What changed in this filing

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Item 2. Management’s Discussion and Analysis

2021-11-09 compared with 2021-08-16 · 149 added, 146 removed, 221 unchanged (57% of the section changed)

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

supply chain disruptions, particularly with respect to raw materials such as lumber, steel, and concrete;

financing risks, including the availability and cost of financing;

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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”).

and such other risks and uncertainties described from time to time in our filings with the Securities and Exchange Commission (“SEC”).

In addition, our current and continuing qualification as a real estate investment trust involves the application of highly technical and complex provisions of the Internal Revenue Code of 1986, as amended (the “Code”) and depends on our ability to meet the various requirements imposed by the Code, through actual operating results, distribution levels and diversity of stock ownership.

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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).

Our value proposition includes our national platform organized around four regional and two satellite offices, consisting of a cohesive, talented, and tenured team and our proven investment process;

a diversified portfolio, consisting of high-performing in-process value-add investments, a deep and growing pipeline, alternative investments, and stabilized assets;

and our capital

redeployment plan of reallocating Aimco equity to higher returning investments and prudent recycling of capital.

Our primary goal is outsized risk adjusted returns and accelerating growth for Aimco shareholders.

Our talented leadership with an average Aimco tenure of 10 years and nearly 20 years of diverse real estate industry experience combined with a disciplined and proven investment process.

We benefit from a deep and growing investment pipeline with $1.0 billion of development and redevelopment projects currently underway, over $2 billion of future opportunities under Aimco-control and more being explored.

We add to this alternative investment strategies and a diversified portfolio of stabilized real estate to provide risk management and produce predictable cash flow.

We have over $500 million of equity targeted for redeployment into high returning activities over the next 4-5 years offering investors a high performing, high return, vehicle with expected annualized returns on equity between 12-16% once optimal capital allocation is achieved.

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.

We plan to reinvest earnings to facilitate growth and, therefore, do not presently intend to pay a regular cash dividend.

Our financial objectives are to create value and 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 measure broader performance based on Net Asset Value (NAV) growth over time.

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.

We have policies in place that support our strategy, guide our investment allocations, and manage risk, including to hold at all times a sizeable portion of its net equity in a diversified portfolio of ‘Core’ and ‘Core-Plus’ assets and before starting a project, require cash or committed credit necessary for completion.

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.

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.

Managing and investing in value-add and opportunistic real estate

Our dedicated team will source and execute development and redevelopment projects, and various other direct investment strategies, 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

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

In addition, we currently have $2 billion worth of pipeline opportunities under Aimco control and have the opportunity to add to our investment pipeline based on strategic relationships and through sourcing by regional investment teams.

Generally, we seek direct investment 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.

Managing and investing in other alternative investments

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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.

Owning a portfolio of stabilized core and core plus real estate

Our current operating portfolio includes 29 apartment communities (25 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.

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

Maintaining sufficient liquidity and utilizing safe financial leverage

At all times, we will guard our liquidity by maintaining sufficient cash and committed credit.

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

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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.

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.

Results for the Three Months and Nine Months Ended September 30, 2021

The results from the execution of our business plan during the three and nine months ended September 30, 2021, are 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:

development and redevelopment;

asset management ;

Net income (loss) attributable to Aimco common stockholders per share was $(0.03) for the three months ended September 30, 2021, compared to net income per share of $0.01 for the three months ended September 30, 2020, and $(0.03) per share for the nine months ended September 30, 2021, compared to net income per share of $0.06 for the nine months ended September 30, 2020.

Strong demand for our Development and Redevelopment projects resulted in the execution of about 150 net new leases during the period, increasing NOI for that portfolio of properties by $0.8 million for the quarter.

We acquired, for $40 million, a collection of 58 luxury townhomes in Elmhurst, Illinois and benefit from the community’s adjacency to an existing Aimco asset.

We closed on $60 million of property financing and ended the third quarter with $413 million of liquidity, including cash and capacity on our revolving credit facility.

Revenue from our operating properties was up 6.8% year-over-year, with occupancy of 97.8%, up 280 basis points.

Our business is organized around defined areas of strategic focus:

value add and opportunistic real estate;

alternative investments;

investment activity;

operating properties;

balance sheet;

and team and culture.

Value Add, Opportunistic and Alternative Investments

Development and Redevelopment

During the three and nine months ended September 30, 2021, we made total capitalized investments of $54 million and $162 million, respectively, in our development and redevelopment projects.

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.

At the North Tower of Flamingo Point in Miami Beach, Florida, the major redevelopment continues on plan.

Initial delivery of apartment homes began in the third quarter with construction completion scheduled for 2022 and NOI stabilization targeted for 2024.

Upton Place in Upper-Northwest Washington, D.C., is progressing on schedule and on-budget.

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

The Benson Hotel and Faculty Club on the Anschutz Medical and Life Sciences Campus in Aurora, Colorado, is on budget and on schedule for completion in early 2023 and NOI stabilization in late 2026.

In Corte Madera, California, development activity on Oak Shore, a community with 16 luxury single family rental homes, each averaging approximately 3,200 sf, plus eight accessory dwelling units, is underway and on plan with deliveries beginning in 2023 and NOI stabilization occurring in 2025.

In the Edgewater neighborhood of Miami, Florida, Aimco is completely renovating Hamilton on the Bay and expects apartment homes coming back online in 2022 and NOI 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.

As of September 30, 2021, the 110-unit property was 97% 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.

As of September 30, 2021, the 253-unit property was 75% 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.

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

As of September 30, 2021, the 136-unit property was 88% leased.

At Flamingo Point North Tower in Miami Beach, Florida, the initial units were delivered in third quarter with 193 of the 366 total units leased as of September 30, 2021.

Alternative 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”).

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 “Mezzanine Investment”).

The loan bears interest at a 10% annual rate, accruing if not paid from property operations.

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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.

In the third quarter of 2020, we made a $50 million commitment to purchase common stock of IQHQ, a privately-held life sciences real estate development company.

In the third quarter we funded a capital call of $12.1 million bringing our total investment to $24.6 million of the total commitment.

Investment Activity

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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.

On June 1, 2021, terms commenced on the leasehold agreement with AIR for Oak Shore 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 eight 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 $25.6 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.

The lease agreements provide Aimco the right, but not the obligation, 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.

During the three months ended September 30, 2021, we acquired, for $40.0 million, Eldridge Townhomes, a 58-unit townhome community located in Elmhurst, Illinois that Aimco developed between 2018 and 2020.

Eldridge Townhomes are located adjacent to an existing 400-unit Aimco community and the acquisition provides for continued operational efficiencies and improved NOI margins.

We plan to hold the Eldridge Townhomes within our portfolio of stabilized operating properties.

During the three months ended September 30, 2021, we acquired for $7.3 million an additional two parcels adjacent to our Hamilton on the Bay apartment community in Miami’s Edgewater neighborhood.

Combined with the six adjacent properties acquired in the second quarter of 2021, and land purchased as part of the initial acquisition of Hamilton on the Bay, we can now, in total, construct more than 1.1 million square feet of new development in this rapidly growing submarket.

During the three months ended September 30, 2021, we purchased seven acres of developable land in Colorado Springs, Colorado for $4.1 million that allows for the construction of 119 apartment and townhomes.

During the nine months ended September 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.

In July 2021, Aimco entered into a joint venture with Kushner Companies to purchase three undeveloped land parcels located in downtown Fort Lauderdale, Florida.

The total contract price for the land is $49.0 million ($25.0 million at Aimco’s 51% share).

Current zoning allows for the development of approximately three million square feet of multifamily homes and commercial space.

The land purchase is expected to close in January 2022.

We have paid $2.4 million of the $25 million commitment, related to our share of the contract price.

Operating Property Results

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

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

Average daily occupancy at our operating portfolio of 97.8%, a 280-basis point improvement from the three months ended September 30, 2020.

Revenue, before utility reimbursements, of $34.6 million, up 6.8% year over year.

Expenses, net of utility reimbursements of $11.2 million, up 10.6% year over year, due primarily to higher real estate taxes and insurance.

Net operating income of our operating portfolio increased by 5.1% 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 September 30, 2021, we collected 98.2% of all amounts owed by Aimco residents and recognized 99.2% of revenue, reserving 80 basis points as bad debt.

1001 Brickell Bay Drive, a waterfront office building in Miami, Florida owned as part of a larger assemblage, was 73% occupied on September 30, 2021.

Balance Sheet

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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.

As of September 30, 2021, we had access to $413 million, including $253 million of cash on hand, $10 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.

Our Adjusted EBITDAre for the three and nine months ended September 30, 2021 was $17.6 million and $53.8 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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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%.

As of September 30, 2021, we had $118.8 million of principal outstanding.

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

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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%.

As of September 30, 2021, we had $25 million of principal outstanding.

During the three months ended September 30, 2021, we closed on two non-recourse loans for $60 million.

The loans have 10-year terms and a weighted average fixed interest rate of 3.09%.

Proceeds from the loans were used to fund the acquisition of Eldridge Townhomes and other investment activities.

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.

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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.

(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, as well as land assemblages that are being held for development adjacent to our Hamilton on the Bay community and other land purchases.

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

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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.

Our Other segment includes our recent Eldridge Townhomes acquisition, stabilized but not owned for a comparable reporting period, and 1001 Brickell Bay Drive, our only office building.

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.

Net income decreased by $6.8 million and $13.5 million during the three and nine months ended September 30, 2021, respectively, compared to the same periods in 2020, as described more fully below.

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

As of September 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 our recent Eldridge Townhomes acquisition, and 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 June 30, 2021 and 2020, as presented below, are based on segment classifications as of June 30, 2021.

Three Months Ended June 30,

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

Three Months Ended September 30,

Historical Change

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Operating Portfolio

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

For the three months ended September 30, 2021, compared to 2020, our Operating Portfolio proportionate property net operating income increased by $1.1 million, or 5.1%.

The increase was attributable to a $2.2 million, or 6.8% increase in rental and other property revenues due to higher average revenues of $72 per apartment home, and a 280-basis point increase in occupancy, offset partially by a $1.1 million, or 10.6%, increase in property operating expenses due primarily to higher real estate taxes and insurance.

For the three months ended September 30, 2021, compared to 2020, total proportionate property net operating income increased by $2.6 million, or 10.7%.

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

Nine Months Ended

September 30,

Historical Change

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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%.

For the nine months ended September 30, 2021, compared to 2020, our Operating Portfolio proportionate property net operating income was flat year over year.

This was the result of a $2.3 million, or 2.3%, increase in rental and other property revenues due to higher average revenues of $17 per apartment home, and a 140-basis point increase in occupancy, offset by increases in property operating expenses due primarily to higher real estate taxes and insurance.

For the nine months ended September 30, 2021, compared to 2020, total proportionate property net operating income increased by $1.9 million, or 2.5%.

Non-Segment Real Estate Operations

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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.

For the three and nine months ended September 30, 2021 depreciation and amortization expense was higher by $2.4 million and $5.4 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.

For the three and nine months ended September 30, 2021, compared to the same periods in 2020, general and administrative expenses increased by $7.3 million and $17.6 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.

For the three and nine months ended September 30, 2021, compared to the same periods in 2020, interest expense increased by $5.6 million, or 78.5%, and $19.4 million, or 104.7%, respectively, mainly due 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.

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.

As of September 30, 2021, the total receivable including accrued and unpaid interest was $330.0 million.

During the three and nine months ended September 30, 2021, we recognized $7.6 million and $22.7 million, respectively, of income in connection with the mezzanine loan, compared to $6.9 million and $20.6 million during the three and nine months ended September 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.

As a result of the mark to market adjustment we recorded an unrealized gain in the amount of $2.2 million and an unrealized gain in the amount of $10.6 million during the three and nine months ended September 30, 2021, respectively, and we recorded an unrealized loss in the amount of $1.0 million and $2.1 million during the three and nine months ended September 30, 2020.

Other Income (Expense), Net

Other income (expense), net, includes costs associated with our risk management activities, partnership administration expenses, fee income, and certain non-recurring items such as service revenue.

For the three and nine months ended September 30, 2021, compared to the same periods in 2020, other expenses, net decreased by $2.6 million and $6.4 million, respectively, due primarily to $1.0 million and $3.3 million of service fee revenue earned during the three and nine months ended September 30, 2021 with the remaining differences being RETV valuation changes.

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 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.

For the three and nine months ended September 30, 2021 , we had consolidated net losses subject to tax of $7.9 million and $26.4 million, respectively.

For the three and nine months ended September 30, 2020, we had consolidated net losses subject to tax of $5.7 million and $14.5 million, respectively.

For the three months ended September 30, 2021 , we recognized income tax benefit of $2.0 million, compared to $2.7 million during the same period in 2020.

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

For the nine months ended September 30, 2021, we recognized income tax benefit of $9.9 million, compared to $6.7 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.

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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):

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

The reconciliation of net (loss) income to EBITDAre and Adjusted EBITDAre for the three and nine months ended September 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

Nine Months Ended

September 30, 2021

September 30, 2020

September 30, 2021

September 30, 2020

Net (loss) income

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EBITDAre adjustments attributable to noncontrolling interests

Interest income recognized on mezzanine investment

Mezzanine investment income, net accrued

Unrealized (gains) losses on interest rate options

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

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

As of September 30, 2021, our available liquidity was $413 million, which consisted of:

$253 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.

We have commitments for, and expect to spend, approximately $294.2 million on development and redevelopment projects underway, with $281.2 million undrawn on our construction loans as of September 30, 2021.

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

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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.

Any adverse changes in the lending environment could negatively affect our

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.

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 September 30, 2021, approximately 42% of our leverage consisted of property-level, non-recourse, amortizing debt.

Approximately 89% of our property-level debt is fixed-rate, which provides a hedge against increases in interest rates, capitalization rates, and inflation.

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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.

As of September 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 September 30, 2021, approximately 46% of our leverage consisted of notes payable to AIR, with a fixed interest rate of 5.2% and a term to maturity of 2.3 years, and approximately 12% 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.

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Operating Activities

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

For the nine months ended September 30, 2021, net cash provided by operating activities was $22.1 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.

Cash provided by operating activities for the nine months ended September 30, 2021, decreased by $19.2 million compared to the same period ended in 2020 due to higher operating and general and administrative expenses.

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.

For the nine months ended September 30, 2021, our net cash used in investing activities of $216.6 million consisted primarily of capital expenditures and cash used in the purchase of The Benson Hotel, the Eldridge Townhomes, and construction costs on our development properties.

Total capital additions totaled $134.9 million and $15.3 million during the nine months ended September 30, 2021 and 2020, respectively.

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

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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.

Net cash from financing activities for the nine months ended September 30, 2021 increased by $93.2 million compared to the nine months ended September 30, 2020, due primarily to draws on construction loans, and proceeds from the $59.8 million non-recourse property loans entered into during the nine months ended September 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.

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.

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