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Item 2. Management’s Discussion and Analysis

2021-08-16 compared with 2021-05-17 · 184 added, 127 removed, 183 unchanged (63% of the section changed)

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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

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.

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

Our value proposition includes the benefits of an established multifamily investment platform coupled with significant growth potential resulting from the redeployment of Aimco equity in to a deep and growing pipeline of highly accretive investment opportunities.

We have successfully developed or redeveloped multifamily assets worth in excess of $4.5 billion and have overseen real estate transactions totaling more than $7 billion over the past decade.

We offer investors a high performing, high return, vehicle with expected annualized returns on equity between 12-16% once target capital allocation is achieved.

Aimco benefits from a deep and growing investment pipeline with $1.0 billion of development and redevelopment projects currently underway, over nine million square feet of future opportunities under Aimco-control and more being explored.

Our financial objectives are to produce superior, project-level, risk-adjusted returns on equity as measured by the investment period Internal Rate of Return (IRR) and the project-level Multiple on Invested Capital (MOIC).

We are focused on providing superior total-return performance to shareholders, primarily through capital appreciation driven by accretive investment and active portfolio management over multi-year periods.

We do not plan to pay a regular cash dividend.

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

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

We have policies in place that support its strategy and guide its investment allocations, including to hold at all times a sizeable portion of its net equity in a diversified portfolio of ‘Core’ and ‘Core-Plus’ assets.

From time to time, we will allocate a defined portion of our capital into Alternative Investments including passive debt and equity investments (both direct and indirect).

Aimco also plans to utilize its established platform and existing relationships to generate fees through service offerings.

Given our stated strategy, it is expected that at any point in time the value-creation process will be ongoing at numerous of our investments.

Over time, we expect the Aimco enterprise to produce superior returns on equity on a risk-adjusted basis and it is our plan to do so by:

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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.

The Aimco Development and Redevelopment portfolio currently includes $1.0 billion of projects in construction and lease-up, located across five major US markets.

We are actively advancing planning efforts on pipeline projects under our control with the potential for an additional five million square feet of development and redevelopment.

Our portfolio contains additional assets that have the capacity for an approximately four million square feet of development over time.

In addition, we have the opportunity to add to our investment pipeline based on strategic relationships and through sourcing by regional investment teams.

Generally, we seek Development and Redevelopment opportunities in locations where barriers to entry are high, target customers can be clearly defined and where we have a comparative advantage over others in the market.

Owning a portfolio of stabilized core and core plus real estate

Our current portfolio includes 28 apartment communities (24 consolidated properties and 4 unconsolidated properties) located in ten major US markets and with average rents in line with local market averages (generally defined as B class).

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

The target composition of our stabilized portfolio will continue to include primarily B multifamily assets, spread across a nationally diversified portfolio and with a bias toward long established residential neighborhoods that rank highly in regard to schools, employment fundamental and state and regional governance.

Core Plus opportunities offer

the opportunity for incremental capital investment while maintaining stabilized cashflow to accelerate income growth and improve asset values.

Managing and investing in other alternative investments

Our current allocation to alternative investments includes:

our indirect interest mezzanine loan to the Parkmerced partnership which owns 3,165 apartment homes and future development rights in San Francisco, California;

our passive equity investments in IQHQ, Inc.

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

and RET Ventures, an early-stage real estate technology fund.

We expect to allocate a portion of our capital to passive debt and equity investments, both directly and at the entity level.

These prove attractive when warranted by risk adjusted returns, when we have special knowledge or expertise relevant to the particular investment or when the opportunity exists for positive asymmetric outcomes whether through strategic partnerships or otherwise.

In addition, from time to time, we will use our established platform and existing relationships to generate fees through service offerings to third party real estate investors, owners, and capital allocators.

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.

At all times, we will guard our liquidity by maintaining sufficient cash and equivalents at no less than 5% of total equity.

From time-to-time we will allocate capital to financial assets designed to mitigate risks elsewhere in the Aimco enterprise.

Existing examples include our option to acquire an interest rate swap designed to protect against repricing risk on maturing Aimco liabilities.

We expect to capitalize our activities through a combination of non-recourse property debt, construction loans, third-party equity, and the recycling of Aimco equity, including retained earnings.

We plan to limit the use of recourse leverage, with a strong preference towards non-recourse property-level debt in order to limit risk to the Aimco enterprise.

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

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By regionalizing this platform, we are able to leverage the in-depth local market knowledge of each regional leader, creating a comparative advantage when sourcing, evaluating, and executing investment opportunities.

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.

Results for the Three Months and Six Months Ended June 30, 2021

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

Financial Results and Recent Highlights

Net income (loss) attributable to Aimco common stockholders per share was $(0.13) for the three months ended June 30, 2021, compared to net income per share of $0.02 for the three months ended June 30, 2020, and $0.00 per share for the six months ended June 30, 2021, compared to net income per share of $0.05 for the six months ended June 30, 2020.

We invested $49 million in development and redevelopment in the three months ended June 30, 2021 and leased more than 200 homes at properties currently in lease-up.

We closed $251 million of construction financing and ended the second quarter with $445 million of liquidity including cash and capacity on our revolving credit facility.

In July, we entered into agreements totaling $53 million to acquire property for redevelopment and development in, Colorado Springs, Colorado, and Fort Lauderdale, Florida.

In June, we acquired, for $12 million, property adjacent to our Hamilton on the Bay asset located in Miami, FL and in July acquired, for $7 million, additional adjacent properties.

The acquired properties provide additional development opportunity.

Revenue from Aimco Operating Properties was up 2.2% year-over-year, with occupancy up 140 basis points and average revenue per apartment home up 0.8%.

Net Operating Income from Aimco Operating Properties was up 4.0% from the first quarter of 2021 and up 0.7% year-over-year.

Our business is organized around five areas of strategic focus:

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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.

During the three and six months ended June 30, 2021, we invested approximately $49 million and $94 million, respectively, 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 $27 million remaining to invest.

Apartment homes are planned for initial delivery in the third quarter with construction completion scheduled for 2022 and stabilization targeted for 2024.

As of June 30, 2021, approximately one-fourth of the units were leased at rates ahead of initial targets.

Upton Place in Upper-Northwest Washington, D.C., is progressing on schedule and on-budget, with approximately $213 million remaining to complete construction.

The project is scheduled for completion in 2024 and stabilization is targeted for 2026.

At The Benson Hotel and Faculty Club on the Anschutz Medical Campus in Aurora, Colorado, the project is on-budget and on schedule with a remaining investment of approximately $53 million.

The project is scheduled for completion in early 2023 and stabilization in late 2026.

In Corte Madera, CA, we began development activity on 16 luxury single family rental homes, each averaging approximately 3,200 square feet, plus eight accessory dwelling units.

The land for this development is being leased from AIR Communities and is located adjacent to AIR’s Preserve at Marin apartment community.

We expect the total development cost to be $47 million with deliveries beginning in 2023 and stabilization occurring in 2025.

In the Edgewater neighborhood of Miami, FL, we began the major redevelopment of the existing apartment building at Hamilton on the Bay.

The scope of our investment is intended to completely renew the waterfront high-rise which benefits from spacious apartment homes (averaging 1,411 sf) and an abundance of outdoor and amenity space that was previously underutilized.

We expect the redevelopment investment at Hamilton on the Bay will be $92 million with apartment homes coming back online in 2022 and stabilization targeted for 2024.

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.

During the three and six months ended June 30, 2021, we 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.

As of June 30, 2021, the 110-unit property was 91% 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.

As of June 30, 2021, the 253-unit property was 69% 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.

As of June 30, 2021, the 136-unit property was 73% leased.

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

Our operating portfolio produced solid results for the three and six months ended June 30, 2021.

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

Average daily occupancy at our operating portfolio of 97.3% for the three months ended June 30, 2021, a 140-basis point improvement from the three months ended June 30, 2020.

Average revenue per occupied unit at our operating portfolio of $1,894 for the three months ended June 30, 2021, up 0.8% year over year.

Revenue, before utility reimbursements, of $33.3 million for the three months ended June 30, 2021, up 2.2% year over year.

Expenses, net of utility reimbursements were $11.0 million for the three months ended June 30, 2021, up 5.4% year over year, due primarily to higher real estate taxes and insurance.

Net operating income of our o perating p ortfolio for the three months ended June 30, 2021 in creased by 0.8 % year over year .

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.

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.

During the three months ended June 30, 2021, we collected 98.3% of all amounts owed by Aimco residents and recognized 98.8% of revenue, reserving 120 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 73.3% occupied with the pace of tours and inquiries showing favorable indications of future leasing.

Through July 2021, 99.8% of second quarter rents due have been collected.

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”).

On November 26, 2019, Aimco 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.

At the time of the Separation and as of the date of this report , 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.

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

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

On June 1, 2021, terms commenced on the leasehold agreement with AIR for Robin Drive Land, a 15-acre plot of land in the San Francisco Bay Area on which we began construction of 16 single family rental homes and 8 accessory dwelling units in June 2021.

The 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 $475.1 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 combined annual leasehold payment for these five assets is $26.0 million.

We expect the total development and redevelopment expenditures related to these assets to be approximately $117.9 million with $42.0 million having been invested as of June 30, 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.

Should AIR exercise its 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.

During the three months ended June 30, 2021 we acquired six properties adjacent to our Hamilton on the Bay apartment community in Miami’s Edgewater neighborhood, for $12 million.

Subsequent to quarter end, we acquired for $7 million an additional two parcels adjacent to our Hamilton on the Bay apartment community.

In total this land assemblage allows for, as-of-right, the construction of more than 700,000 square feet.

As part of our initial acquisition of Hamilton on the Bay, we acquired waterfront land that allows for the future development of more than 400,000 square feet.

Combined, we can now construct more than 1.1 million square feet of new development in this rapidly growing submarket.

During the six months ended June 30, 2021, we also acquired The Benson Hotel and Faculty Club (“Benson Hotel”) development property for $6.2 million, net of outstanding construction liabilities of $0.9 million.

The development property consists of land and initial construction costs.

The project is expected to be completed in the first quarter of 2023.

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.

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

We plan to limit the use of recourse leverage, with a strong preference towards non-recourse property-level debt in order to limit risk to the Aimco enterprise.

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

We are highly focused on 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.

We are highly focused on maintaining ample liquidity.

As of June 30, 2021, we had access to $445 million, including $286 million of cash on hand, $9 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.

Our Adjusted EBITDAre for the three and six months ended June 30, 2021 was $19.5 million and $36.2 million, respectively.

Please refer to the Non-GAAP Measures section for further information about the calculation of Adjusted EBITDAre and our leverage ratios.

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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%.

The initial term of the loan is three years and bears interest at one month LIBOR plus 360 basis points subject to a minimum all-in per annum interest rate of 3.85%.

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

On June 21, 2021, we entered into a $100.7 million variable-rate non-recourse construction loan collateralized by our fee ownership interest in Hamilton on the Bay.

The initial term of the loan is three years and bears interest at one month LIBOR plus 320 basis points subject to a minimum all-in per annum interest rate of 3.45%.

If LIBOR ceases to exist during the term of these agreements, the documents associated with these agreements contain language to address a transition to another bench mark rate.

It is anticipated LIBOR will be replaced with SOFR, however, if SOFR were to not be available the agreements contain alternate provisions.

Financial Results of Operations

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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.

The Development and Redevelopment segment also includes our five leased properties;

two are under construction and three are operational but have not achieved stabilization.

Our Operating Portfolio segment includes majority owned residential communities that have achieved stabilized levels of operations as of January 1, 2020 and maintained it throughout the current year and comparable period.

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

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.

Net income decreased by $23.5 million and $6.6 million during the three and six months ended June 30, 2021, respectively, compared to the same periods in 2020, as described more fully below.

Detailed Results of Operations for the three and six months ended June 30, 2021, compared to the three and six months ended June 30, 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.

As of June 30, 2021, our Development and Redevelopment segment included five properties that were under construction and three properties in lease-up, our Operating Portfolio segment included 24 communities with 6,067 apartment homes, and our Other segment includes 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.

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.

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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,

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

Three Months Ended June 30,

Historical Change

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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%.

For the three months ended June 30, 2021, compared to 2020, our Operating Portfolio proportionate property net operating income increased by $0.2 million, or 0.8%.

The increase was attributable to a $0.7 million, or 2.2% increase in rental and other property revenues due to higher average revenues of $15 per apartment home, a 140-basis point increase in occupancy, offset partially by a $0.6 million, or 5.4%, increase in property operating expenses due primarily to higher real estate taxes and insurance.

For the three months ended June 30, 2021, compared to 2020, total proportionate property net operating income increased by $0.4 million, or 1.6%.

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

Six Months Ended

Historical Change

(in thousands)

Rental and other property revenues, before utility reimbursements:

Development and Redevelopment

Operating Portfolio

Property operating expenses, net of utility reimbursements:

Development and Redevelopment

Operating Portfolio

Proportionate property net operating income:

Development and Redevelopment

Operating Portfolio

For the six months ended June 30, 2021, compared to 2020, our Operating Portfolio proportionate property net operating income decreased by $1.2 million, or 2.6%.

This decrease was attributable to a $0.1 million, or 0.1%, increase in rental and other property revenues offset by a $1.2 million, or 5.8%, increase in property operating expenses due primarily to higher real estate taxes and insurance.

For the six months ended June 30, 2021, compared to 2020, total proportionate property net operating income decreased by $0.8 million, or 1.6%.

Non-Segment Real Estate Operations

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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.

For the three and six months ended June 30, 2021 depreciation and amortization expense was higher by $1.6 million and $3.0 million, respectively, when compared to the same periods in 2020, primarily due to additional assets being placed into service.

General and Administrative Expenses

For the three 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.

For the three and six months ended June 30, 2021, compared to the same periods in 2020, general and administrative expenses increased by $5.8 million and $10.3 million, respectively, due primarily to the difference of allocating costs in 2020 and the actual costs experienced running the separate business in 2021.

Interest Expense

For the three 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.

For the three and six months ended June 30, 2021, compared to the same periods in 2020, interest expense increased by $6.8 million, or 117.6%, and $13.9 million, or 120.9%, respectively, due primarily to interest associated with the notes payable to AIR entered into in conjunction with the Separation.

Mezzanine Investment Income, Net

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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

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

As of June 30, 2021, the total receivable including accrued and unpaid interest was $ 322.4 million.

During the three and six months ended June 30, 2021, we recognized $7.6 million and $15.0 million, respectively, of income in connection with the mezzanine loan, compared to $6.9 million and $13.7 million during the three and six months ended June 30, 2020, respectively.

Unrealized Gains (Losses) on Interest Rate Options

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

As a result of the mark to market adjustment we recorded an unrealized gain in the amount of $25.3 million.

As a result of the mark to market adjustment we recorded an unrealized loss in the amount of $17.0 million and an unrealized gain in the amount of $8.4 million during the three and six months ended June 30, 2021, respectively, and we recorded an unrealized loss in the amount of $1.1 million during both three and six months ended June 30, 2020.

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.

For the three and six months ended June 30, 2021, compared to the same periods in 2020, other expenses, net decreased by $3.1 million and $3.9 million, respectively, due primarily to $2.3 million of revenue for acquisition services fee received during three and six months ended June 30, 2021.

Income Tax Benefit

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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.

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.

For the three and six months ended June 30, 2021 , we had consolidated net losses subject to tax of $9.0 million and $18.5 million, respectively.

For the three and six months ended June 30, 2020, we had consolidated net income subject to tax of $4.4 million and $8.8 million, respectively.

For the three months ended June 30, 2021, we recognized income tax benefit of $2.8 million, compared to $2.0 million during the same period in 2020.

The change is due primarily to higher losses at our TRS entities.

For the six months ended June 30, 2021, we recognized income tax benefit of $7.9 million, compared to $4.1 million during the same period ended 2020.

The change is due primarily to income tax benefit associated with internal restructuring, changes to our effective state rate expected to apply to the reversal of our existing deferred items, and higher losses at our TRS entities.

Critical Accounting Policies and Estimates

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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 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

We define Adjusted EBITDAre as EBITDAre adjusted to exclude the effect of net income attributable to noncontrolling interests in consolidated real estate partnerships and EBITDAre adjustments attributable to noncontrolling interests, and unrealized gain on interest rate options, which we believe allow investors to compare a measure of our earnings before the effects of our capital structure and indebtedness with that of other companies in the real estate industry.

Additionally, we exclude interest income recognized on our Mezzanine Investment that was accrued but not paid during the three and six months ended June 30, 2021 and 2020.

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

Three Months Ended

March 31, 2021

March 31, 2020

Six Months Ended

June 30, 2021

June 30, 2020

June 30, 2021

June 30, 2020

Net (loss) income

Interest expense

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Adjustment related to EBITDAre of unconsolidated partnerships

Net loss attributable to noncontrolling interests in consolidated real

estate partnerships

Net income attributable to redeemable noncontrolling interest consolidated real estate partnership

Net loss (income) attributable to redeemable noncontrolling interest consolidated real estate partnership

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

EBITDAre adjustments attributable to noncontrolling interests

Interest income received on Mezzanine Investment

Unrealized gains on interest rate options

Interest income recognized on mezzanine investment

Unrealized (gains) losses on interest rate options

Adjusted EBITDAre

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

As of 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:

As of June 30, 2021, our available liquidity was $445 million, which consisted of:

$286 million in cash and cash equivalents;

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$150 million of available capacity to borrow under our revolving secured credit facility.

We have commitments for, and expect to spend, approximately $335.2 million on development and redevelopment projects underway, with $304.8 million undrawn on our construction loans as of June 30, 2021.

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.

In the event that our cash and cash equivalents, revolving secured credit facility, and cash provided by operating activities are not sufficient to cover our liquidity needs, we have the means to generate additional liquidity, such as from additional property financing activity and proceeds from apartment community sales.

We expect to meet our long-term liquidity requirements, including debt maturities, development and redevelopment spending, and future investment activity, primarily through property financing activity, cash generated from operations, and the recycling of Aimco equity.

Our revolving secured credit facility matures in December 2023, prior to consideration of its two one-year extension options.

Leverage and Capital Resources

The availability 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.

The availability and cost of credit and its related effect on the overall economy may affect our liquidity and future financing activities, both through changes in interest rates and access to financing.

Currently, interest rates are low compared to historical levels, and financing is readily available.

Any adverse changes in the lending environment could negatively affect our 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.

We have taken steps to mitigate a portion of our repricing risk.

However, if property or development financing

options become unavailable, we may consider alternative sources of liquidity, such as reductions in capital spending or apartment community dispositions.

As of June 30, 2021, approximately 40% of our leverage consisted of property-level, non-recourse, amortizing debt.

Approximately 87.4% 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.

The weighted-average remaining term to maturity of our non-recourse property-level debt was 5.3 years at a weighted-average interest rate of 3.09%.

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

As of June 30, 2021, we had no outstanding borrowings under our revolving secured credit facility, swingline loan sub-facility and letter of credit sub-facility and had capacity to borrow up to $150 million.

As of June 30, 2021, approximately 49% of our leverage consisted of notes payable to AIR, with a fixed interest rate of 5.2% and a term to maturity of 2.6 years, and approximately 11% consisted of our variable-rate non-recourse construction loans.

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

We are currently in compliance and expect to remain in compliance with these covenants.

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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.

For the six months ended June 30, 2021, net cash provided by operating activities was $16.5 million.

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

Cash provided by operating activities for the six months ended June 30, 2021, decreased by $11.9 million compared to the same period ended in 2020.

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.

For the six months ended June 30, 2021, our net cash used in investing activities of $102.1 million consisted primarily of capital expenditures and cash used in the purchase of The Benson Hotel and construction costs on our development properties.

Total capital additions totaled $100.2 million and $10.7 million during the six months ended June 30, 2021 and 2020, respectively.

We have generally funded capital additions with available cash and cash provided by operating activities.

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We have also excluded from these measures indirect capitalized costs, which are not yet allocated to communities with capital additions, and their related capital spending categories.

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

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

Financing Activities

Net cash 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.

Net cash from financing activities for the six months ended June 30, 2021 increased by $99.9 million compared to the six months ended June 30, 2020, due primarily to proceeds from the $150 million and $100.7 million variable-rate non-recourse construction loans entered into during the six months ended June 30, 2021.

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.

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

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

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis