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APARTMENT INVESTMENT & MANAGEMENT CO - Quarter Report: 2019 June (Form 10-Q)

Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

Form 10-Q

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2019

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from          to

Commission File Number 1-13232 (Apartment Investment and Management Company)

Commission File Number 0-24497 (AIMCO Properties, L.P.)

Apartment Investment and Management Company

AIMCO Properties, L.P.

(Exact name of registrant as specified in its charter)

 

Maryland (Apartment Investment and Management Company)

 

84-1259577

Delaware (AIMCO Properties, L.P.)

 

84-1275621

(State or other jurisdiction of

 

(I.R.S. Employer

incorporation or organization)

 

Identification No.)

 

 

 

4582 South Ulster Street, Suite 1100

 

 

Denver, Colorado

 

80237

(Address of principal executive offices)

 

(Zip Code)

 

(303) 757-8101

(Registrant’s telephone number, including area code)

Not Applicable

(Former name, former address, and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

 

Apartment Investment and Management Company:  Yes      No  ☐

 

AIMCO Properties, L.P.:  Yes      No  ☐

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

 

Apartment Investment and Management Company:  Yes      No  ☐

 

AIMCO Properties, L.P.:  Yes      No  ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):

Apartment Investment and Management Company:

 

Large accelerated filer

 

 

Accelerated filer

Non-accelerated filer

(Do not check if a smaller reporting company)

 

Smaller reporting company

 

 

 

 

Emerging growth company

 

AIMCO Properties, L.P.:

 

Large accelerated filer

 

 

Accelerated filer

Non-accelerated filer

(Do not check if a smaller reporting company)

 

Smaller reporting company

 

 

 

 

Emerging growth company

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

 

Apartment Investment and Management Company:

 

AIMCO Properties, L.P.:

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

 

Apartment Investment and Management Company:  Yes      No  

 

AIMCO Properties, L.P.:  Yes        No  

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

 

Trading Symbol(s)

 

Name of each exchange on which registered

Aimco Investment and Management Company Class A Common Stock

 

AIV

 

New York Stock Exchange

 

The number of shares of Apartment Investment and Management Company Class A Common Stock outstanding as of August 8, 2019: 148,884,199

The number of AIMCO Properties, L.P. Partnership Common Units outstanding as of August 8, 2019:  158,452,309

 

 

 

 

 


Table of Contents

 

EXPLANATORY NOTE

This filing combines the reports on Form 10-Q for the quarterly period ended June 30, 2019, of Apartment Investment and Management Company, or Aimco, and AIMCO Properties, L.P., or the Aimco Operating Partnership. Where it is important to distinguish between the two entities, we refer to them specifically. Otherwise, references to “we,” “us” or “our” mean, collectively, Aimco, the Aimco Operating Partnership and their consolidated entities.

Aimco, a Maryland corporation, is a self-administered and self-managed real estate investment trust, or REIT. Aimco, through wholly-owned subsidiaries, is the general and special limited partner of, and as of June 30, 2019, owned a 93.9% ownership interest in the common partnership units of, the Aimco Operating Partnership. The remaining 6.1% interest is owned by limited partners. As the sole general partner of the Aimco Operating Partnership, Aimco has exclusive control of the Aimco Operating Partnership’s day-to-day management.

The Aimco Operating Partnership holds all of Aimco’s assets and manages the daily operations of Aimco’s business. Pursuant to the Aimco Operating Partnership agreement, Aimco is required to contribute to the Aimco Operating Partnership all proceeds from the offerings of its securities. In exchange for the contribution of such proceeds, Aimco receives additional interests in the Aimco Operating Partnership with similar terms (e.g., if Aimco contributes proceeds of a stock offering, Aimco receives partnership units with terms substantially similar to the stock issued by Aimco).

We believe combining the periodic reports of Aimco and the Aimco Operating Partnership into this single report provides the following benefits:

 

We present our business as a whole, in the same manner our management views and operates the business;

 

We eliminate duplicative disclosure and provide a more streamlined and readable presentation because a substantial portion of the disclosures apply to both Aimco and the Aimco Operating Partnership; and

 

We save time and cost through the preparation of a single combined report rather than two separate reports.

We operate Aimco and the Aimco Operating Partnership as one enterprise, the management of Aimco directs the management and operations of the Aimco Operating Partnership, and the members of the Board of Directors of Aimco are identical to those of the Aimco Operating Partnership.

We believe it is important to understand the few differences between Aimco and the Aimco Operating Partnership in the context of how Aimco and the Aimco Operating Partnership operate as a consolidated company. Aimco has no assets or liabilities other than its investment in the Aimco Operating Partnership. Also, Aimco is a corporation that issues publicly traded equity from time to time, whereas the Aimco Operating Partnership is a partnership that has no publicly traded equity. Except for the net proceeds from stock offerings by Aimco, which are contributed to the Aimco Operating Partnership in exchange for additional limited partnership interests (of a similar type and in an amount equal to the shares of stock sold in the offering), the Aimco Operating Partnership generates all remaining capital required by its business. These sources include the Aimco Operating Partnership’s working capital, net cash provided by operating activities, borrowings under its revolving credit facility, the issuance of debt and equity securities, including additional partnership units, and proceeds received from the sale of apartment communities.

Equity, partners’ capital and noncontrolling interests are the main areas of difference between the condensed consolidated financial statements of Aimco and those of the Aimco Operating Partnership. Interests in the Aimco Operating Partnership held by entities other than Aimco, which we refer to as OP Units, are classified within partners’ capital in the Aimco Operating Partnership’s financial statements and as noncontrolling interests in Aimco’s financial statements.

To help investors understand the differences between Aimco and the Aimco Operating Partnership, this report provides: separate condensed consolidated financial statements for Aimco and the Aimco Operating Partnership; a single set of condensed consolidated notes to such financial statements that includes separate discussions of each entity’s stockholders’ equity or partners’ capital, as applicable; and a combined Management’s Discussion and Analysis of Financial Condition and Results of Operations section that includes discrete information related to each entity, where appropriate.

This report also includes separate Part I, Item 4. Controls and Procedures sections and separate Exhibits 31 and 32 certifications for Aimco and the Aimco Operating Partnership in order to establish that the requisite certifications have been made and that Aimco and the Aimco Operating Partnership are both compliant with Rule 13a-15 or Rule 15d-15 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and 18 U.S.C. §1350.

 

1


Table of Contents

 

APARTMENT INVESTMENT AND MANAGEMENT COMPANY

AIMCO PROPERTIES, L.P.

 

TABLE OF CONTENTS

 

FORM 10-Q

 

 

 

Page

 

PART I.     FINANCIAL INFORMATION

 

ITEM 1.

Financial Statements

 

 

Apartment Investment and Management Company:

 

 

Condensed Consolidated Balance Sheets (Unaudited)

3

 

Condensed Consolidated Statements of Operations (Unaudited)

4

 

Condensed Consolidated Statements of Comprehensive Income (Unaudited)

5

 

Condensed Consolidated Statements of Equity (Unaudited)

6

 

Condensed Consolidated Statements of Cash Flows (Unaudited)

8

 

AIMCO Properties, L.P.:

 

 

Condensed Consolidated Balance Sheets (Unaudited)

9

 

Condensed Consolidated Statements of Operations (Unaudited)

10

 

Condensed Consolidated Statements of Comprehensive Income (Unaudited)

11

 

Condensed Consolidated Statements of Partners’ Capital (Unaudited)

12

 

Condensed Consolidated Statements of Cash Flows (Unaudited)

14

 

Notes to the Condensed Consolidated Financial Statements of Apartment Investment and Management Company and AIMCO Properties, L.P. (Unaudited)

15

ITEM 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

25

ITEM 3.

Quantitative and Qualitative Disclosures About Market Risk

46

ITEM 4.

Controls and Procedures

46

 

PART II.     OTHER INFORMATION

 

ITEM 1A.

Risk Factors

47

ITEM 2.

Unregistered Sales of Equity Securities and Use of Proceeds

47

ITEM 6.

Exhibits

49

Signatures

 

50

 

 

2


Table of Contents

 

PART I.  FINANCIAL INFORMATION

 

ITEM 1.

Financial Statements

APARTMENT INVESTMENT AND MANAGEMENT COMPANY

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share data)

(Unaudited)

 

 

 

June 30,

2019

 

 

December 31,

2018

 

ASSETS

 

 

 

 

 

 

 

 

Buildings and improvements

 

$

6,570,710

 

 

$

6,552,065

 

Land

 

 

1,741,531

 

 

 

1,756,525

 

Total real estate

 

 

8,312,241

 

 

 

8,308,590

 

Accumulated depreciation

 

 

(2,593,241

)

 

 

(2,585,115

)

Net real estate

 

 

5,719,000

 

 

 

5,723,475

 

Cash and cash equivalents

 

 

33,958

 

 

 

36,858

 

Restricted cash

 

 

31,949

 

 

 

35,737

 

Other assets

 

 

455,897

 

 

 

351,541

 

Assets held for sale

 

 

 

 

 

42,393

 

Total assets

 

$

6,240,804

 

 

$

6,190,004

 

LIABILITIES AND EQUITY

 

 

 

 

 

 

 

 

Non-recourse property debt, net

 

$

3,702,487

 

 

$

3,915,305

 

Revolving credit facility borrowings

 

 

294,960

 

 

 

160,360

 

Total indebtedness

 

 

3,997,447

 

 

 

4,075,665

 

Accrued liabilities and other

 

 

299,313

 

 

 

226,230

 

Liabilities related to assets held for sale

 

 

 

 

 

23,177

 

Total liabilities

 

 

4,296,760

 

 

 

4,325,072

 

Preferred noncontrolling interests in Aimco Operating Partnership

 

 

101,178

 

 

 

101,291

 

Commitments and contingencies (Note 5)

 

 

 

 

 

 

 

 

Equity:

 

 

 

 

 

 

 

 

Perpetual Preferred Stock

 

 

 

 

 

125,000

 

Common Stock, $0.01 par value, 500,787,260 shares authorized, 148,827,363 and

   144,623,034 shares issued/outstanding at June 30, 2019 and December 31, 2018,

   respectively

 

 

1,488

 

 

 

1,446

 

Additional paid-in capital

 

 

3,498,629

 

 

 

3,515,686

 

Accumulated other comprehensive income

 

 

4,866

 

 

 

4,794

 

Distributions in excess of earnings

 

 

(1,741,765

)

 

 

(1,947,507

)

Total Aimco equity

 

 

1,763,218

 

 

 

1,699,419

 

Noncontrolling interests in consolidated real estate partnerships

 

 

(2,718

)

 

 

(2,967

)

Common noncontrolling interests in Aimco Operating Partnership

 

 

82,366

 

 

 

67,189

 

Total equity

 

 

1,842,866

 

 

 

1,763,641

 

Total liabilities and equity

 

$

6,240,804

 

 

$

6,190,004

 

 

See notes to condensed consolidated financial statements.

3

 


Table of Contents

 

APARTMENT INVESTMENT AND MANAGEMENT COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)

(Unaudited)

 

 

 

Three Months Ended

 

 

Six Months Ended

 

 

 

June 30,

 

 

June 30,

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

REVENUES

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Rental and other property revenues attributable to real estate

 

$

224,200

 

 

$

231,130

 

 

$

454,435

 

 

$

456,523

 

Asset Management business rental and tax credit revenues

 

 

 

 

 

19,057

 

 

 

 

 

 

41,384

 

Total revenues

 

 

224,200

 

 

 

250,187

 

 

 

454,435

 

 

 

497,907

 

OPERATING EXPENSES

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Property operating expenses attributable to real estate

 

 

75,839

 

 

 

76,031

 

 

 

155,023

 

 

 

154,318

 

Property operating expenses of partnerships served by Asset

   Management business

 

 

 

 

 

9,062

 

 

 

 

 

 

18,257

 

Depreciation and amortization

 

 

91,924

 

 

 

97,485

 

 

 

185,489

 

 

 

190,033

 

General and administrative expenses

 

 

12,124

 

 

 

13,882

 

 

 

22,493

 

 

 

25,237

 

Other expenses, net

 

 

4,209

 

 

 

4,366

 

 

 

9,912

 

 

 

7,324

 

Total operating expenses

 

 

184,096

 

 

 

200,826

 

 

 

372,917

 

 

 

395,169

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest income

 

 

3,065

 

 

 

2,884

 

 

 

5,791

 

 

 

5,056

 

Interest expense

 

 

(39,541

)

 

 

(49,906

)

 

 

(80,950

)

 

 

(97,701

)

Gain on dispositions of real estate

 

 

64,310

 

 

 

310

 

 

 

355,783

 

 

 

53,505

 

Other, net

 

 

231

 

 

 

200

 

 

 

303

 

 

 

424

 

Income before income tax benefit (expense)

 

 

68,169

 

 

 

2,849

 

 

 

362,445

 

 

 

64,022

 

Income tax benefit (expense)

 

 

1,827

 

 

 

4,307

 

 

 

(1,154

)

 

 

38,824

 

Net income

 

 

69,996

 

 

 

7,156

 

 

 

361,291

 

 

 

102,846

 

Noncontrolling interests:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income attributable to noncontrolling interests in consolidated

   real estate partnerships

 

 

(70

)

 

 

(45

)

 

 

(161

)

 

 

(6,251

)

Net income attributable to preferred noncontrolling interests in

   Aimco Operating Partnership

 

 

(1,933

)

 

 

(1,934

)

 

 

(3,867

)

 

 

(3,871

)

Net income attributable to common noncontrolling interests in

   Aimco Operating Partnership

 

 

(3,534

)

 

 

(140

)

 

 

(18,671

)

 

 

(3,895

)

Net income attributable to noncontrolling interests

 

 

(5,537

)

 

 

(2,119

)

 

 

(22,699

)

 

 

(14,017

)

Net income attributable to Aimco

 

 

64,459

 

 

 

5,037

 

 

 

338,592

 

 

 

88,829

 

Net income attributable to Aimco preferred stockholders

 

 

(5,187

)

 

 

(2,149

)

 

 

(7,335

)

 

 

(4,297

)

Net income attributable to participating securities

 

 

(38

)

 

 

(71

)

 

 

(455

)

 

 

(190

)

Net income attributable to Aimco common stockholders

 

$

59,234

 

 

$

2,817

 

 

$

330,802

 

 

$

84,342

 

Net income attributable to Aimco per common share – basic

 

$

0.40

 

 

$

0.02

 

 

$

2.25

 

 

$

0.56

 

Net income attributable to Aimco per common share – diluted

 

$

0.40

 

 

$

0.02

 

 

$

2.25

 

 

$

0.55

 

Weighted average common shares outstanding – basic

 

 

148,367

 

 

 

151,963

 

 

 

146,994

 

 

 

151,918

 

Weighted average common shares outstanding – diluted

 

 

148,599

 

 

 

152,093

 

 

 

147,220

 

 

 

152,048

 

 

See notes to condensed consolidated financial statements.

4

 


Table of Contents

 

APARTMENT INVESTMENT AND MANAGEMENT COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In thousands)

(Unaudited)

 

 

 

Three Months Ended

June 30,

 

 

Six Months Ended

June 30,

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

Net income

 

$

69,996

 

 

$

7,156

 

 

$

361,291

 

 

$

102,846

 

Other comprehensive income (loss):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized gains (losses) on available for sale debt securities

 

 

16

 

 

 

(451

)

 

 

77

 

 

 

(1,051

)

Unrealized (losses) gains on interest rate swaps

 

 

 

 

 

(4

)

 

 

 

 

 

415

 

Losses on interest rate swaps reclassified into earnings from

   accumulated other comprehensive loss

 

 

 

 

 

100

 

 

 

 

 

 

219

 

Other comprehensive income (loss)

 

 

16

 

 

 

(355

)

 

 

77

 

 

 

(417

)

Comprehensive income

 

 

70,012

 

 

 

6,801

 

 

 

361,368

 

 

 

102,429

 

Comprehensive income attributable to noncontrolling interests

 

 

(5,538

)

 

 

(2,100

)

 

 

(22,704

)

 

 

(13,995

)

Comprehensive income attributable to Aimco

 

$

64,474

 

 

$

4,701

 

 

$

338,664

 

 

$

88,434

 

 

 

 

See notes to condensed consolidated financial statements.

5

 


Table of Contents

 

APARTMENT INVESTMENT AND MANAGEMENT COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY

For the Three Months Ended June 30, 2019 and 2018

(In thousands)

(Unaudited)

 

 

Preferred Stock

 

 

Common Stock

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

Noncontrolling

Interests in

 

 

Common

Noncontrolling

Interests in

 

 

 

 

 

 

 

Shares

Issued

 

 

Amount

 

 

Shares

Issued

 

 

Amount

 

 

Additional

Paid-in

Capital

 

 

Other

Comprehensive

Income (Loss)

 

 

Distributions

in Excess of

Earnings

 

 

Total

Aimco

Equity

 

 

Consolidated

Real Estate

Partnerships

 

 

Aimco

Operating

Partnerships

 

 

Total Equity

 

Balances at March 31, 2018

 

 

5,000

 

 

$

125,000

 

 

 

152,568

 

 

$

1,525

 

 

$

3,885,327

 

 

$

3,544

 

 

$

(2,345,206

)

 

$

1,670,190

 

 

$

(2,755

)

 

$

(4,788

)

 

$

1,662,647

 

Issuance of Aimco Operating

     Partnership units

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

50,151

 

 

 

50,151

 

Redemption of Aimco Operating

     Partnership units

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(648

)

 

 

(648

)

Amortization of share-based

     compensation cost

 

 

 

 

 

 

 

 

2

 

 

 

 

 

 

1,850

 

 

 

 

 

 

 

 

 

1,850

 

 

 

 

 

 

423

 

 

 

2,273

 

Effect of changes in ownership of

     consolidated entities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

101

 

 

 

 

 

 

 

 

 

101

 

 

 

 

 

 

704

 

 

 

805

 

Other, net

 

 

 

 

 

 

 

 

22

 

 

 

1

 

 

 

30

 

 

 

 

 

 

(2

)

 

 

29

 

 

 

 

 

 

 

 

 

29

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

5,037

 

 

 

5,037

 

 

 

45

 

 

 

140

 

 

 

5,222

 

Change in accumulated other

     comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(336

)

 

 

 

 

 

(336

)

 

 

 

 

 

(19

)

 

 

(355

)

Cash dividends paid to Common

     Stockholders

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(59,781

)

 

 

(59,781

)

 

 

 

 

 

 

 

 

(59,781

)

Cash dividends paid to Preferred

     Stockholders

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(2,149

)

 

 

(2,149

)

 

 

 

 

 

 

 

 

(2,149

)

Distributions to noncontrolling

     interests

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(274

)

 

 

(3,135

)

 

 

(3,409

)

Balances at June 30, 2018

 

 

5,000

 

 

$

125,000

 

 

 

152,592

 

 

$

1,526

 

 

$

3,887,308

 

 

$

3,208

 

 

$

(2,402,101

)

 

$

1,614,941

 

 

$

(2,984

)

 

$

42,828

 

 

$

1,654,785

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balances at March 31, 2019

 

 

5,000

 

 

$

125,000

 

 

 

148,758

 

 

$

1,488

 

 

$

3,495,295

 

 

$

4,851

 

 

$

(1,742,998

)

 

$

1,883,636

 

 

$

(2,857

)

 

$

79,493

 

 

$

1,960,272

 

Redemption of Preferred Stock

 

 

(5,000

)

 

 

(125,000

)

 

 

 

 

 

 

 

 

4,089

 

 

 

 

 

 

(4,089

)

 

 

(125,000

)

 

 

 

 

 

 

 

 

(125,000

)

Issuance of Aimco Operating

     Partnership units

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3,034

 

 

 

3,034

 

Redemption of Aimco Operating

     Partnership Units

 

 

 

 

 

 

 

 

70

 

 

 

1

 

 

 

3,422

 

 

 

 

 

 

 

 

 

3,423

 

 

 

 

 

 

(4,998

)

 

 

(1,575

)

Amortization of share-based

     compensation cost

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,190

 

 

 

 

 

 

 

 

 

1,190

 

 

 

 

 

 

796

 

 

 

1,986

 

Effect of changes in ownership of

     consolidated entities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(4,851

)

 

 

 

 

 

 

 

 

(4,851

)

 

 

1,042

 

 

 

3,809

 

 

 

 

Purchase of noncontrolling interest in

    consolidated real estate partnerships

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(917

)

 

 

 

 

 

(917

)

Other, net

 

 

 

 

 

 

 

 

(1

)

 

 

(1

)

 

 

 

 

 

 

 

 

 

 

 

(1

)

 

 

 

 

 

 

 

 

 

(1

)

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

64,459

 

 

 

64,459

 

 

 

70

 

 

 

3,534

 

 

 

68,063

 

Change in accumulated other

     comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

15

 

 

 

 

 

 

15

 

 

 

 

 

 

1

 

 

 

16

 

Cash dividends paid to Common

   Stockholders

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(58,039

)

 

 

(58,039

)

 

 

 

 

 

 

 

 

(58,039

)

Common Stock issued to Common

   Stockholders in special dividend

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(516

)

 

 

 

 

 

 

 

 

(516

)

 

 

 

 

 

 

 

 

(516

)

Cash dividends paid to Preferred

     Stockholders

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,098

)

 

 

(1,098

)

 

 

 

 

 

 

 

 

(1,098

)

Distributions to noncontrolling

      interests

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(56

)

 

 

(3,303

)

 

 

(3,359

)

Balances at June 30, 2019

 

 

 

 

$

 

 

 

148,827

 

 

$

1,488

 

 

$

3,498,629

 

 

$

4,866

 

 

$

(1,741,765

)

 

$

1,763,218

 

 

$

(2,718

)

 

$

82,366

 

 

$

1,842,866

 

See notes to condensed consolidated financial statements.

6

 


Table of Contents

 

APARTMENT INVESTMENT AND MANAGEMENT COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY

For the Six Months Ended June 30, 2019 and 2018

(In thousands)

(Unaudited)

 

 

Preferred Stock

 

 

Common Stock

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

Noncontrolling

Interests in

 

 

Common

Noncontrolling

Interests in

 

 

 

 

 

 

 

Shares

Issued

 

 

Amount

 

 

Shares

Issued

 

 

Amount

 

 

Additional

Paid-in

Capital

 

 

Other

Comprehensive

Income (Loss)

 

 

Distributions

in Excess of

Earnings

 

 

Total

Aimco

Equity

 

 

Consolidated

Real Estate

Partnerships

 

 

Aimco

Operating

Partnerships

 

 

Total Equity

 

Balances at December 31, 2017

 

 

5,000

 

 

$

125,000

 

 

 

152,435

 

 

$

1,524

 

 

$

3,900,090

 

 

$

3,603

 

 

$

(2,367,073

)

 

$

1,663,144

 

 

$

(1,716

)

 

$

(5,675

)

 

$

1,655,753

 

Issuance of Aimco Operating

     Partnership units

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

50,151

 

 

 

50,151

 

Redemption of Aimco Operating

     Partnership units

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(7,611

)

 

 

(7,611

)

Amortization of share-based

     compensation cost

 

 

 

 

 

 

 

 

21

 

 

 

 

 

 

4,481

 

 

 

 

 

 

 

 

 

4,481

 

 

 

 

 

 

780

 

 

 

5,261

 

Effect of changes in ownership of

      consolidated entities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(17,385

)

 

 

 

 

 

 

 

 

(17,385

)

 

 

 

 

 

7,283

 

 

 

(10,102

)

Other, net

 

 

 

 

 

 

 

 

136

 

 

 

2

 

 

 

122

 

 

 

 

 

 

(2

)

 

 

122

 

 

 

 

 

 

 

 

 

122

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

88,829

 

 

 

88,829

 

 

 

6,251

 

 

 

3,895

 

 

 

98,975

 

Change in accumulated other

     comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(395

)

 

 

 

 

 

(395

)

 

 

 

 

 

(22

)

 

 

(417

)

Cash dividends paid to Common

      Stockholders

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(119,558

)

 

 

(119,558

)

 

 

 

 

 

 

 

 

(119,558

)

Cash dividends paid to Preferred

      Stockholders

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(4,297

)

 

 

(4,297

)

 

 

 

 

 

 

 

 

(4,297

)

Distributions to noncontrolling

     interests

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(7,519

)

 

 

(5,973

)

 

 

(13,492

)

Balances at June 30, 2018

 

 

5,000

 

 

$

125,000

 

 

 

152,592

 

 

$

1,526

 

 

$

3,887,308

 

 

$

3,208

 

 

$

(2,402,101

)

 

$

1,614,941

 

 

$

(2,984

)

 

$

42,828

 

 

$

1,654,785

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balances at December 31, 2018

 

 

5,000

 

 

$

125,000

 

 

 

144,623

 

 

$

1,446

 

 

$

3,515,686

 

 

$

4,794

 

 

$

(1,947,507

)

 

$

1,699,419

 

 

$

(2,967

)

 

$

67,189

 

 

$

1,763,641

 

Repurchases of Common Stock

 

 

 

 

 

 

 

 

(461

)

 

 

(5

)

 

 

(20,677

)

 

 

 

 

 

 

 

 

(20,682

)

 

 

 

 

 

 

 

 

(20,682

)

Redemption of Preferred Stock

 

 

(5,000

)

 

 

(125,000

)

 

 

 

 

 

 

 

 

4,089

 

 

 

 

 

 

(4,089

)

 

 

(125,000

)

 

 

 

 

 

 

 

 

(125,000

)

Issuance of Aimco Operating

     Partnership units

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3,034

 

 

 

3,034

 

Redemption of Aimco Operating

     Partnership Units

 

 

 

 

 

 

 

 

70

 

 

 

1

 

 

 

3,422

 

 

 

 

 

 

 

 

 

3,423

 

 

 

 

 

 

(7,555

)

 

 

(4,132

)

Amortization of share-based

     compensation cost

 

 

 

 

 

 

 

 

22

 

 

 

 

 

 

3,632

 

 

 

 

 

 

 

 

 

3,632

 

 

 

 

 

 

1,592

 

 

 

5,224

 

Effect of changes in ownership of

      consolidated entities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(7,019

)

 

 

 

 

 

 

 

 

(7,019

)

 

 

1,042

 

 

 

5,977

 

 

 

 

Purchase of noncontrolling interest

      in consolidated real estate

      partnerships

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(917

)

 

 

 

 

 

(917

)

Other, net

 

 

 

 

 

 

 

 

81

 

 

 

1

 

 

 

57

 

 

 

 

 

 

 

 

 

58

 

 

 

19

 

 

 

 

 

 

77

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

338,592

 

 

 

338,592

 

 

 

161

 

 

 

18,671

 

 

 

357,424

 

Change in accumulated other

     comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

72

 

 

 

 

 

 

72

 

 

 

 

 

 

5

 

 

 

77

 

Cash dividends paid to Common

      Stockholders

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(125,514

)

 

 

(125,514

)

 

 

 

 

 

 

 

 

(125,514

)

Common Stock issued to Common

     Stockholders in special dividend

 

 

 

 

 

 

 

 

4,492

 

 

 

45

 

 

 

(561

)

 

 

 

 

 

 

 

 

(516

)

 

 

 

 

 

 

 

 

(516

)

Cash dividends paid to Preferred

      Stockholders

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(3,247

)

 

 

(3,247

)

 

 

 

 

 

 

 

 

(3,247

)

Distributions to noncontrolling

     interests

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(56

)

 

 

(6,547

)

 

 

(6,603

)

Balances at June 30, 2019

 

 

 

 

$

 

 

 

148,827

 

 

$

1,488

 

 

$

3,498,629

 

 

$

4,866

 

 

$

(1,741,765

)

 

$

1,763,218

 

 

$

(2,718

)

 

$

82,366

 

 

$

1,842,866

 

 

 

 

See notes to condensed consolidated financial statements.

7

 


Table of Contents

 

APARTMENT INVESTMENT AND MANAGEMENT COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

 

 

Six Months Ended

 

 

June 30,

 

 

2019

 

2018

 

CASH FLOWS FROM OPERATING ACTIVITIES:

 

 

 

 

 

 

Net income

$

361,291

 

$

102,846

 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

 

 

Depreciation and amortization

 

185,489

 

 

190,033

 

Gain on dispositions of real estate

 

(355,783

)

 

(53,505

)

Income tax expense (benefit)

 

1,154

 

 

(38,824

)

Other adjustments

 

6,443

 

 

2,307

 

Net changes in operating assets and operating liabilities

 

(28,555

)

 

(17,231

)

Net cash provided by operating activities

 

170,039

 

 

185,626

 

CASH FLOWS FROM INVESTING ACTIVITIES:

 

 

 

 

 

 

Purchases of real estate and deposits related to purchases of real estate

 

(43,743

)

 

(205,318

)

Capital expenditures

 

(176,488

)

 

(164,116

)

Proceeds from dispositions of real estate

 

422,456

 

 

76,317

 

Purchases of corporate assets

 

(7,186

)

 

(2,649

)

Other investing activities

 

2,486

 

 

2,079

 

Net cash provided by (used in) investing activities

 

197,525

 

 

(293,687

)

CASH FLOWS FROM FINANCING ACTIVITIES:

 

 

 

 

 

 

Proceeds from issuance of non-recourse property debt

 

 

 

360,613

 

Principal repayments of non-recourse property debt

 

(207,790

)

 

(257,144

)

Net borrowings on revolving credit facility

 

134,600

 

 

153,010

 

Repurchases of Common Stock

 

(20,682

)

 

 

Redemption of Preferred Stock

 

(125,000

)

 

 

Payment of dividends to Common Stockholders

 

(125,350

)

 

(119,288

)

Payment of dividends to Preferred Stockholders

 

(3,247

)

 

(4,297

)

Payment of distributions to noncontrolling interests

 

(10,937

)

 

(16,998

)

Redemption of noncontrolling interests in the Aimco Operating Partnership

 

(4,244

)

 

(7,816

)

Purchases of noncontrolling interests in consolidated real estate partnerships

 

(917

)

 

(3,579

)

Other financing activities

 

(10,685

)

 

(41

)

Net cash (used in) provided by financing activities

 

(374,252

)

 

104,460

 

NET DECREASE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH

 

(6,688

)

 

(3,601

)

CASH, CASH EQUIVALENTS AND RESTRICTED CASH AT BEGINNING OF PERIOD

 

72,595

 

 

142,541

 

CASH, CASH EQUIVALENTS AND RESTRICTED CASH AT END OF PERIOD

$

65,907

 

$

138,940

 

 

See notes to condensed consolidated financial statements.

8

 


Table of Contents

 

AIMCO PROPERTIES, L.P.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands)

(Unaudited)

 

 

 

June 30,

2019

 

 

December 31,

2018

 

ASSETS

 

 

 

 

 

 

 

 

Buildings and improvements

 

$

6,570,710

 

 

$

6,552,065

 

Land

 

 

1,741,531

 

 

 

1,756,525

 

Total real estate

 

 

8,312,241

 

 

 

8,308,590

 

Accumulated depreciation

 

 

(2,593,241

)

 

 

(2,585,115

)

Net real estate

 

 

5,719,000

 

 

 

5,723,475

 

Cash and cash equivalents

 

 

33,958

 

 

 

36,858

 

Restricted cash

 

 

31,949

 

 

 

35,737

 

Other assets

 

 

455,897

 

 

 

351,541

 

Assets held for sale

 

 

 

 

 

42,393

 

Total assets

 

$

6,240,804

 

 

$

6,190,004

 

LIABILITIES AND EQUITY

 

 

 

 

 

 

 

 

Non-recourse property debt, net

 

$

3,702,487

 

 

$

3,915,305

 

Revolving credit facility borrowings

 

 

294,960

 

 

 

160,360

 

Total indebtedness

 

 

3,997,447

 

 

 

4,075,665

 

Accrued liabilities and other

 

 

299,313

 

 

 

226,230

 

Liabilities related to assets held for sale

 

 

 

 

 

23,177

 

Total liabilities

 

 

4,296,760

 

 

 

4,325,072

 

Redeemable preferred units

 

 

101,178

 

 

 

101,291

 

Commitments and contingencies (Note 5)

 

 

 

 

 

 

 

 

Partners’ capital:

 

 

 

 

 

 

 

 

Preferred units

 

 

 

 

 

125,000

 

General Partner and Special Limited Partner

 

 

1,763,218

 

 

 

1,574,419

 

Limited Partners

 

 

82,366

 

 

 

67,189

 

Partners’ capital attributable to the Aimco Operating Partnership

 

 

1,845,584

 

 

 

1,766,608

 

Noncontrolling interests in consolidated real estate partnerships

 

 

(2,718

)

 

 

(2,967

)

Total partners’ capital

 

 

1,842,866

 

 

 

1,763,641

 

Total liabilities and partners’ capital

 

$

6,240,804

 

 

$

6,190,004

 

 

See notes to condensed consolidated financial statements.

9

 


Table of Contents

 

AIMCO PROPERTIES, L.P.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per unit data)

(Unaudited)

 

 

 

Three Months Ended

 

 

Six Months Ended

 

 

 

June 30,

 

 

June 30,

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

REVENUES

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Rental and other property revenues attributable to real estate

 

$

224,200

 

 

$

231,130

 

 

$

454,435

 

 

$

456,523

 

Asset Management business rental and tax credit revenues

 

 

 

 

 

19,057

 

 

 

 

 

 

41,384

 

Total revenues

 

 

224,200

 

 

 

250,187

 

 

 

454,435

 

 

 

497,907

 

OPERATING EXPENSES

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Property operating expenses attributable to real estate

 

 

75,839

 

 

 

76,031

 

 

 

155,023

 

 

 

154,318

 

Property operating expenses of partnerships served by Asset

   Management business

 

 

 

 

 

9,062

 

 

 

 

 

 

18,257

 

Depreciation and amortization

 

 

91,924

 

 

 

97,485

 

 

 

185,489

 

 

 

190,033

 

General and administrative expenses

 

 

12,124

 

 

 

13,882

 

 

 

22,493

 

 

 

25,237

 

Other expenses, net

 

 

4,209

 

 

 

4,366

 

 

 

9,912

 

 

 

7,324

 

Total operating expenses

 

 

184,096

 

 

 

200,826

 

 

 

372,917

 

 

 

395,169

 

a

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest income

 

 

3,065

 

 

 

2,884

 

 

 

5,791

 

 

 

5,056

 

Interest expense

 

 

(39,541

)

 

 

(49,906

)

 

 

(80,950

)

 

 

(97,701

)

Gain on dispositions of real estate

 

 

64,310

 

 

 

310

 

 

 

355,783

 

 

 

53,505

 

Other, net

 

 

231

 

 

 

200

 

 

 

303

 

 

 

424

 

Income before income tax benefit (expense)

 

 

68,169

 

 

 

2,849

 

 

 

362,445

 

 

 

64,022

 

Income tax benefit (expense)

 

 

1,827

 

 

 

4,307

 

 

 

(1,154

)

 

 

38,824

 

Net income

 

 

69,996

 

 

 

7,156

 

 

 

361,291

 

 

 

102,846

 

Net income attributable to noncontrolling interests in consolidated real

   estate partnerships

 

 

(70

)

 

 

(45

)

 

 

(161

)

 

 

(6,251

)

Net income attributable to the Aimco Operating Partnership

 

 

69,926

 

 

 

7,111

 

 

 

361,130

 

 

 

96,595

 

Net income attributable to the Aimco Operating Partnership’s preferred

   unitholders

 

 

(7,120

)

 

 

(4,083

)

 

 

(11,202

)

 

 

(8,168

)

Net income attributable to participating securities

 

 

11

 

 

 

(79

)

 

 

(472

)

 

 

(204

)

Net income attributable to the Aimco Operating Partnership’s common

   unitholders

 

$

62,817

 

 

$

2,949

 

 

$

349,456

 

 

$

88,223

 

Net income attributable to the Aimco Operating Partnership per

   common unit – basic and diluted

 

$

0.40

 

 

$

0.02

 

 

$

2.25

 

 

$

0.55

 

Weighted average common units outstanding – basic

 

 

156,637

 

 

 

159,709

 

 

 

155,158

 

 

 

159,289

 

Weighted average common units outstanding – diluted

 

 

157,018

 

 

 

159,835

 

 

 

155,517

 

 

 

159,418

 

 

See notes to condensed consolidated financial statements.

10

 


Table of Contents

 

AIMCO PROPERTIES, L.P.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In thousands)

(Unaudited)

 

 

 

Three Months Ended

June 30,

 

 

Six Months Ended

June 30,

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

Net income

 

$

69,996

 

 

$

7,156

 

 

$

361,291

 

 

$

102,846

 

Other comprehensive income (loss):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized gains (losses) on available for sale debt securities

 

 

16

 

 

 

(451

)

 

 

77

 

 

 

(1,051

)

Unrealized (losses) gains on interest rate swaps

 

 

 

 

 

(4

)

 

 

 

 

 

415

 

Losses on interest rate swaps reclassified into earnings from

   accumulated other comprehensive loss

 

 

 

 

 

100

 

 

 

 

 

 

219

 

Other comprehensive income (loss)

 

 

16

 

 

 

(355

)

 

 

77

 

 

 

(417

)

Comprehensive income

 

 

70,012

 

 

 

6,801

 

 

 

361,368

 

 

 

102,429

 

Comprehensive income attributable to noncontrolling interests

 

 

(70

)

 

 

(45

)

 

 

(161

)

 

 

(6,251

)

Comprehensive income attributable to the Aimco Operating

   Partnership

 

$

69,942

 

 

$

6,756

 

 

$

361,207

 

 

$

96,178

 

 

See notes to condensed consolidated financial statements.

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AIMCO PROPERTIES, L.P.

CONDENSED CONSOLIDATED STATEMENTS OF PARTNERS’ CAPITAL

For the Three Months Ended June 30, 2019 and 2018

(In thousands)

(Unaudited)

 

 

 

Preferred

Units

 

 

General

Partner

and Special

Limited

Partner

 

 

Limited

Partners

 

 

Partners’

Capital

Attributable to

the Aimco

Operating

Partnership

 

 

Noncontrolling

Interests in Consolidated Real Estate Partnerships

 

 

Total

Partners’

capital

 

Balances at March 31, 2018

 

$

125,000

 

 

$

1,545,190

 

 

$

(4,788

)

 

$

1,665,402

 

 

$

(2,755

)

 

$

1,662,647

 

Issuance of common partnership units

 

 

 

 

 

 

 

 

50,151

 

 

 

50,151

 

 

 

 

 

 

50,151

 

Redemption of partnership units held

     by non-Aimco partners

 

 

 

 

 

 

 

 

(648

)

 

 

(648

)

 

 

 

 

 

(648

)

Amortization of share-based

     compensation

 

 

 

 

 

1,850

 

 

 

423

 

 

 

2,273

 

 

 

 

 

 

2,273

 

Effect of changes in ownership of

     partnership units

 

 

 

 

 

101

 

 

 

704

 

 

 

805

 

 

 

 

 

 

805

 

Other, net

 

 

 

 

 

29

 

 

 

 

 

 

29

 

 

 

 

 

 

29

 

Net income

 

 

 

 

 

5,037

 

 

 

140

 

 

 

5,177

 

 

 

45

 

 

 

5,222

 

Change in accumulated other

     comprehensive income

 

 

 

 

 

(336

)

 

 

(19

)

 

 

(355

)

 

 

 

 

 

(355

)

Distributions paid to common

     unitholders

 

 

 

 

 

(59,781

)

 

 

(3,135

)

 

 

(62,916

)

 

 

 

 

 

(62,916

)

Distributions paid to preferred

     unitholders

 

 

 

 

 

(2,149

)

 

 

 

 

 

(2,149

)

 

 

 

 

 

(2,149

)

Distributions paid to noncontrolling

     interests in consolidated real

     estate partnerships

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(274

)

 

 

(274

)

Balances at June 30, 2018

 

$

125,000

 

 

$

1,489,941

 

 

$

42,828

 

 

$

1,657,769

 

 

$

(2,984

)

 

$

1,654,785

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balances at March 31, 2019

 

$

125,000

 

 

$

1,758,636

 

 

$

79,493

 

 

$

1,963,129

 

 

$

(2,857

)

 

$

1,960,272

 

Redemption of preferred units held

     by Aimco

 

 

(125,000

)

 

 

 

 

 

 

 

 

(125,000

)

 

 

 

 

 

(125,000

)

Issuance of common partnership units

 

 

 

 

 

 

 

 

3,034

 

 

 

3,034

 

 

 

 

 

 

3,034

 

Redemption of partnership units held

     by non-Aimco partners

 

 

 

 

 

3,423

 

 

 

(4,998

)

 

 

(1,575

)

 

 

 

 

 

(1,575

)

Amortization of share-based

     compensation

 

 

 

 

 

1,190

 

 

 

796

 

 

 

1,986

 

 

 

 

 

 

1,986

 

Effect of changes in ownership of

     partnership units and consolidated

     entities

 

 

 

 

 

(4,851

)

 

 

3,809

 

 

 

(1,042

)

 

 

1,042

 

 

 

 

Purchase of noncontrolling interest in

    consolidated real estate partnerships

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(917

)

 

 

(917

)

Other, net

 

 

 

 

 

(1

)

 

 

 

 

 

(1

)

 

 

 

 

 

(1

)

Net income

 

 

 

 

 

64,459

 

 

 

3,534

 

 

 

67,993

 

 

 

70

 

 

 

68,063

 

Change in accumulated other

     comprehensive income

 

 

 

 

 

15

 

 

 

1

 

 

 

16

 

 

 

 

 

 

16

 

Distributions paid to common

     unitholders

 

 

 

 

 

(58,039

)

 

 

(3,303

)

 

 

(61,342

)

 

 

 

 

 

(61,342

)

Common partnership units issued to

     common unitholders in special

     distribution

 

 

 

 

 

 

(516

)

 

 

 

 

 

(516

)

 

 

 

 

 

(516

)

Distributions paid to preferred

     unitholders

 

 

 

 

 

(1,098

)

 

 

 

 

 

(1,098

)

 

 

 

 

 

(1,098

)

Distributions paid to noncontrolling

     interests in consolidated real

     estate partnerships

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(56

)

 

 

(56

)

Balances at June 30, 2019

 

$

 

 

$

1,763,218

 

 

$

82,366

 

 

$

1,845,584

 

 

$

(2,718

)

 

$

1,842,866

 

See notes to condensed consolidated financial statements.

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Table of Contents

 

AIMCO PROPERTIES, L.P.

CONDENSED CONSOLIDATED STATEMENTS OF PARTNERS’ CAPITAL

For the Six Months Ended June 30, 2019 and 2018

(In thousands)

(Unaudited)

 

 

 

Preferred

Units

 

 

General

Partner

and Special

Limited Partner

 

 

Limited

Partners

 

 

Partners’

Capital

Attributable to

the Aimco

Operating

Partnership

 

 

Noncontrolling

Interests in Consolidated Real Estate Partnerships

 

 

Total

Partners’

Capital

 

Balances at December 31, 2017

 

$

125,000

 

 

$

1,538,144

 

 

$

(5,675

)

 

$

1,657,469

 

 

$

(1,716

)

 

$

1,655,753

 

Issuance of common partnership units

 

 

 

 

 

 

 

 

50,151

 

 

 

50,151

 

 

 

 

 

 

50,151

 

Redemption of partnership units held

     by non-Aimco partners

 

 

 

 

 

 

 

 

(7,611

)

 

 

(7,611

)

 

 

 

 

 

(7,611

)

Amortization of share-based

     compensation

 

 

 

 

 

4,481

 

 

 

780

 

 

 

5,261

 

 

 

 

 

 

5,261

 

Effect of changes in ownership of

     partnership units

 

 

 

 

 

(17,385

)

 

 

7,283

 

 

 

(10,102

)

 

 

 

 

 

(10,102

)

Other, net

 

 

 

 

 

122

 

 

 

 

 

 

122

 

 

 

 

 

 

122

 

Net income

 

 

 

 

 

88,829

 

 

 

3,895

 

 

 

92,724

 

 

 

6,251

 

 

 

98,975

 

Change in accumulated other

     comprehensive income

 

 

 

 

 

(395

)

 

 

(22

)

 

 

(417

)

 

 

 

 

 

(417

)

Distributions paid to common

     unitholders

 

 

 

 

 

(119,558

)

 

 

(5,973

)

 

 

(125,531

)

 

 

 

 

 

(125,531

)

Distributions paid to preferred

     unitholders

 

 

 

 

 

(4,297

)

 

 

 

 

 

(4,297

)

 

 

 

 

 

(4,297

)

Distributions paid to noncontrolling

     interests in consolidated real

     estate partnerships

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(7,519

)

 

 

(7,519

)

Balances at June 30, 2018

 

$

125,000

 

 

$

1,489,941

 

 

$

42,828

 

 

$

1,657,769

 

 

$

(2,984

)

 

$

1,654,785

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balances at December 31, 2018

 

$

125,000

 

 

$

1,574,419

 

 

$

67,189

 

 

$

1,766,608

 

 

$

(2,967

)

 

$

1,763,641

 

Repurchases of common partnership

     units held by Aimco

 

 

 

 

 

(20,682

)

 

 

 

 

 

(20,682

)

 

 

 

 

 

(20,682

)

Redemption of preferred units held

     by Aimco

 

 

(125,000

)

 

 

 

 

 

 

 

 

(125,000

)

 

 

 

 

 

(125,000

)

Issuance of common partnership units

 

 

 

 

 

 

 

 

3,034

 

 

 

3,034

 

 

 

 

 

 

3,034

 

Redemption of partnership units held

     by non-Aimco partners

 

 

 

 

 

3,423

 

 

 

(7,555

)

 

 

(4,132

)

 

 

 

 

 

(4,132

)

Amortization of share-based

     compensation

 

 

 

 

 

3,632

 

 

 

1,592

 

 

 

5,224

 

 

 

 

 

 

5,224

 

Effect of changes in ownership of

     partnership units and consolidated

     entities

 

 

 

 

 

(7,019

)

 

 

5,977

 

 

 

(1,042

)

 

 

1,042

 

 

 

 

Purchase of noncontrolling interest in

      consolidated real estate partnerships

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(917

)

 

 

(917

)

Other, net

 

 

 

 

 

58

 

 

 

 

 

 

58

 

 

 

19

 

 

 

77

 

Net income

 

 

 

 

 

338,592

 

 

 

18,671

 

 

 

357,263

 

 

 

161

 

 

 

357,424

 

Change in accumulated other

     comprehensive income

 

 

 

 

 

72

 

 

 

5

 

 

 

77

 

 

 

 

 

 

77

 

Distributions paid to common

     unitholders

 

 

 

 

 

(125,514

)

 

 

 

 

 

(125,514

)

 

 

 

 

 

(125,514

)

Common partnership units issued to

     common unitholders in special

     distribution

 

 

 

 

 

 

(516

)

 

 

 

 

 

(516

)

 

 

 

 

 

(516

)

Distributions paid to preferred

     unitholders

 

 

 

 

 

(3,247

)

 

 

 

 

 

(3,247

)

 

 

 

 

 

(3,247

)

Distributions paid to noncontrolling

     interests in consolidated real

     estate partnerships

 

 

 

 

 

 

 

 

(6,547

)

 

 

(6,547

)

 

 

(56

)

 

 

(6,603

)

Balances at June 30, 2019

 

$

 

 

$

1,763,218

 

 

$

82,366

 

 

$

1,845,584

 

 

$

(2,718

)

 

$

1,842,866

 

 

See notes to condensed consolidated financial statements.

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AIMCO PROPERTIES, L.P.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

 

 

Six Months Ended

 

 

June 30,

 

 

2019

 

2018

 

CASH FLOWS FROM OPERATING ACTIVITIES:

 

 

 

 

 

 

Net income

$

361,291

 

$

102,846

 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

 

 

Depreciation and amortization

 

185,489

 

 

190,033

 

Gain on dispositions of real estate

 

(355,783

)

 

(53,505

)

Income tax expense (benefit)

 

1,154

 

 

(38,824

)

Other adjustments

 

6,443

 

 

2,307

 

Net changes in operating assets and operating liabilities

 

(28,555

)

 

(17,231

)

Net cash provided by operating activities

 

170,039

 

 

185,626

 

CASH FLOWS FROM INVESTING ACTIVITIES:

 

 

 

 

 

 

Purchases of real estate and deposits related to purchases of real estate

 

(43,743

)

 

(205,318

)

Capital expenditures

 

(176,488

)

 

(164,116

)

Proceeds from dispositions of real estate

 

422,456

 

 

76,317

 

Purchases of corporate assets

 

(7,186

)

 

(2,649

)

Other investing activities

 

2,486

 

 

2,079

 

Net cash provided by (used in) investing activities

 

197,525

 

 

(293,687

)

CASH FLOWS FROM FINANCING ACTIVITIES:

 

 

 

 

 

 

Proceeds from issuance of non-recourse property debt

 

 

 

360,613

 

Principal repayments of non-recourse property debt

 

(207,790

)

 

(257,144

)

Net borrowings on revolving credit facility

 

134,600

 

 

153,010

 

Repurchases of common partnership units held by Aimco

 

(20,682

)

 

 

Redemption of preferred units held by Aimco

 

(125,000

)

 

 

Payment of distributions to Aimco

 

(125,350

)

 

(119,288

)

Payment of distributions to Limited Partners

 

(7,014

)

 

(5,625

)

Payment of distributions to preferred unitholders

 

(7,114

)

 

(8,168

)

Payment of distributions to noncontrolling interests in consolidated real estate partnerships

 

(56

)

 

(7,502

)

Redemptions of partnership units held by non-Aimco partners

 

(4,244

)

 

(7,816

)

Purchases of noncontrolling interests in consolidated real estate partnerships

 

(917

)

 

(3,581

)

Other financing activities

 

(10,685

)

 

(39

)

Net cash (used in) provided by financing activities

 

(374,252

)

 

104,460

 

NET DECREASE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH

 

(6,688

)

 

(3,601

)

CASH, CASH EQUIVALENTS AND RESTRICTED CASH AT BEGINNING OF PERIOD

 

72,595

 

 

142,541

 

CASH, CASH EQUIVALENTS AND RESTRICTED CASH AT END OF PERIOD

$

65,907

 

$

138,940

 

 

 

 

See notes to condensed consolidated financial statements.

14

 


Table of Contents

 

APARTMENT INVESTMENT AND MANAGEMENT COMPANY

AIMCO PROPERTIES, L.P.

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2019

(Unaudited)

 

Note 1 — Organization

Apartment Investment and Management Company, or Aimco, is a Maryland corporation incorporated on January 10, 1994. Aimco is a self-administered and self-managed real estate investment trust, or REIT. AIMCO Properties, L.P., or the Aimco Operating Partnership, is a Delaware limited partnership formed on May 16, 1994, to conduct our business, which is focused on the ownership, management, redevelopment and some development of quality apartment communities located in several of the largest markets in the United States.

Aimco, through its wholly-owned subsidiaries, AIMCO-GP, Inc. and AIMCO-LP Trust, owns a majority of the ownership interests in the Aimco Operating Partnership. Aimco conducts all of its business and owns all of its assets through the Aimco Operating Partnership. Interests in the Aimco Operating Partnership that are held by limited partners other than Aimco are referred to as OP Units. OP Units include common partnership units, which we refer to as common OP Units, as well as partnership preferred units, which we refer to as preferred OP Units. As of June 30, 2019, after elimination of units held by consolidated subsidiaries, the Aimco Operating Partnership had 158,463,083 common partnership units outstanding. As of June 30, 2019, Aimco owned 148,827,363 of the common partnership units, or 93.9%, of the Aimco Operating Partnership and Aimco had, an equal number of shares of its Class A Common Stock outstanding, which we refer to as Common Stock.

Except as the context otherwise requires, “we,” “our” and “us” refer to Aimco, the Aimco Operating Partnership and their consolidated subsidiaries, collectively.

As of June 30, 2019, we owned an equity interest in 128 apartment communities with 33,820 apartment homes in our portfolio. Our portfolio is diversified by both price point and geography and consists primarily of market rate apartment communities in which we own a substantial interest. We consolidated 124 of these apartment communities with 33,678 apartment homes.

 

Note 2 — Basis of Presentation and Summary of Significant Accounting Policies

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X. Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted in accordance with such rules and regulations, although management believes the disclosures are adequate to prevent the information presented from being misleading. In the opinion of management, all adjustments (consisting of normal recurring items) considered necessary for a fair presentation have been included. Operating results for the three and six months ended June 30, 2019 are not necessarily indicative of the results that may be expected for the year ending December 31, 2019.

The balance sheets of Aimco and the Aimco Operating Partnership at December 31, 2018, have been derived from their respective audited financial statements at that date, but do not include all of the information and disclosures required by GAAP for complete financial statements. For further information, refer to the financial statements and notes thereto included in Aimco’s and the Aimco Operating Partnership’s combined Annual Report on Form 10-K for the year ended December 31, 2018. Except where indicated, the footnotes refer to both Aimco and the Aimco Operating Partnership.

Principles of Consolidation

Aimco’s accompanying condensed consolidated financial statements include the accounts of Aimco, the Aimco Operating Partnership, and their consolidated subsidiaries. The Aimco Operating Partnership’s condensed consolidated financial statements include the accounts of the Aimco Operating Partnership and its consolidated subsidiaries, please refer to Note 9. All significant intercompany balances and transactions have been eliminated in consolidation.

15

 


Table of Contents

 

Interests in the Aimco Operating Partnership that are held by limited partners other than Aimco are reflected in Aimco’s accompanying condensed consolidated balance sheets as noncontrolling interests in the Aimco Operating Partnership. Interests in partnerships consolidated by the Aimco Operating Partnership that are held by third parties are reflected in our accompanying condensed consolidated balance sheets as noncontrolling interests in consolidated real estate partnerships.

Temporary Equity and Partners’ Capital

The following table presents a reconciliation of the Aimco Operating Partnership’s preferred OP Units from December 31, 2018 to June 30, 2019. As described in Note 6, the preferred OP Units may be redeemed at the holder’s option, and are therefore presented within temporary equity in Aimco’s condensed consolidated balance sheets and within temporary capital in the Aimco Operating Partnership’s condensed consolidated balance sheets (in thousands):

Balance, December 31, 2018

 

$

101,291

 

Distributions to holders of preferred OP Units

 

 

(3,867

)

Redemption of preferred OP Units and other

 

 

(113

)

Net income attributable to preferred OP Units

 

 

3,867

 

Balance, June 30, 2019

 

$

101,178

 

 

Use of Estimates

The preparation of our condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts included in the financial statements and accompanying notes thereto. Actual results could differ from those estimates.

Reclassifications and Revisions

Certain items in the 2018 condensed consolidated financial statements have been reclassified to conform to the current presentation. We have also reclassified gain on dispositions of real estate and related income taxes, which were previously reported net on our condensed consolidated statements of operations, to now present gain on dispositions of real estate as a component of income before income tax benefit (expense) in our condensed consolidated statements of operations, as follows (in thousands):

 

 

 

Three Months Ended June 30, 2018

 

 

Six Months Ended June 30, 2018

 

 

 

As Previously

Reported

 

 

Adjustments

 

 

As Revised

 

 

As Previously

Reported

 

 

Adjustments

 

 

As Revised

 

Income tax benefit

 

$

4,395

 

 

$

(88

)

 

$

4,307

 

 

$

41,783

 

 

$

(2,959

)

 

$

38,824

 

Gain on dispositions of real estate

 

 

222

 

 

 

88

 

 

 

310

 

 

 

50,546

 

 

 

2,959

 

 

 

53,505

 

 

During the six months ended June 30, 2019, Aimco and the Aimco Operating Partnership effected a reverse split of Common Stock and common partnership units, respectively, at a ratio of one share or unit for every 1.03119 shares or units outstanding on the date of effectiveness. The accounting guidance for recapitalization events requires that we revise Aimco’s equity and the Aimco Operating Partnership’s partners’ capital as if the reverse split had occurred at the beginning of the earliest period presented. As such, we have revised the outstanding share and unit counts, presentation of share and unit activity, and earnings per share and unit, as if the reverse split had occurred on December 31, 2017.

Accounting Pronouncements Adopted in the Current Year

Effective January 1, 2019, we adopted the lease accounting standard issued by the Financial Accounting Standards Board, or FASB. We elected to adopt the new standard using practical expedients that: do not require a look back to expired or existing contracts for embedded leases; allow us to retain the classification of existing leases; and allow us to retain the previous accounting for the initial direct costs of existing leases. Under the new standard, a contract is or contains a lease when it provides the right to control the use of an asset for a period of time in exchange for consideration.

Lessor accounting remains largely unchanged. In our position as a lessor, we have elected the practical expedient that allows us to combine revenue attributable to nonlease components with associated lease components where the timing and pattern of transfer of the components are the same. As a result, we will combine rent payments with payments for other services we provide to our residents, including residents’ reimbursement of utility expenses. We have adopted the standard using the optional transition method that allows for prior reporting periods to remain as originally presented. Please refer to Note 4.

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In 2018, the Securities Exchange Commission, or SEC, amended its rules to eliminate, modify, or integrate into other SEC requirements certain disclosure rules. The amendments are intended to simplify compliance without significantly changing the total mix of information provided to investors. The amendments created a requirement to report changes in equity and dividends per share in interim periods on a comparative basis for both quarter-to-date and year-to-date periods presented. We have presented comparative interim statements of stockholders’ and partners’ equity in our condensed consolidated financial statements for the three and six months ended June 30, 2019 and 2018.

Recent Accounting Pronouncements

In 2016, the FASB issued a new standard for accounting for financial instruments and credit losses thereon, which changes the method and timing of the recognition of credit losses on financial assets. The standard will require us to estimate and record credit losses over the life of a receivable at its inception. We have limited loans receivable and we invest in debt securities, which are subject to the new standard. Receivables related to operating leases are excluded from the new standard as they are subject to the lease accounting standard. This standard is required to be applied using a modified-retrospective approach and requires a cumulative-effect adjustment to retained earnings be recorded as of the date of adoption. The new standard is effective for us on January 1, 2020. We are currently in the process of completing our analysis of the impact of the standard and do not expect it to have a material effect on our financial position or results of operations.

 

Note 3 — Significant Transactions

Acquisitions of Apartment Communities

During the six months ended June 30, 2019, we acquired an apartment community located in Ardmore, Pennsylvania, a suburb of Philadelphia. Summarized information regarding this acquisition is set forth in the table below (dollars in thousands):

 

Number of apartment homes

 

 

110

 

Purchase price (1)

 

$

66,725

 

Capitalized transaction costs

 

$

892

 

Acquisition costs allocated to land

 

$

4,929

 

Acquisition costs allocated to building and improvements

 

$

61,271

 

 

 

(1)

The gross purchase price of the acquisition consisted of $32.8 million in cash, $30.9 million of assumed property-level debt and the issuance of 59,761 OP Units. In accordance with GAAP, the OP Units were valued at $50.77 per unit, the Aimco Common Stock closing price on April 5, 2019, the purchase date.

Dispositions of Apartment Communities

During the six months ended June 30, 2019, we sold apartment communities as summarized below (dollars in thousands):

Apartment communities sold

 

 

8

 

Apartment homes sold

 

 

2,605

 

Gain on dispositions of real estate

 

$

355,783

 

 

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

In addition to the apartment communities we sold during the current period, from time to time we may be marketing for sale certain apartment communities that are inconsistent with our long-term investment strategy. At the end of each reporting period, we evaluate whether such communities meet the criteria to be classified as held for sale. As of June 30, 2019, no apartment communities were classified as held for sale.

Note 4 — Leases

The majority of payments that we receive for our residential and commercial leases are fixed. We receive variable payments from our residents and commercial tenants primarily for utility and other expense reimbursements. For the three and six months ended June 30, 2019, our total lease income was comprised of the following amounts for all operating leases (in thousands):

 

 

Three Months Ended June 30, 2019

 

 

Six Months Ended June 30, 2019

 

Fixed lease income

 

$

209,890

 

 

$

425,471

 

Variable lease income

 

 

13,608

 

 

 

27,752

 

Total lease income

 

$

223,498

 

 

$

453,223

 

 

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In general, our commercial leases have options to extend for a certain period of time at the tenant’s option. Future minimum annual rental payments we will receive under commercial operating leases are as follows (in thousands):

 

July 1, 2019 to December 31, 2019

 

$

9,269

 

2020

 

 

16,589

 

2021

 

 

14,127

 

2022

 

 

13,637

 

2023

 

 

12,816

 

Thereafter

 

 

61,306

 

Total

 

$

127,744

 

 

Generally, our residential leases do not provide extension options and, as of June 30, 2019, have an average remaining term of 9.8 months. Future minimum rental payments pursuant to residential leases are excluded from the table above due to their shorter term.

For leases in which we are the lessee, beginning in 2019, we recognize right of use assets and related lease liabilities on our consolidated balance sheets. Upon adoption of the accounting guidance for leases, we recognized right of use assets of $87.5 million, which are included in other assets on our condensed consolidated balance sheets. We also recognized the related lease liabilities of $79.7 million, which are included in accrued liabilities and other on our condensed consolidated balance sheets. We estimated the value of the lease liabilities using a discount rate equivalent to the rate Aimco would pay on a secured borrowing with similar terms to the lease.

Substantially all of the payments under our ground and office leases are fixed. Rents for extension periods, when provided for in the lease, are generally adjusted to market value at the time the option is exercised; therefore, these extension periods were not included in our determination of the right of use asset and lease liability. For the three and six months ended June 30, 2019, our total lease cost for ground leases was $1.3 million and $4.5 million, respectively, and for office leases was $0.6 million and $1.3 million, respectively.

As of June 30, 2019, the ground and office leases have weighted average remaining terms of 79.4 years and 9.6 years, respectively, and weighted average discount rates of 4.12% and 3.65%, respectively. Minimum annual rental payments under operating leases, reconciled to the lease liabilities included in accrued liabilities and other on our condensed consolidated balance sheets are as follows (in thousands):

 

 

 

Office Lease

Future

Minimum Rent

 

 

Ground Lease

Future

Minimum Rent

 

 

Total

Operating Lease

Future Minimum Rent

 

July 1, 2019 to December 31, 2019

 

$

1,583

 

 

$

1,057

 

 

$

2,640

 

2020

 

 

2,806

 

 

 

2,350

 

 

 

5,156

 

2021

 

 

2,704

 

 

 

2,439

 

 

 

5,143

 

2022

 

 

2,561

 

 

 

2,492

 

 

 

5,053

 

2023

 

 

1,871

 

 

 

2,492

 

 

 

4,363

 

Thereafter

 

 

10,644

 

 

 

422,169

 

 

 

432,813

 

Total

 

$

22,169

 

 

$

432,999

 

 

$

455,168

 

Less: minimum payments for leases not yet commenced

 

 

(17,849

)

 

 

 

 

 

(17,849

)

Less: discount

 

 

(308

)

 

 

(356,204

)

 

 

(356,512

)

Total lease liability

 

$

4,012

 

 

$

76,795

 

 

$

80,807

 

 

Note 5 — Commitments and Contingencies

Commitments

In connection with our redevelopment, development and other capital additions activities, we have entered into various construction-related contracts and we have made commitments to complete redevelopment and development of certain apartment communities, pursuant to financing or other arrangements. As of June 30, 2019, our commitments related to these capital activities totaled approximately $235.9 million, most of which we expect to incur during the next 12 months.

We enter into certain commitments for future purchases of goods and services in connection with the operations of our apartment communities. Those commitments generally have terms of one year or less and reflect expenditure levels comparable to our historical expenditures.

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Income Taxes

In 2014, the Internal Revenue Service initiated an audit of the Aimco Operating Partnership’s 2011 and 2012 tax years. We do not believe the audit will have any material effect on our unrecognized tax benefits, financial condition or results of operations.

Legal Matters

In addition to the matters described below, we are a party to various legal actions and administrative proceedings arising in the ordinary course of business, some of which are covered by our general liability insurance program, and none of which we expect to have a material adverse effect on our consolidated financial condition, results of operations or cash flows.

Environmental

Various federal, state and local laws subject apartment community owners or operators to liability for management, and the costs of removal or remediation, of certain potentially hazardous materials that may be present in the land or buildings of an apartment community. Such laws often impose liability without regard to fault or whether the owner or operator knew of, or was responsible for, the presence of such materials. The presence of, or the failure to manage or remediate properly, these materials may adversely affect occupancy at such apartment communities as well as the ability to sell or finance such apartment communities. In addition, governmental agencies may bring claims for costs associated with investigation and remediation actions. Moreover, private plaintiffs may potentially make claims for investigation and remediation costs they incur or for personal injury, disease, disability or other infirmities related to the alleged presence of hazardous materials. In addition to potential environmental liabilities or costs associated with our current apartment communities, we may also be responsible for such liabilities or costs associated with communities we acquire or manage in the future, or apartment communities we no longer own or operate.

We are engaged in discussions with the Environmental Protection Agency, or EPA, and the Indiana Department of Environmental Management, or IDEM, regarding contaminated groundwater near an Indiana apartment community that has not been owned by us since 2008. The contamination allegedly derives from a dry cleaner that operated on our former property, prior to our ownership. We undertook a voluntary remediation of the dry cleaner contamination under IDEM’s oversight. In 2016, EPA listed our former community and a number of residential communities in the vicinity on the National Priorities List, or NPL (i.e. as a Superfund site). In May 2018, we prevailed on our federal judicial appeal vacating the Superfund listing. We continue to work with EPA and IDEM to identify options for clean-up of the site. Although the outcome of these processes are uncertain, we do not expect their resolution to have a material adverse effect on our consolidated financial condition, results of operations or cash flows.

We also have a contingent liability stemming from a property in Lake Tahoe, California, regarding environmental contamination from the historic operation of a dry cleaner. An entity owned by us was the former general partner of a now-dissolved partnership that previously owned a site that was used for dry cleaning. That entity and the current property owner have been remediating the dry cleaner site since 2009, under the oversight of the Lahontan Regional Water Quality Control Board, or Lahontan. In May 2017, Lahontan issued a final cleanup and abatement order that names four potentially-responsible parties, acknowledges that there may be additional responsible parties, and requires the named parties to perform additional groundwater investigation and corrective actions with respect to onsite and offsite contamination. We are appealing the final order while simultaneously complying with it. Although the outcome of this process is uncertain, we do not expect its resolution to have a material adverse effect on our consolidated financial condition, results of operations or cash flows.

We have determined that our legal obligations to remove or remediate certain potentially hazardous materials may be conditional asset retirement obligations, as defined in GAAP. Except in limited circumstances where the asset retirement activities are expected to be performed in connection with a planned construction project or apartment community casualty, we believe that the fair value of our asset retirement obligations cannot be reasonably estimated due to significant uncertainties in the timing and manner of settlement of those obligations. Asset retirement obligations that are reasonably estimable as of June 30, 2019, are immaterial to our consolidated financial condition, results of operations and cash flows.

 

Note 6 — Earnings and Dividends per Share and Unit

Aimco and the Aimco Operating Partnership calculate basic earnings per common share and basic earnings per common unit based on the weighted average number of shares of Common Stock and common partnership units and excludes participating securities outstanding. Diluted earnings per share and diluted earnings per unit are calculated taking into consideration dilutive common stock and common partnership unit equivalents and dilutive convertible securities outstanding during the period.

Our common stock and common partnership unit equivalents include options to purchase shares of Common Stock, which, if exercised, would result in Aimco’s issuance of additional shares and the Aimco Operating Partnership’s issuance to Aimco of additional common partnership units equal to the number of shares purchased under the options. These equivalents also include

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unvested total stockholder return, or TSR, restricted stock awards that do not meet the definition of participating securities, which would result in an increase in the number of shares of Common Stock and common partnership units outstanding equal to the number of shares that vest. Common partnership unit equivalents also include unvested long-term incentive partnership units. Securities with dilutive effect are included in the denominator for calculating diluted earnings per share and per unit during these periods.

Our time-based restricted stock awards receive non-forfeitable dividends similar to shares of Common Stock and common partnership units prior to vesting. These dividends and distributions are not forfeited if the awards fail to vest. Therefore, the unvested shares and units related to these awards are participating securities. The effect of participating securities is included in basic and diluted earnings per share and unit computations using the two-class method of allocating distributed and undistributed earnings when the two-class method is more dilutive than the treasury method.

The effect of dilutive securities included in the calculation of earnings per share, and securities not dilutive and excluded from the calculation of earnings per share, for the three and six months ended June 30, 2019 and 2018, were as follows (in thousands):

 

Three Months Ended

 

Six Months Ended

 

June 30, 2019

 

June 30, 2018

 

June 30, 2019

 

June 30, 2018

Dilutive share equivalents outstanding

232

 

130

 

226

 

130

Dilutive partnership unit equivalents outstanding

381

 

126

 

359

 

129

Non-dilutive share equivalents outstanding

 

184

 

 

184

Non-dilutive partnership unit equivalents outstanding

 

421

 

 

421

Unvested restricted participating shares and partnership units

199

 

257

 

199

 

257

The Aimco Operating Partnership has various classes of preferred OP Units, which may be redeemed at the holder’s option. The Aimco Operating Partnership may redeem these units for cash, or at its option, shares of Common Stock. As of June 30, 2019, these preferred OP Units were potentially redeemable for approximately 2.0 million shares of Common Stock (based on the period end market price), or cash. The Aimco Operating Partnership has a redemption policy that requires cash settlement of redemption requests for the preferred OP Units, subject to limited exceptions. Accordingly, we have excluded these securities from earnings per share and unit computations and we expect to exclude them in future periods.

During the three and six months ended June 30, 2019, we paid $0.39 and $2.41, respectively, in dividends and distributions per share and per unit. Of the $2.41 paid in dividends and distributions in 2019, $2.02 was paid in March and represents the per share and unit value of the special dividend and special distribution. The special dividend consisted of $67.1 million in cash, 4.5 million shares of Common Stock and $0.4 million of cash paid in lieu of issuing fractional shares. The special distribution consisted of $72.7 million in cash, 4.8 million common partnership units and $0.4 million of cash paid in lieu of issuing fractional units. During the three and six months ended June 30, 2018, we paid $0.38 and $0.76, respectively, in dividends and distributions per share and per unit.

 

Note 7 — Fair Value Measurements

Recurring Fair Value Measurements

We hold several positions in the securitization trust that holds certain of our property debt and pay interest currently. We also hold the first loss position in the securitization trust, which accrues interest over the term of the investment. These investments were acquired at a discount to face value and we are accreting the discount to the $100.9 million face value of the investments through interest income using the effective interest method over the remaining expected term of the investments, which, as of June 30, 2019, was approximately 1.9 years. We measure at fair value, on a recurring basis, our investments in the securitization trust, which we classify as available for sale, or AFS, debt securities.

Our investments in AFS debt securities are included in other assets in the accompanying condensed consolidated balance sheets. Our amortized cost basis for AFS debt securities, which represents the original cost adjusted for interest accretion less interest payments received, was $86.7 million and $83.6 million as of June 30, 2019 and December 31, 2018, respectively. We estimated the fair value of these investments to be $91.7 million and $88.5 million as of June 30, 2019 and December 31, 2018, respectively.

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Our investments in AFS debt securities are classified within Level 2 of the GAAP fair value hierarchy. We estimate the fair value of these investments using an income and market approach with primarily observable inputs, including yields and other information regarding similar types of investments, and adjusted for certain unobservable inputs specific to these investments. The fair value of the positions that pay interest currently typically moves in an inverse relationship with movements in interest rates. The fair value of the first loss position is primarily correlated to collateral quality and demand for similar subordinate commercial mortgage-backed securities.

Fair Value Disclosures

We believe that the carrying value of the consolidated amounts of cash and cash equivalents, receivables and payables approximated their fair value as of June 30, 2019 and December 31, 2018, due to their relatively short-term nature and high probability of realization. The carrying amounts of longer term seller financing notes receivable approximated their estimated fair value as of June 30, 2019 and December 31, 2018. The carrying amount of our total indebtedness was approximately $4.0 billion as compared to an estimated fair value of $4.1 billion as of June 30, 2019. The carrying amount of our total indebtedness approximated its estimated fair value at December 31, 2018. We estimate the fair value of our seller financing notes and our consolidated debt using an income and market approach, including comparison of the contractual terms to observable and unobservable inputs such as market interest rate risk spreads, contractual interest rates, remaining periods to maturity, collateral quality and loan to value ratios on similarly encumbered apartment communities within our portfolio. We classify the fair value of debt and seller financing notes within Level 3 of the GAAP valuation hierarchy based on the significance of certain of the unobservable inputs used to estimate its fair value.

 

Note 8 — Business Segments

In 2019, as a result of the 2018 sale of the Asset Management business, we revised the information regularly reviewed by our chief executive officer, who is our chief operating decision maker, to assess our operating performance. We have determined we have four segments: Same Store, Redevelopment and Development, Acquisition, and Other Real Estate.

Our Same Store segment includes communities that have reached a stabilized level of operations as of the beginning of a two-year comparable period and maintained it throughout the current and comparable prior year, and are not expected to be sold within 12 months. Our Redevelopment and Development segment includes apartment communities that are currently under construction that have not achieved a stabilized level of operations, and those that have been completed in recent years that have not achieved and maintained stabilized operations for both the current and comparable prior year. Our Acquisition segment includes apartment communities that we have acquired since the beginning of a two-year comparable period. Our Other Real Estate segment primarily includes apartment communities that are subject to limitations on rent increases and communities that we expect to sell within 12 months but do not yet meet the criteria to be classified as held for sale.

Our chief operating decision maker uses proportionate property net operating income to assess the operating performance of our apartment communities. Proportionate property net operating income is defined as our share of rental and other property revenue less our share of property operating expenses for consolidated apartment communities. We exclude from rental and other property revenues the amount of utility costs reimbursed by residents and reflect such amount as a reduction of the related utility expense within property operating expenses in our evaluation of segment results. In our condensed consolidated statements of operations, utility reimbursements are included in rental and other property revenues, in accordance with GAAP.

As of June 30, 2019, our Same Store segment included 95 consolidated apartment communities with 27,640 apartment homes; our Redevelopment and Development segment included seven consolidated apartment communities with 3,134 apartment homes; our Acquisition segment included seven consolidated apartment communities with 1,590 apartment homes; and our Other Real Estate segment included 15 apartment communities with 1,315 apartment homes.

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The following tables present the revenues, proportionate property net operating income and income before income tax benefit (expense) of our segments on a proportionate basis and excluding our proportionate share of four communities with 142 apartment homes, which we do not consolidate, and amounts related to apartment communities sold as of June 30, 2019 for the three and six months ended June 30, 2019 and 2018 (in thousands):

 

 

 

Same Store

 

 

Redevelopment

and

Development

 

 

Acquisition

 

 

Other Real

Estate

 

 

Proportionate

and Other

Adjustments (1)

 

 

Corporate and

Amounts Not

Allocated to

Segments (2)

 

 

Consolidated

 

Three months ended June 30, 2019:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total revenues

 

$

176,375

 

 

$

19,166

 

 

$

10,237

 

 

$

9,275

 

 

$

8,255

 

 

$

892

 

 

$

224,200

 

Property operating expenses attributable

   to real estate

 

 

47,169

 

 

 

7,030

 

 

 

2,974

 

 

 

3,904

 

 

 

7,725

 

 

 

7,037

 

 

 

75,839

 

Other operating expenses not allocated

   to segments (3)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

108,257

 

 

 

108,257

 

Total operating expenses

 

 

47,169

 

 

 

7,030

 

 

 

2,974

 

 

 

3,904

 

 

 

7,725

 

 

 

115,294

 

 

 

184,096

 

Proportionate property net operating

   income

 

 

129,206

 

 

 

12,136

 

 

 

7,263

 

 

 

5,371

 

 

 

530

 

 

 

(114,402

)

 

 

40,104

 

Other items included in income

   before income tax benefit (4)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

28,065

 

 

 

28,065

 

Income before income tax benefit

 

$

129,206

 

 

$

12,136

 

 

$

7,263

 

 

$

5,371

 

 

$

530

 

 

$

(86,337

)

 

$

68,169

 

 

 

 

Same Store

 

 

Redevelopment

and

Development

 

 

Acquisition

 

 

Other Real

Estate

 

 

Proportionate

and Other

Adjustments (1)

 

 

Corporate and

Amounts Not

Allocated to

Segments (2)

 

 

Consolidated

 

Three months ended June 30, 2018:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total revenues

 

$

169,902

 

 

$

18,482

 

 

$

6,358

 

 

$

9,378

 

 

$

7,640

 

 

$

38,427

 

 

$

250,187

 

Property operating expenses attributable

   to real estate

 

 

46,352

 

 

 

6,936

 

 

 

1,875

 

 

 

3,679

 

 

 

7,116

 

 

 

10,073

 

 

 

76,031

 

Other operating expenses not allocated

   to segments (3)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

124,795

 

 

 

124,795

 

Total operating expenses

 

 

46,352

 

 

 

6,936

 

 

 

1,875

 

 

 

3,679

 

 

 

7,116

 

 

 

134,868

 

 

 

200,826

 

Proportionate property net operating

   income

 

 

123,550

 

 

 

11,546

 

 

 

4,483

 

 

 

5,699

 

 

 

524

 

 

 

(96,441

)

 

 

49,361

 

Other items included in income

   before income tax benefit (4)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(46,512

)

 

 

(46,512

)

Income before income tax benefit

 

$

123,550

 

 

$

11,546

 

 

$

4,483

 

 

$

5,699

 

 

$

524

 

 

$

(142,953

)

 

$

2,849

 

 

 

 

Same

Store

 

 

Redevelopment

and

Development

 

 

Acquisition

 

 

Other Real

Estate

 

 

Proportionate

and Other

Adjustments (1)

 

 

Corporate and

Amounts Not

Allocated to

Segments (2)

 

 

Consolidated

 

Six months ended June 30, 2019:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total revenues

 

$

350,494

 

 

$

39,516

 

 

$

20,230

 

 

$

18,741

 

 

$

16,884

 

 

$

8,570

 

 

$

454,435

 

Property operating expenses

   attributable to real estate

 

 

93,904

 

 

 

14,317

 

 

 

5,827

 

 

 

7,790

 

 

 

15,792

 

 

 

17,393

 

 

 

155,023

 

Other operating expenses not allocated

   to segments (3)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

217,894

 

 

 

217,894

 

Total operating expenses

 

 

93,904

 

 

 

14,317

 

 

 

5,827

 

 

 

7,790

 

 

 

15,792

 

 

 

235,287

 

 

 

372,917

 

Proportionate property net operating

   income

 

 

256,590

 

 

 

25,199

 

 

 

14,403

 

 

 

10,951

 

 

 

1,092

 

 

 

(226,717

)

 

 

81,518

 

Other items included in income

   before income tax expense (4)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

280,927

 

 

 

280,927

 

Income before income tax expense

 

$

256,590

 

 

$

25,199

 

 

$

14,403

 

 

$

10,951

 

 

$

1,092

 

 

$

54,210

 

 

$

362,445

 

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Table of Contents

 

 

 

 

Same

Store

 

 

Redevelopment

and

Development

 

 

Acquisition

 

 

Other

Real

Estate

 

 

Proportionate

and Other

Adjustments (1)

 

 

Corporate and

Amounts Not

Allocated to

Segments (2)

 

 

Consolidated

 

Six months ended June 30, 2018:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total revenues

 

$

336,931

 

 

$

36,560

 

 

$

7,937

 

 

$

18,689

 

 

$

15,767

 

 

$

82,023

 

 

$

497,907

 

Property operating expenses

   attributable to real estate

 

 

92,659

 

 

 

13,436

 

 

 

2,398

 

 

 

7,525

 

 

 

14,734

 

 

 

23,566

 

 

 

154,318

 

Other operating expenses not allocated

   to segments (3)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

240,851

 

 

 

240,851

 

Total operating expenses

 

 

92,659

 

 

 

13,436

 

 

 

2,398

 

 

 

7,525

 

 

 

14,734

 

 

 

264,417

 

 

 

395,169

 

Proportionate property net operating

   income

 

 

244,272

 

 

 

23,124

 

 

 

5,539

 

 

 

11,164

 

 

 

1,033

 

 

 

(182,394

)

 

 

102,738

 

Other items included in income

   before income tax benefit (4)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(38,716

)

 

 

(38,716

)

Income before income tax benefit

 

$

244,272

 

 

$

23,124

 

 

$

5,539

 

 

$

11,164

 

 

$

1,033

 

 

$

(221,110

)

 

$

64,022

 

 

(1)

Represents adjustments for the noncontrolling interests in consolidated real estate partnerships’ share of the results of consolidated apartment communities in our segments, which are included in the related consolidated amounts, but excluded from proportionate property net operating income for our segment evaluation. Also includes the reclassification of utility reimbursements from revenues to property operating expenses for the purpose of evaluating segment results. Utility reimbursements are included in rental and other property revenues in our condensed consolidated statements of operations prepared in accordance with GAAP.

(2)

Includes the operating results of apartment communities sold during the periods shown or held for sale at the end of the period, if any, and the operating results of apartment communities owned by consolidated partnerships served by our Asset Management business prior to its sale in July 2018. Corporate and Amounts Not Allocated to Segments also includes property management expenses and casualty gains and losses, which are included in consolidated property operating expenses and are not part of our segment performance measure.

(3)

Other operating expenses not allocated to segments consists of property operating expenses of partnerships served by our Asset Management business prior to its sale in July 2018, depreciation and amortization, general and administrative expenses and other operating expenses, which are not included in our measure of segment performance.

(4)

Other items included in income before income tax benefit (expense) primarily consists of gain on dispositions of real estate and interest expense.

The assets of our segments and the consolidated assets not allocated to our segments were as follows (in thousands):

 

 

June 30, 2019

 

 

December 31, 2018

 

Same Store

$

4,110,917

 

 

$

4,131,494

 

Redevelopment and Development

 

852,177

 

 

 

792,126

 

Acquisition

 

627,109

 

 

 

507,190

 

Other Real Estate

 

327,326

 

 

 

327,099

 

Corporate and other assets (1)

 

323,275

 

 

 

432,095

 

Total consolidated assets

$

6,240,804

 

 

$

6,190,004

 

(1)

Includes the assets not allocated to our segments, primarily corporate assets and assets of apartment communities sold as of June 30, 2019.

 

For the six months ended June 30, 2019 and 2018, capital additions related to our segments were as follows (in thousands):

 

 

2019

 

 

2018

 

Same Store

$

73,242

 

 

$

61,581

 

Redevelopment and Development

 

84,782

 

 

 

86,202

 

Acquisition

 

15,056

 

 

 

3,985

 

Other Real Estate

 

6,063

 

 

 

4,285

 

Total capital additions

$

179,143

 

 

$

156,053

 

 

Note 9 — Variable Interest Entities

Generally, a variable interest entity, or VIE, is a legal entity in which the equity investors do not have the characteristics of a controlling financial interest or the equity investors lack sufficient equity at risk for the entity to finance its activities without additional subordinated financial support. A limited partnership is considered a VIE when the majority of the limited partners unrelated to the general partner possess neither the right to remove the general partner without cause, nor certain rights to participate in the decisions that most significantly affect the financial results of the partnership. In determining whether we are

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the primary beneficiary of a VIE, we consider qualitative and quantitative factors, including, but not limited to: which activities most significantly impact the VIE’s economic performance and which party controls such activities; the amount and characteristics of our investment; the obligation or likelihood for us or other investors to provide financial support; and the similarity with and significance to our business activities and the business activities of the other investors. Significant judgments related to these determinations include estimates about the current and future fair values and performance of real estate held by these VIEs and general market conditions.

Aimco consolidates the Aimco Operating Partnership, a VIE of which Aimco is the primary beneficiary. Aimco, through the Aimco Operating Partnership, consolidates all VIEs for which the Aimco Operating Partnership is the primary beneficiary.

All of the VIEs the Aimco Operating Partnership consolidates own interests in one or more apartment communities and are typically structured to generate a return for their partners through the operation and ultimate sale of the communities. The Aimco Operating Partnership is the primary beneficiary in the limited partnerships in which it is the sole decision maker and has a substantial economic interest. The table below summarizes information regarding VIEs consolidated by the Aimco Operating Partnership:

 

 

 

June 30, 2019

 

 

December 31, 2018

 

VIEs with interests in apartment communities

 

 

7

 

 

 

9

 

Apartment communities owned by VIEs

 

 

7

 

 

 

9

 

Apartment homes in communities owned by VIEs

 

 

3,183

 

 

 

3,592

 

 

Assets of the Aimco Operating Partnership’s consolidated VIEs must first be used to settle the liabilities of such consolidated VIEs. These consolidated VIEs’ creditors do not have recourse to the general credit of the Aimco Operating Partnership. Assets and liabilities of consolidated VIEs are summarized in the table below (in thousands):

 

 

 

June 30, 2019

 

 

December 31, 2018

 

Assets

 

 

 

 

 

 

 

 

Net real estate

 

$

405,174

 

 

$

488,127

 

Cash and cash equivalents

 

 

7,618

 

 

 

15,416

 

Restricted cash

 

 

3,106

 

 

 

4,461

 

Other assets

 

 

27,144

 

 

 

3,973

 

Liabilities

 

 

 

 

 

 

 

 

Non-recourse property debt secured by Aimco communities, net

 

 

177,825

 

 

 

322,685

 

Accrued liabilities and other

 

 

35,946

 

 

 

13,576

 

 

 

 

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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 contains or may contain information that is forward-looking, within the meaning of the federal securities laws, including, without limitation, statements regarding: our ability to maintain current or meet projected occupancy, rental rate and property operating results; the effect of acquisitions, dispositions, redevelopments and developments; our ability to meet budgeted costs and timelines, and achieve budgeted rental rates related to our redevelopment and development investments; expectations regarding sales of our apartment communities and the use of proceeds thereof; and our ability to comply with debt covenants, including financial coverage ratios.

Actual results may differ materially from those described in these forward-looking statements and, in addition, will be affected by a variety of risks and factors, some of which are beyond our control, including, without limitation:

 

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 of acquisitions, dispositions, redevelopments and developments; and changes in operating costs, including energy costs;

 

Financing risks, including the availability and cost of capital markets’ financing; the risk that our cash flows from operations may be insufficient to meet required payments of principal and interest; and the risk that our earnings may not be sufficient to maintain compliance with debt covenants;

 

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

 

Legal and regulatory risks, including costs associated with prosecuting or defending claims and any adverse outcomes; the terms of governmental regulations that affect us and interpretations of those regulations; and possible environmental liabilities, including costs, fines or penalties that may be incurred due to necessary remediation of contamination of apartment communities presently or previously owned by us.

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 and depends on our ability to meet the various requirements imposed by the Internal Revenue 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 the section entitled “Risk Factors” described in Item 1A of Apartment Investment and Management Company’s and AIMCO Properties, L.P.’s combined Annual Report on Form 10-K for the year ended December 31, 2018, and the other documents we file from time to time with the Securities and Exchange Commission.

As used herein and except as the context otherwise requires, “we,” “our” and “us” refer to Apartment Investment and Management Company (which we refer to as Aimco), AIMCO Properties, L.P. (which we refer to as the Aimco Operating Partnership) and their consolidated entities, collectively.

Certain financial and operating measures found herein and used by management are not defined under accounting principles generally accepted in the United States, or GAAP. These measures are defined and reconciled to the most comparable GAAP measures under the Non-GAAP Measures heading and include: Nareit Funds From Operations, Pro forma Funds From Operations, Adjusted Funds From Operations, Free Cash Flow, Economic Income, and the measures used to compute our leverage ratios.

Executive Overview

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

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Our principal financial objective is to provide predictable and attractive returns to our equity holders. We measure our long-term total return using Economic Income, defined as Net Asset Value, or NAV, growth plus dividends. NAV is used by many investors because the value of company assets can be readily estimated, even for non-earning assets such as land or properties under development. NAV has the advantage of incorporating the investment decisions of thousands of real estate investors, enhancing comparability among companies that have differences in their accounting, avoiding disparity that can result from application of GAAP to investment properties and various ownership structures. Some investors focus on multiples of Adjusted Funds From Operations, or AFFO, and Funds From Operations, or FFO. Our disclosure of AFFO, a measure of current return, complements our focus on Economic Income. We also use Pro forma Funds From Operations, or Pro forma FFO, as a secondary measure of operational performance.

Our business plan to achieve our principal financial objective is to:

 

operate our portfolio of desirable apartment homes with a high level of focus on customer selection and customer satisfaction and in an efficient manner that produces predictable and growing Free Cash Flow;

 

improve our portfolio of apartment communities, which is diversified both by geography and price point, by selling apartment communities with lower projected Free Cash Flow internal rates of return and investing the proceeds from such sales through capital enhancements, redevelopment, some development, and acquisitions with greater land value, higher expected rent growth, and projected Free Cash Flow internal rates of return in excess of those expected from the communities sold;

 

use low levels of financial leverage primarily in the form of non-recourse, long-dated, fixed-rate property debt and perpetual preferred equity, a combination that reduces our refunding and re-pricing risk and provides a hedge against increases in interest rates; and

 

focus intentionally on a collaborative and productive culture based on respect for others and personal responsibility.

Our business is organized around five areas of strategic focus: operational excellence; redevelopment and development; portfolio management; balance sheet; and team and culture. The results from the execution of our business plan during the three months ended June 30, 2019, are further described below.

Operational Excellence

We own and operate a portfolio of apartment communities, diversified by both geography and price point. At June 30, 2019, our portfolio included 128 apartment communities with 33,820 apartment homes in which we held an average ownership of approximately 99%.

Our property operations team produced solid results for our portfolio for the three months ended June 30, 2019. Highlights include:

 

Same Store portfolio average daily occupancy of 96.9%, a 60 basis point increase over the same period in 2018;

 

Same Store net operating income increased 4.6% with net operating income margins of 73.3%, a 60 basis point increase over the three months ended June 30, 2018; and

 

Same Store rent increases on renewals and new leases averaged 5.0% and 2.0%, respectively, for a weighted average increase of 3.6%.

Our focus on efficient operations through productivity initiatives such as centralization of administrative tasks, optimization of economies of scale at the corporate level, and investment in more durable, longer-lived materials has helped us control operating expenses. These and other innovations contributed to limiting growth in controllable operating expense (defined as property expenses less taxes, insurance and utility expenses).

Redevelopment and Development

Our second line of business is the redevelopment and some development of apartment communities. Through these activities, we expect to create value by repositioning communities within our portfolio. We measure the rate and quality of financial returns by NAV creation, an important component of Economic Income, our primary measure of long-term financial performance. We undertake ground-up development when warranted by risk-adjusted investment returns, either directly or in connection with the redevelopment of an existing apartment community. When warranted, we rely on the expertise and credit of a third-party developer familiar with the local market to limit our exposure to construction risk.

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We invest to earn leverage-neutral risk-adjusted returns in excess of those expected from the apartment communities sold in “paired trades” to fund the redevelopment or development. Of these two activities, we generally favor redevelopment because it permits adjustment to the scope and timing of spending to align with changing market conditions and customer preferences.

During the three months ended June 30, 2019, we invested $51.7 million in redevelopment and development. We continued phased redevelopment activities at Bay Parc in Miami, the full redevelopment of 707 Leahy in Redwood City, California, and ground-up construction at Parc Mosaic in Boulder, Colorado, The Fremont on the Anschutz Medical Campus in Aurora, Colorado, and Elm Creek Townhomes in Elmhurst, Illinois.

At Parc Mosaic, an unusually wet spring slowed the delivery of the first building to August. We now expect our total investment to be $123 million, an increase of $6 million due primarily to weather. The expected rate of return is unchanged as rental rates have increased sufficiently to offset the higher cost.

During the three months ended June 30, 2019, we also began the next phase of redevelopment at Flamingo Point in Miami Beach, Florida. At the North Tower, we expect to invest approximately $170 million and to create 366 new apartment homes. Construction on the North Tower is underway and initial occupancies are expected to occur in the third quarter of 2021. Aimco believes the construction risk associated with this portion of the redevelopment is similar to our recently completed projects at Park Towne Place and The Sterling and the lease-up risk is similar to our One Canal and Indigo projects. At the Center Tower, we expect to invest $70 million to renovate apartment homes on-the-turn at a pace dictated by the market, thereby limiting construction and lease-up risk. The initial $40 million phase of redevelopment, which is focused on amenity and common area improvements is expected to be complete by year-end 2019. Upon completion of the amenities, common areas, and apartments in the North and Center towers, we will have invested $280 million, generating a free cash flow internal rate of return of approximately 10% on the incremental investment, or 400 basis points greater than the expected free cash flow from communities sold to fund the redevelopment.

Please see below under the Liquidity and Capital Resources – Redevelopment and Development heading for additional information regarding our redevelopment and development investment during the six months ended June 30, 2019.

Portfolio Management

Our portfolio of apartment communities is diversified across “A,” “B,” and “C+” price points, averaging “B/B+” in quality, and is geographically diversified across several of the largest markets in the United States. We measure the quality of apartment communities in our portfolio based on average rents of our apartment homes compared to local market average rents as reported by a third-party provider of commercial real estate performance and analysis. Under this rating system, we classify as “A” quality apartment communities those earning rents greater than 125% of local market average; as “B” quality apartment communities those earning rents between 90% and 125% of local market average; as “C+” quality apartment communities those earning rents greater than $1,100 per month, but lower than 90% of local market average; and as “C” quality apartment communities those earning rents less than $1,100 per month and lower than 90% of local market average. We classify as “B/B+” quality a portfolio that on average earns rents between 100% and 125% of local market average rents. Although some companies and analysts within the multifamily real estate industry use apartment community quality ratings of “A,” “B” and “C,” some of which are tied to local market rent averages, the metrics used to classify apartment community quality as well as the period for which local market rents are calculated may vary from company to company. Accordingly, our rating system for measuring apartment community quality is neither broadly nor consistently used in the multifamily real estate industry.

As part of our portfolio strategy, we seek to sell up to 10% of our portfolio annually and to reinvest the proceeds from such sales in accretive uses such as capital enhancements, redevelopments, some developments, and selective acquisitions with projected Free Cash Flow internal rates of return higher than expected from the communities being sold. Through this disciplined approach to capital recycling, we increase the quality and expected growth rate of our portfolio.

 

 

 

Three Months Ended June 30,

 

 

 

2019

 

 

2018

 

Average revenue per Aimco apartment home (1)

 

$

2,218

 

 

$

2,093

 

Portfolio average rents as a percentage of local market average rents

 

 

113

%

 

 

112

%

Percentage A (2Q 2019 average revenue per Aimco apartment home $2,884)

 

 

52

%

 

 

50

%

Percentage B (2Q 2019 average revenue per Aimco apartment home $1,959)

 

 

31

%

 

 

35

%

Percentage C+ (2Q 2019 average revenue per Aimco apartment home $1,745)

 

 

17

%

 

 

15

%

 

(1)

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

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Our average revenue per apartment home was $2,218 for the three months ended June 30, 2019, a 6% increase compared to 2018. This increase is due to growth in Same Store revenue for the three months ended June 30, 2019 as compared to June 30, 2018, as well as our acquisition activities, lease-up of redevelopment communities, and sales of communities with average monthly revenues per apartment home lower than those of the retained portfolio.

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

Apartment Community Acquisitions

We evaluate potential acquisitions with an eye for unique and opportunistic investments and fund acquisitions pursuant to our strict “paired trade” discipline.

During the three months ended June 30, 2019, we acquired three properties with a weighted-average free cash flow internal rate of return of about 9%, approximately 300 basis points better than expected from the properties being sold in paired trades to fund the acquisitions.

During the three months ended June 30, 2019, we closed the $65.9 million acquisition of One Ardmore, the fifth and final community included in the Philadelphia portfolio acquisition announced in 2018.

During the three months ended June 30, 2019, we acquired a 136-apartment home community currently under development in Cambridge, Massachusetts and located directly across the street from our Axiom community. We expect our total investment of $70 million to generate a free cash flow internal rate of return over 9%. Coupled with our Axiom and Vivo communities, we will have $200 million invested in the heart of the Kendall Square submarket.

  Subsequent to June 30, 2019, in an off-market transaction, we purchased for $157 million a 95% interest in 1001 Brickell Bay Drive, a 1.8-acre waterfront parcel currently improved with an office building and directly adjacent to our Yacht Club apartment community in Brickell, located in Miami, Florida. The land underlying 1001 Brickell Bay Drive and our Yacht Club community constitutes a site of 4.2 acres with bay frontage of more than 600 feet. Nearby land has been developed with an 86-story tower and that or greater density is permitted by right under the existing zoning. The use of the combined site at a future date will likely be mixed, such as condominiums, hotel and office uses, and perhaps rental apartments. A development of this magnitude and complexity is not within our typical investment. As a result, we expect such a development will be conducted by a purchaser of the land and not by us. We plan to operate both properties for their existing uses and expect to earn from the office building a free cash flow internal rate of return in the mid 8% range, approximately 250 basis points greater than the returns from the apartment communities expected to be sold to fund the acquisition.

Dispositions

During the three months ended June 30, 2019, we sold one apartment community with 399 apartment homes for gross proceeds of $79.0 million. Proceeds, net of transaction costs, were $78.1 million. The community is located in suburban Chicago, Illinois.

Our investments in redevelopment and acquisitions, which we intend to fund with the second quarter and future sales of apartment communities, are consistent with our leverage neutral paired trade policy. The investments described above are consistent with our competency and track record and the paired trades result in a reallocation of capital from expected slower growth markets to those with greater opportunities for growth, such as Florida.

Balance Sheet

Leverage

Our leverage strategy seeks to increase financial returns by using leverage with appropriate caution. We limit risk through our balance sheet structure, employing low leverage, primarily non-recourse and long-dated property debt; build financial flexibility by maintaining ample unused and available credit as well as holding properties with substantial value unencumbered by property debt; and use partners’ capital when it enhances financial returns or reduces investment risk.

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

Subsequent to June 30, 2019, we rate-locked $587.0 million of new non-recourse, fixed-rate property debt, with a weighted average interest rate of 3.37% and a weighted average term to maturity of 11.5 years. After repayment of existing debt, we expect $462.0 million of proceeds to be used to repay borrowings on our credit facility.

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We are responding to today’s interest rates to extend duration, reduce refinancing risk, and lower our cost of debt. Our current net leverage and leverage to Adjusted EBITDAre are above target levels. We expect to be at or below these targets at year-end.

For additional information regarding our leverage, please see the discussion under the Liquidity and Capital Resources heading.

Leverage Ratios

Our target ratios are Proportionate Debt and Preferred Equity to Adjusted EBITDAre below 7.0x and Adjusted EBITDAre to Adjusted Interest Expense and Preferred Dividends greater than 2.5x. Our leverage ratios for the three months ended June 30, 2019, are presented below:

 

 

Leverage Ratios

Proportionate Debt to Adjusted EBITDAre

 

7.2x

Proportionate Debt and Preferred Equity to Adjusted EBITDAre

 

7.4x

Adjusted EBITDAre to Adjusted Interest Expense

 

3.6x

Adjusted EBITDAre to Adjusted Interest Expense and Preferred Dividends

 

3.3x

 

We calculate Adjusted EBITDAre and Adjusted Interest Expense used in our leverage ratios based on the most recent three month amounts, annualized. Adjusted EBITDAre has been calculated on a pro forma basis to reflect the disposition of one apartment community during the period as if the transaction closed on April 1, 2019.

In 2019, we retitled our Adjusted EBITDA measure to Adjusted EBITDAre in our calculation of leverage ratios. The computation of Adjusted EBITDAre has been modified from our prior measure to include amortization of debt issuance costs as a component of interest expense in both the computation of Adjusted Interest Expense and EBITDAre. The impact of this change is less than 0.1x to each ratio. We also began presenting a reconciliation of net income to earnings before interest, taxes, depreciation and amortization for real estate, or EBITDAre, as defined by Nareit. Please refer to the Leverage Ratios section below.

Liquidity

We use our credit facility primarily for working capital and other short-term purposes and to secure letters of credit. Our liquidity consists of cash balances and available capacity on our revolving line of credit. As of June 30, 2019, we had cash and restricted cash of $65.9 million and had the capacity to borrow up to $498.1 million on our revolving credit facility, after consideration of $6.9 million of letters of credit backed by the facility. Pro forma subsequent financing activity described above, we have capacity of $793.1 million on our revolving credit facility.

We manage our financial flexibility by maintaining an investment grade rating and holding apartment communities that are unencumbered by property debt. At June 30, 2019, we held unencumbered apartment communities with an estimated fair market value of approximately $3.2 billion which, pro forma the subsequent financing activity mentioned above, will be reduced to $2.3 billion.     

Two credit rating agencies rate our creditworthiness using different methodologies and ratios for assessing our credit, and both have rated our credit and outlook as BBB- (stable), an investment grade rating. Although some of the ratios they use are similar to those we use to measure our leverage, there are differences in our methods of calculation and therefore our leverage ratios disclosed above are not indicative of the ratios that may be calculated by these agencies.

Equity Capital Activities

On July 29, 2019, our Board of Directors declared a quarterly cash dividend of $0.39 per share of Class A Common Stock for the quarter ended June 30, 2019, representing an increase of 3% compared to the dividends paid during the three months ended September 30, 2018. This dividend is payable on August 30, 2019 to stockholders of record on August 16, 2019.

Team and Culture

Our team and culture are keys to our success. Our intentional focus on a collaborative and productive culture based on respect for others and personal responsibility is reinforced by a preference for promotion from within based on succession planning and talent development to produce a strong, stable team that is the enduring foundation of our success. Out of hundreds of participating companies in 2019, Aimco was one of only seven recognized as a “Top Place to Work” in Colorado for each of the past seven years. Aimco was also recognized as a Top Workplace in the Bay Area in 2019.

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Key Financial Indicators

The key financial indicators that we use in managing our business and in evaluating our operating performance are Economic Income, our measure of long-term total return, and AFFO, our measure of current return. In addition to these indicators, we evaluate our operating performance and financial condition using: Pro forma FFO; Free Cash Flow; Same Store property net operating income; proportionate property net operating income; average revenue per effective apartment home; leverage ratios; and net leverage.

Results of Operations

Because our operating results depend primarily on income from our apartment communities, the supply of and demand for apartments influences our operating results. Additionally, the level of expenses required to operate and maintain our apartment communities and the pace and price at which we redevelop, acquire and dispose of our apartment communities affect our operating results.

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

Financial Highlights

Net income attributable to common stockholders per common share increased by $0.38 during the three months ended June 30, 2019 compared to 2018, primarily due to gains on the sale of apartment communities in 2019.

Pro forma FFO per share was down $0.01 for the three months ended June 30, 2019 compared to 2018 due to the following items:

 

$0.04 contribution from Same Store property net operating income growth of 4.6%, driven by a 3.8% increase in revenue, offset by a 1.8% increase in expenses;

 

$0.03 lower cost of leverage; and

 

$0.01 lower general and administrative expenses; offset by

 

($0.03) contribution eliminated following the 2018 Asset Management business paired trade, including related tax benefits, net of the benefit of reinvestment in apartment communities with higher long-term growth prospects;

 

($0.01) higher casualty losses; and

 

($0.05) net reduction from other activities including contributions from investments in accretive redevelopment and development, offset by sales of lower growth apartment communities to fund these investments.

AFFO per share decreased $0.03 for the three months ended June 30, 2019 compared to 2018 due to the $0.01 decline in Pro forma FFO per share and a $0.02 increase in capital replacement spending due to timing. For the full year 2019, we expect total capital replacement expenditures, per share, to be flat year-over-year as we continue to upgrade our portfolio and invest capital in fewer, but more valuable, properties.

Detailed Results of Operations for the Three Months Ended June 30, 2019 Compared to June 30, 2018

Net income attributable to Aimco increased by $59.4 million during the three months ended June 30, 2019 as compared to 2018. Net income attributable to the Aimco Operating Partnership increased by $62.8 million during the three months ended June 30, 2019 as compared to 2018. Details regarding the increases in net income are described more fully below.

Property Operations

As further described below, we have four segments: Same Store, Redevelopment and Development, Acquisition and Other Real Estate. Our Same Store segment includes Same Store communities, which are those that have reached a stabilized level of operations as of the beginning of a two-year comparable period and maintained it throughout the current and comparable prior year, and are not expected to be sold within 12 months. Our Redevelopment and Development segment includes apartment communities that are currently under construction that have not achieved a stabilized level of operations, and those that have been completed in recent years that have not achieved and maintained stabilized operations for both the current and comparable prior year. Our Acquisition segment includes those apartment communities that we have acquired since the beginning of a two-year comparable period. Our Other Real Estate segment primarily includes apartment communities that are subject to limitations on rent increases and communities that we expect to sell within 12 months but do not yet meet the criteria to be classified as held for sale.

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As of June 30, 2019, our Same Store segment included 95 Same Store apartment communities with 27,640 apartment homes.

From December 31, 2018 to June 30, 2019, on a net basis, our Same Store segment increased by two apartment communities and 1,735 apartment homes. These changes consisted of:

 

the addition of eight redeveloped and developed apartment communities with 3,008 apartment homes previously classified in the Redevelopment and Development segment, now classified as Same Store upon maintaining stabilized operations for the entirety of the periods presented;

 

the addition of one apartment community with 463 apartment homes, previously classified in the Acquisition segment, now classified as Same Store because we have now owned it for the entirety of both periods presented;

 

the addition of one apartment community with 246 apartments homes, previously classified in the Other Real Estate segment, which maintained stabilized operations for the entirety of the periods presented following a casualty event;

 

the addition of one apartment community with 72 apartment homes that we separated into a newly branded stand-alone community from an existing community that was previously classified in the Redevelopment and Development segment, resulting in an increase of one community with no change in the total number of apartment homes;

 

the reduction of two apartment communities with 153 apartment homes for which we commenced redevelopment during the period and were reclassified to the Redevelopment and Development segment;

 

the reduction of one apartment community with 78 apartment homes that we expect to sell within 12 months that is now classified in the Other Real Estate segment; and

 

the reduction of six apartment communities with 1,823 apartment homes that were sold as of  June 30, 2019.

As of June 30, 2019: our Redevelopment and Development segment included seven apartment communities with 3,133 apartment homes; our Acquisition segment included seven apartment communities with 1,590 apartment homes; and our Other Real Estate segment included 15 apartment communities with 1,315 apartment homes.

We use proportionate property net operating income to assess the operating performance of our apartment communities. Proportionate property net operating income reflects our share of rental and other property revenues, excluding resident utility reimbursement, less direct property operating expenses, net of resident utility reimbursement, for consolidated apartment communities. Accordingly, the results of operations of our segments discussed below are presented on a proportionate basis and exclude the results of four apartment communities with 142 apartment homes that we do not consolidate.

We do not include offsite costs associated with property management or casualty-related 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 expense.

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The results of our segments for the three months ended June 30, 2019 and 2018, as presented below, are based on the apartment community populations as of  June 30, 2019.

 

 

 

Three Months Ended June 30,

 

 

 

 

 

 

 

 

 

(in thousands)

 

2019

 

 

2018

 

 

$ Change

 

 

% Change

 

Rental and other property revenues, before utility reimbursements:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Same Store

 

$

176,375

 

 

$

169,902

 

 

$

6,473

 

 

 

3.8

%

Redevelopment and Development

 

 

19,166

 

 

 

18,482

 

 

 

684

 

 

 

3.7

%

Acquisition

 

 

10,237

 

 

 

6,358

 

 

 

3,879

 

 

 

61.0

%

Other Real Estate

 

 

9,275

 

 

 

9,378

 

 

 

(103

)

 

 

(1.1

%)

Total

 

 

215,053

 

 

 

204,120

 

 

 

10,933

 

 

 

5.4

%

Property operating expenses, net of utility reimbursements:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Same Store

 

 

47,169

 

 

 

46,352

 

 

 

817

 

 

 

1.8

%

Redevelopment and Development

 

 

7,030

 

 

 

6,936

 

 

 

94

 

 

 

1.4

%

Acquisition

 

 

2,974

 

 

 

1,875

 

 

 

1,099

 

 

 

58.6

%

Other Real Estate

 

 

3,904

 

 

 

3,679

 

 

 

225

 

 

 

6.1

%

Total

 

 

61,077

 

 

 

58,842

 

 

 

2,235

 

 

 

3.8

%

Proportionate property net operating income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Same Store

 

 

129,206

 

 

 

123,550

 

 

 

5,656

 

 

 

4.6

%

Redevelopment and Development

 

 

12,136

 

 

 

11,546

 

 

 

590

 

 

 

5.1

%

Acquisition

 

 

7,263

 

 

 

4,483

 

 

 

2,780

 

 

 

62.0

%

Other Real Estate

 

 

5,371

 

 

 

5,699

 

 

 

(328

)

 

 

(5.8

%)

Total

 

$

153,976

 

 

$

145,278

 

 

$

8,698

 

 

 

6.0

%

 

For the three months ended June 30, 2019 compared to 2018, our Same Store proportionate property net operating income increased by $5.7 million, or 4.6%. This increase was primarily attributable to a $6.5 million, or 3.8% increase in rental and other property revenues due to higher average revenues of $68 per Aimco apartment home comprised of increases in rental rates and a 60 basis point increase in average daily occupancy. Renewal rents, which is the rent paid by an existing resident who renewed a lease compared to the rent paid prior to renewal, were up 5.0%, and new lease rents, which is the rent paid by a new resident compared to the rent paid by the previous resident of the same apartment home, were up 2.0%, resulting in a weighted average increase of 3.6%. The increase in Same Store rental and other property revenues was partially offset by a $0.8 million, or 1.8%, increase in property operating expenses primarily due to higher real estate taxes and repairs and maintenance expense, partially offset by a decrease in utilities expense, net. During the three months ended June 30, 2019 compared to 2018, controllable operating expenses, which exclude utility costs, real estate taxes and insurance, increased by $0.4 million, or 1.6%.

Redevelopment and Development proportionate property net operating income increased by $0.6 million, or 5.1%, for the three months ended June 30, 2019 compared to 2018. This increase was primarily attributable to lease-up as some redevelopments reach further stages of completion, partially offset by reduced net operating income due to de-leasing other communities in preparation for redevelopment.

Acquisition proportionate property net operating income increased by $2.8 million, or 62.0%, for the three months ended June 30, 2019 compared to 2018. This increase was primarily attributable to a full period of operating activity at communities acquired in 2018, compared to a partial quarter of operations for the four Philadelphia communities during the three months ended June 30, 2018.

Other Real Estate proportionate property net operating income decreased by $0.3 million, or 5.8%, for the three months ended June 30, 2019 compared to 2018 primarily due to decreased revenue of $0.1 million, or 1.1%, due to planned repositioning of an apartment community. Increases in repairs and maintenance expense, real estate taxes and personnel expenses resulted in higher operating expenses.

Detailed Results of Operations for the Six Months Ended June 30, 2019 Compared to June 30, 2018

Net income attributable to Aimco increased by $249.8 million during the six months ended June 30, 2019 as compared to 2018. Net income attributable to the Aimco Operating Partnership increased by $264.5 million during the six months ended June 30, 2019 as compared to 2018. Details regarding the increases in net income are described more fully below.

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The results of our segments for the six months ended June 30, 2019 and 2018 as presented below, are based on the apartment community populations as of  June 30, 2019.

 

 

 

Six Months Ended June 30,

 

 

 

 

 

 

 

 

 

(in thousands)

 

2019

 

 

2018

 

 

$ Change

 

 

% Change

 

Rental and other property revenues, before utility reimbursements:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Same Store

 

$

350,494

 

 

$

336,931

 

 

$

13,563

 

 

 

4.0

%

Redevelopment and Development

 

 

39,516

 

 

 

36,560

 

 

 

2,956

 

 

 

8.1

%

Acquisition

 

 

20,230

 

 

 

7,937

 

 

 

12,293

 

 

 

154.9

%

Other Real Estate

 

 

18,741

 

 

 

18,689

 

 

 

52

 

 

 

0.3

%

Total

 

 

428,981

 

 

 

400,117

 

 

 

28,864

 

 

 

7.2

%

Property operating expenses, net of utility reimbursements:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Same Store

 

 

93,904

 

 

 

92,659

 

 

 

1,245

 

 

 

1.3

%

Redevelopment and Development

 

 

14,317

 

 

 

13,436

 

 

 

881

 

 

 

6.6

%

Acquisition

 

 

5,827

 

 

 

2,398

 

 

 

3,429

 

 

 

143.0

%

Other Real Estate

 

 

7,790

 

 

 

7,525

 

 

 

265

 

 

 

3.5

%

Total

 

 

121,838

 

 

 

116,018

 

 

 

5,820

 

 

 

5.0

%

Proportionate property net operating income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Same Store

 

 

256,590

 

 

 

244,272

 

 

 

12,318

 

 

 

5.0

%

Redevelopment and Development

 

 

25,199

 

 

 

23,124

 

 

 

2,075

 

 

 

9.0

%

Acquisition

 

 

14,403

 

 

 

5,539

 

 

 

8,864

 

 

 

160.0

%

Other Real Estate

 

 

10,951

 

 

 

11,164

 

 

 

(213

)

 

 

(1.9

%)

Total

 

$

307,143

 

 

$

284,099

 

 

$

23,044

 

 

 

8.1

%

 

For the six months ended June 30, 2019 compared to 2018, our Same Store proportionate property net operating income increased by $12.3 million, or 5.0%. This increase was primarily attributable to a $13.6 million, or 4.0%, increase in rental and other property revenues due to higher average revenues of $69 per Aimco apartment home comprised of increases in rental rates and an 80 basis point increase in average daily occupancy. Renewal rents, which is the rent paid by an existing resident who renewed a lease compared to the rent paid prior to renewal, were up 5.1% and new lease rents, which is the rent paid by a new resident compared to the rent paid by the previous resident of the same apartment home, were up 1.6% resulting in a weighted average increase of 3.4%. The increase in Same Store rental and other property revenues was partially offset by a $1.2 million, or 1.3%, increase in property operating expenses primarily due to higher real estate taxes and repairs and maintenance expense. During the six months ended June 30, 2019 compared to 2018, controllable operating expenses, which exclude utility costs, real estate taxes and insurance, decreased by $0.1 million, or 0.2%.

Redevelopment and Development proportionate property net operating income increased by $2.1 million, or 9.0%, for the six months ended June 30, 2019 compared to 2018. This increase was primarily attributable to lease-up as some redevelopments reach further stages of completion, partially offset by reduced net operating income due to de-leasing other communities in preparation for redevelopment.

Acquisition proportionate property net operating income increased by $8.9 million or 160.0%, for the six months ended June 30, 2019 compared to 2018. This increase was primarily attributable to a full period of operating activity at communities acquired in 2018 and 2019, compared to two months of operations for the four Philadelphia communities during the six months ended June 30, 2018.

 

Other Real Estate proportionate property net operating income decreased by $0.2 million, or 1.9%, for the six months ended June 30, 2019 compared to 2018, primarily due to revenue growth of 30 basis points, offset by increases in repairs and maintenance expense, real estate taxes and personnel expenses.

Non-Segment Real Estate Operations

Operating income amounts not attributed to our segments include offsite costs associated with property management, casualty losses, and the results of apartment communities sold, reported in consolidated amounts, which we do not allocate to our segments for purposes of evaluating segment performance, please see Note 8 to the condensed consolidated financial statements in Item 1.

For the three months ended June 30, 2019, casualty losses totaled $1.9 million and included two claims related to fires and one claim related to flooding. For the three months ended June 30, 2018, casualty losses totaled $0.6 million and included several minor claims.

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For the six months ended June 30, 2019, casualty losses totaled $4.0 million and included large claims related to fires and water and winter storm damage, and several minor claims. For the six months ended June 30, 2018, casualty losses totaled $1.6 million and included several claims primarily related to water and winter storm damage, partially offset by recovery from insurance carriers for insured losses in excess of policy limits.

Net operating income decreased for the three and six months ended June 30, 2019 compared to 2018, by $13.2 million and $21.7 million, respectively, due to the sale of apartment communities in 2018 and 2019.

For the three and six months ended June 30, 2019 compared to 2018, net operating income decreased by $10.0 million and $23.1 million, respectively, due to the 2018 sale of our Asset Management business.

Depreciation and Amortization

For the three and six months ended June 30, 2019 compared to 2018, depreciation and amortization decreased by $5.6 million, or 5.7%, and $4.5 million, or 2.4%, respectively, primarily due to the reduction of depreciation expense associated with communities owned by partnerships served by our Asset Management business, which was sold in 2018, and depreciation associated with apartment communities sold in 2018 and 2019, partially offset by depreciation and amortization related to apartment communities acquired in 2018 and 2019 and renovated apartment homes placed in service upon their completion.

General and Administrative Expenses

For the three and six months ended June 30, 2019 compared to 2018, general and administrative expenses decreased $1.8 million, or 12.7%, and $2.7 million, or 10.9%, respectively, primarily due to lower personnel costs and timing of travel expenses.

Other Expenses, Net

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

For the six months ended June 30, 2019 compared to 2018, other expenses increased by $2.6 million, or 35.3%, primarily due to ground lease rent expense for a ground lease assumed in 2018, partially offset by reduced legal fees.

Interest Expense

For the three and six months ended June 30, 2019 compared to 2018, interest expense, which includes the amortization of debt issuance costs, decreased $10.4 million, or 20.8%, and $16.8 million, or 17.1%, respectively, due to lower interest on property-level debt following refinancing and debt payoff activity, including the 2018 repayment of our term loan, partially offset by an increase in interest on property-level debt assumed in connection with our acquisition of the Philadelphia portfolio.

Gain on Dispositions of Real Estate

The table below summarizes dispositions of apartment communities from our portfolio during the three and six months ended June 30, 2019 and 2018 (dollars in millions):

 

 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

Number of apartment communities sold

 

 

1

 

 

 

 

 

 

 

8

 

 

 

3

 

Gross proceeds

 

$

79.0

 

 

$

 

 

 

$

487.6

 

 

$

71.9

 

Net proceeds (1)

 

 

78.1

 

 

 

 

 

 

 

418.3

 

 

 

70.2

 

Gain on disposition

 

 

64.3

 

 

 

 

 

 

 

355.8

 

 

 

53.5

 

(1)

Net proceeds are after repayment of debt, if any, net working capital settlements, payments of transaction costs and debt prepayment penalties, if applicable.

Income Tax Benefit (Expense)

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

Our income tax benefit (expense) calculated in accordance with GAAP includes: (a) income taxes associated with the income or loss of our TRS entities including tax on gains on dispositions, for which the tax consequences have been realized or will be realized in future periods; (b) low income housing tax credits generated prior to the sale of our Asset Management business and four Hunters Point apartment communities that offset REIT taxable income, primarily from retained capital gains;

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

For the three months ended June 30, 2019 compared to 2018, income tax benefit decreased by $2.5 million primarily due to lower historic tax credits generated in 2019. For the six months ended June 30, 2019, we incurred income tax expense of $1.2 million compared to income tax benefit of $38.8 million during the same period in 2018. The change is primarily due to a tax benefit recognized in connection with a 2018 intercompany transfer of assets related to our Asset Management business, offset slightly by lower historic tax credits generated in 2019.

Noncontrolling Interests in Consolidated Real Estate Partnerships

Noncontrolling interests in consolidated real estate partnerships reflects the results of our consolidated real estate partnerships allocated to the owners who are not affiliated with Aimco. The amounts of income or loss of our consolidated real estate partnerships that we allocate to owners not affiliated with Aimco include their share of property management fees, interest on notes and other amounts that we charge to these partnerships.

The amount of net income attributed to noncontrolling interests was driven by two primary factors: the operations of the consolidated apartment communities and gains on the sale of apartment communities with noncontrolling interest holders, as further discussed below.

For the six months ended June 30, 2019 and 2018, we attributed net income of $0.2 million and $6.3 million, respectively, to noncontrolling interests in consolidated real estate partnerships. The operating income attributed to noncontrolling interests resulting from operations of the consolidated apartment communities was $0.2 million and $0.1 million for the six months ended June 30, 2019 and 2018, respectively. Additionally, we attributed the gain on the sale of an apartment community to noncontrolling interests totaling $6.2 million during the six months ended June 30, 2018.

Noncontrolling Interests in Aimco Operating Partnership

In Aimco’s consolidated financial statements, noncontrolling interests in the Aimco Operating Partnership reflects the results attributable to the OP Unit holders. For the three months ended June 30, 2019 compared to 2018, net income attributed to noncontrolling interests in the Aimco Operating Partnership increased by $3.4 million. For the six months ended June 30, 2019 compared to 2018, net income attributed to noncontrolling interests in the Aimco Operating Partnership increased by  $14.8 million. Net income attributable to noncontrolling interests in the Aimco Operating Partnership fluctuates in proportion to variations in net income, as described above. The overall percentage of net income attributed to noncontrolling interests in the Aimco Operating Partnership also increased due to the issuance of OP Units as partial consideration for the acquisition of apartment communities in May 2018 and April 2019 and the repurchases of Common Stock completed in 2018. These transactions increased the noncontrolling interests’ share of the Aimco Operating Partnership relative to Aimco’s ownership.

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 the Aimco Operating Partnership’s combined Annual Report on Form 10-K for the year ended December 31, 2018. 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

Various key financial indicators we use in managing our business and in evaluating our financial condition and operating performance are non-GAAP measures. Key non-GAAP measures we use are defined and described below, and for those non-GAAP measures used or disclosed within this quarterly report, reconciliations of the non-GAAP measures to the most comparable financial measure computed in accordance with GAAP are provided.

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We measure our long-term total return using Economic Income, which is a non-GAAP financial measure. Economic Income represents stockholder value creation as measured by the per share change in estimated net asset value, or NAV, plus cash dividends. We believe Economic Income is important to investors as it represents a measure of the total return we have earned for our stockholders. We report and reconcile Economic Income annually. Please refer to the section entitled Management’s Discussion and Analysis of Financial Condition and Results of Operations described in Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2018, for more information about Economic Income.

Nareit FFO, Pro forma FFO and AFFO are non-GAAP financial measures, which are defined and further described below under the Nareit Funds From Operations, Pro forma Funds From Operations and Adjusted Funds From Operations heading.

Free Cash Flow, or FCF, as calculated for our retained portfolio, represents an apartment community’s property net operating income, or NOI, less spending for Capital Replacements, which represents our estimation of the capital additions made to replace capital assets consumed during our ownership period (further discussed under the Nareit Funds From Operations, Pro forma Funds From Operations and Adjusted Funds From Operations heading and the Liquidity and Capital Resources heading). FCF margin as calculated for apartment communities sold represents the sold apartment community’s NOI less $1,200 per apartment home of assumed annual capital replacement spending, as a percentage of the apartment community’s rental and other property revenues. Capital replacement spending represents a measure of capital asset usage during the period; therefore, we believe that FCF is useful to investors as a supplemental measure of apartment community performance because it takes into consideration costs incurred during the period to replace capital assets that have been consumed during our ownership.

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

Nareit FFO is a non-GAAP financial measure that we believe, when considered with the financial statements determined in accordance with GAAP, is helpful to investors in understanding our performance because it captures features particular to real estate performance by recognizing that real estate generally appreciates over time or maintains residual value to a much greater extent than do other depreciable assets such as machinery, computers or other personal property. The National Association of Real Estate Investment Trusts, or Nareit, defines FFO as net income computed in accordance with GAAP, excluding: depreciation and amortization related to real estate; gains and losses from sales and impairment of depreciable assets and land used in our primary business; and income taxes directly associated with a gain or loss on sale of real estate, and including our share of the FFO of unconsolidated partnerships and joint ventures. Adjustments for unconsolidated partnerships and joint ventures are calculated on the same basis to determine FFO. We calculate Nareit FFO attributable to Aimco common stockholders (diluted) by subtracting dividends on preferred stock and amounts allocated from FFO to participating securities.

In addition to Nareit FFO, we compute Pro forma FFO and AFFO, which are also non-GAAP financial measures that we believe are helpful to investors in understanding our short-term performance. Pro forma FFO represents Nareit FFO attributable to Aimco common stockholders (diluted), excluding certain amounts that are unique or occur infrequently.

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

 

Preferred equity redemption related costs: On May 16, 2019, we redeemed our Class A Preferred Perpetual Stock. We excluded the redemption-related costs from Pro forma FFO because we believe these costs are not representative of operating performance.

 

Straight-line rent: In 2018, we assumed a 99-year ground lease with scheduled rent increases. Due to the terms of the lease, GAAP rent expense will exceed cash rent payments until 2076. We include the cash rent payments for this ground lease in Pro forma FFO but exclude the incremental straight-line non-cash rent expense. The rent expense for this lease is included in other expenses, net, in our condensed consolidated statements of operations.

 

Litigation: During 2018, we were engaged in litigation with Airbnb, which was resolved in December 2018. Due to the unpredictable nature of these proceedings, related amounts recognized, net of income tax effect, are excluded from Pro forma FFO. These costs are included in other expenses, net, in our condensed consolidated statements of operations.

 

Severance costs: In 2019, we incurred restructuring costs in connection with an office closure. We excluded such costs from Pro forma FFO because we believe these costs are not representative of operating performance.

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In computing 2018 Pro forma FFO, we made the following adjustments:

 

Litigation: Adjustment is described above.

 

Change in lease accounting: Effective January 1, 2019, we adopted accounting guidance that changed how we recognize costs incurred to obtain resident leases. For comparability of Pro forma FFO between periods, we have recast 2018 as if the new standard was effective January 1, 2018. AFFO is unchanged by the new standard.

 

Severance costs: In connection with the sale of our Asset Management business in 2018, we incurred severance costs. We excluded such costs from Pro forma FFO because we believe these costs are not representative of operating performance.

AFFO represents Pro forma FFO reduced by Capital Replacements, which represents our estimation of the actual capital additions made to replace capital assets consumed during our ownership period. When we make capital additions at an apartment community, we evaluate whether the additions extend the useful life of an asset as compared to its condition at the time we purchased the apartment community. We classify as Capital Improvements those capital additions that meet this criterion, and we classify as Capital Replacements those that do not. AFFO is a financial indicator we use to evaluate our short-term operational performance and is one of the factors that we use to determine the amounts of our dividend payments.

Nareit FFO, Pro forma FFO and AFFO should not be considered alternatives to net income, as determined in accordance with GAAP, as indications of our performance. Although we use these non-GAAP measures for comparability in assessing our performance compared to other REITs, not all REITs compute these same measures and those who do may not compute them in the same manner. Additionally, computation of AFFO is subject to our definition of Capital Replacement spending. Accordingly, there can be no assurance that our basis for computing these non-GAAP measures is comparable with that of other REITs.

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For the three and six months ended June 30, 2019 and 2018, Aimco’s Nareit FFO, Pro forma FFO and AFFO are calculated as follows (in thousands):

 

 

Three Months Ended

 

 

Six Months Ended

 

 

 

June 30,

 

 

June 30,

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

Net income attributable to Aimco common stockholders (1)

 

$

59,234

 

 

$

2,817

 

 

$

330,802

 

 

$

84,342

 

Adjustments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Real estate depreciation and amortization, net of noncontrolling

   partners’ interest

 

 

89,780

 

 

 

95,238

 

 

 

181,154

 

 

 

185,632

 

Gain on dispositions and other, net of noncontrolling partners’

   interest

 

 

(64,310

)

 

 

(217

)

 

 

(355,783

)

 

 

(47,240

)

Income tax adjustments related to gain on dispositions and

   other tax-related items (2)

 

 

210

 

 

 

85

 

 

 

6,736

 

 

 

(30,635

)

Common noncontrolling interests in Aimco Operating

   Partnership’s share of above adjustments

 

 

(1,356

)

 

 

(4,610

)

 

 

8,893

 

 

 

(5,167

)

Amounts allocable to participating securities

 

 

(73

)

 

 

(82

)

 

 

243

 

 

 

(97

)

Nareit FFO attributable to Aimco common stockholders – diluted

 

$

83,485

 

 

$

93,231

 

 

$

172,045

 

 

$

186,835

 

Adjustments, all net of common noncontrolling interests in Aimco OP and participating

   securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

     Preferred equity redemption related costs

 

 

3,864

 

 

 

 

 

 

3,864

 

 

 

 

     Litigation, net

 

 

122

 

 

 

1,557

 

 

 

147

 

 

 

1,906

 

     Severance costs

 

 

473

 

 

 

1,215

 

 

 

473

 

 

 

1,215

 

     Change in lease accounting

 

 

 

 

 

(670

)

 

 

 

 

 

(1,372

)

     Straight-line rent

 

 

634

 

 

 

 

 

 

2,946

 

 

 

 

Pro forma FFO attributable to Aimco common stockholders –

   diluted

 

$

88,578

 

 

$

95,333

 

 

$

179,475

 

 

$

188,584

 

Capital Replacements, net of common noncontrolling interests in

   Aimco Operating Partnership and participating securities

 

 

(13,134

)

 

 

(11,040

)

 

 

(22,845

)

 

 

(20,105

)

AFFO attributable to Aimco common stockholders – diluted

 

$

75,444

 

 

$

84,293

 

 

$

156,630

 

 

$

168,479

 

Total shares and dilutive share equivalents used to calculate Net

   income and Nareit FFO per share (3)

 

 

148,599

 

 

 

152,093

 

 

 

147,220

 

 

 

152,048

 

     Adjustment to weight reverse stock split (4)

 

 

 

 

 

4,740

 

 

 

1,242

 

 

 

4,738

 

Pro forma shares and dilutive share equivalents used to calculate Pro

   forma FFO and AFFO per share

 

 

148,599

 

 

 

156,833

 

 

 

148,462

 

 

 

156,786

 

     Net income attributable to Aimco per common share – diluted

 

$

0.40

 

 

$

0.02

 

 

$

2.25

 

 

$

0.55

 

     FFO per share – diluted

 

$

0.56

 

 

$

0.61

 

 

$

1.17

 

 

$

1.23

 

     Pro forma FFO per share – diluted

 

$

0.60

 

 

$

0.61

 

 

$

1.21

 

 

$

1.20

 

     AFFO per share – diluted

 

$

0.51

 

 

$

0.54

 

 

$

1.06

 

 

$

1.07

 

 

(1)

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

(2)

Income taxes related to gain on dispositions and other items for the six months ended June 30, 2018 included a $33.6 million tax benefit related to an intercompany transfer of assets related to the Asset Management business, which was sold in July 2018. Upon completion of the sale, the deferred tax asset that resulted from the intercompany transfer was realized. Accordingly, we excluded the benefit related to the reorganization from Nareit FFO.

(3)

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

(4)

During the three months ended March 31, 2019, we completed a reverse stock split and a special dividend paid primarily in stock. For stock splits, GAAP requires the restatement of weighted average shares as if the reverse stock split occurred at the beginning of the period presented; while shares issued in the special dividend are included in weighted average shares outstanding from the date issued. To minimize confusion and facilitate comparison of period-over-period Pro forma FFO and AFFO, we calculated pro forma weighted average shares for the six months ended June 30, 2019 based on the effective date of the reverse stock split and ex-dividend date for the shares issued in the special dividend, thereby eliminating the per-share impact of the GAAP treatment to Aimco’s reported Pro forma FFO and AFFO.

Please refer to the Results of Operations heading for discussion of our Pro forma FFO and AFFO results for 2019 compared to their comparable periods in 2018.

Please refer to the Liquidity and Capital Resources section for further information regarding our capital investing activities, including Capital Replacements.

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The Aimco Operating Partnership does not separately compute or report Nareit FFO, Pro forma FFO or AFFO. However, based on Aimco’s method for allocation of such amounts to noncontrolling interests in the Aimco Operating Partnership, as well as limited differences between the amounts of net income attributable to Aimco’s common stockholders and the Aimco Operating Partnership’s unit holders during the periods presented, Nareit FFO, Pro forma FFO and AFFO amounts on a per unit basis for the Aimco Operating Partnership would be substantially the same as the corresponding per share amounts for Aimco.

Leverage Ratios

Our leverage strategy targets the ratio of Proportionate Debt and Preferred Equity to Adjusted EBITDAre to be below 7.0x and the ratio of Adjusted EBITDAre to Adjusted Interest Expense and Preferred Dividends to be greater than 2.5x. We also focus on the ratios of proportionate Debt to Adjusted EBITDAre and Adjusted EBITDAre Coverage of Adjusted Interest. We believe these ratios, which are based in part on non-GAAP financial information, are commonly used by investors and analysts to assess the relative financial risk associated with balance sheets of companies within the same industry, and they are believed to be similar to measures used by rating agencies to assess entity credit quality. EBITDAre and Adjusted EBITDAre should not be considered alternatives to net income (loss) as determined in accordance with GAAP as indicators of performance. There can be no assurance that our method of calculating EBITDAre and Adjusted EBITDAre is comparable with that of other real estate investment trusts.

Proportionate Debt, as used in our leverage ratios, is a non-GAAP measure and includes our share of the long-term, non-recourse property debt and outstanding borrowings under our revolving credit facility. Proportionate Debt excludes unamortized debt issue costs because these amounts represent cash expended in earlier periods and do not reduce our contractual obligations. We reduce our recorded debt by the amounts of cash and restricted cash on-hand, which are primarily restricted under the terms of our property debt agreements, assuming these amounts would be used to reduce our outstanding leverage. We further reduce our recorded debt by the value of our investment in a securitization trust that holds certain of our property debt, as our payments of principal and interest associated with such property debt will ultimately repay our investments in the trust.

We believe Proportionate Debt is useful to investors as it is a measure of our net exposure to debt obligations. Proportionate Debt, as used in our leverage ratios, is calculated as set forth in the table below.

Preferred Equity, as used in our leverage ratios, represents the redemption amounts for Aimco’s preferred stock and the Aimco Operating Partnership’s preferred OP Units. Preferred Equity, although perpetual in nature, is another component of our overall leverage. The reconciliation of total indebtedness to Proportionate Debt and Preferred Equity, as used in our leverage ratios as of June 30, 2019, is as follows (in thousands):

 

Total indebtedness

 

$

3,997,447

 

Adjustments:

 

 

 

 

Debt issue costs related to non-recourse property debt

 

 

19,556

 

Proportionate share adjustments related to debt obligations of consolidated and

   unconsolidated partnerships

 

 

(7,706

)

Cash and restricted cash

 

 

(65,907

)

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

   unconsolidated partnerships

 

 

814

 

Securitization trust investment

 

 

(91,666

)

Proportionate Debt

 

$

3,852,538

 

 

 

 

 

 

Preferred Equity

 

 

101,178

 

Proportionate Debt and Preferred Equity

 

$

3,953,716

 

We calculate Adjusted EBITDAre used in our leverage ratios based on the most recent three month amounts, annualized. 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 allows for comparison of our credit strength to different companies. 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

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adjustments to reflect the Aimco’s share of EBITDAre of investments in unconsolidated entities.

We define Adjusted EBITDAre as EBITDAre adjusted to exclude the effect of the following items for the reasons set forth below:

 

net income attributable to noncontrolling interests consolidated real estate partnerships and EBITDAre adjustments attributable to noncontrolling interests, to allow investors to compare a measure of our earnings before the effects of our capital structure and indebtedness with that of other companies in the real estate industry;

 

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

 

the amount by which GAAP rent expense exceeds cash rents for a long-term ground lease for which expense exceeds cash payments until 2076. The excess of the GAAP rent expense over the cash payments for this lease does not reflect a current obligation that affects our ability to service debt.

In 2019, we retitled our Adjusted EBITDA measure to Adjusted EBITDAre in our calculation of leverage ratios. The computation of Adjusted EBITDAre has been modified from our prior measure to include amortization of debt issuance costs as a component of interest expense in both the computation of Adjusted Interest Expense and EBITDAre. The impact of this change is less than 0.1x to each ratio. We also began including a reconciliation of net income to EBITDAre. EBITDAre is defined by Nareit and provides for an additional performance measure independent of capital structure for greater comparability between real estate investment trusts. The reconciliation of net income to EBITDAre and Adjusted EBITDAre for the three months ended June 30, 2019, as used in our leverage ratios, is as follows (in thousands):

 

Net income

 

$

69,996

 

Adjustments:

 

 

 

 

Interest expense

 

 

39,541

 

Income tax benefit

 

 

(1,827

)

Depreciation and amortization

 

 

91,924

 

Gain on disposition of real estate

 

 

(64,310

)

Adjustment related to EBITDAre of unconsolidated partnerships

 

 

210

 

EBITDAre

 

$

135,534

 

Net income attributable to noncontrolling interests in Aimco Operating Partnership

 

 

(70

)

EBITDAre adjustments attributable to noncontrolling interests

 

 

(389

)

Interest income received on securitization investment

 

 

(2,042

)

Straight-line rent adjustment

 

 

671

 

Pro forma adjustment (1)

 

 

(569

)

Severance costs (2)

 

 

500

 

Adjusted EBITDAre

 

$

133,635

 

Annualized Adjusted EBITDAre

 

$

534,540

 

 

(1)

Adjusted EBITDAre has been calculated on a pro forma basis to reflect the disposition of one apartment community during the period as if the transaction closed on April 1, 2019.

(2)

We excluded severance costs incurred in connection with restructuring activities, as these costs are not representative of operating performance.

We calculate Adjusted Interest Expense, as used in our leverage ratios, based on the most recent three months, annualized. Adjusted Interest Expense is a non-GAAP measure that we believe is meaningful for investors and analysts as it presents our share of current recurring interest requirements associated with leverage. Adjusted Interest Expense represents our proportionate share of interest expense on non-recourse property debt and interest expense on our revolving credit facility borrowings. We exclude from our calculation of Adjusted Interest Expense:

 

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

 

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

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Preferred Dividends represents the dividends paid on Aimco’s preferred stock and the distributions paid on the Aimco Operating Partnership’s preferred OP Units. We add Preferred Dividends to Adjusted Interest Expense for a more complete picture of the interest and dividend requirements of our leverage.

The reconciliation of interest expense to Adjusted Interest Expense and Preferred Dividends for the three months ended June 30, 2019, as used in our leverage ratios, is as follows (in thousands):

Interest expense

 

$

39,541

 

Adjustments:

 

 

 

 

Proportionate share adjustments related to interest of consolidated and unconsolidated

   partnerships

 

 

(76

)

Debt prepayment penalties and other non-interest items

 

 

(118

)

Interest income earned on securitization trust investment

 

 

(2,042

)

Adjusted Interest Expense

 

$

37,305

 

Preferred dividends

 

 

3,031

 

Adjusted Interest Expense and Preferred Dividends

 

$

40,336

 

Annualized Adjusted Interest Expense

 

$

149,220

 

Annualized Adjusted Interest Expense and Preferred Dividends

 

$

161,344

 

 

Liquidity and Capital Resources

Liquidity

Liquidity is the ability to meet present and future financial obligations. Our primary source of liquidity is cash flow from operations. Additional sources are proceeds from sales of apartment communities, proceeds from refinancing existing property debt, borrowings under new property debt, borrowings under our revolving credit facility and proceeds from equity offerings.

Our principal uses for liquidity include normal operating activities, payments of principal and interest on outstanding property debt, capital expenditures, dividends paid to stockholders, distributions paid to noncontrolling interest partners and acquisitions of apartment communities. We use our cash and cash equivalents and our cash provided by operating activities to meet short-term liquidity needs. In the event that our cash and cash equivalents and cash provided by operating activities are not sufficient to cover our short-term liquidity needs, we have additional means, such as short-term borrowing availability and proceeds from apartment community sales and property-level debt issuance. We may use our revolving credit facility for working capital and other short-term purposes, such as funding investments on an interim basis. We expect to meet our long-term liquidity requirements, such as debt maturities, redevelopment spending and apartment community acquisitions, through primarily non-recourse, long-term borrowings, the issuance of equity securities (including OP Units), the sale of apartment communities and cash generated from operations.

As of June 30, 2019, our primary sources of liquidity were as follows:

 

$34.0 million in cash and cash equivalents;

 

$31.9 million of restricted cash, which consists primarily of escrows related to resident security deposits and reserves and escrows held by lenders for capital additions, property taxes and insurance; and

 

$498.1 million of capacity to borrow under our revolving credit.

As of June 30, 2019, we held unencumbered apartment communities with an estimated fair market value of approximately $3.2 billion which, pro forma the subsequent financing activity described below, will be $2.3 billion.     

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Leverage and Capital Resources

The availability of credit and its related effect on the overall economy may affect our liquidity and future financing activities, both through changes in interest rates and access to financing. Currently, interest rates are low compared to historical levels and many lenders are active in the market. However, any adverse changes in the lending environment could negatively affect our liquidity. We believe we have mitigated much of this exposure by reducing our short and intermediate term maturity risk through refinancing such loans with long-dated, fixed-rate property debt. However, if property financing options become unavailable for our further debt needs, we may consider alternative sources of liquidity, such as reductions in capital spending or proceeds from apartment community dispositions.

Two credit rating agencies rate our creditworthiness and both have rated our credit and outlook as BBB- (stable), an investment grade rating. Our investment grade rating would be useful in accessing capital through the sale of bonds in private or public transactions. However, our intention and historical practice has been to raise debt capital in the form of property-level, non-recourse, long-dated, fixed-rate, amortizing debt, the cost of which is generally less than that of recourse debt and the terms of which also provide for greater balance sheet safety.

As of June 30, 2019, approximately 90.4% of our leverage consisted of property-level, non-recourse, long-dated, amortizing debt. Approximately 92.2% of this property-level debt is fixed-rate, which provides a hedge against increases in interest rates, capitalization rates and inflation. The weighted average maturity of our property-level debt was 7.8 years. On average, 8.0% of our unpaid principal balances will mature each year from 2020 through 2022.

Subsequent to June 30, 2019, we rate-locked $587.0 million of new non-recourse, fixed-rate property debt, with a weighted average interest rate of 3.37% and a weighted average term to maturity of 11.5 years. After repayment of existing debt, we expect $462.0 million of proceeds to be used to repay borrowings on our credit facility.

While our primary source of leverage is property-level, non-recourse, long-dated, fixed-rate, amortizing debt, we also have a credit facility with a syndicate of financial institutions. As of June 30, 2019, we had $295.0 million, or 7.2% of leverage, drawn against our revolving credit facility and the capacity to borrow up to $498.1 million after consideration of $6.9 million of letters of credit backed by the facility. Pro forma the financing activity described above, we have capacity of $793.1 million on our revolving credit facility.

As of June 30, 2019, our outstanding preferred OP Units represented approximately 2.4% of total leverage. Preferred OP Units are redeemable at the holder’s option; however, we have computed the weighted average maturity of our total leverage assuming a 40-year maturity on the Units. We redeemed our Class A Perpetual Preferred Stock during three months ended June 30, 2019.

The combination of non-recourse property-level debt, borrowings under our revolving credit facility and preferred OP Units that comprise our total leverage, reduces our refunding and re-pricing risk. The weighted average maturity for our total leverage described above was 8.3 years as of June 30, 2019.

Under the revolving credit facility, we have agreed to maintain a Fixed Charge Coverage ratio of 1.40x, as well as comply with other covenants customary for similar revolving credit arrangements. For the trailing twelve month period ended June 30, 2019, our Fixed Charge Coverage ratio was 2.11x, compared to a ratio of 2.00x for the trailing twelve month period ended June 30, 2018. We expect to remain in compliance with this covenant during the next 12 months.

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

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 included in Item 1 of this report.

Operating Activities

For the six months ended June 30, 2019, net cash provided by operating activities was $170.0 million. Our operating cash flow is affected primarily by rental rates, occupancy levels and operating expenses related to our portfolio of apartment communities. Cash provided by operating activities for the six months ended June 30, 2019 decreased by $15.6 million compared to 2018, lower net operating income associated with apartment communities sold and the Asset Management

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business sold in 2018, offset by improved operating results of our Same Store communities and increased contribution from our redevelopment and lease-up communities.

Investing Activities

For the six months ended June 30, 2019, net cash provided by investing activities of $197.5 million consisted primarily of proceeds from the disposition of eight apartment communities, partially offset by the acquisitions of One Ardmore and 50 Rogers, and by capital expenditures.

Further information about the acquisitions and dispositions completed during the six months ended June 30, 2019 is included in Note 3 to the condensed consolidated financial statements in Item 1.

Capital additions for our segments totaled $179.1 million and $156.1 million during the six months ended June 30, 2019 and 2018 respectively. We generally fund capital additions with cash provided by operating activities and cash proceeds from sales of apartment communities.

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

 

capital replacements, which do not increase the useful life of an asset from its original purchase condition. Capital replacements represent capital additions made to replace the portion of acquired apartment communities consumed during our period of ownership;

 

capital improvements, which represent capital additions made to replace the portion of acquired apartment communities consumed prior to our period of ownership, and not contemplated in our underwriting of an acquisition;

 

capital enhancements, which may include kitchen and bath remodeling, energy conservation projects, and investments in longer-lived materials designed to reduce turnover costs, such as simulated wood flooring and granite countertops, all of which differs from redevelopment additions in that they are generally lesser in scope and do not significantly disrupt property operations;

 

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

 

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

 

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

 

casualty capital additions, which represent capitalized costs incurred in connection with the restoration of an apartment community after a casualty event such as a severe snow storm, hurricane, tornado, flood or fire.

We exclude the amounts of capital spending related 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 apartment communities with capital additions, and their related capital spending categories.

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A summary of the capital spending for these categories, along with a reconciliation of the total for these categories to the capital expenditures reported in the accompanying condensed consolidated statements of cash flows for the six months ended June 30, 2019 and 2018, are presented below (in thousands):

 

 

 

Six Months Ended June 30,

 

 

 

2019

 

 

2018

 

Capital replacements

 

$

19,777

 

 

$

13,526

 

Capital improvements

 

 

6,162

 

 

 

5,484

 

Capital enhancements

 

 

41,487

 

 

 

44,064

 

Redevelopment additions

 

 

41,267

 

 

 

70,778

 

Development additions

 

 

55,611

 

 

 

17,416

 

Initial capital expenditures

 

 

11,052

 

 

 

794

 

Casualty capital additions

 

 

3,787

 

 

 

3,991

 

Total capital additions

 

 

179,143

 

 

 

156,053

 

Plus: additions related to consolidated Asset Management communities and

   apartment communities sold or held for sale

 

 

2,209

 

 

 

11,432

 

Consolidated capital additions

 

 

181,352

 

 

 

167,485

 

Plus: net change in accrued capital spending and capitalized stock compensation

 

 

(4,864

)

 

 

(3,369

)

Capital expenditures per condensed consolidated statement of cash flows

 

$

176,488

 

 

$

164,116

 

 

For the six months ended June 30, 2019 and 2018, we capitalized $4.5 million and $3.9 million, respectively, of interest costs, and $17.6 million and $17.7 million, respectively, of other direct and indirect costs.

We invested $41.5 million in capital enhancements during the six months ended June 30, 2019, and we anticipate a full year investment ranging from $80 million to $100 million.

Redevelopment and Development

We execute redevelopments using a range of approaches. We prefer to limit risk by executing redevelopments using a phased approach, in which we renovate an apartment community in stages. Smaller phases provide us the flexibility to maintain current earnings while aligning the timing of the completed apartment homes with market demand. The following table summarizes ongoing redevelopments of this nature at June 30, 2019 (dollars in millions):

 

 

 

Location

 

Apartment

Homes

Approved for

Redevelopment

 

 

Estimated

Net

Investment

 

 

Inception

-to-Date

Net Investment

 

Bay Parc

 

Miami, FL

 

 

60

 

 

$

24.1

 

 

$

22.8

 

Total

 

 

 

 

60

 

 

$

24.1

 

 

$

22.8

 

 

When smaller redevelopment phases are not possible, we may engage in redevelopment activities where an entire building or community is vacated. Additionally, we undertake some ground-up development when warranted by risk-adjusted investment returns, either directly or in connection with the redevelopment of an existing apartment community. The following table summarizes our investments related to these developments and redevelopments at June 30, 2019 (dollars in millions):

 

 

 

Location

 

Apartment

Homes Approved

for Redevelopment

or Development

 

 

Estimated

Net

Investment

 

 

Inception

-to-Date

Net Investment

 

 

Stabilized

Occupancy

 

NOI

Stabilization

707 Leahy

 

Redwood City, CA

 

 

110

 

 

$

23.7

 

 

$

2.5

 

 

3Q 2020

 

4Q 2021

Elm Creek Townhomes

 

Elmhurst, IL

 

 

58

 

 

 

35.1

 

 

 

11.3

 

 

2Q 2021

 

3Q 2022

Flamingo Point

 

Miami Beach, FL

 

 

886

 

 

 

280.0

 

 

 

38.0

 

 

4Q 2022

 

1Q 2024

The Fremont

 

Denver, CO (MSA)

 

 

253

 

 

 

87.0

 

 

 

28.7

 

 

3Q 2021

 

4Q 2022

Parc Mosaic

 

Boulder, CO

 

 

226

 

 

 

123.4

 

 

 

102.8

 

 

4Q 2020

 

1Q 2022

Total

 

 

 

 

1,533

 

 

$

549.2

 

 

$

183.3

 

 

 

 

 

 

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Net investment represents the total actual or estimated investment, net of tax and other credits earned as a direct result of our redevelopment or development of the community. For phased redevelopments, potential net investment relates to the current phase of the redevelopment.

Stabilized Occupancy represents the period in which we expect to achieve stabilized occupancy, generally greater than 90%.

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

Our total estimated net investment in redevelopment and development is $573.3 million with a projected weighted average net operating income yield on these investments of 5.3%, assuming untrended rents. Of this total, $206.1 million has been funded. We expect to fund the remaining redevelopment and development investment through a combination of leverage and proceeds from community sales.

During the six months ended June 30, 2019, we invested $96.9 million in redevelopment and development. We continued phased redevelopment activities at Bay Parc in Miami, and the ground-up construction at Parc Mosaic in Boulder, Colorado, The Fremont on the Anschutz Medical Campus in Aurora, Colorado, and Elm Creek Townhomes in Elmhurst, Illinois. We also commenced the full redevelopment of 707 Leahy in Redwood City, California.

During the six months ended June 30, 2019, we also began the next phase of redevelopment at Flamingo Point in Miami Beach, Florida. At the North Tower, we expect to invest approximately $170 million and to create 366 new apartment homes. At the Center Tower, we expect to invest $70 million to renovate apartment homes on-the-turn at a pace dictated by the market. The initial $40 million phase of redevelopment, which is focused on amenity and common area improvements is expected to be complete by year-end 2019. Upon completion of the amenities, common areas, and apartments in the North and Center towers, we will have invested $280.0 million.

Financing Activities

For the six months ended June 30, 2019, net cash used in financing activities of $374.3 million was attributed to the items discussed below.

Net borrowings on our revolving credit facility of $134.6 million primarily relate to the timing of apartment community acquisitions and dispositions and of property debt financing activities.

Principal payments on property loans during the period totaled $207.8 million of scheduled principal amortization.

Redemption of Preferred Stock of $125.0 million represents the cash paid upon redemption of our Class A Perpetual Preferred Stock during the six months ended June 30, 2019.

Net cash used in financing activities also includes $139.5 million of payments to equity holders, as further detailed in the table below.

Equity and Partners’ Capital Transactions

The following table presents the Aimco Operating Partnership’s distribution activity (including distributions paid to Aimco) during the six months ended June 30, 2019 (in thousands):

 

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

 

$

7,114

 

Cash distributions paid by the Aimco Operating Partnership to common unitholders (2)

 

 

132,364

 

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

 

 

56

 

Total cash distributions paid by the Aimco Operating Partnership

 

$

139,534

 

 

(1)

$3.2 million represented distributions to Aimco, and $3.9 million represented distributions paid to holders of OP Units.

(2)

$125.4 million represented distributions to Aimco, and $7.0 million represented distributions paid to holders of OP Units.

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The following table presents Aimco’s dividends paid to outside stock or OP Unit holders during the six months ended June 30, 2019 (in thousands):

 

Cash distributions paid to holders of OP Units

 

$

10,881

 

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

 

 

56

 

Cash dividends paid by Aimco to preferred stockholders

 

 

3,247

 

Cash dividends paid by Aimco to common stockholders

 

 

125,350

 

Total cash dividends and distributions paid by Aimco

 

$

139,534

 

 

Future Capital Needs

We expect to fund any future acquisitions, redevelopment, development, and other capital spending principally with proceeds from apartment community sales, short-term borrowings, debt and equity financing and operating cash flows. Our near term business plan does not contemplate the issuance of equity.

 

ITEM 3.Quantitative and Qualitative Disclosures About Market Risk

As of the date of this report, there have been no material changes from the market risk information provided in Aimco’s and the Aimco Operating Partnership’s combined Annual Report on Form 10-K for the year ended December 31, 2018.

ITEM 4.

Controls and Procedures

Aimco

Disclosure Controls and Procedures

Aimco’s management, with the participation of Aimco’s chief executive officer and chief financial officer, has evaluated the effectiveness of Aimco’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this report. Based on such evaluation, Aimco’s chief executive officer and chief financial officer have concluded that, as of the end of such period, Aimco’s disclosure controls and procedures are effective.

Changes in Internal Control Over Financial Reporting

There has been no change in Aimco’s internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the second quarter of 2019 that has materially affected, or is reasonably likely to materially affect, Aimco’s internal control over financial reporting.

The Aimco Operating Partnership

Disclosure Controls and Procedures

The Aimco Operating Partnership’s management, with the participation of the chief executive officer and chief financial officer of both Aimco and AIMCO-GP, Inc., the Aimco Operating Partnership’s general partner, has evaluated the effectiveness of the Aimco Operating Partnership’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange) as of the end of the period covered by this report. Based on such evaluation, the chief executive officer and chief financial officer of AIMCO-GP, Inc. have concluded that, as of the end of such period, the Aimco Operating Partnership’s disclosure controls and procedures are effective.

Changes in Internal Control Over Financial Reporting

There has been no change in the Aimco Operating Partnership’s internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the second quarter of 2019 that has materially affected, or is reasonably likely to materially affect, the Aimco Operating Partnership’s internal control over financial reporting.

 

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PART II.  OTHER INFORMATION

ITEM 1A.

Risk Factors

As of the date of this report, there have been no material changes from the risk factors in Aimco’s and the Aimco Operating Partnership’s combined Annual Report on Form 10-K for the year ended December 31, 2018.

ITEM 2.

Unregistered Sales of Equity Securities and Use of Proceeds

Aimco

(a) Unregistered Sales of Equity Securities. From time to time during the three months ended June 30, 2019, we issued shares of Common Stock in exchange for common OP Units tendered to the Aimco Operating Partnership for redemption in accordance with the terms and provisions of the agreement of limited partnership of the Aimco Operating Partnership. Such shares are issued based on an exchange ratio of one share for each common OP Unit. During the three months ended June 30, 2019, approximately 70,000 shares of Common Stock were issued in exchange for common OP Units in these transactions. All of the foregoing issuances were made in private placement transactions exempt from registration pursuant to Section 4(2) of the Securities Act of 1933, as amended.

(c) Repurchases of Equity Securities. There were no repurchases by Aimco of its common equity securities during the three months ended June 30, 2019. Aimco’s Board of Directors has, from time to time, authorized Aimco to repurchase shares of its outstanding capital stock. As of June 30, 2019, Aimco was authorized to repurchase approximately 10.6 million additional shares. This authorization has no expiration date. These repurchases may be made from time to time in the open market or in privately negotiated transactions.

The Aimco Operating Partnership

(a) Unregistered Sales of Equity Securities. On April 1, 2019, the Aimco Operating Partnership issued 59,761 common OP Units as a partial consideration for the acquisition of One Ardmore, an apartment community located in the Philadelphia area. Such common OP Units were issued in private placement transactions exempt from registration pursuant to Section 4(a)(2) of the Securities Act of 1933, as amended.

(c) Repurchases of Equity Securities. The Aimco Operating Partnership’s Partnership Agreement generally provides that after holding the common OP Units for one year, limited partners have the right to redeem their common OP Units for cash, subject to the Aimco Operating Partnership’s prior right to cause Aimco to acquire some or all of the common OP Units tendered for redemption in exchange for shares of Common Stock. Common OP Units redeemed for Common Stock are exchanged on a one-for-one basis (subject to antidilution adjustments). During the three months ended June 30, 2019, approximately 70,000 common OP Units were redeemed in exchange for shares of Common Stock. The following table summarizes repurchases, or redemptions in exchange for cash, of the Aimco Operating Partnership’s equity securities for the three months ended June 30, 2019.

 

Fiscal period

 

Total Number

of Units

Purchased

 

 

Average

Price Paid

per Unit

 

 

Total Number

of Units

Purchased as

Part of Publicly

Announced

Plans or

Programs (1)

 

Maximum

Number of

Units That

May Yet Be

Purchased

Under the

Plans or

Programs (1)

April 1, 2019 - April 30, 2019

 

 

3,088

 

 

$

50.20

 

 

N/A

 

N/A

May 1, 2019 - May 31, 2019

 

 

13,387

 

 

$

49.34

 

 

N/A

 

N/A

June 1, 2019 - June 30, 2019

 

 

15,077

 

 

$

50.43

 

 

N/A

 

N/A

Total

 

 

31,552

 

 

$

49.94

 

 

 

 

 

 

(1)

The terms of the Aimco Operating Partnership’s Partnership Agreement do not provide for a maximum number of units that may be repurchased, and other than the express terms of its Partnership Agreement, the Aimco Operating Partnership has no publicly announced plans or programs of repurchase. However, for Aimco to repurchase shares of its Common Stock, the Aimco Operating Partnership must make a concurrent repurchase of its common partnership units held by Aimco at a price per unit that is equal to the price per share Aimco pays for its Common Stock.

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Aimco and the Aimco Operating Partnership

Dividend and Distribution Payments. Our revolving credit facility includes customary covenants, including a restriction on dividends and distributions and other restricted payments, but permits dividends and distributions during any 12-month period in an aggregate amount of up to 95% of Aimco’s Funds From Operations, subject to certain non-cash adjustments, for such period or such amount as may be necessary for Aimco to maintain its REIT status.

 

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ITEM 6.

Exhibits

The following exhibits are filed with this report:

 

EXHIBIT NO. (1)

 

DESCRIPTION

 

 

 

    3.1

 

Charter (Exhibit 3.1 to Aimco’s Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2018, is incorporated herein by this reference)

 

 

 

    3.2

 

Charter - Articles of Amendment (Exhibit 3.1 to Aimco’s Current Report on Form 8-K dated February 20, 2019, is incorporated herein by this reference)

 

 

 

    3.3

 

Amended and Restated Bylaws (Exhibit 3.1 to Aimco’s Current Report on Form 8-K dated January 26, 2016, is incorporated herein by this reference)

 

 

 

  10.1

 

Fifth Amended and Restated Agreement of Limited Partnership of the Aimco Operating Partnership, dated as of July 29, 1994, as amended and restated as of April 5, 2019 (Exhibit 10.1 to Aimco’s Current Report on Form 8-K dated April 9, 2019, in incorporated herein by this reference)

 

 

 

  31.1

 

Certification of Chief Executive Officer pursuant to Securities Exchange Act Rules 13a-14(a)/15d-14(a), as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 – Aimco

 

 

 

  31.2

 

Certification of Chief Financial Officer pursuant to Securities Exchange Act Rules 13a-14(a)/15d-14(a), as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 – Aimco

 

 

 

  31.3

 

Certification of Chief Executive Officer pursuant to Securities Exchange Act Rules 13a-14(a)/15d-14(a), as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 – the Aimco Operating Partnership

 

 

 

  31.4

 

Certification of Chief Financial Officer pursuant to Securities Exchange Act Rules 13a-14(a)/15d-14(a), as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 – the Aimco Operating Partnership

 

 

 

  32.1

 

Certifications of Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 – Aimco

 

 

 

  32.2

 

Certifications of Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 – the Aimco Operating Partnership

 

 

 

  99.1

 

Agreement Regarding Disclosure of Long-Term Debt Instruments – Aimco

 

 

 

  99.2

 

Agreement Regarding Disclosure of Long-Term Debt Instruments – the Aimco Operating Partnership

 

 

 

101

 

The following materials from Aimco’s and the Aimco Operating Partnership’s combined Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2019, formatted in iXBRL (Inline Extensible Business Reporting Language): (i) condensed consolidated balance sheets; (ii) condensed consolidated statements of operations; (iii) condensed consolidated statements of comprehensive income; (iv) condensed consolidated statements of cash flows; and (v) notes to condensed consolidated financial statements.

 

(1)

Schedules and supplemental materials to the exhibits have been omitted but will be provided to the Securities and Exchange Commission upon request.

*

Management contract or compensatory plan or arrangement

 

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

 

APARTMENT INVESTMENT AND

MANAGEMENT COMPANY

 

 

 

 

By:

/s/ PAUL BELDIN

 

 

Paul Beldin

 

 

Executive Vice President and Chief Financial Officer

 

 

(duly authorized officer and principal financial officer)

 

 

 

 

 

AIMCO PROPERTIES, L.P.

 

 

 

 

By:

AIMCO-GP, Inc., its general partner

 

 

 

 

By:

/s/ PAUL BELDIN

 

 

Paul Beldin

 

 

Executive Vice President and Chief Financial Officer

 

 

(duly authorized officer and principal financial officer)

 

 

 

 

Date: August 9, 2019

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