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APARTMENT INVESTMENT & MANAGEMENT CO - Quarter Report: 2023 March (Form 10-Q)

10-Q

 

 

 

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 March 31, 2023

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: 0-56223 (Aimco OP L.P.)

Apartment Investment and Management Company

Aimco OP L.P.

(Exact name of registrant as specified in its charter)

 

Maryland (Apartment Investment and Management Company)

 

84-1259577

Delaware (Aimco OP L.P.)

 

85-2460835

(State or other jurisdiction of

 

(I.R.S. Employer

incorporation or organization)

 

Identification No.)

 

 

 

4582 South Ulster Street, Suite 1450

 

 

Denver, Colorado

 

80237

(Address of principal executive offices)

 

(Zip Code)

 

(303) 224-7900

(Registrant’s telephone number, including area code)

Not Applicable

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

 

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

 

Title of Each Class

 

Trading Symbol(s)

 

Name of Each Exchange on Which Registered

Class A Common Stock (Apartment Investment and Management Company)

 

AIV

 

New York Stock Exchange

 

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

 

None (Apartment Investment and Management Company)

Partnership Common Units (Aimco OP L.P.)

(title of each class)

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 OP L.P.: Yes  ☒ No ☐

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files).

 

Apartment Investment and Management Company: Yes  ☒ No ☐

 

Aimco OP 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.

Apartment Investment and Management Company:

 

Large accelerated filer

 

 

Accelerated filer

Non-accelerated filer

 

 

Smaller reporting company

 

 

 

 

Emerging growth company

 

Aimco OP L.P.:

 

Large accelerated filer

 

 

Accelerated filer

Non-accelerated filer

 

 

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 OP 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 OP L.P.: Yes ☐ No

The number of shares of Apartment Investment and Management Company Class A common stock ("Common Stock") outstanding as of May 3, 2023: 148,616,217

 

 

 


Table of Contents

 

EXPLANATORY NOTE

Apartment Investment and Management Company (“Aimco” or “the Company”), a Maryland corporation, is a self-administered and self-managed real estate investment trust, or REIT. On December 15, 2020, Aimco completed the separation of its businesses (the “Separation”), creating two, separate and distinct, publicly traded companies, Aimco and Apartment Income REIT Corp. (“AIR”) (Aimco and AIR together, as they existed prior to the Separation, “Aimco Predecessor”). Events noted in this filing as occurring before December 15, 2020, were those entered into by Aimco Predecessor. Aimco, through a wholly-owned subsidiary, is the general partner and directly is the special limited partner of Aimco Operating Partnership. As of March 31, 2023, Aimco owned 92.5% of the legal interest in the common partnership units of Aimco Operating Partnership and 94.9% of the economic interest in Aimco Operating Partnership. The remaining 7.5% legal interest is owned by limited partners. As the sole general partner of Aimco Operating Partnership, Aimco has exclusive control of Aimco Operating Partnership’s day-to-day management.

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 Aimco Operating Partnership all proceeds from the offerings of its securities. In exchange for the contribution of such proceeds, Aimco receives additional interests in 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).

This filing combines the quarterly reports on Form 10-Q for the quarterly period ended March 31, 2023, of Aimco and 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, Aimco Operating Partnership, and their consolidated entities.

We believe combining the periodic reports of Aimco and 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 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 Aimco Operating Partnership as one enterprise; the management of Aimco directs the management and operations of Aimco Operating Partnership; and Aimco OP GP, LLC, Aimco Operating Partnership’s general partner, is managed by Aimco.

We believe it is important to understand the few differences between Aimco and Aimco Operating Partnership in the context of how Aimco and Aimco Operating Partnership operate as a consolidated company. Aimco has no assets or liabilities other than its investment in Aimco Operating Partnership. Also, Aimco is a corporation that issues publicly traded equity from time to time, whereas 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 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), Aimco Operating Partnership generates all remaining capital required by its business. These sources include 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 real estate.

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

To help investors understand the differences between Aimco and Aimco Operating Partnership, this report provides: separate condensed consolidated financial statements for Aimco and 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, and earnings per share or earnings per unit, 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.

 

1


Table of Contents

 

This report also includes separate Part I, Item 4. Controls and Procedures sections and separate Exhibits 31 and 32 certifications for Aimco and Aimco Operating Partnership in order to establish that the requisite certifications have been made and that Aimco and 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.

2


Table of Contents

 

APARTMENT INVESTMENT AND MANAGEMENT COMPANY

AIMCO OP 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)

4

 

Condensed Consolidated Statements of Operations (Unaudited)

5

 

Condensed Consolidated Statements of Equity (Unaudited)

6

 

Condensed Consolidated Statements of Cash Flows (Unaudited)

7

 

Aimco OP L.P.:

 

 

Condensed Consolidated Balance Sheets (Unaudited)

8

 

Condensed Consolidated Statements of Operations (Unaudited)

9

 

Condensed Consolidated Statements of Partners’ Capital (Unaudited)

10

 

Condensed Consolidated Statements of Cash Flows (Unaudited)

11

 

Notes to Condensed Consolidated Financial Statements of Apartment Investment and Management Company and Aimco OP L.P. (Unaudited)

12

ITEM 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

24

ITEM 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

35

ITEM 4.

CONTROLS AND PROCEDURES

36

 

PART II. OTHER INFORMATION

 

ITEM 1A.

RISK FACTORS

37

ITEM 2.

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

37

ITEM 6.

EXHIBITS

38

Signatures

 

39

 

3


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)

 

 

 

March 31, 2023

 

 

December 31, 2022

 

ASSETS

 

 

 

 

 

 

Buildings and improvements

 

$

1,391,963

 

 

$

1,322,381

 

Land

 

 

640,892

 

 

 

641,102

 

Total real estate

 

 

2,032,855

 

 

 

1,963,483

 

Accumulated depreciation

 

 

(545,604

)

 

 

(530,722

)

Net real estate

 

 

1,487,251

 

 

 

1,432,761

 

Cash and cash equivalents

 

 

166,149

 

 

 

206,460

 

Restricted cash

 

 

22,485

 

 

 

23,306

 

Mezzanine investment

 

 

158,430

 

 

 

158,558

 

Interest rate options

 

 

60,508

 

 

 

62,387

 

Unconsolidated real estate partnerships

 

 

16,470

 

 

 

15,789

 

Notes receivable

 

 

39,363

 

 

 

39,014

 

Right-of-use lease assets - finance leases

 

 

110,625

 

 

 

110,269

 

Other assets, net

 

 

127,894

 

 

 

132,679

 

   Total assets

 

$

2,189,175

 

 

$

2,181,223

 

 

 

 

 

 

 

LIABILITIES AND EQUITY

 

 

 

 

 

 

Non-recourse property debt, net

 

$

929,291

 

 

$

929,501

 

Construction loans, net

 

 

155,691

 

 

 

118,698

 

Total indebtedness

 

 

1,084,982

 

 

 

1,048,199

 

Deferred tax liabilities

 

 

114,883

 

 

 

119,615

 

Lease liabilities - finance leases

 

 

116,212

 

 

 

114,625

 

Accrued liabilities and other

 

 

97,220

 

 

 

106,600

 

Total liabilities

 

 

1,413,297

 

 

 

1,389,039

 

 

 

 

 

 

 

Redeemable noncontrolling interests in consolidated real estate partnerships

 

 

167,129

 

 

 

166,826

 

 

 

 

 

 

 

 

Commitments and contingencies (Note 3)

 

 

 

 

 

 

 

 

 

 

 

 

 

Equity (510,587,500 shares authorized at both March 31, 2023 and December 31, 2022):

 

 

 

 

 

 

Common Stock, $0.01 par value, 144,718,453 and 146,524,941 shares issued and outstanding at March 31, 2023 and December 31, 2022, respectively

 

 

1,448

 

 

 

1,466

 

Additional paid-in capital

 

 

489,304

 

 

 

496,482

 

Retained earnings

 

 

41,087

 

 

 

49,904

 

Total Aimco equity

 

 

531,839

 

 

 

547,852

 

Noncontrolling interests in consolidated real estate partnerships

 

 

48,321

 

 

 

48,294

 

Common noncontrolling interests in Aimco Operating Partnership

 

 

28,589

 

 

 

29,212

 

Total equity

 

 

608,749

 

 

 

625,358

 

Total liabilities and equity

 

$

2,189,175

 

 

$

2,181,223

 

 

See notes to condensed consolidated financial statements.

4


Table of Contents

 

APARTMENT INVESTMENT AND MANAGEMENT COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)

(Unaudited)

 

 

 

Three Months Ended March 31,

 

 

 

2023

 

 

2022

 

REVENUES

 

 

 

 

 

 

Rental and other property revenues

 

$

44,268

 

 

$

49,994

 

 

 

 

 

 

 

 

OPERATING EXPENSES

 

 

 

 

 

 

Property operating expenses

 

 

17,504

 

 

 

19,221

 

Depreciation and amortization

 

 

16,271

 

 

 

23,118

 

General and administrative expenses

 

 

8,403

 

 

 

9,472

 

Total operating expenses

 

 

42,178

 

 

 

51,811

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest income

 

 

2,058

 

 

 

555

 

Interest expense

 

 

(9,725

)

 

 

(14,601

)

Mezzanine investment income (loss), net

 

 

(128

)

 

 

8,237

 

Realized and unrealized gains (losses) on interest rate options

 

 

(1,057

)

 

 

18,778

 

Realized and unrealized gains (losses) on equity investments

 

 

137

 

 

 

(4,332

)

Income from unconsolidated real estate partnerships

 

 

174

 

 

 

256

 

Other income (expense), net

 

 

(3,498

)

 

 

(1,020

)

Income (loss) before income tax

 

 

(9,949

)

 

 

6,056

 

Income tax benefit (expense)

 

 

4,196

 

 

 

4,056

 

Net income (loss)

 

 

(5,753

)

 

 

10,112

 

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

 

 

(3,274

)

 

 

(1,470

)

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

 

 

(264

)

 

 

2

 

Net (income) loss attributable to common noncontrolling
   interests in Aimco Operating Partnership

 

 

474

 

 

 

(435

)

   Net income (loss) attributable to Aimco

 

$

(8,817

)

 

$

8,209

 

 

 

 

 

 

 

 

Net income (loss) attributable to Aimco per common
   share – basic (Note 4)

 

$

(0.06

)

 

$

0.05

 

Net income (loss) attributable to Aimco per common
   share – diluted (Note 4)

 

$

(0.06

)

 

$

0.05

 

 

 

 

 

 

 

 

Weighted-average common shares outstanding – basic

 

 

145,827

 

 

 

149,790

 

Weighted-average common shares outstanding – diluted

 

 

145,827

 

 

 

150,348

 

 

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 March 31, 2023 and 2022

(In thousands, except per share data)

(Unaudited)

 

 

Common Stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shares
Issued

 

 

Amount

 

 

Additional
Paid-
in Capital

 

 

Retained Earnings (Accumulated Deficit)

 

 

Total Aimco
Equity

 

 

Noncontrolling Interests in Consolidated
Real Estate
Partnerships

 

 

Common Noncontrolling Interests in Aimco
Operating
Partnership

 

 

Total
Equity

 

Balances at December 31, 2021

 

 

149,818

 

 

$

1,498

 

 

$

521,842

 

 

$

(22,775

)

 

$

500,565

 

 

$

35,213

 

 

$

26,455

 

 

$

562,233

 

Net income (loss)

 

 

 

 

 

 

 

 

 

 

 

8,209

 

 

 

8,209

 

 

 

(2

)

 

 

435

 

 

 

8,642

 

Redemption of OP Units

 

 

23

 

 

 

 

 

 

954

 

 

 

 

 

 

954

 

 

 

 

 

 

(1,087

)

 

 

(133

)

Share-based compensation expense

 

 

 

 

 

 

 

 

1,363

 

 

 

 

 

 

1,363

 

 

 

 

 

 

1,066

 

 

 

2,429

 

Contributions from noncontrolling interests

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

9,718

 

 

 

 

 

 

9,718

 

Distributions to noncontrolling interests

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(295

)

 

 

 

 

 

(295

)

Redemption of redeemable noncontrolling interests in consolidated real estate partnerships

 

 

 

 

 

 

 

 

(183

)

 

 

 

 

 

(183

)

 

 

 

 

 

 

 

 

(183

)

Common stock repurchased

 

 

(202

)

 

 

(2

)

 

 

(1,315

)

 

 

 

 

 

(1,317

)

 

 

 

 

 

 

 

 

(1,317

)

Other common stock issuances

 

 

106

 

 

 

1

 

 

 

851

 

 

 

 

 

 

852

 

 

 

 

 

 

 

 

 

852

 

Other, net

 

 

(55

)

 

 

 

 

 

(57

)

 

 

(5

)

 

 

(62

)

 

 

(5

)

 

 

106

 

 

 

39

 

Balances at March 31, 2022

 

 

149,690

 

 

$

1,497

 

 

$

523,455

 

 

$

(14,571

)

 

$

510,381

 

 

$

44,629

 

 

$

26,975

 

 

$

581,985

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balances at December 31, 2022

 

 

146,525

 

 

$

1,466

 

 

$

496,482

 

 

$

49,904

 

 

$

547,852

 

 

$

48,294

 

 

$

29,212

 

 

$

625,358

 

Net income (loss)

 

 

 

 

 

 

 

 

 

 

 

(8,817

)

 

 

(8,817

)

 

 

264

 

 

 

(474

)

 

 

(9,027

)

Redemption of OP Units

 

 

 

 

 

 

 

 

4,293

 

 

 

 

 

 

4,293

 

 

 

 

 

 

(4,547

)

 

 

(254

)

Share-based compensation expense

 

 

 

 

 

 

 

 

1,696

 

 

 

 

 

 

1,696

 

 

 

 

 

 

3,126

 

 

 

4,822

 

Contributions from noncontrolling interests

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

50

 

 

 

 

 

 

50

 

Distributions to noncontrolling interests

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(287

)

 

 

 

 

 

(287

)

Common stock repurchased

 

 

(2,019

)

 

 

(20

)

 

 

(14,701

)

 

 

 

 

 

(14,721

)

 

 

 

 

 

 

 

 

(14,721

)

Other common stock issuances

 

 

247

 

 

 

2

 

 

 

1,538

 

 

 

 

 

 

1,540

 

 

 

 

 

 

1,272

 

 

 

2,812

 

Other, net

 

 

(35

)

 

 

 

 

 

(4

)

 

 

 

 

 

(4

)

 

 

 

 

 

 

 

 

(4

)

Balances at March 31, 2023

 

 

144,718

 

 

$

1,448

 

 

$

489,304

 

 

$

41,087

 

 

$

531,839

 

 

$

48,321

 

 

$

28,589

 

 

$

608,749

 

 

See notes to condensed consolidated financial statements.

6


Table of Contents

 

APARTMENT INVESTMENT AND MANAGEMENT COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

 

 

Three Months Ended March 31,

 

 

2023

 

 

2022

 

CASH FLOWS FROM OPERATING ACTIVITIES:

 

 

 

 

 

Net income (loss)

$

(5,753

)

 

$

10,112

 

Adjustments to reconcile net income (loss) to net cash provided by operating activities:

 

 

 

 

 

Depreciation and amortization

 

16,271

 

 

 

23,118

 

Mezzanine investment (income) loss, net

 

128

 

 

 

(8,237

)

Realized and unrealized (gains) losses on interest rate options

 

1,057

 

 

 

(18,778

)

Realized and unrealized (gains) losses on equity investments

 

(137

)

 

 

4,332

 

Income from unconsolidated real estate partnerships

 

(174

)

 

 

(256

)

Income tax expense (benefit)

 

(4,196

)

 

 

(4,056

)

Amortization of debt issuance costs and other

 

808

 

 

 

814

 

Share-based compensation

 

4,519

 

 

 

2,667

 

Changes in operating assets and operating liabilities:

 

 

 

 

 

Other assets, net

 

2,238

 

 

 

2,420

 

Accrued liabilities and other

 

(9,162

)

 

 

(5,625

)

Total adjustments

 

11,352

 

 

 

(3,601

)

Net cash provided by operating activities

 

5,599

 

 

 

6,511

 

CASH FLOWS FROM INVESTING ACTIVITIES:

 

 

 

 

 

Purchases of real estate

 

 

 

 

(47,492

)

Capital expenditures (1)

 

(64,814

)

 

 

(49,656

)

Investment in IQHQ

 

 

 

 

(14,227

)

Other investing activities

 

1,580

 

 

 

(73

)

Net cash used in investing activities

 

(63,234

)

 

 

(111,448

)

CASH FLOWS FROM FINANCING ACTIVITIES:

 

 

 

 

 

Proceeds from non-recourse property debt

 

 

 

 

40,000

 

Proceeds from construction loans

 

35,491

 

 

 

15,625

 

Principal repayments on non-recourse property debt

 

(779

)

 

 

(2,101

)

Payments on finance leases

 

(796

)

 

 

(24,516

)

Common stock repurchased

 

(14,522

)

 

 

(1,317

)

Distributions to redeemable noncontrolling interests

 

(3,095

)

 

 

 

Contributions from noncontrolling interests

 

50

 

 

 

9,718

 

Distributions to noncontrolling interests

 

(287

)

 

 

 

Contributions from redeemable noncontrolling interests

 

124

 

 

 

6,879

 

Redemption of OP units

 

(254

)

 

 

 

Redemption of redeemable noncontrolling interests

 

 

 

 

(5,094

)

Other financing activities

 

571

 

 

 

(1,216

)

Net cash provided by (used in) financing activities

 

16,503

 

 

 

37,978

 

NET DECREASE IN CASH, CASH EQUIVALENTS, AND RESTRICTED CASH

 

(41,132

)

 

 

(66,959

)

CASH, CASH EQUIVALENTS, AND RESTRICTED CASH AT BEGINNING OF PERIOD

 

229,766

 

 

 

244,582

 

CASH, CASH EQUIVALENTS AND RESTRICTED CASH AT END OF PERIOD

$

188,634

 

 

$

177,623

 

(1) Accrued capital expenditures were $43.8 million and $40.4 million as of March 31, 2023 and 2022, respectively.

See notes to condensed consolidated financial statements.

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AIMCO OP L.P.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands)

(Unaudited)

 

 

 

March 31, 2023

 

 

December 31, 2022

 

ASSETS

 

 

 

 

 

 

Buildings and improvements

 

$

1,391,963

 

 

$

1,322,381

 

Land

 

 

640,892

 

 

 

641,102

 

Total real estate

 

 

2,032,855

 

 

 

1,963,483

 

Accumulated depreciation

 

 

(545,604

)

 

 

(530,722

)

Net real estate

 

 

1,487,251

 

 

 

1,432,761

 

Cash and cash equivalents

 

 

166,149

 

 

 

206,460

 

Restricted cash

 

 

22,485

 

 

 

23,306

 

Mezzanine investment

 

 

158,430

 

 

 

158,558

 

Interest rate options

 

 

60,508

 

 

 

62,387

 

Unconsolidated real estate partnerships

 

 

16,470

 

 

 

15,789

 

Notes receivable

 

 

39,363

 

 

 

39,014

 

Right-of-use lease assets - finance leases

 

 

110,625

 

 

 

110,269

 

Other assets, net

 

 

127,894

 

 

 

132,679

 

Total assets

 

$

2,189,175

 

 

$

2,181,223

 

 

 

 

 

 

 

LIABILITIES AND EQUITY

 

 

 

 

 

 

Non-recourse property debt, net

 

$

929,291

 

 

$

929,501

 

Construction loans, net

 

 

155,691

 

 

 

118,698

 

Total indebtedness

 

 

1,084,982

 

 

 

1,048,199

 

Deferred tax liabilities

 

 

114,883

 

 

 

119,615

 

Lease liabilities - finance leases

 

 

116,212

 

 

 

114,625

 

Accrued liabilities and other

 

 

97,220

 

 

 

106,600

 

Total liabilities

 

 

1,413,297

 

 

 

1,389,039

 

 

 

 

 

 

 

Redeemable noncontrolling interests in consolidated real estate partnerships

 

 

167,129

 

 

 

166,826

 

 

 

 

 

 

 

 

Commitments and contingencies (Note 3)

 

 

 

 

 

 

 

 

 

 

 

 

 

Partners’ capital:

 

 

 

 

 

 

General Partner and Special Limited Partner

 

 

531,839

 

 

 

547,852

 

Limited Partners

 

 

28,589

 

 

 

29,212

 

Partners’ capital attributable to Aimco Operating Partnership

 

 

560,428

 

 

 

577,064

 

Noncontrolling interests in consolidated real estate partnerships

 

 

48,321

 

 

 

48,294

 

Total partners’ capital

 

 

608,749

 

 

 

625,358

 

Total liabilities and partners’ capital

 

$

2,189,175

 

 

$

2,181,223

 

 

See notes to condensed consolidated financial statements.

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Table of Contents

 

AIMCO OP L.P.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per unit data)

(Unaudited)

 

 

 

Three Months Ended March 31,

 

 

 

2023

 

 

2022

 

REVENUES

 

 

 

 

 

 

Rental and other property revenues

 

$

44,268

 

 

$

49,994

 

 

 

 

 

 

 

 

OPERATING EXPENSES

 

 

 

 

 

 

Property operating expenses

 

 

17,504

 

 

 

19,221

 

Depreciation and amortization

 

 

16,271

 

 

 

23,118

 

General and administrative expenses

 

 

8,403

 

 

 

9,472

 

Total operating expenses

 

 

42,178

 

 

 

51,811

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest income

 

 

2,058

 

 

 

555

 

Interest expense

 

 

(9,725

)

 

 

(14,601

)

Mezzanine investment income (loss), net

 

 

(128

)

 

 

8,237

 

Realized and unrealized gains (losses) on interest rate options

 

 

(1,057

)

 

 

18,778

 

Realized and unrealized gains (losses) on equity investments

 

 

137

 

 

 

(4,332

)

Income from unconsolidated real estate partnerships

 

 

174

 

 

 

256

 

Other income (expense), net

 

 

(3,498

)

 

 

(1,020

)

Income (loss) before income tax

 

 

(9,949

)

 

 

6,056

 

Income tax benefit (expense)

 

 

4,196

 

 

 

4,056

 

Net income (loss)

 

 

(5,753

)

 

 

10,112

 

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

 

 

(3,274

)

 

 

(1,470

)

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

 

 

(264

)

 

 

2

 

Net income (loss) attributable to Aimco Operating
     Partnership

 

$

(9,291

)

 

$

8,644

 

 

 

 

 

 

 

 

Net income (loss) attributable to Aimco Operating
     Partnership per common unit – basic (Note 4)

 

$

(0.06

)

 

$

0.05

 

Net income (loss) attributable to Aimco Operating
     Partnership per common unit – diluted (Note 4)

 

$

(0.06

)

 

$

0.05

 

 

 

 

 

 

 

 

   Weighted-average common units outstanding – basic

 

 

153,631

 

 

 

157,718

 

   Weighted-average common units outstanding – diluted

 

 

153,631

 

 

 

158,485

 

 

See notes to condensed consolidated financial statements.

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Table of Contents

 

AIMCO OP L.P.

CONDENSED CONSOLIDATED STATEMENTS OF PARTNERS’ CAPITAL

For the Three Months Ended March 31, 2023 and 2022

(In thousands)

(Unaudited)

 

 

 

General Partner
and Special
Limited Partner

 

 

Limited
Partners

 

 

Partners’ Capital
Attributable to
Aimco Operating
Partnership

 

 

Noncontrolling
Interests
in Consolidated Real
Estate Partnerships

 

 

Total
Partners’
Capital

 

Balances at December 31, 2021

 

 

500,565

 

 

 

26,455

 

 

 

527,020

 

 

 

35,213

 

 

 

562,233

 

Net income (loss)

 

 

8,209

 

 

 

435

 

 

 

8,644

 

 

 

(2

)

 

 

8,642

 

Redemption of OP Units

 

 

954

 

 

 

(1,087

)

 

 

(133

)

 

 

 

 

 

(133

)

Share-based compensation expense

 

 

1,363

 

 

 

1,066

 

 

 

2,429

 

 

 

 

 

 

2,429

 

Contributions from noncontrolling interests

 

 

 

 

 

 

 

 

 

 

 

9,718

 

 

 

9,718

 

Distributions to noncontrolling interests

 

 

 

 

 

 

 

 

 

 

 

(295

)

 

 

(295

)

Redemption of redeemable noncontrolling interests in consolidated real estate partnerships

 

 

(183

)

 

 

 

 

 

(183

)

 

 

 

 

 

(183

)

Repurchases of OP Units held by Aimco

 

 

(1,317

)

 

 

 

 

 

(1,317

)

 

 

 

 

 

(1,317

)

Other OP Unit issuances

 

 

852

 

 

 

 

 

 

852

 

 

 

 

 

 

852

 

Other, net

 

 

(62

)

 

 

106

 

 

 

44

 

 

 

(5

)

 

 

39

 

Balances at March 31, 2022

 

$

510,381

 

 

$

26,975

 

 

$

537,356

 

 

$

44,629

 

 

$

581,985

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balances at December 31, 2022

 

$

547,852

 

 

$

29,212

 

 

$

577,064

 

 

$

48,294

 

 

$

625,358

 

Net income (loss)

 

 

(8,817

)

 

 

(474

)

 

 

(9,291

)

 

 

264

 

 

 

(9,027

)

Redemption of OP Units

 

 

4,293

 

 

 

(4,547

)

 

 

(254

)

 

 

 

 

 

(254

)

Share-based compensation expense

 

 

1,696

 

 

 

3,126

 

 

 

4,822

 

 

 

 

 

 

4,822

 

Contributions from noncontrolling interests

 

 

 

 

 

 

 

 

 

 

 

50

 

 

 

50

 

Distributions to noncontrolling interests

 

 

 

 

 

 

 

 

 

 

 

(287

)

 

 

(287

)

Repurchases of OP Units held by Aimco

 

 

(14,721

)

 

 

 

 

 

(14,721

)

 

 

 

 

 

(14,721

)

Other OP Unit issuances

 

 

1,540

 

 

 

1,272

 

 

 

2,812

 

 

 

 

 

 

2,812

 

Other, net

 

 

(4

)

 

 

 

 

 

(4

)

 

 

 

 

 

(4

)

Balances at March 31, 2023

 

$

531,839

 

 

$

28,589

 

 

$

560,428

 

 

$

48,321

 

 

$

608,749

 

 

See notes to condensed consolidated financial statements.

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AIMCO OP L.P.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

 

 

Three Months Ended March 31,

 

 

2023

 

 

2022

 

CASH FLOWS FROM OPERATING ACTIVITIES:

 

 

 

 

 

Net income (loss)

$

(5,753

)

 

$

10,112

 

Adjustments to reconcile net income (loss) to net cash provided by operating activities:

 

 

 

 

 

Depreciation and amortization

 

16,271

 

 

 

23,118

 

Mezzanine investment (income) loss, net

 

128

 

 

 

(8,237

)

Realized and unrealized (gains) losses on interest rate options

 

1,057

 

 

 

(18,778

)

Realized and unrealized (gains) losses on equity investments

 

(137

)

 

 

4,332

 

Income from unconsolidated real estate partnerships

 

(174

)

 

 

(256

)

Income tax expense (benefit)

 

(4,196

)

 

 

(4,056

)

Amortization of debt issuance costs and other

 

808

 

 

 

814

 

Share-based compensation

 

4,519

 

 

 

2,667

 

Changes in operating assets and operating liabilities:

 

 

 

 

 

Other assets, net

 

2,238

 

 

 

2,420

 

Accrued liabilities and other

 

(9,162

)

 

 

(5,625

)

Total adjustments

 

11,352

 

 

 

(3,601

)

Net cash provided by operating activities

 

5,599

 

 

 

6,511

 

CASH FLOWS FROM INVESTING ACTIVITIES:

 

 

 

 

 

Purchases of real estate

 

 

 

 

(47,492

)

Capital expenditures (1)

 

(64,814

)

 

 

(49,656

)

Investment in IQHQ

 

 

 

 

(14,227

)

Other investing activities

 

1,580

 

 

 

(73

)

Net cash used in investing activities

 

(63,234

)

 

 

(111,448

)

CASH FLOWS FROM FINANCING ACTIVITIES:

 

 

 

 

 

Proceeds from non-recourse property debt

 

 

 

 

40,000

 

Proceeds from construction loans

 

35,491

 

 

 

15,625

 

Principal repayments on non-recourse property debt

 

(779

)

 

 

(2,101

)

Payments on finance leases

 

(796

)

 

 

(24,516

)

Common stock repurchased

 

(14,522

)

 

 

(1,317

)

Distributions to redeemable noncontrolling interests

 

(3,095

)

 

 

 

Contributions from noncontrolling interests

 

50

 

 

 

9,718

 

Distributions to noncontrolling interests

 

(287

)

 

 

 

Contributions from redeemable noncontrolling interests

 

124

 

 

 

6,879

 

Redemption of OP units

 

(254

)

 

 

 

Redemption of redeemable noncontrolling interests

 

 

 

 

(5,094

)

Other financing activities

 

571

 

 

 

(1,216

)

Net cash provided by (used in) financing activities

 

16,503

 

 

 

37,978

 

NET DECREASE IN CASH, CASH EQUIVALENTS, AND RESTRICTED CASH

 

(41,132

)

 

 

(66,959

)

CASH, CASH EQUIVALENTS, AND RESTRICTED CASH AT BEGINNING OF PERIOD

 

229,766

 

 

 

244,582

 

CASH, CASH EQUIVALENTS AND RESTRICTED CASH AT END OF PERIOD

$

188,634

 

 

$

177,623

 

(1) Accrued capital expenditures were $43.8 million and $40.4 million as of March 31, 2023 and 2022, respectively.

See notes to condensed consolidated financial statements.

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APARTMENT INVESTMENT AND MANAGEMENT COMPANY

AIMCO OP L.P.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2023

(Unaudited)

 

Note 1 — Organization

Apartment Investment and Management Company (“Aimco”), a Maryland corporation incorporated on January 10, 1994, is a self-administered and self-managed real estate investment trust (“REIT”). On December 15, 2020, Aimco completed the separation of its businesses (the “Separation”), creating two, separate and distinct, publicly traded companies, Aimco and Apartment Income REIT Corp. (“AIR”) (Aimco and AIR together, as they existed prior to the Separation, “Aimco Predecessor”). Events noted in this filing as occurring before December 15, 2020, were those entered into by Aimco Predecessor. Aimco, through a wholly owned subsidiary, is the general and special limited partner of Aimco OP L.P. (“Aimco Operating Partnership”).

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

As of March 31, 2023, Aimco owned 92.5% of the legal interest in the common partnership units of Aimco Operating Partnership and 94.9% of the economic interest in Aimco Operating Partnership. The remaining 7.5% legal interest is owned by limited partners. The common partnership units of Aimco Operating Partnership are referred to as "OP Units". As the sole general partner of Aimco Operating Partnership, Aimco has exclusive control of Aimco Operating Partnership’s day-to-day management.

We own or lease a portfolio of real estate investments focused primarily on the U.S. multifamily sector. These real estate investments include: a portfolio of 26 operating apartment communities (22 consolidated properties with 5,640 apartment homes and four unconsolidated operating properties), diversified by both geography and price point; one commercial office building that is part of a land assemblage; three residential apartment communities, with 1,185 planned apartment homes, a single family rental community with 16 planned homes plus eight accessory dwelling units, and one hotel, with 106 rooms, we are actively developing or redeveloping; land parcels held for development. Our real estate portfolio also includes two unconsolidated investments in land held for development. In addition, we hold other alternative investments, including our Mezzanine Investment (see Note 2 for further information); our IQHQ investment; and our investment in real estate technology funds.

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 generally accepted accounting principles in the U.S. ("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 months ended March 31, 2023, are not necessarily indicative of the results that may be expected for the year ending December 31, 2023.

The Condensed Consolidated Balance Sheets of Aimco and Aimco Operating Partnership as of December 31, 2022 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 Aimco Operating Partnership’s combined Annual Report on Form 10-K for the year ended December 31, 2022. Except where indicated, the footnotes refer to both Aimco and Aimco Operating Partnership.

 

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Table of Contents

 

Principles of Consolidation

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

We consolidate a variable interest entity (“VIE”) in which we are considered the primary beneficiary. The primary beneficiary is the entity that has (i) the power to direct the activities that most significantly impact the entity's economic performance and (ii) the obligation to absorb losses of the VIE or the right to receive benefits from the VIE that could be significant to the VIE.

As used herein, and except where the context otherwise requires, “partnership” refers to a limited partnership or a limited liability company and “partner” refers to a partner in a limited partnership or a member of a limited liability company.

Certain reclassifications have been made to prior period amounts to conform to the current period condensed consolidated financial statement presentation with no effect on the Company’s previously reported results of operations, financial position, or cash flows.

Common Noncontrolling Interests in Aimco Operating Partnership

Common noncontrolling interests in Aimco Operating Partnership consist of OP Units held by third parties, and are reflected in Aimco’s accompanying Condensed Consolidated Balance Sheets as Common Noncontrolling Interests in Aimco Operating Partnership. Aimco Operating Partnership’s income or loss is allocated to the holders of OP Units, other than Aimco, based on the weighted-average number of OP Units (including Aimco) outstanding during the period. For the periods ended March 31, 2023 and 2022, the holders of OP Units had a weighted-average economic ownership interest in Aimco Operating Partnership of approximately 5.1%, and 5.0%, respectively. Substantially all of the assets and liabilities of Aimco are held by Aimco Operating Partnership.

Redeemable Noncontrolling Interests in Consolidated Real Estate Partnerships

Redeemable noncontrolling interests consist of equity interests held by a limited partner in a consolidated real estate partnership that has a finite life. If a consolidated real estate partnership includes redemption rights that are not within our control, the noncontrolling interest is included as temporary equity.

Redeemable noncontrolling interests in consolidated real estate partnerships as of March 31, 2023, consists of the following: (i) a $102.0 million preferred equity interest in an entity that owns a portfolio of operating apartment communities and (ii) equity interests in two separate consolidated joint ventures (in which we hold preferred equity interests in one and common equity interests in the other) that are actively developing residential apartment communities. Capital contributions, distributions, and net income attributable to redeemable noncontrolling interests in consolidated real estate partnerships are determined in accordance with the relevant partnership agreements. These interests are presented as Redeemable noncontrolling interests in consolidated real estate partnerships in our Condensed Consolidated Balance Sheet as of March 31, 2023.

The following table shows changes in our redeemable noncontrolling interests in consolidated real estate partnerships from December 31, 2022 to March 31, 2023 (in thousands):

Balance at December 31, 2022

 

$

166,826

 

Capital contributions

 

 

124

 

Distributions

 

 

(3,095

)

Net income

 

 

3,274

 

Balance at March 31, 2023

 

$

167,129

 

 

 

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Mezzanine Investment

In November 2019, Aimco Predecessor made a five-year, $275.0 million mezzanine loan to the partnership owning the “Parkmerced Apartments” located in southwest San Francisco (the “Mezzanine Investment”). The loan bears interest at a 10% annual rate, accruing if not paid from property operations. Ownership of the subsidiaries that originated and hold the Mezzanine Investment was retained by AIR following the Separation.

The Separation Agreement with AIR provides for AIR to transfer ownership of the subsidiaries that originated and hold the Mezzanine Investment, a related equity option to acquire a 30% interest in the partnership owning Parkmerced Apartments and the interest rate option, or swaption, that provides partial protection against future refinancing risk to Aimco through 2024 once required third-party consents are received. At the time of Separation and as of the date of this filing, legal title of these subsidiaries had not yet transferred to us. Until legal title of the subsidiaries is transferred, AIR is obligated to pass payments received on the Mezzanine Investment to us, and we are obligated to indemnify AIR against any costs and expenses related thereto. We have the risks and rewards of ownership of the Mezzanine Investment and have recognized an asset related to our right to receive the Mezzanine Investment from AIR.

On a periodic basis, we evaluate our Mezzanine Investment for impairment. We assess whether there are any indicators that imply the value of our investment may be impaired. These include assessments of both the underlying property performance and general market conditions in place. An investment is considered impaired if we determine that its fair value is less than the net carrying value of the investment on an other-than-temporary basis. Cash flow projections for the investments consider property level factors such as expected future operating income, trends and prospects, as well as the effects of demand, competition and other factors. We consider various qualitative factors to determine if a decrease in the value of our investment is other-than-temporary. These factors include the loan’s maturity date, our intent and ability to retain our investment in the entity, and the financial condition and long-term prospects of the entity.

Prior to recording a non-cash impairment charge during the three months ended December 31, 2022, we recognized as income the net amounts earned on the Mezzanine Investment by AIR on its equity investment that were due to be paid to us when collected to the extent the income was supported by the change in the counterparty’s claim to the net assets of the underlying borrower. The income recognized primarily represented the interest accrued under the terms of the underlying Mezzanine Investment.

In February 2023, we entered into an agreement to sell our Mezzanine Investment for $167.5 million. The initial $5.0 million deposit received from the purchaser became nonrefundable in April 2023 when various conditions, including transfer consents, were cleared. The sale is expected to close during the three months ended June 30, 2023.

Income Tax Benefit (Expense)

Certain aspects of our operations, including our development and redevelopment activities, are conducted through taxable REIT subsidiaries, or TRS entities. Additionally, our TRS entities hold investments in one of our apartment communities and 1001 Brickell Bay Drive.

Our income tax benefit (expense) calculated in accordance with GAAP includes income taxes associated with the income or loss of our TRS entities. Income taxes, as well as changes in valuation allowance and incremental deferred tax items in conjunction with intercompany asset transfers and internal restructurings (if applicable), are included in Income tax benefit (expense) in our Condensed Consolidated Statements of Operations.

Consolidated GAAP income or loss subject to tax consists of pretax income or loss of our taxable entities and gains retained by the REIT. For the three months ended March 31, 2023, we had a net loss subject to tax of $4.9 million, compared to a net loss subject to tax of $14.8 million for the same period in 2022.

For the three months ended March 31, 2023, we recognized an income tax benefit of $4.2 million, compared to an income tax benefit of $4.1 million during the same period in 2022. The change is due primarily to the tax effect of depreciation associated with properties owned by, and activities of, our TRS entities, as well as a reduction to the effective state tax rate expected to apply to the reversal of our existing deferred items.

 

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Table of Contents

 

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.

Cash Equivalents

We classify highly liquid investments with an original maturity of three months or less as cash equivalents. We maintain cash equivalents in financial institutions in excess of insured limits. We have not experienced any losses in these accounts in the past and believe that we are not exposed to significant credit risk because our accounts are deposited with major financial institutions.

Restricted Cash

Restricted cash consists of tenant security deposits, capital replacement reserves, insurance reserves, and cash restricted as required by our debt agreements.

Other Assets, net

Other assets were comprised of the following amounts (in thousands):

 

March 31, 2023

 

 

December 31, 2022

 

Other investments

$

64,273

 

 

$

63,982

 

Deferred costs, deposits, and other

 

18,731

 

 

 

20,460

 

Prepaid expenses and real estate taxes

 

14,392

 

 

 

17,363

 

Intangible assets, net

 

13,890

 

 

 

14,160

 

Corporate fixed assets

 

8,865

 

 

 

8,371

 

Accounts receivable, net of allowances of $850 and $1,206 as of March 31, 2023 and December 31, 2022, respectively

 

3,869

 

 

 

4,079

 

Deferred tax assets

 

2,092

 

 

 

2,321

 

Due from third-party property manager

 

1,782

 

 

 

1,943

 

 Total other assets, net

$

127,894

 

 

$

132,679

 

 

Recent Accounting Pronouncements

In March 2020, the FASB issued Accounting Standards Update ("ASU") No. 2020-04,“Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting”, which provides optional expedients to debt, derivatives, and other contracts that refer to LIBOR or another reference rate expected to be discontinued because of reference rate reform. The original ASU was effective as of its issuance date and provided temporary relief through December 31, 2022, which was extended through December 31, 2024 by ASU 2022-06, "Reference Rate Reform (Topic 848): Deferral of the Sunset Date of Topic 848". The UK Financial Conduct Authority has an intended cessation date of the overnight 1-, 3-, 6-, and 12-month tenors of USD LIBOR of June 30, 2023. We are currently evaluating the potential impact of the standard and may apply the optional expedients when LIBOR is discontinued, but do not expect it to have a material impact on our consolidated financial statements.

 

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Note 3 — Commitments and Contingencies

Commitments

In connection with our development, redevelopment, and other capital additions activities, we have entered into various construction-related contracts, and have made commitments to complete development and redevelopment of certain real estate, pursuant to financing or other arrangements. We expect to fund most of these commitments over the next 24 months. As of March 31, 2023, we had entered into construction-related contracts for $133.2 million, with $268.4 million undrawn on our construction loans.

As of March 31, 2023, we have remaining commitments of $9.5 million related to our unconsolidated joint ventures, which we expect to fund over the next twelve months. In addition, we have remaining commitments of $2.3 million related to our investments in property technology funds invested in entities that develop technology related to the real estate industry. The timing of the remaining funding of these commitments is uncertain.

We also 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.

Legal Matters

From time to time, we may be a party to certain legal proceedings. While the outcome of the legal proceedings cannot be predicted with certainty, we believe there are no legal proceedings pending that would have a material effect upon our financial condition or results of operations.

Note 4 — Earnings per Share and per Unit

Aimco and Aimco Operating Partnership calculate basic earnings per share and basic earnings per unit based on the weighted-average number of shares of Common Stock and OP Units outstanding. We calculate diluted earnings per share and diluted earnings per unit taking into consideration dilutive shares of Common Stock and OP Unit equivalents and dilutive convertible securities outstanding during the period.

Aimco's Common Stock and OP Unit equivalents include options to purchase shares of Common Stock, which, if exercised, would result in our issuance of additional shares of Common Stock and Aimco Operating Partnership’s issuance to us of additional OP Units equal to the number of shares of Common Stock purchased under the options. These equivalents also include unvested market-based 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 OP Units outstanding equal to the number of the shares that vest. OP Unit equivalents also include unvested long-term incentive partnership units. We include in the denominator securities with dilutive effect in calculating diluted earnings per share and per unit during these periods.

Aimco's time-based restricted stock awards receive non-forfeitable dividends similar to shares of Common Stock and OP Units prior to vesting, and our market-based long-term incentive partnership units receive non-forfeitable distributions based on specified percentages of the distributions paid to OP Units prior to vesting and conversion. The unvested restricted shares and units related to these awards are participating securities. We include the effect of participating securities 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 stock method. Participating securities are not included in the computation of diluted earnings per share and unit for the three months ended March 31, 2023, because the effect of their inclusion would be antidilutive. However, participating securities were included in the computation of diluted earnings per share and unit for the three months ended March 31, 2022, because the effect of their inclusion was dilutive.

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Reconciliations of the numerator and denominator in the calculations of basic and diluted earnings per share and per unit for the three months ended March 31, 2023 and 2022, are as follows (in thousands, except per share and per unit data):

 

Three Months Ended March 31,

 

 

2023

 

 

2022

 

Earnings per share

 

 

 

 

 

Numerator:

 

 

 

 

 

Net income (loss) attributable to Aimco

$

(8,817

)

 

$

8,209

 

Net income (loss) allocated to Aimco participating securities

 

 

 

 

(114

)

   Net income (loss) attributable to Aimco common stockholders

$

(8,817

)

 

$

8,095

 

 

 

 

 

 

 

Denominator - shares:

 

 

 

 

 

Basic weighted-average Common Stock outstanding

 

145,827

 

 

 

149,790

 

Diluted share equivalents outstanding

 

 

 

 

558

 

Diluted weighted-average Common Stock outstanding

 

145,827

 

 

 

150,348

 

 

 

 

 

 

 

Earnings (loss) per share - basic

$

(0.06

)

 

$

0.05

 

Earnings (loss) per share - diluted

$

(0.06

)

 

$

0.05

 

 

 

 

 

 

 

Earnings per unit

 

 

 

 

 

Numerator:

 

 

 

 

 

Net income (loss) attributable to Aimco Operating Partnership

$

(9,291

)

 

$

8,644

 

Net income (loss) allocated to Aimco Operating Partnership participating securities

 

 

 

 

(118

)

Net income (loss) attributable to Aimco Operating Partnership's common unit holders

$

(9,291

)

 

$

8,526

 

 

 

 

 

 

 

Denominator - units

 

 

 

 

 

Basic weighted-average OP Units outstanding

 

153,631

 

 

 

157,718

 

Diluted partnership unit equivalents outstanding

 

 

 

 

767

 

Diluted weighted-average OP Units outstanding

 

153,631

 

 

 

158,485

 

 

 

 

 

 

 

Earnings (loss) per unit - basic

$

(0.06

)

 

$

0.05

 

Earnings (loss) per unit - diluted

$

(0.06

)

 

$

0.05

 

 

Note 5 — Fair Value Measurements and Disclosures

Recurring Fair Value Measurements

From time to time we purchase interest rate swaps, caps, and other instruments to provide protection against increases in interest rates on our variable rate debt. As of March 31, 2023, we held interest rate swaps and caps with $2.0 billion notional value. These instruments were acquired for $17.7 million, and the fair value of these instruments is noted in the table below.

On a recurring basis, we measure at fair value our interest rate options. Our interest rate options are classified within Level 2 of the GAAP fair value hierarchy, and we estimate their fair value using pricing models that rely on observable market information, including contractual terms, market prices, and interest rate yield curves. The fair value adjustment is included in earnings in Realized and unrealized gains (losses) on interest rate options in our Condensed Consolidated Statements of Operations. Changes in fair value are reflected as a non-cash transaction in adjustments to arrive at cash flows from operations, and any upfront premium is reflected in Purchase of interest rate options in our Condensed Consolidated Statements of Cash Flows.

As of March 31, 2023 and December 31, 2022, we have an investment in stock of $2.3 million and $1.2 million, respectively, classified within Level 1 of the GAAP fair value hierarchy. In addition, as of March 31, 2023 and December 31, 2022, we have investments in property technology funds of $2.3 million and $3.1 million, respectively, in entities that develop technology related to the real estate industry. These investments are measured at net asset value (“NAV”) as a practical expedient.

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The following table summarizes the fair value for our interest rate options and our investments in real estate technology funds as of March 31, 2023 , and December 31, 2022, (in thousands):

 

 

As of March 31, 2023

 

 

As of December 31, 2022

 

 

Total

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

Interest rate options

 

$

60,398

 

 

$

 

 

$

60,398

 

 

$

 

 

$

62,259

 

 

$

 

 

$

62,259

 

 

$

 

Investment in stock

 

$

2,292

 

 

$

2,292

 

 

$

 

 

$

 

 

$

1,179

 

 

$

1,179

 

 

$

 

 

$

 

Investments in real estate technology funds (1)

 

$

2,294

 

 

$

 

 

$

 

 

$

 

 

$

3,117

 

 

$

 

 

$

 

 

$

 

(1) Investments measured at fair value using NAV as a practical expedient are not classified in the fair value hierarchy.

Fair Value Disclosures

We believe that the carrying value of the consolidated amounts of cash and cash equivalents, restricted cash, accounts receivable and payables approximated their fair value as of March 31, 2023, and December 31, 2022, due to their relatively short-term nature and high probability of realization. We estimate the fair value of our 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, debt service coverage ratios, and loan to value ratios. We classify the fair value of our non-recourse property debt and construction loans within Level 2 of the GAAP valuation hierarchy based on the significance of certain of the unobservable inputs used to estimate their fair value.

The following table summarizes the carrying value and fair value of our non-recourse property debt, and construction loans as of March 31, 2023, and December 31, 2022, (in thousands):

 

 

As of March 31, 2023

 

 

As of December 31, 2022

 

 

Carrying Value

 

 

Fair Value

 

 

Carrying Value

 

 

Fair Value

 

Non-recourse property debt

 

$

937,696

 

 

$

888,823

 

 

$

938,476

 

 

$

878,804

 

Construction loans

 

 

162,764

 

 

 

162,404

 

 

 

126,317

 

 

 

125,954

 

Total

 

$

1,100,460

 

 

$

1,051,227

 

 

$

1,064,793

 

 

$

1,004,758

 

 

Note 6 — Variable Interest Entities

We evaluate our investments in limited partnerships and similar entities in accordance with applicable consolidation guidance to determine whether each such entity is a VIE. The accounting standards for the consolidation of VIEs require qualitative assessments to determine whether we are the primary beneficiary. The primary beneficiary analysis is based on power and economics. We conclude that we are the primary beneficiary and consolidate the VIE if we have both: (i) the power to direct the activities of the VIE that most significantly influence the VIE's economic performance, and (ii) the obligation to absorb losses of, or the right to receive benefits from, the VIE that could potentially be significant to the VIE. Significant judgments and assumptions related to these determinations include, but are not limited to, estimates about the current and future fair values and performance of real estate held by these VIEs and general market conditions.

We consolidate Aimco Operating Partnership, a VIE of which we are the primary beneficiary. Through Aimco Operating Partnership, we consolidate all VIEs for which we are the primary beneficiary. Substantially all of our assets and liabilities are those of Aimco Operating Partnership.

Aimco Operating Partnership is the primary beneficiary, and therefore consolidates its five VIEs that own interests in real estate. Assets of our consolidated VIEs must first be used to settle the liabilities of those VIEs. The consolidated VIEs' creditors do not have recourse to the general credit of Aimco Operating Partnership.

In addition, we have eight unconsolidated VIEs for which we are not the primary beneficiary because we are not their primary decision maker. The eight unconsolidated VIEs include four unconsolidated real estate partnerships that hold four apartment communities in San Diego, California, the Mezzanine Investment, our passive equity investment in IQHQ, and our two unconsolidated investments in land held for development in Miami, Florida and Bethesda, Maryland. Our maximum exposure to loss because of our involvement with the unconsolidated VIEs is limited to the carrying value of their assets.

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The details of our consolidated and unconsolidated VIEs, excluding those of Aimco Operating Partnership, are summarized in the table below as of March 31, 2023, and December 31, 2022, (in thousands, except for VIE count):

 

 

As of March 31, 2023

 

 

As of December 31, 2022

 

 

 

Consolidated

 

 

Unconsolidated

 

 

Consolidated

 

 

Unconsolidated

 

Count of VIEs

 

5

 

 

8

 

 

5

 

 

8

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

Real estate, net

 

$

306,056

 

 

 

 

 

$

258,529

 

 

$

 

Mezzanine investment

 

 

 

 

 

158,430

 

 

 

 

 

 

158,558

 

Right-of-use lease assets

 

 

109,950

 

 

 

 

 

 

110,269

 

 

 

 

Unconsolidated real estate partnerships

 

 

 

 

 

16,470

 

 

 

 

 

 

15,789

 

Other assets, net

 

 

32,608

 

 

 

59,823

 

 

 

36,345

 

 

 

59,823

 

Liabilities

 

 

 

 

 

 

 

 

 

 

 

 

Accrued liabilities and other

 

 

30,690

 

 

 

 

 

 

26,003

 

 

 

 

Non-recourse property debt, net

 

 

22,883

 

 

 

 

 

 

22,689

 

 

 

 

Construction loans, net

 

 

65,943

 

 

 

 

 

 

40,013

 

 

 

 

Lease liabilities

 

 

115,530

 

 

 

 

 

 

114,625

 

 

 

 

 

Note 7 — Lease Arrangements

Aimco as Lessor

The majority of lease payments we receive from our residents and tenants are fixed. We receive variable payments from our residents and commercial tenants primarily for utility reimbursements and other services.

For the three months ended March 31, 2023 and 2022, our total lease income was comprised of the following amounts for all residential and commercial property leases (in thousands):

 

 

Three Months Ended March 31,

 

 

 

2023

 

 

2022

 

Fixed lease income

 

$

41,005

 

 

$

46,333

 

Variable lease income

 

 

3,161

 

 

 

3,661

 

   Total lease income

 

$

44,166

 

 

$

49,994

 

Aimco as Lessee

Finance Lease Arrangements

We are lessee to finance leases for the land underlying the development sites at Upton Place, Strathmore Square, and a 15-acre plot of land in Marin County, California.

As of March 31, 2023 and December 31, 2022, our finance leases had weighted-average remaining terms of 93.5 years and 94.2 years, respectively, and weighted-average discount rates of 6.1% and 6.1%, respectively.

For the three months ended March 31, 2023, amortization related to our finance leases was $0.0 million, net of amounts capitalized, compared to $3.2 million for the three months ended March 31, 2022. In addition, we capitalized $2.1 million of lease costs associated with active development and redevelopment projects on certain of the underlying property and ground lease assets, compared to $2.8 million for the three months ended March 31, 2022.

 

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Table of Contents

 

Operating Lease Arrangements

We have operating leases primarily for corporate office space. Substantially all of the payments under our office leases are fixed. As of March 31, 2023 and December 31, 2022, our operating leases had weighted-average remaining terms of 6.0 years and 6.25 years, respectively, and weighted-average discount rates of 3.5%, and 3.4%, respectively.

We record operating lease expense on a straight-line basis over the lease term. Total operating lease expense for the three months ended March 31, 2023 and 2022 was $0.4 million and $0.4 million, respectively. As of March 31, 2023 and December 31, 2022, operating lease right-of-use lease assets of $6.4 million and $6.7 million, respectively, are included in Other assets, net in our Condensed Consolidated Balance Sheets. As of March 31, 2023 and December 31, 2022, operating lease liabilities of $12.5 million and $12.8 million, respectively, are included in Accrued liabilities and other in our Condensed Consolidated Balance Sheets.

For finance and operating leases, when the rate implicit in the lease cannot be determined, we estimate the value of our lease liabilities using discount rates equivalent to the rates we would pay on a secured borrowing with terms similar to the leases. We determine if an arrangement is or contains a lease at inception. We have lease agreements with lease and non-lease components, and have elected to not separate these components for all classes of underlying assets. Leases with an initial term of 12 months or less are not recorded in our Condensed Consolidated Balance Sheets. Leases with initial terms greater than 12 months are recorded as operating or finance leases in our Condensed Consolidated Balance Sheets.

Office Space Sublease

We have a sublease arrangement to provide space within our corporate office for fixed rents, which commenced on January 1, 2021 and expires on May 31, 2029. For the three months ended March 31, 2023 and 2022, we recognized sublease income of $0.4 million and $0.4 million, respectively.

Annual Future Minimum Lease Payments

Combined minimum annual lease payments under operating and finance leases, and sublease income that offsets our operating lease rent, are as follows (in thousands):

 

Sublease Income and Lease Modification Income

 

 

Operating Lease Future Minimum Rent

 

 

Finance Leases Future Minimum Payments

 

Remainder of 2023

$

1,054

 

 

$

1,533

 

 

$

2,304

 

2024

 

1,413

 

 

 

2,264

 

 

 

4,314

 

2025

 

1,423

 

 

 

2,302

 

 

 

4,490

 

2026

 

1,433

 

 

 

2,341

 

 

 

4,954

 

2027

 

1,443

 

 

 

2,380

 

 

 

5,483

 

Thereafter

 

2,083

 

 

 

3,024

 

 

 

1,433,295

 

   Total

$

8,849

 

 

$

13,844

 

 

$

1,454,840

 

Less: Discount

 

 

 

 

(1,391

)

 

 

(1,338,628

)

   Total lease liabilities

 

 

$

12,453

 

 

$

116,212

 

 

 

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Table of Contents

 

Note 8 — Business Segments

We have three segments: (i) Development and Redevelopment; (ii) Operating; and (iii) Other.

Our Development and Redevelopment segment consists of properties that are under construction or have not achieved stabilization, as well as land held for development. As of March 31, 2023, our Development and Redevelopment segment consists of 12 properties: three residential apartment communities with 1,185 planned apartment homes, a single family rental community with 16 planned homes plus eight accessory dwelling units, and one hotel with 106 planned rooms, and 18,000 square feet of event space, which we are actively developing or redeveloping; and, land parcels held for development.

Our Operating segment includes 21 residential apartment communities with 5,600 apartment homes that have achieved stabilized level of operations as of January 1, 2022 and maintained it throughout the current year and comparable period. We aggregate all our apartment communities that have reached stabilization into our Operating segment.

During the three months ended March 31, 2023, we reclassified one residential apartment community from the Other segment to the Operating segment because it reached stabilization. Prior period segment information has been recast based upon our current segment population, and is consistent with how our chief operating decision maker ("CODM") evaluates the business. The recast conforms with our reportable segment classification as of March 31, 2023.

Our Other segment consists of properties currently owned that are not included in our Development and Redevelopment or Operating segments. Our Other segment includes 1001 Brickell Bay Drive, our only office building, and St. George Villas.

Our CODM uses cash flow, construction timeline to completion, and actual versus budgeted results to evaluate our properties in our Development and Redevelopment segment. Our CODM uses proportionate property net operating income to assess the operating performance of our Operating segment. Proportionate property net operating income is defined as our share of rental and other property revenues, less direct property operating expenses, but

excluding utility reimbursements, for the consolidated communities. In our Condensed Consolidated Statements of Operations, utility reimbursements are included in Rental and other property revenues, in accordance with GAAP;
excluding the results of four apartment communities with an aggregate 142 apartment homes that we neither manage nor consolidate, our investment in IQHQ and the Mezzanine Investment; and
excluding property management costs and casualty gains or losses, reported in consolidated amounts, in our assessment of segment performance.

 

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Table of Contents

 

The following tables present the results of operations of consolidated properties with our segments reported on a proportionate basis for the three months ended March 31, 2023 and 2022, (in thousands):

 

Development and Redevelopment

 

 

Operating

 

 

Other

 

 

Proportionate
and Other Adjustments
(1)

 

 

Corporate and Amounts Not Allocated to Segments (2)

 

 

Consolidated

 

Three Months Ended March 31, 2023:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Rental and other property revenues

$

2,201

 

 

$

36,672

 

 

$

3,694

 

 

$

1,701

 

 

$

 

 

$

44,268

 

Property operating expenses

 

2,025

 

 

 

11,186

 

 

 

1,192

 

 

 

1,677

 

 

 

1,424

 

 

 

17,504

 

Other operating expenses not allocated
   to segments
(3)

 

 

 

 

 

 

 

 

 

 

 

 

 

24,674

 

 

 

24,674

 

Total operating expenses

 

2,025

 

 

 

11,186

 

 

 

1,192

 

 

 

1,677

 

 

 

26,098

 

 

 

42,178

 

Proportionate property net operating
   income (loss)

 

176

 

 

 

25,486

 

 

 

2,502

 

 

 

24

 

 

 

(26,098

)

 

 

2,090

 

Other items included in income before
   income tax
(4)

 

 

 

 

 

 

 

 

 

 

 

 

 

(12,039

)

 

 

(12,039

)

Income (loss) before income tax

$

176

 

 

$

25,486

 

 

$

2,502

 

 

$

24

 

 

$

(38,137

)

 

$

(9,949

)

 

 

Development and Redevelopment

 

 

Operating

 

 

Other

 

 

Proportionate
and Other Adjustments
(1)

 

 

Corporate and Amounts Not Allocated to Segments (2)

 

 

Consolidated

 

Three Months Ended March 31, 2022:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Rental and other property revenues

$

48

 

 

$

32,930

 

 

$

4,354

 

 

$

1,663

 

 

$

10,999

 

 

$

49,994

 

Property operating expenses

 

209

 

 

 

10,396

 

 

 

1,439

 

 

 

1,639

 

 

 

5,538

 

 

 

19,221

 

Other operating expenses not allocated
   to segments
(3)

 

 

 

 

 

 

 

 

 

 

 

 

 

32,590

 

 

 

32,590

 

Total operating expenses

 

209

 

 

 

10,396

 

 

 

1,439

 

 

 

1,639

 

 

 

38,128

 

 

 

51,811

 

Proportionate property net operating
   income (loss)

 

(161

)

 

 

22,534

 

 

 

2,915

 

 

 

24

 

 

 

(27,129

)

 

 

(1,817

)

Other items included in income before
   income tax
(4)

 

 

 

 

 

 

 

 

 

 

 

 

 

7,873

 

 

 

7,873

 

Income (loss) before income tax

$

(161

)

 

$

22,534

 

 

$

2,915

 

 

$

24

 

 

$

(19,256

)

 

$

6,056

 

 

(1)
Represents adjustments for noncontrolling interests in consolidated real estate partnerships' share of the results of consolidated 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.
(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. 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 consist of depreciation and amortization, general and administrative expense, and miscellaneous other expenses.
(4)
Other items included in Income before income tax benefit consist primarily of interest expense, mezzanine investment income (loss), net realized and unrealized gains (losses) on interest rate options, and realized and unrealized gains (losses) on equity investments.

 

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Table of Contents

 

Net real estate and non-recourse property debt, net, of our segments as of March 31, 2023 and December 31, 2022, were as follows (in thousands):

 

Development and Redevelopment

 

 

Operating

 

 

Other

 

 

Total

 

As of March 31, 2023:

 

 

 

 

 

 

 

 

 

 

 

Buildings and improvements

$

515,493

 

 

$

711,275

 

 

$

165,195

 

 

$

1,391,963

 

Land

 

228,358

 

 

 

262,409

 

 

 

150,125

 

 

 

640,892

 

Total real estate

 

743,851

 

 

 

973,684

 

 

 

315,320

 

 

 

2,032,855

 

Accumulated depreciation

 

(4,403

)

 

 

(477,044

)

 

 

(64,157

)

 

 

(545,604

)

Net real estate

$

739,448

 

 

$

496,640

 

 

$

251,163

 

 

$

1,487,251

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-recourse property debt and construction loans, net

$

237,361

 

 

$

766,981

 

 

$

80,640

 

 

$

1,084,982

 

 

 

Development and Redevelopment

 

 

Operating

 

 

Other

 

 

Total

 

As of December 31, 2022:

 

 

 

 

 

 

 

 

 

 

 

Buildings and improvements

$

449,316

 

 

$

708,665

 

 

$

164,400

 

 

$

1,322,381

 

Land

 

228,568

 

 

 

262,409

 

 

 

150,125

 

 

$

641,102

 

Total real estate

 

677,884

 

 

 

971,074

 

 

 

314,525

 

 

 

1,963,483

 

Accumulated depreciation

 

(2,378

)

 

 

(468,428

)

 

 

(59,916

)

 

$

(530,722

)

Net real estate

$

675,506

 

 

$

502,646

 

 

$

254,609

 

 

$

1,432,761

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-recourse property debt and construction loans, net

$

200,135

 

 

$

767,514

 

 

$

80,550

 

 

$

1,048,199

 

In addition to the amounts disclosed in the tables above, as of March 31, 2023 the Development and Redevelopment segment right-of-use lease assets and lease liabilities aggregated to $110.6 million and $116.2 million, respectively, and as of December 31, 2022, aggregated to $110.3 million and $114.6 million, respectively. As of March 31, 2023, right-of-use lease assets and lease liabilities primarily relate to our investments in Upton Place, Strathmore, and Oak Shore.

 

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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 on Form 10-Q contains or may contain information that is forward-looking within the meaning of the federal securities laws, including, without limitation, statements regarding: adverse economic and geopolitical conditions, including as a result of the COVID-19 pandemic, which negatively impact our operations, including on our ability to maintain current or meet projected occupancy, rental rate and property operating results; the effect of acquisitions, dispositions, developments, and redevelopments; including our ability to meet budgeted costs and timelines, and achieve budgeted rental rates related to our development and redevelopment investments; expectations regarding sales of our apartment communities and the use of proceeds thereof; the availability and cost of corporate debt; and our ability to comply with debt covenants, including financial coverage ratios.

These forward-looking statements are based on management’s judgment as of this date, which is subject to risks and uncertainties that could cause actual results to differ materially from our expectations, including, but not limited to: the effects and duration of the COVID-19 pandemic, geopolitical events which may adversely affect the markets in which our securities trade, and other macroeconomic conditions, including, among other things, supply chain challenges, rising interest rates and inflation, all of which heightens the impact of the other risks and factors described herein, and the impact on entities in which we hold a partial interest, including our indirect interest in the partnership that owns Parkmerced Apartments; real estate and operating risks, including fluctuations in real estate values and the general economic climate in the markets in which we operate and competition for residents in such markets; national and local economic conditions, including the pace of job growth and the level of unemployment; the amount, location and quality of competitive new housing supply; the timing and effects of acquisitions, dispositions, developments and redevelopments; expectations regarding sales of apartment communities and the use of proceeds thereof; insurance risks, including the cost of insurance, and natural disasters and severe weather such as hurricanes; supply chain disruptions, particularly with respect to raw materials such as lumber, steel, and concrete; financing risks, including the availability and cost of financing; the risk that cash flows from operations may be insufficient to meet required payments of principal and interest; the risk that earnings may not be sufficient to maintain compliance with debt covenants, including financial coverage ratios; legal and regulatory risks, including costs associated with prosecuting or defending claims and any adverse outcomes; the terms of laws and governmental regulations that affect us and interpretations of those laws and regulations; possible environmental liabilities, including costs, fines or penalties that may be incurred due to necessary remediation of contamination of apartment communities presently owned by us; and such other risks and uncertainties described from time to time in our filings with the Securities and Exchange Commission (“SEC”).

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

Readers should carefully review our financial statements and the notes thereto, as well as Item 1A. Risk Factors in Part II of this report. These factors should not be construed as exhaustive and should be read in conjunction with the other cautionary statements that are included elsewhere in this Quarterly Report on Form 10-Q. We undertake no obligation to publicly update or review any forward-looking statement, whether as a result of new information, future developments or otherwise, except as required by law.

Readers should also carefully review the section entitled “Risk Factors” described in Item 1A of Apartment Investment and Management Company’s and Aimco OP L.P.’s combined Annual Report on Form 10-K for the year ended December 31, 2022, and subsequent documents we file from time to time with the SEC.

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

Certain financial and operating measures found herein and used by management are not defined under accounting principles generally accepted in the United States ("GAAP"). These measures are defined and reconciled to the most comparable GAAP measures under the Non-GAAP Measures heading.

 

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Executive Overview

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

Our value proposition includes our:

Platform, consisting of a cohesive, talented, and tenured team with diverse real estate industry experience combined with a disciplined and proven investment process;
Diversified portfolio, consisting of in-process value-add investments, a deep pipeline, which includes approximately 14 million square feet of potential future development, a national portfolio of stabilized multifamily real estate and select indirect and passive investments; and
Capital redeployment plan of prudent recycling of capital, reallocating our equity to higher returning investments.

Our primary goal is outsized risk adjusted returns and accelerating growth for our shareholders. We are focused on providing superior total-return performance to shareholders, primarily through capital appreciation driven by accretive investment and active portfolio management over multi-year periods. We plan to reinvest earnings to facilitate growth and, therefore, do not presently intend to pay a regular quarterly cash dividend.

Our financial objectives are to create value and produce superior, project-level, risk-adjusted returns on equity as measured by the investment period Internal Rate of Return (“IRR”) and the project-level Multiple on Invested Capital (“MOIC”). We measure broader performance based on Net Asset Value (“NAV”) growth over time.

Our capital allocation strategy is designed to leverage our investment platform and optimize risk-adjusted returns for our shareholders.

Aimco targets a balanced allocation, which includes investments in “Value Add” and “Opportunistic” multifamily real estate, primarily located in Southeast Florida, the Washington D.C. Metro Area and Colorado's Front Range, plus investment in a geographically diversified portfolio of "Core" and "Core-Plus" apartment communities.

In addition, we currently hold select alternative assets, consisting primarily of indirect, real estate related debt and equity investments. We plan to significantly reduce our allocation to these investments over time.

We have policies in place that support our stated strategy, guide our investment allocations, and manage risk, including to hold at all times a sizeable portion of our net equity in stabilized cash-flowing assets and to require cash or committed credit necessary for completion of development and redevelopment projects prior to their commencement.

 

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Given our stated strategy, it is expected that at any point in time the value-creation process will be ongoing at numerous of our investments. Over time, we expect our enterprise to produce superior returns on equity on a risk-adjusted basis and it is our plan to do so by:

Benefiting from a national platform while leveraging local and regional expertise

We have corporate headquarters in Denver, Colorado and Washington D.C. Our investment platform is managed by experienced professionals based in three regions, where we will focus our new investment activity: Southeast Florida, the Washington D.C. Metro Area and Colorado's Front Range. By regionalizing this platform, we are able to leverage the in-depth local market knowledge of each regional leader, creating a comparative advantage when sourcing, evaluating, and executing investment opportunities.

Managing and investing in value-add and opportunistic real estate

Our dedicated team will source and execute development and redevelopment projects, and various other direct investment strategies. Our development and redevelopment portfolio currently includes projects in construction and lease-up. In addition, our team has secured significant, high-quality, future development opportunities, including total potential of more than 14 million square feet, located in high-growth markets. Generally, we seek direct investment opportunities in locations where barriers to entry are high, target customers can be clearly defined and where we have a comparative advantage over others in the market.

Owning a portfolio of stabilized core and core plus real estate

Our entire portfolio of operating properties includes 26 apartment communities (22 consolidated properties and four unconsolidated properties) with average rents in line with local market averages (generally defined as B class). We also own one commercial office building that is part of an assemblage with an adjacent apartment building. The target composition of our stabilized portfolio will continue to include primarily B multifamily assets, spread across a geographically diversified portfolio, with a bias toward long established residential neighborhoods that rank highly in regard to schools, employment fundamentals and state and regional governance. Core-Plus opportunities offer the opportunity for incremental capital investment while maintaining stabilized cashflow to accelerate income growth and improve asset values.

Managing and, over time, reducing our allocation to alternative investments

We currently hold select alternative investments, the majority of which originated with Aimco Predecessor and, over time, plan to significantly reduce capital allocated to these investments. Our current allocation to alternative investments includes: our indirect interest in the Mezzanine Investment to the Parkmerced partnership, which owns 3,165 apartment homes and future development rights in San Francisco, California, and our passive equity investments in IQHQ, Inc. ("IQHQ"), a privately-held life sciences real estate development company, and in property technology funds consisting of entities that develop technology related to the real estate industry.

Maintaining sufficient liquidity and utilizing safe financial leverage

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

From time-to-time, we will allocate capital to financial assets designed to mitigate risks elsewhere in the Aimco enterprise. Existing examples include our option to acquire an interest rate swap designed to protect against repricing risk on our maturing liabilities and the use of interest rate caps to provide protection against increases in interest rates on in-place loans.

We expect to capitalize our activities through a combination of non-recourse property debt, construction loans, third-party equity, and the recycling of Aimco equity, including retained earnings. We plan to limit the use of recourse leverage, with a strong preference towards non-recourse property-level debt in order to limit risk to the Aimco enterprise. When warranted, we plan to seek equity capital from joint venture partners to improve our cost of capital, further leverage Aimco equity, reduce exposure to a single investment and, in certain cases, for strategic benefits.

The results from the execution of our business plan during the three months ended March 31, 2023 are further described below.

 

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Financial Results and Recent Highlights

For the three months ended March 31, 2023, net loss attributable to Aimco common stockholders per share, on a fully dilutive basis, was $0.06, compared to net income per share of $0.05 for the same period in 2022, primarily due to a reduction in accrued Mezzanine Investment income recognition and fair value adjustments on our interest rate options.
For the three months ended March 31, 2023, revenue and net operating income from our Stabilized Operating Properties were up 11.4% and 13.1%, respectively, year over year, with average monthly revenue per apartment home of $2,227, up $238 year over year.

 

Value Add, Opportunistic & Alternative Investments

Development and Redevelopment

We generally seek development and redevelopment opportunities where barriers to entry are high, target customers can be clearly defined, and where we have a comparative advantage over others in the market. We will focus our new investment activity in Southeast Florida, the Washington D.C. Metro Area and Colorado's Front Range. Our Value Add and Opportunistic investments may also target portfolio acquisitions, operational turnarounds, and re-entitlements.

We currently have five active development and redevelopment projects, located in four U.S. markets, in varying phases of construction and lease-up. These projects remain on track, as measured by budget, lease-up metrics, and current market valuations. Additionally, we have a pipeline of future value-add opportunities totaling approximately 14 million gross square feet of development in our target markets of Southeast Florida, the Washington D.C. Metro, and Colorado's Front Range. During the three months ended March 31, 2023, we invested $64.8 million in development and redevelopment activities.

Updates include:

Construction is now complete at the major redevelopment of The Hamilton, a 276-unit bayfront apartment community in Miami, Florida, and the property was 88% leased or pre-leased as of March 31, 2023, at rates well ahead of underwritten rents.
Construction is progressing on plan at the first phase of Strathmore Square in Bethesda, Maryland, which will contain 220 highly tailored apartment homes when complete in 2025. This suburban infill project is located adjacent to the Grosvenor-Strathmore Metro station and the Strathmore Performing Arts Campus, and is 1.5 miles from The National Institutes of Health main campus. Funding for the $164.0 million project is fully secured with Aimco having a remaining equity commitment, as of March 31, 2023, of $10.7 million.
Construction remains on schedule and on budget at Upton Place in Northwest Washington, D.C. We plan to start pre-leasing Upton’s 689 apartment homes during the summer of 2023 in anticipation of initial delivery in the fourth quarter of 2023. As of March 31, 2023, 80% of the project's 105,000 square feet of retail space has been leased.
Construction is ongoing at Oak Shore, in Corte Madera, California, where 16 luxury single family rental homes and eight accessory dwelling units are being developed. We expect to deliver the first homes in the third quarter with pre-leasing efforts having begun in the first quarter of 2023.
Construction of the Benson Hotel and Faculty Club, a 106-key boutique hotel and event center, with 18,000 square feet of event space, located on the Anschutz Medical Campus in Aurora, Colorado. In April, the hotel was completed and open to guests. As the only ‘on campus’ accommodations, The Benson is garnering strong interest from the many departments and offices located on the surrounding Anschutz Medical Campus which includes The University of Colorado Medical School, UC Health Hospital, Children’s Hospital Colorado, The Rocky Mountain VA Medical Center and the burgeoning Fitzsimons Innovation Community.

 

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In the three months ended March 31, 2023, we invested $5.7 million into our future development pipeline projects located in Southeast Florida, the Washington D.C. Metro, and Colorado’s Front Range. Programming, design, documentation and entitlement efforts continue with projected unit counts and rentable square footage on track to meet or exceed initial projections. We have received Urban Development Review Board approvals related to our 34th Street and Biscayne Boulevard properties in Miami’s Edgewater neighborhood, conditional approvals on our Broward Boulevard sites in Fort Lauderdale, and earlier this month submitted a major amendment to the existing approval for the first phase of development at its site in Fort Lauderdale’s Flagler Village neighborhood. As part of our capital allocation strategy, we may choose to monetize certain of our pipeline assets prior to vertical construction in an effort to maximize value add and risk adjusted returns.

Alternative Investments

Our current alternative investments are primarily those investments originated by Aimco Predecessor and include a Mezzanine Investment to the Parkmerced partnership secured by a stabilized multifamily property with an option to participate in future multifamily development, as well as three passive equity investments. Over time, we plan to significantly reduce capital allocated to these investments.

Updates for our alternative investments include:

In February 2023, we entered into an agreement to sell our Parkmerced Mezzanine Investment for $167.5 million. The initial $5.0 million deposit received by the purchaser became nonrefundable in April 2023 when various conditions, including transfer consents, were cleared. The sale is expected to close during the three months ended June 30, 2023. Together with the monetization of the $1.5 billion notional swaption, purchased in conjunction with the Mezzanine Investment to protect against future interest rate increases, we expect gross proceeds from these transactions to be approximately $220 million.

Investment Activity

We are focused on development and redevelopment, primarily funded through construction loans and joint venture equity.

Updates include:

In February 2023, we entered into an option agreement with the Fitzsimons Redevelopment Authority. If exercised, the option allows for the long-term lease of 4.8 acres of land located on the Anschutz Medical Campus in Aurora, Colorado that can accommodate approximately 850,000 square feet of commercial life science development built out over multiple phases. The option's annual cost is approximately $0.5 million.

 

Operating Property Results

We own a diversified portfolio of stabilized apartment communities located in eight major U.S. markets with average rents in line with local market averages. We also own a commercial office building that is part of an assemblage with an adjacent apartment building.

Highlights for the three months ended March 31, 2023 include:

Revenue for our Operating segment for the three months ended March 31, 2023, was $36.7 million, up 11.4% year over year, resulting from a $238 increase in average monthly revenue per apartment home to $2,227, offset with a 50-basis point decrease in Average Daily Occupancy to 98.0%.
Expenses for our Operating segment for the three months ended March 31, 2023, were $11.2 million, up 7.6% year-over-year.
Net operating income for our Operating segment for the three months ended March 31, 2023 was $25.5 million, up 13.1% year-over-year.
1001 Brickell Bay Drive, a waterfront office building in Miami, Florida, is owned as part of a larger assemblage with substantial development potential. Following first quarter lease expirations, as of March 31, 2023, the building was 77% occupied.

 

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Balance Sheet and Financing Activity

We are highly focused on maintaining a strong balance sheet, including having at all times ample liquidity. As of March 31, 2023, we had access to $338.6 million in liquidity, including $166.1 million of cash on hand, $22.5 million of restricted cash, and the capacity to borrow up to $150.0 million on our revolving credit facility. Refer to the Liquidity and Capital Resources section for additional information regarding our leverage.

Financial Results of Operations

We have three segments: (i) Development and Redevelopment, (ii) Operating, and (iii) Other.

Our Development and Redevelopment segment includes properties that are under construction or have not achieved stabilization, as well as land assemblages that are being held for future development. Our Operating segment includes 21 residential apartment communities that have achieved stabilized levels of operations as of January 1, 2022 and maintained it throughout the current year and comparable period. We aggregate all our apartment communities that have reached stabilization into our Operating segment. Our Other segment consists of properties currently owned that are not included in our Development and Redevelopment or Operating segments.

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.

Results of Operations for the three months ended March 31, 2023, compared to the same period in 2022

Net income attributable to Aimco common stockholders decreased by $17.0 million for the three months ended March 31, 2023, compared to the same period in 2022, as described more fully below.

Property Results

As of March 31, 2023, our Development and Redevelopment segment included 12 properties, five of which were properties that were under construction, while the remaining were land held for development. Our Operating segment included 21 communities with 5,600 apartment homes, and our Other segment included 1001 Brickell Bay Drive, our only office building and St. George Villas. During the three months ended March 31, 2023, we reclassified one residential apartment community from the Other segment to the Operating segment because it reached stabilization. Prior period segment information has been recast based upon our current segment population, and is consistent with how our CODM evaluates the business. The recast conforms with our reportable segment classification as of March 31, 2023.

We use proportionate property net operating income to assess the operating performance of our segments. Proportionate property net operating income is defined as our share of rental and other property revenues, less direct property operating expenses, but

excluding utility reimbursements, for the consolidated communities. In our Condensed Consolidated Statements of Operations, utility reimbursements are included in Rental and other property revenues, in accordance with GAAP;
excluding the results of four apartment communities with an aggregate 142 apartment homes that we neither manage nor consolidate, our investment in IQHQ and the Mezzanine Investment; and
excluding property management costs and casualty gains or losses, reported in consolidated amounts, in our assessment of segment performance.

Please refer to Note 8 to the condensed consolidated financial statements in Item 1 for further discussion regarding our segments, including a reconciliation of these proportionate amounts to consolidated rental and other property revenues and property operating expenses.

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Proportionate Property Net Operating Income

The results of our segments for the three months ended March 31, 2023 and 2022, as presented below, are based on segment classifications as of March 31, 2023:

 

Three Months Ended March 31,

 

 

 

 

(in thousands)

2023

 

 

2022

 

 

$ Change

 

 

% Change

 

Rental and other property revenues, before utility reimbursements:

 

 

 

 

 

 

 

 

 

 

 

   Development and Redevelopment

$

2,201

 

 

$

48

 

 

$

2,153

 

 

 

100.0

%

   Operating

 

36,672

 

 

 

32,930

 

 

 

3,742

 

 

 

11.4

%

   Other

 

3,694

 

 

 

4,354

 

 

 

(660

)

 

 

(15.2

%)

      Total

 

42,567

 

 

 

37,332

 

 

 

5,235

 

 

 

14.0

%

Property operating expenses, net of utility reimbursements:

 

 

 

 

 

 

 

 

 

 

 

   Development and Redevelopment

 

2,025

 

 

 

209

 

 

 

1,816

 

 

 

100.0

%

   Operating

 

11,186

 

 

 

10,396

 

 

 

790

 

 

 

7.6

%

   Other

 

1,192

 

 

 

1,439

 

 

 

(247

)

 

 

(17.2

%)

      Total

 

14,403

 

 

 

12,044

 

 

 

2,359

 

 

 

19.6

%

Proportionate property net operating income:

 

 

 

 

 

 

 

 

 

 

 

   Development and Redevelopment

 

176

 

 

 

(161

)

 

 

337

 

 

 

(100.0

%)

   Operating

 

25,486

 

 

 

22,534

 

 

 

2,952

 

 

 

13.1

%

   Other

 

2,502

 

 

 

2,915

 

 

 

(413

)

 

 

(14.2

%)

      Total

$

28,164

 

 

$

25,288

 

 

$

2,876

 

 

 

11.4

%

For the three months ended March 31, 2023, compared to the same period in 2022:

Development and Redevelopment proportionate property net operating income increased by $0.3 million due to the lease up of units at The Hamilton.
Operating proportionate property net operating income increased by $3.0 million, or 13.1%. The increase was attributable primarily to a $3.7 million, or 11.4% increase in rental and other property revenues due to higher average revenues of $238 per apartment home, offset with a 50-basis point decrease in occupancy.
Other proportionate property net operating income decreased by $0.4 million, or 14.2%.

Non-Segment Real Estate Operations

Operating income amounts not attributed to our segments include property management costs, casualty losses, and, if applicable, the results of apartment communities sold or held for sale, reported in consolidated amounts, which we do not allocate to our segments for purposes of evaluating segment performance.

Depreciation and Amortization

For the three months ended March 31, 2023, compared to the same period in 2022, Depreciation and amortization decreased by $6.8 million, or 29.6%, due primarily to the disposition of three properties and the termination of leases of four properties and related relinquishment of the associated leasehold improvements during the year ended December 31, 2022.

General and Administrative Expenses

For the three months ended March 31, 2023, compared to the same period in 2022, General and administrative expenses decreased by $1.1 million, or 11.3%, due primarily to a decrease in expenses for consulting services per the Separation Agreement with AIR, which concluded at December 31, 2022.

Interest Income

For the three months ended March 31, 2023, compared to the same period in 2022, interest income increased by $1.5 million, or 100%, due primarily to interest earned on invested cash.

Interest Expense

For the three months ended March 31, 2023, compared to the same period in 2022, interest expense decreased by $4.9 million, or 33.4%, due primarily to a decrease related to the prepayment of the notes payable due to AIR, partially offset by an increase related to the refinancing of certain property debt during the year ended December 31, 2022.

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Mezzanine Investment Income (Loss), Net

For the three months ended March 31, 2023, we recognized $0.1 million of loss in connection with the Mezzanine Investment, compared to $8.2 million of income for the three months ended March 31, 2022, respectively. During the year ended December 31, 2022, we recorded a non-cash impairment and as a result, we have ceased recognition of income on the Mezzanine Investment.

Realized and Unrealized Gains (Losses) on Interest Rate Options

We are required to adjust our interest rate options to fair value on a quarterly basis. As a result of the mark-to-market adjustments, we recorded unrealized losses of $1.9 million and unrealized gains of $18.8 million for the three months ended March 31, 2023 and 2022, respectively. In addition, we realized gains of $0.8 million for the three months ended March 31, 2023.

Realized and Unrealized Gains (Losses) on Equity Investments

We measure our investment in stock based on its market price at period end and our investments in property technology funds at NAV as a practical expedient. As a result of changes in the values of these investments, we recorded unrealized gains of $0.1 million for the three months ended March 31, 2023, compared to unrealized losses of $4.3 million for the three months ended March 31, 2022.

Other Income (Expense), Net

Other income (expense), net, includes costs associated with our risk management activities, partnership administration expenses, fee income, and certain non-recurring items. For the three months ended March 31, 2023, compared to the same period in 2022, other expenses, net increased by $2.5 million, or 100.0%, primarily due to the incremental expense associated with pre-existing long-term incentive partnership units recorded upon the resignation of one of our board members.

Income Tax Benefit (Expense)

Certain aspects of our operations, including our development and redevelopment activities, are conducted through taxable REIT subsidiaries, or TRS entities. Additionally, our TRS entities hold investments in one of our apartment communities and 1001 Brickell Bay Drive.

Our income tax benefit calculated in accordance with GAAP includes income taxes associated with the income or loss of our TRS entities. Income taxes, as well as changes in valuation allowance and incremental deferred tax items in conjunction with intercompany asset transfers and internal restructurings (if applicable), are included in Income tax benefit (expense) in our Condensed Consolidated Statements of Operations.

Consolidated GAAP income or loss subject to tax consists of pretax income or loss of our taxable entities and gains retained by the REIT. For the three months ended March 31, 2023, we had consolidated net losses subject to tax of $4.9 million, compared to net losses subject to tax of $14.8 million for the same period in 2022.

For the three months ended March 31, 2023, we recognized income tax benefit of $4.2 million, compared to income tax benefit of $4.1 million for the same period in 2022. The change is due primarily to the tax effect of depreciation associated with properties owned by, and activities of, our TRS entities, as well as a reduction to the effective state tax rate expected to apply to the reversal of our existing deferred items.

Critical Accounting Policies and Estimates

We prepare our condensed consolidated financial statements in accordance with GAAP, which requires us to make estimates and assumptions. We believe that the critical accounting policies that involve our more significant judgments and estimates used in the preparation of our condensed consolidated financial statements relate to capitalized costs, impairment of long-lived assets, acquisitions, and the Mezzanine Investment.

Our critical accounting policies are described in more detail in Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, of Aimco’s and Aimco Operating Partnership’s combined Annual Report on Form 10-K for the year ended December 31, 2022. 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.

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Non-GAAP Measures

We use EBITDAre and Adjusted EBITDAre in managing our business and in evaluating our financial condition and operating performance. These key financial indicators are non-GAAP measures and are defined and described below. We provide reconciliations of the non-GAAP financial measures to the most comparable financial measure computed in accordance with GAAP.

Earnings Before Interest Expense, Income Taxes, Depreciation and Amortization for Real Estate ("EBITDAre")

EBITDAre and Adjusted EBITDAre are non-GAAP measures, which we believe are useful to investors, creditors, and rating agencies as a supplemental measure of our ability to incur and service debt because they are recognized measures of performance by the real estate industry and allow for comparison of our credit strength to different companies. EBITDAre and Adjusted EBITDAre should not be considered alternatives to net income (loss) as determined in accordance with GAAP as indicators of liquidity. There can be no assurance that our method of calculating EBITDAre and Adjusted EBITDAre is comparable with that of other real estate investment trusts. Nareit defines EBITDAre as net income computed in accordance with GAAP, before interest expense, income taxes, depreciation, and amortization expense, further adjusted for:

gains and losses on the dispositions of depreciated property;
impairment write-downs of depreciated property;
impairment write-downs of investments in unconsolidated partnerships caused by a decrease in the value of the depreciated property in such partnerships; and
adjustments to reflect our share of EBITDAre of investments in unconsolidated entities.

EBITDAre is defined by Nareit and provides for an additional performance measure independent of capital structure for greater comparability between real estate investment trusts. We define Adjusted EBITDAre as EBITDAre adjusted to exclude the effect of net (income) loss attributable to noncontrolling interests in consolidated real estate partnerships and EBITDAre adjustments attributable to noncontrolling interests, and realized and unrealized (gains) losses on interest rate options, which we believe allow investors to compare a measure of our earnings before the effects of our capital structure and indebtedness with that of other companies in the real estate industry. Additionally, we exclude interest income recognized on our Mezzanine Investment that was accrued but not paid.

The reconciliation of net loss to EBITDAre and Adjusted EBITDAre for the three months ended March 31, 2023 and 2022, is as follows (in thousands):

 

 

Three Months Ended March 31,

 

 

 

2023

 

 

2022

 

Net income (loss)

 

$

(5,753

)

 

$

10,112

 

Adjustments:

 

 

 

 

 

 

Interest expense

 

 

9,725

 

 

 

14,601

 

Income tax (benefit) expense

 

 

(4,196

)

 

 

(4,056

)

Depreciation and amortization

 

 

16,271

 

 

 

23,118

 

Adjustment related to EBITDAre of unconsolidated partnerships

 

 

223

 

 

 

257

 

EBITDAre

 

$

16,270

 

 

$

44,032

 

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

 

 

(3,274

)

 

 

(1,470

)

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

 

 

(264

)

 

 

2

 

EBITDAre adjustments attributable to noncontrolling interests

 

 

(16

)

 

 

(11

)

Mezzanine investment (income) loss, net

 

 

128

 

 

 

(8,237

)

Realized and unrealized (gains) losses on interest rate options

 

 

1,057

 

 

 

(18,778

)

Adjusted EBITDAre

 

$

13,901

 

 

$

15,538

 

 

 

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Liquidity and Capital Resources

Liquidity

Liquidity is the ability to meet present and future financial obligations. Our primary sources of liquidity are cash flows from operations and borrowing capacity under our loan agreements.

As of March 31, 2023, our available liquidity was $338.6 million, which consisted of:

$166.1 million in cash and cash equivalents; and
$22.5 million of restricted cash, including amounts related to tenant security deposits and escrows held by lenders for capital additions, property taxes, and insurance; and
$150.0 million of available capacity to borrow under our revolving secured credit facility.

We have commitments for approximately $133.2 million and remaining planned spend of $142.7 million on development and redevelopment projects, with $268.4 million undrawn on our construction loans as of March 31, 2023. The initial allocation to our joint ventures have remaining unfunded commitments of $9.5 million. We also have unfunded commitments in the amount of $2.3 million related to four investments in entities that develop technology related to the real estate industry. Our principal uses for liquidity include normal operating activities, payments of principal and interest on outstanding debt, capital expenditures, and future investments. Additionally, our third-party property managers may enter into commitments on our behalf to purchase goods and services in connection with the operation of our apartment communities and our office building. Those commitments generally have terms of one year or less and reflect expenditure levels comparable to historical levels.

We believe, based on the information available at this time, that we have sufficient cash on hand and access to additional sources of liquidity to meet our operational needs for the next twelve months.

In the event that our cash and cash equivalents, revolving secured credit facility, and cash provided by operating activities are not sufficient to cover our liquidity needs, we have the means to generate additional liquidity, such as from additional property financing activity and proceeds from apartment community sales. We expect to meet our long-term liquidity requirements, including debt maturities, development and redevelopment spending, and future investment activity, primarily through property financing activity, cash generated from operations, and the recycling of our equity. Our revolving secured credit facility matures in December 2023, prior to consideration of its two one-year extension options.

Leverage and Capital Resources

The availability and cost of credit and its related effect on the overall economy may affect our liquidity and future financing activities, both through changes in interest rates and access to financing. Any adverse changes in the lending environment could negatively affect our liquidity. We have taken steps to mitigate a portion of our short-term refunding risk. However, if property or development financing options become unavailable, we may consider alternative sources of liquidity, such as reductions in capital spending or apartment community dispositions.

As of March 31, 2023, approximately 83% of our outstanding non-recourse property debt had a fixed interest rate and approximately 17% had a variable interest rate. In addition, the weighted-average rate on our non-recourse debt was 5.3%, and the average remaining term to maturity was 6.9 years. At March 31, 2023, substantially all of our outstanding non-recourse property debt was either fixed or hedged. Our use of interest rate caps may vary from quarter to quarter depending on lender requirements, recycling of interest rate caps between projects, and our view on forecasted interest rates.

While our primary source of leverage is property-level debt and construction loans, we also have a secured $150.0 million credit facility with a syndicate of financial institutions. As of March 31, 2023, we had no outstanding borrowings under our revolving secured credit facility. Under our revolving secured credit facility, we have agreed to maintain a fixed charge coverage ratio of 1.25X minimum tangible net worth of $625.0 million, and maximum leverage of 60.0% as defined in the credit agreement. We are currently in compliance and expect to remain in compliance with these covenants during the next twelve months.

 

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Changes in Cash, Cash Equivalents, and Restricted Cash

The following discussion relates to changes in consolidated cash, cash equivalents, and restricted cash due to operating, investing and financing activities, which are presented in our Condensed Consolidated Statements of Cash Flows in Item 1 of this report.

Operating Activities

For the three months ended March 31, 2023, net cash provided by operating activities was $5.6 million. Our operating cash flow is primarily affected by rental rates, occupancy levels, and operating expenses related to our portfolio of apartment communities and general and administrative costs. Cash provided by operating activities for the three months ended March 31, 2023, decreased by $0.9 million compared to the same period ended in 2022, due primarily to lower net operating income associated with apartment communities sold in the latter part of 2022 and timing of balance sheet position changes, partially offset by decreased interest payments.

Investing Activities

For the three months ended March 31, 2023, net cash used in investing activities of $63.2 million consisted primarily of capital expenditures of $64.8 million. Net cash used in investing activities for the three months ended March 31, 2023, decreased by $48.2 million compared to the same period ended in 2022, due primarily to decreased real estate acquisitions and funding of our passive equity investment in IQHQ, partially offset by increased capital expenditures. We have generally funded capital additions with available cash and cash provided by operating activities and construction loans.

Financing Activities

For the three months ended March 31, 2023, net cash provided by financing activities of $16.5 million consisted primarily of proceeds from construction loans, partially offset by repurchases of Common Stock and distributions to noncontrolling interests. Net cash provided by financing activities for the three months ended March 31, 2023, decreased by $21.5 million compared to the same period ended in 2022, due primarily to decreased proceeds from non-recourse property debt and increased common stock repurchased, as well as changes in activity with noncontrolling interests, partially offset by decreased payments on finance leases and increased proceeds from construction loans.

Future Capital Needs

We expect to fund any future acquisitions, development and redevelopment, and other capital spending principally with operating cash flows, short-term borrowings, and debt and equity financing. Our near-term business plan does not contemplate the issuance of equity. We believe, based on the information available at this time, that we have sufficient cash on hand and access to additional sources of liquidity to meet our operational needs for the next twelve months.

 

 

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Our chief market risks are refunding risk, that is the availability of property debt or other cash sources to refund maturing property debt, and repricing risk, that is the possibility of increases in base interest rates and credit risk spreads. We primarily use long-dated, fixed-rate, non-recourse property debt on stabilized properties in order to avoid the refunding and repricing risks of short-term borrowings.

We use working capital primarily to fund short-term uses. We make limited use of derivative financial instruments and we do not use them for trading or other speculative purposes.

As of March 31, 2023, on a consolidated basis, we had approximately $164.2 million of variable-rate property-level debt outstanding and $144.7 million of variable rate construction loans. The impact of rising interest rates is mitigated by our use of interest rate caps, which as of March 31, 2023, provided protection for our variable interest rate debt. Our use of interest rate caps may vary from quarter to quarter depending on lender requirements, recycling of interest rate caps between projects, and our view on forecasted interest rates. We estimate that an increase in our variable rate indices of 100 basis points with constant credit risk spreads, would increase interest expense by $0.5 million on an annual basis. We estimate that a decrease in our variable rate indices of 100 basis points with constant credit risk spreads, would reduce interest expense by $0.5 million on an annual basis.

As of March 31, 2023, we held interest rate swaps and caps with $2.0 billion notional value. These instruments were acquired for $17.7 million and at March 31, 2023 were valued at $60.4 million.

As of March 31, 2023, we had $188.6 million in cash and cash equivalents and restricted cash, a portion of which earns interest at variable rates.

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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 were 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 quarter ended March 31, 2023, that has materially affected, or is reasonably likely to materially affect, Aimco’s internal control over financial reporting.

Aimco Operating Partnership

Disclosure Controls and Procedures

Aimco Operating Partnership’s management, with the participation of the Chief Executive Officer and Chief Financial Officer of both Aimco and Aimco OP GP, LLC, Aimco Operating Partnership’s general partner, has evaluated the effectiveness of 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 OP GP, LLC have concluded that, as of the end of such period, Aimco Operating Partnership’s disclosure controls and procedures are effective.

Changes in Internal Control Over Financial Reporting

There has been no change in 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 quarter ended March 31, 2023, that has materially affected, or is reasonably likely to materially affect, 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 Aimco Operating Partnership’s combined Annual Report on Form 10-K for the year ended December 31, 2022. We may disclose changes to such factors or disclose additional factors from time to time in our filings with the SEC.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Aimco

Unregistered Sales of Equity Securities

From time to time, we may issue shares of our Common Stock in exchange for OP Units, defined under the Aimco Operating Partnership heading below. Such shares are issued based on an exchange ratio of one share for each OP Unit. We may also issue shares of our Common Stock in exchange for limited partnership interests in consolidated real estate partnerships. During the three months ended March 31, 2023, no shares of Common Stock were issued in exchange for OP Units in such transactions.

Repurchases of Equity Securities

Our Board has, from time to time, authorized us to repurchase shares of our outstanding Common Stock. As of March 31, 2023, we were authorized to repurchase up to 10.3 million shares of our outstanding Common Stock, subject to certain customary limitations, which may be made from time to time in the open market or in privately negotiated transactions. This authorization has no expiration date.

During the three months ended March 31, 2023, we repurchased 2,018,689 shares at a weighted-average price of $7.27 per share.

Aimco Operating Partnership

There is no public market for OP Units, and we have no intention of listing OP Units on any securities exchange. In addition, Aimco Operating Partnership’s Partnership Agreement restricts the transferability of OP Units.

On May 3, 2023, there were 160,671,571 OP Units and equivalents outstanding (of which 148,616,217 were held by us), that were held by 2,099 unitholders of record.

Unregistered Sales of Equity Securities

Aimco Operating Partnership did not issue any unregistered OP Units during the three months ended March 31, 2023.

Repurchases of Equity Securities

Aimco Operating Partnership’s Partnership Agreement generally provides that after holding OP Units for one year, limited partners other than Aimco have the right to redeem their OP Units for cash or, at our election, shares of our Common Stock on a one-for-one basis (subject to customary antidilution adjustments). During the three months ended March 31, 2023, no OP Units were redeemed in exchange for shares of Common Stock, and approximately 34,000 OP Units were redeemed in exchange for cash at an average price per unit of $7.42.

Dividend and Distribution Payments

As a REIT, Aimco is required to distribute annually to holders of shares of its Common Stock at least 90.0% of its “real estate investment trust taxable income,” which, as defined by the Code and United States Department of Treasury regulations, is generally equivalent to net taxable ordinary income. Aimco’s Board determines and declares Aimco's dividends. In making a dividend determination, Aimco’s Board considers a variety of factors, including REIT distribution requirements; current market conditions; liquidity needs; and other uses of cash, such as deleveraging and accretive investment activities.

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ITEM 6. EXHIBITS

The following exhibits are filed with this report:

EXHIBIT NO.

 

DESCRIPTION

 

 

 

3.1

 

Charter – Articles of Restatement (Exhibit 3.1 to Aimco’s Annual Report on Form 10-K dated February 24, 2020, is incorporated herein by this reference)

 

 

 

3.2

 

Amended and Restated Bylaws (Exhibit 3.1 to Aimco's Current Report on Form 8-K, dated April 27, 2023, is incorporated herein by this reference).

 

 

 

3.3

 

Articles Supplementary of Apartment Investment Management Company (Exhibit 3.1 to Aimco’s Current Report on Form 8-K, dated December 15, 2020, is incorporated herein by this reference)

 

 

 

10.1

 

 

Amended and Restated Agreement of Limited Partnership of Aimco OP L.P., effective as of December 14, 2020 (Exhibit 10.1 to Aimco’s Current Report on Form 8-K, dated December 15, 2020, is 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 – 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 – 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 – Aimco Operating Partnership

 

EXHIBIT NO.

 

DESCRIPTION

 

 

 

101

 

The following materials from Aimco’s and Aimco Operating Partnership’s combined Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2023, formatted in iXBRL (Inline Extensible Business Reporting Language): (i) condensed consolidated balance sheets; (ii) condensed consolidated statements of operations; (iii) condensed consolidated statements of equity and partners’ capital; (iv) condensed consolidated statements of cash flows; and (v) notes to condensed consolidated financial statements.

 

 

 

104

 

Cover Page Interactive Data File (embedded within the Inline XBRL document).

 

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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/ H. Lynn C. Stanfield

 

 

H. Lynn C. Stanfield

 

 

Executive Vice President and Chief Financial Officer

 

 

 

 

 

 

 

By:

/s/ Kellie E. Dreyer

 

 

Kellie E. Dreyer

 

 

Senior Vice President and Chief Accounting Officer

 

 

 

 

 

 

 

 

 

 

 

AIMCO OP L.P.

 

 

 

 

By:

Aimco OP GP, LLC, its General Partner

 

 

 

 

By:

/s/ H. Lynn C. Stanfield

 

 

H. Lynn C. Stanfield

 

 

Executive Vice President and Chief Financial Officer

 

 

 

 

 

 

 

By:

/s/ Kellie E. Dreyer

 

 

Kellie E. Dreyer

 

 

Senior Vice President and Chief Accounting Officer

 

 

 

 

 

 

 

 

 

 

Date: May 4, 2023

39