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. 29 Table of Contents Executive Overview Our mission is to make real estate investments, primarily focused on the multifamily sector within the continental United States, where outcomes are enhanced through our human capital so that substantial value is created for investors, teammates, and the communities in which we operate. Our value proposition includes 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. • Platform: 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. • Growth: We offer investors a high performing, high return, vehicle with expected annualized returns on equity between 12-16% once target capital allocation is achieved. • Pipeline: 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: • 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. 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 30 Table of Contents 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 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. • 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 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. 31 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 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 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 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 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 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 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. 32 Table of Contents • 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. 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 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 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. 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, 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. 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 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 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 : 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 33 Table of Contents Aimco capitalizes its activities through a combination of non-recourse property debt, construction loans, third-party equity, and the recycling of Aimco equity, including retained earnings. We plan to limit the use of recourse leverage, with a strong preference towards non-recourse property-level debt in order to limit risk to the Aimco enterprise. When warranted, we plan to seek equity capital from joint venture partners to improve its cost of capital, further leverage Aimco equity, reduce exposure to a single investment and, in certain cases, for strategic benefits . We are highly focused on maintaining ample liquidity. As of 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 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. Please refer to the Liquidity and Capital Resources section for additional information regarding our leverage. Financing Activity On April 15, 2021, the Company entered into a $150 million variable-rate non-recourse construction loan collateralized by our leasehold interest and AIR’s fee ownership interest in Flamingo North Tower. The initial term of the loan is three years and bears interest at one month LIBOR plus 360 basis points subject to a minimum all-in per annum interest rate of 3.85%. 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 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 five leased properties; two are under construction and three are operational but have not achieved stabilization. Our Operating Portfolio segment includes majority owned residential communities that have achieved stabilized levels of operations as of January 1, 2020 and maintained it throughout the current year and comparable period. Our Other segment 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 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 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, 34 Table of Contents 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. Proportionate Property Net Operating Income 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 (in thousands) 2021 2020 $ % Rental and other property revenues, before utility reimbursements: Development and Redevelopment $ 2,489 $ — $ 2,489 100 % Operating Portfolio 33,329 32,599 730 2.2 % Other 2,981 3,074 (93 ) (3.0 %) Total 38,799 35,673 3,126 8.8 % Property operating expenses, net of utility reimbursements: Development and Redevelopment 2,102 — 2,102 100 % Operating Portfolio 10,959 10,396 563 5.4 % Other 1,036 955 81 8.5 % Total 14,097 11,351 2,746 24.2 % Proportionate property net operating income: Development and Redevelopment 387 — 387 100 % Operating Portfolio 22,370 22,203 167 0.8 % Other 1,945 2,119 (174 ) (8.2 %) Total $ 24,702 $ 24,322 $ 380 1.6 % 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 June 30, Historical Change (in thousands) 2021 2020 $ % Rental and other property revenues, before utility reimbursements: Development and Redevelopment $ 4,746 $ — $ 4,746 100.0 % Operating Portfolio 66,018 65,960 58 0.1 % Other 6,008 6,351 (343 ) (5.4 %) Total 76,772 72,311 4,461 6.2 % Property operating expenses, net of utility reimbursements: Development and Redevelopment 3,969 — 3,969 100.0 % Operating Portfolio 22,129 20,906 1,223 5.8 % Other 2,021 1,945 76 3.9 % Total 28,119 22,851 5,268 23.1 % Proportionate property net operating income: Development and Redevelopment 777 — 777 100.0 % Operating Portfolio 43,889 45,054 (1,165 ) (2.6 %) Other 3,987 4,406 (419 ) (9.5 %) Total $ 48,653 $ 49,460 $ (807 ) (1.6 %) 35 Table of Contents 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 Operating income amounts not attributed to our segments include offsite costs associated with property management, casualty losses, write-off of straight-line rent receivables, and the results of apartment communities sold or held for sale, reported in consolidated amounts, which we do not allocate to our segments for purposes of evaluating segment performance. Depreciation and Amortization For the three and 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 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 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 On November 26, 2019, we made a five-year, $275.0 million mezzanine loan to a partnership owning Parkmerced Apartments, located in southwest San Francisco. The loan is junior to a $1.5 billion first mortgage position and bears interest at a 10% annual rate, accruing if not paid from property operations. As of 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 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 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 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 36 Table of Contents with intercompany asset transfers and internal restructurings (if applicable), are included in income tax benefit in our condensed consolidated statements of operations. Consolidated GAAP income or loss subject to tax consists of pretax income or loss of our taxable entities and gains retained by the REIT. For the three and 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 We prepare our condensed consolidated financial statements in accordance with GAAP, which requires us to make estimates and assumptions. We believe that the critical accounting policies that involve our more significant judgments and estimates used in the preparation of our condensed consolidated financial statements relate to the impairment of long-lived assets and capitalized costs. Our critical accounting policies are described in more detail in Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, of Aimco’s and Aimco Operating Partnership’s combined Annual Report on Form 10-K for the year ended December 31, 2020. There have been no significant changes in our critical accounting policies from those reported in our Form 10-K and we believe that the related judgments and assessments have been consistently applied and produce financial information that fairly depicts the financial condition, results of operations, and cash flows for all periods presented. Non-GAAP Measures We use EBITDAre and Adjusted EBITDAre in managing our business and in evaluating our financial condition and operating performance. These key financial indicators are non-GAAP measures and are defined and described below. We provide reconciliations of the non-GAAP financial measures to the most comparable financial measure computed in accordance with GAAP. Earnings Before Interest Expense, Income Taxes, Depreciation and Amortization for Real Estate (EBITDAre) EBITDAre and Adjusted EBITDAre are non-GAAP measures, which we believe are useful to investors, creditors, and rating agencies as a supplemental measure of our ability to incur and service debt because they are recognized measures of performance by the real estate industry and allow for comparison of our credit strength to different companies. EBITDAre and Adjusted EBITDAre should not be considered alternatives to net income (loss) as determined in accordance with GAAP as indicators of liquidity. There can be no assurance that our method of calculating EBITDAre and Adjusted EBITDAre is comparable with that of other real estate investment trusts. Nareit defines EBITDAre as net income computed in accordance with GAAP, before interest expense, income taxes, depreciation, and amortization expense, further adjusted for: • 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, 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. 37 Table of Contents 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 Six Months Ended June 30, 2021 June 30, 2020 June 30, 2021 June 30, 2020 Net (loss) income $ (20,386 ) $ 3,113 $ 1,048 $ 7,668 Adjustments: Interest expense 12,638 5,809 25,315 11,460 Income tax benefit (2,760 ) (2,032 ) (7,860 ) (4,055 ) Depreciation and amortization 20,639 19,030 41,356 38,377 Adjustment related to EBITDAre of unconsolidated partnerships 215 212 430 423 EBITDAre $ 10,346 $ 26,132 $ 60,289 $ 53,873 Net loss (income) attributable to redeemable noncontrolling interest consolidated real estate partnership (66 ) 125 86 228 Net (income) loss attributable to noncontrolling interests in consolidated real estate partnerships (275 ) (10 ) (566 ) (5 ) EBITDAre adjustments attributable to noncontrolling interests 38 (111 ) (232 ) (352 ) Interest income recognized on mezzanine investment (7,551 ) (6,936 ) (15,018 ) (13,683 ) Unrealized (gains) losses on interest rate options 16,970 1,080 (8,377 ) 1,080 Adjusted EBITDAre $ 19,462 $ 20,280 $ 36,182 $ 41,141 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 June 30, 2021, our available liquidity was $445 million, which consisted of: • $286 million in cash and cash equivalents; • $9 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 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. In the event that our cash and cash equivalents, revolving secured credit facility, and cash provided by operating activities are not sufficient to cover our liquidity needs, we have the means to generate additional liquidity, such as from additional property financing activity and proceeds from apartment community sales. We expect to meet our long-term liquidity requirements, including debt maturities, development and redevelopment spending, and future investment activity, primarily through property financing activity, cash generated from operations, and the recycling of Aimco equity. Our revolving secured credit facility matures in December 2023, prior to consideration of its two one-year extension options. Leverage and Capital Resources The availability and cost of credit and its related effect on the overall economy may affect our liquidity and future financing activities, both through changes in interest rates and access to financing. Currently, interest rates are low compared to historical levels, and financing is readily available. Any adverse changes in the lending environment could negatively affect our liquidity. We have taken steps to mitigate a portion of our repricing risk. However, if property or development financing 38 Table of Contents 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 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. 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 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 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. We exclude the amounts of capital spending related to commercial spaces and to apartment communities sold or classified as held for sale at the end of the period from the foregoing measures. We have also excluded from these measures indirect capitalized costs, which are not yet allocated to communities with capital additions, and their related capital spending categories. For further details regarding our development and redevelopment activities, including apartment communities constructed and delivered refer to the Executive Overview section above. Financing Activities Net cash from financing activities for the 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 operating cash flows, short-term borrowings, and 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. 39 Table of Contents