APARTMENT INVESTMENT & MANAGEMENT CO 10-Q

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Forward Looking Statements The Private Securities Litigation Reform Act of 1995 provides a “safe harbor” for forward-looking statements in certain circumstances. Certain information included in this Quarterly Report on Form 10-Q contains or may contain information that is forward-looking, within the meaning of the federal securities laws, including, without limitation, statements regarding: the ongoing relationship between Aimco and AIR (the “Separate Entities”) following the Separation; the impact of the COVID-19 pandemic, including on our ability to maintain current or meet projected occupancy, rental rate and property operating results; the effect of acquisitions, dispositions, developments, and redevelopments; our ability to meet budgeted costs and timelines, and achieve budgeted rental rates related to our development and redevelopment investments; expectations regarding sales of our apartment communities and the use of proceeds thereof; the availability and cost of corporate debt; and our ability to comply with debt covenants, including financial coverage ratios. These forward-looking statements are based on management’s judgment as of this date, which is subject to risks and uncertainties. Risks and uncertainties that could cause actual results to differ materially from our expectations include, but are not limited to: the effects of the coronavirus pandemic on Aimco’s business and on the global and U.S. economies generally, and the ongoing, dynamic and uncertain nature and duration of the pandemic, all of which heightens the impact of the other risks and factors described herein, and the impact on entities in which Aimco holds a partial interest, including its indirect interest in the partnership that owns Parkmerced Apartments, and the impact of coronavirus related governmental lockdowns on Aimco’s residents, commercial tenants, and operations; real estate and operating risks, including fluctuations in real estate values and the general economic climate in the markets in which we operate and competition for residents in such markets; national and local economic conditions, including the pace of job growth and the level of unemployment; the amount, location and quality of competitive new housing supply; the timing and effects of acquisitions, dispositions, developments and redevelopments; expectations regarding sales of apartment communities and the use of proceeds thereof; insurance risks, including the cost of insurance, and natural disasters and severe weather such as hurricanes; financing risks, including the availability and cost of financing; the risk that cash flows from operations may be insufficient to meet required payments of principal and interest; the risk that earnings may not be sufficient to maintain compliance with debt covenants, including financial coverage ratios; legal and regulatory risks, including costs associated with prosecuting or defending claims and any adverse outcomes; the terms of laws and governmental regulations that affect us and interpretations of those laws and regulations; possible environmental liabilities, including costs, fines or penalties that may be incurred due to necessary remediation of contamination of real estate presently or previously owned by Aimco; the relationship between Aimco and Separate Entities after the Separation; the ability and willingness of the Separate Entities and their subsidiaries to meet and/or perform their obligations under the contractual arrangements that were entered into among the parties in connection with the separation and any of their obligations to indemnify, defend and hold the other party harmless from and against various claims, litigation and liabilities; and the ability to achieve some or all the benefits that we expect to achieve from the Separation; and such other risks and uncertainties described from time to time in 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. Readers should carefully review our financial statements and the notes thereto, as well as Item 1A. Risk Factors in Part II of this report. These factors should not be construed as exhaustive and should be read in conjunction with the other cautionary statements that are included elsewhere in this Quarterly Report on Form 10-Q. We undertake no obligation to publicly update or review any forward-looking statement, whether as a result of new information, future developments or otherwise, except as required by law. Readers should also carefully review the section entitled “Risk Factors” described in Item 1A of Apartment Investment and Management Company’s and Aimco OP L.P.’s combined Annual Report on Form 10-K for the year ended December 31, 2020, and subsequent documents we file from time to time with the SEC. As used herein and except as the context otherwise requires, “we,” “our,” and “us” refer to Apartment Investment and Management Company (which we refer to as Aimco), Aimco OP L.P. (which we refer to as Aimco Operating Partnership) and their consolidated subsidiaries, collectively. Certain financial and operating measures found herein and used by management are not defined under accounting principles generally accepted in the United States, or GAAP. These measures are defined and reconciled to the most comparable GAAP measures under the Non-GAAP Measures heading. Executive Overview Our 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 24 Table of Contents 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. 25 Table of Contents 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. 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. 26 Table of Contents 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 : 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 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. 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. 27 Table of Contents Financing Activity On April 15, 2021, the Company entered into a $150 million variable-rate non-recourse construction loan collateralized by our leasehold interest and AIR’s fee ownership interest in Flamingo North Tower. The initial term of the loan is three years and bears interest at 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) 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. The following discussion and analysis of the results of our operations and financial condition should be read in conjunction with the accompanying condensed consolidated financial statements included in Item 1. Net income 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. Please refer to Note 8 to the condensed consolidated financial statements in Item 1 for further discussion regarding our segments, including a reconciliation of these proportionate amounts to consolidated rental and other property revenues and property operating expenses. 28 Table of Contents Proportionate Property Net Operating Income 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 (in thousands) 2021 2020 $ % Rental and other property revenues, before utility reimbursements: Development and Redevelopment $ 2,257 $ — $ 2,257 100 % Operating Portfolio 32,689 33,361 (672 ) (2.0 %) Other 3,027 3,277 (250 ) (7.6 %) Total 37,973 36,637 1,336 3.6 % Property operating expenses, net of utility reimbursements: Development and Redevelopment 1,867 — 1,867 100 % Operating Portfolio 11,170 10,510 660 6.3 % Other 985 990 (5 ) (0.5 %) Total 14,022 11,500 2,522 21.9 % Proportionate property net operating income: Development and Redevelopment 390 — 390 100 % Operating Portfolio 21,519 22,851 (1,332 ) (5.8 %) Other 2,042 2,287 (245 ) (10.7 %) Total $ 23,951 $ 25,138 $ (1,187 ) (4.7 %) 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. Depreciation and Amortization 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 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 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 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. 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 29 Table of Contents 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 We prepare our condensed consolidated financial statements in accordance with GAAP, which requires us to make estimates and assumptions. We believe that the critical accounting policies that involve our more significant judgments and estimates used in the preparation of our condensed consolidated financial statements relate to the impairment of long-lived assets and capitalized costs. Our critical accounting policies are described in more detail in Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, of Aimco’s and Aimco Operating Partnership’s combined Annual Report on Form 10-K for the year ended December 31, 2020. There have been no significant changes in our critical accounting policies from those reported in our Form 10-K and we believe that the related judgments and assessments have been consistently applied and produce financial information that fairly depicts the financial condition, results of operations, and cash flows for all periods presented. Non-GAAP Measures We use EBITDAre and Adjusted EBITDAre in managing our business and in evaluating our financial condition and operating performance. These key financial indicators are non-GAAP measures and are defined and described below. We provide reconciliations of the non-GAAP financial measures to the most comparable financial measure computed in accordance with GAAP. Earnings Before Interest Expense, Income Taxes, Depreciation and Amortization for Real Estate (EBITDAre) EBITDAre and Adjusted EBITDAre are non-GAAP measures, which we believe are useful to investors, creditors, and rating agencies as a supplemental measure of our ability to incur and service debt because they are recognized measures of performance by the real estate industry and allow for comparison of our credit strength to different companies. EBITDAre and Adjusted EBITDAre should not be considered alternatives to net income (loss) as determined in accordance with GAAP as indicators of liquidity. There can be no assurance that our method of calculating EBITDAre and Adjusted EBITDAre is comparable with that 30 Table of Contents 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: • gains and losses on the dispositions of depreciated property; • impairment write-downs of depreciated property; • impairment write-downs of investments in unconsolidated partnerships caused by a decrease in the value of the depreciated property in such partnerships; and • adjustments to reflect Aimco’s share of EBITDAre of investments in unconsolidated entities. EBITDAre is defined by Nareit and provides for an additional performance measure independent of capital structure for greater comparability between real estate investment trusts. We define Adjusted EBITDAre as EBITDAre adjusted to exclude the effect of net income attributable to noncontrolling interests in consolidated real estate partnerships and EBITDAre adjustments attributable to noncontrolling interests, and unrealized gain on interest rate options 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 Three months ended March 31, 2021 March 31, 2020 Net income $ 21,434 $ 4,555 Adjustments: Interest expense 12,677 5,651 Income tax benefit (5,100 ) (2,023 ) Depreciation and amortization 20,717 19,347 Adjustment related to EBITDAre of unconsolidated partnerships 215 211 EBITDAre $ 49,943 $ 27,741 Net loss attributable to noncontrolling interests in consolidated real estate partnerships (291 ) 5 Net income attributable to redeemable noncontrolling interest consolidated real estate partnership 152 103 EBITDAre adjustments attributable to noncontrolling interests (270 ) (241 ) Interest income received on Mezzanine Investment (7,467 ) (6,747 ) Unrealized gains on interest rate options (25,347 ) - Adjusted EBITDAre $ 16,720 $ 20,861 Liquidity and Capital Resources Liquidity Liquidity is the ability to meet present and future financial obligations. Our primary sources of liquidity are cash flows from operations and borrowing capacity under our loan agreements. As of 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; • $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; and • $150.0 million of available capacity to borrow under our revolving secured credit facility. 31 Table of Contents 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, 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 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 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 The following discussion relates to changes in consolidated cash, cash equivalents, and restricted cash due to operating, investing and financing activities, which are presented in our condensed consolidated statements of cash flows in Item 1 of this report. Operating Activities For the 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 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 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. 32 Table of Contents 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 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 operating cash flows, short-term borrowings, debt and equity financing. Our near-term business plan does not contemplate the issuance of equity. We believe, based on the information available at this time, that we have sufficient cash on hand and access to additional sources of liquidity to meet our operational needs for 2021 and beyond.