million commitment to IQHQ, Inc.

(“IQHQ”), a privately-held life sciences real estate development company.

In addition, Aimco gained the right to collaborate with IQHQ on any multifamily component at its future development sites.

Investment Activity

Leasehold Agreements:

On January 1, 2021, terms commenced on the leasehold agreements with AIR for 707 Leahy, The Fremont, Prism, and Flamingo Point North Tower.

The combined initial value of leasehold interest, as indicative of the initial fair market values of the leased assets at the time of lease inception, was $469.0 million.

The combined annual leasehold payment for these four assets is $25.3 million.

We expect the total development and redevelopment expenditures related to these assets to be approximately $70.8 million with $24.1 million having been invested as of March 31, 2021.

The lease agreements provide Aimco the right to terminate each lease once the leased property is stabilized with AIR then having the option to retain ownership of the land and purchase the improvements from Aimco.

Should AIR exercise their option, Aimco would be due the difference between the property’s fair-market value at stabilization and the initial value of the leasehold interest, less a 5% discount.

Acquisitions :

In February 2021, we purchased, for $6.2 million, 1.5-acres of fully entitled land on the Anschutz Medical Campus in Aurora, CO plus options allowing for the purchase of an additional 5.2 acres that will accommodate more than 750,000 square feet of new development.

The 1.5-acre site is now being developed as The Benson Hotel and Faculty Club (“Benson Hotel”) which represents a critical step in advancement of the campus masterplan.

The purchase is net of outstanding construction liabilities of $0.9 million.

The Aimco team continues to actively source and evaluate a wide range of potential investment opportunities.

Balance Sheet

We seek to increase financial returns by using leverage with appropriate caution.

We limit risk through our balance sheet structure, employing low leverage, primarily non-recourse and long-dated property debt;

build financial flexibility by maintaining ample unused and available credit;

holding properties with substantial value unencumbered by property debt;

maintaining an investment grade rating;

and using partners’ capital when it enhances financial returns or reduces investment risk.

Our leverage includes our share of long-term, non-recourse, property debt encumbering apartment communities, outstanding borrowings on our revolving credit facility, our term loan, and other leverage.

Aimco capitalizes its activities through a combination of non-recourse property debt, construction loans, third-party equity, and the recycling of Aimco equity, including through retained earnings.

We plan to limit the use of recourse leverage, with a strong preference towards 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 the importance of maintaining ample liquidity.

As of March 31, 2021, we had access to $385.3 million, including $226.1 million of cash on hand, $9.2 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.

Other leverage includes mezzanine equity instruments, including preferred OP Units and redeemable noncontrolling interests in a consolidated real estate partnership.

Our target leverage ratios are Net Leverage to Adjusted EBITDAre below 7.0x and Adjusted EBITDAre to Adjusted Interest Expense and Preferred Distributions greater than 2.5x.

We calculate Adjusted EBITDAre and Adjusted Interest Expense used in our leverage ratios based on the most recent three-month amounts, annualized, and trailing twelve months.

Our leverage ratios for the three months ended September 30, 2020 and trailing twelve months ended September 30, 2020, are presented below:

Annualized Current Quarter

Trailing Twelve Months

Proportionate Debt to Adjusted EBITDAre

Net Leverage to Adjusted EBITDAre

Adjusted EBITDAre to Adjusted Interest Expense

Adjusted EBITDAre to Adjusted Interest Expense and Preferred Distributions

Under our revolving credit facility and term loan, we have agreed to maintain a fixed charge coverage ratio of 1.40x, as well as other covenants customary for similar revolving credit arrangements.

For the trailing twelve months ended September 30, 2020, our fixed charge coverage ratio was 1.93x.

We expect to remain in compliance with these covenants.

Please refer to the Leverage Ratios subsection of the Non-GAAP Measures section for further information about the calculation of our leverage ratios.

Our $1.0 billion liquidity consists of cash and restricted cash balances and available capacity on our revolving credit facility.

As of September 30, 2020, we had cash and restricted cash, excluding amounts related to tenant security deposits, of $255.5 million and had the capacity to borrow up to $793.4 million on our revolving credit facility, after consideration of $6.6 million of letters of credit backed by the facility.

We manage our financial flexibility by maintaining an investment grade rating and holding apartment communities that are unencumbered by property debt.

As of September 30, 2020, we held unencumbered communities with an estimated fair value of approximately $3.6 billion.

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 months ended March 31, 2021 was $16.7 million.

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.

Financing Activity

During the three months ended September 30, 2020, we prepaid $405 million of property debt using proceeds from our joint venture, incurring $7.8 million in prepayment penalties that have been excluded from Pro forma FFO.

The loans had a weighted-average interest rate of 5.3%, lowering our weighted-average cost of leverage by 15 basis points.

The prepayment of property debt lowers our interest expense such that the costs associated with the prepayment will be recovered in the first quarter of 2021.

We have no remaining debt maturities in 2020.

Equity Capital Activities

2020 property sales, including the California Joint Venture, generated taxable gains in excess of our regular quarterly dividend.

On October 21, 2020 our Board of Directors declared a $8.20 special dividend in the form of cash and stock.

The special dividend includes the next two quarterly cash dividends, or $0.82 per share in the aggregate, accelerating the payment of the regular dividend expected in February of 2021.

Additionally, shareholders in the aggregate will receive $7.38 per share in stock.

The dividend will be payable to shareholders of record on the close of business on November 4, 2020, with shareholders having the opportunity to elect to receive the special dividend in the form of all stock or prorated cash and stock, and will be paid on November 30, 2020, after trading hours.

The number of shares distributed in the special dividend will be determined by the volume weighted average price (“VWAP”) of Aimco shares during the 10-trading day period ending on November 24, 2020.

In order to neutralize the dilutive impact of the stock issued in the special dividend, our Board also authorized a reverse stock split, effective on November 30, 2020, immediately following the special dividend.

As a result, total shares outstanding following completion of both the special dividend and the reverse stock split are expected to be unchanged from the total shares outstanding immediately prior to the dividend.

Some stockholders may have more shares and some may have fewer based on their individual elections.

The reverse split will ensure comparability of per share results before and after these transactions.

Team and Culture

Our team and culture are keys to our success.

Our intentional focus on a collaborative and productive culture based on respect for others and personal responsibility is reinforced by a preference for promotion from within.

We focus on succession planning and talent development to produce a strong, stable team that is the enduring foundation of our success.

We offer benefits reinforcing our value of caring for each other, including paid time for parental leave, paid time annually to volunteer in local communities, college scholarships for the children of team members, an emergency fund to help team members in crisis, financial support for our team members who are becoming United States citizens, and a bonus structure at all levels of the organization.

We also pay full compensation and benefits for team members who are actively deployed by the United States military.

Out of hundreds of participating companies in 2020, we were one of only six recognized as a “Top Workplace” in Colorado for each of the past eight years, and were one of only two real estate companies to receive a BEST award from the Association for Talent Development in recognition of our company-wide success in talent development, marking our third consecutive year receiving this award.

Results of Operations

Because our operating results depend primarily on income from our apartment communities, the supply of and demand for apartments influences our operating results.

Additionally, the level of expenses required to operate and maintain our apartment communities and the pace and price at which we redevelop, acquire, and dispose of our apartment communities affect our operating results.

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.

Financial Highlights

Net income attributable to common stockholders per common share, on a dilutive basis, decreased by $0.18 during the three months ended September 30, 2020, compared to 2019, due primarily to increased prepayment penalties incurred due to third quarter 2020 payoff activity and higher other expenses due to costs incurred on the previously announced planned separation of our development activities.

Pro forma FFO per share decreased $0.03, or 5%, during the three months ended September 30, 2020, compared to 2019.

Increased income from the Parkmerced mezzanine loan and lower offsite costs was more than offset by lower occupancy and COVID-19 related impacts.

Further details regarding our response to COVID-19 pandemic, its impacts on Pro Forma FFO, and the related governmental lockdown, is discussed in the Executive Overview section above.

Detailed Results of Operations for the Three and Nine Months Ended September 30, 2020, Compared to September 30, 2019

Net income decreased by $28.8 million and $337.9 million during the three and nine months ended September 30, 2020, compared to 2019, respectively, as described more fully below.

Property Operations

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 LIBOR plus 360 basis points subject to a minimum all-in per annum interest rate of 3.85%.

Certain consolidated subsidiaries have indemnified AIR for any losses it incurs as a result of a default on the loan by Aimco

Financial Results of Operations

We have three segments:

(i) Same Store, (ii) Redevelopment and Development, and (iii) Acquisition and Other Real Estate.

Our Same Store segment includes communities that have reached a stabilized level of operations as of the beginning of a two-year comparable period and maintained it throughout the current and comparable prior year and are not expected to be sold within 12 months.

Our Redevelopment and Development segment includes communities that are currently under construction, and those that have been completed in recent years that have not achieved and maintained stabilized operations for both the current and comparable prior year.

Our Acquisition and Other Real Estate segment includes:

(i) communities that we have acquired since the beginning of a two-year comparable period;

(ii) communities that are subject to limitations on rent increases;

(iii) communities that we expect to sell within 12 months but do not yet meet the criteria to be classified as held for sale;

(iv) communities that we expect to redevelop;

and (v) certain commercial spaces.

As of September 30, 2020, our Same Store segment included 93 apartment communities with 27,610 apartment homes.

From December 31, 2019, to September 30, 2020, on a net basis, our Same Store segment increased by two apartment communities and 961 apartment homes.

These changes consisted of:

the addition of one redeveloped apartment community with 940 apartment homes that was classified as Same Store upon maintaining stabilized operation for the entirety of the periods presented;

the addition of six acquired apartment communities with 1,480 apartment homes that were classified as Same Store because we have now owned them for the entirety of both periods presented;

the reduction of three apartment communities with 974 apartment homes that we have classified in Acquisition and Other Real Estate, as we are planning to redevelop these communities;

the reduction of one apartment community with 219 apartment homes that was sold as of September 30, 2020;

the reduction of one apartment community with 266 apartment homes due to it being classified as held for sale as of September 30, 2020.

As of September 30, 2020, our Redevelopment and Development segment included eight apartment communities with 2,521 apartment homes, and our Acquisition and Other Real Estate segment included 20 apartment communities with 2,670 apartment homes and one office building.

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

Proportionate property net operating income reflects our share of rental and other property revenues, excluding utility reimbursements, less direct property operating expenses, net of utility reimbursements, for consolidated communities.

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 142 apartment homes that we do not consolidate.

During the three months ended September 30, 2020, we formed a joint venture with a passive institutional investor to own a portfolio of 12 multi-family communities in California.

We have presented, in addition to the actual historical changes in results of operations of our segments, the results as if the California joint venture had closed at the beginning of the earliest period presented.

We do not include offsite costs associated with property management, casualty gains or losses, or the results of apartment communities sold or held for sale, reported in consolidated amounts, in our assessment of segment performance.

(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.

The Development and Redevelopment segment also includes our four leased properties, one is 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 consists of 1001 Brickell Bay Drive, our only commercial real estate property.

Net income increased by $8.5 million during the three months ended March 31, 2021, compared to 2020, respectively, as described more fully below.

Detailed Results of Operations for the Three Months Ended March 31, 2021, Compared to the Three Months Ended March 31, 2020.

Property Results

As of March 31, 2021, our Development and Redevelopment segment included three properties that were under construction, three properties in lease-up and Hamilton on the Bay, which is being prepared for construction, our Operating Portfolio segment included 24 communities with 6,067 apartment homes, and our Other segment includes 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.

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Proportionate Property Net Operating Income

The results of our segments for the three months ended September 30, 2020 and 2019, as presented below, are based on segment classifications as of September 30, 2020.

Three Months Ended September 30,

Historical Change

Ownership-Effected

(in thousands)

Rental and other property revenues, before utility reimbursements:

Redevelopment and Development

Acquisition and Other Real Estate

Property operating expenses, net of utility reimbursements:

Redevelopment and Development

Acquisition and Other Real Estate

Proportionate property net operating income:

Redevelopment and Development

Acquisition and Other Real Estate

Reflects the change for the three months ended September 30, 2020 and 2019, as if the California joint venture had closed on July 1, 2019.

For the three months ended September 30, 2020, compared to 2019, after giving effect to the sale of partial interest in certain Same Store communities in the California joint venture, our Same Store proportionate property net operating income decreased by $7.7 million, or 6.3%.

This decrease was attributable primarily to a $8.3 million, or 4.9%, decrease in rental and other property revenues due to an approximately 280 basis point decrease in average daily occupancy, a $2.4 million, or 140 basis point, increase in bad debt, and $0.5 million, or 20 basis point, reduction in other rental income due to local restrictions on our contractual right to charge late fees.

The decrease in proportionate property net operating income was offset partially by a 30 basis point increase in residential rents and lower Same Store property operating expenses of $0.6 million.

The change in Same Store property operating expenses were driven by a decrease in insurance and real estate taxes.

Redevelopment and Development proportionate property net operating income was relatively flat for the three months ended September 30, 2020, compared to 2019.

Acquisition and Other Real Estate proportionate property net operating income decreased by $1.6 million, or 13.6%, for the three months ended September 30, 2020, compared to 2019, due primarily to a decrease in revenues related to commercial tenants due primarily to the economic impacts of COVID-19 and the governmental lockdown, offset partially by the lease-up of One Ardmore acquired in April 2019.

The results of our segments for the nine months ended September 30, 2020 and 2019, as presented below, are based on segment classifications as of September 30, 2020.

Nine Months Ended September 30,

The results of our segments for the three months ended March 31, 2021 and 2020, as presented below, are based on segment classifications as of March 31, 2021.

Three Months Ended March 31,

Historical Change

Ownership-Effected

(in thousands)

Rental and other property revenues, before utility reimbursements:

Redevelopment and Development

Acquisition and Other Real Estate

Development and Redevelopment

Operating Portfolio

Property operating expenses, net of utility reimbursements:

Redevelopment and Development

Acquisition and Other Real Estate

Development and Redevelopment

Operating Portfolio

Proportionate property net operating income:

Redevelopment and Development

Acquisition and Other Real Estate

Reflects the change for the nine months ended September 30, 2020 and 2019, as if the California joint venture had closed on January 1, 2019.

For the nine months ended September 30, 2020 , compared to 2019 , a fter giving effect to the sale of partial interest in certain Same Store communities in the California joint ventur e, our Same Store proportionate property net operating income decreased by $3.1 million, or 0.9% .

This decrease was attributable primarily to a $4.0 million, or 0.8% , decrease in rental and other property revenues due primarily to a 110 basis point decrease in average daily occupancy, a $4.3 million, or 90 basis point , increase in bad debt , and a $1.

2 million, or 20 basis point , reduction in other rental income due to local restrictions on our contractual right to charge late fees , offset partially by a 180 basis point increase in residential rents .

This decrease in proportionate property net operating income was offset partially by lower S ame Store property operating expenses of $0.9 million .

The change in Same Store property operating expenses were driven by a $2.2 million, or 3.2% , decrease in controllable operating expenses, offset partially by an increase in real estate taxes and insurance .

Redevelopment and Development proportionate property net operating income was relatively flat for the nine months ended September 30, 2020, compared to 2019.

Acquisition and Other Real Estate proportionate property net operating income increased by $4.0 million, or 13.4%, for the nine months ended September 30, 2020, compared to 2019, due primarily to the lease-up of One Ardmore acquired in April 2019 and the acquisition of 1001 Brickell Bay Drive in July 2019, offset partially by a decrease in revenues related to commercial tenants due primarily to the economic impacts of COVID-19 and governmental lockdown.

Development and Redevelopment

Operating Portfolio

For the three months ended March 31, 2021, compared to 2020, our Operating Portfolio proportionate property net operating income decreased by $1.3 million, or 5.8%.

This decrease was attributable to a $0.7 million, or 2.0%, decrease in rental and other property revenues due to lower average revenues of $37 per apartment home and a $0.7 million, or 6.3%, increase in property operating expenses due primarily to higher real estate taxes and insurance.

For the three months ended March 31, 2021, compared to 2020, total proportionate property net operating income decreased by $1.2 million, or 4.7%.

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.

During the nine months ended September 30, 2020, we recognized $2.9 million of write-offs of straight-line rent receivables due to the impact of COVID-19 and governmental lockdown, and the resulting economic impact on our commercial tenants.

No similar write-off was recognized in 2019.

Net operating income decreased for the three and nine months ended September 30, 2020, compared to 2019, by $3.8 million and $15.4 million, respectively, due to the sale of apartment communities in 2020 and 2019.

Depreciation and Amortization

For the three and nine months ended September 30, 2020 and 2019, depreciation and amortization expense was relatively flat.

For the three months ended March 31, 2021 depreciation and amortization expense was higher by $1.4 million when compared to the same period ended in 2020.

General and Administrative Expenses

For the three and nine months ended September 30, 2020, compared to 2019, general and administrative expenses decreased by $2.5 million, or 23.4%, and $4.0 million, or 12.5%, respectively, due primarily to lower incentive compensation.

Investment Management Expenses

For the three months ended September 30, 2020, compared to 2019, investment management expenses increased $1.2 million, or 78.3%, due primarily to costs related to the California joint venture.

Investment management expenses for the nine months ended September 30, 2020, compared to 2019, were relatively flat.

Other Expenses, Net

Other expenses, net, includes costs associated with our risk management activities, partnership administration expenses, ground lease rent expense, and certain non-recurring items.

For the three months ended September 30, 2020, compared to 2019, other expenses, net, increased by $13.6 million, or 339.1% due primarily to costs associated with the previously announced business separation and unrealized losses on our interest rate derivative, offset partially by restructuring costs incurred in 2019.

For the nine months ended September 30, 2020, compared to 2019, other expenses, net increased by $10.7 million, or 83.8%, due primarily to costs associated with the previously announced business separation and unrealized losses on our interest rate derivative, offset partially by restructuring costs incurred in 2019, a favorable incremental cash receipt in the first quarter of 2020 related to a previous settlement, and lower ground lease expense.

Interest Income

Interest income for the three months ended September 30, 2020, compared to 2019, was relatively flat.

Interest income for nine months ended September 30, 2020, compared to 2019, increased $1.8 million, or 20.8%, due primarily to a gain recognized on the early payoff of a seller financing note.

For the three months ended March 31, 2021, compared to 2020, general and administrative expenses increased by $4.5 million 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 months ended September 30, 2020, compared to 2019, interest expense increased by $8.5 million, or 20.3%, due primarily to $7.9 million of prepayment penalties incurred as a result of our refinancing activity and an increase in interest expense related to our term loan and higher non-recourse property debt, offset partially by lower interest expense on our revolving credit facility.

For the nine months ended September 30, 2020, compared to 2019, interest expense increased by $17.7 million, or 14.4%, due primarily to refinancing activity and interest expense related to our term loan, offset partially by an increase in capitalized interest related to our active redevelopments and developments.

As a result of our refinancing activity, we incurred $14.5 million of prepayment penalties, offset partially by more favorable interest rates on refinanced fixed rate debt.

Gain on Dispositions of Real Estate

During the three months ended September 30, 2020 and 2019, we sold no apartment communities.

During the nine months ended September 30, 2020, we sold one apartment community with 219 apartment homes for a gain on disposition of $47.2 million and net proceeds of $36.9 million.

During the nine months ended September 30, 2019, we sold eight apartment communities with 2,605 apartment homes for a gain on dispositions of $356.9 million and net proceeds of $418.3 million.

The apartment communities sold were in a lower-rated locations within our primary markets and had average revenues per apartment home significantly below those of our retained portfolio.

For the three months ended March 31, 2021, compared to 2020, interest expense increased by $7.0 million, or 124.3%, due primarily 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 loaned $275.0 million to the partnership owning Parkmerced Apartments.

During the three and nine months ended September 30, 2020, we recognized $6.9 million and $20.6 million, respectively, of income in connection with the mezzanine loan.

For the nine months ended September 30, 2020, we have received a cash payment of $0.6 million.

We have accrued all interest amounts due as required by GAAP.

Our loan is secured by approximately $300 million of borrower equity.

In the event we determine that a portion of the loan or accrued interest is not collectable, we will cease income recognition and, if appropriate, recognize an impairment.

Income Tax Benefit (Expense)

Certain of our operations, including property management and risk management, are conducted through taxable REIT subsidiaries, or TRS entities.

Additionally, some of our apartment communities and 1001 Brickell Bay Drive are owned through TRS entities.

Our income tax benefit calculated in accordance with GAAP includes:

(a) income taxes associated with the income or loss of our TRS entities including tax on gains on dispositions, for which the tax consequences have been realized or will be realized in future periods;

(b) low income housing tax credits generated prior to the sale of our Asset Management business that offset REIT taxable income, primarily from retained capital gains;

and (c) historic tax credits that offset income tax obligations of our TRS entities.

Income taxes related to these items, as well as changes in valuation allowance and the establishment of incremental deferred tax items in conjunction with intercompany asset transfers (if applicable), are included in income tax benefit in our condensed consolidated statements of operations.

For the three months ended September 30, 2020, we recognized income tax benefit of $1.7 million, compared to $3.1 million during the same period in 2019.

The change is due primarily to income tax benefit associated with 1001 Brickell Bay Drive, offset partially by an increase in state tax expense and decreased benefit due to lower net operating losses at communities held by TRS entities.

For the nine months ended September 30, 2020, we recognized income tax benefit of $7.9 million, compared to $1.9 million during the same period in 2019.

The change is due primarily to income tax provision on the gain on dispositions of real

estate in 2019 and an income tax benefit associated with 1001 Brickell Bay Drive, offset partially by an increase in state tax expense .

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.

At March 31, 2021, the total receivable including accrued and unpaid interest was $314.8 million.

During the three months ended March 31, 2021 and 2020, we recognized $0.7 million and $0.7 million, respectively, of income in connection with the mezzanine loan.

situation 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, if appropriate.

Unrealized Gains 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 $25.3 million.

Other Expenses, Net

Other expenses, net, includes costs associated with our risk management activities, partnership administration expenses and certain non-recurring items.

For the three months ended March 31, 2021, compared to 2020, other expenses, net decreased by $0.8 million.

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 months ended March 31, 2021 and 2020, we had consolidated net loss subject to tax of $9.5 million and $4.4 million, respectively.

For three months ended March 31, 2021, we recognized income tax benefit of $5.1 million, compared to $2.0 million during the same period in 2020.

The change is due primarily to income tax benefit associated with internal restructuring completed in the first quarter and changes to our effective state rate expected to apply to the reversal of our existing deferred items.

Critical Accounting Policies and Estimates

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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 the Aimco Operating Partnership’s combined Annual Report on Form 10-K for the year ended December 31, 2019.

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

Certain key financial indicators we use in managing our business and in evaluating our financial condition and operating performance are non-GAAP measures.

Key non-GAAP measures we use are defined and described below, and for those non-GAAP measures used or disclosed within this quarterly report, we provide reconciliations of the non-GAAP measures to the most comparable financial measure computed in accordance with GAAP.

We measure our long-term total return using Economic Income, which is a non-GAAP financial measure.

Economic Income represents stockholder value creation as measured by the per share change in estimated NAV plus cash dividends.

We believe Economic Income is important to investors as it represents a measure of total return earned by our stockholders.

We report and reconcile Economic Income annually.

Please refer to the section entitled Management’s Discussion and Analysis of Financial Condition and Results of Operations described in Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2019, for more information about Economic Income.

Free Cash Flow, as calculated for our retained portfolio, represents property net operating income, less spending for Capital Replacements, which represents our estimation of the capital additions made to replace capital assets consumed during our ownership period (further discussed under the Nareit Funds From Operations, Pro forma Funds From Operations, and Adjusted Funds From Operations heading and the Liquidity and Capital Resources heading).

FCF margin as calculated for apartment communities sold represents the sold apartment community’s net operating income less $1,200 per apartment home of assumed annual capital replacement spending, as a percentage of the apartment community’s rental and other property revenues.

Capital replacement spending represents a measure of capital asset usage during the period;

therefore, we believe that FCF is useful to investors as a supplemental measure of apartment community performance because it takes into consideration costs incurred during the period to replace capital assets that have been consumed during our ownership.

Nareit Funds From Operations, Pro forma Funds From Operations, and Adjusted Funds From Operations

Nareit FFO is a non-GAAP financial measure that we believe, when considered with the financial statements determined in accordance with GAAP, is helpful to investors in understanding our performance because it captures features particular to real estate performance by recognizing that real estate generally appreciates over time or maintains residual value to a much greater extent than do other depreciable assets such as machinery, computers, or other personal property.

Nareit defines FFO as net income computed in accordance with GAAP, excluding:

depreciation and amortization related to real estate;

gains and losses from sales and impairment of depreciable assets and land used in our primary business;

and income taxes directly associated with a gain or loss on the sale of real estate, and including our share of the FFO of unconsolidated partnerships and joint ventures.

Adjustments for unconsolidated partnerships and joint ventures are calculated on the same basis to determine Nareit FFO.

We calculate Nareit FFO attributable to Aimco common stockholders (diluted) by subtracting amounts allocated from Nareit FFO to participating securities.

In addition to Nareit FFO, we compute Pro forma FFO and AFFO, which are also non-GAAP financial measures that we believe are helpful to investors in understanding our short-term performance.

Pro forma FFO represents Nareit FFO attributable to Aimco common stockholders (diluted), excluding certain amounts that are unique or occur infrequently.

In computing 2020 Pro forma FFO, we made the following adjustment s to Nareit FFO :

Separation costs:

we incurred costs in connection with the separation of our development platform.

We excluded these costs from Pro forma FFO because we believe they are not representative of ongoing operating performance.

Transaction costs:

we incurred certain transaction costs related to the California joint venture and other new business pursuits.

We excluded these costs from Pro forma FFO because we believe they are not representative of ongoing operating performance.

Prepayment penalties:

as a result of debt refinancing activity, we incurred debt extinguishment costs, net of income tax effect.

We excluded these costs from Pro forma FFO because we believe these costs are not representative of ongoing operating performance.

Straight-line rent:

in 2018, we assumed a 99-year ground lease with scheduled rent increases.

Due to the terms of the lease, GAAP rent expense will exceed cash rent payments until 2076.

We include the cash rent payments for this ground lease in Pro forma FFO but exclude the incremental straight-line non-cash rent expense.

We include the rent expense for this lease in other expenses, net, in our condensed consolidated statements of operations.

Severance costs, litigation, and other, net:

during the three months ended September 30, 2020, we incurred an unrealized loss on a derivative agreement and other non-recurring costs.

We excluded these costs from Pro Forma FFO because we believe they are not representative of current operating performance.

These costs are included in other expenses, net, on our Consolidated Statements of Operations.

In computing 2019 Pro forma FFO, we made the following adjustments to Nareit FFO:

Preferred equity redemption related costs:

on May 16, 2019, we redeemed our Class A Preferred Perpetual Stock.

We excluded the redemption-related costs from Pro forma FFO because we believe these costs are not representative of operating performance.

Prepayment penalties:

as described above.

Straight-line rent:

as described above.

Severance costs, litigation, and other, net:

in 2019, we incurred severance and restructuring costs, costs related to our litigation with Airbnb, and other non-recurring costs.

We excluded these amounts from Pro forma FFO because we believe these costs are not representative of operating performance.

These costs are included in other expenses, net, on our Consolidated Statements of Operations.

AFFO represents Pro forma FFO reduced by Capital Replacements, which represent our estimation of the actual capital additions made to replace capital assets consumed during our ownership period.

When we make capital additions at an apartment community, we evaluate whether the additions extend the useful life of an asset as compared to its condition at the time we purchased the apartment community.

We classify as Capital Improvements those capital additions that meet this criterion, and we classify as Capital Replacements those that do not.

AFFO is a key financial indicator we use to evaluate our short-term operational performance and is one of the factors that we use to determine the amounts of our dividend payments.

Nareit FFO, Pro forma FFO, and AFFO should not be considered alternatives to net income determined in accordance with GAAP, as indications of our performance.

Although we use these non-GAAP measures for comparability in assessing our performance compared to other REITs, not all REITs compute these same measures and those who do may not compute them in the same manner.

Additionally, computation of AFFO is subject to our definition of Capital Replacement spending.

Accordingly, there can be no assurance that our basis for computing these non-GAAP measures is comparable with that of other REITs.

For the three and nine months ended September 30, 2020 and 2019 , Aimco’s Nareit FFO, Pro forma FFO , and AFFO are calculated as follows (in thousands , except per share data ):

Three Months Ended

September 30,

Nine Months Ended

September 30,

Net (loss) income attributable to Aimco common stockholders (1)

Real estate depreciation and amortization, net of noncontrolling

partners’ interest

Gain on dispositions and other, net of noncontrolling

partners’ interest

Income tax adjustments related to gain on dispositions and other

tax-related items

Common noncontrolling interests in Aimco Operating Partnership’s

share of above adjustments

Amounts allocable to participating securities

Nareit FFO attributable to Aimco common stockholders

Adjustments, all net of common noncontrolling interests in Aimco

Operating Partnership and participating securities:

Separation costs

Transaction costs

Prepayment penalties, net

Straight-line rent

Preferred equity redemption related amounts

Severance costs, litigation, and other

Pro forma FFO attributable to Aimco common stockholders

Capital Replacements, net of common noncontrolling interests in

Aimco Operating Partnership and participating securities

AFFO attributable to Aimco common stockholders

Total share and dilutive share equivalents used to calculate Net

income and Nareit FFO per share (2)

Adjustment to weight reverse stock split (3)

Pro forma shares and dilutive share equivalents used to calculate

Pro forma FFO and AFFO per share

Net (loss) income attributable to Aimco per common share – diluted

Nareit FFO per share – diluted

Pro forma FFO per share – diluted

AFFO per share – diluted

Represents the numerator for calculating Aimco’s earnings per common share in accordance with GAAP.

Represents the denominator for Aimco’s earnings per common share – diluted, calculated in accordance with GAAP.

During the three months ended March 31, 2019, we completed a reverse stock split and a special dividend paid primarily in stock.

For stock splits, GAAP requires the restatement of weighted average shares as if the reverse stock split occurred at the beginning of the period presented;

while shares issued in the special dividend are included in weighted average shares outstanding from the date issued.

To minimize confusion and facilitate comparison of period-over-period Pro forma FFO and AFFO, we calculated pro forma weighted average shares for 2019 based on the effective date of the reverse stock split and ex-dividend date for the shares issued in the special dividend, thereby eliminating the per-share impact of the GAAP treatment to Aimco’s reported Pro forma FFO and AFFO.

Please refer to Financial Highlights above for discussion of the factors affecting our Pro forma FFO and AFFO growth for 2020, as compared to 2019.

The Aimco Operating Partnership does not separately compute or report Nareit FFO, Pro forma FFO, or AFFO.

However, based on Aimco’s method for allocation of such amounts to noncontrolling interests in the Aimco Operating Partnership, as well as limited differences between the amounts of net income attributable to Aimco’s common stockholders and the Aimco Operating Partnership’s unit holders during the periods presented, Nareit FFO, Pro forma FFO, and AFFO amounts on a per unit basis for the Aimco Operating Partnership would be substantially the same as the corresponding per share amounts for Aimco.

Leverage Ratios

As discussed under the Balance Sheet heading, our leverage strategy targets the ratio of Net Leverage to Adjusted EBITDAre to be below 7.0x and the ratio of Adjusted EBITDAre to Adjusted Interest Expense and Preferred Distributions to be greater than 2.5x.

We believe these ratios, which are based in part on non-GAAP financial information, are commonly used by investors and analysts to assess the relative financial risk associated with companies within the same industry, and they are believed to be similar to measures used by rating agencies to assess entity credit quality.

Proportionate Debt, as used in our leverage ratios, is a non-GAAP measure and includes our share of the long-term, non-recourse property debt, outstanding borrowings under our revolving credit facility, and our term loan.

Proportionate Debt excludes unamortized debt issuance costs because these amounts represent cash expended in earlier periods and do not reduce our contractual obligations.

We reduce our recorded debt by the amounts of cash and restricted cash on-hand (which are primarily restricted under the terms of our property debt agreements), excluding tenant security deposits included in restricted cash, assuming the remaining amounts of cash and restricted cash would be used to reduce our outstanding leverage.

We further reduce our recorded debt by the value of our investment in a securitization trust that holds certain of our property debt, as our payments of principal and interest associated with such property debt will ultimately repay our investments in the trust.

We believe Proportionate Debt is useful to investors as it is a measure of our net exposure to debt obligations.

Proportionate Debt, as used in our leverage ratios, is calculated as set forth in the table below.

Preferred OP Units, as used in our leverage ratios, represents the redemption amount for the Aimco Operating Partnership’s preferred OP Units and, although perpetual in nature, is another component of our overall leverage.

The reconciliation of total indebtedness to Proportionate Debt and Net Leverage, as used in our leverage ratios as of September 30, 2020, is as follows (in thousands):

September 30, 2020

Total indebtedness

Debt issuance costs related to non-recourse property debt and term loan

Proportionate share adjustments related to debt obligations of consolidated and unconsolidated

Cash and restricted cash

Tenant security deposits included in restricted cash

Proportionate share adjustments related to cash and restricted cash held by consolidated and

unconsolidated partnerships

Securitization trust investment and other

Proportionate Debt

Preferred OP Units

Redeemable noncontrolling interests in consolidated real estate partnership

We calculated Adjusted EBITDAre used in our leverage ratios based on the most recent three-month amounts, annualized, and trailing twelve months.

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.

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:

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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 the following items for the reasons set forth below:

net income attributable to noncontrolling interests in consolidated real estate partnerships and EBITDAre adjustments attributable to noncontrolling interests, to 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;

the amount of interest income related to our investment in the subordinated tranches in a securitization trust holding primarily Aimco property debt, as we view our interest cost on this debt to be net of any interest income received from the investment;

the amount by which GAAP rent expense exceeds cash rents for a long-term ground lease for which expense exceeds cash payments until 2076.

The excess of GAAP rent expense over the cash payments for this lease does not reflect a current obligation that affects our ability to service debt.

The reconciliation of net income to EBITDAre and Adjusted EBITDAre for the three months ended September 30, 2020 and twelve months ended September 30, 2020, as used in our leverage ratios, is as follows (in thousands):

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 to 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 months ended March 31, 2021.

The reconciliation of net income to EBITDAre and Adjusted EBITDAre for the three months ended March 31, 2021 and 2020, is as follows (in thousands):

Three months ended

Twelve Months Ended

September 30, 2020

Three months ended

March 31, 2021

March 31, 2020

Interest expense

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Depreciation and amortization

Gain on disposition of real estate

Recovery of losses on notes receivable

Adjustment related to EBITDAre of unconsolidated partnerships

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estate partnerships

Net income attributable to redeemable noncontrolling interest consolidated real estate partnership

EBITDAre adjustments attributable to noncontrolling interests

Interest income received on securitization investment

Non-cash straight-line rent

Pro forma adjustments, net (1)

Interest income received on Mezzanine Investment

Unrealized gains on interest rate options

Adjusted EBITDAre

Annualized Adjusted EBITDAre

Pro forma adjustments, net, includes pro forma adjustments to Nareit FFO per the reconciliation above, as well as adjustments for which annualization would distort results, and adjustments to reflect the acquisition of Hamilton on the Bay and the California joint venture transaction as if both transactions closed on July 1, 2020, for the annualized current quarter, and October 1, 2019, for the trailing twelve months.

We calculated Adjusted Interest Expense, as used in our leverage ratios, based on the most recent three-month amounts, annualized, and trailing twelve months.

Adjusted Interest Expense is a non-GAAP measure that we believe is meaningful for investors and analysts as it presents our share of current recurring interest requirements associated with leverage.

Adjusted Interest Expense represents our proportionate share of interest expense on non-recourse property debt and interest expense on our revolving credit facility borrowings and term loan.

We exclude from our calculation of Adjusted Interest Expense:

debt prepayment penalties, which are items that, from time to time, affect our interest expense, but are not representative of our scheduled interest obligations;

the income we receive on our investment in the securitization trust that holds certain of our property debt, as this income is being generated indirectly from interest we pay with respect to property debt held by the trust.

Preferred Distributions represents the distributions paid on the Aimco Operating Partnership’s preferred OP Units.

We add Preferred Distributions to Adjusted Interest Expense for a more complete picture of the interest and dividend requirements of our leverage.

The reconciliation of interest expense to Adjusted Interest Expense and Preferred Distributions for the t hree months ended September 30, 2020 and twelve months ended September 30, 2020 , as used in our leverage ratios, is as follows (in thousands):

Three Months Ended

Twelve Months Ended

September 30, 2020

Interest expense

Proportionate share adjustments related to interest of

consolidated and unconsolidated partnerships

Debt prepayment penalties

Interest income earned on securitization trust investment

Adjusted Interest Expense

Preferred distributions

Adjusted Interest Expense and Preferred Distributions

Annualized Adjusted Interest Expense

Annualized Adjusted Interest Expense and Preferred Distributions

Liquidity and Capital Resources

Liquidity is the ability to meet present and future financial obligations.

Our primary source of liquidity is cash flow from operations.

Additional sources are proceeds from dispositions of apartment communities, proceeds from refinancing existing property debt, borrowings under new property debt, borrowings under our revolving credit facility, and proceeds from equity offerings.

As of September 30, 2020, our available liquidity exceeded $1.0 billion.

We have commitments for, and expect to spend, approximately $111 million on long-cycle redevelopment and development projects underway.

Our available liquidity consists of:

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

As of March 31, 2021, our available liquidity was $385.3 million.

We have commitments for, and expect to spend, approximately $320 million on development and redevelopment projects underway.

As of March 31, 2021, our available liquidity was $385.3 million, which consists of:

$226.1 million in cash and cash equivalents;

$27.1 million of restricted cash, excluding amounts related to tenant security deposits, consists primarily of escrows held by lenders for capital additions, property taxes, and insurance;

$793.4 million of available capacity to borrow under our revolving credit facility after consideration of $6.6 million of letters of credit backed by the facility.

Additional liquidity may also be provided through property debt financing at properties unencumbered by debt.

As of September 30, 2020, we held unencumbered communities with an estimated fair market value of approximately $3.6 billion.

Uses for liquidity include normal operating activities, payments of principal and interest on outstanding property debt, capital expenditures, dividends paid to stockholders, distributions paid to noncontrolling interest partners, and acquisitions of apartment communities.

We use our cash and cash equivalents and our cash provided by operating activities to meet short-term liquidity needs.

In the event that our cash and cash equivalents and cash provided by operating activities are not sufficient to cover our short-term liquidity needs, we have additional means, such as short-term borrowing availability and proceeds from apartment community sales and refinancings.

We may use our revolving credit facility for working capital and other short-term purposes, such as funding investments on an interim basis.

We expect to meet our long-term liquidity requirements, including redevelopment spending and apartment community acquisitions, through primarily non-recourse, long-term borrowings, the issuance of equity securities (including OP Units), the sale of apartment communities, and cash generated from operations.

Additionally, we expect to meet our liquidity requirements associated with our debt maturities.

Our revolving credit facility matures on January 22, 2022, and our term loan matures on April 20, 2021, prior to consideration of its one-year extension option .

The following table summarizes the payments due under our non-recourse property debt commitments, excluding debt issuance costs , as of September 30, 2020 (in thousands):

More than Five Years (2025 and Thereafter)

Non-recourse property debt

During the nine months ended September 30, 2020 , we placed $688.5 million of new property debt for incremental proceeds of $370.2 million .

$9.2 million of restricted cash, including amounts related to tenant security deposits and escrows held by lenders for capital additions, property taxes, and insurance;

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

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

We use our cash and cash equivalents, including that provided by operating activities, to meet short-term liquidity needs.

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 property financing activity and proceeds from apartment community sales.

We expect to meet our long-term liquidity requirements, such as debt maturities, development and redevelopment spending, and future investment activity, primarily through property financing activity and cash generated from operations.

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 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.

Recent events have increased volatility in interest rates, resulting in substantial movements, both up and down, in short periods of time.

Capital is still available, but with fewer sources than in past periods.

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 liquidity.

We believe we have mitigated much of this exposure by reducing our short and intermediate term maturity risk through refinancing such loans with long-dated, fixed-rate property debt.

However, if property financing options become unavailable for our future debt needs, we may consider alternative sources of liquidity, such as reductions in capital spending or proceeds from apartment community dispositions.

As of September 30, 2020, approximately 89% of our leverage consisted of property-level, non-recourse, long-dated, amortizing debt.

We believe we have mitigated much of this exposure by reducing repricing risks.

However, if property or development financing options become unavailable for our future debt needs, we may consider alternative sources of liquidity, such as reductions in capital spending or proceeds from apartment community dispositions.

As of March 31, 2021, approximately 45% of our leverage consisted of property-level, non-recourse, long-dated, amortizing debt.

Approximately 87% 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 property-level debt was 8.2 years.

On average, 5.0% of our unpaid principal balances will mature each year from 2021 through 2023.

While our primary source of leverage is property-level, non-recourse, long-dated, fixed-rate, amortizing debt, we also have a credit facility with a syndicate of financial institutions.

As of September 30, 2020, we had no outstanding borrowings under our revolving credit facility and had capacity to borrow up to $793.4 million after consideration of $6.6 million of letters of credit backed by the facility.

During the nine months ended September 30, 2020, we amended our Second Amended and Restated Senior Secured Credit Agreement to include a $350.0 million term loan that matures on April 20, 2021.

The term loan represents approximately 9% of our total leverage, includes a one-year extension option, and bears interest at 30-day LIBOR plus 185-basis points with a 50-basis point LIBOR floor.

As of September 30, 2020, our outstanding preferred OP Units represented approximately 2% of our total leverage.

Preferred OP Units are redeemable at the holder’s option;

however, for illustrative purposes, we compute the weighted-average maturity of our total leverage assuming a 10-year maturity on the units.

The combination of non-recourse property-level debt, borrowings under our revolving credit facility, term loan, preferred OP Units, and redeemable noncontrolling interests in a consolidated real estate partnership comprise our total leverage.

The weighted-average remaining term to maturity for our total leverage described above was 7.6 years as of September 30, 2020.

Under the revolving credit facility and term loan, we have agreed to maintain a Fixed Charge Coverage ratio of 1.40x, as well as other covenants customary for similar revolving credit arrangements.

For the trailing 12-month period ended September 30, 2020, our Fixed Charge Coverage ratio was 1.93x.

We expect to remain in compliance with this covenant during the next 12 months.

We like the discipline of financing our investments in real estate through the use of fixed-rate, amortizing, non-recourse property debt, as the amortization gradually reduces our leverage and reduces our refunding risk, and the fixed-rate provides a hedge against increases in interest rates, and the non-recourse feature avoids entity risk.

The weighted-average remaining term to maturity of our property-level debt was 5.6 years and a weighted-average interest rate of 3.09%.

While our primary source of leverage is property-level debt which includes construction loans, we also have a credit facility with a syndicate of financial institutions.

As of March 31, 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 $150.0 million.

As of March 31, 2021, approximately 55% of our leverage consisted of notes payable to AIR, with a fixed interest rate of 5.2% and a term to maturity of 2.8 years.

Under our revolving secured credit facility, we have agreed to maintain a fixed charge coverage ratio of 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

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Operating Activities

For the nine months ended September 30, 2020, net cash provided by operating activities was $265.9 million.

For the three months ended March 31, 2021, net cash provided by operating activities was $2.3 million.

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

Cash provided by operating activities for the nine months ended September 30, 2020, decreased by $12.9 million compared to 2019.

The decrease was due to lower contribution from our Same Store and Redevelopment and Development communities, which were negatively impacted by the pandemic and governmental lockdown, and lower net operating income associated with communities sold.

The decrease was offset partially by higher contribution from our Acquisition and Other Real Estate communities.

Cash provided by operating activities for the three months ended March 31, 2021, decreased by $13.2 million compared to the same period ended in 2020.

The decrease was due to lower contribution from our Operating Properties and Development and Redevelopment communities, which were negatively impacted by the pandemic and governmental lockdown.

Investing Activities

For the nine months ended September 30, 2020, our net cash used in investing activities of $356.0 million consisted primarily of capital expenditures and cash used in the purchase of Hamilton on the Bay, offset partially by proceeds from the disposition of one apartment community.

Total capital additions at apartment communities totaled $258.3 million and $296.1 million during the nine months ended September 30, 2020 and 2019, respectively.

We generally fund capital additions with cash provided by operating activities and cash proceeds from sales of apartment communities.

We categorize capital spending for communities in our portfolio broadly into seven primary categories:

capital replacements, which do not increase the useful life of an asset from its original purchase condition.

Capital replacements represent capital additions made to replace the portion of our investment in acquired apartment communities consumed during our period of ownership;

capital improvements, which represent capital additions made to replace the portion of acquired apartment communities consumed prior to our period of ownership;

capital enhancements, which may include kitchen and bath remodeling, energy conservation projects, and investments in more durable, longer-lived materials designed to reduce costs, all of which differ from redevelopment additions in that they are generally lesser in scope and do not significantly disrupt property operations;

initial capital expenditures, which represent capital additions contemplated in the underwriting of our recently acquired communities;

redevelopment additions, which represent capital additions intended to enhance the value of the apartment community through the ability to generate higher average rental rates, and may include costs related to entitlement, which enhance the value of a community through increased density, and costs related to renovation of exteriors, common areas, or apartment homes;

development additions, which represent construction and related capitalized costs associated with the ground-up development of apartment communities;

casualty capital additions, which represent capitalized costs incurred in connection with the restoration of an apartment community after a casualty event.

For the three months ended March 31, 2021, our net cash used in investing activities of $37.9 million consisted primarily of capital expenditures and cash used in the purchase of Benson Hotel and construction costs on our development properties.

Total capital additions totaled $31.7 million and $6.7 million during the three months ended March 31, 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.

A summary of the capital spending for these categories, along with a reconciliation of the total for these categories to the capital expenditures reported in the accompanying condensed consolidated statements of cash flows for the nine months ended September 30, 2020 and 2019 , are presented below (in thousands):

Nine Months Ended September 30,

Capital replacements

Capital improvements

Capital enhancements

Redevelopment

Initial capital expenditures

Total apartment community capital additions

additions related to commercial spaces

additions related to apartment communities sold or held for sale

Consolidated capital additions

net change in accrued capital spending

Capital expenditures per condensed consolidated statement of cash flows

For the nine months ended September 30, 2020 and 2019, we capitalized $10.8 million and $8.0 million of interest costs, respectively, and $25.5 million and $26.9 million of other direct and indirect costs, respectively.

We invested $23.2 million in capital enhancements and $186.4 million in redevelopment and development during the nine months ended September 30, 2020.

Capital enhancement spend decreased $42.8 million for the nine months ended September 30, 2020, compared to 2019, due primarily to the delay of certain capital projects in response to the potential economic impacts of COVID-19 and the governmental lockdown.

The increase in redevelopment spending is driven by the full redevelopments of the North Tower at Flamingo Point and 707 Leahy.

Further details regarding our redevelopment and development activities, including apartment communities constructed and delivered as of September 30, 2020, is discussed in the Executive Overview section above.

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

Financing Activities

Net cash provided by financing activities for the nine months ended September 30, 2020 increased by $423.0 million compared to nine months ended September 30, 2019.

The change was due primarily to cash proceeds from the sale of a partial interest in the California joint venture, cash proceeds from our term loan, and lower payments to equity holders, offset partially by higher principal repayments on non-recourse debt and higher payments on our revolving credit facility.

Equity and Partners’ Capital Transactions

The following table presents the Aimco Operating Partnership’s distribution activity (including distributions paid to Aimco) during the nine months ended September 30, 2020 (in thousands):

Cash distributions paid by the Aimco Operating Partnership to preferred unitholders

Cash distributions paid by the Aimco Operating Partnership to common unitholders (1)

Cash distributions paid to holders of noncontrolling interests in consolidated real estate partnerships

Total cash distributions paid by the Aimco Operating Partnership

$183.0 million represented distributions to Aimco, and $10.1 million represented distributions paid to holders of common OP Units.

The following table presents Aimco’s dividend and distribution activity during the nine months ended September 30, 2020 (in thousands):

Cash distributions paid to holders of OP Units

Cash distributions paid to holders of noncontrolling interests in consolidated real estate partnerships

Cash dividends paid by Aimco to common stockholders

Total cash dividends and distributions paid by Aimco

Net cash used in financing activities for the three months ended March 31, 2021 increased by $18.9 million compared to three months ended March 31, 2020, primarily due principal payments on our non-recourse property debt and a purchase of an interest rate option.

Future Capital Needs

We expect to fund any future acquisitions, redevelopment, development, and other capital spending principally with proceeds from apartment community sales, short-term borrowings, debt and equity financing, and operating cash flows.

We expect to fund any future acquisitions, redevelopment, development, and other capital spending principally with proceeds from operating cash flows, short-term borrowings, debt and equity financing.

Our near-term business plan does not contemplate the issuance of equity.

1 unchanged sentence

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What changed 10-Q

Item 2. Management’s Discussion and Analysis