UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K10-K/A
(Mark One)
☒ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended December 31, 20192020
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 1-132321-39686 (Apartment Investment and Management Company)Income REIT Corp.)
Commission file number 0-24497 (AIMCO Properties, L.P.)
Apartment Investment and Management CompanyAPARTMENT INCOME REIT CORP.
AIMCO Properties,PROPERTIES, L.P.
(Exact name of registrant as specified in its charter)
Maryland (Apartment |
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Delaware (AIMCO Properties, L.P.) |
| 84-1275621 |
(State or other jurisdiction of |
| (I.R.S. Employer |
incorporation or organization) |
| Identification No.) |
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4582 South Ulster Street, Suite 1700 Denver, Colorado |
| 80237 (Zip Code) |
(Address of principal executive offices) |
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Registrant’s telephone number, including area code (303) 757-8101
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class |
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| Name of Each Exchange on Which Registered |
Class A Common Stock (Apartment |
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| New York Stock Exchange |
Securities registered pursuant to Section 12(g) of the Act:
None (Apartment Investment and Management Company)Income REIT Corp.)
Partnership Common Units (AIMCO Properties, L.P.)
(title of each class)
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined by Rule 405 of the Securities Act.
Apartment | AIMCO Properties, L.P.: Yes |
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
Apartment | AIMCO Properties, L.P.: Yes ☐No☒ |
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 | AIMCO Properties, 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 | AIMCO Properties, L.P.: Yes ☒No ☐ |
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Apartment Investment and Management CompanyIncome REIT Corp.:
Large accelerated filer |
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| Accelerated filer | ☐ |
Non-accelerated filer |
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| Smaller reporting company | ☐ |
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| Emerging growth company | ☐ |
AIMCO Properties, L.P.:
Large accelerated filer | ☐ |
| Accelerated filer |
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Non-accelerated filer |
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| Smaller reporting company | ☐ |
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| 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 | AIMCO Properties, L.P.:☐ |
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.
Apartment Income REIT Corp.: Yes ☒ No ☐ | AIMCO Properties, L.P.: Yes ☒ No ☐ |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Apartment | AIMCO Properties, L.P.: Yes ☐No ☒ |
The aggregate market value of the voting and non-voting common stock of Apartment Investment and Management CompanyIncome REIT Corp. held by non-affiliates of Apartment Investment and Management CompanyIncome REIT Corp. was approximately $7.4$5.6 billion based upon the closing price of $50.12$37.95 on June 30, 2019.December 15, 2020, which was the initial trading date of the registrant’s common stock on the New York Stock Exchange.
As of February 21, 2020,March 5, 2021, there were 148,930,402148,985,740 shares of Class A Common Stock outstanding.
Documents Incorporated by Reference
Portions of Apartment Investment and Management Company’s definitive proxy statement to be issued in conjunction with Apartment Investment and Management Company’s annual meeting of stockholders to be held April 28, 2020, are incorporated by reference into Part III of this Annual Report.None.
EXPLANATORY NOTE
This filing combines the Annual Reports on Form 10-K for the fiscal year endedOn December 31, 2019, of15, 2020, Apartment Investment and Management Company or(“Aimco”) completed the previously announced separation of its business into two, separate and distinct, publicly traded companies, Apartment Income REIT Corp. (“AIR”) and Aimco and(the “Separation”). AIMCO Properties L.P., or (“AIR Operating Partnership”) is the Aimco Operating Partnership. Where it is important to distinguish betweenoperating partnership in AIR’s structure. Except as the two entities, wecontext otherwise requires, “Company,” “we,” “our,” and “us” refer to them specifically. Otherwise, references to “we,” “us,” or “our” mean collectively Aimco,AIR, the AimcoAIR Operating Partnership, and their consolidated entities.subsidiaries, collectively.
Notwithstanding the legal form of the Separation, for accounting and financial reporting purposes, Aimco is presented as being spun-off from AIR. This presentation is in accordance with generally accepted accounting principles in the United States and is due primarily to the relative significance of AIR’s business, as measured in terms of revenues, net income, assets, and other relevant indicators, as compared to Aimco before the Separation. Therefore, AIR is considered the divesting entity and treated as the accounting spinner, or accounting predecessor, and Aimco as “spun” for accounting purposes. As a result, unless otherwise stated, the information contained herein relates to matters that related to pre-Separation Aimco as representing AIR’s governance, compensation, and related matters. The Board of Directors of AIR is comprised of the directors who served on the pre-Separation Board of Directors of Aimco.
AIR, a Maryland corporation, is a self-administered and self-managed real estate investment trust, or REIT. Aimco,trust. AIR, through wholly-owned subsidiaries, is the general and special limited partner of and, asthe AIR Operating Partnership. As of December 31, 2019,2020, AIR owned a 94.0% ownershipapproximately 93.5% of the legal interest in the common partnership units of the AimcoAIR Operating Partnership and 94.9% of the economic interest in the AIR Operating Partnership. The remaining 6.0%6.5% legal interest is owned by limited partners. As the sole general partner of the AimcoAIR Operating Partnership, AimcoAIR has exclusive control of the AimcoAIR Operating Partnership’s day-to-day management.
The AimcoAIR Operating Partnership holds all of Aimco’sAIR’s assets and manages the daily operations of Aimco’sAIR’s business. Pursuant to the AimcoAIR Operating Partnership agreement, AimcoAIR is required to contribute to the AimcoAIR Operating Partnership all proceeds from the offerings of its securities. In exchange for the contribution of such proceeds, AimcoAIR receives additional interests in the AimcoAIR Operating Partnership with similar terms (e.g., if AimcoAIR contributes proceeds of a stock offering, AimcoAIR receives partnership units with terms substantially similar to the stock issued by Aimco)AIR).
We believe combiningThis amendment amends the periodic reports of Aimco and the Aimco Operating Partnership into this single report provides the following benefits:
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We operate Aimco and the Aimco Operating Partnership as one enterprise, the management of Aimco directs the management and operationsAnnual Report on Form 10-K of the Aimco Operating Partnership,Company for the year ended December 31, 2020, that was originally filed with the SEC on March 15, 2021 (the “Original Filing”). The Company is filing this amendment for the purpose of providing the information required by Items 10, 11, 12, 13, and 14 of Part III. This information was previously omitted from the members ofOriginal Filing in reliance on General Instruction G(3) to Form 10-K, which permits the Board of Directors of Aimco are identical to those of the Aimco Operating Partnership’s general partner.
We believe it is important to understand the few differences between Aimco and the Aimco Operating Partnershipinformation in the context of how Aimco and the Aimco Operating Partnership operate as a consolidated company. Aimco has no assets or liabilities other than its investmentabove referenced items to be incorporated in the Aimco Operating Partnership. Also, AimcoForm 10-K by reference from a definitive proxy statement if such statement is a corporation that issues publicly traded equity from time to time, whereasfiled no later than 120 days after the Aimco Operating Partnership is a partnership that has no publicly traded equity. Except for the net proceeds from stock offerings by Aimco, which are contributed to the Aimco Operating Partnership in exchange for additional limited partnership interests (of a similar type and in an amount equal to the shares of stock sold in the offering), the Aimco Operating Partnership generates all remaining capital required by its business. These sources include the Aimco Operating Partnership’s working capital, net cash provided by operating activities, borrowings under its revolving credit facility, the issuance of debt and equity securities, including additional partnership units, and proceeds received from the sale of apartment communities.Company’s fiscal year end.
Equity, partners’ capital, and noncontrolling interests are the main areas of difference between the consolidated financial statements of Aimco and those of the Aimco Operating Partnership. Interests in the Aimco Operating Partnership held by entities other than Aimco, which we refer to as OP Units, are classified within partners’ capital in the Aimco Operating Partnership’s financial statements and as noncontrolling interests in Aimco’s financial statements.
To help investors understand the differences between Aimco and the Aimco Operating Partnership, this report provides separate consolidated financial statements for Aimco and the Aimco Operating Partnership; a single set of 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.
This report also includes separate Part II, Item 9A. Controls and Procedures sections and separate Exhibits 31 and 32 certifications for Aimco and the Aimco Operating Partnership in order to establish that the requisite certifications have been made and that Aimco and the Aimco Operating Partnership are both compliant with Rule 13a-15 or Rule 15d-15 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and 18 U.S.C. §1350.
Table of Contents
APARTMENT INVESTMENT AND MANAGEMENT COMPANY
AIMCO PROPERTIES, L.P.
TABLE OF CONTENTS
ANNUAL REPORT ON FORM 10-K
For the Fiscal Year Ended December 31, 2019
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| PART I |
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1. | 2 | |
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1A. | 7 | |
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1B. | 14 | |
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2. | 15 | |
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3. | 15 | |
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4. | 15 | |
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| PART II |
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5. | 16 | |
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6. | 19 | |
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7. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 20 |
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7A. | 41 | |
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8. | 42 | |
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9. | Changes in and Disagreements With Accountants on Accounting and Financial Disclosure | 42 |
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9A. | 42 | |
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9B. | 47 | |
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| PART III |
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10. | 48 | |
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11. | 48 | |
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12. | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters | 48 |
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13. | Certain Relationships and Related Transactions, and Director Independence | 48 |
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14. | 48 | |
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| PART IV |
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15. | 49 | |
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16. | 51 |
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS | 47 | |
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE | 49 | |
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Part III
FORWARD-LOOKING STATEMENTSITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
BOARD OF DIRECTORS AND EXECUTIVE OFFICERS
The Private Securities Litigation Reform Act of 1995 provides a “safe harbor” for forward-looking statements in certain circumstances. Certain information included in this Annual Report contains or may contain information that is forward-looking, within the meaningexecutive officers of the federal securities laws, including, without limitation, statements regarding: our ability to maintain current or meet projected occupancy, rental rate and property operating results; the effect of acquisitions, dispositions, redevelopments, and developments; our ability to meet budgeted costs and timelines, and achieve budgeted rental rates related to our redevelopment and development investments; expectations regarding sales of our apartment communitiesCompany and the usenominees for election as directors of proceeds thereof;the Company, their ages, dates they were first elected an executive officer or director, and our ability to complytheir positions with debt covenants, including financial coverage ratios.the Company or on the Board are set forth below.
Actual results may differ materially from those described in these forward-looking statements and, in addition, will be affected by a variety of risks and factors, some of which are beyond our control, including, without limitation:
Name | Age | First Elected | Position | |||
Terry Considine | 74 | July 1994 | Chief Executive Officer and Director | |||
Paul L. Beldin | 47 | September 2015 | Executive Vice President and Chief Financial Officer | |||
Lisa R. Cohn | 52 | December 2007 | President, General Counsel, and Secretary | |||
Keith M. Kimmel | 50 | January 2011 | President, Property Operations | |||
Conor Wagner | 39 | December 2020 | Senior Vice President and Chief Investment Officer | |||
Thomas L. Keltner | 74 | April 2007 | Chairman of the Board | |||
Robert A. Miller | 75 | April 2007 | Director | |||
Devin I. Murphy | 61 | April 2020 | Director | |||
Kathleen M. Nelson | 75 | April 2010 | Director, Chairman of the Nominating and Corporate Governance Committee | |||
John Dinha Rayis | 66 | April 2020 | Director | |||
Ann Sperling | 65 | May 2018 | Director, Chairman of the Compensation and Human Resources Committee | |||
Michael A. Stein | 71 | October 2004 | Director | |||
Nina A. Tran | 52 | March 2016 | Director, Chairman of the Audit Committee |
The following is a biographical summary of the current directors and executive officers of the Company.
Terry Considine. Mr. Considine is AIR’s Chief Executive Officer and also is a member of the AIR Board of Directors. Mr. Considine served as Chief Executive Officer of Aimco and as chairman of the Aimco Board of Directors from Aimco’s July 1994 initial public offering until the December 2020 Separation. Mr. Considine continues to serve on Aimco’s Board of Directors and has specific responsibilities during 2021-2022 to support the establishment and growth of the Aimco business, reporting directly to the Aimco board of directors. Mr. Considine also serves on the board of directors of Intrepid Potash, Inc., a publicly held diversified producer of minerals, water, and oilfield services. Mr. Considine has considerable experience in real estate and other industries. Among other real estate ventures, in 1975 Mr. Considine founded and subsequently managed the predecessor companies that became Aimco at its initial public offering in 1994. | |
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Paul L. Beldin | |
Lisa R. Cohn. Ms. Cohn is AIR’s President and also its General Counsel. Ms. Cohn has specific responsibility for governance, information technology and process innovation, human resources, and legal. Ms. Cohn was appointed Executive Vice President, General Counsel and Secretary of Aimco in December 2007. In addition to serving as general counsel, Ms. Cohn had responsibility for construction services, asset quality and service, human resources, insurance, and risk management. She was also responsible for Aimco’s acquisition activities in the western region and disposition activities nationwide. Ms. Cohn has previously served as chairman of Aimco’s investment committee. From January 2004 to December 2007, Ms. Cohn served as Aimco’s Senior Vice President and Assistant General Counsel. She joined Aimco in July 2002 as Vice President and Assistant General Counsel. Prior to joining Aimco, Ms. Cohn was in private practice with the law firm of Hogan & Hartson LLP with a focus on public and private mergers and acquisitions, venture capital financing, securities, and corporate governance. |
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Keith M. Kimmel. Mr. Kimmel is President of AIR Property Operations. Mr. Kimmel was appointed Aimco’s Executive Vice President of Property Operations in January 2011. From September 2008 to January 2011, Mr. Kimmel served as Aimco’s Area Vice President of property operations for the western region. Prior to that, from March 2006 to September 2008, he served as Aimco’s Regional Vice President of property operations for California. He joined Aimco in March of 2002 as a Regional Property Manager. Prior to joining Aimco, Mr. Kimmel was employed with Casden Properties from 1998 through 2002 and was responsible for the operation of the new construction and high-end product line. Mr. Kimmel began his career in the multifamily real estate business in 1992 as a leasing consultant and on-site manager. | |
Conor Wagner. Mr. Wagner is AIR’s Chief Investment Officer and also a Senior Vice President. Mr. Wagner joined Aimco as Vice President in 2018. At Aimco, Mr. Wagner had day-to-day finance responsibilities supporting portfolio strategy and transactional underwriting. Before joining Aimco, Mr. Wagner was an analyst on Green Street Advisors’ residential research team, where he co-led coverage of the apartment and single-family rental sectors. Prior to joining Green Street in 2014, he worked on the buy side as a long-short equity analyst. Mr. Wagner holds the Chartered Financial Analyst designation. | |
Thomas L. Keltner. Mr. Keltner is Chairman of the Board of Directors of AIR and is a member of AIR’s Audit, Compensation and Human Resources, and Nominating and Corporate Governance Committees. Mr. Keltner was first elected a director of Aimco in April 2007 and served as Chairman of Aimco’s Compensation and Human Resources Committee and as a member of Aimco’s Audit, Nominating and Corporate Governance, and Redevelopment and Construction Committees. Mr. Keltner served as Executive Vice President and ChiefExecutive Officer — Americas and Global Brands for Hilton Hotels Corporation from March 2007 through March 2008, which concluded the transition period following Hilton’s acquisition by The Blackstone Group. Mr. Keltner joined Hilton Hotels Corporation in 1999 and served in various roles. Mr. Keltner has more than 20 years of experience in the areas of hotel development, acquisition, disposition, franchising, and management. Prior to joining Hilton Hotels Corporation, from 1993 to 1999, Mr. Keltner served in several positions with Promus Hotel Corporation, including President, Brand Performance and Development. Before joining Promus Hotel Corporation, he served in various capacities with Holiday Inn Worldwide, Holiday Inns International and Holiday Inns, Inc. In addition, Mr. Keltner was President of Saudi Marriott Company, a division of Marriott Corporation, and was a management consultant with Cresap, McCormick and Paget, Inc. Mr. Keltner brings particular expertise to AIR’s Board of Directors in the areas of property operations, marketing, branding, development, and customer service. | |
Robert A. Miller. Mr. Miller is a member of the AIR Board of Directors and also a member of AIR’s Audit, Compensation and Human Resources, and Nominating and Corporate Governance Committees. Mr. Miller was first elected a director of Aimco in April 2007. Prior to the Separation, Mr. Miller served as Aimco’s Lead Independent Director and also served as Chairman of Aimco’s Redevelopment and Construction Committee and as a member of Aimco’s Audit, Compensation and Human Resources, and Nominating and Corporate Governance Committees. Since the Separation, Mr. Miller also serves as Chairman of the Aimco Board of Directors. Mr. Miller also serves as President of RAMCO Advisors LLC, an investment advisory and business consulting firm. Mr. Miller previously served as Executive Vice President and Chief Operating Officer, International of Marriott Vacations Worldwide Corporation (“MVWC”) from 2011 to 2012, when he retired from this position, and Mr. Miller served as the President of Marriott Leisure from 1997 to November 2011, when Marriott International elected to spin-off its subsidiary entity, Marriott Ownership Resorts, Inc., by forming a new parent entity, MVWC, as a new publicly held company. Prior to his role as President of Marriott Leisure, from 1984 to 1988, Mr. Miller served as Executive Vice President & General Manager of Marriott Vacation Club International and then as its President from 1988 to 1997. In 1984, Mr. Miller and a partner sold their company, American Resorts, Inc., to Marriott. Mr. Miller co-founded American Resorts, Inc. in 1978, and it was the first business model to encompass all aspects of timeshare resort development, sales, management, and operations. Prior to founding American Resorts, Inc., from 1972 to 1978, Mr. Miller was Chief Financial Officer of Fleetwing Corporation, a regional retail and wholesale petroleum company. Prior to joining Fleetwing, Mr. Miller served for five years as a staff accountant for Arthur Young & Company. Mr. Miller is past Chairman and currently a director of the American Resort Development Association and is past Chairman and director of the ARDA International Foundation. Mr. Miller also currently serves as a director on the board of Welk Hospitality Group, Inc. As a successful real estate entrepreneur and corporate executive, Mr. Miller brings particular expertise to AIR’s Board of Directors in the areas of operations, management, marketing, sales, and development, as well as finance and accounting. | |
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Devin I. Murphy. Mr. Murphy is a member of the AIR Board of Directors and also a member of AIR’s Audit, Compensation and Human Resources, and Nominating and Corporate Governance Committees. Mr. Murphy was first elected a director of Aimco in April 2020 and served as a member of Aimco’s Audit, Compensation and Human Resources, Nominating and Corporate Governance, and Redevelopment and Construction Committees. Mr. Murphy serves as President of Phillips Edison & Company, a real estate investment trust that is one of the nation’s largest owners and operators of grocery-anchored shopping centers. Prior to being named President of Phillips Edison in March 2019, Mr. Murphy served as Chief Financial Officer for six years. Before joining Phillips Edison in 2013, Mr. Murphy worked for 28 years as an investment banker and held senior leadership roles at Morgan Stanley and Deutsche Bank. He was the Global Head of Real Estate Investment Banking at Deutsche Bank. His Deutsche Bank team executed over 500 transactions of all types for clients representing total transaction volume exceeding $400 billion, including initial public offerings, mergers and acquisitions, common stock offerings, secured and unsecured debt offerings and private placements of both debt and equity. Mr. Murphy began his banking career in 1986 at Morgan Stanley and held a number of senior positions including Vice Chairman, co-head of U.S. Real Estate Investment Banking and Head of Real Estate Private Capital Markets. He also served on the Investment Committee of the Morgan Stanley Real Estate Funds, a series of global private real estate funds with over $35 billion in assets under management. During his 20 years with Morgan Stanley, Mr. Murphy and his teams executed numerous capital markets and merger and acquisition transactions including a number of industry- defining transactions. Mr. Murphy is an independent director and member of the Audit and Risk Committees of CoreCivic, Inc., a NYSE listed REIT that is the nation’s leading provider of high-quality corrections and detention management facilities. Mr. Murphy received a Bachelor of Arts in English and History with Honors from the College of William and Mary and a Master of Business Administration from the University of Michigan. Mr. Murphy brings particular expertise to AIR’s Board of Directors in the areas of real estate finance, capital markets and corporate governance. | |
Kathleen M. Nelson. Ms. Nelsonis a member of the AIR Board of Directors and also the Chairman of AIR’s Nominating and Corporate Governance Committee and a member of AIR’s Audit and Compensation and Human Resources and Committees. Ms. Nelson was first elected a director of Aimco in April 2010 and served as Chairman of Aimco’s Nominating and Corporate Governance Committee and as a member of Aimco’s Audit, Compensation and Human Resources, and Redevelopment and Construction Committees. Ms. Nelson has an extensive background in commercial real estate and | |
John Dinha Rayis. Mr. Rayis is a member of the AIR Board of Directors and also a member of AIR’s Audit, Compensation and Human Resources, and Nominating and Corporate Governance Committees. Mr. Rayis was first elected a director of Aimco in April 2020 and served as a member of Aimco’s Audit, Compensation and Human Resources, Nominating and Corporate Governance, and Redevelopment and Construction Committees. In December 2016, Mr. Rayis retired as a partner of global law firm Skadden, Arps, Slate, Meagher & Flom LLP (“Skadden”), where he practiced tax law for 34 years. He retired as Of Counsel at Skadden in December 2018. Mr. Rayis advised clients on a variety of complex corporate, partnership, and REIT tax law matters. Mr. Rayis repeatedly has been selected for inclusion in Chambers Global: The World’s Leading Lawyers for Business in the “Capital Markets: REITs” category, in Chambers USA, America’s Leading Lawyers for Business as one of America’s leading REIT tax lawyers, and in The Best Lawyers in America. Mr. Rayis brings particular expertise to AIR’s Board of Directors in the areas of corporate, tax, and securities law, governance, and strategic alliances. | |
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Ann Sperling. Ms. Sperling is a member of the AIR Board of Directors and also the Chairman of AIR’s Compensation and Human Resources Committee and a member of AIR’s Audit and Nominating and Corporate Governance and Committees. Ms. Sperling was first elected a director of Aimco in May 2018 and served as Chairman of Aimco’s Redevelopment and Construction Committees and a member of Aimco’s Audit, Compensation and Human Resources, and Nominating and Corporate Governance Committees. Ms. Sperling has over 35 years of real estate and management experience, including roles in commercial real estate investment and development and leadership roles in public real estate companies in the areas of operations, finance, transactions, and marketing. She has served as Senior Director of Trammell Crow Company, the development subsidiary of the public company, CBRE, since October 2013, focusing on the capitalization and execution of new commercial developments. From October 2009 through May 2013, she served at Jones Lang LaSalle, the public real estate investment and services firm, first as Chief Operating Officer, Americas, and then as President, Markets West. As COO, she oversaw operations, finance, marketing, research, human resources, legal, and engineering and served on the governance focused Global Operating Committee. From October 2007 through June 2009, Ms. Sperling was Managing Director of Catellus, then a mixed-use development and investment subsidiary of the public REIT, Prologis, where she was responsible for operations, finance, and marketing, prior to this subsidiary’s preparation for sale. Previously, between 1982 and 2006, Ms. Sperling held a variety of roles at the public development and services firm, Trammell Crow Company, the last of which was as Senior Managing Director and Area Director, responsible for all facets of operations, finance, transactions, and marketing for the Rocky Mountain Region. Ms. Sperling also serves on the Advisory Board of Cadence Capital and the | |
Michael A. Stein. Mr. Stein is a member of AIR’s Board of Directors and also a member of its Audit, Compensation and Human Resources, and Nominating and Corporate Governance Committees. Mr. Stein was first elected a director of Aimco in | |
Nina A. Tran. Ms. Tran is a member of the AIR Board of Directors and also Chairman of AIR’s Audit Committee and a member of AIR’s Compensation and Human Resources and Nominating and Corporate Governance Committees. Ms. Tran was first elected to Aimco’s Board of Directors in March 2016 and served as Chairman of Aimco’s Audit Committee and as a member of Aimco’s Compensation and Human Resources, Nominating and Corporate Governance, and Redevelopment and Construction Committees. Ms. Tran has over 25 years of real estate and financial management experience, building and leading finance and accounting teams. Ms. Tran currently is the Chief Financial Officer of Pacaso, a real estate technology company that provides second home co-ownership. Prior to joining Pacaso, Ms. Tran from 2016 to 2021 was Chief Financial Officer of Veritas Investments, a real estate investment manager that owns and operates mixed-use-multifamily properties in the San Francisco Bay Area and Southern California. From 2013 to 2016, Ms. Tran was Chief Financial Officer of Starwood Waypoint Residential Trust, a leading publicly traded REIT that owns and operates single-family rental homes. Prior to joining Starwood Waypoint, Ms. Tran spent 18 years at AMB Property Corporation (now Prologis, Inc.), the largest publicly traded global industrial REIT. Ms. Tran served as Senior Vice President and Chief Accounting Officer, and most recently as Chief Global Process Officer, where she helped lead the merger integration of AMB and Prologis. Prior to joining AMB, Ms. Tran was a Senior Associate with PricewaterhouseCoopers, one of the big four public accounting firms. Ms. Tran is a certified public accountant (CPA) (inactive). Ms. Tran serves on the Advisory Board of the Asian Pacific Fund. Ms. Tran brings particular expertise to AIR’s Board of Directors in the areas of accounting, financial control, and business processes. |
Summary of Director Qualifications and Expertise |
Below is a summary of the qualifications and expertise of the directors, including expertise relevant to AIR’s business.
Summary of Director Qualifications and Expertise | Mr. Considine | Mr. Keltner | Mr. Miller | Mr. Murphy | Ms. Nelson | Mr. Rayis | Ms. Sperling | Mr. Stein | Ms. Tran |
Accounting and Auditing for Large Business Organizations | X | X | X | X | |||||
Business Operations | X | X | X | X | X | X | X | X | |
Capital Markets | X | X | X | X | X | ||||
Corporate Governance | X | X | X | X | X | ||||
Customer Service | X | X | |||||||
Executive | X | X | X | X | X | X | X | X | |
Financial Expertise and Literacy | X | X | X | X | X | X | X | X | X |
Information Technology | X | X | |||||||
Investment and Finance | X | X | X | X | X | X | X | X | X |
Legal | X | X | |||||||
Marketing and Branding | X | X | X | ||||||
Property Management and Operations | X | X | X | X | X | X | X | ||
Real Estate | X | X | X | X | X | X | X | X | X |
Talent Development and Management | X | X | X | X | X | X | X | X | X |
Corporate Governance Matters
This chart provides a summary overview of AIR’s governance practices, each of which is described in more detail in the information that follows.
What AIR Does |
Supermajority Independent Board. The only member of management who serves on the Board is the Company’s founder and chief executive officer. Eight of the nine directors, or 88.9% of the director nominees, are independent. Messrs. Keltner, Miller, Murphy, Rayis, and Stein and Mses. Nelson, Sperling, and Tran are the “Independent Directors.” |
Independent Standing Committees. Only independent directors serve on the standing committees, including Audit, Compensation and Human Resources, and Nominating and Corporate Governance. |
Each Independent Director Serves on Each Standing Committee. To ensure that each independent director hears all information unfiltered and to ensure the most efficient functioning of the Board, each independent director serves on each standing committee. |
Independent Chairman of the Board. The Company’s chairman of the Board is an independent director. |
Separation of Chairman and CEO. The Company has separated the roles of Chairman of the Board and CEO. |
Board Refreshment. The Nominating and Corporate Governance Committee has structured the Board such |
Regular Access to and Involvement with Management. In addition to regular access to management during Board and committee meetings, the independent directors have ongoing, direct access to members of management and to the AIR business. This includes Ms. Tran’s active and regular engagement with accounting staff and the AIR auditors, Ms. Sperling’s continuing involvement with compensation and personnel matters, Ms. Nelson’s participation in director recruitment and other governance matters, and Mr. Keltner’s frequent involvement with Mr. Considine with respect to strategy, agenda setting, board materials, and policy matters. |
Engaged Board. In addition to regular access to management, the Independent Directors meet at least quarterly and receive written updates from Mr. Considine at least monthly. |
Stockholder Engagement. Under the direction of the Board and including participation by Board members when requested by stockholders, AIR regularly engages with stockholders on governance, pay and business matters, and systematically and at least annually canvasses its largest stockholders, those holding at least two-thirds of outstanding AIR shares. |
Director Stock Ownership. By the completion of five years of service, an independent director is expected to own, at a minimum, the lesser of 27,500 shares or shares having a value of at least $550,000. The average investment by the AIR Independent Directors has a value of $1.4 million. |
Risk Assessment. The Board conducts an annual risk assessment. Areas involving risk that are reported on by management and considered by the Board, include: operations, liquidity, leverage, finance, financial statements, the financial reporting process, accounting, legal matters, regulatory compliance, information technology and data protection, sustainability, environmental, social and governance (“ESG”), compensation, human resources and human capital. The Compensation and Human Resources Committee is responsible for succession planning in all leadership positions, both in the short term and the long term, with particular focus on CEO succession in the short term and the long term. |
Majority Voting with a Resignation Policy. AIR requires its directors to be elected by a majority of the votes cast. Directors failing to get a majority of the votes cast are expected to tender their resignation. |
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What AIR Does |
Proxy Access. Based on stockholder input, the Board adopted bylaw provisions to provide proxy access. A stockholder or a group of up to 20 stockholders, owning at least 3% of our shares for three years, may submit nominees for up to 20% of the Board, or two nominees, whichever is greater, for inclusion in our proxy materials, subject to complying with the requirements contained in our bylaws. |
Opt Out of MUTA- No Staggered Board without Stockholder Approval. AIR’s charter provides that AIR’s board of directors will initially be divided into three classes, denominated as Class I, Class II and Class III. Class I directors serve for a term expiring at the 2021 annual meeting of stockholders, and the initial Class II and III directors serve for a term expiring at the 2022 annual meeting of stockholders. From and including the |
What AIR Does Not Do |
Related Party Transactions. The Nominating and Corporate Governance Committee maintains a related party transaction policy to ensure that AIR’s decisions are based on considerations only in the best interests of AIR and its stockholders. |
Pledging or hedging shares held to satisfy stock ownership requirements. The Company’s insider trading policy places restrictions on the Company’s directors, executive officers, and all other employees entering into hedging transactions with respect to the Company’s securities (such as, but not limited to, zero-cost collars, equity swaps, and forward sale contracts) and from holding the Company’s securities in margin accounts or otherwise pledging such securities as collateral for loans. Pledging or hedging transactions are permitted only in very limited circumstances, and only with respect to shares held in excess of stock ownership requirements. Hedging transactions may not be entered into with regard to AIR securities that are subject to a risk of forfeiture (e.g., restricted stock awards) and AIR directors, executive officers, other officers, and certain other employees must receive preclearance from AIR’s legal department before engaging in any hedging transactions. |
Interlocking Directorships. No AIR director or member of AIR management serves on a Board or a compensation committee of a company at which an AIR director is also an employee. |
Overboard Directors. AIR’s corporate governance guidelines and committee charters limit the number of other boards and the |
Retirement Age or Term Limits. Rather than impose arbitrary limits on service, the Company regularly (and at least annually) reviews each director’s continued role on the Board and |
Meetings and Committees
The Board held 20 meetings during the year ended December 31, 2020. During 2020, there were three committees: Audit; Compensation and Human Resources; and Nominating and Corporate Governance. During 2020, no director attended fewer than 75% of the aggregate total number of meetings of the Board and each committee on which such director served.
The Corporate Governance Guidelines, as described below, provide that the Company generally expects that the Chairman of the Board will attend all annual and special meetings of the stockholders. Other members of the Board are not required to attend such meetings. All of the members of the Board attended the Company’s 2020 Annual Meeting of Stockholders, joining electronically due to the health orders imposed with respect to the Covid-19 pandemic, and the Company anticipates that all of the members of the Board will attend the next annual meeting of stockholders when held.
Below is a table illustrating the current standing committee memberships and chairmen. Additional detail on each committee follows the table.
Director | Audit Committee | Compensation and Human Resources Committee | Nominating and Corporate Governance Committee | ||||
Terry Considine | — | — | — | ||||
Thomas L. Keltner | X | X | X | ||||
Robert A. Miller | X | X | X | ||||
Devin I. Murphy | X | X | X | ||||
Kathleen M. Nelson | X | X | † | ||||
John Dinha Rayis | X | X | X | ||||
Ann Sperling | X | † | X | ||||
Michael A. Stein | X | X | X | ||||
Nina A. Tran | † | X | X |
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Audit Committee
The Audit Committee currently consists of the Independent Directors. Ms. Tran serves as the chairman of the Audit Committee. The Audit Committee has a written charter that was adopted in connection with the Separation. In addition to the work of the Audit Committee, Ms. Tran has regular and recurring conversations with Mr. Beldin, AIR’s Chief Financial Officer (“CFO”), with Ms. Cohn, AIR’s President and General Counsel, with AIR’s controller, with the head of AIR’s internal audit function, and with representatives of Ernst & Young LLP. The Audit Committee’s charter is posted on AIR’s website (www.aircommunities.com) and is also available in print to stockholders, upon written request to AIR’s Corporate Secretary.
The Audit Committee’s responsibilities are set forth in the following chart.
Audit Committee Responsibilities |
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Oversees AIR’s accounting and financial reporting processes and audits of AIR’s financial statements. |
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Directly responsible for the appointment, compensation, and oversight of the independent auditors and the lead engagement partner and makes its appointment based on a variety of factors. | ✓ |
Reviews the scope, and overall plans for and results of the annual audit and internal audit activities. | ✓ |
Oversees management’s negotiation with Ernst & Young LLP concerning fees and exercises final approval over all Ernst & Young LLP fees. | ✓ |
Consults with management and Ernst & Young LLP with respect to AIR’s processes for risk assessment and enterprise risk management. Areas involving risk that are reported on by management and considered by the Audit Committee, the other Board committees, or the Board, include: operations, liquidity, leverage, finance, financial statements, the financial reporting process, accounting, legal matters, regulatory | ✓ |
Consults with management and Ernst & Young LLP regarding, and provides oversight for, AIR’s financial reporting process, internal control over financial reporting, and the Company’s internal audit function. | ✓ |
Reviews and approves the Company’s policy about the hiring of former employees of independent auditors. | ✓ |
Reviews and approves the Company’s policy for the pre-approval of audit and permitted non-audit services by the independent auditor, and reviews and approves any such services provided pursuant to such policy. | ✓ |
Receives reports pursuant to AIR’s policy for the submission and confidential treatment of communications from teammates and others concerning accounting, internal control, and auditing matters. | ✓ |
Reviews and discusses with management and Ernst & Young LLP quarterly earnings releases prior to their issuance and quarterly reports on Form 10-Q and annual reports on Form 10-K prior to their filing. | ✓ |
Reviews the responsibilities and performance of the Company’s internal audit function, approves the hiring, promotion, demotion, or termination of the lead internal auditor, and oversees the lead internal auditor’s periodic performance review and changes to his or her compensation. | ✓ |
Reviews with management the scope and effectiveness of the Company’s disclosure controls and procedures, including | ✓ |
Meets regularly with members of AIR management and with Ernst & Young LLP, including periodic meetings in executive session. | ✓ |
Performs an annual review of the Company’s independent auditor, including an assessment of the firm’s experience, expertise, communication, cost, value, and efficiency, and including external data relating to audit quality and performance, including recent Public Company Accounting Oversight Board (PCAOB) reports on Ernst & Young LLP and its peer firms. | ✓ |
Performs an annual review of the lead engagement partner of the Company’s independent auditor and the potential successors for that role. | ✓ |
Periodically evaluates independent audit service providers. | ✓ |
The Audit Committee held five meetings during the year ended December 31, 2020. As set forth in the Audit Committee’s charter, no director may serve as a member of the Audit Committee if such director serves on the audit committee of more than two other public companies, unless the Board determines that such simultaneous service would not impair the ability of such director to effectively serve on the Audit Committee. No member of the Audit Committee serves on the audit committee of more than two other public companies.
Audit Committee Financial Expert
AIR’s Board has designated Ms. Tran as an “audit committee financial expert.” In addition, all of the members of the Audit Committee qualify as audit committee financial experts. Each member of the Audit Committee is independent, as that term is defined by Section 303A of the listing standards of the New York Stock Exchange relating to audit committees.
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Compensation and Human Resources Committee
The Compensation and Human Resources Committee currently consists of the Independent Directors. Ms. Sperling serves as the chairman of the Compensation and Human Resources Committee. Ms. Sperling meets regularly with Ms. Cohn. Ms. Sperling also has regular conversations with AIR’s independent compensation consultant, FPL Associates (“FPL”) and with outside counsel with expertise in executive compensation and compensation governance related matters. The Compensation and Human Resources Committee has a written charter that was adopted in connection with the Separation. The Compensation and Human Resources Committee’s charter is posted on AIR’s website (www.aircommunities.com) and is also available in print to stockholders, upon written request to AIR’s Corporate Secretary.
The Compensation and Human Resources Committee’s responsibilities are set forth in the following charts.
Compensation and Human Resources Committee Responsibilities | Accomplished In 2020 |
Responsible for succession planning in all leadership positions, both in the short term and the long term, with particular focus on CEO succession in the short term and the long term. | ✓ |
Oversee the Company’s management of the talent pipeline process. | ✓ |
Oversee the goals and objectives of the Company’s executive compensation plans. | ✓ |
Annually evaluate the performance of the CEO. | ✓ |
Determine the CEO’s compensation. | ✓ |
Negotiate and provide for the documentation of any employment agreement (or amendment thereto) with the CEO, as applicable. | ✓ |
Review the decisions made by the CEO as to the compensation of the other executive officers. | ✓ |
Approve and grant any equity compensation. | ✓ |
Review and discuss the Compensation Discussion & Analysis with management. | ✓ |
Oversee the Company’s submission to a stockholder vote of matters relating to compensation, including advisory votes on executive compensation and the frequency of such votes, incentive and other compensation plans, and amendments to such plans. | ✓ |
Consider the results of stockholder advisory votes on executive compensation and take such results into consideration in connection with the review and approval of executive officer compensation. | ✓ |
Review stockholder proposals and advisory stockholder votes relating to executive compensation matters and recommend to the Board the Company’s response to such proposals and votes. | ✓ |
Review compensation arrangements to evaluate whether incentive and other forms of pay encourage unnecessary or | ✓ |
Review and | ✓ |
Review periodically the goals and objectives of the Company’s executive compensation plans, and amend, or recommend that | ✓ |
Oversee the Company’s culture, with a particular focus on collegiality, collaboration, and team building. | ✓ |
One of the most important responsibilities of the Compensation and Human Resources Committee is to ensure a succession plan is in place for key members of the Company’s executive management team, including the CEO. Based on the work of the Compensation and Human Resources Committee, the Board has a succession plan for the CEO position, is prepared to act in the event of a CEO vacancy in the short term, and has identified candidates for succession over the long term. The Board will select the successor taking into consideration the needs of the organization, the business environment, and each candidate’s skills, experience, expertise, leadership, and fit. The Company maintains a robust succession planning process, as highlighted in the following chart.
Management Succession |
The Company maintains an executive talent pipeline for every executive officer position, including the CEO position, and every other officer position within the organization. |
The executive talent pipeline includes “interim,” “ready now,” and “under development” candidates for each position. The Company has an intentional focus on those formally under development for executive roles. Management is also focused on attracting, developing, and retaining strong talent across the organization. |
The executive talent pipeline is formally updated annually and is the main topic of |
Talent development and succession planning is a coordinated effort among the CEO, the Compensation and Human Resources Committee, and the Company’s Human Resources team, as well as each succession candidate. |
The Board is provided exposure to succession candidates for executive officer positions. |
Multiple internal succession candidates have been identified for the CEO position. |
Each CEO succession candidate has been with AIR for over a decade and a half and has at least a decade of executive experience. |
All executive succession candidates have formal development plans. |
All CEO succession candidates receive one-on-one development from a professional executive coach. |
All CEO succession candidates receive annual 360-degree feedback. |
Mr. Considine provides formal updates to the Compensation and Human Resources Committee annually, and informal updates at least quarterly, on CEO succession candidates’ development plan progress. |
An executive coach provides formal updates to the Compensation and Human Resources Committee annually, and informal updates more frequently, on CEO succession candidates’ development plan progress. |
The Company maintains a forward-looking approach to succession. Positions are filled considering the business strategy and needs at the time of a vacancy and the candidate’s skills, experience, expertise, leadership and fit. |
The Company has a proven track record on the development of talented leaders and succession. |
The Compensation and Human Resources Committee held five meetings during the year ended December 31, 2020.
Nominating and Corporate Governance Committee
The Nominating and Corporate Governance Committee currently consists of the Independent Directors. Ms. Nelson serves as the chairman of the Nominating and Corporate Governance Committee. The Nominating and Corporate Governance Committee has a written charter that was adopted in connection with the Separation. The Nominating and Corporate Governance Committee’s charter is posted on AIR’s website (www.aircommunities.com) and is also available in print to stockholders, upon written request to AIR’s Corporate Secretary.
The Nominating and Corporate Governance Committee’s responsibilities are set forth in the following chart.
Nominating and Corporate Governance Committee Responsibilities | Accomplished In 2020 |
Focuses on Board candidates and nominees, and specifically: • Plans for Board refreshment and succession planning for directors; • Identifies and recommends to the Board individuals qualified to serve on the Board; • Identifies, recruits, and, if appropriate, interviews candidates to fill positions on the Board, including • Reviews each Board member’s suitability for continued service as a director when his or her term expires and when he or she has a change in professional status and recommends whether or not the director should be re-nominated. | ✓ |
Focuses on Board composition and procedures as a whole and recommends, if necessary, measures to be taken so that the Board reflects the appropriate balance of knowledge, experience, skills, and expertise required for the Board as a whole. | ✓ |
Develops and recommends to the Board a set of corporate governance principles applicable to AIR and its management. | ✓ |
Maintains a related party transaction policy and oversees any potential related party transactions. | ✓ |
Oversees a systematic and detailed annual evaluation of the Board, committees, and individual directors in an effort to continuously improve the function of the Board. | ✓ |
Oversees the Company’s commitment to ESG issues and disclosure related thereto. | ✓ |
Considers corporate governance matters that may | ✓ |
Reviews annually the Company’s public policy advocacy efforts and political and charitable contributions. | ✓ |
The Nominating and Corporate Governance Committee held five meetings during the year ended December 31, 2020.
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Board Composition, Board Refreshment, and Director Tenure
AIR is focused on having a well-constructed and high performing board. To that end, the Nominating and Corporate Governance Committee selects nominees for director based on, among other things, breadth and depth of experience, knowledge, skills, expertise, integrity, ability to make independent analytical inquiries, understanding of AIR’s business environment, and willingness to devote adequate time and effort to Board responsibilities. In addition, our currentconsidering nominees for director, the Nominating and continuing qualification asCorporate Governance Committee seeks to have a real estate investment trust involvesdiverse range of experience and expertise relevant to AIR’s business. The Nominating and Corporate Governance Committee places a premium on directors who work well in the application of highly technicalcollegial and complex provisionscollaborative nature of the Internal Revenue CodeBoard (which is also consistent with the AIR culture) and depends on our abilityalso requires directors who think and act independently and can clearly and effectively communicate their convictions. The Nominating and Corporate Governance Committee assesses the appropriate balance of criteria required of directors and makes recommendations to meet the various requirements imposed byBoard.
The Nominating and Corporate Governance Committee has specifically considered the Internal Revenue Code, through actual operating results, distribution levels and diversityfeedback of stock ownership.
Readers should carefully review our financial statements and the notes thereto,some stockholders as well as the section entitled “Risk Factors” describeddiscussions of some commentators that suggest lengthy Board tenure should be balanced with new perspectives. Specific to Aimco and post Separation, AIR, the Nominating and Corporate Governance Committee has structured the Board such that there are directors of varying tenures, with new directors and perspectives joining the Board every few years while retaining the institutional memory of longer-tenured directors. Longer-tenured directors, balanced with less-tenured directors, enhance the Board’s oversight capabilities. AIR’s directors work effectively together, coordinate closely with senior management, comprehend AIR’s challenges and opportunities, and frame Aimco’s business strategy. AIR’s Board members have established relationships that allow the Board to apply effectively its collective business savvy in Item 1Aguiding the AIR’s enterprise.
When formulating its Board membership recommendations, the Nominating and Corporate Governance Committee also considers advice and recommendations from others, including stockholders, as it deems appropriate. Such recommendations are evaluated based on the same criteria noted above. The Nominating and Corporate Governance Committee will consider as nominees to the Board for election at the next annual meeting of this Annual Reportstockholders persons who are recommended by stockholders in writing, marked to the attention of AIR’s Corporate Secretary, no later than July 1, 2021.
The Board is responsible for nominating members for election to the Board and for filling vacancies on the other documents we file from time to timeBoard that may occur between annual meetings of stockholders.
Board Leadership Structure
In connection with the SecuritiesSeparation, the Board concluded that separating the Chairman and Exchange Commission.
As used hereinCEO role would be most effective for the Company’s leadership and exceptgovernance. Mr. Keltner serves as Chairman of the context otherwise requires, “we,” “our,”Board, which includes: presiding over meetings of the Board; presiding over executive sessions of the Independent Directors, which are held regularly and “us” refer to Apartment Investmentnot less than four times per year; with the CEO, setting meeting agendas and Management Company (which we refer to as Aimco), AIMCO Properties, L.P. (which we refer to asschedules; calling meetings of the Aimco Operating Partnership)Independent Directors; and their consolidated entities, collectively.
Certain financial and operating measures found herein and used by management are not defined under accounting principles generally accepted in the United States, or GAAP. These measures are defined and reconciled to the most comparable GAAP measures under the Non-GAAP Measures heading and include: Nareit Funds From Operations, Pro forma Funds From Operations, Adjusted Funds From Operations, Free Cash Flow, Net Asset Value, Economic Income, and the measures used to compute our leverage ratios.
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PART I
ITEM 1. BUSINESSbeing available for direct communication with stockholders.
The Company
Aimco is a Maryland corporation incorporated on January 10, 1994. Aimco is a self-administered and self-managed real estate investment trust, or REIT, focused on the ownership, management, redevelopment, and some development of quality apartment communities located in several of the largest markets in the United States. Those markets include: Atlanta; the San Francisco Bay Area; Boston; Chicago; Denver; Greater New York City; Greater Washington, D.C.; Los Angeles; Miami/Dade County; Philadelphia; San Diego; and Seattle.
Aimco, through its wholly owned subsidiaries, AIMCO-GP, Inc. and AIMCO-LP Trust, ownsBoard has a majority of independent directors. Eight out of the ownership interestsnine directors are independent. All three standing committees (Audit; Compensation and Human Resources; and Nominating and Corporate Governance) are composed solely of independent directors.
Separate Sessions of Independent Directors
AIR’s Corporate Governance Guidelines (described below) provide that the non-management directors shall meet in executive session without management on a regularly scheduled basis, but no less than four times per year. The non-management directors, which group currently is made up of the eight Independent Directors, met in executive session without management four times during the year ended December 31, 2020.
The following table sets forth the number of meetings held by the Board and each committee during the year ended December 31, 2020.
| Board | Non- | Audit | Compensation | Nominating and |
Number of Meetings | 20 | 9 | 5 | 5 | 5 |
Majority Voting for the Election of Directors
In an uncontested election at the meeting of stockholders, any nominee to serve as a director of the Company will be elected if the director receives a majority of votes cast, which means that the number of shares voted “for” a director exceeds the number of shares voted “against” that director. With respect to a contested election, a plurality of all the votes cast at the meeting of stockholders will be sufficient to elect a director. If a nominee who currently is serving as a director receives a greater number of “against” votes for his or her election than votes “for” such election (a “Majority Against Vote”) in an uncontested election, Maryland law provides that the director would continue to serve on the Board as a “holdover director.” However, under AIR’s Bylaws, any nominee for election as a director in an uncontested election who receives a Majority Against Vote is obligated to tender his or her resignation to the Nominating and Corporate Governance Committee for consideration. The Nominating and Corporate Governance Committee will consider any resignation and recommend to the Board whether to accept it. The Board is required to take action with respect to the Nominating and
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Corporate Governance Committee’s recommendation. Additional details are set out in Article II, Section 2.03 (Election and Tenure of Directors; Resignations) of Aimco’s Bylaws.
Proxy Access
Based on stockholder feedback, corporate governance best practices and trends, and the Company’s particular facts and circumstances, the Board determined to provide in the Aimco Operating Partnership,Company’s bylaws a Delaware limited partnership formed on May 16, 1994. Aimco conducts allproxy access right to stockholders. A stockholder or a group of its business and owns all of its assets through the Aimco Operating Partnership.
Please referup to Note 13 to the consolidated financial statements in Item 8 for discussion regarding our segments.
Business Overview
Our business activities are defined by a commitment to our core values of integrity, respect, collaboration, performance, and a focus on our customers. These values and our corporate mission, “to consistently provide quality apartment homes in a respectful environment delivered by a team of people who care,” shape our culture. In all20 stockholders, owning at least 3% of our interactionsshares for at least three years, may submit nominees for up to 20% of the Board, or two nominees, whichever is greater, for inclusion in our proxy materials, subject to complying with residents, team members, business partners, lenders, and equity holders, we aim to be the best owner and operator of apartment communities and an outstanding corporate citizen.
Our principal financial objective is to provide predictable and attractive returns torequirements contained in our equity holders. We measure our long- term total return using Economic Income, defined as Net Asset Value, or NAV, growth plus dividends. NAV is used by many investors because the value of company assets can be readily estimated, even for non-earning assets such as land or properties under development. NAV has the advantage of incorporating the investment decisions of thousands of real estate investors, enhancing comparability among companies that have differences in their accounting and avoiding disparity that can result from application of GAAP to investment properties and various ownership structures. Over the past five years as of December 31, 2019, we have generated Economic Income at a compounded annual return of 10%. Some investors focus on multiples of Adjusted Funds From Operations, or AFFO, and Funds From Operations as defined by Nareit, or Nareit FFO. Our disclosure of AFFO, a measure of current return, complements our focus on Economic Income. We also use Pro forma Funds From Operations, or Pro forma FFO, as a secondary measure of operational performance.
Our business plan to achieve our principal financial objective is to:bylaws.
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The results fromBoard has adopted a code of ethics entitled “Code of Business Conduct and Ethics” that applies to the executionmembers of our business plan are discussedthe Board, all of AIR’s executive officers and all teammates of AIR or its subsidiaries, including AIR’s principal executive officer, principal financial officer and principal accounting officer. The Code of Business Conduct and Ethics is posted on AIR’s website (www.aircommunities.com) and is also available in print to stockholders, upon written request to AIR’s Corporate Secretary. If, in the Executive Overviewfuture, AIR amends, modifies or waives a provision in the Code of Business Conduct and Ethics, rather than filing a Current Report on Form 8-K, AIR intends to satisfy any applicable disclosure requirement under Item 7.
Our business is organized around five areas5.05 of strategic focus: operational excellence; redevelopmentForm 8-K by posting such information on AIR’s website (www.aircommunities.com), as necessary.
Corporate Governance Guidelines and Director Stock Ownership |
The Board has adopted and development; portfolio management; balance sheet;approved Corporate Governance Guidelines. These guidelines are available on AIR’s website (www.aircommunities.com) and teamare also available in print to stockholders, upon written request to AIR’s Corporate Secretary. In general, the Corporate Governance Guidelines address director qualification standards, director responsibilities, director access to management and culture.
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Operational Excellence
We ownindependent advisors, director compensation, director orientation and operate a portfolio of apartment communities, diversified by both geography and price point. As of December 31, 2019, our portfolio included 124 apartment communities with 32,839 apartment homes in which we held an average ownership of approximately 99%, and approximately 80%continuing education, the role of the Board in planning management succession, stock ownership guidelines and retention requirements, and an annual performance evaluation of the Board.
With respect to stock ownership guidelines for the Independent Directors, the Corporate Governance Guidelines provide that by the completion of five years of service, an Independent Director is expected to own, at a minimum, the lesser of 27,500 shares or shares having a value of our portfolio, measured by gross asset value (the estimated fair valueat least $550,000. Each of our communities), was attributable to Same Store communities.
To manage our property operations efficiently and to increase the benefits from our local management expertise, we give direct responsibility for operations within each area to area operations leaders with regular oversight by senior management. To enable the area operations leaders to focus on sales and service, asIndependent Directors has holdings well as to improve financial control and budgeting, we have dedicated area financial officers who support the operations leaders. Additionally,in excess of this amount, with the exception of routine maintenanceMessrs. Murphy and purchases and installation of equipment, we have specialized teams that manage capital spending related to larger and more complicated construction.Rayis, who joined the Board on April 28, 2020.
We seek to improve our property operations by: employing service-oriented, well-trained team members; taking advantage of advances in technology; increasing automation; centralizing operational tasks where efficient to do so; standardizing business processes, operational measurements, and internal reporting; and enhancing financial controls over field operations. We focus on the following areas:11
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Redevelopment and Development
Our second line of business is the redevelopment and some development of apartment communities. Through redevelopment activities, we expect to create value by repositioning apartment communities within our portfolio. We undertake ground-up development when warranted by risk-adjusted investment returns, either directly or in connection with the redevelopment of an existing apartment community. When warranted, we rely on the expertise and credit of a third-party developer familiar with the local market to limit our exposure to construction risk. Over the past five years, we have spent approximately $1.0 billion on redevelopment and development, targeting FCF internal rates of return of approximately 9% to 11% on these investments.
We undertake a range of redevelopments, including: those in which buildings or exteriors are renovated without the need to vacate a significant percentage of apartment homes, or short-cycle redevelopments; those in which significant renovation of apartment homes may be accomplished upon lease expiration and turnover; and those in which an entire building or community is vacated, or long-cycle redevelopments. We often execute redevelopment using a phased approach, in which we renovate an apartment community in stages. Redevelopment work may include seeking entitlements from local governments, which enhance the value of our existing portfolio by increasing density; that is, the right to add apartment homes to a site.
We invest to earn risk-adjusted returns in excess of those expected from the communities sold in paired trades to fund the redevelopment or development. Of these two activities, we generally favor redevelopment because it permits adjustment to the scope and timing of spending to align with changing market conditions and customer preferences.
Portfolio Management
Our portfolio management strategy involves the allocation of investment capital to enhance rent growth and increase long-term capital values through portfolio design, emphasizing land value as well as location and submarket. We target geographic diversification in our portfolio in order to reduce the volatility of our rental revenue and to reduce the risk of undue concentration in any particular market. Similarly, we seek price point diversification by owning apartment communities that offer apartment homes at rents below those asked by competitive new building supply.
Our portfolio of apartment communities is diversified across “A,” “B,” and “C+” price points, averaging “B/B+” in quality and is also diversified across several of the largest markets in the United States. Please refer to the Executive Overview section in Item 7 for a description of our portfolio quality ratings. As of December 31, 2019, our portfolio was allocated about one-half to “A” rated properties, and about one-half to “B” and “C+” rated properties.
As part of our portfolio strategy, we seek to sell up to 10% of our portfolio annually and to reinvest the proceeds from such sales in accretive uses such as capital enhancements, redevelopments, some developments, and selective acquisitions with projected FCF internal rates of return higher than expected from the communities being sold. Through this disciplined approach to capital recycling, we increase the quality and expected growth rate of our portfolio.
Balance Sheet
Our leverage strategy seeks to increase financial returns by using leverage with appropriate caution. We limit risk through our balance sheet structure, employing low leverage, primarily non-recourse and long-dated property debt; build financial flexibility by maintaining ample unused and available credit as well as holding properties with substantial value unencumbered by property debt; and use partners’ capital when it enhances financial returns or reduces investment risk.
Our leverage includes our share of long-term, non-recourse, property debt encumbering apartment communities, outstanding borrowings under our revolving credit facility, outstanding preferred equity, and redeemable noncontrolling interests in a consolidated real estate partnership.
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We target a ratio of Proportionate Debt and Preferred Equity to adjusted earnings before interest, taxes, depreciation, and amortization for real estate, or Adjusted EBITDAre, as defined by Nareit, below 7.0x and we target a ratio of Adjusted EBITDAre to Adjusted Interest Expense and Preferred Dividends greater than 2.5x.
Our ratios as of December 31, 2019, were 7.6x and 3.5x, respectively. We delayed approximately $300 million of sales originally planned for fourth quarter 2019 and January 2020, which increased Proportionate Debt to Adjusted EBITDAre and Proportionate Debt and Preferred Equity to Adjusted EBITDAre by 0.3x as of December 31, 2019. We expect a gradual decline in leverage to EBITDAre ratios throughout 2020, reaching approximately 6.4x and 6.5x, respectively, at year end. In future years, we expect earnings growth from completed redevelopments will increase EBITDAre and further reduce our leverage ratios.
Please refer to the Leverage Ratios subsection to the Non-GAAP Measures section in Item 7 for additional information regarding our leverage ratios.
Our liquidity consists of cash balances and available capacity on our revolving credit facility. As of December 31, 2019, we had cash and restricted cash of $177.7 million and had capacity to borrow $517.8 million under our revolving credit facility.
We manage our financial flexibility by maintaining an investment grade rating and holding apartment communities that are unencumbered by property debt. As of December 31, 2019, we held unencumbered communities with an estimated fair market value of approximately $2.4 billion.
Please refer to the Executive Overview and Liquidity and Capital Resources sections in Item 7 for additional information regarding our balance sheet and liquidity.
Team and Culture
Our team and culture are keys to our success. Our intentional focus on a collaborative and productive culture based on respect for others and personal responsibility is reinforced by a preference for promotion from within. We focus on succession planning and talent development to produce a strong, stable team that is the enduring foundation of our success. We offer benefits reinforcing our value of caring for each other, including paid time for parental leave, paid time annually to volunteer in local communities, college scholarships for the children of team members, an emergency fund to help team members in crisis, financial support for our team members who are becoming United States citizens, and a bonus structure at all levels of the organization. We also pay full compensation and benefits for team members who are actively deployed by the United States military. Out of hundreds of participating companies in 2019, Aimco was one of only seven recognized as a “Top Workplace” in Colorado for each of the past seven years. Aimco was also recognized as a Top Workplace in the Bay Area in 2019. Also in 2019, Aimco was the only real estate company to receive a BEST award from the Association for Talent Development in recognition of our company-wide success in talent development, marking our second consecutive year receiving this award.
Competition
In attracting and retaining residents to occupy our apartment communities we compete with numerous other housing providers. Our apartment communities compete directly with other rental apartments, as well as condominiums and single-family homes that are available for rent or purchase in the markets in which our apartment communities are located. Principal factors of competition include rent or price charged, attractiveness of the location and apartment community, and the quality and breadth of services. The number of competitive apartment communities relative to demand in a particular area has a material effect on our ability to lease apartment homes at our apartment communities and on the rents we charge. In certain markets, there exists an oversupply of newly-constructed apartment homes, single-family homes, and condominiums relative to consumer demand, which affects the pricing and occupancy of our rental apartments.
We also compete with other real estate investors, including other apartment REITs, pension and investment funds, partnerships, and investment companies in acquiring, redeveloping, managing, obtaining financing for, and disposing of apartment communities. This competition affects our ability to acquire apartment communities we want to add to our portfolio and the price that we pay in such acquisitions; our ability to finance or refinance communities in our portfolio and the cost of such financing; and our ability to dispose of communities we no longer desire to retain in our portfolio and the timing and price available to us when we seek to dispose of such communities.
Taxation
Aimco
Aimco has elected to be taxed as a REIT under the Internal Revenue Code of 1986, as amended, which we refer to as the Code, commencing with our taxable year ended December 31, 1994, and intends to continue to operate in such a manner. The Code imposes various requirements related to organizational structure, distribution levels, diversity of stock ownership, and
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certain restrictions with regard to owned assets and categories of income that must be met in order to continue to qualify as a REIT. If Aimco continues to qualify for taxation as a REIT, Aimco will generally not be subject to United States federal corporate income tax on its taxable income that is currently distributed to stockholders. This treatment substantially eliminates the “double taxation” (at the corporate and stockholder levels) that generally results from an investment in a corporation.
Certain of Aimco’s operations, or a portion thereof, including property management and risk management are conducted through taxable REIT subsidiaries, each of which we refer to as a TRS. A TRS is a subsidiary C-corporation that has not elected REIT status and, as such, is subject to United States federal corporate income tax. We use TRS entities to facilitate our ability to offer certain services and activities to our residents and investment partners that cannot be offered directly by a REIT. We also use TRS entities to hold investments in certain apartment communities.
The Aimco Operating Partnership
The Aimco Operating Partnership is treated as a “pass-through” entity for United States federal income tax purposes and is not subject to United States federal income taxation. Partners in the Aimco Operating Partnership, however, are subject to tax on their allocable share of partnership income, gains, losses, deductions, and credits, regardless of whether the partners receive any actual distributions of cash or other property from the Aimco Operating Partnership during the taxable year. Generally, the characterization of any particular item is determined by the Aimco Operating Partnership, rather than at the partner level, and the amount of a partner’s allocable share of such item is governed by the terms of the Aimco Operating Partnership’s Partnership Agreement. The Aimco Operating Partnership is subject to tax in certain states.
Regulation
General
Apartment communities and their owners are subject to various laws, ordinances, and regulations, including those related to real estate broker licensing and regulations relating to recreational facilities such as swimming pools, activity centers, and other common areas. Changes in laws increasing the potential liability for environmental conditions existing on communities or increasing the restrictions on discharges or other conditions, as well as changes in laws affecting development, construction, and safety requirements, may result in significant unanticipated expenditures, which would adversely affect our net income and cash flows from operating activities. In addition, existing rent control laws, as well as future enactment of rent control or rent stabilization laws, or other laws regulating multifamily housing, may reduce rental revenue or increase operating costs in particular markets.
Environmental
Various federal, state, and local laws subject apartment community owners or operators to liability for management, and the costs of removal or remediation, of certain potentially hazardous materials that may be present at an apartment community. These materials may include lead-based paint, asbestos, polychlorinated biphenyls, and petroleum-based fuels. Such laws often impose liability without regard to fault or whether the owner or operator knew of, or was responsible for, the release or presence of such materials. In connection with the ownership, operation, and management of apartment communities, we could potentially be liable for environmental liabilities or costs associated with our current communities, communities we acquire or manage in the future, or communities we previously owned or operated in the past. These and other risks related to environmental matters are described in more detail in Item 1A. Risk Factors.
Corporate Responsibility
At Aimco, corporate responsibility is an important part of our business. As with all other aspects of our business, our corporate responsibility program focuses on continuous improvement, to the benefit of our stockholders, our residents, our team members,teammates, our communities, and the environment. HighlightsWe actively discuss these matters with our stockholders and solicit their feedback on our program.
The graphics below describe some of the 2020 highlights of our corporate responsibility program canprogram.
STOCKHOLDER We have engaged with stockholders holding at least 2/3of our outstanding shares each of the PAST 5 YEARS. We have always made our Board members available for engagement discussions. In connection with the Separation, we had direct conversations with stockholders holding approximately 73% of our outstanding shares. These conversations were wide-ranging on governance, board composition, strategy, and more, and often included Independent Directors. | STOCKHOLDER ENGAGEMENT | R OUR RESPONSES TO STOCKHOLDER INPUT (Year Added) ✓Separation of Chairman and CEO (2020) ✓Opted out of MUTA (2020) ✓Board Refreshment (2020) ✓Disclosure regarding Board Oversight of Political and Lobbying Expenditures (2020) ✓Disclosure regarding Performance of “In Progress” LTI Awards (2020) ✓ESG Disclosure (2018) ✓Matrix of Director Qualifications and Expertise (2017) ✓More Detailed Management Succession Disclosure (2017) ✓More Graphics (2017) ✓Proxy Access (2016) ✓LTI Program Overhaul (2015) ✓Double Trigger Change in Control Provisions (2015) ✓Claw back Policy (2015) ✓Commitment to not Provide Future Excise Tax Gross-Ups (2015) s in 2016, 2017, & 2018 Proxy Access in 2016 LTI Program Overhaul in 2015 Double Trigger Change in Control Provisions in 2015 Clawback Policy in 2015 Commitment to no Excise Tax Gross-Ups in 2015 |
PROXY ACCESS Our bylaws permit: | A stockholder (or group of up to 20 stockholders) | Owning 3% or more of our outstanding common stock continuously for at least3 YEARS | To nominate and include in our proxy materials director candidates constituting up to the greater of 2 INDIVIDUALS or20% of the Board, if the nominee(s) satisfy the requirements specified in our bylaws |
HONORED FOR THE SEVERAL CONSECUTIVE YEARS FOR BOARD COMPOSITION | ||
Commitment to our Residents Residents awarded Aimco CSAT scores averaging more than 4 (out of 5 stars) during the past five years, reflecting HIGH LEVELSof RESIDENT SATISFACTION | ||||||||
COVID-19 Response Related to Our Residents: ✓Supported residents sheltering in place and met the needs of those who reported positive for infection by COVID-19 ✓Redeployed construction supervisors to support property service teams ✓Redeployed dozens of office workers to join shared service center team to hold thousands of structured conversations with residents, helping each plan his or her personal adjustment to the crisis, including offering financial advice, tips on job searches, help with errands, ideas about how to find a roommate, establishing payment plans where appropriate, and even, in a few difficult cases, providing money for groceries ✓Use previous investment in technology and artificial intelligence to adapt to new conditions of social distancing and sheltering at home | ||||||||
Investment in our Teammates | ||||||||
The only real estate company awarded a 2018, 2019, and 2020 Association for Talent Development (ATD) BEST Awardfor excellence in talent acquisition, training, and team development | One of only six companies to be recognized as a “Top Workplace” in Colorado for each of the past eight years | |||||||
$1,305,000 Aimco Cares (now AIR Gives) scholarship funds to 630 children of teammates since 2006 | Over $67,500 Aimco Cares (now AIR Gives) scholarship funds to 26 students in 2020 | |||||||
COVID-19 Response Related to our Business Operations and Teammates: ✓As crisis approached, formed cross-functional task force that met daily regarding work redesign and team safety ✓Made commitment that any teammate who felt unsafe at work was free to stay home, with pay and without penalty ✓Paid 100% of costs related to COVID-19 testing and treatment ✓Committed to keep full team intact, without layoffs or pay cuts ✓Increased regular communications and transparency, providing steady flow of written, livestream, and video reports to entire team |
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Commitment to Community IN 2020: | ||||||||
Teammates turn their passion for community service into action through Aimco Cares (now AIR Gives), which gives team members 15 paid hours each year to apply to volunteer activities of their choosing | COVID-19 Response Related to our Community Partners:Mindful of the sacrifice of healthcare providers who worked long hours and felt unable to go home without risking infection of their families, as part of theAimco Cares (now AIR Gives) Good Neighbor Program,the Company provided free use of furnished apartments at its apartment communities on the Anschutz Medical Campus, near Boulder Community Health, and near Newark University Hospital | $340,000 Raised through Aimco Cares (now AIR Gives) Charity Golf Classic benefitting military veterans and providing scholarships for students in affordable housing | ||||||
Commitment to Conservation | |||
$980K invested in ENERGY CONSERVATION in 2020 | 6,690,852 Therms of natural gas conserved | 923,922,393 Gallons of water saved through efficiency | |
235,005,148 kWh of electricity saved through efficient fixtures | 169,730 Metric tons of greenhouse gas emissions avoided |
Communicating with the Board of Directors |
Any interested parties desiring to communicate with AIR’s Board, the Chairman of the Board, any of the other Independent Directors, any committee chairman, or any committee member may directly contact such persons by directing such communications in care of AIR’s Corporate Secretary. All communications received as set forth in the preceding sentence will be found in our proxy statementopened by the office of AIR’s General Counsel for Aimco’s 2020 annual meetingthe sole purpose of stockholders and is incorporated herein by reference.
Insurance
Our primary lines of insurance coverage are property, general liability, and workers’ compensation. We believe that our insurance coverages adequately insure our apartment communities againstdetermining whether the risk of loss attributablecontents represent a message to fire, earthquake, hurricane, tornado, flood, terrorism, and other perils, and adequately insure us against other risk. Our coverage includes deductibles, retentions, and limitsAIR’s directors. Any contents that are customarynot in the industry. We have established loss prevention, loss mitigation, claims handling, and litigation management proceduresnature of advertising, promotions of a product or service, or patently offensive material will be forwarded promptly to manage our exposure.the addressee. In the case of communications to the Board or any group or committee of directors, the General Counsel’s office will make sufficient copies of the contents to send to each director who is a member of the group or committee to which the envelope or e-mail is addressed.
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Table of ContentsTo contact AIR’s Corporate Secretary, correspondence should be addressed as follows:
Corporate Secretary
Office of the General Counsel
Apartment Income REIT Corp.
4582 South Ulster Street, Suite 1700
Denver, Colorado 80237
Section 16(a) Beneficial Ownership Reporting Compliance |
Section 16(a) Beneficial Ownership Reporting ComplianceEmployees. Section 16(a) of the Securities Exchange Act of 1934, as amended, requires executive officers and directors, and persons who own more than 10 percent of a registered class of an issuer’s equity securities, to file reports (Forms 3, 4 and 5) of stock ownership and changes in ownership with the SEC and the New York Stock Exchange. Executive officers, directors, and beneficial owners of more than 10 percent of such issuer’s registered equity securities are required by SEC regulations to furnish the issuer with copies of all such forms that they file.
AsBased solely on Aimco’s, and now AIR’s, review of the copies of Forms 3, 4, and 5 and the amendments thereto received by it for the year ended December 31, 2019, we had approximately 950 team members, of whom about 6002020, or written representations from certain reporting persons that no Forms 5 were atrequired to be filed by those persons, AIR believes that during the apartment community level performing on-site functions or at our shared service center performing tasks that have been centralized there, with the balance managing corporate and area functions, including investment and debt transactions, legal, finance and accounting, information systems, human resources, and other support functions. As ofperiod ended December 31, 2019, unions represented approximately 50 of our team members. We have never experienced a work stoppage2020, all filing requirements were complied with by its executive officers and believe we maintain satisfactory relationsdirectors with our team members.
Available Information
Our combined Annual Report on Form 10-K, our combined Quarterly Reports on Form 10-Q, Current Reports on Form 8-K filed by Aimco or the Aimco Operating Partnership,respect to AIR and any amendments to any of those reports that we file with the Securities and Exchange Commission are available free of charge as soon as reasonably practicable through Aimco’s website at www.aimco.com. The information contained on Aimco’s website is not incorporated into this Annual Report.Aimco.
ITEM 1A. RISK FACTORS11. EXECUTIVE COMPENSATION
The risk factors noted in this section, and other factors noted throughout this Annual Report, describe certain risks and uncertainties that could cause our actual results to differ materially from those contained in any forward-looking statement.COMPENSATION DISCUSSION & ANALYSIS (CD&A)
Risks Related to Our Real Estate Investments and Our Operations
Redevelopment, development, and construction risks could affect our profitability.
We are currently redeveloping and developing certain of our apartment communities. During 2020, we expect to invest $250 million to $300 million in redevelopment and development activities. Redevelopment and development are subject to numerous risks, includingThis CD&A addresses the following:
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• | Other Benefits; Perquisite Philosophy; |
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FailureSeparation
As noted previously, on December 15, 2020, AIR became a separate and distinct public company from Aimco with the consummation of the Separation. The management team of the Company served as the management team of Aimco for all but two weeks of 2020 and then as the management team of AIR. As described below, AIR’s compensation philosophy remains largely consistent with that of Aimco’s. Given the timing of the Separation, the 2020 elements of compensation and compensation philosophy covered in this CD&A reflect Aimco’s compensation program and philosophy, and references relating to generate sufficient net operating income may adversely affect our liquidity, limit our abilitydeterminations made with respect to fund necessary capital expenditures,compensation generally reflect determinations made by Aimco or adversely affect our abilitythe Aimco Compensation and Human Resources Committee (the “Committee”), as applicable, except where noted otherwise.
Stockholder Engagement Regarding Executive Compensation
At Aimco’s 2020 Annual Meeting of Stockholders, approximately 98% of the votes cast in the advisory vote on executive compensation (also commonly referred to pay dividends or distributions.
Our abilityas “Say on Pay”) approved the compensation of Aimco’s named executive officers (NEOs) as disclosed in the 2020 proxy statement. The AIR Compensation and Human Resources Committee (the “AIR Committee”) and AIR’s management remain committed to fund necessary capital expenditures on our communities depends on, among other things, our abilityextensive engagement with stockholders as part of ongoing efforts to generate net operating income in excess of required debt payments. If we are unableformulate and implement an executive compensation program designed to fund capital expenditures on our communities, we may not be able to preservealign the competitivenesslong-term interests of our communities, which could adversely affect their net operating incomeexecutive officers with those of our stockholders.
In the summer and long-term value.fall of 2020, Aimco engaged with stockholders representing approximately 73% of Aimco’s Class A Common Stock (“Aimco’s Common Stock”) outstanding as of September 30, 2020. Although Aimco’s second outreach in 2020 was primarily focused on soliciting stockholder feedback on the Separation, Aimco also held discussions with some stockholders about its executive compensation program in the wake of the COVID-19 pandemic.
7The following chart summarizes the collective feedback we received, and actions we have taken in response.
Stockholder Feedback | Action Taken | |
Overall Program. The Company continued to receive broad support from stockholders on the structure of its executive compensation program, the program’s alignment of pay and performance, and the quantum of compensation delivered under the program. | Based on the broad support received from stockholders, the Company made no changes to the structure of the program in 2020. | |
Disclosure. Stockholders appreciated the thorough disclosure and encouraged Aimco to continue the same level of disclosure. A few stockholders requested that Aimco provide disclosure on performance for “in progress” LTI awards. One stockholder requested that Aimco provide disclosure of valuation information for current year LTI awards (e.g., valuation for 2020 LTI awards in the 2020 Proxy Statement). | The Company has added a chart disclosing performance as of year-end for “in progress” LTI awards as well as performance results for LTI awards for the three most recently completed performance periods. The Company has added disclosure of valuation information for current year LTI awards. | |
STI Plan. Stockholders are broadly pleased with the STI plan goals and disclosure of results. | Given that the Company’s STI goals are directly aligned with the Company’s five areas of strategic focus that drive long-term value creation, and have received broad support from stockholders, the Company did not make changes to the structure of its STI goals in 2020. | |
LTI Plan. The Company’s three-year, forward looking plan measured upon relative TSR continued to receive broad support from stockholders. Most stockholders maintained that relative TSR should be the only LTI metric. However, a few stockholders encouraged the Company to consider adding a non-TSR based metric to its LTI plan with the rationale that relative TSR is not the best indicator of management effectiveness, day-to-day operational performance, or capital allocation effectiveness. | The Compensation Committee has reviewed the structure of the Company’s LTI plan and has discussed whether to add a metric to the Company’s LTI plan. Given that the Company’s LTI plan received broad support from stockholders, the Company did not make changes to the general structure of its LTI plan in 2020. The Company will continue its review and evaluation of the LTI plan structure, as well as its ongoing dialogue with stockholders on LTI plan structure and metrics and other compensation matters. | |
Impact of COVID-19 on Compensation Plans. Like many other companies, Aimco had finalized its 2020 executive compensation plan prior to the onset of the COVID-19 pandemic. STI goals were set, and LTI awards were granted, in late January 2020. The pandemic rendered moot two of the Company’s six 2020 STI goals. The Company had extensive conversations with stockholders, compensation consultants, proxy commentators, and outside counsel. Each of these constituencies stated they expected compensation committees to exercise discretion with respect to 2020 STI plans and, provided the discretionary adjustments were reasonable and disclosed thoroughly, companies should not expect a negative Say on Pay vote. These same constituencies advised that “above target” payouts where discretion is applied and/or metrics are changed from the plan established at the beginning of the year would be heavily scrutinized, especially where there is a pay and performance misalignment. They also encouraged the Company to leave its LTI plan intact and not cancel and re-issue awards, or grant new awards, as a result of the pandemic. Finally, these constituencies stated they would view any changes made to executive compensation programs with an eye toward whether the Company laid off, furloughed, or cut pay below the executive level. | As described in detail in this CD&A, the Company carefully considered the advice of stockholders, compensation consultants, proxy commentators, and outside counsel, and its actions with respect to the 2020 executive compensation program are consistent with the advice of each of these constituencies. The Company’s business of providing homes is essential, and the Company remained open, serving residents, throughout the pandemic. The Company made a commitment to its entire team at the onset of the pandemic, that: any teammate who felt unsafe at work because of the virus was free to stay home, with pay and without penalty; the Company would cover all costs related to COVID-19 testing and treatment; and the team would remain intact, without layoffs or pay cuts. The Company’s commitment to its team is reflected in its highest ever recorded team engagement scores: 4.5 out of 5 for site teams, and 4.42 out of 5 for the entire Company, in 2020. The Company replaced the two 2020 STI goals rendered moot by the pandemic with a goal consisting of the Company’s response to the pandemic. Despite outperformance on the four original goals that remained intact, the Company capped overall STI goal performance at target. The Company made no changes to its 2020 LTI or prior year outstanding awards nor did it grant any new awards following the onset of the pandemic. Mr. Considine’s 2020 compensation, despite spearheading and leading the Company through the Separation and thereby unlocking $1B in stockholder value, was capped at target and he received no additional compensation related to the Separation (as described below). | |
Post Separation Compensation. Some stockholders expressed the view that the Separation should not serve to increase total compensation across AIR and Aimco. | Specifically with Mr. Considine, the AIR Compensation and Human Resources Committee has determined that Mr. Considine’s total target compensation for 2021, whether from AIR or Aimco will be the same as his total target compensation at Aimco in 2020. Similarly, the Company determined that target compensation for the other NEOs would remain consistent with 2020, other than for Mr. Wagner who took on a substantially new role. The Company paid Separation-related bonuses to the NEOs. The Committee recognized Mr. Considine’s tremendous leadership in conceiving, structuring, guiding, and executing the Separation. The Committee evaluated whether and what type of additional compensation to award Mr. Considine to recognize his work. After consideration, Mr. Considine proposed that he forego any financial compensation tied directly to the value creation of the Separation in order to make clear that the purpose – and result – of the Separation was its creation of stockholder value. The Committee agreed and accepted the proposal. |
Overview of ContentsPay-for-Performance Philosophy and 2020 Performance Results
Our abilityAimco, and following the Separation, AIR, is a pay-for-performance organization. Aimco starts by setting target total compensation near the median of target total compensation for its peers as identified on page 24, both as a measure of fairness and also to make paymentsprovide an economic incentive to our investors dependsremain with the Company. Actual compensation varies from target compensation based on our abilitythe Company’s results. Each officer’s annual cash incentive compensation, “short term incentive” or STI, is based in part on the Company’s performance against corporate, rather than personal, goals. The more senior the officer, the greater the percentage of his or her STI that is based on the Company’s performance against its corporate goals. Longer term compensation, “long term incentive” or LTI, follows a similar tiered structure. Each officer’s LTI is based in part on the Company’s “total stockholder return” or TSR, relative to generate net operating incomeits peers, with executive officers having a greater share of their LTI based on relative TSR. In the case of Mr. Considine, his entire LTI award is “at risk” based on the Company’s relative TSR. LTI is measured and vests over time, typically a period of four years, so that officers bear longer term exposure to the decisions they make.
To reinforce alignment of stockholder and management interests, the Company also has stock ownership guidelines that require substantial equity holdings by executive officers, as described further on page 36.
Consummation of Separation of AIR and Aimco, unlocking $1 billion of stockholder value. The TSR of the combined companies outperformed the six large apartment REITs comprising the Company’s multi-family peer group by more than 1,900 basis points from the announcement of the Separation in excessSeptember 2020 through December 31, 2020. On the same combined basis, TSR was the best of required debt paymentsthe coastal apartment REITs for the past one, two, three, and five years. Coastal apartment REIT peers consist of Avalon Bay Communities, Inc., Essex Property Trust, Equity Residential, and UDR, Inc., which offer greater comparability in geographic markets and average rent levels. Multi-family peers include the coastal apartment REIT peers and also include Camden Property Trust and Mid-America Apartment Communities.
Aimco produced solid results across all five areas of strategic focus that provide the foundation for the long-term sustainable profitability we seek for the stockholder capital expenditure requirements. Our net operating income and liquidity may be adversely affected by events or conditions beyond our control, including:entrusted to Aimco.
2020 AREAS OF STRATEGIC FOCUS |
Operations | Drive rent growth based on high levels of resident retention through superior customer selection and satisfaction, coupled with disciplined innovation resulting in sustained cost control, to maximize NOI margins. |
Redevelopment and Development | Create value and maximize earnings potential by the renovation and repositioning of apartment communities through small phase and major redevelopments. |
Portfolio Management/Capital Allocation | Maintain an apartment portfolio diversified by geography and price point with a focus on properties with high land value located in submarkets with outsized future growth prospects. Invest in properties where we expect the appreciation of land to create opportunities for profitable redevelopment. |
Balance Sheet | Use safe property debt that is low-cost, long-dated, amortizing, and non-recourse, limiting entity and refunding risk while maintaining asset flexibility. |
Team | Focus intentionally on a collaborative and productive culture based on respect for others and personal responsibility, reinforced by a preference for promotion from within based on talent development and succession planning to produce a strong, stable team that is the enduring foundation of the Company’s success. |
Highlights for 2020 in the Company’s five areas of strategic focus included the following:
WHAT THE BELOW CHARTS SHOW IS THAT OUR REVENUE IS MORE RESILIENT THAN OUR COSTAL PEERS AND OUR NOI MARGINS ARE BETTER THAN ALL OF OUR PEERS. | COVID-19 RESPONSE: ✓Supported residents sheltering in place and met the needs of those who reported positive for infection by COVID-19 ✓Redeployed construction supervisors to support property service teams ✓Redeployed dozens of office workers to join shared service center team to hold thousands of structured conversations with residents, helping each plan his or her personal adjustment to the crisis, including offering financial advice, tips on job searches, help with errands, ideas about how to find a roommate, establishing payment plans where appropriate, and even, in a few difficult cases, providing money for groceries ✓Used previous investment in technology and artificial intelligence to adapt to new conditions of social distancing and sheltering at home ✓As crisis approached, formed cross-functional Committee that met daily regarding work redesign and team safety ✓Made commitment that any teammate who felt unsafe at work was free to stay home, with pay and without penalty ✓Paid 100% of costs related to COVID-19 testing and treatment ✓Committed to keep full team intact, without layoffs or pay cuts ✓Increased regular communications and transparency, providing steady flow of written, oral, and video reports to entire team ✓Provided free use of furnished apartments to health care providers at our apartment communities on the Anschutz Medical Campus; near Boulder Community Health; and near Newark University Hospital |
PEER LEADING NOI MARGIN (2020) COSTAL PEER LEADING SAME STORE REVENUE GROWTH (2020) SAME STORE REVENUE GROWTH EXCEEDS MOST PEERS (2020) | |
➣10 YEAR REVENUE CAGR: 3.4% ➣10 YEAR COE CAGR: -0.1% | |
SUPERIOR CUSTOMER SATISFACTION |
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| REDEVELOPMENT AND DEVELOPMENT*
✓Completed ground-up construction of Parc Mosaic in Boulder, CO. Completed lease-up of community at rental rates consistent with underwriting. ✓Completed construction on the redevelopment of 707 Leahy in Redwood City, CA, and on the ground-up development of The Fremont on the Anschutz Medical Campus in Aurora, CO ✓Construction nearly complete at Prism in Cambridge, MA ✓At the North Tower of Flamingo Point in Miami Beach, FL, the major redevelopment continues with a target to complete construction in 2022 *This is no longer an AIR strategy but was relevant for Aimco in 2020. | PORTFOLIO MANAGEMENT/ CAPITAL ALLOCATION ✓During 3Q 2020, we sold a 39% interest in a $2.4 billion portfolio of California properties, enabling a $1 billion reduction in proportionate financial leverage ✓Sold two lesser rated properties during the | BALANCE SHEET/ LIQUIDITY ✓During 3Q 2020, we sold a 39% interest in a $2.4 billion portfolio of California properties, enabling a $1 billion reduction in proportionate financial leverage ✓Post Separation, at year end, AIR had $44 million of cash on hand and had the capacity to borrow up to $311 million on our revolving credit facility |
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TEAM Record 4.42 (out of 5 stars) in 2020 | Recognized again in 2020 as a |
One of only six companies to be recognized for each of the past eightyears.
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Competition could limit our ability to lease apartment homes or increase or maintain rents.
Our apartment communities compete for residents with other housing alternatives, including other rental apartments and condominiums, and, to a lesser degree, single-family homes that are available for rent, as well as new and existing condominiums and single-family homes for sale. Competitive residential housing, as well as household formation and job creation in a particular area, could adversely affect our ability to lease apartment homes and to increase or maintain rental rates.
Because real estate investments are relatively illiquid, we may not be able to sell apartment communities when appropriate.
Real estate investments are relatively illiquid and generally cannot be sold quickly. REIT tax rules also restrict our ability to sell apartment communities. Thus, we may not be able to change our portfolio promptly in response to changes in economic or other market conditions. Our ability to dispose of apartment communities in the future will depend on prevailing economic and market conditions, including the cost and availability of financing. This could have a material adverse effect on our financial condition or results of operations.
If we are not successful in our acquisition of apartment communities, our results of operations could be adversely affected.
The selective acquisition of apartment communities is a component of our strategy. However, we may not be able to complete transactions successfully in the future. Although we seek to acquire apartment communities when such acquisitions increase our FCF internal rates of return and are accretive to NAV, such transactions may fail to perform in accordance with our expectations. In particular, following acquisition, the value and operational performance of an apartment community may be diminished if obsolescence or neighborhood changes occur before we are able to redevelop or sell the apartment community. This could have an adverse effect on our financial condition or results of operations.
Potential liability or other expenditures associated with potential environmental contamination may be costly.
Various federal, state, and local laws subject apartment community owners or operators to liability for management, and the costs of removal or remediation, of certain potentially hazardous materials that may be present in the land or buildings of an apartment community. Potentially hazardous materials may include polychlorinated biphenyls, petroleum-based fuels, lead-based paint, or asbestos, among other materials. Such laws often impose liability without regard to fault or whether the owner or operator knew of, or was responsible for, the presence of such materials. The presence of, or the failure to manage or remediate properly, these materials may adversely affect occupancy at such apartment communities as well as the ability to sell or finance such apartment communities. In addition, governmental agencies may bring claims for costs associated with investigation and remediation actions, damages to natural resources and for potential fines or penalties in connection with such damage or with respect to the improper management of hazardous materials. Moreover, private plaintiffs may potentially make claims for investigation and remediation costs they incur or personal injury, disease, disability, or other infirmities related to the alleged presence of hazardous materials at an apartment community. In addition to potential environmental liabilities or costs associated with our current apartment communities, we may also be responsible for such liabilities or costs associated with communities we acquire or manage in the future, or apartment communities we no longer own or operate.
Laws benefiting disabled persons may result in our incurrence of unanticipated expenses.
Under the Americans with Disabilities Act of 1990, or ADA, all places intended to be used by the public are required to meet certain federal requirements related to access and use by disabled persons. The Fair Housing Amendments Act of 1988, or FHAA, requires apartment communities first occupied after March 13, 1991, to comply with design and construction
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requirements for disabled access. For those apartment communities receiving federal funds, the Rehabilitation Act of 1973 also has requirements regarding disabled access. These and other federal, state, and local laws may require structural modifications to our apartment communities or changes in policy/practice, or affect renovations of the communities. Noncompliance with these laws could result in the imposition of fines or an award of damages to private litigants and also could result in an order to correct any non-complying feature, which could result in substantial capital expenditures. Although we believe that our apartment communities are substantially in compliance with present requirements, we may incur unanticipated expenses to comply with the ADA, the FHAA, and the Rehabilitation Act of 1973 in connection with the ongoing operation or redevelopment of our apartment communities.
Moisture infiltration and resulting mold remediation may be costly.
Although we are proactively engaged in managing moisture intrusion and preventing the presence of mold at our apartment communities, it is not unusual for periodic moisture intrusion to cause mold in isolated locations within an apartment community. We have implemented policies, procedures, and training, and include a detailed moisture intrusion and mold assessment during acquisition due diligence. We believe these measures will manage mold exposure at our apartment communities and will minimize the effects that mold may have on our residents. To date, we have not incurred any material costs or liabilities relating to claims of mold exposure or to abate mold conditions. We have only limited insurance coverage for property damage claims arising from the presence of mold and for personal injury claims related to mold exposure.
Although we are insured for certain risks, the cost of insurance, increased claims activity, or losses resulting from casualty events may affect our operating results and financial condition.
We are insured for a portion of our consolidated apartment communities’ exposure to casualty losses resulting from fire, earthquake, hurricane, tornado, flood, and other perils, which insurance is subject to deductibles and self-insurance retention. We recognize casualty losses or gains based on the net book value of the affected apartment community and the amount of any related insurance proceeds. In many instances, the actual cost to repair or replace the apartment community may exceed its net book value and any insurance proceeds. We recognize the uninsured portion of losses as casualty losses in the periods in which they are incurred. In addition, we are self-insured for a portion of our exposure to third-party claims related to our employee health insurance plans, workers’ compensation coverage, and general liability exposure. With respect to our exposure to claims of third parties, we establish reserves at levels that reflect our known and estimated losses. The ultimate cost of losses and the impact of unforeseen events may vary materially from recorded reserves, and variances may adversely affect our operating results and financial condition. We purchase insurance to reduce our exposure to losses and limit our financial losses on large individual risks. The availability and cost of insurance are determined by market conditions outside our control. No assurance can be made that we will be able to obtain and maintain insurance at the same levels and on the same terms as we do today. If we are not able to obtain or maintain insurance in amounts we consider appropriate for our business, or if the cost of obtaining such insurance increases materially, we may have to retain a larger portion of the potential loss associated with our exposures to risks.
Natural disasters and severe weather may affect our operating results and financial condition.
Natural disasters such as earthquakes and severe weather such as hurricanes may result in significant damage to our apartment communities. The extent of our casualty losses and loss in operating income in connection with such events is a function of the severity of the event and the total amount of exposure in the affected area. When we have geographic concentration of exposures, a single catastrophe (such as an earthquake) or destructive weather event (such as a hurricane) affecting a region may have a significant adverse effect on our financial condition and results of operations. We cannot accurately predict natural disasters or severe weather, or the number and type of such events that will affect us. As a result, our operating and financial results may vary significantly from one period to the next. Although we anticipate and plan for losses, there can be no assurance that our financial results will not be adversely affected by our exposure to losses arising from natural disasters or severe weather in the future that exceed our previous experience and assumptions.
We depend on our senior management.
Our success depends upon the retention of our senior management, including Terry Considine, our chief executive officer. We have a succession planning and talent development process that is designed to identify potential replacements and develop our team members to provide depth in the organization and a bench of talent on which to draw. However, there are no assurances that we would be able to find qualified replacements for the individuals who make up our senior management if their services were no longer available. The loss of services of one or more members of our senior management team could have a material adverse effect on our business, financial condition and results of operations. We do not currently maintain key-man life insurance for any of our employees.
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Our business and operations would suffer in the event of significant disruptions or cyber attacks of our information technology systems or our failure to comply with laws, rules and regulations related to privacy and data protection.
Information technology, communication networks, and related systems are essential to the operation of our business. We use these systems to manage our resident and vendor relationships, internal communications, accounting and record-keeping systems, and many other key aspects of our business. Our operations rely on the secure processing, storage, and transmission of confidential and other information in our computer systems and networks, which also depend on the strength of our procedures and the effectiveness of our internal controls. Information security risks have generally increased in recent years due to the rise in new technologies and the increased sophistication and activities of perpetrators of cyber attacks.
Despite system redundancy, risk transfer, insurance, indemnification, the implementation of security measures, required employee awareness training, and the existence of a disaster recovery plan for our internal information technology systems, our systems and systems maintained by third party vendors with which we do business are vulnerable to damage from any number of sources. We face risks associated with energy blackouts, natural disasters, terrorism, war, telecommunication failures, and cyber attacks and intrusions, such as computer viruses, malware, attachments to e-mails, intrusion, and unauthorized access, including from persons inside our organization or from persons outside our organization with access to our systems. We may also incur additional costs to remedy damages caused by such disruptions. Although we make efforts to maintain the security and integrity of our systems and have implemented various measures to manage the risk of a security breach or disruption, there can be no assurance that our security efforts and measures will be effective or that attempted security breaches or disruptions would not be successful or damaging. Any compromise of our security could also result in a violation of applicable privacy and other laws, significant legal and financial exposure, damage to our reputation, loss or misuse of the information (which may be confidential, proprietary, and/or commercially sensitive in nature), and a loss of confidence in our security measures, which could harm our business.
We also are subject to laws, rules, and regulations in the United States, such as the California Consumer Protection Act, or CCPA (which will become effective on January 1, 2020), relating to the collection, use, and security of employee and other data. Evolving compliance and operational requirements under the CCPA and the privacy laws of other jurisdictions in which we operate impose significant costs that are likely to increase over time. Our failure to comply with laws, rules, and regulations related to privacy and data protection could harm our business or reputation.
Risks Related to Our Indebtedness and Financing
Our existing and future debt financing could result in foreclosure of our apartment communities, prevent us from making distributions on our equity, or otherwise adversely affect our liquidity.
We are subject to the risk that our cash flow from operations will be insufficient to make required payments of principal and interest, and the risk that existing indebtedness may not be refinanced or that the terms of any refinancing will not be as favorable as the terms of existing indebtedness. If we fail to make required payments of principal and interest on our non-recourse debt, our lenders could foreclose on the apartment communities and other collateral securing such debt, which would result in the loss to us of income and asset value. As of December 31, 2019, the majority of our apartment communities were encumbered by debt. Our organizational documents do not limit the amount of debt that we may incur, and we have significant amounts of debt outstanding. Payments of principal and interest may leave us with insufficient cash resources to operate our communities or pay distributions required to be paid in order to maintain Aimco’s qualification as a REIT.
Disruptions in the financial markets could affect our ability to obtain financing and the cost of available financing and could adversely affect our liquidity.
Our ability to obtain financing and the cost of such financing depends on the overall condition of the United States credit markets. During periods of economic uncertainty the United States credit markets may experience significant liquidity disruptions, which may cause the spreads on debt financings to widen considerably and make obtaining financing, both non-recourse property debt and corporate borrowings such as those under our revolving credit agreement, more difficult. In particular, apartment borrowers have benefited from the historic willingness of Federal National Mortgage Association, or Fannie Mae, and the Federal Home Loan Mortgage Corporation, or Freddie Mac, to make substantial amounts of loans secured by multi-family properties, even in times of economic distress. These two lenders are federally chartered and subject to federal regulation, which is subject to change, making uncertain their prospects and ability to provide liquidity in a future downturn.
If our ability to obtain financing is adversely affected, we may be unable to satisfy scheduled maturities on existing financing through other sources of liquidity, which could result in lender foreclosure on the apartment communities securing such debt and loss of income and asset value, both of which would adversely affect our liquidity.
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Increases in interest rates would increase our interest expense and reduce our profitability.
As of December 31, 2019, we had approximately $445.1 million of variable-rate indebtedness outstanding. We estimate that an increase or decrease in 30-day LIBOR of 100 basis points with constant credit risk spreads would increase or reduce interest expense by approximately $4.5 million on an annual basis.
As of December 31, 2019, we had approximately $177.7 million in cash and cash equivalents and restricted cash, a portion of which bear interest at variable rates indexed to LIBOR-based rates, which may partially mitigate the effect of an increase in variable rates on our variable-rate indebtedness discussed above.
The potential phasing out of LIBOR after 2021 may affect our financial results.
In July 2017, the Financial Conduct Authority, which regulates LIBOR, announced it intends to stop compelling banks to submit rates for the calculation of LIBOR after 2021. In 2018, the Alternative Reference Rates Committee identified the Secured Overnight Financing Rate, or SOFR, as the alternative to LIBOR. Whether or not SOFR attains market traction as a LIBOR replacement remains a question, and the future of LIBOR at this time is uncertain. At this time, it is not possible to predict the effect of any such changes, any establishment of alternative reference rates or any other reforms to LIBOR that may be enacted in the United Kingdom or elsewhere. Due to the broad use of LIBOR as a reference rate, all financial market participants, including us, are impacted by the risks associated with this transition. Any of these proposals or consequences could have a material adverse effect on our financing costs, and as a result, our financial condition, operating results, and cash flows.
Covenant restrictions may limit our ability to make payments to our investors.
Some of our debt and other securities contain covenants that restrict our ability to make distributions or other payments to our investors unless certain financial tests or other criteria are satisfied. Our revolving credit agreement provides, among other things, that we may not make distributions to our investors during any four consecutive fiscal quarters in an aggregate amount greater than 95% of our Nareit FFO for such period, subject to certain non-cash adjustments, or such amount as may be necessary to maintain Aimco’s REIT status. Our outstanding preferred units prohibit the payment of dividends on our Common Stock or common partnership units if we fail to pay the dividends to which the holders of the preferred units are entitled.
Risks Related to Aimco’s Corporate Structure
The Aimco Operating Partnership and its subsidiaries may be prohibited from making distributions and other payments.
All of Aimco’s apartment communities are owned, and all of Aimco’s operations are conducted, by the Aimco Operating Partnership. Further, many of the Aimco Operating Partnership’s apartment communities are owned by subsidiaries of the Aimco Operating Partnership. As a result, Aimco depends on distributions and other payments from the Aimco Operating Partnership, and the Aimco Operating Partnership depends on distributions and payments from its subsidiaries in order to satisfy our financial obligations and make payments to our investors. The ability of the Aimco Operating Partnership and its subsidiaries to make such distributions and other payments depends on their earnings and cash flows and may be subject to statutory or contractual limitations. As an equity investor in the Aimco Operating Partnership and its subsidiaries, our right to receive assets upon their liquidation or reorganization will be effectively subordinated to the claims of their creditors. To the extent that we are recognized as a creditor of such subsidiaries, our claims may still be subordinate to any security interest in or other lien on their assets and to any of their debt or other obligations that are senior to our claims.
Limits on ownership of shares specified in Aimco’s charter may result in the loss of economic and voting rights by purchasers that violate those limits.
Aimco’s charter limits ownership of Common Stock by any single stockholder (applying certain “beneficial ownership” rules under the federal securities laws) to 8.7% (or up to 12.0% upon a waiver from Aimco’s Board of Directors) of outstanding shares of Common Stock, or 15% in the case of certain pension trusts, registered investment companies and Mr. Considine (or up to 20.0% for such pension trusts or registered investment companies upon a waiver from Aimco’s Board of Directors). Aimco’s charter also limits ownership of Aimco’s Common Stock and preferred stock by any single stockholder to 8.7% of the value of the outstanding Common Stock and preferred stock, or 15% in the case of certain pension trusts, registered investment companies, and Mr. Considine. The charter also prohibits anyone from buying shares of Aimco’s capital stock if the purchase would result in Aimco losing its REIT status. This could happen if a transaction results in fewer than 100 persons owning all of Aimco’s shares of capital stock or results in five or fewer persons (applying certain attribution rules of the Code) owning 50% or more of the value of all of Aimco’s shares of capital stock. If anyone acquires shares in excess of the ownership limit or in violation of the ownership requirements of the Code for REITs:
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Aimco may purchase the shares of capital stock held in trust at a price equal to the lesser of the price paid by the transferee of the shares or the then current market price. If the trust transfers any of the shares of capital stock, the affected person will receive the lesser of the price paid for the shares or the then current market price. An individual who acquires shares of capital stock that violate the above rules bears the risk that the individual:
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Aimco’s charter may limit the abilitysuccess in its five areas of a third-party to acquire control of Aimco.
The 8.7% and other ownership limits discussed above may have the effect of delaying or precluding acquisition by a third-party of control of Aimco without the consent of Aimco’s Board of Directors. Aimco’s charter authorizes its Board of Directors to issue up to 510,587,500 shares of capital stock. As of December 31, 2019, 500,787,260 shares were classified as Common Stock, of which 148,885,197 were outstanding, and 9,800,240 shares were classified as preferred stock of which no shares were outstanding. Under Aimco’s charter, its Board of Directorsstrategic focus has the authority to classify and reclassify any of Aimco’s unissued shares of capital stock into shares of capital stock with such preferences, conversion or other rights, voting power restrictions, limitations as to dividends, qualifications, or terms or conditions of redemptions as the Board of Directors may determine. The authorization and issuance of a new class of capital stock could have the effect of delaying or preventing someone from taking control of Aimco, where there is a difference of opinion between the Aimco Board of Directors and others as to what is in Aimco’s stockholders’ best interests.
The Maryland General Corporation Law may limit the ability of a third-party to acquire control of Aimco.
As a Maryland corporation, Aimco is subject to various Maryland laws that may have the effect of discouraging offers to acquire Aimco and increasing the difficulty of consummating any such offers, where there is a difference of opinion between the Aimco Board of Directors and others as to what is in Aimco’s stockholders’ best interests. The Maryland General Corporation Law, specifically the Maryland Business Combination Act, restricts mergers and other business combination transactions between Aimco and any person who acquires, directly or indirectly, beneficial ownership of shares of Aimco’s stock representing 10% or more of the voting power without Aimco’s Board of Directors’ prior approval. Any such business combination transaction could not be completed until five years after the person acquired such voting power, and generally only with the approval of stockholders representing 80% of all votes entitled to be cast and 66-2/3% of the votes entitled to be cast, excluding the interested stockholder, or upon payment of a fair price. The Maryland General Corporation Law, specifically the Maryland Control Share Acquisition Act, provides generally that a person who acquires shares of Aimco’s capital stock representing 10% or more of the voting power in electing directors will have no voting rights unless approved by a vote of two-thirds of the shares eligible to vote. Additionally, the Maryland General Corporation Law provides, among other things, that the Board of Directors has broad discretion in adopting stockholders’ rights plans and has the sole power to fix the record date, time, and place for special meetings of the stockholders. To date, Aimco has not adopted a stockholders’ rights plan. In addition, the Maryland General Corporation Law provides that a corporation that:
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To date, Aimco has not made any of the elections described above.
Risks Related to Tax Laws and Regulations
Aimco may fail to qualify as a REIT.
If Aimco fails to qualify as a REIT, Aimco will not be allowed a deduction for dividends paid to its stockholders in computing its taxable income, and will be subject to United States federal income tax at regular corporate rates. This would substantially reduce our funds available for distribution to our investors. Unless entitled to relief under certain provisions of the Code, Aimco also would be disqualified from taxation as a REIT for the four taxable years following the year during which it ceased to qualify as a REIT. In addition, Aimco’s failure to qualify as a REIT would place us in default under our revolving credit agreement.
We believe that Aimco operates, and has since its taxable year ended December 31, 1994, operated, in a manner that enables it to meet the requirements for qualification as a REIT for United States federal income tax purposes. However, qualification as a REIT involves the application of highly technical and complex Code provisions for which only limited judicial and administrative authorities exist. Moreover, even a technical or inadvertent mistake could jeopardize our REIT status. Aimco’s continued qualification as a REIT will depend on its satisfaction of certain asset, income, investment, organizational, distribution, stockholder ownership, and other requirements on a continuing basis. Aimco’s ability to satisfy the asset tests depends upon our analysis of the fair market values of our assets, some of which are not susceptible to a precise determination, and for which we do not obtain independent appraisals. Aimco’s compliance with the REIT annual income and quarterly asset requirements also depends upon our ability to manage successfully the composition of our income and assets on an ongoing basis. Moreover, the proper classification of an instrument as debt or equity for United States federal income tax purposes may be uncertain in some circumstances, which could affect the application of the REIT qualification requirements. Accordingly, there can be no assurance that the Internal Revenue Service, or the IRS, will not contend that our interests in subsidiaries or other issuers constitutes a violation of the REIT requirements. Moreover, future economic, market, legal, tax, or other considerations may cause Aimco to fail to qualify as a REIT, or Aimco’s Board of Directors may determine to revoke its REIT status.
REIT distribution requirements limit our available cash.
As a REIT, Aimco is subject to annual distribution requirements. The Aimco Operating Partnership pays distributions intended to enable Aimco to satisfy its distribution requirements. This limits the amount of cash available for other business purposes, including amounts to fund our growth. Aimco generally must distribute annually at least 90% of its REIT taxable income, determined without regard to the dividends paid deduction and excluding any net capital gain, in order for its distributed earnings not to be subject to United States federal corporate income tax. We intend to make distributions to Aimco’s stockholders to comply with the requirements of the Code. However, differences in timing between the recognition of taxable income and the actual receipt of cash could require us to sell apartment communities or borrow funds on a short-term orproduced superior long-term basis to meet the 90% distribution requirement of the Code.
Aimco may be subject to federal and state income taxes, in certain circumstances.
Even if Aimco qualifies as a REIT, Aimco may be subject to United States federal income and excise taxes in various situations, such as on its undistributed income. Aimco could also be required to pay a 100% tax on any net income on non-arm’s length transactions between Aimco and a taxable REIT subsidiary and on any net income from sales of apartment communities that were held for sale primarily in the ordinary course. State and local tax laws may not conform to the United States federal income tax treatment, and Aimco may be subject to state or local taxation in various state or local jurisdictions in which Aimco transacts business. Any taxes imposed on Aimco would reduce our operating cash flow and net income and could negatively impact our ability to pay dividends and distributions.
Dividends payable by REITs do not qualify for the reduced tax rates available for some dividends.
REITs are entitled to a United States federal tax deduction for dividends paid to their stockholders. As compared to other taxable corporations, this ability to reduce or eliminate the REIT’s taxable income by paying dividends to stockholders is a principal benefit of maintaining REIT status, generally resulting in a lower combined tax liability of the REIT and its
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stockholders as compared to that of the combined tax liability of other taxable corporations and their stockholders. Notwithstanding this combined benefit, dividends payable by REITs may result in marginally higher taxes to the stockholder.
C-corporations are generally required to pay United States federal income tax on earnings. After tax earnings are then available for stockholder dividends. The maximum United States federal tax rate applicable to income from “qualified dividends” payable to United States stockholders that are individuals, trusts, and estates is currently 20%, plus the 3.8% investment tax surcharge. While dividends payable by REITs are generally not eligible for the qualified dividend reduced rates, stockholders that are individuals, trusts, or estates may deduct 20% of the aggregate amount of ordinary dividends from REITs. This deduction is available for taxable years beginning after December 31, 2017, and before January 1, 2026, and will generally cause the maximum tax rate for ordinary dividends from REITs to be 29.6%, plus the 3.8% investment tax surcharge. The more favorable tax rates applicable to regular corporate qualified dividends could cause investors who are individuals, trusts, and estates to perceive investments in REITs to be relatively less attractive than investments in the shares of non-REIT corporates that pay dividends, which could adversely affect the value of the shares of REITs, including Aimco Common Stock.
Complying with the REIT requirements may cause Aimco to forgo otherwise attractive business opportunities.
To qualify as a REIT for United States federal income tax purposes, Aimco must continually satisfy tests concerning, among other things, the sources of its income, the nature and diversification of its assets, the amounts distributed to Aimco stockholders, and the ownership of Aimco stock. As a result of these tests, Aimco may be required to make distributions to stockholders at disadvantageous times or when Aimco does not have funds readily available for distribution, forgo otherwise attractive investment opportunities, liquidate assets in adverse market conditions, or contribute assets to a TRS that is subject to regular corporate federal income tax.
Changes to United States federal income tax laws could materially and adversely affect Aimco and Aimco’s stockholders.
The present United States federal income tax treatment of REITs may be modified, possibly with retroactive effect, by legislative, judicial, or administrative action at any time, which could affect the United States federal income tax treatment of an investment in Aimco Common Stock. The United States federal income tax rules dealing with REITs constantly are under review by persons involved in the legislative process, the IRS, and the United States Treasury Department, which results in statutory changes as well as frequent revisions to regulations and interpretations. We cannot predict how changes in the tax laws might affect Aimco or Aimco’s stockholders. Revisions in federal tax laws and interpretations thereof could significantly and negatively affect Aimco’s ability to qualify as a REIT and the tax considerations relevant to an investment in Aimco Common Stock, or could cause Aimco to change its investments and commitments.
Government housing regulations may limit the opportunities at some of our apartment communities and failure to comply with resident qualification requirements may result in financial penalties and/or loss of benefits, such as rental revenues paid by government agencies. Additionally, the government may cease to operate or reduce funding for government housing programs which would result in a loss of benefits from those programs.
We own equity interests in entities that own certain apartment communities that benefit from governmental programs intended to provide housing to people with low or moderate incomes. These programs, which are usually administered by the United States Department of Housing and Urban Development, or HUD, or state housing finance agencies, typically provide one or more of the following: mortgage insurance; favorable financing terms; tax-exempt interest; historic or low-income housing tax credits; or rental assistance payments to the apartment community owners. As a condition of the receipt of assistance under these programs, the apartment communities must comply with various requirements, which typically limit rents to pre-approved amounts and limit our choice of residents to those with incomes at or below certain levels. Failure to comply with these requirements may result in financial penalties or loss of benefits. We are usually required to obtain the approval of HUD in order to acquire or dispose of a significant interest in or manage a HUD-assisted apartment community. We may not always receive such approval.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
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ITEM 2. PROPERTIES
Additional information about our consolidated real estate, including property debt, is contained in “Schedule III - Real Estate and Accumulated Depreciation” in this Annual Report on Form 10-K.
Our portfolio is diversified by both price point and geography and consists of market rate apartment communities in which we own a substantial interest. Our portfolio includes garden style, mid-rise, and high-rise apartment communities located in 17 states and the District of Columbia. Our portfolio strategy seeks predictable rent growth from a portfolio of apartment communities diversified among some of the largest markets in the United States, and that is diversified across “A,” “B,” and “C+” price points, averaging “B/B+” in quality. As of December 31, 2019, our portfolio consisted of roughly one-half “A” quality communities and one-half “B” and “C+” quality communities. Please refer to the Executive Overview section in Item 7 for a description of our portfolio quality ratings. The following table sets forth information on the apartment communities in our portfolio as of December 31, 2019:
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| Average Economic Ownership |
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| Average Quality Rating (1) | |||
Atlanta |
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| 4 |
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| 505 |
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| 100 | % |
| A |
Bay Area |
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| 12 |
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| 2,632 |
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| 100 | % |
| B |
Boston |
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| 15 |
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| 4,689 |
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| 100 | % |
| C+ |
Chicago |
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| 7 |
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| 1,671 |
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| 100 | % |
| B |
Denver |
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| 8 |
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| 2,151 |
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| 98 | % |
| B |
Greater New York |
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| 18 |
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| 1,039 |
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| 100 | % |
| B |
Greater Washington, D.C. |
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| 12 |
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| 5,457 |
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| 100 | % |
| C+ |
Los Angeles |
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| 13 |
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| 4,347 |
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| 100 | % |
| A |
Miami |
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| 5 |
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| 2,448 |
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| 100 | % |
| A |
Philadelphia |
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| 9 |
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| 2,748 |
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| 97 | % |
| A |
San Diego |
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| 12 |
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| 2,423 |
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| 97 | % |
| B |
Seattle |
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| 2 |
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| 239 |
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| 100 | % |
| B |
Other markets |
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| 7 |
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| 2,490 |
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| 99 | % |
| B |
Total portfolio (2) |
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| 124 |
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| 32,839 |
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| 99 | % |
| B/B+ |
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Our consolidated apartment communities contained, on average, 272 apartment homes, with the largest community containing 2,113 apartment homes. These apartment communities offer residents a range of amenities, including resort pools with cabanas, grills, clubhouses, spas, fitness centers, package lockers, dog parks, and large open spaces. Many of the apartment homes offer features such as granite countertops, wood flooring, stainless steel appliances, fireplaces, spacious closets, washer and dryer connections, balconies, and patios.
The majority of our consolidated apartment communities are encumbered by property debt. As of December 31, 2019, apartment communities in our portfolio were encumbered by, in aggregate, $4.3 billion of property debt with a weighted-average interest rate of 3.89% and a weighted-average maturity of 7.5 years. The apartment communities collateralizing this non-recourse property debt have an estimated aggregate fair value of $10.9 billion. As of December 31, 2019, we held unencumbered apartment communities with an estimated fair value of approximately $2.4 billion.
On July 2, 2019, we acquired a 95% interest in 1001 Brickell Bay Drive, a 1.8-acre waterfront parcel in Miami, Florida, currently improved with an office building. 1001 Brickell Bay Drive is excluded from our apartment communities table above.
ITEM 3. LEGAL PROCEEDINGS
As further discussed in Note 6 to the consolidated financial statements in Item 8, we are engaged in discussions with regulatory agencies regarding environmental matters at two apartment communities we, or other entities, previously owned. Although the outcome of these matters is uncertain, we do not expect the resolution to have a material adverse effect on our consolidated financial condition, results of operations, or cash flows.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
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PART II
ITEM 5. MARKET FOR THE REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS, AND ISSUER PURCHASES OF EQUITY SECURITIES
Aimco
Aimco’s Common Stock has been listed and traded on the NYSE under the symbol “AIV” since July 22, 1994.
On February 21, 2020, there were 148,930,402 shares of Common Stock outstanding, held by 815 stockholders of record. The number of holders does not include individuals or entities who beneficially own shares but whose shares are held of record by a broker or clearing agency, but does include each such broker or clearing agency as one record holder.
Unregistered Sales of Equity Securities
From time to time, Aimco may issue shares of 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 common OP Unit. Please refer to Note 8 to the consolidated financial statements in Item 8 for further discussion of such exchanges. Aimco may also issue shares of Common Stock in exchange for limited partnership interests in consolidated real estate partnerships. During the three months ended December 31, 2019, Aimco did not issue any shares of Common Stock in exchange for OP Units or limited partnership interests in consolidated real estate partnerships.
Repurchases of Equity Securities
There were no repurchases by Aimco of its common equity securities during the three months ended December 31, 2019. Aimco’s Board of Directors has, from time to time, authorized Aimco to repurchase shares of its outstanding Common Stock. As of December 31, 2019, Aimco was authorized to repurchase approximately 10.6 million shares. This authorization has no expiration date. These repurchases may be made from time to time in the open market or in privately negotiated transactions.
The Aimco Operating Partnership
Interests in the Aimco Operating Partnership that are held by limited partners other than Aimco are referred to as OP Units. OP Units include common partnership units, which we refer to as common OP Units, as well as partnership preferred units, or preferred OP Units. There is no public market for the Aimco Operating Partnership’s common partnership units, including common OP Units, and we have no intention of listing the common partnership units on any securities exchange. In addition, the Aimco Operating Partnership’s Partnership Agreement restricts the transferability of common partnership units, including common OP Units.
On February 21, 2020, there were 159,442,294 common partnership units and equivalents outstanding (148,930,402 of which were held by Aimco) that were held by 2,394 unitholders of record.
Unregistered Sales of Equity Securities
The Aimco Operating Partnership did not issue any unregistered OP units during the three months ended December 31, 2019.
Repurchases of Equity Securities
The Aimco Operating Partnership’s Partnership Agreement generally provides that after holding common OP Units for one year, limited partners other than Aimco have the right to redeem their common OP Units for cash or, at our election, shares of Aimco Common Stock on a one-for-one basis (subject to customary antidilution adjustments). No common OP Units or preferred OP Units held by Limited Partners were redeemed for shares of Aimco Common Stock during the three months ended December 31, 2019.
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The following table summarizes the Aimco Operating Partnership’s repurchases, or redemptions in exchange for cash, of common OP Units for the three months ended December 31, 2019:
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| Average Price Paid per Unit |
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| Total Number of Units Purchased as Part of Publicly Announced Plans or Programs |
| Maximum Number of Units that May Yet Be Purchased Under Plans or Programs | ||
October 1 - October 31, 2019 |
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| 13,676 |
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| $ | 51.46 |
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| N/A |
| N/A |
November 1 - November 30, 2019 |
|
| 9,575 |
|
|
| 54.32 |
|
| N/A |
| N/A |
December 1 - December 31, 2019 |
|
| 5,484 |
|
|
| 53.62 |
|
| N/A |
| N/A |
Total |
|
| 28,735 |
|
| $ | 52.83 |
|
|
|
|
|
Dividend and Distribution Payments
As a REIT, Aimco is required to distribute annually to holders of its Common Stock at least 90% 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 of Directors determines and declares its dividends. In making a dividend determination, Aimco’s Board of Directors considers a variety of factors, including: REIT distribution requirements; current market conditions; liquidity needs; and other uses of cash, such as for deleveraging and accretive investment activities. Aimco’s Board of Directors targets a dividend payout ratio between 65% and 70% of Adjusted Funds From Operations.
Stockholders receiving such dividend and any future dividend payable in cash and shares of Aimco Common Stock will be required to include the full amount of such dividends as ordinary income to the extent of Aimco’s current and accumulated earnings and profits, as determined for United States federal income tax purposes for the year of such dividends, and may be required to pay income taxes with respect to such dividends in excess of the cash dividends received. With respect to certain non-United States stockholders, Aimco may be required to withhold United States tax with respect to such dividends, including in respect of all or a portion of such dividend that is payable in Common Stock.
The Board of Directors of the Aimco Operating Partnership’s general partner determines and declares distributions on OP Units. Aimco, through wholly-owned subsidiaries, is the general and special limited partner of and, as of December 31, 2019, owned a 94.0% ownership interest in the common partnership units of the Aimco Operating Partnership. The Aimco Operating Partnership holds all of Aimco’s assets and manages the daily operations of Aimco’s business. The distributions paid by the Aimco Operating Partnership to Aimco are used by Aimco to fund the dividends paid to its stockholders. Accordingly, the per share dividends Aimco pays to its stockholders generally equal the per unit distributions paid by the Aimco Operating Partnership to holders of its common partnership units.
Our revolving credit agreement includes customary covenants, including a restriction on dividends and other restricted payments, but permits dividends and distributions during any four consecutive fiscal quarters in an aggregate amount of up to 95% of Aimco’s Funds From Operations for such period, subject to certain non-cash adjustments, or such amount as may be necessary to maintain Aimco’s REIT status.
17
Performance Graph
returns. The following graph compares cumulative total returns for Aimco’s Common Stock, the MSCI US REITNAREIT Apartment Index, the Nareit Equity ApartmentREIT Index, and the Standard & Poor’s 500 Total Return Index, or S&P 500 Index. The MSCI US REIT Index is published by Morgan Stanley Capital International Inc., a provider of equity indices. The Nareit Equity Apartment Index is published by The National Association of Real Estate Investment Trusts, or Nareit, a representative of real estate investment trusts and publicly traded real estate companies with interests in United States real estate and capital markets. The MSCI US REIT Index reflects total shareholder return for a broad range of REITs and the Nareit Equity Apartment Index provides a more direct multifamily peer comparison of total shareholder return. The indices are weighted for all companies that fit the definitional criteria of the particular index and are calculated to exclude companies as they are acquired and to add companies to the index calculation as they become publicly traded companies. All companies that fit the definitional criteria and existed at the point in time presented are included in the index calculations. The graph assumes the investment of $100 in Aimco’s Common Stock and in each index or peer group company on December 31, 2014,2015, and that all dividends paid have been reinvested. The historical information set forth below is not necessarily indicativeFor the period from the Separation through December 31, 2020, this reflects the combined results of future performance.Aimco and AIR.
|
| For the years ended December 31, |
| |||||||||||||||||||||
Index (1) |
| 2014 |
|
| 2015 |
|
| 2016 |
|
| 2017 |
|
| 2018 |
|
| 2019 |
| ||||||
Aimco |
|
| 100.00 |
|
|
| 111.15 |
|
|
| 130.36 |
|
|
| 129.48 |
|
|
| 134.83 |
|
|
| 163.89 |
|
MSCI US REIT Index |
|
| 100.00 |
|
|
| 102.52 |
|
|
| 111.34 |
|
|
| 116.98 |
|
|
| 111.64 |
|
|
| 140.48 |
|
Nareit Equity Apartment Index |
|
| 100.00 |
|
|
| 116.45 |
|
|
| 119.78 |
|
|
| 124.24 |
|
|
| 128.83 |
|
|
| 162.74 |
|
S&P 500 Index |
|
| 100.00 |
|
|
| 101.38 |
|
|
| 113.51 |
|
|
| 138.29 |
|
|
| 132.23 |
|
|
| 173.86 |
|
|
| Period Ending |
| |||
Index | 12/31/15 | 12/31/16 | 12/31/17 | 12/31/18 | 12/31/19 | 12/31/20 |
Aimco (with AIR, post-Separation) | 100.00 | 117.29 | 116.50 | 121.31 | 147.33 | 135.37 |
MSCI US REIT Index (1) | 100.00 | 108.60 | 114.11 | 108.89 | 137.03 | 126.66 |
Nareit Equity Apartment Index (1) | 100.00 | 102.86 | 106.68 | 110.63 | 139.75 | 118.30 |
(1) | Source: S&P Global Market Intelligence © |
Aimco and AIR outperformed the NAREIT Apartment Index and the REIT Index over the five-year period ended December 31, 2020, as shown in the following graph in which total stockholder return is presented as an annualized compounded annual growth rate. The Performance Graph willSeparation created significant value for stockholders. Including the performance of AIR shares distributed to Aimco stockholders, the combined investment outperformed the MSCI US REIT Index by 800 bps and the NAREIT Apartment Index by 1,700 bps on a cumulative basis over the five-year period ended December 31, 2020.
Summary of Executive Compensation Program and Governance Practices
Below we summarize certain executive compensation program and governance practices, including practices Aimco, and following the Separation, AIR, have implemented to drive performance and practices Aimco, and following the Separation, AIR, avoid because we believe they would not be deemedserve our stockholders’ long-term interests.
What AIR Does |
Pays for performance. A significant portion of executive pay is not guaranteed, but rather is at risk and tied to key financial and value creation metrics that are set in advance and disclosed to stockholders. All of the incentive compensation (both STI and LTI) for Mr. Considine is subject to the achievement of various performance objectives. For the other NEOs, all STI compensation, and two-thirds of target LTI compensation (other than with respect to the CIO, who was promoted to an executive officer position in December 2020), is subject to the achievement of various performance objectives. |
Balances short-term and long-term incentives. The incentive programs provide a balance of annual and longer-term incentives, with LTI compensation vesting over multiple years comprising a substantial percentage of target total compensation. |
Uses multiple performance metrics. These mitigate the risk of the undue influence of a single metric by utilizing multiple performance measures. Such measures differ for STI and LTI. |
Caps award payouts. Amounts or shares that can be earned under the STI plan and LTI plan are capped. |
Uses market-based approach for determining NEO target pay. Target total compensation for NEOs is set near the median for peer comparators. The Committee reviews the peer comparator group annually. |
Maintains stock ownership guidelines and holding periods after vesting until ownership guidelines are met. AIR has the following minimum stock ownership requirements: CEO – lesser of five times base salary or 150,000 shares; President and General Counsel and CFO – lesser of five times base salary or 75,000 shares; and other executive officers – lesser of four times base salary or 25,000 shares. All NEOs, with the exception of Mr. Wagner who was promoted in connection with the Separation, meet these requirements. |
Includes double-trigger change in control provisions. Equity awards include “double trigger” provisions requiring both a change in control and a subsequent termination of employment (other than for cause) for accelerated vesting to occur. |
Uses an independent compensation consulting firm. The Committee engages an independent compensation consulting firm that specializes in the REIT and real estate industry. |
Maintains a claw back policy. In the event of a financial restatement resulting from misconduct by an executive, the claw back policy allows the Company to recoup incentive compensation paid to the executive based on the misstated financial information. The policy covers all forms of bonus, incentive, and equity compensation. |
Conducts a risk assessment. The Committee annually conducts a compensation risk assessment to determine whether the compensation policies and practices, or components thereof, create risks that are reasonably likely to have a material adverse effect on the Company. |
Acts through an independent Compensation Committee. The Committee consists entirely of independent directors. |
What AIR Does Not Do |
Guarantee salary increases, bonuses or equity grants. The Company does not guarantee annual salary increases or bonuses. The Company makes no guaranteed commitments to grant equity-based awards. |
Provide excise tax gross-up payments. The Company will not enter into contractual arrangements that include excise tax gross-up payments. |
Reprice options. The Company has never repriced the per-share exercise price of any outstanding stock options. Repricing of stock options is not permitted under the Company’s equity compensation plan without first obtaining approval from the stockholders of the Company. |
Pay dividends or dividend equivalents on unearned performance shares. Performance share award agreements provide for the payment of dividends only if and after the shares are earned. Dividends, if any, accrue during the performance period and are paid once shares are earned. |
Provide more than minimal personal benefits. The Company does not provide executives with more than minimal perquisites, such as reserved parking spaces. |
What We Pay and Why: Components of Executive Compensation
Total compensation for AIR named executive officers is comprised of the following components:
Compensation Component | Form | Purpose | ||
Base Salary | Cash | Provide a salary that is competitive with market. | ||
STI | Cash | Reward executive for achieving short-term business objectives. | ||
LTI | Restricted stock, Long-Term Incentive Plan (“LTIP”) units, and/or stock options, subject to performance and/or time vesting, typically over four years. | Align executive’s compensation with stockholder objectives and provide an incentive to take a longer-term view of AIR’s performance. |
LTI compensation directly ties the interests of executives to the interests of our stockholders, and comprises a substantial proportion of compensation for AIR NEOs, as follows:
CEO 2020 Target Pay Mix | Other NEOs 2020 Target Pay Mix |
CEO Pay Overview
The Committee determines the compensation for the CEO. In setting Mr. Considine’s target total compensation for 2020, the Committee considered, among other things, the peer group compensation data as discussed below and Mr. Considine’s expertise and experience. The Committee devised a compensation plan for Mr. Considine that resulted in approximately 10% base salary, 27% based on Aimco’s performance against its 2020 corporate goals, and 63% based on relative TSR, making more of Mr. Considine’s target compensation tied to TSR than is the case for any of his peers. Mr. Considine’s target compensation mix is illustrated as follows:
How the Committee determines the amount of target total compensation for executive officers
In addition to reviewing the performance of, and determining the compensation for, the CEO, the Committee also reviews the decisions made by the CEO as to the compensation of the other executive officers. Base salary, target STI, and target LTI are generally set near the median base salary, target STI, and target LTI for peer comparators.
How peer comparators are identified
The Committee considered enterprise Gross Asset Value (“GAV”), as reported by Green Street Advisors, to be incorporated by referencean imprecise, but reasonable representation of the complexity of a real estate business and of the responsibilities of its leaders. In addition to GAV, the Committee also reviewed other factors, including gross revenues, number of properties, and number of employees, to determine if these factors provided any additional insight into any filing bythe work and requirements of its leaders. Based on this analysis, Aimco underincluded as “peers” for 2020 compensation the Securities Actfollowing 20 real estate companies:
Peer Group | |
American Campus Communities, Inc. | JBG Smith Properties |
American Homes 4 Rent | Kilroy Realty Corp. |
Brixmor Property Group, Inc. | Kimco Realty |
Camden Property Trust | Liberty Property Trust |
Douglas Emmett, Inc. | Macerich Company |
Duke Realty Corp. | Omega Healthcare Investors |
Equity LifeStyle Properties | Park Hotels & Resorts, Inc. |
Extra Space Storage, Inc. | Regency Centers Corp. |
Federal Realty Investment Trust | Sun Communities, Inc. |
Hudson Pacific Properties, Inc. | Taubman Centers, Inc. |
At the time 2020 compensation targets were established, approximately half of 1933, as amended, orthese real estate companies had a larger GAV, and approximately half of these real estate companies had a smaller GAV, than does the Securities Exchange Act of 1934, as amended, exceptCompany. Due to changes in GAV for AIR and its peers during 2019, American Campus Communities, Inc., Hudson Pacific Properties, Inc., JBG Smith Properties, Omega Healthcare Investors, and Park Hotels & Resorts, Inc. were added to the extent that Aimco specifically incorporates the same by reference.
18
Tablepeer group for 2020 in replacement of ContentsAlexandria Real Estate Equities, HCP, Inc., Mid-America Apartment Communities, SL Green Realty Corp., and UDR, Inc.
ITEM 6. SELECTED FINANCIAL DATAFor Mr. Kimmel, whose position as Executive Vice President, Property Operations, does not have a good benchmark outside of the multi-family industry, Aimco used a multi-family peer group for benchmarking his 2020 compensation, consisting of the following six multi-family real estate companies: AvalonBay Communities, Inc., Camden Property Trust, Essex Property Trust, Equity Residential, Mid-America Apartment Communities, Inc., and UDR, Inc.
24
Risk analysis of compensation programs
The Committee considers risk-related matters when making decisions with respect to executive compensation and has determined that neither Aimco’s or AIR’s executive compensation program nor any of their non-executive compensation programs create risk-taking incentives that are reasonably likely to have a material adverse effect on the organization. Aimco’s and, following selected financial data is based on audited historical financial statementsthe Separation, AIR’s compensation programs align management incentives with the long-term interests of Aimco and the Aimco Operating Partnership, unless otherwise noted. This information should be read in conjunction with such financial statements, including the notes thereto, and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included herein or in previous filings with the Securities and Exchange Commission.AIR, respectively.
(dollar amounts in thousands, except per share data) |
| Years Ended December 31, |
| |||||||||||||||||
|
| 2019 |
|
| 2018 (1) |
|
| 2017 |
|
| 2016 |
|
| 2015 |
| |||||
OPERATING DATA: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
| $ | 914,294 |
|
| $ | 972,410 |
|
| $ | 1,005,437 |
|
| $ | 995,854 |
|
| $ | 981,310 |
|
Net income |
|
| 508,027 |
|
|
| 716,603 |
|
|
| 347,079 |
|
|
| 483,273 |
|
|
| 271,983 |
|
Net income attributable to Aimco/the Aimco Operating Partnership per common share/unit – diluted (2) |
| $ | 3.15 |
|
| $ | 4.34 |
|
| $ | 2.02 |
|
| $ | 2.75 |
|
| $ | 1.56 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE SHEET INFORMATION: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
| $ | 6,828,739 |
|
| $ | 6,190,004 |
|
| $ | 6,079,040 |
|
| $ | 6,232,818 |
|
| $ | 6,118,681 |
|
Total indebtedness |
|
| 4,505,590 |
|
|
| 4,075,665 |
|
|
| 3,861,770 |
|
|
| 3,648,206 |
|
|
| 3,599,648 |
|
Non-recourse property debt of partnerships served by Asset Management business |
|
| — |
|
|
| — |
|
|
| 227,141 |
|
|
| 236,426 |
|
|
| 249,493 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OTHER INFORMATION: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash dividends/distributions declared per common share/unit |
| $ | 1.56 |
|
| $ | 1.52 |
|
| $ | 1.44 |
|
| $ | 1.32 |
|
| $ | 1.18 |
|
Aimco’s - and now AIR’s - Compensation Program Discourages Excessive Risk-Taking |
Limits on STI. |
|
Stock ownership guidelines and required holding periods after vesting. AIR’s stock ownership guidelines require all executive officers to hold a specified amount of AIR equity. Any executive officer who has not yet satisfied the stock ownership requirements for his or her position must retain LTI after its vesting until stock ownership requirements are met. These policies ensure each executive officer has a substantial amount of personal wealth tied to long-term holdings in AIR stock. |
Shared performance metrics across the organization. A portion of 2020 STI for AIR NEOs was based upon Aimco’s performance against its publicly communicated corporate goals, which were core to the long-term strategy of Aimco’s business and |
LTI based on TSR. |
|
19Total Compensation for 2020
TableFor 2020, total compensation is the sum of Contentsbase compensation earned in 2020, STI earned in 2020, and LTI awards granted in 2020.
Base Compensation for 2020
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONSFor 2020, Mr. Considine’s base compensation was $700,000, unchanged from the previous three years, and well below the median for CEOs of his experience, expertise, and tenure in Aimco’s, and now AIR’s, peer group. For 2020, base compensation for all other NEOs was set between $251,732 and $450,000, near the median base compensation paid by peer comparators for similar positions.
Executive OverviewShort-Term Incentive Compensation for 2020
WeThe Committee determined Mr. Considine’s STI by the extent to which Aimco met six designated corporate goals, which are focuseddescribed below and are referred to as Aimco’s Key Performance Indicators, or KPIs.
For the other NEOs, calculation of STI was determined by two components: Aimco’s performance against the KPI; and each officer’s achievement of his or her individual MAP goals. For example, if an executive’s target STI was $400,000 and weighted 75% on KPIs, then 75% of that amount, or $300,000, varied based on KPI results and 25% of that amount, or $100,000, varied based on MAP results. As actual KPI results were 100% of target in 2020, then the ownership, management, redevelopment,executive would receive 100% of $300,000 ($300,000) for the KPI portion of his STI, and some development of quality apartment communities located in severalif MAP results were 100%, such hypothetical executive would receive 100% of the largest markets in the United States.$100,000, for a total STI payment of $400,000.
Our principal financial objective is to provide predictable and attractive returns to our equity holders. We measure our long-term total return using Economic Income, defined as NAV growth plus dividends. NAV is used by many investors because the value of company assets can be readily estimated, even for non-earning assets such as land or properties under development. NAV has the advantage of incorporating the investment decisions of thousands of real estate investors, enhancing comparability among companies that have differences in their accounting, avoiding disparity that can result from application of GAAP to investment properties and various ownership structures. Some investors focus on multiples of AFFO and Nareit FFO. Our disclosure of AFFO, a measure of current return, complements our focus on Economic Income. We also use Pro forma FFO as a secondary measure of operational performance. Over the last five years as of December 31, 2019, our Economic Income grew at a compounded annual return of 10%, comprised of a 6.9% compounded annual growth in NAV per share and $7.08 in cash dividends per share paid over the period. In 2019, AFFO per share grew $0.04, to $2.20 per share.
Year-over-year as of December 31, 2019, our NAV per share increased by about 3.9%, which, with our cash dividend, provided Economic Income of 6.8%.
Financial Highlights
Net income attributable to common stockholders per common share, on a dilutive basis, decreased by $1.19 during the year ended December 31, 2019 compared to 2018, primarily due to lower gains from dispositions.
We sold our Asset Management business in July 2018, accepting near-term earnings dilution as the price of an increased long-term growth rate. In 2019, we overcame these earnings headwinds and Pro forma FFO per share increased by $0.05, or 2.0%, for the year ended December 31, 2019 compared to 2018. For the three months ended December 31, 2019 compared to 2018, the first comparative period without the Asset Management business, our Pro forma FFO and AFFO per share increased 5% and 12%, respectively.
The year-over-year increase in Pro Forma FFO was due primarily to contribution from Same Store property net operating income growth of 4.3%, driven by a 3.8% increase in revenue, partially offset by a 2.4% increase in expenses. The increase in Same Store net operating income was offset partially by earnings dilution from the sale of the Asset Management business and lower tax benefit. AFFO per share also increased by $0.04, or 1.9%, for the year ended December 31, 2019 compared to 2018 due to the $0.05 increase in Pro forma FFO per share, partially offset by a $0.01 per share increase in capital replacement spending.
Our business is organized aroundAimco’s 2020 KPIs reflected Aimco’s five areas of strategic focus: operational excellence;focus, as set forth below. Specifically, Aimco’s KPIs consisted of the following six corporate goals that were reviewed with, and approved by, the Committee, each weighted as described.
25
These goals aligned executive officers with the publicly communicated, long-term goals of Aimco without encouraging them to take unnecessary and excessive risks. Threshold performance paid out at 50%; target performance paid out at 100%; and maximum performance paid out at 200%.
For some goals, where performance was between threshold and target or between target and maximum, the amount of the payout was interpolated.
26
The following is a tabular presentation of the performance criteria and results for 2020, explained in detail in the paragraphs that follow:
Performance Measures
| Goal | Threshold | Target | Maximum | Actual
| Payout
|
Operations | 35% |
|
|
|
|
|
2020 Same Store NOI Achievement | 35% | 3%<Budget | Budget | 3%>Budget | >3%< Budget | 00.00% |
| Property Operations Subtotal: | 0.00% | ||||
Redevelopment and Portfolio Management/Capital Allocation | 10% |
|
|
|
|
|
Redevelopment Investment and Returns, and Transactions That Improve Portfolio Quality | 10% | — | Based on, for | — | Completed construction and lease-ups of Eldridge Townhomes in Elmhurst, IL, and Parc Mosaic in Boulder, CO. Achieved rental rates in line with or ahead of underwriting. Completed construction of 707 Leahy in Redwood City, CA, and The Fremont in Aurora, CO. On track with Prism in Cambridge, MA, and the North Tower of Flamingo Point in Miami, FL. Acquired for $89.6 million Hamilton on the Bay in Miami, FL. | 17.25% |
Redevelopment and Portfolio Management Subtotal: | 17.25% | |||||
Balance Sheet | 10% |
|
|
|
|
|
Balance Sheet Activities Adding Financial Flexibility | 10% | — | Based on balance sheet | — | In 3Q 2020, sold a 39% interest in a $2.4 billion portfolio of California properties, enabling a $1 billion reduction in financial leverage. The Post Separation, at year end: Aimco had $299 million of cash on hand, including $9 million of restricted cash, and had the capability to borrow up to $150 million under its revolving credit facility. | 20.00% |
| Balance Sheet Subtotal: | 20.00% | ||||
Team | 10% |
|
|
|
|
|
Team Member Engagement Scores | 5% | 4.00 | 4.20 | 4.75 | 4.42 | 7.00% |
On-Site Team Engagement, Retention and Efficiency | 5% | — | Based on on-site team | — | On-site team member engagement for 2020 was a record 4.5 out of 5. Reduced on-site voluntary turnover by 19% and on-site overall turnover by 10%. Made further efficiency gains. | 8.00% |
| Team and Culture Subtotal: | 15.00% | ||||
Financial Results | 35% |
|
|
|
|
|
AFFO Per Share | 35% | $2.30 | $2.40 | $2.50 | <$2.30 | 00.00% |
| Financial Results Subtotal: | 00.00% | ||||
Total Before Replacement Goal | 100% |
|
|
|
| 52.25% |
COVID-19 Response (replacing Operations Performance and Financial Performance goals) | 70% | — | Qualitative | — |
| 70.00% |
Replacement Goal Subtotal: | 70.00% | |||||
Total After Replacement Goal | 122.25% | |||||
Subtraction of “Above Target” Performance | -22.25% | |||||
Grand Total | 100.00% |
For all numeric goals, the target performance metrics were Aimco’s 2020 budget goals. Aimco had a rigorous budgeting process that includes an evaluation of prior performance, market data, and peer performance. Aimco’s budget strategy is to set ambitious, achievable goals. Aimco’s 2020 budget and KPI goals were finalized in January 2020, prior to the onset of the COVID-19 pandemic, which rendered two of the KPI goals moot, as described below. As a result, the Committee determined to apply discretion to replace the two goals with a goal related to Aimco’s response to the pandemic. As described in detail below, Aimco, and following the Separation, AIR, ensured that its business remain open throughout the pandemic, with teammates across the country providing residents safety, a refuge from the virus, good neighbors, respectful treatment for all, and a helping hand to those in need.
An explanation of the objective of each goal and performance levels and payouts for each goal is set forth below.
Same Store NOI Achievement (35% of KPI). The primary objective of this goal was to fulfill Aimco’s strategic objective of driving rent growth based on high levels of resident retention, through superior customer selection and satisfaction, coupled with disciplined innovation resulting in sustained cost control, to maximize NOI margins. For 2020, the range for the Same Store NOI achievement goal was as follows: “Threshold” equated to achievement of three percent unfavorable to 2020 budgeted Same Store NOI; “Target” equated to achievement of 2020 budgeted Same Store NOI; and “Maximum” equated to three percent favorable to 2020 budgeted Same Store NOI. The Same Store NOI for 2020 was more than 3% unfavorable to budgeted Same Store NOI. This resulted in a payout on the Same Store NOI achievement goal of 0.00% for each of the NEOs. The COVID-19 pandemic, which arose after 2020 KPI goals were finalized in January 2020, rendered the Same Store NOI goal essentially moot, given the lockdowns that started March 2020, increased lease terminations due to economic stress, onerous regulations across the country and particularly in the City of Los Angeles, which made difficult rent collections and addressing non-payment. The Committee determined to replace the Same Store NOI goal and the AFFO goal, also rendered moot due to the pandemic, with a goal related to the Company’s response to the COVID-19 pandemic. An explanation of the replacement goal, and the Company’s performance against the replacement goal, is set forth below.
Redevelopment Investment and Returns, and Transactions That Improve Aimco’s Portfolio Quality (10% of KPI). The primary objective of this goal was to fulfill Aimco’s strategic objectives for redevelopment and development; portfolio management; balance sheet; and team and culture. The results from the execution of our business plan in 2019 are further described in the sections that follow.
Operational Excellence
We own and operate a portfolio of apartment communities, diversified by both geography and price point. As of December 31, 2019, our portfolio included 124 apartment communities with 32,839 apartment homes in which we held an average ownership of approximately 99%, and approximately 80%management/capital allocation, two of the valuefive areas of our portfolio, measured by gross asset value (the estimated fair valuestrategic focus described above. Large and/or complex redevelopment and development projects provided increased weighting toward the total goal weighting of our communities)10%, with smaller scale projects provided lower weighting toward the total goal weighting. Achievement for each project was attributabledetermined with reference to Same Store communities.
Our property operations team produced solid results for our portfoliothe 2020 budgeted investment and scope for the year ended December 31, 2019. Same Store highlights include:
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|
|
|
|
Our focus on efficient operations through productivity initiatives such as centralization of administrative tasks, optimization of economies of scale at the corporate level, increased automation, and investment in more durable, longer-lived materials has
20
helped us control operating expenses. These and other innovations contributed to limiting growth in Same Store controllable operating expense, defined as property expenses less taxes, insurance, and utility expenses, compounding for the past 12 years at an annual rate of negative 0.2%. Our 2019 controllable operating expenses were flat compared to 2018.
Redevelopment and Development
Our second line of business is the redevelopment and some development of apartment communities. Through redevelopment activities, we expect to create value by repositioning communities within our portfolio. We undertake ground-up development when warranted by risk-adjusted investment returns, either directly or in connection with the redevelopment of an existing community. When warranted, we rely on the expertise and credit of a third-party developer familiar with the local market to limit our exposure to construction risk. Over the past five years, we have spent approximately $1.0 billion on redevelopment and development, targeting FCF internal rates of return of approximately 9% to 11% on these investments.
We invest to earn risk-adjusted returns707 Leahy in excess of those expected from the apartment communities sold in paired trades to fund the redevelopment or development. Of these two activities, we generally favor redevelopment because it permits adjustment to the scope and timing of spending to align with changing market conditions and customer preferences.
During the year ended December 31, 2019, we invested $229.8 million in redevelopment and development, an increase of approximately 30% compared to 2018. We continued redevelopment activities at Bay ParcRedwood City, CA, and the ground-up construction at Parc Mosaic anddevelopment of The Fremont on the Anschutz Medical Campus. WeCampus in Aurora, CO were also began the redevelopment ofcompleted. Construction was on track and nearly complete at Prism in Cambridge, MA, and at the North Tower atof Flamingo Point and 707 Leahy, and ground-up construction at Eldridge Townhomes adjacent to our Elm Creek apartment community.
The following table summarizes our significantin Miami Beach, FL, the major redevelopment and development communities (dollars in millions):
| Location |
| Apartment Homes Approved for Redevelopment |
|
| Apartment Homes Completed |
|
| Percentage of Completed Homes Leased |
|
| Estimated Net Redevelopment Investment |
|
| Expected Initial Occupancy | ||||
Short-cycle redevelopments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bay Parc | Miami, FL |
|
| 105 |
|
|
| 60 |
|
|
| 97 | % |
| $ | 28.3 |
|
| N/A |
Long-cycle redevelopments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
707 Leahy (1) | Redwood City, CA |
|
| 110 |
|
|
| — |
|
|
| — | % |
|
| 23.7 |
|
| 1Q 2020 |
Eldridge (formerly Elm Creek) Townhomes | Elmhurst, IL |
|
| 58 |
|
|
| — |
|
|
| — | % |
|
| 35.1 |
|
| 2Q 2020 |
Flamingo Point (2) | Miami Beach, FL |
|
| 886 |
|
|
| — |
|
|
| — | % |
|
| 280.0 |
|
| 3Q 2021 |
The Fremont | Denver, CO (MSA) |
|
| 253 |
|
|
| — |
|
|
| — | % |
|
| 87.0 |
|
| 3Q 2020 |
Parc Mosaic (3) | Boulder, CO |
|
| 226 |
|
|
| 185 |
|
|
| 59 | % |
|
| 123.4 |
|
| 3Q 2019 |
Total |
|
|
| 1,638 |
|
|
| 245 |
|
|
|
|
|
| $ | 577.5 |
|
|
|
|
|
|
|
|
|
As of December 31, 2019, our total estimated net investment at redevelopment and development communities is $577.5 million, with a projected weighted-average net operating income yieldtarget to complete construction in 2022. Hamilton on these investmentsthe Bay, located in Miami’s Edgewater neighborhood, was acquired for $89.6 million. The community includes a 271-apartment home community located on the waterfront plus an adjacent 0.6-acre development site with four apartment homes. Current zoning allows for the construction of 5.3%, assuming untrended rents. As of December 31, 2019, $309.2 millionmore than 380 additional apartment homes on the combined sites. These outcomes resulted in a payout of this total has been funded. goal of 17.25% for each of the NEOs.
Leverage Ratios and Other Balance Sheet Activities Adding Financial Flexibility (10% of KPI). The remaining estimated net investmentprimary objective of $268.3 millionthis goal was to fulfill Aimco’s strategic objective of using safe property debt that is low-cost, long-dated, amortizing, and non-recourse, limiting entity and refunding risk while maintaining asset flexibility. Achievement was based on these communities is expected to be funded in 2020 and future years, on a leverage-neutral basis, with proceeds from sales of apartment communities with lower forecasted FCF internal rates of return.
When possible, we prefer redevelopmentsbalance sheet activities that can be completed one apartment home at a time, when that home is vacated and available for renovation, or one floor at a time, thereby limiting the number of down homes and lease-up risk. We currently have six short-cycle projects, including Bay Parc, ongoing in our portfolio.added financial flexibility. During the year ended December 31, 2019, we completed 150 apartment homes, with another 21 homes under construction as of December 31, 2019.
During the year ended December 31, 2019, we leased 251 redeveloped or newly developed apartment homes. As of December 31, 2019, our exposure to lease-up at active redevelopment and developments was 866 apartment homes, or less than 3% of our homes.
21
Please refer to the Redevelopment and Development subsection to the Liquidity and Capital Resources section for additional information regarding our redevelopment and development investment during the year ended December 31, 2019.
Portfolio Management
Ourthird quarter, Aimco sold a 39% interest in a $2.4B portfolio of apartment communities is diversified across “A,” “B,”California properties, enabling a $1B reduction in financial leverage, significantly improving Aimco’s strong and “C+” price points, averaging “B/B+”flexible balance sheet. This resulted in quality, and is also diversified across severala payout on the balance sheet goal of 20.00% for each of the largest markets in the United States. We measure the quality of apartment communities in our portfolio based on average rents of our apartment homes compared to local market average rents as reported by a third-party provider of commercial real estate performance and analysis. Under this rating system, we classify as “A” quality apartment communities those earning rents greater than 125% of local market average; as “B” quality apartment communities those earning rents between 90% and 125% of local market average; as “C+” quality apartment communities those earning rents greater than $1,100 per month, but lower than 90% of local market average; and as “C” quality apartment communities those earning rents less than $1,100 per month and lower than 90% of local market average. We classify as “B/B+” quality a portfolio that on average earns rents between 100% and 125% of local market average rents. Although some companies and analysts within the multifamily real estate industry use apartment community quality ratings of “A,” “B,” and “C,” some of which are tied to local market rent averages, the metrics used to classify apartment community quality as well as the period for which local market rents are calculated may vary from company to company. Accordingly, our rating system for measuring apartment community quality is neither broadly nor consistently used in the multifamily real estate industry.
The following table summarizes information about our portfolio relative to the market for the three months ended December 31, 2019:
Average revenue per Aimco apartment home (1) |
| $ | 2,272 |
|
Portfolio average rents as a percentage of local market average rents |
|
| 113 | % |
Percentage A (4Q 2019 average revenue per Aimco apartment home $2,943) |
|
| 54 | % |
Percentage B (4Q 2019 average revenue per Aimco apartment home $2,006) |
|
| 29 | % |
Percentage C+ (4Q 2019 average revenue per Aimco apartment home $1,782) |
|
| 17 | % |
|
|
Our average revenue per apartment home was $2,272 for the three months ended December 31, 2019, representing an increase of 7% compared to the same period in 2018, and a 7.2% compounded annual growth rate over the past five years. This increase is due to growth in Same Store revenue as well as our acquisition activities, lease-up of redevelopment and acquisition communities, and the sale of communities with average monthly revenues per apartment home lower than those of the retained portfolio.
During the year ended December 31, 2019, we reallocated capital from slower-growth markets such as Chicago and reinvested the proceeds in higher-growth markets such as Miami, Denver, and Boston.
As part of our portfolio strategy, we seek to sell up to 10% of our portfolio annually and to reinvest the proceeds from such sales in accretive uses such as capital enhancements, redevelopments, some developments, and selective acquisitions with projected FCF internal rates of return higher than expected from the communities being sold. Through this disciplined approach to capital recycling, we increase the quality and expected growth rate of our portfolio.
As we execute our portfolio strategy, we expect to increase average revenue per Aimco apartment home at a rate greater than market rent growth, increase FCF margins, and maintain sufficient geographic and price point diversification to limit volatility and concentration risk.
Acquisitions
We follow a disciplined paired trade policy in making investments. We evaluate potential acquisitions seeking FCF internal rates of returns higher than those of the communities being sold. We prefer well-located real estate where land is a significant percentage of total value and provides potential upside from development or redevelopment.
During the year ended December 31, 2019, we acquired three properties: One Ardmore in Ardmore, Pennsylvania; Prism (50 Rogers), a community under construction in Cambridge, Massachusetts; and 1001 Brickell Bay Drive in Miami, Florida. Together, these acquisitions have an expected weighted-average FCF internal rate of return of 9%, approximately 300 basis points better than expected from the properties being sold, or to be sold, in paired trades to fund the acquisitions.
Mezzanine Investment
On November 26, 2019, we made a five-year, $275.0 million mezzanine loan at a 10% annual rate to the partnership owning Parkmerced Apartments. The loan is secured by a second-priority deed of trust. We simultaneously received a ten-year
22
option to acquire a 30% interest in the partnership at an exercise price of $1.0 million, increased by 30% of future capital spending to progress development and redevelopment of Parkmerced Apartments.
Parkmerced Apartments is a 152-acre site in the southwest corner of San Francisco, currently improved with 3,221 apartment homes completed shortly before and after World War II. These apartment homes are subject to City of San Francisco rent control. The development of the site is governed by a development agreement that allows for 8,900 total residential units, with the new units exempt from City of San Francisco rent control. The partnership, which is the borrower and in which we have the option to acquire 30% ownership, owns 3,165 of the existing rent-controlled apartment homes, which excludes apartment homes transferred as part of an earlier phase of development to which we are not a party, as well as the vested right to develop 4,093 of the new market-rate homes.
The mezzanine loan provides us with current income with minimal expected downside risk. The option is expected to provide us with an opportunity to participate in substantial value creation from the vested development rights.
Dispositions
During the year ended December 31, 2019, we sold 12 apartment communities, generating net proceeds of $619.4 million used to fund acquisitions, redevelopment, development, the repurchase of Aimco shares in the fourth quarter of 2018, and other capital investments. We delayed approximately $300 million of planned fourth quarter 2019 and January 2020 sales. While this delay temporarily increased leverage, we expect a better execution as the transaction market remains deep, liquid, and attractively priced.
Balance Sheet
Leverage
Our leverage strategy seeks to increase financial returns by using leverage with appropriate caution. We limit risk through our balance sheet structure, employing low leverage, primarily non-recourse and long-dated property debt; build financial flexibility by maintaining ample unused and available credit as well as holding properties with substantial value unencumbered by property debt; and use partners’ capital when it enhances financial returns or reduces investment risk.
Our leverage includes our share of long-term, non-recourse property debt encumbering apartment communities, outstanding borrowings on the revolving credit facility, outstanding preferred equity and redeemable noncontrolling interests in a consolidated real estate partnership. Please refer to the Liquidity and Capital Resources section for additional information regarding our leverage.
Our target leverage ratios are Proportionate Debt and Preferred Equity to Adjusted EBITDAre below 7.0x and Adjusted EBITDAre to Adjusted Interest Expense and Preferred Dividends greater than 2.5x. Our leverage ratios for the three months ended December 31, 2019, are presented below:
|
| |
|
| |
|
| |
|
|
We calculate Adjusted EBITDAre and Adjusted Interest Expense used in our leverage ratios based on the most recent three month amounts, annualized. The sales delay mentioned above increased Proportionate Debt to Adjusted EBITDAre and Proportionate Debt and Preferred Equity to Adjusted EBITDAre by 0.3x as of December 31, 2019. We expect a gradual decline in leverage to EBITDAre ratios throughout 2020, reaching approximately 6.4x and 6.5x, respectively, at year end. In future years, we expect earnings growth from completed redevelopments will increase EBITDAre and further reduce our leverage ratios.
Please refer to the Leverage Ratios subsection of the Non-GAAP Measures section for further information about the calculation of our leverage ratios.
Refinancing Activity
During the year ended December 31, 2019, we financed $772.6 million of new non-recourse, fixed-rate property debt. These loans have a weighted-average interest rate of 3.32%, a weighted-average term to maturity of 11.4 years, and contributed an approximately 29 basis point decrease in our annual cost of leverage compared to 2018.
23
Liquidity
Our liquidity consists of cash balances and available capacity on our revolving credit facility. As of December 31, 2019, we had cash and restricted cash of $177.7 million and had the capacity to borrow up to $517.8 million on our revolving credit facility, after consideration of $7.2 million letters of credit backed by the facility. We use our credit facility primarily for working capital and other short-term purposes and to secure letters of credit.
We manage our financial flexibility by maintaining an investment grade rating and holding apartment communities that are unencumbered by property debt. As of December 31, 2019, we held unencumbered apartment communities with an estimated fair market value of approximately $2.4 billion.
Two credit rating agencies rate our creditworthiness, using different methodologies and ratios for assessing our credit, and both have rated our credit and outlook as BBB- (stable), an investment grade rating. Although some of the ratios they use are similar to those we use to measure our leverage, there are differences in our methods of calculation and therefore our leverage ratios disclosed above are not indicative of the ratios that may be calculated by these agencies.
Equity Capital Activities
On February 3, 2019, Aimco’s Board of Directors declared a special dividend on the common stock that consisted of $67.1 million in cash and 4.5 million shares of Common Stock. The special dividend also included the regular quarterly cash dividend of $0.39 per share. Simultaneously, Aimco’s Board of Directors authorized a reverse stock split, effective on February 20, 2019, in which every 1.03119 Aimco common share was combined into one Aimco common share, which was effective at the close of business on February 20, 2019. Taken together, the total number of shares outstanding after the stock dividend and reverse split was unchanged from the number of shares outstanding immediately prior to the two actions. Please refer to Notes 7 and 8 to the consolidated financial statements in Item 8 for further information regarding these transactions and the corresponding impact to the Aimco Operating Partnership’s common unitholders.
On January 28, 2020, our Board of Directors declared a quarterly cash dividend of $0.41 per share of Common Stock, representing an increase of 5% compared to the regular quarterly dividends paid in 2019. This amount is payable on February 28, 2020, to stockholders of record on February 14, 2020.
Team and Culture
Our team and culture are keysMember Engagement Scores (5% of KPI). The primary objective of this goal was to our success. Our intentional focus on a collaborative and productive culture based on respect for others and personal responsibility is reinforced by a preference for promotion from within. We focus on succession planning and talent development to producefulfill Aimco’s strategic objective of producing a strong, stable team that is the enduring foundation of ourAimco and also of AIR’s success. We offer benefits reinforcing our valueEvery team member is surveyed via a third-party, confidential survey on his or her annual anniversary of caring for each other, including paid time for parental leave, paid time annually to volunteer in local communities, college scholarships for the children ofemployment. The team members, an emergency fund to help team members in crisis, financial support for our team members who are becoming United States citizens, and a bonus structure at all levelsmember engagement score consists of the organization. We also pay fullaverage of the responses to the questions that comprise the engagement index, on a scale of 1 to 5, for all teammates who complete the survey during the year. For 2020 compensation, and benefitsthe range for team members who are actively deployed by the United States military. Outmember engagement scores was as follows: “Threshold” equated to 4.00; “Target” equated to 4.20; and “Maximum” equated to 4.75. For 2020, Aimco’s team member engagement score was a record 4.42, resulting in a payout of hundreds of participating companies in 2019, Aimco was one of only seven recognized as a “Top Workplace” in Colorado7.00% for each of the past seven years. AimcoNEOs.
On-Site Team Engagement, Retention, and Efficiency (5% of KPI). The primary objective of this goal was also recognizedto maintain a highly engaged, stable workforce at our communities, enhanced by innovations in efficiency, all of which further the strategic objective of maximizing NOI margins. Achievement was based on on-site team engagement scores, team member retention ratios, and efficiency gains. Aimco’s on-site team member engagement score was a record 4.5 out of 5. On-site voluntary turnover was reduced by 19% and
28
on-site overall turnover was reduced by 10%, each as compared to 2019. This resulted in a Top Workplacepayout on the on-site engagement, retention, and efficiency goal of 8.00% for each of the NEOs.
AFFO Per Share (35% of KPI). The primary objective of the AFFO goal was to increase Aimco’s current period financial result. For 2020 compensation, the range for the AFFO goal was set as follows: “Threshold” equated to $2.30 per share; “Target” equated to $2.40 per share; and “Maximum” equated to $2.50 per share. Aimco’s AFFO was less than $2.30 per share. These goals would have resulted in a payout on the AFFO per share goal of 0.00% for each of the NEOs. The COVID-19 pandemic, which arose after 2020 KPI goals were finalized in January 2020, rendered the AFFO goal moot, for the reasons described above in the Bay Area in 2019. Also in 2019, Aimco wasSame Store NOI description, as NOI is the only real estate companyprimary driver of AFFO. The Committee determined to receive a BEST award fromreplace the Association for Talent Development in recognition of our company-wide success in talent development, marking our second consecutive year receiving this award.
Results of Operations
Because our operating results depend primarily on income from our apartment communities, the supply of and demand for apartments influences our operating results. Additionally, the level of expenses required to operate and maintain our apartment communitiesAFFO goal and the paceSame Store NOI goal, also rendered moot due to the pandemic, with a goal consisting of Aimco’s response to the COVID-19 pandemic. An explanation of the replacement goal, and Aimco’s performance against the replacement goal, is set forth below.
Replacement Goal: COVID-19 Response. Aimco designed its business with difficult economic times in mind, which is why: Aimco, and now AIR, give significant importance to customer selection and satisfaction and work hard to control property expenses; Aimco, prefers short-cycle redevelopment to less flexible ground-up development; the portfolio is also diversified by geography and price point; Aimco’s, and now AIR’s leverage is primarily long-dated, non-recourse property debt; and Aimco’s and now AIR’s, intentional culture emphasizes flexibility and initiative, collaboration and personal responsibility. This intentional design around its five areas of strategic focus enabled Aimco to take immediate action to serve its teammates, its residents, and local communities in response to the crisis.
As the crisis approached, Aimco made the health and safety of teammates its priority. Aimco (i) formed a cross-functional task force of approximately a dozen individuals who met daily to re-design how work would be done on site and to keep the team safe while continuing to lease apartments and fulfill service requests; (ii) made it clear, and consistent with company policies providing flexibility, that any teammate who felt unsafe at which we redevelop, acquire, and dispose of our apartment communities affect our operating results.
The following discussion and analysiswork because of the resultsvirus was free to stay home, with pay and without penalty; (iii) undertook to pay all costs related to COVID-19 testing and treatment; (iv) committed to keep the employee team intact, without layoffs or pay cuts; and (v) committed to continued, and increased, regular communications and transparency, providing a steady flow of our operationswritten, oral, and financial condition should be read in conjunction with the accompanying consolidated financial statements in Item 8.
Year Ended December 31, 2019, Compared to December 31, 2018
Net income attributable to Aimco and net income attributablevideo reports to the entire team.
Customer focus led Aimco Operating Partnership decreasedto make its properties safer by $192.1 millionincreasing cleaning and $200.5 million, respectively,disinfecting, reducing opportunities for infection, and limiting in-person interactions with neighbors and site teams. Aimco: searched out ways to support those sheltering in place and to meet the needs of those who reported positive for infection by COVID-19; redeployed construction supervisors whose work had been paused to support property service teams, and redeployed dozens of office workers to join the shared service center team to hold thousands of structured conversations with residents, helping each plan his or her personal adjustment to the crisis, including offering financial advice, tips on job searches, help with errands, ideas about how to find a roommate, establishing payment plans where appropriate, and even, in a few difficult cases, providing money for groceries; and used its previous investment in technology and artificial intelligence to adapt to the new conditions of social distancing and sheltering at home.
Additionally, mindful of the sacrifice of healthcare providers who worked long hours and felt unable to go home without risking infection of their families, and as part of the Aimco Cares Good Neighbor program, Aimco provided free use of furnished apartments at its 21 Fitzsimons community on the Anschutz Medical Campus, its Parc Mosaic community near Boulder Community Health, and its River Club community near Newark University Hospital.
Aimco’s Board was fully informed and fully engaged, including two candidates for the Board who were formally elected in late April 2020. During March and April 2020, Aimco delivered five management reports, made numerous calls, asked individual directors for specific assistance, and held four virtual board meetings.
Knowing the importance of financial liquidity and building on $650 million of cash and committed credit at the start of 2020, Aimco drew down $300 million on its bank lines, reduced expected 2020 capital spending by $150 million, or almost one-half, and undertook to increase available credit by another $720 million: a $350 million bank term loan and approximately $370 million in proceeds from property loans.
As objective measures of Aimco’s response to the pandemic, Aimco’s resident satisfaction score, based on 57,000 surveys, was a 4.31 out of 5, within one basis point of its highest score on record. Aimco’s team engagement scores shattered previous records: team engagement for site teams was 4.5 out of 5, breaking the previous year’s all-time record of 4.45, and overall team engagement was 4.42 out of 5, above the prior year’s 4.2 and also a new company record.
During the course of the year, ended December 31, 2019 comparedthe Committee continued to 2018, as described more fully below.
24
Property Operations
We have four segments: Same Store, Redevelopmentevaluate whether and Development, Acquisition, and Other Real Estate. Our Same Store segment includes communities that have reached a stabilized level of operations as ofhow to adjust the goals set out at the beginning of a two-year comparable period and maintained it throughout the current and comparable prior year and are not expectedultimately determined that it would wait until full year performance was known to be sold within 12 months. Our Redevelopment and Development segment includes communities that are currently under construction that have not achieved a stabilized level of operations, and those that have been completed in recent years that have not achieved and maintained stabilized operations for bothevaluate performance against the current and comparable prior year. Our Acquisition segment includes those communities that we have acquired since the beginning of a two-year comparable period. Our Other Real Estate segment primarily includes apartment communities that are subject to limitations on rent increases, apartment communities that we expect to sell within 12 months but do not yet meet the criteria to be classified as held for sale, certain retail spaces, and 1001 Brickell Bay Drive.
As of December 31, 2019, our Same Store segment included 91 apartment communities with 26,649 apartment homes.
From December 31, 2018 to December 31, 2019, on a net basis, our Same Store segment decreased by two apartment communities and increased by 744 apartment homes. These changes consisted of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2019: our Redevelopment and Development segment included seven apartment communities with 3,143 apartment homes; our Acquisition segment included seven apartment communities with 1,590 apartment homes; and our Other Real Estate segment included 15 apartment communities with 1,315 apartment homes and one office building.
We use proportionate property net operating income to assess the operating performance of our communities. Proportionate property net operating income reflects our share of rental and other property revenues, excluding resident utility reimbursement, less direct property operating expenses, net of resident utility reimbursement, for consolidated communities. Accordingly, the results of operations of our segments discussed below are presented on a proportionate basis and exclude the results of four apartment communities with 142 apartment homes that we do not consolidate.
We do not include offsite costs associated with property management, casualty losses, or the results of apartment communities sold or held for sale, reported in consolidated amounts, in our assessment of segment performance. Accordingly, these items are not allocated to our segment results discussed below.
Please refer to Note 13 to the consolidated financial statements in Item 8 for further discussion regarding our segments, including a reconciliation of these proportionate amounts to consolidated rental and other property revenues attributable to real estate and property operating expenses attributable to real estate.
25
Proportionate Property Net Operating Income
The results of our segments for the years ended December 31, 2019 and 2018, as presented below, are based on the apartment community classifications as of December 31, 2019.
| Year Ended December 31, |
|
|
|
|
|
|
|
|
| |||||
(in thousands) | 2019 |
|
| 2018 |
|
| $ Change |
|
| % Change |
| ||||
Rental and other property revenues, before utility reimbursements: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Same Store | $ | 691,379 |
|
| $ | 665,835 |
|
| $ | 25,544 |
|
|
| 3.8 | % |
Redevelopment and Development |
| 75,522 |
|
|
| 76,687 |
|
|
| (1,165 | ) |
|
| (1.5 | %) |
Acquisition |
| 42,038 |
|
|
| 27,923 |
|
|
| 14,115 |
|
|
| 50.5 | % |
Other Real Estate |
| 45,105 |
|
|
| 37,647 |
|
|
| 7,458 |
|
|
| 19.8 | % |
Total |
| 854,044 |
|
|
| 808,092 |
|
|
| 45,952 |
|
|
| 5.7 | % |
Property operating expenses, net of utility reimbursements: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Same Store |
| 181,802 |
|
|
| 177,466 |
|
|
| 4,336 |
|
|
| 2.4 | % |
Redevelopment and Development |
| 27,919 |
|
|
| 27,836 |
|
|
| 83 |
|
|
| 0.3 | % |
Acquisition |
| 11,715 |
|
|
| 7,689 |
|
|
| 4,026 |
|
|
| 52.4 | % |
Other Real Estate |
| 17,717 |
|
|
| 14,910 |
|
|
| 2,807 |
|
|
| 18.8 | % |
Total |
| 239,153 |
|
|
| 227,901 |
|
|
| 11,252 |
|
|
| 4.9 | % |
Proportionate property net operating income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Same Store |
| 509,577 |
|
|
| 488,369 |
|
|
| 21,208 |
|
|
| 4.3 | % |
Redevelopment and Development |
| 47,603 |
|
|
| 48,851 |
|
|
| (1,248 | ) |
|
| (2.6 | %) |
Acquisition |
| 30,323 |
|
|
| 20,234 |
|
|
| 10,089 |
|
|
| 49.9 | % |
Other Real Estate |
| 27,388 |
|
|
| 22,737 |
|
|
| 4,651 |
|
|
| 20.5 | % |
Total | $ | 614,891 |
|
| $ | 580,191 |
|
| $ | 34,700 |
|
|
| 6.0 | % |
For the year ended December 31, 2019, compared to 2018, our Same Store proportionate property net operating income increased by $21.2 million, or 4.3%. This increase was attributable primarily to a $25.5 million, or 3.8%, increase in rental and other property revenues due to higher average revenues of $69 per apartment home comprised of increases in rental rates and a 60 basis point increase in average daily occupancy. Renewal rents increased by 4.9% and new lease rents increased by 1.9%, resulting in a weighted-average increase of 3.4%. The increase in Same Store rental and other property revenues was offset partially by a $4.3 million, or 2.4%, increase in property operating expenses due primarily to higher real estate taxes. Controllable operating expenses, which exclude utility costs, real estate taxes, and insurance, were flat for the year ended December 31, 2019, compared to 2018.
Redevelopment and Development proportionate property net operating income decreased by $1.2 million, or 2.6%, for the year ended December 31, 2019, compared to 2018. This decrease was attributable primarily to de-leasing at Flamingo Point and 707 Leahy in preparation for redevelopment, offset partially by increased occupancy driven by the lease-up of Park Towne Place.
Acquisition proportionate property net operating income increased by $10.1 million, or 49.9%, for the year ended December 31, 2019, compared to 2018. This increase was attributable primarily to the 2019 acquisition of One Ardmore and a full period of operating activity at the four Philadelphia communities acquired in 2018, compared to eight months of operations during the year ended December 31, 2018.
Other Real Estate proportionate property net operating income increased by $4.7 million, or 20.5%, for the year ended December 31, 2019, compared to 2018 due primarily to the acquisition of 1001 Brickell Bay Drive in 2019.
Year Ended December 31, 2018, Compared to December 31, 2017
Net income attributable to Aimco and net income attributable to the Aimco Operating Partnership increased by $350.5 million and $370.4 million, respectively, for the year ended December 31, 2018, as compared to 2017, as described more fully below.
Proportionate Property Net Operating Income
As of December 31, 2018, excluding apartment communities sold during 2019: our Same Store segment consisted of 83 Same Store apartment communities with 23,091 apartment homes; our Redevelopment and Development segment included 13 apartment communities with 6,294 apartment homes; our Acquisition segment included seven apartment communities with 1,943 apartment homes; and our Other Real Estate segment included 15 apartment communities with 1,483 apartment homes.
The results of our segments for the years ended December 31, 2018 and 2017, as presented below, are based on the apartment community classifications as of December 31, 2018, and exclude amounts related to apartment communities sold
26
during 2019. Based on the nature of our apartment community classifications, there is no comparison of the years ended December 31, 2018 and 2017. The results of operations for these communities are reflected in the table below.
| Year Ended December 31, |
|
|
|
|
|
|
|
|
| |||||
(in thousands) | 2018 |
|
| 2017 |
|
| $ Change |
|
| % Change |
| ||||
Rental and other property revenues, before utility reimbursements: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Same Store | $ | 534,389 |
|
| $ | 517,429 |
|
| $ | 16,960 |
|
|
| 3.3 | % |
Redevelopment and Development |
| 182,662 |
|
|
| 160,045 |
|
|
| 22,617 |
|
|
| 14.1 | % |
Acquisition |
| 48,474 |
|
|
| 17,475 |
|
|
| 30,999 |
|
|
| 177.4 | % |
Other Real Estate |
| 42,567 |
|
|
| 41,226 |
|
|
| 1,341 |
|
|
| 3.3 | % |
Total |
| 808,092 |
|
|
| 736,175 |
|
|
| 71,917 |
|
|
| 9.8 | % |
Property operating expenses, net of utility reimbursements: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Same Store |
| 138,187 |
|
|
| 133,517 |
|
|
| 4,670 |
|
|
| 3.5 | % |
Redevelopment and Development |
| 60,277 |
|
|
| 56,475 |
|
|
| 3,802 |
|
|
| 6.7 | % |
Acquisition |
| 14,031 |
|
|
| 7,040 |
|
|
| 6,991 |
|
|
| 99.3 | % |
Other Real Estate |
| 15,406 |
|
|
| 14,727 |
|
|
| 679 |
|
|
| 4.6 | % |
Total |
| 227,901 |
|
|
| 211,759 |
|
|
| 16,142 |
|
|
| 7.6 | % |
Proportionate property net operating income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Same Store |
| 396,202 |
|
|
| 383,912 |
|
|
| 12,290 |
|
|
| 3.2 | % |
Redevelopment and Development |
| 122,385 |
|
|
| 103,570 |
|
|
| 18,815 |
|
|
| 18.2 | % |
Acquisition |
| 34,443 |
|
|
| 10,435 |
|
|
| 24,008 |
|
|
| 230.1 | % |
Other Real Estate |
| 27,161 |
|
|
| 26,499 |
|
|
| 662 |
|
|
| 2.5 | % |
Total | $ | 580,191 |
|
| $ | 524,416 |
|
| $ | 55,775 |
|
|
| 10.6 | % |
For the year ended December 31, 2018, compared to 2017, Same Store proportionate property net operating income increased by $12.3 million, or 3.2%. This increase was attributable primarily to a $17.0 million, or 3.3%, increase in rental and other property revenues due to higher average revenues of $53 per apartment home comprised of increases in rental rates and a 60 basis point increase in average daily occupancy. Renewal rents increased by 4.9% and new lease rents increased by 1.9%, resulting in a weighted-average increase of 3.4%. The increase in Same Store and other property revenues was offset partially by a $4.7 million, or 3.5%, increase in property operating expenses due primarily to increases in real estate taxes and repairs and maintenance costs. During the year ended December 31, 2018, compared to 2017, controllable operating expenses increased by $1.0 million, or 1.5%.
Redevelopment and Development proportionate property net operating income increased by $18.8 million, or 18.2%, forthe year ended December 31, 2018, compared to 2017 due to leasing activities at communities, offset partially by decreases due to apartment homes taken out of service for redevelopment.
Acquisition proportionate property net operating income increased by $24.0 million, or 230.1%, forthe year ended December 31, 2018, compared to 2017 due to the 2018 acquisitions of Bent Tree Apartments, Avery Row, and four apartment communities in Philadelphia.
Non-Segment Real Estate Operations
Operating income amounts not attributed to our segments include offsite costs associated with property management, casualty losses, and the results of apartment communities sold or held for sale, reported in consolidated amounts, which we do not allocate to our segments for purposes of evaluating segment performance.
For the years ended December 31, 2019, 2018, and 2017, casualty losses totaled $9.0 million, $4.0 million, and $8.2 million, respectively. Casualty losses during the year ended December 31, 2019, included one major claim due to storm-related flooding at our One Canal apartment community and several other claims due to fire damage. Casualty losses for the year ended December 31, 2018, included several claims due primarily to storm and fire damage, offset partially by recovery from insurance carriers for insured losses in excess of policy limits. Casualty losses were elevated during the year ended December 31, 2017, due primarily to hurricane damage.
For the years ended December 31, 2019, 2018, and 2017, apartment communities that were sold or classified as held for sale generated net operating income of $16.6 million, $54.6 million, and $91.1 million, respectively.
27
Asset Management Results
For the year ended December 31, 2019, there was no net operating income attributable to the Asset Management business, which we sold in July 2018.
For the years ended December 31, 2018 and 2017, net operating income attributable to the Asset Management business was $28.9 million and $51.8 million, respectively.
Depreciation and Amortization
For the year ended December 31, 2019, compared to 2018 and the year ended December 31, 2018, compared to 2017, depreciation and amortization expense increased by $2.4 million and $11.6 million, respectively, due primarily to apartment communities acquired in 2019 and 2018 and renovated apartment homes placed in service after their completion. This increase was offset partially by decreases in depreciation associated with apartment communities sold and with communities owned by partnerships served by our Asset Management business, which we sold in 2018.
General and Administrative Expenses
General and administrative expenses for the year ended December 31, 2019, were relatively flat compared to the year ended December 31, 2018.
For the year ended December 31, 2018, compared to 2017, general and administrative expenses increased $2.6 million, due primarily to higher variable incentive compensation cost.
Other Expenses, Net
Other expenses, net, includes costs associated with our risk management activities, partnership administration expenses, and certain non-recurring items.
For the year ended December 31, 2019, compared to 2018, other expenses, net, increased by $15.3 million, related primarily to the resolution of our litigation against Airbnb in 2018 and an increase in rent expense associated with our ground leases.
For the year ended December 31, 2018, compared to 2017, other expenses, net, decreased by $7.4 million, due primarily to the resolution of our litigation against Airbnb and settlement of litigation related to the challenge to the title of the La Jolla Cove property, which we acquired in 2014.
Provision for Real Estate Impairment Loss
We recognized no provisions for impairment losses during the years ended December 31, 2019 or 2018.
In January 2018, we agreed to sell our interests in the entities owning the La Jolla Cove property in settlement of legal actions filed in 2014 by a group of disappointed buyers who had hoped to acquire the property. As a result of the settlement, we recognized in our 2017 results a gross impairment loss of $35.8 million, $25.6 million of which related to the establishment of a deferred tax liability assumed in connection with our acquisition of the business entities. The tax liability was assumed by the buyer, resulting in no economic loss to us. The remaining $10.2 million loss was offset by cash distributions paid to us during our ownership and avoided legal costs for continued litigation. On an economic basis, we agreed to sell these entities at roughly our purchase price, adjusted for retained cash distributions and avoided legal costs.
Interest Income
Interest income for the year ended December 31, 2019, was relatively flat compared to the year ended December 31, 2018.
For the year ended December 31, 2018, compared to 2017, interest income increased $2.6 million, due primarily to interest earned on the seller financing notes received as consideration in the sale of the La Jolla Cove property.
Interest Expense
For the year ended December 31, 2019, compared to 2018, interest expense, which includes the amortization of debt issuance costs, decreased by $31.8 million due primarily to lower interest on property-level debt following refinancing and debt payoff activity, including the 2018 repayment of our term loan, a decrease in property-level debt attributable to sold communities and an increase in capitalized interest attributable to redevelopment and development communities. This decrease was offset partially by interest on property-level debt assumed in connection with our acquisitions and a $9.9 million decrease in prepayment penalties.
28
For the year ended December 31, 2018, compared to 2017, interest expense increased by $6.0 million. The increase was due primarily to debt prepayment penalties of $14.9 million incurred in connection with 2018 refinancing of property-level debt that was scheduled to mature in 2019, 2020, and 2021, offset partially by a decrease in mortgage interest expense for communities sold and the sale of the Asset Management business in July 2018, and lower corporate-level interest.
Gain on Dispositions of Real Estate and the Asset Management Business
The table below summarizes dispositions of apartment communities from our portfolio during the years ended December 31, 2019, 2018, and 2017 (dollars in millions):
| Year Ended December 31, |
| |||||||||
| 2019 |
|
| 2018 (1) |
|
| 2017 |
| |||
Number of apartment communities sold |
| 12 |
|
|
| 4 |
|
|
| 5 |
|
Gross proceeds | $ | 696.2 |
|
| $ | 242.3 |
|
| $ | 397.0 |
|
Net proceeds (2) | $ | 619.4 |
|
| $ | 235.7 |
|
| $ | 385.3 |
|
Gain on dispositions | $ | 503.2 |
|
| $ | 175.2 |
|
| $ | 297.9 |
|
|
|
|
|
The apartment communities sold from our portfolio during 2019, 2018, and 2017 were primarily located outside of our primary markets or in lower-rated locations within our primary markets and had average revenues per apartment home significantly below those of our retained portfolio.
Income from Unconsolidated Real Estate Partnerships
Income from unconsolidated real estate partnerships for the year ended December 31, 2019, was relatively flat compared to the year ended December 31, 2018.
For the year ended December 31, 2018, compared to 2017, income from unconsolidated real estate partnerships decreased by $7.6 million, due primarily to the derecognition of the final NAPICO property in 2017, which resulted in a gain.
Income Tax Benefit
Certain of our operations, including property management and risk management, are conducted through taxable REIT subsidiaries, or TRS entities. Additionally, some of our apartment communities and 1001 Brickell Bay Drive are owned through TRS entities.
Our income tax benefit calculated in accordance with GAAP includes: (a) income taxes associated with the income or loss of our TRS entities including tax on gains on dispositions, for which the tax consequences have been realized or will be realized in future periods; (b) low income housing tax credits generated prior to the sale of our Asset Management business that offset REIT taxable income, primarily from retained capital gains; and (c) historic tax credits that offset income tax obligations of our TRS entities. Income taxes related to these items,original goals as well as changesthe necessary business priorities that arose given the COVID-19 pandemic. Taking all of this into account, the Committee determined that Aimco’s response to the COVID-19 pandemic should replace the NOI and AFFO goals.
29
Although Aimco achieved outperformance on each of the other 2020 goals, the Committee capped overall KPI performance at target, or 100%. Accordingly, each executive officer was awarded 100% of the portion of his or her target STI attributable to KPI.
The Committee considered a number of factors in valuation allowanceapplying discretion to replace the Same Store NOI and AFFO goals with a goal consisting of Aimco’s response to the COVID-19 pandemic, and in capping overall KPI performance at target. The Committee considered Aimco’s strong record of pay and performance alignment, as demonstrated by Aimco’s 98% or higher “FOR” Say on Pay vote for the past five consecutive years. The Committee considered Aimco’s regular engagement with stockholders holding at least two-thirds of its outstanding shares, the broad support received by stockholders with regard to company compensation plans, and the establishment of incremental deferred tax items in conjunction with intercompany asset transfers (if applicable), are included in income tax benefit in our consolidated statements of operations.
Forrefinements Aimco has made to its compensation and other programs over the year ended December 31, 2019, compared to 2018, income tax benefit decreased $9.9 million. The decrease is due primarily to lower tax benefit recognized in connection with the intercompany transfer of assets and release of a valuation allowance in 2018 related to sale of our Asset Management business, as well as lower tax benefit from historic tax credits. This decrease is offset partially by a lower tax provision on gains on dispositions.
For the year ended December 31, 2018, compared to 2017, income tax benefit decreased by $17.8 million. The decrease is due primarily to the reversal of a $19.3 million net tax benefit we recognizedyears as a result of those discussions. The Committee also considered Aimco’s discussions with stockholders in 2020 regarding how to approach evaluation of STI goals rendered moot by the December 2017 tax reform legislationpandemic. The manner in 2017 and higher tax expense relatedwhich the Committee applied discretion with respect to gains on sale of real estate for communities held through TRS entities.
Non-GAAP Measures2020 STI goals is consistent with these discussions.
Various of the key financial indicators we use in managing our business and in evaluating our financial condition and operating performance are non-GAAP measures. Key non-GAAP measures we use are defined, described and, described below, and for those non-GAAP measures used or disclosed within this annual report, we provide reconciliations of the non-GAAP measureswhere appropriate, reconciled to the most comparable financial measuremeasures computed in accordance with GAAP.GAAP under the Non-GAAP Measures heading within Part II, Item 7 in our Annual Report on Form 10-K for the year ended December 31, 2020.
29Long-Term Incentive Compensation Awards for 2020
2020 CEO LTI Equity Mix | 2020 Other NEOs1 LTI Equity Mix |
1 Excludes Mr. Wagner, who was promoted to an executive officer position in December 2020.
The amount of performance based LTI awards granted in 2020 that may vest are determined in accordance with the following TSR performance metrics:
Metric and Performance Level (1) (relative performance stated as | |||
Threshold | Target | Maximum | |
Relative to NAREIT Apartment Index | -250 bps | +50 bps | +400 bps |
Relative to MSCI US REIT Index | -350 bps | +50 bps | +500 bps |
(1) | The relative metrics above reflect the metrics used for the awards made in 2020 for the three-year forward-looking performance period ending on December 31, 2022. |
(2) | If absolute TSR for the three-year forward-looking performance period is negative, any portion of the LTI award achieved above target will not vest until absolute TSR is once again positive. |
Such metrics apply to the LTIP Units granted to Mr. Considine, all of which are performance based, the performance-based restricted stock granted to Messrs. Beldin, and Kimmel and Ms. Cohn, and the performance-based stock options granted to Mr. Beldin and Ms. Cohn. The Committee set threshold performance to pay out at 50%; target performance to pay out at 100%; and maximum performance to pay out at 200%. Performance below threshold will result in no payout. If performance is between threshold and target or between target and maximum, the amount of the payout will be interpolated. Performance-based LTI awards vest 50% following the end of the three-year performance period (based on attainment of TSR targets), and 50% one year later, for a four-year plan from start to finish, illustrated below, subject to the grantee’s continued service to AIR, and subject to a delay if absolute TSR for the three-year forward looking performance period is negative.
Post Separation, the Committee determined that the remaining performance periods of the 2019 and 2020 AIR performance-based awards would be determined using the combined total stockholder return of AIR and Aimco.
Free Cash Flow, as calculated for our retained portfolio, represents an apartment community’s property net operating income, less spending for Capital Replacements, which represents our estimationMr. Considine’s LTIP Units are intended to constitute profits interests within the meaning of the capital additions made to replace capital assets consumed during our ownershipCode. As described above, the number of Mr. Considine’s LTIP Units granted in 2020 that may vest is determined based on AIR’s relative TSR performance over the course of a forward looking, three year-performance period, (further discussed underwith 50% of such number of LTIP Units generally vesting at the Nareit Funds From Operations, Pro forma Funds From Operations, and Adjusted Funds From Operations heading). FCF margin as calculated for apartment communities sold represents the sold apartment community’s net operating income less $1,200 per apartment home of assumed annual capital replacement spending, as a percentagelater of the apartment community’s rental and other property revenues. Capital replacement spending represents a measure of capital asset usage duringtime performance is determined or the period; therefore, we believe that FCF is useful to investors as a supplemental measure of apartment community performance because it takes into consideration costs incurred during the period to replace capital assets that have been consumed during our ownership.
Economic Income
Economic Income represents stockholder value creation as measured by the change in estimated NAV per share plus cash dividends per share. We believe Economic Income is important to investors as it represents a measurethird anniversary of the total return we have earned for our stockholders. NAV, as usedgrant date and 50% vesting on the fourth anniversary of the grant date. With respect to 100% of the LTIP Units granted to Mr. Considine, all of which are performance based, Mr. Considine was granted the ability to participate in our calculationthe appreciation of Economic Income, is a non-GAAP measure and represents the estimated fair value of assets netAimco (now AIR) that took place after these LTIP Units were granted, subject to their vesting. For the purpose of liabilities attributablecalculating the number of shares subject to these LTIP Units, the target dollar amount was divided by $8.50, which price was calculated by a third-party financial firm with particular expertise in the valuation of such LTIP Units. The LTIP Units have a conversion price of $47.14, which was the closing price of Aimco’s common stockholdersstock on the grant date and equal to the fair market value of Aimco’s Common Stock on the grant date adjusted pursuant to the Employee Matters Agreement entered into in connection with the Separation. Additional details regarding the structure of LTIP Units can be found in the Amended and Restated Agreement of Limited Partnership of the AIR Operating Partnership, the Form of Performance Vesting LTIP Unit Agreement, and the Aimco Operating Partnership’s common unitholdersForm of Performance Vesting LTIP II Unit Agreement, all of which are incorporated by reference into AIR’s Annual Report on a diluted basis. We believe NAV is considered useful by some investors in real estate companies because the value of company assets can be readily estimated, even for non-earning assets such as land or properties under development. NAV has the advantage of incorporating the investment decisions of thousands of real estate investors. We believe it enhances comparability among companies that have differences in their accounting. Although, NAV is not identical to liquidation value in that some costs and benefits are disregarded, it is often considered a floor with upside for value ascribed to the operating platform. NAV also provides an objective basisForm 10-K for the perceived qualityyear ended December 31, 2020, as Exhibits 10.1, 10.18 and predictability10.20, respectively.
As provided in the Employee Matters Agreement, at the Separation each outstanding time or performance-vesting Aimco equity award was converted into awards of future cash flows as well as their expected growth as these are factors considered by real estate investors.
Our estimated NAV per share and the quoted share priceboth shares of Aimco Common Stock and shares of AIR Common Stock. The number of shares of Aimco Common Stock and AIR Common Stock subject to each converted award (and the applicable exercise price with respect to converted stock option awards) was determined in a manner intended to preserve the aggregate value of the original Aimco equity award as measured immediately before the Separation. A similar adjustment was provided for with respect to LTIPs.
31
For the purpose of calculating the number of shares of performance-based restricted stock to be granted to each of Messrs. Beldin and Kimmel and Ms. Cohn, the dollar amount allocated to restricted stock was divided by $53.53 per share, which was the average of the closing trading prices of the Aimco’s Common Stock on the five trading days up to and including the grant date. The five-day average was used to mute the effect of any single day spikes or declines. The share award agreements to which the performance-based restricted shares were granted do not provide for the payment of dividends until the shares are not necessarily equal. Although we use Economic Incomeearned. Dividends accrue during the performance period. For the purpose of calculating the number of shares subject to the performance-based stock options to be granted, the dollars allocated to stock options were divided by $8.15, which price was calculated by a third party financial firm with particular expertise in the valuation of options. The stock options have an exercise price of $47.14, which was the closing price of Aimco’s stock on the grant date and NAVequal to the fair market value of Aimco’s Common Stock on the grant date, adjusted pursuant to the Employee Matters Agreement entered into in connection with the Separation.
Mr. Wagner’s 2020 LTI was granted on January 25, 2021, according to the backward looking LTI plan that governs LTI awards for comparabilityofficers below the executive officer level and was the plan that applied to Mr. Wagner prior to his promotion in assessing our value creationDecember 2020. Under the plan that governs LTI awards for officers below the executive officer level, at the start of 2020, Mr. Considine determined that LTI for 2020 would be based in part on TSR. Specifically, 50% of the LTI target would be awarded for the purpose of attracting and retaining key talent integral to the success of Aimco. The remaining fifty percent of the LTI target would be based on TSR, with half (25% of the total LTI target) based on one-year TSR as compared to other REITs, not all REITs publishthe REIT Index, and half (another 25% of the total LTI target) based on three-year TSR as compared to the REIT Index. TSR at greater than 110% of the REIT Index would result in a 125% payout of the LTI target attributable to TSR, and TSR at less than 90% of the REIT Index would result in a 75% payout of the LTI target attributable to TSR. TSR between 90% and 110% of the REIT Index would result in 100% payout of the LTI target attributable to TSR. One-year TSR was between 90% and 110% of the REIT Index, resulting in a payout of 100% of the portion of the LTI target attributable to one-year TSR, and three-year TSR was greater than 110% of the REIT Index, resulting in a payout of 125% of the portion of the LTI target attributable to three-year TSR. Accordingly, Mr. Wagner was awarded 106.25% of his target LTI (i.e., 50% of the LTI target was for the purpose of retention and paid at 100%; 25% of the LTI target was paid at 100% based on relative performance on one-year TSR; and 25% of the LTI target was paid at 125% based on relative performance on three-year TSR; and the net effect of these measures and those who do may not compute themthree components resulted in an overall award of 106.25% of target LTI).
NEO Compensation for 2020
CEO Compensation. The Committee determined Mr. Considine’s STI for 2020 would be based entirely on the Company’s performance against the six designated corporate goals, described above. The Committee calculated Mr. Considine’s STI by multiplying his STI target of $1.8 million by 100%, which was the Committee’s payout determination having reviewed overall performance on the six corporate goals. The Committee granted Mr. Considine’s LTI in the same manner. Accordingly, there can be no assurance that our basisform of LTIP Units on January 28, 2020, for computing these measuresthe three-year performance period from January 1, 2020, through December 31, 2022; the LTI grant is comparable with that of other REITs.entirely at risk, based on relative returns over the performance period. Mr. Considine’s 2020 target compensation and incentive compensation are summarized as follows:
We report NAV on a semiannual basis, as
|
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| Target Total Incentive |
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|
| 2020 Incentive Compensation |
| ||||||||||||||
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| Compensation |
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| STI |
|
| LTI |
| |||||||||||
Target Total Compensation ($) |
|
| Paid Base ($) |
|
| STI ($) |
|
| LTI ($) |
|
|
| ($) (1) |
|
| Time-Based Equity ($) |
|
| Performance-Based 'Equity – Profits Interest LTIP Units ($) (2) |
| |||||||
| 6,800,000 |
|
|
| 700,000 |
|
|
| 1,800,000 |
|
|
| 4,300,000 |
|
|
|
| 1,800,000 |
|
|
| — |
|
|
| 4,300,000 |
|
(1) | Amount shown reflects the amount of 2020 STI paid to Mr. Considine. |
(2) | Amount shown reflects a 100% payout that would result from achieving “target” performance. Actual payout may range from 0% to 200% of this amount depending on performance results over the forward looking, three-year performance period ending December 31, 2022. The number of LTIP Units that are earned, if any, will vest with respect to 50% following the end of the three-year performance period and 50% one year later, for a four-year vesting period. |
Other NEO Compensation. For Messrs. Beldin and Kimmel and Ms. Cohn, an allocation of the endtarget STI was made as follows: 75% of the first and third quarters. Economic Income for 2019target STI was calculated usingbased on the change in NAV per share between September 30, 2018Company’s performance against KPI and 2019. NAV will fluctuate over time. This NAV information should not be relied upon as representative25% of the target STI was calculated based on each executive’s achievement of his or her individual MAP goals. Mr. Wagner’s target STI was allocated 50% to KPI and 50% to achievement of his individual MAP goals. As noted above, the Company’s KPI performance was 100.00%. Accordingly, each was awarded 100.00% of the portion of his or her STI attributable to KPI (i.e., 75% of the target STI amount a stockholder could expectshown below for Messrs. Beldin and Kimmel and Ms. Cohn, and 50% of the target STI amount shown below for Mr. Wagner).
In determining the MAP achievement component of 2020 STI, Mr. Considine determined that: Mr. Beldin’s MAP achievement would be paid at 100% of target for his contributions to receivefinance and accounting and to the Company’s balance sheet; Ms. Cohn’s MAP achievement would be paid at 200% for her leadership over legal matters, insurance, risk management, property dispositions, and asset quality and service, and specifically for her leadership in a liquidation event, now orconnection with Aimco’s response to the COVID-19 pandemic; Mr. Kimmel’s MAP achievement would be paid at 100% for his contributions to Aimco’s operating results, particularly in the future. Certain assets are excluded as are certain liabilities, such as taxes and transaction costs associated with a liquidation. In addition, NAV is based on management’s subjective judgments, assumptions and opinions aswake of the date of determination. We assume no obligationCOVD-19
32
pandemic; and Mr. Wagner’s MAP achievement would be paid at 112.5% for his role in setting the parameters for a pure play multi-family investment vehicle. The Committee reviewed Mr. Considine’s determinations with respect to revise or update NAV to reflect subsequent or future events or circumstances. Our NAV estimate is subject to a variety of risksMessrs. Beldin, Kimmel, and uncertainties, many of which are beyond our control, including, without limitation, thoseWagner and Ms. Cohn. As described in Item 1A. Risk Factors.detail beginning on page 31, LTI for the NEOs other than the CEO and other than Mr. Wagner was granted on January 28, 2020, in the form of LTIP Units, restricted stock, and/or stock options. As described above, Mr. Wagner’s LTI for 2020 was granted in January 2021. Target compensation and incentive compensation for 2020 for the other NEOs is summarized as follows:
Economic Income does not represent the change in stockholder’s equity in accordance with GAAP. Additionally, NAV does not represent stockholder’s equity in accordance with GAAP and should not be considered an alternative to Aimco’s total equity, which we believe is the most directly comparable GAAP measure. A reconciliation of NAV to Aimco’s total equity, as of September 30, 2019, is provided below (in millions, except per share data):
Total equity |
| $ | 1,786 |
|
Fair value adjustment for portfolio |
|
|
|
|
Consolidated real estate, at depreciated cost |
|
| (6,051 | ) |
Fair value of real estate (1) |
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|
|
|
Stabilized portfolio fair value (2) |
|
| 11,592 |
|
Non-stabilized portfolio fair value (3) |
|
| 1,706 |
|
Fair value adjustment for non-recourse property debt |
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|
|
|
Non-recourse property debt, net |
|
| 4,255 |
|
Fair value of non-recourse property debt (4) |
|
| (4,329 | ) |
Adjustments to present other tangible assets, liabilities and preferred equity at fair value (5) |
|
| 91 |
|
Estimated NAV |
| $ | 9,050 |
|
Total shares, units and dilutive share equivalents (6) |
|
| 157 |
|
Estimated NAV per weighted-average common share and unit – diluted |
| $ | 58 |
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| 2020 Incentive Compensation ($) |
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| Compensation |
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| Paid Base |
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| LTI |
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| -Stock |
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| - Stock Options |
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| ($) |
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| ($) |
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| STI ($) |
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| LTI ($) |
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| ($) (1) |
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| ($) (2) |
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| ($) (3) |
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| ($) (3) |
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Mr. Beldin |
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| 1,070,000 |
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| 450,000 |
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| 250,000 |
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| 370,000 |
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| 250,000 |
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| 123,333 |
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| 185,000 |
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| 61,667 |
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Ms. Cohn |
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| 2,100,000 |
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| 450,000 |
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| 550,000 |
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| 1,100,000 |
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|
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| 687,500 |
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| 366,667 |
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| 586,666 |
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| 146,667 |
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Mr. Kimmel |
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| 1,700,000 |
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| 450,000 |
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| 500,000 |
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| 750,000 |
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| 500,000 |
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| 250,000 |
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| 500,000 |
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| — |
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Mr. Wagner |
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| 374,920 |
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| 251,732 |
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| 69,628 |
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| 53,560 |
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| 73,980 |
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| 56,908 |
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| — |
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| — |
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30
(1) |
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| For Messrs. Beldin, and Kimmel and Ms. Cohn, comprises one-third of the LTI target, vesting ratably over four years, and is for the purpose of attracting and retaining key talent integral to the success of the Company. For Mr. Wagner, comprises actual 2020 LTI as described in detail above, vesting ratably over four years. For Messrs. Beldin, and Kimmel and Ms. Cohn, time-based LTI was in the form of |
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For valuation purposesDetermination Regarding 2018 Performance Share Awards. As part of the 2018 LTI program, Aimco granted performance-share awards that might be earned based on relative TSR as compared to the NAREIT Apartment Index (60% weighting) and the REIT Index (40% weighting) over a three-year performance period ending on December 31, 2020, with awards vesting 50% following the end of the three-year performance period (based on attainment of TSR targets) and 50% one year later, for a four-year plan from start to finish. On January 27, 2021, the Committee determined that Aimco’s three-year TSR (combined with AIR’s TSR for the period from December 11, 2020, through December 31, 2020) was 330 basis points higher than the NAREIT Apartment Index and 300 basis points higher than the REIT Index for the three-year performance period ending on December 31, 2020, resulting in the number of shares being earned at September 30,170% of target for Messrs. Considine, Beldin, and Kimmel and Ms. Cohn.
The chart below summarizes the results for the 2018 performance share awards, and provides performance as of December 31, 2020, for the “in progress” 2020 and 2019 we segregated these 132 properties intoand performance share awards.
Long Term Incentive Plan Award Status | |||||||||||
Three-Year Performance Period | 2016 | 2017 | 2018 | 2019 | 2020 | 2021 | 2022 | Status | CEO % Payout(1) | Other NEOs(2) | |
2020 – 2022 |
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|
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| 33% Completed | Tracking Between Target and Maximum | 144%(3) | 129%(3) | |||
2019 – 2021 |
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| 67% Completed |
| Tracking Between Threshold and Target | 82%(3) | 88%(3) | |||
2018 – 2020 |
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| 100% Completed |
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| Payout Achieved Between Target and Maximum | 170% | 147% | |||
(1)100% of the LTI award for Mr. Considine is performance-based, or at risk, based entirely on relative TSR. (2)Two-thirds of the LTI awards for the other NEOs are performance-based, or at risk, based on relative TSR, and the remaining one-third of the LTI awards are for the purpose of retention, or time-based. Payouts shown include the time-based portion of the awards. (3)Amounts reflect performance of “in progress” awards as of December 31, 2020, and for the period from December 11, 2020, through December 31, 2020, include the sum of Aimco and AIR TSR for purposes of the Company’s TSR performance. |
Other Compensation
From time to time, the Company determines to provide executive officers with additional compensation in the form of discretionary cash or equity awards. Mr. Considine awarded discretionary cash awards to the following categories: stabilized portfolio and non-stabilized portfolio.
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Nareit Funds From Operations, Pro forma Funds From Operations, and Adjusted Funds From Operations
Nareit FFO is a non-GAAP financial measure that we believe, when considered with the Separation: Mr. Beldin — $250,000; Ms. Cohn — $550,000; Mr. Kimmel — $125,000; and Mr. Wagner — $50,000. Mr. Considine determined the amounts with reference to each individual’s STI target amount, meaning that each award would not be more than the executive officer’s STI target amount. These awards were in addition to, and not in lieu of, other compensation.
33
The Committee recognized Mr. Considine’s tremendous leadership in conceiving, structuring, guiding, and executing the Separation. The Committee evaluated whether and what type of additional compensation to award Mr. Considine to recognize his work. After consideration, Mr. Considine proposed that he forego any financial statements determinedcompensation tied directly to the value creation of the Separation in order to make clear that the purpose – and result – of the Separation was its creation of stockholder value. The Committee agreed and accepted this proposal.
Post-Employment Compensation and Employment and Severance Arrangements
401(k) Plan
Aimco, and AIR following the Separation, provide a 401(k) plan that is offered to all teammates. In 2020, Aimco and AIR together matched 25% of participant contributions to the extent of the first 4% of the participant’s eligible compensation. For 2020, the maximum match was $2,850, which was the amount matched for each of Messrs. Considine, Beldin, Kimmel, and Ms. Cohn’s 2020 401(k) contributions. Mr. Wagner’s match was $2,412 of his 2020 401(k) contribution. No additional discretionary match was provided in 2021 because Aimco did not achieve greater than 105% performance of its 2020 corporate goals. Aimco’s prior year discretionary match to all teammates, reflecting Aimco’s achievement of greater than 125% on its 2019 corporate goals, was $1,200.
Other than the 401(k) plan, neither Aimco nor AIR provide post-employment benefits. Additionally, neither Aimco nor AIR maintains a defined benefit pension plan, a supplemental executive retirement plan or any other similar arrangements.
Executive Employment Arrangements
2017 Employment Agreement. On December 21, 2017, the AIR Operating Partnership entered into an employment agreement with Mr. Considine (the “2017 Employment Agreement”). The Committee at the time evaluated the terms of the 2017 Employment Agreement in comparison to those of the CEOs of Aimco’s peers and other comparable companies. The 2017 Employment Agreement was for a two-year term. On December 19, 2019, the Committee extended the term of the 2017 Employment Agreement for an additional two years, from January 1, 2020, through December 31, 2021. The remaining terms and conditions of the 2017 Employment Agreement remained unchanged. On December 15, 2020, Mr. Considine and the AIR Operating Partnership amended the 2017 Employment Agreement to provide that references to the “Company” in the 2017 Employment Agreement would be to AIR (rather than Aimco) following the Separation.
The 2017 Employment Agreement provides for a base salary of $700,000, subject to future increase. Mr. Considine also continues to be eligible to participate in AIR’s performance-based incentive compensation plan with a target annual short-term incentive award opportunity of not less than $1.4 million (the “Target STI”), and a target long-term incentive award opportunity of not less than $4.025 million, both subject to future increase.
Pursuant to the 2017 Employment Agreement, upon termination of Mr. Considine’s employment by AIR without cause, by Mr. Considine for good reason, or upon a termination for reason of disability, Mr. Considine is generally entitled to: (a) a lump sum cash payment equal to the sum of (i) three times the sum of his base salary at the time of termination, and (ii) the Target STI; (b) any short-term incentive bonus earned but unpaid for a prior fiscal year (the “Prior Year STI”); (c) a pro-rata portion of the short-term incentive bonus he would have earned for the year in which the termination occurs, based on the actual achievement of the applicable performance targets (the “Pro Rata STI”); and (d) immediate and full acceleration of any outstanding unvested equity awards, with all outstanding stock options (including options previously vested) remaining exercisable until the expiration of the applicable option term. In the event of Mr. Considine’s retirement, Mr. Considine will be entitled to: (a) the Prior Year STI; (b) the Pro Rata STI; and (c) accelerated vesting of outstanding and unvested equity awards, if any, that vest solely on a time basis and continued vesting of all outstanding unvested equity awards that vest based on the achievement of performance targets according to actual achievement of the applicable performance targets. If Mr. Considine’s employment is terminated due to his death, Mr. Considine’s estate will receive payment of any earned but unpaid base salary and vested accrued benefits, the Prior Year STI, and the Pro Rata STI, and all outstanding equity awards will become immediately and fully vested and be treated in accordance with GAAP,the terms of the applicable award agreement.
Under the 2017 Employment Agreement, Mr. Considine is helpfulnot entitled to investorsany additional or special payments upon the occurrence of a change in understanding our performance because it captures features particularcontrol.
In the event payments to real estate performanceMr. Considine are subject to the excise tax imposed by recognizingSection 4999 of the Internal Revenue Code, the payments will be either (a) delivered in full, or (b) delivered as to such lesser extent that real estate generally appreciates over timewould result in no portion of such payments being subject to the excise tax, whichever results in the receipt by Mr. Considine of the greater amount on an after-tax basis.
The 2017 Employment Agreement also contains customary confidentiality provisions, a limited mutual non-disparagement provision, and non-competition, non-solicitation, and no-hire provisions.
34
In addition, as part of the Separation AIR and Aimco entered into the Employee Matters Agreement, which provides that Mr. Considine will continue to serve Aimco with specific responsibilities during the next two years to support the establishment and growth of the Aimco business, reporting directly to the Aimco board of directors.
None of Messrs. Beldin, Kimmel, or maintains residual value to a much greater extent than do other depreciable assets such as machinery, computers,Wagner or Ms. Cohn has an employment agreement.
Executive Severance Arrangements
Executive Severance Policy. In connection with the Separation, AIR adopted the Apartment Income REIT Corp. Executive Severance Policy (the “Executive Severance Policy”). The Executive Severance Policy supersedes and replaces any employment agreement or other personal property. Nareit defines FFOplan, policy or practice involving the payment of severance benefits to participants under the Executive Severance Policy. The Company’s Executive Vice Presidents, as net income computed in accordance with GAAP, excluding: depreciation and amortization related to real estate; gains and losses from sales and impairment of depreciable assets and land used in our primary business; and income taxes directly associated with a gain or lossdetermined on the sale of real estate, and including our sharerecords of the FFOCompany and any other entities through which the operations of unconsolidated partnershipsthe Company are conducted, are eligible to participate in the Executive Severance Policy. Each of Messrs. Beldin, Kimmel, and joint ventures. AdjustmentsWagner and Ms. Cohn are participants under the Executive Severance Policy; however, the Chief Executive Officer, Mr. Considine, is not a participant under the Executive Severance Policy.
The Executive Severance Policy provides that if the Company terminates a participant’s employment without “Cause,” or if the participant terminates his or her employment for unconsolidated partnerships and joint ventures are calculated on“Good Reason” (each as defined in the same basisExecutive Severance Policy), then the participant will be eligible to determine Nareit
31
FFO. We calculate Nareit FFO attributable to Aimco common stockholders (diluted) by subtracting dividends on preferred stock and amounts allocated from Nareit FFO to participating securities.
In addition to Nareit FFO, we compute Pro forma FFO and AFFO, which are also non-GAAP financial measures that we believe are helpful to investors in understanding our short-term performance. Pro forma FFO represents Nareit FFO attributable to Aimco common stockholders (diluted), excluding certain amounts that are unique or occur infrequently.
In computing 2019 Pro forma FFO, we madereceive the following adjustments to Nareit FFO:benefits:
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In computing 2018 Pro forma FFO, we made the following adjustments to Nareit FFO:
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AFFO represents Pro forma FFO reduced by Capital Replacements, which represent our estimation of the actual capital additions made to replace capital assets consumed during our ownership period. When we make capital additions at an apartment community, we evaluate whether the additions extend the useful life of an asset as compared to its condition at the time we purchased the apartment community. We classify as Capital Improvements those capital additions that meet this criterion, and we classify as Capital Replacements those that do not. AFFO is a key financial indicator we use to evaluate our short-term operational performance and is one of the factors that we use to determine the amounts of our dividend payments.
Nareit FFO, Pro forma FFO, and AFFO should not be considered alternatives to net income determined in accordance with GAAP, as indications of our performance. Although we use these non-GAAP measures for comparability in assessing our
32
performance compared to other REITs, not all REITs compute these same measures and those who do may not compute them in the same manner. Additionally, computation of AFFO is subject to our definition of Capital Replacement spending. Accordingly, there can be no assurance that our basis for computing these non-GAAP measures is comparable with that of other REITs.
For the years ended December 31, 2019 and 2018, Aimco’s Nareit FFO, Pro forma FFO, and AFFO are calculated as follows (in thousands, except per share data):
|
| 2019 |
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| 2018 |
| ||
Net income attributable to Aimco common stockholders (1) |
| $ | 466,144 |
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| $ | 656,597 |
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Adjustments: |
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Real estate depreciation and amortization, net of noncontrolling partners’ interest |
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| 370,746 |
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| 368,961 |
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Gain on dispositions and other, net of noncontrolling partners’ interest |
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| (503,168 | ) |
|
| (669,450 | ) |
Income tax adjustments related to gain on dispositions and other tax-related items (2) |
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| 10,107 |
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| 27,310 |
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Common noncontrolling interests in Aimco Operating Partnership’s share of above adjustments |
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| 6,448 |
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| 14,063 |
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Amounts allocable to participating securities |
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| 163 |
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| 402 |
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Nareit FFO attributable to Aimco common stockholders |
| $ | 350,440 |
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| $ | 397,883 |
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Adjustments, all net of common noncontrolling interests in Aimco Operating Partnership, participating securities and tax effect: |
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Prepayment penalties, net |
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| 6,367 |
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| 14,089 |
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Straight-line rent |
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| 4,472 |
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|
| — |
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Preferred equity redemption-related amounts |
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| 3,864 |
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| — |
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Casualty losses |
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| 2,913 |
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|
| — |
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Severance and restructuring costs |
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| 2,499 |
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| 1,282 |
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Litigation, net |
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| 147 |
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|
| (8,558 | ) |
Tax benefit due to valuation allowance release |
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| — |
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|
| (19,349 | ) |
Change in lease accounting |
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| — |
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|
| (2,922 | ) |
Tax provision (benefit) related to tax reform legislation |
|
| — |
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| 273 |
|
Pro forma FFO attributable to Aimco common stockholders |
| $ | 370,702 |
|
| $ | 382,698 |
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Capital Replacements, net of common noncontrolling interests in Aimco Operating Partnership and participating securities |
|
| (43,837 | ) |
|
| (45,560 | ) |
AFFO attributable to Aimco common stockholders |
| $ | 326,865 |
|
| $ | 337,138 |
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Total share and dilutive share equivalents used to calculate Net income and Nareit FFO per share (3) |
|
| 147,944 |
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| 151,334 |
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Adjustment to weight reverse stock split (4) |
|
| 621 |
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| 4,719 |
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Pro forma shares and dilutive share equivalents used to calculate Pro forma FFO and AFFO per share |
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| 148,565 |
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| 156,053 |
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Net income attributable to Aimco per common share – diluted |
| $ | 3.15 |
|
| $ | 4.34 |
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Nareit FFO per share – diluted |
| $ | 2.37 |
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| $ | 2.63 |
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Pro Forma FFO per share – diluted |
| $ | 2.50 |
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| $ | 2.45 |
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AFFO per share – diluted |
| $ | 2.20 |
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| $ | 2.16 |
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Please refer to the Results of Operations section for discussion of our Pro forma FFO and AFFO results for 2019, as compared to 2018.
33
The Aimco Operating Partnership does not separately compute or report Nareit FFO, Pro forma FFO, or AFFO. However, based on Aimco’s method for allocation of such amounts to noncontrolling interests in the Aimco Operating Partnership, as well as limited differences between the amounts of net income attributable to Aimco’s common stockholders and the Aimco Operating Partnership’s unit holders during the periods presented, Nareit FFO, Pro forma FFO, and AFFO amounts on a per unit basis for the Aimco Operating Partnership would be expected to be substantially the same as the corresponding per share amounts for Aimco.
Leverage Ratios
As discussed under the Balance Sheet heading, our leverage strategy targets the ratio of Proportionate Debt and Preferred Equity to Adjusted EBITDAre to be below 7.0x and the ratio of Adjusted EBITDAre to Adjusted Interest Expense and Preferred Dividends to be greater than 2.5x. We believe these ratios, which are based in part on non-GAAP financial information, are commonly used by investors and analysts to assess the relative financial risk associated with companies within the same industry, and they are believed to be similar to measures used by rating agencies to assess entity credit quality.
Proportionate Debt, as used in our leverage ratios, is a non-GAAP measure and includes our share of the long-term, non-recourse property debt and outstanding borrowings under our revolving credit facility. Proportionate Debt excludes unamortized debt issuance costs because these amounts represent cash expended in earlier periods and do not reduce our contractual obligations. We reduce our recorded debt by the amounts of cash and restricted cash on-hand, which are primarily restricted under the terms of our property debt agreements, assuming these amounts would be used to reduce our outstanding leverage. We further reduce our recorded debt by the value of our investment in a securitization trust that holds certain of our property debt, as our payments of principal and interest associated with such property debt will ultimately repay our investments in the trust.
We believe Proportionate Debt is useful to investors as it is a measure of our net exposure to debt obligations. Proportionate Debt, as used in our leverage ratios, is calculated as set forth in the table below.
Preferred Equity, as used in our leverage ratios, represents the redemption amounts for the Aimco Operating Partnership’s preferred OP Units. Preferred Equity, although perpetual in nature, is another component of our overall leverage.
The reconciliation of total indebtedness to Proportionate Debt and Preferred Equity, as used in our leverage ratios as of December 31, 2019, is as follows (in thousands):
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| December 31, 2019 |
| |
Total indebtedness |
| $ | 4,505,590 |
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Adjustments: |
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Debt issuance costs related to non-recourse property debt |
|
| 20,749 |
|
Proportionate share adjustments related to debt obligations of consolidated and unconsolidated partnerships |
|
| (7,722 | ) |
Cash and restricted cash |
|
| (177,702 | ) |
Proportionate share adjustments related to cash and restricted cash held by consolidated and unconsolidated partnerships |
|
| 1,107 |
|
Securitization trust investment and other |
|
| (94,251 | ) |
Proportionate Debt |
| $ | 4,247,771 |
|
Preferred Equity |
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| 97,064 |
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Redeemable noncontrolling interests in consolidated real estate partnership |
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| 4,716 |
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Proportionate Debt and Preferred Equity |
| $ | 4,349,551 |
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We calculated Adjusted EBITDAre used in our leverage ratios based on the most recent three month amounts, annualized. EBITDAre and Adjusted EBITDAre are non-GAAP measures, which we believe are useful to investors, creditors, and rating agencies as a supplemental measure of our ability to incur and service debt because they are recognized measures of performance by the real estate industry and 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:
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34
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We define Adjusted EBITDAre as EBITDAre adjusted to exclude the effect of the following items for the reasons set forth below:
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EBITDAre is defined by Nareit and provides for an additional performance measure independent of capital structure for greater comparability between real estate investment trusts. The reconciliation of net income to EBITDAre and Adjusted EBITDAre for the three months ended December 31, 2019, as used in our leverage ratios, is as follows (in thousands):
|
| Three Months Ended |
| |
|
| December 31, 2019 |
| |
Net income |
| $ | 142,766 |
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Adjustments: |
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|
|
|
Interest expense |
|
| 45,846 |
|
Income tax benefit |
|
| (1,193 | ) |
Depreciation and amortization |
|
| 97,144 |
|
Gain on dispositions of real estate |
|
| (146,239 | ) |
Adjustment related to EBITDAre of unconsolidated partnerships |
|
| 211 |
|
EBITDAre |
| $ | 138,535 |
|
Net income attributable to noncontrolling interests in Aimco Operating Partnership |
|
| (84 | ) |
EBITDAre adjustments attributable to noncontrolling interests |
|
| (615 | ) |
Interest income received on securitization investment |
|
| (2,127 | ) |
Straight-line rent |
|
| 657 |
|
Severance and restructuring costs (1) |
|
| 800 |
|
Casualty losses (2) |
|
| 2,913 |
|
Pro forma adjustment, net (3) |
|
| 2,656 |
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Adjusted EBITDAre |
| $ | 142,735 |
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Annualized Adjusted EBITDAre |
| $ | 570,940 |
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We calculate Adjusted Interest Expense, as used in our leverage ratios, based on the most recent three months, annualized. Adjusted Interest Expense is a non-GAAP measure that we believe is meaningful for investors and analysts as it presents our share of current recurring interest requirements associated with leverage. Adjusted Interest Expense represents our proportionate share of interest expense on non-recourse property debt and interest expense on our revolving credit facility borrowings. We exclude from our calculation of Adjusted Interest Expense:
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35
Preferred Dividends represents the distributions paid on the Aimco Operating Partnership’s preferred OP Units. We add Preferred Dividends to Adjusted Interest Expense for a more complete picture of the interest and dividend requirements of our leverage.
The reconciliation of interest expense to Adjusted Interest Expense and Preferred Dividends for the three months ended December 31, 2019, as used in our leverage ratios, is as follows (in thousands):
|
| Three Months Ended |
| |
|
| December 31, 2019 |
| |
Interest expense |
| $ | 45,846 |
|
Adjustments: |
|
|
|
|
Proportionate share adjustments related to interest of consolidated and unconsolidated partnerships |
|
| (77 | ) |
Debt prepayment penalties and other non-interest items |
|
| (5,034 | ) |
Interest income earned on securitization trust investment |
|
| (2,127 | ) |
Adjusted Interest Expense |
| $ | 38,608 |
|
Preferred dividends |
|
| 1,908 |
|
Adjusted Interest Expense and Preferred Dividends |
| $ | 40,516 |
|
Annualized Adjusted Interest Expense |
| $ | 154,432 |
|
Annualized Adjusted Interest Expense and Preferred Dividends |
| $ | 162,064 |
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Liquidity and Capital Resources
Liquidity
Liquidity is the ability to meet present and future financial obligations. Our primary source of liquidity is cash flow from operations. Additional sources are proceeds from dispositions of apartment communities, proceeds from refinancing existing property debt, borrowings under new property debt, borrowings under our revolving credit facility, and proceeds from equity offerings.
As of December 31, 2019, our primary sources of liquidity were as follows:
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| • |
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Our principal uses for liquidity include normal operating activities, paymentsThe vesting and exercise of principal and interest on outstanding property debt, capital expenditures, dividends paid to stockholders, distributions paid to noncontrolling interest partners, and acquisitions of apartment communities. We use our cash and cash equivalents and our cash providedany equity awards held by operating activities to meet short-term liquidity needs. In the event that our cash and cash equivalents and cash provided by operating activities are not sufficient to cover our short-term liquidity needs, we have additional means, such as short-term borrowing availability and proceeds from apartment community sales and refinancings. We may use our revolving credit facility for working capital and other short-term purposes, such as funding investments on an interim basis. We expect to meet our long-term liquidity requirements, such as debt maturities, redevelopment spending, and apartment community acquisitions, through primarily non-recourse, long-term borrowings, the issuance of equity securities (including OP Units), the sale of apartment communities, and cash generated from operations.
As of December 31, 2019, we also held unencumbered apartment communities with an estimated fair market value of approximately $2.4 billion.
Leverage and Capital Resources
The availability of credit and its related effecta participant on the overall economy may affect our liquiditydate of termination will be determined in accordance with the applicable incentive plan and future financing activities, both through changes in interest rates and accessaward agreement.
Pursuant to financing. Currently, interest rates are low compared to historical levels and many lenders are active in the market. However, any adverse changes in the lending environment could negatively affect our liquidity. We believe we have mitigated much of this exposure by reducing our short and intermediate term maturity risk through refinancing such loans with long-dated, fixed-rate property debt. However, if property financing options become unavailable for our future debt needs, we may consider alternative sources of liquidity, such as reductions in capital spending or proceeds from apartment community dispositions.
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Two credit rating agencies rate our creditworthiness and both have rated our credit and outlook as BBB- (stable), an investment grade rating. Our investment grade rating would be useful in accessing capital through the sale of bonds in private or public transactions. However, our intention and historical practice has been to raise debt capital in the form of property-level, non-recourse, long-dated, fixed-rate, amortizing debt, the cost of which is generally less than that of recourse debt and the terms of which also providethe Executive Severance Policy, if the Company terminates a participant’s employment without Cause, or if the participant terminates his or her employment for greater balance sheet safety.
AsGood Reason, in either case, within the period commencing six months prior to and ending 12 months following a “Change in Control” (as defined in the Executive Severance Policy), then in lieu of December 31, 2019, approximately 91.8% of our leverage consisted of property-level, non-recourse, long-dated, amortizing debt. Approximately 96.0% of our property-level debt is fixed-rate, which provides a hedge against increases in interest rates, capitalization rates, and inflation. The weighted-average remaining term to maturity of our property-level debt was 7.5 years. On average, 7.4% of our unpaid principal balances will mature each year from 2020 through 2022.
During 2019, we financed $772.6 million of new non-recourse, fixed-rate property debt. These loans have a weighted-average interest rate of 3.32%, a weighted-average remaining term to maturity of 11.4 years, and contributed to an approximately 29 basis point decrease in our annual cost of leverage compared to 2018.
While our primary source of leverage is property-level, non-recourse, long-dated, fixed-rate, amortizing debt, we also have a revolving credit facility with a syndicate of financial institutions. As of December 31, 2019, we had $275.0 million of outstanding borrowings under our revolving credit facility, which represented 6.0% of our total leverage.
As of December 31, 2019, our outstanding preferred OP units represented approximately 2.1% of our total leverage. Preferred OP units are redeemable at the holder’s option; however, for illustrative purposes, we compute the weighted-average maturity of our total leverage assuming a 10-year maturity on the units.
The combination of non-recourse property-level debt, borrowings under our revolving credit facility, preferred OP units, and redeemable noncontrolling interests in a consolidated real estate partnership comprise our total leverage. The weighted-average remaining term to maturity for our total leverageseverance benefits described above was 7.3 years as of December 31, 2019.
Under the revolving credit facility, we have agreedparticipant will be eligible to maintain a Fixed Charge Coverage ratio of 1.40x, as well as other covenants customary for similar revolving credit arrangements. Forreceive the year ended December 31, 2019, our Fixed Charge Coverage ratio was 2.06x, compared to ratio of 2.05x for the year ended December 31, 2018. We expect to remain in compliance with this covenant during the next 12 months.
We like the discipline of financing our investments in real estate through the use of fixed-rate, amortizing, non-recourse property debt, as the amortization gradually reduces our leverage and reduces our refunding risk, and the fixed-rate provides a hedge against increases in interest rates, and the non-recourse feature avoids entity risk.
Changes in Cash, Cash Equivalents and Restricted Cash
The following discussion relates to changes in consolidated cash, cash equivalents, and restricted cash due to operating, investing, and financing activities, which are presented in our consolidated statements of cash flows in Item 8 of this report.
Operating Activities
For the year ended December 31, 2019, our net cash provided by operating activities was $374.5 million. Our operating cash flow is affected primarily by rental rates, occupancy levels, and operating expenses related to our portfolio of apartment communities. Cash provided by operating activities for the year ended December 31, 2019, decreased by $21.9 million compared to 2018, due to lower net operating income associated with communities sold and the Asset Management business sold in 2018, offset partially by improved operating results of our Same Store communities and increased contribution from our Acquisition and Other Real Estate communities.
Investing Activities
For the year ended December 31, 2019, net cash used in investing activities of $205.4 million consisted primarily of the cash payment for the mezzanine loan and related transaction costs, the acquisitions of 1001 Brickell Bay Drive, One Ardmore, and Prism, and capital expenditures, offset partially by proceeds from the disposition of 12 apartment communities.
Capital additions for our segments totaled $396.0 million, $329.3 million, and $310.5 million during the years ended December 31, 2019, 2018, and 2017, respectively. We generally fund capital additions with cash provided by operating activities and cash proceeds from sales of apartment communities.
37
We categorize capital spending for communities in our portfolio broadly into seven primary categories:benefits:
| • |
|
| • |
|
| • | 100% accelerated vesting of any unvested equity awards then-held by the participant. |
The Executive Severance Policy provides that if the employment of the participant is terminated by reason of the participant’s death or disability, then the participant will be eligible to receive a pro-rated bonus for the year of termination. In addition, the vesting and exercise of any equity awards held by the participant at the time of his or her death or disability will be determined in accordance with the applicable incentive plan and award agreement.
In the event that any payment or benefit payable to a participant under the Executive Severance Policy would result in the imposition of excise taxes under the “golden parachute” provisions of Section 280G of the Internal Revenue Code, then such payments and benefits will either be made and/or provided in full or will be reduced such that the excise tax under Section 280G is not applicable, whichever is least economically disadvantageous to the participant. The Executive Severance Policy does not provide for any excise tax or other tax “gross-up” payment.
All severance payments and benefits under the Executive Severance Policy are subject to applicable withholding obligations, the participant’s execution and non-revocation of a release of claims, and compliance with certain non-competition, non-disclosure and non-solicitation covenants set forth in a restrictive covenant agreement that is appropriate for the participant’s position.
The Executive Severance Policy will remain in effect, subject to amendment, until terminated by the Board. The Board may terminate or amend the Executive Severance Policy at any time, so long as at least 90 days’ prior notice is provided to any participant if the termination or amendment of the Executive Severance Policy would materially or adversely affect the rights of the participant.
Non-Competition and Non-Solicitation Agreements
Effective in January 2002 for Mr. Considine, and in connection with their employment or promotions by the Company for Messrs. Beldin and Kimmel and Ms. Cohn, the Company entered into certain non-competition and non-solicitation agreements with each executive. Mr. Considine’s 2002 non-competition and non-solicitation agreement was replaced by his 2008 and 2017 Employment
35
Agreements. Pursuant to these agreements, each of these NEOs agreed that during the term of his or her employment with the Company and for a period of two years following the termination of his or her employment, except in circumstances where there was a change in control of the Company, he or she would not (i) be employed by a competitor of the Company named on a schedule to the agreement, (ii) solicit other employees to leave the Company’s employment, or (iii) solicit customers of Aimco to terminate their relationship with the Company. The agreements further required that the NEOs protect trade secrets and confidential information. For Messrs. Beldin and Kimmel and Ms. Cohn, the agreements provide that in order to enforce the above-noted non-competition condition following the executive’s termination of employment by the Company without cause, each such executive will receive, for a period not to extend beyond the earlier of 24 months following such termination or the date of acceptance of employment with a non-competitor, (i) non-compete payments in an amount, if any, to be determined by the Company in its sole discretion and (ii) a monthly payment equal to two-thirds of such executive’s monthly base salary at the time of termination. For purposes of these agreements, “cause” is defined to mean, among other things, the executive’s (i) breach of the agreement, (ii) failure to perform required employment services, (iii) misappropriation of Company funds or property, (iv) conviction, plea of guilty, or plea of no contest to a crime involving fraud or moral turpitude, or (v) negligence, fraud, breach of fiduciary duty, misconduct or violation of law. Mr. Wagner’s agreement provides for non-solicitation as well as confidentiality and trade secret protection.
Equity Award Agreements
Double Trigger Vesting Upon Change in Control. The award agreements pursuant to which restricted stock, LTIP Unit, or stock option awards have been granted to Messrs. Considine, Beldin and Kimmel, and Ms. Cohn, as applicable, provide that if (i) a change in control occurs and (ii) the executive’s employment with the Company is terminated either by the Company without cause or by the executive for good reason, in either case, within 12 months following the change in control, then (a) for time-based options or restricted stock, all outstanding shares of restricted stock or unvested stock options shall become immediately and fully vested and exercisable, and all vested options will remain exercisable for the remainder of the term of the option, and (b) for performance-based options, restricted stock and/or LTIP Unit awards, shares, unvested options and/or units will vest based on the higher of actual or target performance through the truncated performance period ending on the date of the change in control, and all vested options will remain exercisable for the remainder of the term of the option.
Accelerated Vesting Upon Termination of Employment Due to Death or Disability. Pursuant to the 2017 Employment Agreement, as set forth above, if Mr. Considine’s employment is terminated due to his death or disability, and all outstanding equity awards will become immediately and fully vested and be treated in accordance with the terms of the applicable award agreement. The award agreements pursuant to which restricted stock, LTIP Unit or stock option awards have been granted to Messrs. Considine, Beldin, Kimmel, and Wagner and Ms. Cohn, as applicable, provide that upon a termination of employment due to death or disability, then (a) for time-based options or restricted stock, all outstanding shares of restricted stock or unvested stock options shall become immediately and fully vested and exercisable, and all vested options will remain exercisable for the remainder of the term of the option, and (b) for performance-based options, restricted stock or LTIP Unit awards, shares, unvested options and/or units will vest based on the higher of actual or target performance through the date of termination, and all vested options will remain exercisable for the remainder of the term of the option.
Other Benefits; Perquisite Philosophy
Aimco’s and after the Separation, AIR’s executive officer benefit programs are substantially the same as for all other eligible officers and employees. AIR does not provide executives with more than minimal perquisites, such as reserved parking places.
Stock Ownership Guidelines and Required Holding Periods After Vesting
AIR believes that it is in the best interest of AIR’s stockholders for AIR’s executive officers to own AIR stock. Every year, the Committee and Mr. Considine review AIR’s stock ownership guidelines, each executive officer’s holdings in light of the stock ownership guidelines, and each executive officer’s accumulated realized and unrealized stock option and restricted stock gains.
Equity ownership guidelines for all executive officers are determined as a minimum of the lesser of a multiple of the executive’s base salary or a fixed number of shares. The Committee and management have established the following stock ownership guidelines for AIR’s executive officers:
Officer Position | Ownership Target |
Chief Executive Officer | Lesser of 5x base salary or 150,000 shares |
President & General Counsel | Lesser of 5x base salary or 75,000 shares |
Chief Financial Officer | Lesser of 5x base salary or 75,000 shares |
Other Executive Officers | Lesser of 4x base salary or 25,000 shares |
Any executive officer who has not satisfied the stock ownership guidelines must, until the stock ownership guidelines are satisfied, hold 50% of any restricted stock that vests, after deduction of restricted stock sold for payment of income taxes related to the vesting for at least three years from the date of vesting, and hold shares equal to 50% of (i) the value realized upon option exercises less (ii) related income taxes for at least three years from the date of exercise.
36
Each of Messrs. Considine, Beldin, Kimmel and Ms. Cohn exceeded the ownership targets established in AIR’s stock ownership guidelines as of April 10, 2021. Mr. Wagner does not yet meet the requirements as he was promoted (and therefore became subject to the ownership targets) in connection with the Separation.
Role of Outside Consultants
The Committee has the authority under its charter to engage the services of outside advisors, experts, and others to assist the Committee. In 2020, the Committee engaged FPL Associates, L.P. (“FPL”) to review Aimco’s executive compensation plan. FPL did not provide other services to Aimco. The Committee has assessed the independence of FPL pursuant to SEC rules and has concluded that FPL is independent.
Base Salary, Incentive Compensation, and Equity Grant Practices
Base salary adjustments typically take effect on January 1. The Committee (for Mr. Considine) and Mr. Considine, in consultation with the Committee (for the other executive officers), and the AIR Committee following the Separation, determine incentive compensation in late January or early February. STI is typically paid in February or March. LTI is granted on a date determined by the Committee or the AIR Committee following the Separation, typically in late January or early February.
Aimco, and AIR following the Separation, grants equity in three scenarios: in connection with its annual incentive compensation program, as discussed above; in connection with certain new-hire or promotion packages; and for purposes of retention.
With respect to LTI, the Committee, and the AIR Committee following Separation, sets the grant date for the restricted stock, LTIP Unit, and stock option grants. The Committee sets grant dates at the time of its final compensation determination, generally in late January or early February. The date of determination and date of award are not selected based on share price. In the case of new-hire packages that include equity awards, grants are made on the employee’s start date or on a date designated in advance based on the passage of a specific number of days after the employee’s start date. For non-executive officers, the Committee, and the AIR Committee following the Separation, has delegated the authority to make equity awards, up to certain limits, to the Chief Financial Officer (Mr. Beldin) and/or Corporate Secretary (Ms. Cohn). The Committee and Mr. Beldin and Ms. Cohn time grants without regard to the share price or the timing of the release of material non-public information and do not time grants for the purpose of affecting the value of executive compensation.
2021 Compensation Targets
Based on comparison to compensation paid to CEOs at AIR’s peers, the Committee set Mr. Considine’s target total compensation (base compensation, STI and LTI) for 2021 unchanged at $6.8 million. Mr. Considine, in consultation with the Committee, set target total compensation (base compensation, STI and LTI) for 2021 for the other NEOs as follows: Mr. Beldin — $1.07 million; Ms. Cohn — $2.1 million; Mr. Kimmel — $1.7 million; and Mr. Wagner — $0.55 million. AIR performance will determine the amounts paid for 2021 STI and the portion of LTI awards that vest, and such amounts may be less than, or in excess of, these target amounts. STI will be paid in cash. The LTI granted to Ms. Cohn and Messrs. Beldin, Kimmel, and Wagner on January 25, 2021, was in the form of performance-based restricted stock and time-based restricted stock.
Accounting Treatment and Tax Deductibility of Executive Compensation
The Committee, and the AIR Committee following the Separation, generally considers the accounting treatment and tax implications of the compensation awarded or paid to our executives. Grants of equity compensation awards under our long-term incentive program are accounted for under FASB ASC Topic 718. Section 162(m) of the Internal Revenue Code was amended on December 22, 2017, by the Tax Cuts and Jobs Act (the “Tax Act”). Under the Tax Act, Section 162(m) applies to each employee who serves as the principal executive officer or principal financial officer during the taxable year, each other employee who is among the three most highly compensated officers during such taxable year, and any other employee who was a covered employee for any preceding taxable year beginning after December 31, 2016. The Tax Act also eliminated the performance-based compensation exception with respect to tax years beginning after December 31, 2017, but includes a transition rule with respect to compensation that is provided pursuant to a written binding contract in effect on November 2, 2017, and not materially modified after that date. Aimco has awarded, and AIR will continue to award, compensation as it considers appropriate that does not qualify for deductibility under Section 162(m).
COMPENSATION AND HUMAN RESOURCES COMMITTEE REPORT TO STOCKHOLDERS
Prior to the Separation, the Aimco Compensation and Human Resources Committee (which prior to the Separation was comprised of the directors named below) held five meetings during the year ended December 31, 2020. The AIR Compensation and Human Resources Committee has reviewed and discussed the Compensation Discussion & Analysis with management. Based upon such review, the related discussions and such other matters deemed relevant and appropriate by the AIR Compensation and Human Resources Committee, the AIR Compensation and Human Resources Committee has recommended to the Board that the Compensation Discussion & Analysis be included in this filing.
37
Date: April 16, 2021
THOMAS L. KELTNER
ROBERT A. MILLER
DEVIN I. MURPHY
KATHLEEN M. NELSON
JOHN DINHA RAYIS
ANN SPERLING (CHAIRMAN)
MICHAEL A. STEIN
NINA A. TRAN
The above report will not be deemed to be incorporated by reference into any filing by AIR under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, except to the extent that AIR specifically incorporates the same by reference.
38
SUMMARY COMPENSATION TABLE
The table below summarizes the compensation attributable to the principal executive officer, principal financial officer, and the three other most highly compensated executives in 2020, for the years 2020, 2019, and 2018.
|
| |||||||||||||||||||||||||||||
Name and Principal Position |
| Year |
| Salary ($) |
|
| Bonus ($) |
|
| Stock Awards ($) (1) |
|
| Option Awards ($) (2) |
|
| Non-Equity Incentive Plan Compensation ($) (3) |
|
| All Other Compensation ($) (4) |
|
| Total ($) |
| |||||||
Terry Considine — |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Chief Executive Officer |
| 2020 |
|
| 700,000 |
|
|
| — |
|
|
| 4,300,006 |
| (5) |
| — |
|
|
| 1,800,000 |
|
|
| 2,850 |
|
|
| 6,802,856 |
|
|
| 2019 |
|
| 700,000 |
|
|
| — |
|
|
| 4,275,005 |
|
|
| — |
|
|
| 2,326,450 |
|
|
| 4,000 |
|
|
| 7,305,455 |
|
|
| 2018 |
|
| 700,000 |
|
|
| — |
|
| 4,011,053 |
|
|
| — |
|
|
| 2,058,600 |
|
|
| 3,750 |
|
|
| 6,773,403 |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Paul L. Beldin — |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Executive Vice President and Chief Financial Officer |
| 2020 |
|
| 450,000 |
|
|
| 250,000 |
| (6) |
| 309,027 |
| (7) |
| 61,671 |
|
|
| 250,000 |
|
|
| 2,850 |
|
|
| 1,323,548 |
|
|
| 2019 |
|
| 450,000 |
|
|
| — |
|
|
| 410,214 |
|
|
| — |
|
|
| 311,763 |
|
|
| 4,000 |
|
|
| 1,175,977 |
|
|
| 2018 |
|
| 450,000 |
|
|
| — |
|
| 744,437 |
|
|
| — |
|
|
| 575,685 |
|
|
| 3,750 |
|
|
| 1,773,872 |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lisa R. Cohn — |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
President, General Counsel and Secretary |
| 2020 |
|
| 450,000 |
|
|
| 550,000 |
| (6) |
| 955,356 |
| (8) |
| 146,667 |
|
|
| 687,500 |
|
|
| 2,850 |
|
|
| 2,792,373 |
|
|
| 2019 |
|
| 450,000 |
|
|
| — |
|
|
| 1,219,532 |
|
|
| — |
|
|
| 685,878 |
|
|
| 4,000 |
|
|
| 2,359,410 |
|
|
| 2018 |
|
| 450,000 |
|
|
| — |
|
| 1,042,179 |
|
|
| — |
|
|
| 670,900 |
|
|
| 3,750 |
|
|
| 2,166,829 |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Keith M. Kimmel — |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
President of Property Operations |
| 2020 |
|
| 450,000 |
|
|
| 125,000 |
| (6) |
| 752,070 |
| (9) |
| — |
|
|
| 500,000 |
|
|
| 2,850 |
|
|
| 1,829,920 |
|
|
| 2019 |
|
| 450,000 |
|
|
| — |
|
|
| 803,764 |
|
|
| — |
|
|
| 593,746 |
|
|
| 4,000 |
|
|
| 1,851,510 |
|
|
| 2018 |
|
| 450,000 |
|
|
| — |
|
| 719,605 |
|
|
| — |
|
|
| 456,398 |
|
|
| 3,750 |
|
|
| 1,629,753 |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Conor Wagner — |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior Vice President and Chief Investment Officer |
| 2020 |
|
| 251,732 |
|
|
| 50,000 |
| (6) |
| — |
|
|
| — |
|
|
| 83,135 |
|
|
| 2,412 |
|
|
| 387,279 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| This column represents the aggregate grant date fair value of stock awards in the year granted computed in accordance with FASB ASC Topic 718. For additional information on the valuation assumptions with respect to the grants reflected in this column for 2020, refer to the Share-Based Compensation footnote to AIR’s consolidated financial statements in its Annual Report on Form 10-K for the year ended December 31, 2020. |
The amounts shown in this column for 2020 include the grant date fair value of the performance-based restricted stock awards or performance-based LTIP Unit awards, as applicable, granted in 2020 based on the probable outcome of the performance condition to which such awards are subject, which was calculated by a third-party consultant using a Monte Carlo valuation model in accordance with FASB ASC Topic 718. Based on the foregoing, the grant date fair value is $8.50 per LTIP Unit as to Mr. Considine’s performance-based LTI award, $53.88 per share for the performance-based restricted stock awards granted to each of Messrs. Beldin and Kimmel, and Ms. Cohn that are based on relative TSR Performance. The grant date fair value of the performance-based LTIP Unit award assuming achievement at the maximum level of performance, is $8,600,011 for Mr. Considine. The grant date fair value of the performance-based restricted stock awards, assuming achievement at the maximum level of performance, is $372,526 for Mr. Beldin, $1,181,050 for Ms. Cohn, and $1,006,586 for Mr. Kimmel.
(2) | This column represents the aggregate grant date fair value of the option awards in the year granted computed in accordance with FASB ASC Topic 718. For additional information on the valuation assumptions with respect to the grants reflected in this column for 2020, refer to the Share-Based Compensation footnote to AIR’s consolidated financial statements in its Annual Report on Form 10-K for the year ended December 31, 2020. |
The amounts shown in this column for 2020 include the grant date fair value of the performance-based stock options granted in 2020 based on the probable outcome of the performance condition to which such option is subject, which was calculated by a third-party consultant using a Monte Carlo valuation model. Based on the foregoing, the grant date fair value is $8.15 per underlying share of the options. The grant date fair value of the options, assuming achievement at the maximum level of performance, is $123,342 for Mr. Beldin, and $293,335 for Ms. Cohn.
(3) | For 2020, the amounts shown for Messrs. Considine, Beldin, and Kimmel, and Ms. Cohn represent the 2020 STI amounts that were paid on February 23, 2021. For Mr. Wagner, the amount shown equals the sum of $73,980, representing the STI bonus that was paid to him on February 23, 2021, and $9,155, representing a payout in 2020 pursuant to prior year long-term cash grants. |
(4) | Includes discretionary matching contributions under the Company’s 401(k) plan. |
(5) | Equity awards for Mr. Considine in 2020 include a 2020 LTI award consisting of 505,883 performance-based LTIP Units for the forward looking, three-year performance period from January 1, 2020, through December 31, 2022, with the number of units earned, if any, vesting 50% following the end of the three-year performance period and 50% one year later. |
(6) | Mr. Considine awarded a discretionary cash award to each of Messrs. Beldin, Kimmel, and Wagner, and Ms. Cohn for their significant contributions in connection with the Separation. |
(7) | Equity awards for Mr. Beldin in 2020 include a 2020 LTI award consisting of the following: (i) 2,305 shares of time-based restricted stock, vesting 25% on each anniversary of the grant date; and (ii) 3,457 shares of performance-based restricted stock and a performance-based non-qualified stock option to purchase 7,567 shares, in each case, for the forward looking, three-year performance period from January 1, 2020, through December 31, 2022, with the number of shares or option shares earned, if any, vesting 50% following the end of the three-year performance period and 50% one year later. |
(8) | Equity awards for Ms. Cohn in 2020 include a 2020 LTI award consisting of the following: (i) 6,850 shares of time-based restricted stock, vesting 25% on each anniversary of the grant date; (ii) 10,960 shares of performance-based restricted stock and a performance-based non-qualified stock option to purchase 17,996 shares, in each case, for the forward looking, three-year performance period from January 1, 2020, through December 31, 2022, with the number of shares or option shares earned, if any, vesting 50% following the end of the three-year performance period and 50% one year later. |
(9) | Stock awards for Mr. Kimmel in 2020 include a 2020 LTI award consisting of the following: (i) 4,671 shares of time-based restricted stock, vesting 25% on each anniversary of the grant date; (ii) 9,341 shares of performance-based restricted stock for the forward looking, three-year performance period from January 1, 2020, through December 31, 2022, with the number of shares earned, if any, vesting 50% following the end of the three-year performance period and 50% one year later. |
GRANTS OF PLAN-BASED AWARDS IN 2020
The following table provides details regarding plan-based awards granted to the NEOs during the year ended December 31, 2020.
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| Estimated Future Payouts Under Non-Equity Incentive Plan Awards (1) |
|
| Estimated Future Payouts Under Equity Incentive Plan Awards (2) |
|
| All Other Stock Awards: Number of Shares of |
|
| All other Option Awards Number of Securities Underlying Options (4) |
|
| Exercise or Base Price of |
|
| Grant Date Fair Value of Stock and |
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| Stock or |
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| Option |
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| Option |
| |||
Name |
| Grant Date |
| Threshold ($) |
|
| Target ($) |
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| Maximum ($) |
|
| Threshold (#) |
|
| Target (#) |
|
| Maximum (#) |
|
| Units (#) (3) |
|
| Threshold (#) |
|
| Target (#) |
|
| Maximum (#) |
|
| Awards ($/Sh) |
|
| Awards ($) (5) |
| ||||||||||||
Terry Considine |
| 1/28/2020 |
|
| 900,000 |
|
|
| 1,800,000 |
|
|
| 3,600,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 1/28/2020 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| 252,942 |
|
|
| 505,883 |
|
|
| 1,011,766 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 4,300,006 |
|
Paul L. Beldin |
| 1/28/2020 |
|
| 125,000 |
|
|
| 250,000 |
|
|
| 500,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 1/28/2020 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 2,305 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 122,764 |
|
|
| 1/28/2020 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| 1,729 |
|
|
| 3,457 |
|
|
| 6,914 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 186,263 |
|
|
| 1/28/2020 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 3,784 |
|
|
| 7,567 |
|
|
| 15,134 |
|
|
| 53.26 |
|
|
| 61,671 |
|
Lisa R. Cohn |
| 1/28/2020 |
|
| 275,000 |
|
|
| 550,000 |
|
|
| 1,100,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 1/28/2020 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 6,850 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 364,831 |
|
|
| 1/28/2020 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| 5,480 |
|
|
| 10,960 |
|
|
| 21,920 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 590,525 |
|
|
| 1/28/2020 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 8,998 |
|
|
| 17,996 |
|
|
| 35,992 |
|
|
| 53.26 |
|
|
| 146,667 |
|
Keith M. Kimmel |
| 1/28/2020 |
|
| 250,000 |
|
|
| 500,000 |
|
|
| 1,000,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 1/28/2020 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 4,671 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 248,777 |
|
|
| 1/28/2020 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| 4,671 |
|
|
| 9,341 |
|
|
| 18,682 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 503,293 |
|
Conor T. Wagner |
| 1/28/2020 |
|
| 17,407 |
|
|
| 69,628 |
|
|
| 113,146 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) | On January 28, 2020, the Committee made determinations of target total incentive compensation for 2020 based on achievement of Aimco’s six corporate goals for 2020, and achievement of specific individual objectives. Target total incentive compensation amounts were as follows: Mr. Considine — $6.1 million; Mr. Beldin — $620,000; Ms. Cohn — $1.65 million; Mr. Kimmel — $1.25 million; and Mr. Wagner — $123,188. The awards in this column indicate the 2020 STI portion of these target total incentive amounts — at threshold, target, and maximum performance levels. The actual 2020 STI awards earned by each of Messrs. Considine, Beldin, Kimmel and Wagner, and Ms. Cohn are as disclosed in the Summary Compensation Table under “Non-Equity Incentive Plan Compensation.” See the discussion above under “CD&A — Total Compensation for 2020 — Short-Term Incentive Compensation for 2020.” |
(2) | For each of Messrs. Considine, Beldin, and Kimmel, and Ms. Cohn, the amounts in this column include the number of shares underlying performance-based LTIP Units (in the case of Mr. Considine) or performance-based restricted stock (in the case of Messrs. Beldin, and Kimmel and Ms. Cohn) granted on January 28, 2020, pursuant to their 2020 LTI award that may be earned – at threshold, target and maximum performance levels – based on relative TSR (60% of each award is based on the Company’s TSR relative to the NAREIT Apartment Index and 40% of each award is based on the Company’s TSR relative to the REIT Index) over a three-year period from January 1, 2020, to December 31, 2022, with the number of units or shares earned, if any, vesting 50% on the later of the third anniversary of the grant date or the date on which performance is determined (but no later than March 15, 2023), and 50% on the fourth anniversary of the grant date. For the portion of the performance period that occurs post-Separation, relative TSR will be determined by using the combined TSR of AIR and Aimco. |
(3) | The amounts in this column reflect the number of shares of time-based restricted stock granted pursuant to the 2020 LTI award, vesting 25% on each anniversary of the grant date. The number of shares of restricted stock was determined based on the average of the closing trading prices of Aimco’s Common Stock on the NYSE on the five trading days up to and including the grant date, or $53.53. |
(4) | The amounts in this column reflect the number of performance-based non-qualified stock options granted pursuant to the 2020 LTI award that may |
(5) | This column represents the aggregate grant date fair value of equity awards in |
41
refer to the Share-Based Compensation footnote to AIR’s consolidated financial statements in its Annual Report on Form 10-K for the year ended December 31, 2020. |
The amounts shown in this column include the grant date fair value of the performance-based restricted stock awards or LTIP Unit awards, as applicable, based on the probable outcome of the performance condition to which such awards are subject, which was calculated by a third-party consultant using a Monte Carlo valuation model in accordance with FASB ASC Topic 718. Based on the foregoing, the grant date fair value is $8.50 per LTIP Unit as to Mr. Considine’s performance-based LTI award, $53.88 per share for the performance-based restricted stock awards granted to each of Messrs. Beldin and Kimmel, and Ms. Cohn that are based on relative TSR performance. The grant date fair value of the performance-based LTIP Unit award, assuming achievement at the maximum level of performance, is $8,600,011 for Mr. Considine. The grant date fair value of the performance-based restricted stock awards, assuming achievement at the maximum level of performance, is $372,526 for Mr. Beldin, $1,181,050 for Ms. Cohn, and $1,006,586 for Mr. Kimmel.
The amounts shown in this column include the grant date fair value of the performance-based stock options based on the probable outcome of the performance condition to which such option is subject, which was calculated by a third-party consultant using a Monte Carlo valuation model. Based on the foregoing, the grant date fair value is $8.15 per underlying share of the options. The grant date fair value of the options, assuming achievement at the maximum level of performance, is $123,342 for Mr. Beldin, and $293,335 for Ms. Cohn.
42
OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END 2020
The following table shows outstanding stock option awards classified as exercisable and unexercisable as of December 31, 2020, for the NEOs. The table also shows unvested and unearned stock awards assuming a market value of $38.41 per share (the closing market price of the AIR’s Class A Common Stock (“AIR’s Common Stock”) on the New York Stock Exchange on December 31, 2020).
|
| Option Awards |
| Stock Awards |
|
| |||||||||||||||||||||||||||||
Name |
| Number of Securities Underlying Unexercised Options (#) Exercisable |
|
| Number of Securities Underlying Unexercised Options (#) Unexercisable |
|
| Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options (#) |
|
| Option Exercise Price ($) |
|
| Option Expiration Date |
| Number of Shares or Units of Stock That Have Not Vested (#) |
|
| Market Value of Shares or Units of Stock That Have Not Vested ($) (1) |
|
| Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested (#) |
|
| Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested ($) (1) |
|
| ||||||||
Terry Considine |
|
| 63,609 |
| (2) |
| 63,608 |
| (2) |
|
|
|
|
| 39.00 |
|
| 1/31/2027 |
|
|
|
|
|
|
|
|
|
| 1,011,766 |
| (3) |
| — |
|
|
|
|
| 384,809 |
| (4) |
|
|
|
|
|
|
|
|
| 34.28 |
|
| 1/26/2026 |
|
|
|
|
|
|
|
|
|
| 355,362 |
| (5) |
| — |
|
|
|
|
| 238,530 |
| (6) |
|
|
|
|
|
|
|
|
| 34.56 |
|
| 2/12/2025 |
|
| 413,231 |
| (7) |
| 896,711 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 82,014 |
| (8) |
| 3,150,158 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 16,377 |
| (9) |
| 629,041 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Paul L. Beldin |
|
|
|
|
|
|
|
|
|
| 15,134 |
| (10) |
| 47.14 |
|
| 1/28/2030 |
|
|
|
|
|
|
|
|
|
| 6,914 |
| (11) |
| 265,567 |
|
|
|
|
| 1,580 |
| (12) |
| 1,580 |
| (12) |
|
|
|
|
| 39.00 |
|
| 1/31/2027 |
|
|
|
|
|
|
|
|
|
| 5,120 |
| (13) |
| 196,659 |
|
|
|
|
| 15,845 |
| (14) |
| 2,264 |
| (14) |
|
|
|
|
| 34.28 |
|
| 1/26/2026 |
|
| 2,305 |
| (15) |
| 88,535 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 1,921 |
| (16) |
| 73,786 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 5,989 |
| (17) |
| 230,037 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 8,623 |
| (18) |
| 331,209 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 4,241 |
| (19) |
| 162,897 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 3,663 |
| (20) |
| 140,696 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 2,660 |
| (21) |
| 102,171 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 2,062 |
| (22) |
| 79,201 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 1,789 |
| (23) |
| 68,715 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lisa R. Cohn |
|
|
|
|
|
|
|
|
|
| 35,992 |
| (10) |
| 47.14 |
|
| 1/28/2030 |
|
|
|
|
|
|
|
|
|
| 21,920 |
| (11) |
| 841,947 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 15,221 |
| (13) |
| 584,639 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 6,850 |
| (15) |
| 263,109 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 5,711 |
| (16) |
| 219,360 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 4,192 |
| (24) |
| 161,015 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 12,073 |
| (18) |
| 463,724 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 1,885 |
| (25) |
| 72,403 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 5,428 |
| (26) |
| 208,489 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Keith M. Kimmel |
|
| 14,588 |
| (4) |
|
|
|
|
|
|
|
|
| 34.28 |
|
| 1/26/2026 |
|
|
|
|
|
|
|
|
|
| 18,682 |
| (11) |
| 717,576 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 4,671 |
| (15) |
| 179,413 |
|
|
| 10,032 |
| (13) |
| 385,329 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 3,764 |
| (16) |
| 144,575 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 2,895 |
| (24) |
| 111,197 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 8,336 |
| (18) |
| 320,186 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 1,367 |
| (25) |
| 52,506 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 3,936 |
| (26) |
| 151,182 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Conor T. Wagner |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) | The information on unvested stock shown above has been adjusted, where applicable, to reflect additional shares received as a result of the special dividend paid in February 2019. Effective December 15, 2020, in connection with the Separation, the executive officers received a share or partnership unit of AIR for every share or partnership unit of Aimco, and both stock options and partnership units were adjusted to preserve their pre-Separation value. The amounts in this table reflect only the AIR awards, and, in the case of stock options, the post-Separation exercise price. Amounts reflect the number of shares subject to the award that have not vested multiplied by the market value of $38.41 per share, which was the closing market price of AIR’s Common Stock on December 31, 2020. |
(2) This option was granted on January 31, 2017. The amount shown in the table represents the portion of the award that was earned based on Aimco relative TSR performance for the three-year performance period from January 1, 2017, through December 31, 2019, of which 50% vested on January 31, 2020, and the remaining 50% vested on January 31, 2021.
(3) | This performance-based LTIP Unit award was granted on January 28, 2020, and, subject to relative TSR metrics set forth in the CD&A, vests 50% following the end of the three-year forward looking performance period and 50% on the fourth anniversary of the grant date. The amount shown in the table is the award at maximum. |
43
(4) This option was granted on January 26, 2016. The amount shown in the table represents the portion of the award that was earned based on Aimco relative TSR performance for the three-year performance period from January 1, 2016, through December 31, 2018, of which 50% vested on January 26, 2019, and the remaining 50% vested on January 26, 2020.
(5) This performance-based LTIP Unit award was granted on January 29, 2019, and, subject to relative TSR metrics set forth in the CD&A, vests 50% following the end of the three-year forward looking performance period and 50% on the fourth anniversary of the grant date. The amount shown in the table is the award at target.
(6) This option was granted on February 12, 2015, and vested 25% on each anniversary of the grant date.
(7) This performance-based LTIP Unit award was granted on January 30, 2018. The amount shown in the table represents the portion of the award that was earned based on Aimco’s relative TSR performance for the roughly three-year performance period from January 1, 2018, through December 11, 2020, of which 50% vested on January 30, 2021, and the remaining 50% will vest on January 30, 2022, as described in the CD&A. Mr. Considine holds a corresponding number of Aimco shares with a value of $235,542.
(8) This performance-based LTIP Unit award was granted on January 30, 2018. The amount shown in the table represents the portion of the award that was earned based on Aimco’s relative TSR performance for roughly the three-year performance period from January 1, 2018, through December 11, 2020, of which 50% vested on January 30, 2021, and the remaining 50% will vest on January 30, 2022, as described earlier in the CD&A. Mr. Considine holds a corresponding number of Aimco shares with a value of $433,034.
(9) This performance-based LTIP Unit award was granted on January 31, 2017. The amount shown in the table represents the portion of the award that was earned based on Aimco’s relative TSR performance for the three-year performance period from January 1, 2017, through December 31, 2019, of which 50% vested on January 31, 2020, and the remaining 50% vested on January 31, 2021, as described in the CD&A. Mr. Considine holds a corresponding number of Aimco shares with a value of $86,471.
(10) This option was granted on January 28, 2020 and, subject to relative TSR metrics set forth in the CD&A, vests 50% following the end of the three-year forward-looking performance period and 50% on the fourth anniversary of the grant date. The amount shown in the table is the award at maximum.
(11) | This performance-based restricted stock award was granted on January 28, 2020 and, subject to relative TSR metrics set forth in the CD&A, vests 50% following the end of the three-year forward looking performance period and 50% on the fourth anniversary of the grant date. The amount shown in the table is the award at maximum. |
(12) This option was granted on January 31, 2017. The amount shown in the table represents the portion of the award that was earned based on Aimco’s relative TSR performance for the three-year performance period from January 1, 2017, through December 31, 2019, of which 50% vested on January 31, 2020, and the remaining 50% will vest on January 31, 2022.
(13) | This performance-based restricted stock award was granted on January 29, 2019, and, subject to relative TSR metrics, vests 50% following the end of the three-year forward-looking performance period and 50% on the fourth anniversary of the grant date. The amount shown in the table is the award at target. |
(14) This option was granted on January 26, 2016. The amount shown in the table represents the portion of the award that was earned based on Aimco’s relative TSR performance for the three-year performance period from January 1, 2016, through December 31, 2018, of which 50% vested on January 26, 2019, 37.5% vested on January 26, 2020, and 12.5% vests on January 26, 2022.
(15) | This restricted stock award was granted on January 28, 2020, and vests 25% on each anniversary of the grant date. The following NEOs hold a corresponding number of Aimco shares with the following values: Mr. Beldin - $12,170, Ms. Cohn- $36,168, and Mr. Kimmel - $24,663. |
(16) | This restricted stock award was granted on January 29, 2019, and vests 25% on each anniversary of the grant date. The following NEOs hold a corresponding number of Aimco shares with the following values: Mr. Beldin - $10,143, Ms. Cohn- $30,154, and Mr. Kimmel - $19,874. |
(17) This restricted stock award was granted on January 30, 2018, and vests 100% on the fourth anniversary of the grant date. Mr. Beldin holds a corresponding number of Aimco shares with a value of $31,662.
(18) | This performance-based restricted stock award was granted on January 30, 2018. The amount shown in the table represents the portion of the award that was earned based on Aimco’s relative TSR performance for the roughly three-year performance period from January 1, 2018, through December 11, 2020, of which |
(19) This restricted stock award was granted on January 31, 2017, and vested 25% on the first anniversary of the grant date and 75% will vest on the fifth anniversary of the grant date. The following NEO holds a corresponding number of Aimco shares with the following values: Mr. Beldin - $22,392.
(20) This performance-based restricted stock award was granted on January 31, 2017. The amount shown in the table represents the portion of the award that was earned based on Aimco’s relative TSR performance for the three-year performance period from January 1, 2017, through December 31, 2019, of which 50% vested on January 31, 2020, and the remaining 50% will vest on January 31, 2022. Mr. Beldin holds a corresponding number of Aimco shares with a value of $19,341.
(21) This restricted stock award was granted on January 26, 2016, and vested 25% on each of the first, second anniversaries of the grant date and 50% will vest on the sixth anniversary of the grant date. Mr. Beldin holds a corresponding number of Aimco shares with a value of $14,045.
(22) This performance-based restricted stock award was granted on January 26, 2016. The amount shown in the table represents the portion of the award that was earned based on Aimco’s relative TSR performance for the three-year performance period from January 1, 2016, through December 31, 2018, as described in the CD&A, of which 50% vested on January 26, 2019, 37.5% vested on January 26, 2020, and 12.5% vests on January 26, 2022. Mr. Beldin holds a corresponding number of Aimco shares with a value of $10,887.
(23) This restricted stock award was granted on January 26, 2016, and vested 25% on each of the first, second, and third anniversaries of the grant date and will vest 12.5% on each of the fifth and sixth anniversaries of the grant date. Mr. Beldin holds a corresponding number of Aimco shares with a value of $9,446.
(24) This restricted stock award was granted on January 30, 2018, and vests 25% on each anniversary of the grant date. The following NEOs hold a corresponding number of Aimco shares with the following values: Ms. Cohn- $22,134, and Mr. Kimmel - $15,286.
(25) This restricted stock award was granted on January 31, 2017, and vested 25% on each anniversary of the grant date. The following NEOs hold a corresponding number of Aimco shares with the following values: Ms. Cohn- $9,953, and Mr. Kimmel - $7,218.
(26) This performance-based restricted stock award was granted on January 31, 2017. The amount shown in the table represents the portion of the award that was earned based on Aimco’s relative TSR performance for the three-year performance period from January 1, 2017, through December 31, 2019, of which 50% vested on January 31, 2020, and the remaining 50% vested on January 31, 2021. The following NEOs hold a corresponding number of Aimco shares with the following values: Ms. Cohn- $28,660, and Mr. Kimmel - $20,782.
44
OPTION EXERCISES AND STOCK VESTED IN 2020
The following table sets forth certain information regarding options and stock awards exercised and vested, respectively, during the year ended December 31, 2020, for the persons named in the Summary Compensation Table above.
|
| Option Awards |
| Stock Awards |
| |||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
Name |
| Number of Shares Acquired on Exercise (#) |
| Value Realized on Exercise ($) (1) |
| Number of Shares Acquired on Vesting (#) |
|
| Value Realized on Vesting ($) (2) |
| ||
Terry Considine |
| — |
| — |
|
| 67,687 |
|
| $ | 3,634,997 |
|
Paul L. Beldin |
| — |
| — |
|
| 10,490 |
|
| $ | 561,248 |
|
Lisa R. Cohn |
| — |
| — |
|
| 26,278 |
|
| $ | 1,406,328 |
|
Keith M. Kimmel |
| — |
| — |
|
| 20,541 |
|
| $ | 1,100,232 |
|
Conor T. Wagner |
| — |
| — |
| — |
|
| — |
|
(1) | Amounts reflect the difference between the exercise price of the option and the market price at the time of exercise. |
(2) | Amounts reflect the market price of the stock on the day the shares of restricted stock vested. |
POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE IN CONTROL
The NEOs are entitled to certain severance payments and benefits upon a qualifying termination of employment or, in the case of a change in control, double trigger accelerated vesting of equity awards in the event of a qualifying termination of employment that occurs within one year following a change in control. The terms of these arrangements are described under “CD&A — Post-Employment Compensation and Employment and Severance Arrangements — Executive Employment Arrangements, Executive Severance Arrangements and Equity Award Agreements” above.
In the table that follows, potential payments and other benefits payable upon termination of employment and change in control situations are set out as if the conditions for payments had occurred and/or the terminations took place on December 31, 2020. In setting out such payments and benefits, amounts that had already been earned as of the termination date are not shown. Also, benefits that are available to all full-time regular employees when their employment terminates are not shown. The amounts set forth below are estimates of the amounts that could be paid out to the NEOs upon their termination. The actual amounts to be paid out can only be determined at the time of such NEOs’ separation from AIR. The following table summarizes the potential payments under various scenarios if they had occurred on December 31, 2020.
|
| Value of Accelerated Stock and Stock Options ($)(1) |
|
| Severance ($) |
| ||||||||||||||||||||||||||||||||||
Name |
| Change in Control Only |
| Double Trigger Change in Control |
|
| Death or Disability |
|
| Termination Without Cause |
|
| Termination For Good Reason |
|
| Death |
| Disability |
|
| Termination Without Cause |
|
| Termination For Good Reason |
|
| Termination Without Cause or For Good Reason in Connection with a Change in Control |
|
| Non- Compete Payments ($) (2) |
| |||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Terry Considine |
| — |
|
| 1,961,500 |
|
|
| 1,961,500 |
|
|
| 1,961,500 |
|
|
| 1,961,500 |
|
| — |
|
| 3,928,450 |
| (3)(4) |
| 3,928,450 |
| (4) |
| 3,928,450 |
| (4) |
| 3,928,450 |
| (4) | — |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Paul L. Beldin |
| — |
|
| 1,251,640 |
|
|
| 1,251,640 |
|
| — |
|
| — |
|
| — |
|
| 250,000 |
| (5) |
| 916,403 |
| (6) |
| 916,403 |
| (6) |
| 1,801,879 |
| (7) |
| 600,000 |
| ||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lisa R. Cohn |
| — |
|
| 2,619,193 |
|
|
| 2,619,193 |
|
| — |
|
| — |
|
| — |
|
| 687,500 |
| (5) |
| 1,126,824 |
| (6) |
| 1,126,824 |
| (6) |
| 2,224,492 |
| (7) |
| 600,000 |
| ||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Keith M. Kimmel |
| — |
|
| 1,940,229 |
|
|
| 1,940,229 |
|
| — |
|
| — |
|
| — |
|
| 500,000 |
| (5) |
| 971,812 |
| (6) |
| 971,812 |
| (6) |
| 1,912,417 |
| (7) |
| 600,000 |
| ||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Conor T. Wagner |
| — |
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 73,980 |
| (5) |
| 319,870 |
| (6) |
| 319,870 |
| (6) |
| 613,105 |
| (7) | — |
|
(1) | Amounts reflect value of accelerated restricted stock, LTIP Units, and options using the closing market price on December 31, 2020, of $38.41 per share. |
|
|
|
|
|
|
|
|
|
|
|
|
(6) | Amount consists of (i) a lump sum cash payment equal to the sum of base salary and the average of the amount of STI paid for the previous three years, and (ii) 18 months of medical coverage reimbursement at an |
(7) | Amount consists of (i) a |
45
CHIEF EXECUTIVE OFFICER COMPENSATION AND EMPLOYEE COMPENSATION
We exclude the amounts of capital spending relatedbelieve that executive pay should be internally consistent and equitable to commercial spaces andmotivate our teammates to apartment communities sold or classified as held for sale at the endcreate stockholder value. In August 2015, pursuant to a mandate of the period fromDodd-Frank Act, the foregoing measures. We have also excluded from these measures indirect capitalized costs, which are not yet allocated to communities with capital additions, and their related capital spending categories.
A summarySEC adopted a rule requiring annual disclosure of the capital spending for these categories, along with a reconciliationratio of the median employee’s annual total for these categoriescompensation to the capital expendituresannual total compensation of the principal executive officer. The disclosure is required for fiscal years beginning on or after January 1, 2017. The annual total compensation for 2020 for Mr. Considine, our CEO, was $6,802,856, as reported under the heading “Summary Compensation Table.” Our median employee’s total compensation for 2020 was $68,664. As a result, we estimate that Mr. Considine’s 2020 total compensation was approximately 99.07 times that of our median employee.
Our CEO to median employee pay ratio was calculated in accordance with Item 402(u) of Regulation S-K. We identified the accompanying consolidated statementsmedian employee by examining 2020 total compensation, consisting of cash flowsbase salary, annual bonus amounts, stock-based compensation (based on the grant date fair value of awards granted during 2020) and other incentive payments for all individuals who were employed by the years endedCompany on December 31, 2019, 2018, and 2017, are presented below (dollars in thousands):
|
| Year Ended December 31, |
| |||||||||
|
| 2019 |
|
| 2018 |
|
| 2017 |
| |||
Capital replacements |
| $ | 36,245 |
|
| $ | 33,613 |
|
| $ | 30,714 |
|
Capital improvements |
|
| 12,240 |
|
|
| 13,722 |
|
|
| 16,392 |
|
Capital enhancements |
|
| 87,824 |
|
|
| 95,595 |
|
|
| 86,405 |
|
Redevelopment |
|
| 110,996 |
|
|
| 112,630 |
|
|
| 154,724 |
|
Development |
|
| 118,781 |
|
|
| 61,185 |
|
|
| 14,249 |
|
Initial capital expenditures |
|
| 22,913 |
|
|
| 6,406 |
|
|
| — |
|
Casualty |
|
| 7,017 |
|
|
| 6,118 |
|
|
| 7,974 |
|
Total capital additions |
| $ | 396,016 |
|
| $ | 329,269 |
|
| $ | 310,458 |
|
Plus: additions related to commercial spaces |
|
| 5,559 |
|
|
| 1,245 |
|
|
| 1,428 |
|
Plus: additions related to apartment communities sold or held for sale and Asset Management business |
|
| 3,321 |
|
|
| 18,203 |
|
|
| 42,343 |
|
Consolidated capital additions |
| $ | 404,896 |
|
| $ | 348,717 |
|
| $ | 354,229 |
|
Plus: net change in accrued capital spending |
|
| (11,435 | ) |
|
| (8,228 | ) |
|
| 3,875 |
|
Capital expenditures per consolidated statement of cash flows |
| $ | 393,461 |
|
| $ | 340,489 |
|
| $ | 358,104 |
|
For the years ended December 31, 2019, 2018, and 2017, we capitalized $11.8 million, $7.6 million, and $7.6 million of interest costs, respectively, and $37.8 million, $36.8 million, and $36.0 million of2020, other direct and indirect costs, respectively.
Redevelopment and Development
Asthan our CEO. Our measuring date of December 31 2019,remained the same as last year. We included all active employees and annualized the compensation for any employees who were not employed by the Company for the full 2020 calendar year. After identifying the median employee based on 2020 total compensation, we calculated annual total compensation for such employee using the same methodology we use for our total estimated net investmentnamed executive officers as set forth in approvedthe “Total” column in the Summary Compensation Table.
Director Compensation |
In formulating its recommendation for director compensation, the Nominating and active redevelopmentCorporate Governance Committee reviews director compensation for independent directors of companies in the real estate industry and development is $577.5 million,companies of comparable market capitalization, revenue and assets and considers compensation trends for other NYSE-listed companies and S&P 500 companies. The Nominating and Corporate Governance Committee also considers the relatively small size of the AIR board as compared to other boards, the participation of each Independent Director on each committee, and the resulting workload on the directors. In addition, the Nominating and Corporate Governance Committee considers the overall cost of the Board to the Company and the cost per director.
As noted previously, on December 15, 2020, AIR became a separate and distinct public company from Aimco with a projected weighted-average net operating income yield on these investmentsthe consummation of 5.3%, assuming untrended rents. Of this total, we have funded $309.2 millionthe Separation. The majority of the directors of the Company served as the directors of December 31, 2019. We expect to fund the remaining estimated net investmentAimco for all but two weeks of $268.3 million on these communities in 2020 and future years, on a leverage-neutral basis,then became directors of AIR. As described herein, AIR’s director compensation philosophy, including with proceeds from salesrespect to its directors remains largely consistent with that of apartment communities with lower forecasted FCF internal rates of return.
38
We execute redevelopments using a range of approaches. We prefer to limit risk by executing redevelopments using a short-cycle approach, in which we renovate an apartment community in stages. Shorter cycles provide us the flexibility to maintain current earnings while aligningpre-Separation Aimco’s. Given the timing of the completed apartment homesSeparation, the 2020 elements of director compensation reflect Aimco’s compensation program and philosophy.
2020
For 2020, compensation for the Independent Directors remained consistent with market demand. We currently have six short-cycle projects, including Bay Parc, ongoing in our portfolio. During 2019, we completed 150 apartment homes, with another 21 homes under construction astheir compensation for 2019. Specifically, director compensation included a fixed annual cash retainer of $90,000 and an award of 3,200 shares of fully vested Aimco Common Stock. No meeting fees were paid to Independent Directors for attending meetings of the Board and the committees on which they serve. For the year ended December 31, 2019.2020, the Independent Directors were paid as follows:
When short-cycle redevelopments are not possible, we may engage in redevelopment activities where an entire building or community is vacated. Additionally, we undertake some ground-up development when warranted by risk-adjusted investment returns, either directly or in connection with the redevelopment of an existing apartment community. The following table summarizes our investments related to these long-cycle developments and redevelopments as of December 31, 2019 (dollars in millions):
| Location |
| Apartment Homes Approved for Redevelopment or Development |
|
| Estimated Net Redevelopment Investment (1) |
|
| Inception-to- Date Net Investment |
|
| Expected Stabilized Occupancy (2) |
| Expected NOI Stabilization (3) | |||
707 Leahy | Redwood City, CA |
|
| 110 |
|
| $ | 23.7 |
|
| $ | 10.7 |
|
| 3Q 2020 |
| 4Q 2021 |
Eldridge (formerly Elm Creek) Townhomes | Elmhurst, IL |
|
| 58 |
|
|
| 35.1 |
|
|
| 15.8 |
|
| 2Q 2021 |
| 3Q 2022 |
Flamingo Point | Miami Beach, FL |
|
| 886 |
|
|
| 280.0 |
|
|
| 74.4 |
|
| 4Q 2022 |
| 1Q 2024 |
The Fremont | Denver, CO (MSA) |
|
| 253 |
|
|
| 87.0 |
|
|
| 61.4 |
|
| 3Q 2021 |
| 4Q 2022 |
Parc Mosaic | Boulder, CO |
|
| 226 |
|
|
| 123.4 |
|
|
| 122.3 |
|
| 4Q 2020 |
| 1Q 2022 |
Total |
|
|
| 1,533 |
|
| $ | 549.2 |
|
| $ | 284.6 |
|
|
|
|
|
Name |
| Fees Earned or Paid in Cash ($) (1) |
| Stock Awards ($) (2) |
| Option Awards ($) |
| Non-Equity Incentive Plan Compensation ($) |
| Change in Pension Value and Nonqualified Deferred Compensation Earnings |
| All Other Compensation ($) |
| Total ($) |
Terry Considine (3) |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
Thomas L. Keltner |
| 90,000 |
| 170,432 |
| — |
| — |
| — |
| — |
| 260,432 |
Robert A. Miller |
| 90,000 |
| 170,432 |
| — |
| — |
| — |
| — |
| 260,432 |
Devin I. Murphy |
| 67,500 |
| 89,304 |
| — |
| — |
| — |
| — |
| 156,804 |
Kathleen M. Nelson |
| 90,000 |
| 170,432 |
| — |
| — |
| — |
| — |
| 260,432 |
John Dinha Rayis |
| 67,500 |
| 89,304 |
| — |
| — |
| — |
| — |
| 156,804 |
Ann Sperling |
| 90,000 |
| 170,432 |
| — |
| — |
| — |
| — |
| 260,432 |
Michael A. Stein |
| 90,000 |
| 170,432 |
| — |
| — |
| — |
| — |
| 260,432 |
Nina A. Tran |
| 90,000 |
| 170,432 |
| — |
| — |
| — |
| — |
| 260,432 |
(1) |
|
(2) |
|
(3) |
|
During the year ended December 31, 2019, we invested $229.8 million in redevelopment and development. Further details regarding our redevelopment and development activities, including apartment communities constructed and delivered during the year ended December 31, 2019, is discussed in the Executive Overview section above.
We expect our total development and redevelopment spending to range from $250 million to $300 million for the year ending December 31, 2020.
Financing Activities
For the year ended December 31, 2019, our net cash used in financing activities of $64.0 million was attributed to the items discussed below.
Net borrowings on our revolving credit facility of $114.6 million primarily relate to the timing of short-term working capital needs.
Principal payments on property loans during the period totaled $520.0 million, consisting of scheduled principal amortization of $79.7 million and repayments of $440.3 million.
Proceeds from non-recourse property debt borrowings during the period consisted of the closing of 10 fixed-rate, amortizing, non-recourse property loans totaling $774.6 million.
Repurchases of Preferred Stock of $125.0 million represents the cash paid upon redemption of our Class A Perpetual Preferred Stock during the 2019.
Net cash used in financing activities also includes $266.2 million of payments to equity holders, as further detailed in the table below.
39
Equity and Partners’ Capital Transactions
The following table presents the Aimco Operating Partnership’s distribution activity (including distributions paid to Aimco) during the year ended December 31, 2019 (in thousands):
Cash distributions paid by the Aimco Operating Partnership to preferred unitholders (1) |
| $ | 10,954 |
|
Cash distributions paid by the Aimco Operating Partnership to common unitholders (2) |
|
| 254,687 |
|
Cash distributions paid to holders of noncontrolling interests in consolidated real estate partnerships |
|
| 513 |
|
Total cash distributions paid by the Aimco Operating Partnership |
| $ | 266,154 |
|
|
|
|
|
The following table presents Aimco’s dividend activity during the year ended December 31, 2019 (in thousands):
Cash distributions paid to holders of OP Units |
| $ | 21,107 |
|
Cash distributions paid to holders of noncontrolling interests in consolidated real estate partnerships |
|
| 513 |
|
Cash dividends paid by Aimco to preferred stockholders |
|
| 3,246 |
|
Cash dividends paid by Aimco to common stockholders |
|
| 241,288 |
|
Total cash dividends and distributions paid by Aimco |
| $ | 266,154 |
|
Contractual Obligations2021
This table summarizes information contained elsewhere in this Annual Report on Form 10-K regarding payments due under contractual obligations and commitments as of December 31, 2019 (in thousands):
|
| Total |
|
| Less than One Year (2020) |
|
| 2-3 Years (2021-2022) |
|
| 4-5 Years (2023-2024) |
|
| More than Five Years (2025 and Thereafter) |
| |||||
Non-recourse property debt (1) |
| $ | 4,251,339 |
|
| $ | 171,107 |
|
| $ | 1,021,270 |
|
| $ | 673,661 |
|
| $ | 2,385,301 |
|
Revolving credit facility borrowings (2) |
|
| 275,000 |
|
|
| — |
|
|
| 275,000 |
|
|
| — |
|
|
| — |
|
Interest related to debt (3) |
|
| 1,021,589 |
|
|
| 174,275 |
|
|
| 269,600 |
|
|
| 200,503 |
|
|
| 377,211 |
|
Operating lease obligations (4) |
|
| 452,042 |
|
|
| 5,156 |
|
|
| 10,196 |
|
|
| 8,755 |
|
|
| 427,935 |
|
Construction obligations (5) |
|
| 254,462 |
|
|
| 187,546 |
|
|
| 66,916 |
|
|
| — |
|
|
| — |
|
Total |
| $ | 6,254,432 |
|
| $ | 538,084 |
|
| $ | 1,642,982 |
|
| $ | 882,919 |
|
| $ | 3,190,447 |
|
|
|
|
|
|
|
|
|
|
|
In addition to the amounts presented in the table above, as of December 31, 2019, we had $97.1 million (liquidation value) of redeemable preferred OP Units of the Aimco Operating Partnership outstanding with annual distribution yields ranging from 1.92% to 8.75%. The distributions that accrue on the redeemable preferred OP Units are cumulative and are paid quarterly.
Additionally, we may enter into commitments to purchase 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.
Future Capital Needs
In addition to the items set forth in “Contractual Obligations” above, we expect to fund any future acquisitions, redevelopment, development, and other capital spending principally with proceeds from apartment community sales, short-term borrowings, debt and equity financing, and operating cash flows. Our near-term business plan does not contemplate the issuance of equity.
40
Critical Accounting Policies and Estimates
We prepare our consolidated financial statements in accordance with GAAP, which requires us to make estimates and assumptions. We believe that the following critical accounting policies involve our more significant judgments and estimates used in the preparation of our consolidated financial statements.
Capitalized Costs
We capitalize costs, including certain indirect costs, incurred in connection with our capital additions activities, including redevelopments and developments, other tangible apartment community improvements, and replacements of existing community components. Included in these capitalized costs are payroll costs associated with time spent by employees in connection with the planning, execution, and control of all capital addition activities at the community level. We characterize as “indirect costs” an allocation of certain department costs, including payroll, at the area operations and corporate levels that clearly relate to capital addition activities. We also capitalize interest, property taxes, and insurance during periods in which redevelopments and developments are in progress. We commence capitalization of costs, including certain indirect costs, incurred in connection with our capital addition activities, at the point in time when activities necessary to get communities ready for their intended use begin. These activities include when communities or apartment homes are undergoing physical construction, as well as when homes are held vacant in advance of planned construction, provided that other activities such as permitting, planning, and design are in progress. We cease the capitalization of costs when the communities or components thereof are substantially complete and ready for their intended use, which is typically when construction has been completed and homes are available for occupancy. We charge costs including ordinary repairs, maintenance and resident turnover costs to property operating expense, as incurred. Please refer to the Investing Activities subsection to the Liquidity and Capital Resources section for a summary of costs capitalized during the periods presented.
Impairment of Long-Lived Assets
Real estate and other long-lived assets to be held and used are stated at cost, less accumulated depreciation and amortization, unless the carrying amount of the asset is not recoverable. If events or circumstances indicate that the carrying amount of an apartment community may not be recoverable, we make an assessment of its recoverability by comparing the carrying amount to our estimate of the undiscounted future cash flows, excluding interest charges, of the community. If the carrying amount exceeds the estimated aggregate undiscounted future cash flows, we recognize an impairment loss to the extent the carrying amount exceeds the estimated fair value of the community.
As part of our portfolio strategy, we seek to sell up to 10% of our portfolio annually and to reinvest the proceeds from such sales in accretive uses such as capital enhancements, redevelopments, occasional developments, and selective acquisitions with projected FCF internal rates of return higher than expected from the communities being sold. As we execute this strategy, we evaluate alternatives to sell or reduce our interest in apartment communities that do not align with our long-term investment strategy, although there is no assurance that we will sell or reduce our investment in such communities during the desired time frame. For any communities that are sold or meet the criteria to be classified as held for sale during the next 12 months, the reduction in the estimated holding period for these communities may result in impairment losses.
ITEM 7A. 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 use predominantly long-dated, fixed-rate, amortizing, non-recourse property debt in order to avoid the refunding and repricing risks of short-term borrowings. We use short-term debt financing and working capital primarily to fund short-term uses and generally expect to refinance such borrowings with cash from operating activities, proceeds from apartment community sales, long-term debt, or equity financings. We make limited use of derivative financial instruments and we do not use them for trading or other speculative purposes.
Market Risk Associated with Loans Secured by Our Portfolio
As of December 31, 2019, on a consolidated basis, we had approximately $170.1 million of variable-rate property-level debt outstanding and $275.0 million of variable-rate borrowings under our revolving credit facility. We estimate that a change in 30-day LIBOR of 100 basis points with constant credit risk spreads would reduce or increase interest expense by approximately $4.5 million on an annual basis.
As of December 31, 2019, we had approximately $177.7 million in cash and cash equivalents and restricted cash, a portion of which bears interest at variable rates, which may offset somewhat a change in rates on our variable-rate debt discussed above.
41
We estimate the fair value of debt instruments as described in Note 12 to the consolidated financial statements in Item 8. The estimated fair value of total indebtedness, including our revolving credit facility, was approximately $4.6 billion as of December 31, 2019, inclusive of a $47.3 million mark-to-market liability. The mark-to-market liability as of December 31, 2018 was approximately $43.8 million.
If market rates for consolidated fixed-rate debt in our portfolio were higher by 100 basis points with constant credit risk spreads, the estimated fair value of consolidated debt discussed above would decrease from $4.6 billion in the aggregate to $4.4 billion. If market rates for consolidated debt discussed above were lower by 100 basis points with constant credit risk spreads, the estimated fair value of consolidated fixed-rate debt would increase from $4.6 billion in the aggregate to $4.8 billion.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The independent registered public accounting firm’s reports, consolidated financial statements and schedule listed in the “Index to Financial Statements” on page F-1 of this Annual Report are filed as part of this report and incorporated herein by this reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
ITEM 9A. 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 its disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act), as of the end of the period covered by this report. Based on such evaluation, Aimco’s chief executive officer and chief financial officer have concluded that, as of the end of such period, Aimco’s disclosure controls and procedures are effective.
Management’s Report on Internal Control Over Financial Reporting
Aimco’s management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is defined in Rule 13a-15(f) and 15d-15(f) under the Exchange Act as a process designed by, or under the supervision of, our principal executive and principal financial officers and effected by our Board of Directors, management and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that:
|
|
|
|
|
|
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risks that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Management assessed the effectiveness of Aimco’s internal control over financial reporting as of December 31, 2019. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework (2013 Framework).
Based on their assessment, management concluded that, as of December 31, 2019, Aimco’s internal control over financial reporting is effective.
Aimco’s independent registered public accounting firm has issued an attestation report on Aimco’s internal control over financial reporting.
42
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 fourth quarter of 2019 that has materially affected, or is reasonably likely to materially affect, Aimco’s internal control over financial reporting.
43
Report of Independent Registered Public Accounting Firm
To the Shareholders and the Board of Directors of
Apartment Investment and Management Company
Opinion on Internal Control over Financial Reporting
We have audited Apartment Investment and Management Company’s internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework), (the COSO criteria). In our opinion, Apartment Investment and Management Company (the Company) maintained, in all material respects, effective internal control over financial reporting as of December 31, 2019, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 2019 and 2018, the related consolidated statements of operations, comprehensive income, equity and cash flowsCompensation for each of the three yearsIndependent Directors in the period ended December 31, 2019, and the related notes and financial statement schedule listed in the index at Item 15(a) and our report dated February 24, 2020 expressed2021 includes an unqualified opinion thereon.
Basis for Opinion
annual fee of 4,000 shares of AIR Common Stock, which shares were awarded on January 25, 2021. The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessmentclosing price of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinionAIR’s Common Stock on the Company’s internal control over financial reporting basedNew York Stock Exchange on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the CompanyJanuary 25, 2021, was $39.21. The Independent Directors also received an annual cash retainer of $90,000, paid quarterly. Directors will not receive meeting fees in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.
Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ ERNST & YOUNG LLP
Denver, Colorado
February 24, 20202021.
44
The Aimco Operating Partnership
Disclosure Controls and Procedures
The Aimco Operating Partnership’s management, with the participation of the chief executive officer and chief financial officer of Aimco, who are the equivalent of the Aimco Operating Partnership’s chief executive officer and chief financial officer, respectively, has evaluated the effectiveness of the Aimco Operating Partnership’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) 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 have concluded that, as of the end of such period, the Aimco Operating Partnership’s disclosure controls and procedures are effective.
Management’s Report on Internal Control Over Financial Reporting
Management of the Aimco Operating Partnership is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is defined in Rule 13a-15(f) and 15d-15(f) under the Exchange Act as a process designed by, or under the supervision of, our principal executive and principal financial officers and effected by our Board of Directors, management and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that:
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|
|
|
|
|
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risks that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Management assessed the effectiveness of the Aimco Operating Partnership’s internal control over financial reporting as of December 31, 2019. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework (2013 Framework).
Based on their assessment, management concluded that, as of December 31, 2019, the Aimco Operating Partnership’s internal control over financial reporting is effective.
The Aimco Operating Partnership’s independent registered public accounting firm has issued an attestation report on the Aimco Operating Partnership’s internal control over financial reporting.
Changes in Internal Control Over Financial Reporting
There has been no change in the Aimco Operating Partnership’s internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the fourth quarter of 2019 that has materially affected, or is reasonably likely to materially affect, the Aimco Operating Partnership’s internal control over financial reporting.
45
Report of Independent Registered Public Accounting Firm
To the Partners and the Board of Directors of
AIMCO Properties, L.P.
Opinion on Internal Control over Financial Reporting
We have audited AIMCO Properties, L.P.’s internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework), (the COSO criteria). In our opinion, AIMCO Properties, L.P. (the Partnership) maintained, in all material respects, effective internal control over financial reporting as of December 31, 2019, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Partnership as of December 31, 2019 and 2018, the related consolidated statements of operations, comprehensive income, partners’ capital and cash flows for each of the three years in the period ended December 31, 2019, and the related notes and financial statement schedule listed in the index at Item 15(a) and our report dated February 24, 2020 expressed an unqualified opinion thereon.
Basis for Opinion
The Partnership’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Partnership’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Partnership in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.
Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ ERNST & YOUNG LLP
Denver, Colorado
February 24, 2020
46
ITEM 9B. OTHER INFORMATION
Reclassification of Unissued Preferred Stock
On February 24, 2020, pursuant to Maryland law and our Charter, our Board of Directors reclassified into Common Stock, all of the authorized and unissued shares of each of the following classes of preferred stock: Class Z Cumulative Preferred Stock, Class A Cumulative Preferred Stock, and Series A Community Reinvestment Act Preferred Stock. The reclassification increases the number of authorized shares classified as Common Stock by 9,800,240 shares, from 500,787,260 shares immediately prior to the reclassification to 510,587,500 shares immediately after the reclassification. The reclassification does not impact any of our issued and outstanding shares of preferred stock.
Restatement of Charter
On February 24, 2020, pursuant to Maryland law and our Charter, we restated our Charter to reflect the reclassification of the preferred stock and the currently operative provisions of the Charter. A copy of the Charter as restated is attached to this Annual Report on Form 10-K as Exhibit 3.1.
47
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Each member of the Board of Directors of Aimco also is a director of the general partner of the Aimco Operating Partnership. The officers of Aimco are also the officers of the general partner of the Aimco Operating Partnership and hold the same titles. The information required by this item for both Aimco and the Aimco Operating Partnership is presented jointly under the captions “Board of Directors and Executive Officers,” “Corporate Governance Matters - Code of Ethics,” “Other Matters - Section 16(a) Beneficial Ownership Reporting Compliance,” “Corporate Governance Matters - Meetings and Committees: Nominating and Corporate Governance Committee,” “Corporate Governance Matters - Meetings and Committees: Audit Committee” and “Corporate Governance Matters - Meetings and Committees: Audit Committee Financial Expert” in the proxy statement for Aimco’s 2020 annual meeting of stockholders and is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is presented under the captions “Compensation Discussion & Analysis,” “Compensation and Human Resources Committee Report to Stockholders,” “Summary Compensation Table,” “Grants of Plan-Based Awards in 2019,” “Outstanding Equity Awards at Fiscal Year-End 2019,” “Option Exercises and Stock Vested in 2019,” “Potential Payments Upon Termination or Change in Control” and “Corporate Governance Matters - Director Compensation” in the proxy statement for Aimco’s 2020 annual meeting of stockholders and is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information requiredavailable to the Company, as of April 12, 2021, with respect to AIR’s equity securities beneficially owned by this item, for both Aimco(i) each director, the chief executive officer, the chief financial officer and the Aimco Operating Partnership,three other most highly compensated executive officers who were serving as executive officers at the end of the last completed fiscal year, and (ii) all directors and executive officers as a group. The table also sets forth certain information available to the Company, as of April 12, 2021, with respect to shares of AIR’s Common Stock held by each person known to the Company to be the beneficial owner of more than 5% of such shares. This table reflects options that are exercisable within 60 days. Unless otherwise indicated, each person has sole voting and investment power with respect to the securities beneficially owned by that person. The business address of each of the following directors and executive officers is presented4582 South Ulster Street, Suite 1700, Denver, Colorado 80237, unless otherwise specified. None of the securities reflected in this table held by the directors or executive officers are the subject of any hedging or pledging transaction.
Name and Address of Beneficial Owner |
| Number of shares of Common Stock (1) |
| Percentage of Common Stock Outstanding (2) |
| Number of Partnership Units (3) |
| Percentage Ownership of the Company (4) |
Directors and Executive Officers: |
|
|
|
|
|
|
|
|
Terry Considine |
| 970,026 | (5) | 0.65% |
| 2,967,556 | (6) | 2.48% |
Paul L. Beldin |
| 123,228 | (7) | * |
| — |
| * |
Lisa R. Cohn |
| 199,716 |
| * |
| — |
| * |
Keith M. Kimmel |
| 106,721 | (8) | * |
| — |
| * |
Conor Wagner |
| 14,606 |
| * |
| — |
| * |
Thomas L. Keltner |
| 48,007 |
| * |
| — |
| * |
Robert A. Miller |
| 87,882 |
| * |
| — |
| * |
Devin I. Murphy |
| 6,386 |
| * |
| — |
| * |
Kathleen M. Nelson |
| 50,043 |
| * |
| — |
| * |
John D. Rayis |
| 6,412 |
| * |
| — |
| * |
Ann Sperling |
| 12,800 |
| * |
| — |
| * |
Michael A. Stein |
| 51,362 |
| * |
| — |
| * |
Nina A. Tran |
| 19,968 |
| * |
| — |
| * |
All directors and executive officers as a group (13 persons) |
| 1,697,157 | (9) | 1.13% |
| 2,967,556 |
| 2.61% |
5% or Greater Holders: |
|
|
|
|
|
|
|
|
The Vanguard Group, Inc. |
| 20,895,758 | (10) | 14.03% |
| — |
| 13.27% |
100 Vanguard Blvd. |
|
|
|
|
|
|
|
|
Malvern, Pennsylvania 19355 |
|
|
|
|
|
|
|
|
Cohen & Steers, Inc. |
| 19,592,271 | (11) | 13.15% |
| — |
| 12.44% |
280 Park Avenue 10th Floor |
|
|
|
|
|
|
|
|
New York, New York 10017 |
|
|
|
|
|
|
|
|
BlackRock Inc. |
| 16,793,824 | (12) | 11.27% |
| — |
| 10.67% |
55 East 52nd Street |
|
|
|
|
|
|
|
|
New York, New York 10055 |
|
|
|
|
|
|
|
|
FMR LLC |
| 8,886,486 | (13) | 5.96% |
| — |
| 5.64% |
245 Summer Street |
|
|
|
|
|
|
|
|
Boston, Massachusetts 02110 |
|
|
|
|
|
|
|
|
* | Less than 0.5% |
(1) | Excludes shares of AIR’s Common Stock issuable upon redemption of common OP Units or equivalents. |
(2) | Represents the number of shares of AIR Common Stock beneficially owned by each person divided by the total number of shares of AIR Common Stock outstanding. Any shares of AIR Common Stock that may be acquired by a person within 60 days upon the exercise of options, warrants, rights or conversion privileges or pursuant to the power to revoke, or the automatic termination of, a trust, discretionary account or similar arrangement are deemed to be beneficially owned by that person and are deemed outstanding for the purpose of computing the percentage of outstanding shares of AIR Common Stock owned by that person, but not any other person. |
(3) | Through wholly-owned subsidiaries, AIR acts as general partner of the AIR Operating Partnership. As of April 12, 2021, AIR held approximately 93.64% of the common partnership interests in the AIR Operating Partnership. Interests in the AIR Operating Partnership that are held by limited partners other than AIR are referred to as “OP Units.” Generally, after a holding period of 12 months, common OP Units may be tendered for redemption and, upon tender, may be acquired by AIR for shares of AIR Common Stock at an exchange ratio of one share of AIR Common Stock for each common OP Unit (subject to adjustment). If AIR acquired all common OP Units for AIR Common Stock (without regard to the ownership limit set forth in AIR’s Charter), these shares of AIR Common Stock would constitute approximately 6.36% of the then outstanding shares of AIR Common Stock. OP Units are subject to certain restrictions on transfer. |
(4) | Represents the number of shares of AIR Common Stock beneficially owned, divided by the total number of shares of AIR Common Stock outstanding, assuming, in both cases, that all 8,476,708 OP Units outstanding as of April 12, 2021, are redeemed in exchange for shares of AIR Common Stock (notwithstanding any holding period requirements, and AIR’s ownership limit). See note (3) above. Excludes partnership preferred units issued by the AIR Operating Partnership and AIR preferred securities. |
(5) | Includes the following shares of which Mr. Considine disclaims beneficial ownership: 34,724 shares held by Mr. Considine’s spouse; and 16,000 shares held in a trust. Also includes 750,557 shares subject to options that are exercisable within 60 days. |
(6) | Includes 1,038,451 OP Units and equivalents held by Mr. Considine. Includes 179,735 OP Units held by an entity in which Mr. Considine has sole voting and investment power, 1,591,672 OP Units and equivalents held by Titahotwo Limited Partnership RLLLP, a registered limited liability limited partnership for which Mr. Considine serves as the general partner and holds a 0.5% ownership interest, and 157,698 OP Units held by Mr. Considine’s spouse, for which Mr. Considine disclaims beneficial ownership. Titahotwo has pledged 695,000 OPU equivalents. |
(7) | Includes 17,425 shares subject to options that are exercisable within 60 days. |
(8) | Includes 14,588 shares subject to options that are exercisable within 60 days. |
(9) | Includes 782,570 shares subject to options that are exercisable within 60 days. |
(10) | Beneficial ownership information is based on information contained in Schedule 13G filed with the SEC on January 8, 2021, by The Vanguard Group, Inc. According to the schedule, The Vanguard Group, Inc. has sole dispositive power with respect to 20,349,487 of the shares and shared voting power with respect to 423,619 of the shares and shared dispositive power with respect to 546,271 of the shares. |
(11) | Beneficial ownership information is based on information contained in Amendment No. 1 to Schedule 13G filed with the SEC on April 12, 2021, by Cohen & Steers, Inc. on behalf of itself and affiliated entities. According to the schedule, included in the securities listed above as beneficially owned by Cohen & Steers, Inc. are (i) 14,842,285 shares over which Cohen & Steers, Inc. has sole voting power, 14,792,409 shares over which Cohen & Steers Capital Management, Inc. (which is held 100% by Cohen & Steers, Inc.) has sole voting power, and 49,876 shares over which Cohen & Steers UK Limited has sole voting power and (ii) 19,592,271 shares over which Cohen & Steers, Inc. has sole dispositive power, 19,152,845 shares over which Cohen & Steers Capital Management, Inc. has sole dispositive power, and 439,426 shares over which Cohen & Steers UK Limited has sole dispositive power. |
(12) | Beneficial ownership information is based on information contained in Schedule 13G filed with the SEC on January 8, 2021, by BlackRock Inc. According to the schedule, BlackRock Inc. has sole voting power with respect to 16,180,821 of the shares. |
(13) | Beneficial ownership information is based on information contained in Schedule 13G filed with the SEC on January 8, 2021, by FMR LLC. |
SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS
Information on equity compensation plans as of the end of the 2020 fiscal year under which equity securities of the captions “Security Ownership of Certain Beneficial Owners and Management” and “Securities AuthorizedCompany are authorized for Issuance Under Equity Compensation Plans”issuance is set forth in the proxy statement for Aimco’s 2020 annual meeting of stockholders and is incorporated hereinfollowing table.
|
| |||||||||||
Plan Category |
| Number of Securities To Be Issued upon Exercise of Outstanding Options, Warrants and Rights (1) |
|
| Weighted Average Exercise Price of Outstanding Options, Warrants and Rights (2) |
|
| Number of Securities Remaining Available for Future Issuance under Equity Compensation Plans (Excluding Securities Subject to Outstanding Unexercised Grants) |
| |||
Equity compensation plans approved by security holders |
| 3,431,064 |
|
| 39.37 |
|
| 3,000,000 |
| |||
Equity compensation plans not approved by security holders |
|
| — |
|
|
| — |
|
|
| — |
|
________________________
(1) Represents awards that were granted by reference. In addition, as of February 21, 2020, Aimco through its consolidated subsidiaries, held 93.4%prior to the Separation, which by operation of the Aimco Operating Partnership’s common partnership units outstanding.Employee Matters Agreement adopted in connection with the Separation, these awards also became outstanding at AIR. These awards include unvested restricted stock and LTIP awards and unexercised stock options. Performance-based awards are included assuming maximum performance.
(2) The weighted average exercise price is calculated based solely on the outstanding stock options. It does not take into account the shares issuable upon vesting of outstanding time-based restricted stock, performance-based restricted stock, or LTIP awards, because such awards do not have an exercise price. As a result of the Separation the exercise price was adjusted by a ratio specified in the Employee Matters Agreement and reflects exercise price for a share of AIR Common Stock.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
Policies and Procedures for Review, Approval or Ratification of Related Person Transactions
AIR recognizes that related person transactions can present potential or actual conflicts of interest and create the appearance that Aimco’s decisions are based on considerations other than the best interests of AIR and its stockholders. Accordingly, as a general matter, it is AIR’s preference to avoid related person transactions. Nevertheless, AIR recognizes that there are situations where related person transactions may be in, or may not be inconsistent with, the best interests of AIR and its stockholders. The Nominating and Corporate Governance Committee, pursuant to a written policy approved by the Board, has oversight for related person transactions. The Nominating and Corporate Governance Committee will review transactions, arrangements or relationships in which (1) the aggregate amount involved will or may be expected to exceed $100,000 in any calendar year, (2) AIR (or any AIR entity) is a participant, and (3) any related party has or will have a direct or indirect interest (other than an interest arising solely as a result of being a director of another corporation or organization that is a party to the transaction or a less than 10 percent beneficial owner of another entity that is a party to the transaction). The Nominating and Corporate Governance Committee has also given its standing approval for certain types of related person transactions such as certain employment arrangements, director compensation, transactions with another entity in which a related person’s interest is only by virtue of a non-executive employment relationship or limited equity position, and transactions in which all stockholders receive pro rata benefits.
Independence of Directors
The information required by this itemBoard has determined that to be considered independent, an outside director may not have a direct or indirect material relationship with AIR or its subsidiaries (directly or as a partner, stockholder or officer of an organization that has a relationship with the Company). A material relationship is presented underone that impairs or inhibits, or has the caption “Certain Relationshipspotential to impair or inhibit, a director’s exercise of critical and Related Transactions”disinterested judgment on behalf of AIR and “Corporate Governance Matters - Independenceits stockholders. In determining whether a material relationship exists, the Board considers all relevant facts and circumstances, including whether the director or a family member is a current or former employee of Directors”the Company, family member relationships, compensation, business relationships and payments, and charitable contributions between AIR and an entity with which a director is affiliated (as an executive officer, partner or substantial stockholder). In evaluating Ms. Sperling’s independence, the Board considered that the Company is presently engaged with Trammell Crow Company, or TCC, in connection with a development, in an arrangement whereby TCC is providing services on a fee basis. The Board took into account the fact that Ms. Sperling is an independent contractor with TCC and that she is not involved in the proxy statement for Aimco’s 2020 annual meetingproject, that her compensation is not tied to the project, and that the fee that may be earned by TCC is fixed and limited in nature, may be paid over three years, if earned, and in any one year and in the aggregate is immaterial to both AIR and TCC. The Board consults with the Company’s counsel to ensure that such determinations are consistent with all relevant securities and other laws and regulations regarding the definition of stockholders“independent director,” including but not limited to those categorical standards set forth in Section 303A.02 of the listing standards of the New York Stock Exchange as in effect from time to time.
Consistent with these considerations, the board affirmatively has determined that Messrs. Keltner, Miller, Murphy, Rayis, and is incorporated herein by reference.Stein and Mses. Nelson, Sperling and Tran are independent directors.
49
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
PRINCIPAL ACCOUNTANT FEES AND SERVICES
ThePrincipal Accountant Fees
Below is information requiredon the fees billed for services rendered by this item is presented underErnst & Young LLP during the caption “Principal Accountant Feesyears ended December 31, 2020, and Services” in the proxy statement for Aimco’s 2020 annual meeting of stockholders and is incorporated herein by reference.
48
PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
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49
INDEX TO EXHIBITS (1) (2)2019.
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50
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ITEM 16. FORM 10-K SUMMARYIn selecting Ernst & Young LLP to perform tax compliance and tax consulting services, the Audit Committee evaluated the efficiency and expertise brought by Ernst & Young LLP and concluded that such engagement was in the best interest of the Company and its stockholders. The Audit Committee considered that the Company’s current and continuing qualification as a real estate investment trust involves the application of highly technical and complex provisions of the Internal Revenue Code and depends on the Company’s ability to meet the various requirements imposed by the Internal Revenue Code, through actual operating results, distribution levels, and diversity of stock ownership. The Audit Committee also specifically considered the amount of the fees as compared to the Company’s overall engagement and as compared to Ernst & Young LLP’s overall book of business and concluded that such engagement by the Company would have no negative bearing on Ernst & Young LLP’s independence.
None.In its pre-approval of such tax services in accordance with the policies outlined below, the Audit Committee gave appropriate consideration to the applicable independence rules of the SEC and PCAOB. Specifically, the Audit Committee considered:
• | The SEC’s three basic principles of independence with respect to services provided by auditors, violations of which would impair the auditor’s independence: (1) an auditor cannot function in the role of management; (2) an auditor cannot audit his or her own work; and (3) an auditor cannot serve in an advocacy role for his or her client; |
• | The non-audit services specifically prohibited under the SEC’s auditor independence rules: |
• | Bookkeeping or other services related to the accounting records or financial statements of the audit client; |
• | Financial information systems design and implementation; |
• | Appraisal or valuation services, fairness opinions, or contribution-in-kind reports; |
• | Actuarial services; |
• | Internal audit outsourcing services; |
• | Management functions or human resources; |
• | Broker or dealer, investment adviser, or investment banking services; and |
• | Legal services and expert services unrelated to the audit. |
• | The following rules of the PCAOB: |
• | 3521 - Contingent Fees; |
• | 3522 - Tax Transactions; and |
• | 3524 - Audit Committee Pre-approval of Certain Tax Services. |
In addition, The Audit Committee considered the SEC’s Release, Strengthening the Commission’s Requirements Regarding Auditor Independence, in which the SEC reiterated “its long-standing position that an accounting firm can provide tax services to its audit clients without impairing the firm’s independence.”
Audit Committee Pre-Approval Policies
The Audit Committee has adopted the Audit and Non-Audit Services Pre-Approval Policy (the “Pre-approval Policy”). A summary of the Pre-approval Policy is as follows:
• | The Pre-approval Policy describes the Audit, Audit-related, Tax and Other Permitted services that have the general pre-approval of the Audit Committee. |
• | Pre-approvals are typically subject to a dollar limit of $50,000. |
• | The term of any general pre-approval is generally 12 months from the date of pre-approval. |
• | At least annually, the Audit Committee reviews and pre-approves the services that may be provided by the independent registered public accounting firm without obtaining specific pre-approval from the Audit Committee. |
• | Unless a type of service has received general pre-approval and is anticipated to be within the dollar limit associated with the general pre-approval, it requires specific pre-approval by the Audit Committee if it is to be provided by the independent registered public accounting firm. |
• | The Audit Committee will consider whether all services are consistent with the rules on independent registered public accounting firm independence. |
• | The Audit Committee also considers whether the independent registered public accounting firm is best positioned to provide the most effective and efficient service, for reasons such as its familiarity with Aimco’s business, people, culture, accounting systems, risk profile and other factors, and whether the service might enhance Aimco’s ability to manage or control risk or improve audit quality. Such factors are considered as a whole, and no one factor is necessarily determinative. |
All of the services described in the Principal Accountant Fee section above were approved pursuant to the annual engagement letter or in accordance with the Pre-approval Policy.
51
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, each registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| APARTMENT | ||
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| By: |
| /s/ TERRY CONSIDINE |
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| Terry Considine |
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| Date: |
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| AIMCO PROPERTIES, L.P. | ||
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| By: |
| AIMCO-GP, Inc., its General Partner |
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| By: |
| /s/ TERRY CONSIDINE |
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| Terry Considine |
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| Date: |
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Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of each registrant and in the capacities and on the dates indicated.
Signature |
| Title |
| Date | |||||
APARTMENT |
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AIMCO PROPERTIES, L.P. |
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By: AIMCO-GP, Inc., its General Partner |
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/s/ TERRY CONSIDINE |
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Terry Considine |
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(principal executive officer) |
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/s/ PAUL BELDIN |
| Executive Vice President and |
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Paul Beldin |
| Chief Financial Officer (principal financial officer) |
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/s/ THOMAS L. KELTNER |
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Thomas L. Keltner | |||||||||
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/s/ ROBERT A. MILLER |
| Director |
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Robert A. Miller | |||||||||
/s/ DEVIN I. MURPHY | Director | April 16, 2021 | |||||||
Devin I. Murphy |
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/s/ KATHLEEN M. NELSON |
| Director |
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Kathleen M. Nelson |
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/s/ JOHN DINHA RAYIS | Director | April 16, 2021 | |||||||
John Dinha Rayis | |||||||||
/s/ ANN SPERLING |
| Director |
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Ann Sperling |
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/s/ MICHAEL A. STEIN |
| Director |
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April 16, 2021 | |||||||||
Michael A. Stein |
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/s/ NINA A. TRAN |
| Director |
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Nina A. Tran |
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52
APARTMENT INVESTMENT AND MANAGEMENT COMPANY
AIMCO PROPERTIES, L.P.
INDEX TO FINANCIAL STATEMENTS
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52
F-1
Report of Independent Registered Public Accounting Firm
To the Shareholders and the Board of Directors of
Apartment Investment and Management Company
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Apartment Investment and Management Company (the Company) as of December 31, 2019 and 2018, the related consolidated statements of operations, comprehensive income, equity, and cash flows for each of the three years in the period ended December 31, 2019, and the related notes and financial statement schedule listed in the index at Item 15(a) (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2019 and 2018, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2019, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated February 24, 2020 expressed an unqualified opinion thereon.
Adoption of New Accounting Standard
As discussed in Note 10 to the consolidated financial statements, the Company changed its accounting for the income tax consequences of intercompany transfers of assets effective January 1, 2017.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
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F-2
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/s/ ERNST & YOUNG LLP
We have served as the Company’s auditor since 1994.
Denver, Colorado
February 24, 2020
F-3
APARTMENT INVESTMENT AND MANAGEMENT COMPANY
CONSOLIDATED BALANCE SHEETS
As of December 31, 2019 and 2018
(In thousands, except share data)
|
| 2019 |
|
| 2018 |
| ||
ASSETS |
|
|
|
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|
|
|
|
Buildings and improvements |
| $ | 6,868,543 |
|
| $ | 6,552,065 |
|
Land |
|
| 1,869,048 |
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|
| 1,756,525 |
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Total real estate |
|
| 8,737,591 |
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|
| 8,308,590 |
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Accumulated depreciation |
|
| (2,718,284 | ) |
|
| (2,585,115 | ) |
Net real estate |
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| 6,019,307 |
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|
| 5,723,475 |
|
Cash and cash equivalents |
|
| 142,902 |
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|
| 36,858 |
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Restricted cash |
|
| 34,800 |
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|
| 35,737 |
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Mezzanine investment |
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| 280,258 |
|
|
| — |
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Other assets |
|
| 351,472 |
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|
| 351,541 |
|
Assets held for sale |
|
| — |
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|
| 42,393 |
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Total assets |
| $ | 6,828,739 |
|
| $ | 6,190,004 |
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LIABILITIES AND EQUITY |
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Non-recourse property debt, net |
| $ | 4,230,590 |
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| $ | 3,915,305 |
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Revolving credit facility borrowings |
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| 275,000 |
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| 160,360 |
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Total indebtedness |
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| 4,505,590 |
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| 4,075,665 |
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Accrued liabilities and other |
|
| 360,574 | �� |
|
| 226,230 |
|
Liabilities related to assets held for sale |
|
| — |
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|
| 23,177 |
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Total liabilities |
|
| 4,866,164 |
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|
| 4,325,072 |
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Preferred noncontrolling interests in Aimco Operating Partnership (Note 8) |
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| 97,064 |
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| 101,291 |
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Redeemable noncontrolling interests in consolidated real estate partnership |
|
| 4,716 |
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|
| — |
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Commitments and contingencies (Note 6) |
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Equity: |
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Perpetual preferred stock (Note 7) |
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| — |
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| 125,000 |
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Common Stock, $0.01 par value, 500,787,260 shares authorized, 148,885,197 and 144,623,034 shares issued/outstanding at December 31, 2019 and 2018, respectively |
|
| 1,489 |
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|
| 1,446 |
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Additional paid-in capital |
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| 3,497,367 |
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| 3,515,686 |
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Accumulated other comprehensive income |
|
| 4,195 |
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| 4,794 |
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Distributions in excess of earnings |
|
| (1,722,402 | ) |
|
| (1,947,507 | ) |
Total Aimco equity |
|
| 1,780,649 |
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| 1,699,419 |
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Noncontrolling interests in consolidated real estate partnerships |
|
| (3,296 | ) |
|
| (2,967 | ) |
Common noncontrolling interests in Aimco Operating Partnership |
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| 83,442 |
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|
| 67,189 |
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Total equity |
|
| 1,860,795 |
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|
| 1,763,641 |
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Total liabilities and equity |
| $ | 6,828,739 |
|
| $ | 6,190,004 |
|
See notes to the consolidated financial statements.
F-4
APARTMENT INVESTMENT AND MANAGEMENT COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Years Ended December 31, 2019, 2018, and 2017
(In thousands, except per share data)
|
| 2019 |
|
| 2018 |
|
| 2017 |
| |||
REVENUES: |
|
|
|
|
|
|
|
|
|
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|
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Rental and other property revenues attributable to real estate |
| $ | 914,294 |
|
| $ | 922,593 |
|
| $ | 918,148 |
|
Asset Management business rental and tax credit revenues |
|
| — |
|
|
| 49,817 |
|
|
| 87,289 |
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Total revenues |
|
| 914,294 |
|
|
| 972,410 |
|
|
| 1,005,437 |
|
OPERATING EXPENSES: |
|
|
|
|
|
|
|
|
|
|
|
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Property operating expenses attributable to real estate |
|
| 311,221 |
|
|
| 307,901 |
|
|
| 319,126 |
|
Property operating expenses of partnerships served by Asset Management business |
|
| — |
|
|
| 20,921 |
|
|
| 35,458 |
|
Depreciation and amortization |
|
| 380,171 |
|
|
| 377,786 |
|
|
| 366,184 |
|
General and administrative expenses |
|
| 47,037 |
|
|
| 46,268 |
|
|
| 43,657 |
|
Other expenses, net |
|
| 19,092 |
|
|
| 3,778 |
|
|
| 11,148 |
|
Provision for real estate impairment loss |
|
| — |
|
|
| — |
|
| �� | 35,881 |
|
Total operating expenses |
|
| 757,521 |
|
|
| 756,654 |
|
|
| 811,454 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income |
|
| 11,424 |
|
|
| 10,914 |
|
|
| 8,332 |
|
Interest expense |
|
| (168,807 | ) |
|
| (200,634 | ) |
|
| (194,615 | ) |
Gain on dispositions of real estate and the Asset Management business |
|
| 503,168 |
|
|
| 677,463 |
|
|
| 300,849 |
|
Mezzanine investment income, net |
|
| 1,531 |
|
|
| — |
|
|
| — |
|
Income from unconsolidated real estate partnerships |
|
| 803 |
|
|
| 77 |
|
|
| 7,694 |
|
Income before income tax benefit |
|
| 504,892 |
|
|
| 703,576 |
|
|
| 316,243 |
|
Income tax benefit (Note 10) |
|
| 3,135 |
|
|
| 13,027 |
|
|
| 30,836 |
|
Net income |
|
| 508,027 |
|
|
| 716,603 |
|
|
| 347,079 |
|
Noncontrolling interests: |
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to noncontrolling interests in consolidated real estate partnerships |
|
| (187 | ) |
|
| (8,220 | ) |
|
| (9,084 | ) |
Net income attributable to preferred noncontrolling interests in Aimco Operating Partnership |
|
| (7,708 | ) |
|
| (7,739 | ) |
|
| (7,764 | ) |
Net income attributable to common noncontrolling interests in Aimco Operating Partnership |
|
| (26,049 | ) |
|
| (34,417 | ) |
|
| (14,457 | ) |
Net income attributable to noncontrolling interests |
|
| (33,944 | ) |
|
| (50,376 | ) |
|
| (31,305 | ) |
Net income attributable to Aimco |
|
| 474,083 |
|
|
| 666,227 |
|
|
| 315,774 |
|
Net income attributable to Aimco preferred stockholders |
|
| (7,335 | ) |
|
| (8,593 | ) |
|
| (8,594 | ) |
Net income attributable to participating securities |
|
| (604 | ) |
|
| (1,037 | ) |
|
| (319 | ) |
Net income attributable to Aimco common stockholders |
| $ | 466,144 |
|
| $ | 656,597 |
|
| $ | 306,861 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to Aimco per common share – basic |
| $ | 3.16 |
|
| $ | 4.34 |
|
| $ | 2.02 |
|
Net income attributable to Aimco per common share – diluted |
| $ | 3.15 |
|
| $ | 4.34 |
|
| $ | 2.02 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average common shares outstanding – basic |
|
| 147,718 |
|
|
| 151,152 |
|
|
| 151,595 |
|
Weighted-average common shares outstanding – diluted |
|
| 147,944 |
|
|
| 151,334 |
|
|
| 152,060 |
|
See notes to the consolidated financial statements.
F-5
APARTMENT INVESTMENT AND MANAGEMENT COMPANY
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
For the Years Ended December 31, 2019, 2018, and 2017
(In thousands)
|
| 2019 |
|
| 2018 |
|
| 2017 |
| |||
Net income |
| $ | 508,027 |
|
| $ | 716,603 |
|
| $ | 347,079 |
|
Other comprehensive (loss) gain: |
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized (losses) gains on available for sale debt securities |
|
| (637 | ) |
|
| (131 | ) |
|
| 1,507 |
|
Realized and unrealized losses on interest rate swaps |
|
| — |
|
|
| — |
|
|
| (173 | ) |
Losses on interest rate swaps reclassified into earnings from accumulated other comprehensive loss |
|
| — |
|
|
| 1,391 |
|
|
| 1,480 |
|
Other comprehensive (loss) gain |
|
| (637 | ) |
|
| 1,260 |
|
|
| 2,814 |
|
Comprehensive income |
|
| 507,390 |
|
|
| 717,863 |
|
|
| 349,893 |
|
Comprehensive income attributable to noncontrolling interests |
|
| (33,906 | ) |
|
| (50,445 | ) |
|
| (31,527 | ) |
Comprehensive income attributable to Aimco |
| $ | 473,484 |
|
| $ | 667,418 |
|
| $ | 318,366 |
|
See notes to the consolidated financial statements.
F-6
APARTMENT INVESTMENT AND MANAGEMENT COMPANY
CONSOLIDATED STATEMENTS OF EQUITY
For the Years Ended December 31, 2019, 2018, and 2017
(In thousands)
|
| Preferred Stock |
|
| Common Stock |
|
|
|
|
|
| Accumulated |
|
|
|
|
|
|
|
|
|
| Noncontrolling Interests in |
|
| Common Noncontrolling Interests in |
|
|
|
|
| |||||||||||||
|
| Shares Issued |
|
| Amount |
|
| Shares Issued |
|
| Amount |
|
| Additional Paid- in Capital |
|
| Other Comprehensive Income (Loss) |
|
| Distributions in Excess of Earnings |
|
| Total Aimco Equity |
|
| Consolidated Real Estate Partnerships |
|
| Aimco Operating Partnerships |
|
| Total Equity |
| |||||||||||
Balances at December 31, 2016 |
|
| 5,000 |
|
| $ | 125,000 |
|
|
| 152,143 |
|
| $ | 1,521 |
|
| $ | 4,051,770 |
|
| $ | 1,011 |
|
| $ | (2,385,399 | ) |
| $ | 1,793,903 |
|
| $ | 151,121 |
|
| $ | (58 | ) |
| $ | 1,944,966 |
|
Redemption of Aimco Operating Partnership units |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (11,882 | ) |
|
| (11,882 | ) |
Amortization of share-based compensation cost |
|
| — |
|
|
| — |
|
|
| 17 |
|
|
| — |
|
|
| 8,638 |
|
|
| — |
|
|
| — |
|
|
| 8,638 |
|
|
| — |
|
|
| 613 |
|
|
| 9,251 |
|
Contributions from noncontrolling interests |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 3,401 |
|
|
| — |
|
|
| 3,401 |
|
Effect of changes in ownership for consolidated entities |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (160,586 | ) |
|
| — |
|
|
| — |
|
|
| (160,586 | ) |
|
| (157,056 | ) |
|
| 4,867 |
|
|
| (312,775 | ) |
Cumulative effect of a change in accounting principle |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (62,682 | ) |
|
| (62,682 | ) |
|
| — |
|
|
| (3,028 | ) |
|
| (65,710 | ) |
Change in accumulated other comprehensive income |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 2,592 |
|
|
| — |
|
|
| 2,592 |
|
|
| 101 |
|
|
| 121 |
|
|
| 2,814 |
|
Net income |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 315,774 |
|
|
| 315,774 |
|
|
| 9,084 |
|
|
| 14,457 |
|
|
| 339,315 |
|
Distributions to noncontrolling interests |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (8,367 | ) |
|
| (10,765 | ) |
|
| (19,132 | ) |
Common Stock dividends |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (226,172 | ) |
|
| (226,172 | ) |
|
| — |
|
|
| — |
|
|
| (226,172 | ) |
Preferred Stock dividends |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (8,594 | ) |
|
| (8,594 | ) |
|
| — |
|
|
| — |
|
|
| (8,594 | ) |
Other, net |
|
| — |
|
|
| — |
|
|
| 275 |
|
|
| 3 |
|
|
| 268 |
|
|
| — |
|
|
| — |
|
|
| 271 |
|
|
| — |
|
|
| — |
|
|
| 271 |
|
Balances at December 31, 2017 |
|
| 5,000 |
|
|
| 125,000 |
|
|
| 152,435 |
|
|
| 1,524 |
|
|
| 3,900,090 |
|
|
| 3,603 |
|
|
| (2,367,073 | ) |
|
| 1,663,144 |
|
|
| (1,716 | ) |
|
| (5,675 | ) |
|
| 1,655,753 |
|
Repurchases of Common Stock |
|
| — |
|
|
| — |
|
|
| (7,970 | ) |
|
| (80 | ) |
|
| (373,513 | ) |
|
| — |
|
|
| — |
|
|
| (373,593 | ) |
|
| — |
|
|
| — |
|
|
| (373,593 | ) |
Issuance of Aimco Operating Partnership units |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 50,151 |
|
|
| 50,151 |
|
Redemption of Aimco Operating Partnership units |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (9,639 | ) |
|
| (9,639 | ) |
Amortization of share-based compensation cost |
|
| — |
|
|
| — |
|
|
| 21 |
|
|
| — |
|
|
| 8,074 |
|
|
| — |
|
|
| — |
|
|
| 8,074 |
|
|
| — |
|
|
| 1,691 |
|
|
| 9,765 |
|
Effect of changes in ownership for consolidated entities |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (19,115 | ) |
|
| — |
|
|
| — |
|
|
| (19,115 | ) |
|
| — |
|
|
| 9,014 |
|
|
| (10,101 | ) |
Change in accumulated other comprehensive income |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1,191 |
|
|
| — |
|
|
| 1,191 |
|
|
| — |
|
|
| 69 |
|
|
| 1,260 |
|
Net income |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 666,227 |
|
|
| 666,227 |
|
|
| 8,220 |
|
|
| 34,417 |
|
|
| 708,864 |
|
Distributions to noncontrolling interests |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (9,471 | ) |
|
| (12,839 | ) |
|
| (22,310 | ) |
Common Stock dividends |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (238,067 | ) |
|
| (238,067 | ) |
|
| — |
|
|
| — |
|
|
| (238,067 | ) |
Preferred Stock dividends |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (8,594 | ) |
|
| (8,594 | ) |
|
| — |
|
|
| — |
|
|
| (8,594 | ) |
Other, net |
|
| — |
|
|
| — |
|
|
| 137 |
|
|
| 2 |
|
|
| 150 |
|
|
| — |
|
|
| — |
|
|
| 152 |
|
|
| — |
|
|
| — |
|
|
| 152 |
|
Balances at December 31, 2018 |
|
| 5,000 |
|
|
| 125,000 |
|
|
| 144,623 |
|
|
| 1,446 |
|
|
| 3,515,686 |
|
|
| 4,794 |
|
|
| (1,947,507 | ) |
|
| 1,699,419 |
|
|
| (2,967 | ) |
|
| 67,189 |
|
|
| 1,763,641 |
|
Repurchases of Common Stock |
|
| — |
|
|
| — |
|
|
| (461 | ) |
|
| (5 | ) |
|
| (20,677 | ) |
|
| — |
|
|
| — |
|
|
| (20,682 | ) |
|
| — |
|
|
| — |
|
|
| (20,682 | ) |
Redemption of Preferred Stock |
|
| (5,000 | ) |
|
| (125,000 | ) |
|
| — |
|
|
| — |
|
|
| 4,089 |
|
|
| — |
|
|
| (4,089 | ) |
|
| (125,000 | ) |
|
| — |
|
|
| — |
|
|
| (125,000 | ) |
Issuance of Aimco Operating Partnership units |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 3,034 |
|
|
| 3,034 |
|
Redemption of Aimco Operating Partnership units |
|
| — |
|
|
| — |
|
|
| 127 |
|
|
| 2 |
|
|
| 6,242 |
|
|
| — |
|
|
| — |
|
|
| 6,244 |
|
|
| — |
|
|
| (12,710 | ) |
|
| (6,466 | ) |
Amortization of share-based compensation cost |
|
| — |
|
|
| — |
|
|
| 22 |
|
|
| — |
|
|
| 5,924 |
|
|
| — |
|
|
| — |
|
|
| 5,924 |
|
|
| — |
|
|
| 3,184 |
|
|
| 9,108 |
|
Effect of changes in ownership of consolidated entities |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (13,243 | ) |
|
| — |
|
|
| — |
|
|
| (13,243 | ) |
|
| 3,422 |
|
|
| 9,821 |
|
|
| — |
|
Purchase of noncontrolling interest in consolidated real estate partnerships |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (3,844 | ) |
|
| — |
|
|
| (3,844 | ) |
Change in accumulated other comprehensive income |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (599 | ) |
|
| — |
|
|
| (599 | ) |
|
| — |
|
|
| (38 | ) |
|
| (637 | ) |
Net income |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 474,083 |
|
|
| 474,083 |
|
|
| 382 |
|
|
| 26,049 |
|
|
| 500,514 |
|
Common Stock dividends |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (241,643 | ) |
|
| (241,643 | ) |
|
| — |
|
|
| — |
|
|
| (241,643 | ) |
Common Stock issued to Common Stockholders in special dividend |
|
| — |
|
|
| — |
|
|
| 4,492 |
|
|
| 45 |
|
|
| (786 | ) |
|
| — |
|
|
| — |
|
|
| (741 | ) |
|
| — |
|
|
| — |
|
|
| (741 | ) |
Preferred Stock dividends |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (3,246 | ) |
|
| (3,246 | ) |
|
| — |
|
|
| — |
|
|
| (3,246 | ) |
Distributions to noncontrolling interests |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (308 | ) |
|
| (13,087 | ) |
|
| (13,395 | ) |
Other, net |
|
| — |
|
|
| — |
|
|
| 82 |
|
|
| 1 |
|
|
| 132 |
|
|
| — |
|
|
| — |
|
|
| 133 |
|
|
| 19 |
|
|
| — |
|
|
| 152 |
|
Balances at December 31, 2019 |
|
| — |
|
| $ | — |
|
|
| 148,885 |
|
| $ | 1,489 |
|
| $ | 3,497,367 |
|
| $ | 4,195 |
|
| $ | (1,722,402 | ) |
| $ | 1,780,649 |
|
| $ | (3,296 | ) |
| $ | 83,442 |
|
| $ | 1,860,795 |
|
See notes to the consolidated financial statements.
F-7
APARTMENT INVESTMENT AND MANAGEMENT COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 2019, 2018, and 2017
(In thousands)
| 2019 |
| 2018 |
| 2017 |
| |||
CASH FLOWS FROM OPERATING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
Net income | $ | 508,027 |
| $ | 716,603 |
| $ | 347,079 |
|
Adjustments to reconcile net income to net cash provided by operating activities: |
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
| 380,171 |
|
| 377,786 |
|
| 366,184 |
|
Provision for real estate impairment loss |
| — |
|
| — |
|
| 35,881 |
|
Gain on dispositions of real estate and the Asset Management business |
| (503,168 | ) |
| (677,463 | ) |
| (300,849 | ) |
Income tax benefit |
| (3,135 | ) |
| (13,027 | ) |
| (30,836 | ) |
Share-based compensation expense |
| 8,146 |
|
| 8,550 |
|
| 7,877 |
|
Amortization of debt issuance costs and other |
| 7,629 |
|
| 9,023 |
|
| 5,666 |
|
Other, net |
| 25 |
|
| 1,065 |
|
| (7,694 | ) |
Changes in operating assets and operating liabilities: |
|
|
|
|
|
|
|
|
|
Accounts receivable and other assets |
| (26,021 | ) |
| (27,830 | ) |
| (15,841 | ) |
Accounts payable, accrued liabilities and other |
| 2,798 |
|
| 1,681 |
|
| (15,395 | ) |
Total adjustments |
| (133,555 | ) |
| (320,215 | ) |
| 44,993 |
|
Net cash provided by operating activities |
| 374,472 |
|
| 396,388 |
|
| 392,072 |
|
CASH FLOWS FROM INVESTING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
Purchases of real estate and deposits related to purchases of real estate |
| (138,311 | ) |
| (242,297 | ) |
| (20,372 | ) |
Capital expenditures |
| (393,461 | ) |
| (340,489 | ) |
| (358,104 | ) |
Proceeds from dispositions of real estate and the Asset Management Business |
| 628,771 |
|
| 708,848 |
|
| 401,983 |
|
Payment for mezzanine investment and related transaction costs |
| (277,627 | ) |
| — |
|
| — |
|
Purchases of corporate assets |
| (17,584 | ) |
| (7,718 | ) |
| (8,899 | ) |
Proceeds from repayments on notes receivable |
| 147 |
|
| 5,010 |
|
| 430 |
|
Other investing activities |
| (7,348 | ) |
| (1,508 | ) |
| (2,019 | ) |
Net cash (used in) provided by investing activities |
| (205,413 | ) |
| 121,846 |
|
| 13,019 |
|
CASH FLOWS FROM FINANCING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
Proceeds from non-recourse property debt |
| 774,623 |
|
| 1,228,027 |
|
| 312,434 |
|
Principal repayments on non-recourse property debt |
| (520,027 | ) |
| (976,087 | ) |
| (409,167 | ) |
(Repayment of) proceeds from term loan |
| — |
|
| (250,000 | ) |
| 250,000 |
|
Net borrowings on revolving credit facility |
| 114,640 |
|
| 93,200 |
|
| 49,230 |
|
Payment of debt issuance costs |
| (4,861 | ) |
| (11,961 | ) |
| (4,751 | ) |
Payment of debt extinguishment costs |
| (4,491 | ) |
| (14,241 | ) |
| (399 | ) |
Repurchases of Common Stock |
| (20,682 | ) |
| (373,593 | ) |
| — |
|
Repurchases of Preferred Stock |
| (125,000 | ) |
| — |
|
| — |
|
Payment of dividends to holders of Preferred Stock |
| (3,246 | ) |
| (8,594 | ) |
| (8,594 | ) |
Payment of dividends to holders of Common Stock |
| (241,288 | ) |
| (237,504 | ) |
| (225,377 | ) |
Payment of distributions to noncontrolling interests |
| (21,620 | ) |
| (29,196 | ) |
| (26,799 | ) |
Redemptions of noncontrolling interests in the Aimco Operating Partnership |
| (10,694 | ) |
| (9,885 | ) |
| (13,546 | ) |
Contribution from noncontrolling interests in consolidated real estate partnerships |
| 4,911 |
|
| — |
|
| — |
|
Purchases of noncontrolling interests in consolidated real estate partnerships |
| (3,780 | ) |
| (3,579 | ) |
| (314,269 | ) |
Other financing activities |
| (2,437 | ) |
| 5,233 |
|
| (2,462 | ) |
Net cash used in financing activities |
| (63,952 | ) |
| (588,180 | ) |
| (393,700 | ) |
NET INCREASE (DECREASE) IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH |
| 105,107 |
|
| (69,946 | ) |
| 11,391 |
|
CASH, CASH EQUIVALENTS AND RESTRICTED CASH AT BEGINNING OF PERIOD |
| 72,595 |
|
| 142,541 |
|
| 131,150 |
|
CASH, CASH EQUIVALENTS AND RESTRICTED CASH AT END OF PERIOD | $ | 177,702 |
| $ | 72,595 |
| $ | 142,541 |
|
See notes to the consolidated financial statements.
F-8
APARTMENT INVESTMENT AND MANAGEMENT COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 2019, 2018, and 2017
(In thousands)
|
| 2019 |
|
| 2018 |
|
| 2017 |
| |||
SUPPLEMENTAL CASH FLOW INFORMATION: |
|
|
|
|
|
|
|
|
|
|
|
|
Interest paid |
| $ | 160,961 |
|
| $ | 199,996 |
|
| $ | 196,438 |
|
Cash paid for income taxes |
|
| 12,238 |
|
|
| 11,522 |
|
|
| 7,401 |
|
Non-cash transactions associated with the acquisition or disposition of real estate: |
|
|
|
|
|
|
|
|
|
|
|
|
Non-recourse property debt assumed in connection with the acquisition of real estate |
|
| 97,565 |
|
|
| 208,885 |
|
|
| — |
|
Deferred tax liability assumed in connection with the acquisition of real estate |
|
| 148,809 |
|
|
| — |
|
|
| — |
|
Issuance of common OP Units in connection with acquisition of real estate |
|
| 3,034 |
|
|
| 50,151 |
|
|
| — |
|
Non-recourse property debt assumed by buyer in connection with the disposition of the Asset Management business |
|
| — |
|
|
| 227,708 |
|
|
| — |
|
Other non-cash transactions: |
|
|
|
|
|
|
|
|
|
|
|
|
Recognition of right of use lease assets |
|
| 54,626 |
|
|
| — |
|
|
| — |
|
Recognition of lease liabilities |
|
| 59,251 |
|
|
| — |
|
|
| — |
|
Accrued capital expenditures (at end of period) |
|
| 54,358 |
|
|
| 40,185 |
|
|
| 31,719 |
|
Accrued dividends on TSR restricted stock and LTIP awards (at end of period) (Note 9) |
|
| 1,420 |
|
|
| 1,266 |
|
|
| 1,720 |
|
See notes to the consolidated financial statements.
F-9
Report of Independent Registered Public Accounting Firm
To the Partners and the Board of Directors of
AIMCO Properties, L.P.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of AIMCO Properties, L.P. (the Partnership) as of December 31, 2019 and 2018, the related consolidated statements of operations, comprehensive income, equity, and cash flows for each of the three years in the period ended December 31, 2019, and the related notes and financial statement schedule listed in the index at Item 15(a) (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Partnership at December 31, 2019 and 2018, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2019, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Partnership’s internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated February 24, 2020 expressed an unqualified opinion thereon.
Adoption of New Accounting Standard
As discussed in Note 10 to the consolidated financial statements, the Partnership changed its accounting for the income tax consequences of intercompany transfers of assets effective January 1, 2017.
Basis for Opinion
These financial statements are the responsibility of the Partnership’s management. Our responsibility is to express an opinion on the Partnership’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Partnership in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
|
We have served as the Partnership’s auditor since 1994.
Denver, Colorado
February 24, 2020
F-10
AIMCO PROPERTIES, L.P.
CONSOLIDATED BALANCE SHEETS
As of December 31, 2019 and 2018
(In thousands)
|
| 2019 |
|
| 2018 |
| ||
ASSETS |
|
|
|
|
|
|
|
|
Buildings and improvements |
| $ | 6,868,543 |
|
| $ | 6,552,065 |
|
Land |
|
| 1,869,048 |
|
|
| 1,756,525 |
|
Total real estate |
|
| 8,737,591 |
|
|
| 8,308,590 |
|
Accumulated depreciation |
|
| (2,718,284 | ) |
|
| (2,585,115 | ) |
Net real estate |
|
| 6,019,307 |
|
|
| 5,723,475 |
|
Cash and cash equivalents |
|
| 142,902 |
|
|
| 36,858 |
|
Restricted cash |
|
| 34,800 |
|
|
| 35,737 |
|
Mezzanine investment |
|
| 280,258 |
|
|
| — |
|
Other assets |
|
| 351,472 |
|
|
| 351,541 |
|
Assets held for sale |
|
| — |
|
|
| 42,393 |
|
Total assets |
| $ | 6,828,739 |
|
| $ | 6,190,004 |
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND EQUITY |
|
|
|
|
|
|
|
|
Non-recourse property debt, net |
| $ | 4,230,590 |
|
| $ | 3,915,305 |
|
Revolving credit facility borrowings |
|
| 275,000 |
|
|
| 160,360 |
|
Total indebtedness |
|
| 4,505,590 |
|
|
| 4,075,665 |
|
Accrued liabilities and other |
|
| 360,574 |
|
|
| 226,230 |
|
Liabilities related to assets held for sale |
|
| — |
|
|
| 23,177 |
|
Total liabilities |
|
| 4,866,164 |
|
|
| 4,325,072 |
|
Redeemable preferred units (Note 8) |
|
| 97,064 |
|
|
| 101,291 |
|
Redeemable noncontrolling interests in consolidated real estate partnership |
|
| 4,716 |
|
|
| — |
|
Commitments and contingencies (Note 6) |
|
|
|
|
|
|
|
|
Partners’ capital: |
|
|
|
|
|
|
|
|
Preferred units (Note 7) |
|
| — |
|
|
| 125,000 |
|
General Partner and Special Limited Partner |
|
| 1,780,649 |
|
|
| 1,574,419 |
|
Limited Partners |
|
| 83,442 |
|
|
| 67,189 |
|
Partners’ capital attributable to the Aimco Operating Partnership |
|
| 1,864,091 |
|
|
| 1,766,608 |
|
Noncontrolling interests in consolidated real estate partnerships |
|
| (3,296 | ) |
|
| (2,967 | ) |
Total partners’ capital |
|
| 1,860,795 |
|
|
| 1,763,641 |
|
Total liabilities and partners’ capital |
| $ | 6,828,739 |
|
| $ | 6,190,004 |
|
See notes to the consolidated financial statements.
F-11
AIMCO PROPERTIES, L.P.
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Years Ended December 31, 2019, 2018, and 2017
(In thousands, except per unit data)
|
| 2019 |
|
| 2018 |
|
| 2017 |
| |||
REVENUES: |
|
|
|
|
|
|
|
|
|
|
|
|
Rental and other property revenues attributable to real estate |
| $ | 914,294 |
|
| $ | 922,593 |
|
| $ | 918,148 |
|
Asset Management business rental and tax credit revenues |
|
| — |
|
|
| 49,817 |
|
|
| 87,289 |
|
Total revenues |
|
| 914,294 |
|
|
| 972,410 |
|
|
| 1,005,437 |
|
OPERATING EXPENSES: |
|
|
|
|
|
|
|
|
|
|
|
|
Property operating expenses attributable to real estate |
|
| 311,221 |
|
|
| 307,901 |
|
|
| 319,126 |
|
Property operating expenses of partnerships served by Asset Management business |
|
| — |
|
|
| 20,921 |
|
|
| 35,458 |
|
Depreciation and amortization |
|
| 380,171 |
|
|
| 377,786 |
|
|
| 366,184 |
|
General and administrative expenses |
|
| 47,037 |
|
|
| 46,268 |
|
|
| 43,657 |
|
Other expenses, net |
|
| 19,092 |
|
|
| 3,778 |
|
|
| 11,148 |
|
Provision for real estate impairment loss |
|
| — |
|
|
| — |
|
|
| 35,881 |
|
Total operating expenses |
|
| 757,521 |
|
|
| 756,654 |
|
|
| 811,454 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income |
|
| 11,424 |
|
|
| 10,914 |
|
|
| 8,332 |
|
Interest expense |
|
| (168,807 | ) |
|
| (200,634 | ) |
|
| (194,615 | ) |
Gain on dispositions of real estate and the Asset Management business |
|
| 503,168 |
|
|
| 677,463 |
|
|
| 300,849 |
|
Mezzanine investment income, net |
|
| 1,531 |
|
|
| — |
|
|
| — |
|
Income from unconsolidated real estate partnerships |
|
| 803 |
|
|
| 77 |
|
|
| 7,694 |
|
Income before income tax benefit |
|
| 504,892 |
|
|
| 703,576 |
|
|
| 316,243 |
|
Income tax benefit (Note 10) |
|
| 3,135 |
|
|
| 13,027 |
|
|
| 30,836 |
|
Net income |
|
| 508,027 |
|
|
| 716,603 |
|
|
| 347,079 |
|
Net income attributable to noncontrolling interests in consolidated real estate partnerships |
|
| (187 | ) |
|
| (8,220 | ) |
|
| (9,084 | ) |
Net income attributable to the Aimco Operating Partnership |
|
| 507,840 |
|
|
| 708,383 |
|
|
| 337,995 |
|
Net income attributable to the Aimco Operating Partnership’s preferred unitholders |
|
| (15,043 | ) |
|
| (16,332 | ) |
|
| (16,358 | ) |
Net income attributable to participating securities |
|
| (620 | ) |
|
| (1,177 | ) |
|
| (337 | ) |
Net income attributable to the Aimco Operating Partnership’s common unitholders |
| $ | 492,177 |
|
| $ | 690,874 |
|
| $ | 321,300 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to the Aimco Operating Partnership per common unit – basic |
| $ | 3.16 |
|
| $ | 4.35 |
|
| $ | 2.02 |
|
Net income attributable to the Aimco Operating Partnership per common unit – diluted |
| $ | 3.15 |
|
| $ | 4.34 |
|
| $ | 2.02 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average common units outstanding – basic |
|
| 155,882 |
|
|
| 158,890 |
|
|
| 158,793 |
|
Weighted-average common units outstanding – diluted |
|
| 156,217 |
|
|
| 159,073 |
|
|
| 159,257 |
|
See notes to the consolidated financial statements.
F-12
AIMCO PROPERTIES, L.P.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
For the Years Ended December 31, 2019, 2018, and 2017
(In thousands)
|
| 2019 |
|
| 2018 |
|
| 2017 |
| |||
Net income |
| $ | 508,027 |
|
| $ | 716,603 |
|
| $ | 347,079 |
|
Other comprehensive (loss) gain: |
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized (losses) gains on available for sale debt securities |
|
| (637 | ) |
|
| (131 | ) |
|
| 1,507 |
|
Realized and unrealized losses on interest rate swaps |
|
| — |
|
|
| — |
|
|
| (173 | ) |
Losses on interest rate swaps reclassified into earnings from accumulated other comprehensive loss |
|
| — |
|
|
| 1,391 |
|
|
| 1,480 |
|
Other comprehensive (loss) gain |
|
| (637 | ) |
|
| 1,260 |
|
|
| 2,814 |
|
Comprehensive income |
|
| 507,390 |
|
|
| 717,863 |
|
|
| 349,893 |
|
Comprehensive income attributable to noncontrolling interests |
|
| (187 | ) |
|
| (8,220 | ) |
|
| (9,185 | ) |
Comprehensive income attributable to the Aimco Operating Partnership |
| $ | 507,203 |
|
| $ | 709,643 |
|
| $ | 340,708 |
|
See notes to the consolidated financial statements.
F-13
AIMCO PROPERTIES, L.P.
CONSOLIDATED STATEMENTS OF PARTNERS’ CAPITAL
For the Years Ended December 31, 2019, 2018, and 2017
(In thousands)
|
| Preferred Units |
|
| General Partner and Special Limited Partner |
|
| Limited Partners |
|
| Partners’ Capital Attributable to the Aimco Operating Partnership |
|
| Noncontrolling Interests in Consolidated Real Estate Partnerships |
|
| Total Partners’ Capital |
| ||||||
Balances at December 31, 2016 |
| $ | 125,000 |
|
| $ | 1,668,903 |
|
| $ | (58 | ) |
| $ | 1,793,845 |
|
| $ | 151,121 |
|
| $ | 1,944,966 |
|
Redemption of partnership units held by non-Aimco partners |
|
| — |
|
|
| — |
|
|
| (11,882 | ) |
|
| (11,882 | ) |
|
| — |
|
|
| (11,882 | ) |
Amortization of Aimco share-based compensation cost |
|
| — |
|
|
| 8,638 |
|
|
| 613 |
|
|
| 9,251 |
|
|
| — |
|
|
| 9,251 |
|
Contributions from noncontrolling interests |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 3,401 |
|
|
| 3,401 |
|
Effect of changes in ownership for consolidated entities |
|
| — |
|
|
| (160,586 | ) |
|
| 4,867 |
|
|
| (155,719 | ) |
|
| (157,056 | ) |
|
| (312,775 | ) |
Cumulative effect of a change in accounting principle |
|
| — |
|
|
| (62,682 | ) |
|
| (3,028 | ) |
|
| (65,710 | ) |
|
| — |
|
|
| (65,710 | ) |
Change in accumulated other comprehensive income |
|
| — |
|
|
| 2,592 |
|
|
| 121 |
|
|
| 2,713 |
|
|
| 101 |
|
|
| 2,814 |
|
Net income |
|
| — |
|
|
| 315,774 |
|
|
| 14,457 |
|
|
| 330,231 |
|
|
| 9,084 |
|
|
| 339,315 |
|
Distributions to noncontrolling interests |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (8,367 | ) |
|
| (8,367 | ) |
Distributions to common unitholders |
|
| — |
|
|
| (226,172 | ) |
|
| (10,765 | ) |
|
| (236,937 | ) |
|
| — |
|
|
| (236,937 | ) |
Distributions to preferred unitholders |
|
| — |
|
|
| (8,594 | ) |
|
| — |
|
|
| (8,594 | ) |
|
| — |
|
|
| (8,594 | ) |
Other, net |
|
| — |
|
|
| 271 |
|
|
| — |
|
|
| 271 |
|
|
| — |
|
|
| 271 |
|
Balances at December 31, 2017 |
|
| 125,000 |
|
|
| 1,538,144 |
|
|
| (5,675 | ) |
|
| 1,657,469 |
|
|
| (1,716 | ) |
|
| 1,655,753 |
|
Repurchases of common partnership units |
|
| — |
|
|
| (373,593 | ) |
|
| — |
|
|
| (373,593 | ) |
|
| — |
|
|
| (373,593 | ) |
Issuance of common partnership units |
|
| — |
|
|
| — |
|
|
| 50,151 |
|
|
| 50,151 |
|
|
| — |
|
|
| 50,151 |
|
Redemption of partnership units held by non-Aimco partners |
|
| — |
|
|
| — |
|
|
| (9,639 | ) |
|
| (9,639 | ) |
|
| — |
|
|
| (9,639 | ) |
Amortization of Aimco share-based compensation cost |
|
| — |
|
|
| 8,074 |
|
|
| 1,691 |
|
|
| 9,765 |
|
|
| — |
|
|
| 9,765 |
|
Effect of changes in ownership for consolidated entities |
|
| — |
|
|
| (19,115 | ) |
|
| 9,014 |
|
|
| (10,101 | ) |
|
| — |
|
|
| (10,101 | ) |
Change in accumulated other comprehensive income |
|
| — |
|
|
| 1,191 |
|
|
| 69 |
|
|
| 1,260 |
|
|
| — |
|
|
| 1,260 |
|
Net income |
|
| — |
|
|
| 666,227 |
|
|
| 34,417 |
|
|
| 700,644 |
|
|
| 8,220 |
|
|
| 708,864 |
|
Distributions to noncontrolling interests |
|
| — |
|
|
| — |
|
|
| (12,839 | ) |
|
| (12,839 | ) |
|
| (9,471 | ) |
|
| (22,310 | ) |
Distributions to common unitholders |
|
| — |
|
|
| (238,067 | ) |
|
| — |
|
|
| (238,067 | ) |
|
| — |
|
|
| (238,067 | ) |
Distributions to preferred unitholders |
|
| — |
|
|
| (8,594 | ) |
|
| — |
|
|
| (8,594 | ) |
|
| — |
|
|
| (8,594 | ) |
Other, net |
|
| — |
|
|
| 152 |
|
|
| — |
|
|
| 152 |
|
|
| — |
|
|
| 152 |
|
Balances at December 31, 2018 |
|
| 125,000 |
|
|
| 1,574,419 |
|
|
| 67,189 |
|
|
| 1,766,608 |
|
|
| (2,967 | ) |
|
| 1,763,641 |
|
Repurchases of common partnership units held by Aimco |
|
| — |
|
|
| (20,682 | ) |
|
| — |
|
|
| (20,682 | ) |
|
| — |
|
|
| (20,682 | ) |
Redemption of preferred units held by Aimco |
|
| (125,000 | ) |
|
| — |
|
|
| — |
|
|
| (125,000 | ) |
|
| — |
|
|
| (125,000 | ) |
Issuance of Aimco Operating Partnership units |
|
| — |
|
|
| — |
|
|
| 3,034 |
|
|
| 3,034 |
|
|
| — |
|
|
| 3,034 |
|
Redemption of Aimco Operating Partnership Units |
|
| — |
|
|
| 6,244 |
|
|
| (12,710 | ) |
|
| (6,466 | ) |
|
| — |
|
|
| (6,466 | ) |
Amortization of share-based compensation cost |
|
| — |
|
|
| 5,924 |
|
|
| 3,184 |
|
|
| 9,108 |
|
|
| — |
|
|
| 9,108 |
|
Effect of changes in ownership of consolidated entities |
|
| — |
|
|
| (13,243 | ) |
|
| 9,821 |
|
|
| (3,422 | ) |
|
| 3,422 |
|
|
| — |
|
Purchase of noncontrolling interest in consolidated real estate partnerships |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (3,844 | ) |
|
| (3,844 | ) |
Change in accumulated other comprehensive income |
|
| — |
|
|
| (599 | ) |
|
| (38 | ) |
|
| (637 | ) |
|
| — |
|
|
| (637 | ) |
Net income |
|
| — |
|
|
| 474,083 |
|
|
| 26,049 |
|
|
| 500,132 |
|
|
| 382 |
|
|
| 500,514 |
|
Distributions to common unitholders |
|
| — |
|
|
| (241,643 | ) |
|
| — |
|
|
| (241,643 | ) |
|
| — |
|
|
| (241,643 | ) |
Common partnership units issued to common unitholders in special distribution |
|
| — |
|
|
| (741 | ) |
|
| — |
|
|
| (741 | ) |
|
| — |
|
|
| (741 | ) |
Distributions to preferred unitholders |
|
| — |
|
|
| (3,246 | ) |
|
| — |
|
|
| (3,246 | ) |
|
| — |
|
|
| (3,246 | ) |
Distributions to noncontrolling interests |
|
| — |
|
|
| — |
|
|
| (13,087 | ) |
|
| (13,087 | ) |
|
| (308 | ) |
|
| (13,395 | ) |
Other, net |
|
| — |
|
|
| 133 |
|
|
| — |
|
|
| 133 |
|
|
| 19 |
|
|
| 152 |
|
Balances at December 31, 2019 |
| $ | — |
|
| $ | 1,780,649 |
|
| $ | 83,442 |
|
| $ | 1,864,091 |
|
| $ | (3,296 | ) |
| $ | 1,860,795 |
|
See notes to the consolidated financial statements.
F-14
AIMCO PROPERTIES, L.P.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 2019, 2018, and 2017
(In thousands)
| 2019 |
| 2018 |
| 2017 |
| |||
CASH FLOWS FROM OPERATING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
Net income | $ | 508,027 |
| $ | 716,603 |
| $ | 347,079 |
|
Adjustments to reconcile net income to net cash provided by operating activities: |
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
| 380,171 |
|
| 377,786 |
|
| 366,184 |
|
Provision for real estate impairment loss |
| — |
|
| — |
|
| 35,881 |
|
Gain on dispositions of real estate and the Asset Management business |
| (503,168 | ) |
| (677,463 | ) |
| (300,849 | ) |
Income tax benefit |
| (3,135 | ) |
| (13,027 | ) |
| (30,836 | ) |
Share-based compensation expense |
| 8,146 |
|
| 8,550 |
|
| 7,877 |
|
Amortization of debt issuance costs and other |
| 7,629 |
|
| 9,023 |
|
| 5,666 |
|
Other, net |
| 25 |
|
| 1,065 |
|
| (7,694 | ) |
Changes in operating assets and operating liabilities: |
|
|
|
|
|
|
|
|
|
Accounts receivable and other assets |
| (26,021 | ) |
| (27,830 | ) |
| (15,841 | ) |
Accounts payable, accrued liabilities and other |
| 2,798 |
|
| 1,681 |
|
| (15,395 | ) |
Total adjustments |
| (133,555 | ) |
| (320,215 | ) |
| 44,993 |
|
Net cash provided by operating activities |
| 374,472 |
|
| 396,388 |
|
| 392,072 |
|
CASH FLOWS FROM INVESTING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
Purchases of real estate and deposits related to purchases of real estate |
| (138,311 | ) |
| (242,297 | ) |
| (20,372 | ) |
Capital expenditures |
| (393,461 | ) |
| (340,489 | ) |
| (358,104 | ) |
Proceeds from dispositions of real estate and the Asset Management Business |
| 628,771 |
|
| 708,848 |
|
| 401,983 |
|
Payment for mezzanine investment and related transaction costs |
| (277,627 | ) |
| — |
|
| — |
|
Purchases of corporate assets |
| (17,584 | ) |
| (7,718 | ) |
| (8,899 | ) |
Proceeds from repayments on notes receivable |
| 147 |
|
| 5,010 |
|
| 430 |
|
Other investing activities |
| (7,348 | ) |
| (1,508 | ) |
| (2,019 | ) |
Net cash (used in) provided by investing activities |
| (205,413 | ) |
| 121,846 |
|
| 13,019 |
|
CASH FLOWS FROM FINANCING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
Proceeds from non-recourse property debt |
| 774,623 |
|
| 1,228,027 |
|
| 312,434 |
|
Principal repayments on non-recourse property debt |
| (520,027 | ) |
| (976,087 | ) |
| (409,167 | ) |
(Repayment of) proceeds from term loan |
| — |
|
| (250,000 | ) |
| 250,000 |
|
Net borrowings on revolving credit facility |
| 114,640 |
|
| 93,200 |
|
| 49,230 |
|
Payment of debt issuance costs |
| (4,861 | ) |
| (11,961 | ) |
| (4,751 | ) |
Payment of debt extinguishment costs |
| (4,491 | ) |
| (14,241 | ) |
| (399 | ) |
Repurchases of common partnership units held by General Partner and Special Limited Partner |
| (20,682 | ) |
| (373,593 | ) |
| — |
|
Redemption of preferred units from Aimco |
| (125,000 | ) |
| — |
|
| — |
|
Payment of distributions to preferred units |
| (10,954 | ) |
| (16,334 | ) |
| (16,358 | ) |
Payment of distributions General Partner and Special Limited Partner |
| (241,288 | ) |
| (237,504 | ) |
| (225,377 | ) |
Payment of distributions to Limited Partners |
| (13,399 | ) |
| (11,987 | ) |
| (10,668 | ) |
Payment of distributions to noncontrolling interests |
| (513 | ) |
| (9,469 | ) |
| (8,367 | ) |
Redemption of common and preferred units |
| (10,694 | ) |
| (9,885 | ) |
| (13,546 | ) |
Contribution from noncontrolling interests in consolidated real estate partnerships |
| 4,911 |
|
| — |
|
| — |
|
Purchases of noncontrolling interests in consolidated real estate partnerships |
| (3,780 | ) |
| (3,579 | ) |
| (314,269 | ) |
Other financing activities |
| (2,437 | ) |
| 5,233 |
|
| (2,462 | ) |
Net cash used in financing activities |
| (63,952 | ) |
| (588,180 | ) |
| (393,700 | ) |
NET INCREASE (DECREASE) IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH |
| 105,107 |
|
| (69,946 | ) |
| 11,391 |
|
CASH, CASH EQUIVALENTS AND RESTRICTED CASH AT BEGINNING OF PERIOD |
| 72,595 |
|
| 142,541 |
|
| 131,150 |
|
CASH, CASH EQUIVALENTS AND RESTRICTED CASH AT END OF PERIOD | $ | 177,702 |
| $ | 72,595 |
| $ | 142,541 |
|
See notes to the consolidated financial statements.
F-15
AIMCO PROPERTIES, L.P.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 2019, 2018, and 2017
(In thousands)
|
| 2019 |
|
| 2018 |
|
| 2017 |
| |||
SUPPLEMENTAL CASH FLOW INFORMATION: |
|
|
|
|
|
|
|
|
|
|
|
|
Interest paid |
| $ | 160,961 |
|
| $ | 199,996 |
|
| $ | 196,438 |
|
Cash paid for income taxes |
|
| 12,238 |
|
|
| 11,522 |
|
|
| 7,401 |
|
Non-cash transactions associated with the acquisition or disposition of real estate: |
|
|
|
|
|
|
|
|
|
|
|
|
Non-recourse property debt assumed in connection with the acquisition of real estate |
|
| 97,565 |
|
|
| 208,885 |
|
|
| — |
|
Deferred tax liability assumed in connection with the acquisition of real estate |
|
| 148,809 |
|
|
| — |
|
|
| — |
|
Issuance of common OP Units in connection with acquisition of real estate |
|
| 3,034 |
|
|
| 50,151 |
|
|
| — |
|
Non-recourse property debt assumed by buyer in connection with the disposition of the Asset Management business |
|
| — |
|
|
| 227,708 |
|
|
| — |
|
Other non-cash transactions: |
|
|
|
|
|
|
|
|
|
|
|
|
Recognition of right of use lease assets |
|
| 54,626 |
|
|
| — |
|
|
| — |
|
Recognition of lease liabilities |
|
| 59,251 |
|
|
| — |
|
|
| — |
|
Accrued capital expenditures (at end of period) |
|
| 54,358 |
|
|
| 40,185 |
|
|
| 31,719 |
|
Accrued dividends on TSR restricted stock and LTIP awards (at end of period) (Note 9) |
|
| 1,420 |
|
|
| 1,266 |
|
|
| 1,720 |
|
See notes to the consolidated financial statements.
F-16
APARTMENT INVESTMENT AND MANAGEMENT COMPANY
AIMCO PROPERTIES, L.P.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2019
Note 1 — Organization
Apartment Investment and Management Company, or Aimco, is a Maryland corporation incorporated on January 10, 1994. Aimco is a self-administered and self-managed real estate investment trust, or REIT. AIMCO Properties, L.P., or the Aimco Operating Partnership, is a Delaware limited partnership formed on May 16, 1994, to conduct our business, which is focused on the ownership, management, redevelopment and some development of quality apartment communities located in several of the largest markets in the United States.
Aimco, through its wholly-owned subsidiaries, AIMCO-GP, Inc. and AIMCO-LP Trust, holds a majority of the ownership interests in the Aimco Operating Partnership. Aimco conducts all of its business and owns all of its assets through the Aimco Operating Partnership. Interests in the Aimco Operating Partnership that are held by limited partners other than Aimco are referred to as OP Units. OP Units include common partnership units, which we refer to as common OP Units, as well as preferred partnership units, which we refer to as preferred OP Units. As of December 31, 2019, after elimination of units held by consolidated subsidiaries, the Aimco Operating Partnership had 158,419,051 common OP Units outstanding. As of December 31, 2019, Aimco owned 148,885,197, or 94.0%, of the common OP Units of the Aimco Operating Partnership and Aimco had an equal number of shares of its Class A Common Stock outstanding, which we refer to as Common Stock.
Except as the context otherwise requires, “we,” “our” and “us” refer to Aimco, the Aimco Operating Partnership and their consolidated subsidiaries, collectively.
We own and operate a portfolio of apartment communities, diversified by both geography and price point, in 17 states and the District of Columbia. As of December 31, 2019, our portfolio included 124 apartment communities with 32,839 apartment homes in which we held an average ownership of approximately 99%. We consolidated 120 of these apartment communities with 32,697 apartment homes.
Note 2 — Basis of Presentation and Summary of Significant Accounting Policies
Principles of Consolidation
Aimco’s accompanying consolidated financial statements include the accounts of Aimco, the Aimco Operating Partnership and their consolidated subsidiaries. The Aimco Operating Partnership’s consolidated financial statements include the accounts of the Aimco Operating Partnership and its consolidated subsidiaries. All significant intercompany balances have been eliminated in consolidation.
We consolidate a variable interest entity, or 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 of December 31, 2019 and 2018, Aimco consolidated 6 and 9 VIEs, respectively, including the Aimco Operating Partnership.
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.
Noncontrolling Interests in the Aimco Operating Partnership
Noncontrolling interests in Aimco Operating Partnership consist of common OP Units and preferred OP Units and are reflected in Aimco’s accompanying consolidated balance sheets as noncontrolling interests in Aimco Operating Partnership. Holders of preferred OP Units participate in the Aimco Operating Partnership’s income or loss only to the extent of their preferred distributions. Within Aimco’s consolidated financial statements, after provision for preferred OP Unit distributions, the Aimco Operating Partnership’s income or loss is allocated to the holders of common OP Units based on the weighted-average number of common OP Units (including those held by Aimco) outstanding during the period. During the years ended December 31, 2019, 2018, and 2017, the holders of common OP Units had a weighted-average ownership interest in the Aimco Operating Partnership of 6.0%, 4.9%, and 4.5%, respectively. Please refer to Note 8 for further information regarding the items comprising noncontrolling interests in the Aimco Operating Partnership. Substantially all of the assets and liabilities of Aimco are those of the Aimco Operating Partnership.
Noncontrolling Interests in Consolidated Real Estate Partnerships
We generally report the unaffiliated partners’ interests in the net assets of our consolidated real estate partnerships as noncontrolling interests in consolidated real estate partnerships within consolidated equity and partners’ capital. If a real estate partnership includes redemption rights that are not within Aimco and the Aimco Operating Partnership’s control, the
F-17
noncontrolling interest is included as temporary equity or temporary capital. If the redemption right is not currently redeemable but probable of being redeemable in the future, changes in redemption value are recognized each quarter with the change in value being reflected in additional paid-in-capital.
The assets of real estate partnerships consolidated by the Aimco Operating Partnership must first be used to settle the liabilities of such consolidated real estate partnerships. These consolidated real estate partnerships’ creditors do not have recourse to the general credit of the Aimco Operating Partnership.
Noncontrolling interests in consolidated real estate partnerships consist primarily of equity interests held by limited partners in consolidated real estate partnerships that have finite lives. We generally attribute to noncontrolling interests their share of income or loss of consolidated partnerships based on their proportionate interest in the results of operations of the partnerships, including their share of losses even if such attribution results in a deficit noncontrolling interest balance within our equity and partners’ capital accounts.
The terms of the related partnership agreements generally require the partnerships to be liquidated following the sale of the underlying real estate. As the general partner in these partnerships, we ordinarily control the execution of real estate sales and other events that could lead to the liquidation, redemption or other settlement of noncontrolling interests.
Changes in our ownership interest in consolidated real estate partnerships generally consist of our purchase of an additional interest in or the sale of our entire interest in a consolidated real estate partnership. The effect on our equity and partners’ capital of our purchase of additional interests in consolidated real estate partnerships during the years ended December 31, 2019, 2018, and 2017, is shown in our consolidated statements of equity and partners’ capital. The effect on our equity and partners’ capital of sales of consolidated real estate or sales of our entire interest in consolidated real estate partnerships is reflected in our consolidated financial statements as gains or losses on dispositions of real estate and accordingly the effect on our equity and partners’ capital is reflected within the amount of net income allocated to us and to noncontrolling interests. Upon our deconsolidation of a real estate partnership following the sale of our partnership interests or liquidation of the partnership following sale of the related apartment community, we derecognize any remaining noncontrolling interest of the associated partnership previously recorded in our consolidated balance sheets.
Investments in Unconsolidated Real Estate Partnerships
We own general and limited partner interests in partnerships that either directly, or through interests in other real estate partnerships, own apartment communities. We generally account for investments in real estate partnerships that we do not consolidate under the equity method. Under the equity method, we recognize our share of the earnings or losses of the entity for the periods presented, inclusive of our share of any impairments and disposition gains or losses recognized by and related to such entities, and we present such amounts within income from unconsolidated real estate partnerships in our consolidated statements of operations.
The excess of our cost of the acquired partnership interests over our share of the partners’ equity or deficit is generally ascribed to the fair values of land and buildings owned by the partnerships. We amortize the excess cost ascribed to the buildings over the related estimated useful lives. Such amortization is recorded as an adjustment of the amounts of earnings or losses we recognize from such unconsolidated real estate partnerships.
We may also originate loans for real estate acquisitions or developments where we either expect, or have the opportunity, to participate in the residual profits from such projects. When the risks and rewards of these arrangements are similar to an equity investor or joint venture partner, we account for these arrangements as real estate investments using the equity method of accounting. We recognize as income changes in our share of net assets, adjusted for any basis differential, in mezzanine investment income, net, in our consolidated statements of operations.
Real Estate
Acquisitions
Upon the acquisition of real estate, we determine whether the purchase qualifies as an asset acquisition or, less frequently, meets the definition of an acquisition of a business. We generally recognize the acquisition of apartment communities or interests in partnerships that own communities at our cost, including the related transaction costs, as asset acquisitions.
We allocate the cost of apartment communities acquired based on the relative fair value of the assets acquired and liabilities assumed. The fair value of these assets and liabilities is determined using valuation techniques that rely on Level 2 and Level 3 inputs within the fair value framework. We determine the fair value of tangible assets, such as land, buildings, furniture, fixtures and equipment using valuation techniques that consider comparable market transactions, replacement costs and other available information. We determine the fair value of identified intangible assets or liabilities, which typically relate to in-place leases, using valuation techniques that consider the terms of the in-place leases, current market data for comparable leases and our experience in leasing similar communities.
F-18
The intangible assets or liabilities related to in-place leases are comprised of: (a) the value of the above- and below-market leases in-place, measured over the period, including probable lease renewals for below-market leases, that the leases are expected to remain in effect; (b) the estimated unamortized portion of avoided leasing commissions and other costs thatordinarily would be incurred to originate the in-place leases; and (c) the value associated with leased apartment homes during an estimated absorption period, which estimates rental revenue that would not have been earned had leased apartment homes been vacant at the time of acquisition, assuming lease-up periods based on market demand and stabilized occupancy levels. The above- and below-market lease intangibles are amortized to rental revenue over the expected remaining terms of the associated leases, which include reasonably assured renewal periods. Other intangible assets related to in-place leases are amortized to depreciation and amortization over the expected remaining terms of the associated leases.
Capital Additions
We capitalize costs, including certain indirect costs, incurred in connection with our capital additions activities, including redevelopments, developments, other tangible apartment community improvements, and replacements of existing apartment community components. Included in these capitalized costs are payroll costs associated with time spent by employees in connection with capital additions activities at the apartment community level. We characterize as “indirect costs” an allocation of certain department costs, including payroll, at the area operations and corporate levels that clearly relate to capital additions activities. We also capitalize interest, property taxes, and insurance during periods in which construction projects are in progress. We begin capitalization of costs, including certain indirect costs, incurred in connection with our capital addition activities, upon commencement of activities necessary to ready apartment communities for their intended use. These activities include when apartment communities or apartment homes are undergoing physical construction, as well as when homes are held vacant in advance of planned construction, provided that other activities such as permitting, planning and design are in progress. We cease the capitalization of costs when the apartment communities are substantially complete and ready for their intended use, which is typically when construction has been substantially completed and apartment homes are available for occupancy. Costs, including ordinary repairs, maintenance, and resident turnover costs, are charged to property operating expense as incurred.
For the years ended December 31, 2019, 2018, and 2017, we capitalized to buildings and improvements $11.8 million, $7.6 million, and $7.6 million of interest costs, respectively, and $37.8 million, $36.8 million, and $36.0 million of other direct and indirect costs, respectively.
Gain or Loss on Dispositions
Gain or loss on real estate dispositions are recognized when we no longer hold a controlling financial interest in the real estate and sufficient consideration has been received. Upon disposition, the related assets and liabilities are derecognized, and the gain or loss on disposition is recognized as the difference between the carrying amount of those assets and liabilities and the value of consideration received.
Impairment
Real estate and other long-lived assets to be held and used are stated at cost, less accumulated depreciation and amortization, unless the carrying amount of the asset is not recoverable. If events or circumstances indicate that the carrying amount of an apartment community may not be recoverable, we assess its recoverability by comparing the carrying amount to our estimate of the undiscounted future cash flows, excluding interest charges, of the community. If the carrying amount exceeds the aggregate undiscounted future cash flows, we recognize an impairment loss to the extent the carrying amount exceeds the estimated fair value of the community. As a result of our analysis, we did not recognize an impairment of our real estate and other long-lived assets to be held and used during the year ended December 31, 2019 and December 31, 2018. During the year ended December 31, 2017 we recognized an impairment related to our La Jolla Cove property, which we sold in 2018.
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 includes capital replacement reserves, completion repair reserves, bond sinking fund amounts, real estate tax and insurance escrow accounts held by lenders and resident security deposits.
F-19
Other Assets
As of December 31, 2019 and 2018, other assets was comprised of the following amounts (in thousands):
| 2019 |
| 2018 |
| ||
Investments in securitization trust that holds Aimco property debt | $ | 94,251 |
| $ | 83,587 |
|
Right of use lease assets |
| 61,911 |
|
| — |
|
Goodwill and other intangible assets, net |
| 56,905 |
|
| 43,424 |
|
Notes receivable, net |
| 41,300 |
|
| 39,254 |
|
Software, equipment and leasehold improvements |
| 25,750 |
|
| 18,309 |
|
Accounts receivable, net |
| 20,949 |
|
| 16,376 |
|
Prepaid expenses, real estate taxes and insurance |
| 12,767 |
|
| 25,657 |
|
Investments in unconsolidated real estate partnerships |
| 12,759 |
|
| 12,650 |
|
Deferred tax asset, net (Note 10) |
| — |
|
| 67,060 |
|
Deferred costs, deposits and other |
| 24,880 |
|
| 45,224 |
|
Total other assets | $ | 351,472 |
| $ | 351,541 |
|
Investments in Securitization Trust that holds Aimco Property Debt
We hold investments in a securitization trust that primarily holds certain of our property debt. These investments were initially recognized at their purchase price and the discount to the face value is being accreted into interest income over the expected term of the securities. We have designated these investments as available for sale, or AFS, debt securities and we measure these investments at fair value with changes in their fair value, other than the changes attributed to the accretion described above, recognized as an adjustment of accumulated other comprehensive income or loss within equity and partners’ capital. Please refer to Note 12 for further information regarding these debt securities.
Goodwill and Other Intangible Assets, net
As of December 31, 2019 and 2018, other assets included goodwill associated with our reportable segments of $37.8 million. We perform an annual impairment test of goodwill by evaluating qualitative factors to determine the likelihood that goodwill may be impaired. As a result of the qualitative analysis, we do not believe our goodwill is impaired as of the date of our annual test.
Deferred Costs
We defer, as debt issuance costs, lender fees and other direct costs incurred in obtaining new financing and amortize the amounts over the terms of the related loan agreements. In connection with the modification of existing financing arrangements, we defer lender fees and amortize these costs and any unamortized debt issuance costs over the term of the modified loan agreement. Debt issuance costs associated with our revolving credit facility are included in other assets in our consolidated balance sheets. Debt issuance costs associated with non-recourse property debt are presented as a direct deduction from the related liabilities in our consolidated balance sheets. When financing arrangements are repaid or otherwise extinguished prior to maturity, unamortized debt issuance costs are written off, additionally, any lender fees or other costs incurred in connection with the extinguishment are recognized as expense. Amortization and write-off of debt issuance costs and other extinguishment costs are included in interest expense in our consolidated statements of operations.
We defer leasing costs incremental to a lease that we would not have incurred if the contract had not been obtained. Amortization of these costs is included in depreciation and amortization.
Revenue from Leases
We are a lessor primarily for residential leases. We also own approximately 1.1 million square feet of commercial space across our portfolio.
In 2019 we adopted ASC 842, Leases. The adoption of the standard did not affect the accounting for leases in our position as lessor, except for how we recognize costs incurred to obtain residential leases. Please refer to the Accounting Pronouncements Adopted in the Current Year heading below for further information about this standard.
Our operating leases with residents may also provide that the resident reimburse us for certain costs, primarily the resident’s share of utilities expenses, incurred by the apartment community. These reimbursements represent revenue attributable to nonlease components for which the timing and pattern of recognition is the same as the revenue for the lease components. We adopted the practical expedient that allows us to account for the lease and nonlease components as a single component. Reimbursement and related expense are presented on a gross basis in our consolidated statements of operations, with the reimbursement included in rental and other property revenues attributable to real estate in our consolidated statements of operations. We recognize rental revenue attributed to lease components, net of any concessions, on a straight-line basis over the term of the lease.
F-20
Asset Management Business
Prior to the July 2018 sale of our Asset Management business, we provided asset management and other services to certain consolidated partnerships owning apartment communities that qualify for low-income housing tax credits and are structured to provide for the pass-through of tax credits and tax deductions to their partners. We consolidated those low-income housing tax credit partnerships in which we were the sole general partner and decision maker of the partnerships. We recognized income from asset management and other services when the related fees were earned and realized or realizable.
Depreciation and Amortization
Depreciation for all tangible assets is calculated using the straight-line method over their estimated useful lives. Acquired buildings and improvements are depreciated over a useful life based on the age, condition, and other physical characteristics of the asset. Furniture, fixtures, and equipment are generally depreciated over five years.
We depreciate capitalized costs using the straight-line method over the estimated useful life of the related improvement, which is generally 5, 15, or 30 years. We also capitalize payroll and other indirect costs incurred in connection with preparing an asset for its intended used. These costs include corporate-level costs that clearly relate to the capital addition activities, which we allocate to the applicable assets. All capitalized payroll costs and indirect costs are allocated to capital additions proportionately based on direct costs and depreciated over the estimated useful lives of such capital additions.
Purchased software and other costs related to software purchased or developed for internal use are capitalized during the application development stage and are amortized using the straight-line method over the estimated useful life of the software, generally three to five years. Purchased equipment is recognized at cost and depreciated using the straight-line method over the estimated useful life of the asset, which is generally five years. Leasehold improvements are also recorded at cost and depreciated on a straight-line basis over the shorter of the asset’s estimated useful life or the term of the related lease.
Certain homogeneous items that are purchased in bulk on a recurring basis, such as appliances, are depreciated using group methods that reflect the average estimated useful life of the items in each group. Except in the case of apartment community casualties, where the net book value of the lost asset is written off in the determination of casualty gains or losses, we generally do not recognize any loss in connection with the replacement of an existing apartment community component because normal replacements are considered in determining the estimated useful lives used in connection with our composite and group depreciation methods.
Insurance
We believe our insurance coverages insure our apartment communities adequately against the risk of loss attributable to fire, earthquake, hurricane, tornado, flood, and other perils. In addition, we have third-party insurance coverage (after self-insured retentions) that defray the costs of large workers’ compensation, health, and general liability exposures. We accrue losses based upon our estimates of the aggregate liability for uninsured losses incurred using certain actuarial assumptions followed in the insurance industry and based on our experience.
Share-Based Compensation
We issue various forms of share-based compensation, including stock options and restricted stock awards with service conditions and/or market conditions. We recognize share-based employee compensation based on the fair value on the grant date and recognize compensation cost over the awards’ requisite service periods. We reduce compensation cost related to forfeited awards in the period of forfeiture. Please refer to Note 9 for further discussion of our share-based compensation.
Income Taxes
Aimco has elected to be taxed as a REIT under the Internal Revenue Code commencing with its taxable year ended December 31, 1994, and it intends to continue to operate in such a manner. Aimco’s current and continuing qualification as a REIT depends on its ability to meet the various requirements imposed by the Internal Revenue Code, which are related to organizational structure, distribution levels, diversity of stock ownership and certain restrictions with regard to owned assets and categories of income. If Aimco qualifies for taxation as a REIT, it will generally not be subject to United States federal corporate income tax on its taxable income that is currently distributed to stockholders. This treatment substantially eliminates the “double taxation” (at the corporate and stockholder levels) that generally results from an investment in a corporation.
Even if Aimco qualifies as a REIT, it may be subject to United States federal income and excise taxes in various situations, such as on undistributed income. Aimco also will be required to pay a 100% tax on any net income on non-arm’s length transactions between it and a TRS (described below) and on any net income from sales of apartment communities that were held for sale in the ordinary course. The state and local tax laws may not conform to the United States federal income tax treatment, and Aimco may be subject to state or local taxation in various state or local jurisdictions, including those in which we transact business. Any taxes imposed on us reduce our operating cash flow and net income.
F-21
Certain of our operations or a portion thereof, including property management and risk management, are conducted through taxable REIT subsidiaries, which are subsidiaries of the Aimco Operating Partnership, and each of which we refer to as a TRS. A TRS is a subsidiary C-corporation that has not elected REIT status and, as such, is subject to United States federal corporate income tax. We use TRS entities to facilitate our ability to offer certain services and activities to our residents and investment partners that cannot be offered directly by a REIT. We also use TRS entities to hold investments in certain apartment communities.
For our TRS entities, deferred income taxes result from temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for United States federal income tax purposes, and are measured using the enacted tax rates and laws that are expected to be in effect when the differences reverse. We reduce deferred tax assets by recording a valuation allowance when we determine, based on available evidence, that it is more likely than not that the assets will not be realized. We recognize the tax consequences associated with intercompany transfers between the Aimco Operating Partnership and TRS entities when such transactions occur. Please refer to Note 10 for further information about our income taxes.
Earnings per Share and Unit
Aimco and the Aimco Operating Partnership calculate earnings per share and unit based on the weighted-average number of shares of Common Stock or common partnership units, participating securities, common stock or common unit equivalents and dilutive convertible securities outstanding during the period. The Aimco Operating Partnership considers both common partnership units and equivalents, which have identical rights to distributions and undistributed earnings, to be common units for purposes of the earnings per unit computations. Please refer to Note 11 for further information regarding earnings per share and unit computations.
Use of Estimates
The preparation of our consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts included in the financial statements and accompanying notes thereto. Actual results could differ from those estimates.
Reclassifications and Revisions
On February 20, 2019, Aimco and the Aimco Operating Partnership effected a reverse split of Common Stock and common partnership units, respectively, at a ratio of one share or unit for every 1.03119 shares or units outstanding on the date of effectiveness. The accounting guidance for recapitalization events requires that we revise Aimco’s equity and the Aimco Operating Partnership’s partners’ capital as if the reverse split had occurred at the beginning of the earliest period presented. As such, we have revised the outstanding share and unit counts, presentation of share and unit activity, and earnings per share and unit, as if the reverse split had occurred on December 31, 2016.
Accounting Pronouncements Adopted in the Current Year
Effective January 1, 2019, we adopted ASC 842 issued by the Financial Accounting Standards Board, or FASB. We elected to adopt the new standard using practical expedients that do not require a look back to expired or existing contracts for embedded leases, allow us to retain the classification of existing leases, and allow us to retain the previous accounting for the initial direct costs of existing leases. As both a lessee and a lessor, we also elected to use the practical expedient that allows us to combine revenue attributable to nonlease components with associated lease components where the timing and pattern of transfer of the components are the same. Under the new standard, a contract is or contains a lease when it provides the right to control the use of an asset for a period of time in exchange for consideration.
Lessor accounting remains largely unchanged other than how we recognize costs incurred to obtain leases. Under ASC 842, we defer leasing costs incremental to a lease that we would not have incurred if the contract had not been obtained. As a result of the practical expedient related to the combination of revenue from nonlease and lease components described above, we will combine rent payments with payments for other services we provide to our residents, including residents’ reimbursement of utility expenses. We have adopted the standard using the optional transition method that allows for prior reporting periods to remain as originally presented. Please refer to Note 4.
In 2018, the Securities Exchange Commission, or SEC, amended its rules to eliminate, modify, or integrate into other SEC requirements certain disclosure rules. The amendments are intended to simplify compliance without significantly changing the total mix of information provided to investors. The amendments created a requirement to report dividends per share or unit and changes in equity in interim periods on a comparative basis for both quarter-to-date and year-to-date periods presented.
Recent Accounting Pronouncements
In 2016, the FASB issued ASC 326, Financial Instruments-Credit Losses, which changes the method and timing of the recognition of credit losses on financial assets. The standard will require us to estimate and record credit losses over the life of a
F-22
financial instrument, including receivables, at its inception. Our notes receivable and AFS debt securities are subject to the new standard. For AFS debt securities, the new standard would require us to estimate a credit loss if the fair value of the instruments are less than their carrying value of the instruments. This credit loss standard is required to be applied using a modified-retrospective approach and requires a cumulative-effect adjustment to retained earnings be recorded as of the date of adoption. We adopted the new standard on January 1, 2020. The adoption of the standard is not expected to have a material impact on our financial position or results of operations.
Note 3 — Significant Transactions
Parkmerced Mezzanine Investment
On November 26, 2019, we loaned $275 million to the partnership that owns Parkmerced Apartments. The loan accrues interest at 10% per annum with a five-year term and the right to extend for a second five-year term. Along with our mezzanine loan, we received a ten-year option to acquire a 30% interest in the partnership at a $1.0 million exercise price, increased by 30% of future capital spending to progress development and redevelopment of the partnership’s apartment homes. The existence of the option provides us with the opportunity to participate in residual profits of the partnership and in accordance with the acquisition, development, and construction guidance within ASC 310, Receivables, we account for this transaction under the equity method. Our investment balance, which represents our maximum exposure, is reflected in mezzanine investment in our consolidated balance sheets. Parkmerced Apartments is a 152-acre site in southwest San Francisco, currently improved with 3,221 rent-control apartment homes and the vested right to develop 4,093 new market-rate homes.
Acquisitions
During the year ended December 31, 2019, we acquired a 95% interest in 1001 Brickell Bay Drive, a 1.8-acre waterfront parcel in Miami, Florida, currently improved with an office building. The remaining 5% is held by an outside partner and is redeemable at the holder’s option for cash during a three-month exercise period, which begins on July 2, 2022. As the redemption of this put is not within Aimco and the Aimco Operating Partnership’s control, the noncontrolling interest is reflected in temporary equity in Aimco’s consolidated balance sheets and within temporary capital in the Aimco Operating Partnership’s consolidated balance sheets.
We also acquired One Ardmore, an apartment community located in Ardmore, Pennsylvania, a suburb of Philadelphia, and Prism, an apartment community under development in Cambridge, Massachusetts. Summarized information regarding these acquisitions is set forth in the table below (in thousands):
Purchase price | $ | 229,711 |
|
Capitalized transaction costs |
| 4,057 |
|
Noncontrolling interests in consolidated real estate partnership |
| 8,250 |
|
Total consideration (1) | $ | 242,018 |
|
Consideration allocated to building and improvements |
| 218,752 |
|
Consideration allocated to land |
| 162,094 |
|
Consideration allocated to intangible assets |
| 16,500 |
|
Consideration allocated to intangible liabilities |
| (6,519 | ) |
Deferred tax liability assumed (2) |
| (148,809 | ) |
Total consideration | $ | 242,018 |
|
|
|
|
|
Dispositions of Apartment Communities
During the years ended December 31, 2019, 2018, and 2017, we sold apartment communities as summarized below (dollars in thousands):
| 2019 |
|
| 2018 |
|
| 2017 |
| |||
Number of apartment communities sold |
| 12 |
|
|
| 4 |
|
|
| 5 |
|
Number of apartment homes sold |
| 3,596 |
|
|
| 1,334 |
|
|
| 2,291 |
|
Gain on dispositions of real estate (1) | $ | 503,168 |
|
| $ | 175,213 |
|
| $ | 297,730 |
|
|
|
F-23
The apartment communities sold were predominantly located outside of our primary markets or in lower-rated locations within our primary markets and had average revenues per apartment home significantly below those of our retained portfolio.
During the year ended December 31, 2018, we also sold for $590.0 million our Asset Management business and our four affordable apartment communities located in the Hunters Point area of San Francisco. The sale resulted in a gain of $500.3 million and net cash proceeds of $512.2 million, after payment of transaction costs and repayment of property-level debt. Additionally, we sold our interest in the entities owning the La Jolla Cove property. We provided seller financing with a stated value of $48.6 million and received net cash proceeds of approximately $5.0 million.
In addition to the apartment communities we sold during the current period, from time to time we may be marketing for sale certain communities that are inconsistent with our long-term investment strategy. At the end of each reporting period we evaluate whether such communities meet the criteria to be classified as held for sale. As of December 31, 2019, 0 communities were classified as held for sale.
Note 4 — Leases
Lessor Arrangements
The majority of payments we receive for our residential and commercial leases are fixed. We receive variable payments from our residents and commercial tenants primarily for utility reimbursements. Our total lease income was comprised of the following amounts for all operating leases for the year ended December 31, 2019 (in thousands):
Fixed lease income |
| $ | 855,326 |
|
Variable lease income |
|
| 56,424 |
|
Total lease income |
| $ | 911,750 |
|
In general, our commercial leases have options to extend for a certain period of time at the tenant’s option. Future minimum annual rental payments we will receive under commercial leases, excluding such extension options, are as follows as of December 31, 2019 (in thousands):
2020 |
| $ | 26,770 |
|
2021 |
|
| 23,277 |
|
2022 |
|
| 19,766 |
|
2023 |
|
| 15,853 |
|
2024 |
|
| 13,512 |
|
Thereafter |
|
| 52,040 |
|
Total |
| $ | 151,218 |
|
Generally, our residential leases do not provide extension options and, as of December 31, 2019, have an average remaining term of 8.8 months.
Lessee Arrangements
Beginning in 2019, we recognize right of use assets and related lease liabilities, which are included in other assets and accrued liabilities and other, respectively, in our consolidated balance sheets. We estimated the value of the lease liabilities using a discount rate equivalent to the rate we would pay on a secured borrowing with similar terms to the lease. On October 1, 2019, we revised our estimate of the incremental borrowing rate, which resulted in a reduction of our right of use assets and related lease liabilities for ground leases. The adjustment recorded to our right of use assets and lease liabilities did not impact our consolidated statements of operations.
Substantially all of the payments under our ground and office leases are fixed. We exclude options to extend the lease in our minimum lease terms unless the option is reasonably certain to be exercised. Our total lease cost for ground and office leases for the years ended December 31, 2019, 2018, and 2017 was $10.7 million, $5.1 million, and $4.8 million, respectively.
F-24
As of December 31, 2019, the ground and office leases have weighted-average remaining terms of 74.0 years and 8.4 years, respectively, and weighted-average discount rates of 6.55% and 3.22%, respectively. Minimum annual rental payments under these operating leases, reconciled to the lease liability included in accrued liabilities and other in our consolidated balance sheets, are as follows (in thousands):
|
| Operating Lease Future Minimum Rent |
| |
2020 |
| $ | 5,156 |
|
2021 |
|
| 5,143 |
|
2022 |
|
| 5,053 |
|
2023 |
|
| 4,363 |
|
2024 |
|
| 4,392 |
|
Thereafter |
|
| 427,935 |
|
Total |
| $ | 452,042 |
|
Less: Discount |
|
| (394,735 | ) |
Total lease liability |
| $ | 57,307 |
|
Of the total lease liability as of December 31, 2019, $43.7 million of the balance relates to our ground leases, with the remainder relating to our office leases.
Note 5 — Non-Recourse Property Debt and Credit Agreement
Non-Recourse Property Debt
We finance apartment communities in our portfolio primarily using property-level, non-recourse, long-dated, fixed-rate, amortizing debt. The following table summarizes non-recourse property debt related to assets classified as held for use as of December 31, 2019 and 2018 (dollars in thousands):
| Latest Maturity Date |
| Interest Rate Range |
| Weighted-Average Interest Rate |
|
| 2019 |
|
| 2018 |
| |||
Fixed-rate property debt | January 1, 2055 |
| 2.73% to 6.79% |
| 3.93% |
|
| $ | 4,081,221 |
|
| $ | 3,676,882 |
| |
Variable-rate property debt | July 13, 2033 |
| 2.51% to 3.00% |
| 2.88% |
|
|
| 170,118 |
|
|
| 260,118 |
| |
Debt issuance costs, net of accumulated amortization |
|
|
|
|
|
|
|
|
| (20,749) |
|
|
| (21,695 | ) |
Non-recourse property debt, net |
|
|
|
|
|
|
|
| $ | 4,230,590 |
|
| $ | 3,915,305 |
|
Principal and interest on fixed-rate debt are generally payable monthly or in monthly interest-only payments with balloon payments due at maturity. As of December 31, 2019, our fixed-rate property debt was secured by 78 apartment communities that had an aggregate net book value of $4.3 billion.
Principal and interest on variable-rate debt are generally payable in semi-annual installments with balloon payments due at maturity. As of December 31, 2019, our variable-rate property debt was secured by 7 apartment communities that had an aggregate net book value of $105.7 million.
These non-recourse property debt instruments contain covenants common to the type of borrowing, and as of December 31, 2019, we were in compliance with all such covenants.
As of December 31, 2019, the scheduled principal amortization and maturity payments for the non-recourse property debt were as follows (in thousands):
| Amortization |
|
| Maturities |
|
| Total |
| |||
2020 | $ | 92,177 |
|
| $ | 78,930 |
|
| $ | 171,107 |
|
2021 (1) |
| 83,427 |
|
|
| 598,263 |
|
|
| 681,690 |
|
2022 |
| 78,909 |
|
|
| 260,671 |
|
|
| 339,580 |
|
2023 |
| 71,332 |
|
|
| 249,251 |
|
|
| 320,583 |
|
2024 |
| 67,561 |
|
|
| 285,517 |
|
|
| 353,078 |
|
Thereafter |
| 391,512 |
|
|
| 1,993,789 |
|
|
| 2,385,301 |
|
Total | $ | 784,918 |
|
| $ | 3,466,421 |
|
| $ | 4,251,339 |
|
|
|
F-25
Revolving Credit Facility
We have a revolving credit facility with a syndicate of financial institutions. Our revolving credit facility provides for $800.0 million of revolving loan commitments. As of December 31, 2019 and 2018, we had $275.0 million and $160.4 million, respectively, of outstanding borrowings under our revolving credit facility. The interest rate on our outstanding borrowings was 3.00% and 3.93% as of December 31, 2019 and 2018, respectively. As of December 31, 2019, after outstanding borrowings and $7.2 million of undrawn letters of credit backed by the Credit Agreement, our available borrowing capacity was $517.8 million.
Borrowings against the revolving loan commitments bear interest at a rate set forth on a pricing grid, which rate varies based on our credit rating as assigned by specified rating agencies (LIBOR plus 1.20%, or, at our option, a base rate plus 0.20% as of December 31, 2019). The revolving credit facility matures on January 22, 2022. The revolving credit facility provides that we may make distributions to our investors during any four consecutive quarters in an aggregate amount that does not exceed the greater of 95% of our funds from operations, as defined by Nareit, for such period, subject to certain non-cash adjustments, or such amount as may be necessary to maintain Aimco’s REIT status.
Note 6 — Commitments and Contingencies
Commitments
In connection with our redevelopment, development, and other capital improvement activities, we have entered into various construction-related contracts and we have made commitments to complete redevelopment and development of certain apartment communities, pursuant to financing or other arrangements. As of December 31, 2019, our commitments related to active redevelopments and developments totaled approximately $254.5 million, most of which we expect to incur during the next 12 months.
We enter into certain commitments for future purchases of goods and services in connection with the operations of our apartment communities. Those commitments generally have terms of one year or less and reflect expenditure levels comparable to our historical expenditures.
Legal Matters
In addition to the matters described below, we are a party to various legal actions and administrative proceedings arising in the ordinary course of business, some of which are covered by our general liability insurance program, and none of which we expect to have a material adverse effect on our consolidated financial condition, results of operations or cash flows.
Environmental
Various federal, state and local laws subject apartment community owners or operators to liability for management, and the costs of removal or remediation, of certain potentially hazardous materials that may be present in the land or buildings of an apartment community. Such laws often impose liability without regard to fault or whether the owner or operator knew of, or was responsible for, the presence of such materials. The presence of, or the failure to manage or remediate properly, these materials may adversely affect occupancy at such apartment communities as well as the ability to sell or finance such apartment communities. In addition, governmental agencies may bring claims for costs associated with investigation and remediation actions. Moreover, private plaintiffs may potentially make claims for investigation and remediation costs they incur or for personal injury, disease, disability or other infirmities related to the alleged presence of hazardous materials. In addition to potential environmental liabilities or costs associated with our current apartment communities, we may also be responsible for such liabilities or costs associated with communities we acquire or manage in the future, or apartment communities we no longer own or operate.
We are engaged in discussions with the Environmental Protection Agency, or EPA, regarding contaminated groundwater near an Indiana apartment community that has not been owned by us since 2008. The contamination allegedly derives from a dry cleaner that operated on our former property, prior to our ownership. We undertook a voluntary remediation of the dry cleaner contamination under state oversight. In 2016, EPA listed our former community and a number of residential communities in the vicinity on the National Priorities List, or NPL (i.e., as a Superfund site). In May 2018, we prevailed on our federal judicial appeal vacating the Superfund listing. We continue to work with EPA to identify options for clean-up of the site outside the Superfund program. Although the outcome of these processes are uncertain, we do not expect their resolution to have a material adverse effect on our consolidated financial condition, results of operations or cash flows.
We also have a contingent liability related to a property in Lake Tahoe, California, regarding environmental contamination from the historic operation of a dry cleaner. An entity owned by us was the former general partner of a now-dissolved partnership that previously owned a site that was a laundromat with a self-service dry-cleaning machine. That entity and the current property owner have been remediating the site since 2009, under the oversight of the Lahontan Regional Water Quality Control Board, or Lahontan. In May 2017, Lahontan issued a final cleanup and abatement order that names 4 potentially-responsible parties, acknowledges that there may be additional responsible parties, and requires the named parties to perform additional groundwater
F-26
investigation and corrective actions with respect to onsite and offsite contamination. We are appealing the final order while simultaneously complying with it. Although the outcome of this process is uncertain, we do not expect its resolution to have a material adverse effect on our consolidated financial condition, results of operations or cash flows.
We have determined that our legal obligations to remove or remediate certain potentially hazardous materials may be conditional asset retirement obligations, as defined by GAAP. Except in limited circumstances where the asset retirement activities are expected to be performed in connection with a planned construction project or apartment community casualty, we believe that the fair value of our asset retirement obligations cannot be reasonably estimated due to significant uncertainties in the timing and manner of settlement of those obligations. Asset retirement obligations that are reasonably estimable as of December 31, 2019, are immaterial to our consolidated financial condition, results of operations and cash flows.
Note 7 — Aimco Equity
Preferred Stock
During the year ended December 31, 2019, Aimco redeemed all of the outstanding shares of its 6.88% Class A Cumulative Preferred Stock. Aimco’s Class A Preferred Stock had a $0.01 per share par value, was senior to Aimco’s Common Stock, had a liquidation preference per share of $25.00.
In connection with the redemption of Aimco preferred stock, the Aimco Operating Partnership redeemed from Aimco a number of Preferred Partnership Units equal to the number of shares redeemed by Aimco.
Common Stock
During the years ended December 31, 2019, 2018, and 2017, Aimco declared dividends per common share of $1.56, $1.52 and $1.44, respectively.
On February 3, 2019, Aimco’s Board of Directors authorized a reverse stock split, in which every 1.03119 Aimco common share was combined into one Aimco common share, effective at the close of business on February 20, 2019. On the same date, the Board of Directors also declared a special dividend on the Aimco Common Stock that consisted of $67.1 million in cash, 4.5 million shares of Aimco Common Stock, and $0.4 million of cash paid in lieu of issuing fractional units. We paid the special dividend on March 22, 2019, to stockholders of record as of February 22, 2019. The special dividend amount included the regular quarterly cash dividend of $0.39 per share.
Stockholders had the opportunity to elect to receive the special dividend in the form of all cash or all stock, subject to proration if either option was oversubscribed. Aimco’s Board of Directors also authorized a reverse stock split intended to neutralize the dilutive impact of the stock issued in the special dividend. As a result, the total number of shares outstanding after the stock dividend and reverse split was unchanged from the number of shares outstanding immediately prior to the two actions. All equity and earnings per share data, including the number of shares outstanding, have been retroactively adjusted to reflect the reverse stock split for all periods presented in this Annual Report on Form 10-K.
Change to our charter
On February 24, 2020, pursuant to Maryland law and our charter, our Board of Directors reclassified into Common Stock, all of the authorized and unissued shares of each of the following classes of preferred stock: Class Z Cumulative Preferred Stock, Class A Cumulative Preferred Stock, and Series A Community Reinvestment Act Preferred Stock. The reclassification increases the number of authorized shares classified as Common Stock by 9,800,240 shares, from 500,787,260 shares immediately prior to the reclassification to 510,587,500 shares immediately after the reclassification. The reclassification does not impact any of our issued and outstanding shares of preferred stock.
Registration Statements
Aimco and the Aimco Operating Partnership have a shelf registration statement that provides for the issuance of equity and debt securities by Aimco and debt securities by the Aimco Operating Partnership.
F-27
Note 8 —Partners’ Capital
Redeemable Preferred OP Units
The Aimco Operating Partnership has outstanding various classes of redeemable preferred OP Units. As of December 31, 2019 and 2018, the Aimco Operating Partnership had the following classes of preferred OP Units (stated at their redemption values, in thousands, except unit and per unit data):
|
| Distributions per Annum |
|
| Units Issued and Outstanding |
|
| Redemption Values |
| |||||||||||||||
Class of Preferred Units |
| Percent |
|
| Per Unit |
|
| 2019 |
|
| 2018 |
|
| 2019 |
|
| 2018 |
| ||||||
Class One |
|
| 8.75 | % |
| $ | 8.00 |
|
|
| 90,000 |
|
|
| 90,000 |
|
| $ | 8,229 |
|
| $ | 8,229 |
|
Class Two |
|
| 1.92 | % |
| $ | 0.48 |
|
|
| 11,122 |
|
|
| 14,240 |
|
|
| 278 |
|
|
| 356 |
|
Class Three |
|
| 7.88 | % |
| $ | 1.97 |
|
|
| 1,338,524 |
|
|
| 1,338,524 |
|
|
| 33,463 |
|
|
| 33,463 |
|
Class Four |
|
| 8.00 | % |
| $ | 2.00 |
|
|
| 644,954 |
|
|
| 644,954 |
|
|
| 16,124 |
|
|
| 16,124 |
|
Class Six |
|
| 8.50 | % |
| $ | 2.13 |
|
|
| 773,693 |
|
|
| 773,693 |
|
|
| 19,342 |
|
|
| 19,342 |
|
Class Seven |
|
| 7.87 | % |
| $ | 1.97 |
|
|
| 26,150 |
|
|
| 27,960 |
|
|
| 654 |
|
|
| 699 |
|
Class Nine |
|
| 6.00 | % |
| $ | 1.50 |
|
|
| 78,956 |
|
|
| 243,112 |
|
|
| 1,974 |
|
|
| 6,078 |
|
Class Ten |
|
| 6.00 | % |
| $ | 1.50 |
|
|
| 680,000 |
|
|
| 680,000 |
|
|
| 17,000 |
|
|
| 17,000 |
|
Total |
|
|
|
|
|
|
|
|
|
| 3,643,399 |
|
|
| 3,812,483 |
|
| $ | 97,064 |
|
| $ | 101,291 |
|
Each class of preferred OP Units is currently redeemable at the holders’ option. The Aimco Operating Partnership, at its sole discretion, may settle such redemption requests in cash or cause Aimco to issue shares of its Common Stock with a value equal to the redemption price. In the event the Aimco Operating Partnership requires Aimco to issue shares of Common Stock to settle a redemption request, the Aimco Operating Partnership would issue to Aimco a corresponding number of common OP Units. The Aimco Operating Partnership has a redemption policy that requires cash settlement of redemption requests for the preferred OP Units, subject to limited exceptions. Subject to certain conditions, the Class Four and Class Six preferred OP Units may be converted into common OP Units.
These redeemable units are classified within temporary equity in Aimco’s consolidated balance sheets and within temporary capital in the Aimco Operating Partnership’s consolidated balance sheets.
During the years ended December 31, 2019, 2018, and 2017, approximately 169,000, 10,000 and 67,000 preferred OP Units, respectively, were redeemed in exchange for cash, and 0 preferred OP Units were redeemed in exchange for shares of Aimco Common Stock or common OP Units.
The following table presents a reconciliation of the Aimco Operating Partnership’s preferred OP Units during the year ended December 31, 2019 (in thousands):
|
| 2019 |
| |
Balance at January 1 |
| $ | 101,291 |
|
Preferred distributions |
|
| (7,708 | ) |
Redemption of preferred units |
|
| (4,227 | ) |
Net income |
|
| 7,708 |
|
Balance at December 31 |
| $ | 97,064 |
|
Aimco Operating Partnership Partners’ Capital
Common Partnership Units
In the Aimco Operating Partnership’s consolidated balance sheets, the common partnership units held by Aimco are classified within Partners’ Capital as General Partner and Special Limited Partner capital and the common OP Units are classified within Limited Partners’ capital. In Aimco’s consolidated balance sheets, the common OP Units are classified within permanent equity as common noncontrolling interests in the Aimco Operating Partnership.
Common partnership units held by Aimco are not redeemable whereas common OP Units are redeemable at the holders’ option, subject to certain restrictions, on the basis of one common OP Unit for either one share of Common Stock or cash equal to the fair value of a share of Common Stock at the time of redemption. Aimco has the option to deliver shares of Common Stock in exchange for all or any portion of the common OP Units tendered for redemption. When a limited partner redeems a common OP Unit for Common Stock, Limited Partners’ capital is reduced and the General Partner and Special Limited Partners’ capital is increased.
During the years ended December 31, 2019, 2018, and 2017, approximately 129,000, 224,000 and 268,000 common OP Units, respectively, were redeemed in exchange for cash. During the year ended December 31, 2019, 127,000 common OP Units were
F-28
redeemed in exchange for shares of Common Stock. NaN common OP Units were redeemed in exchange for Aimco Common Stock during the years ended December 31, 2018 and 2017.
The holders of the common OP Units receive distributions, prorated from the date of issuance, in an amount equivalent to the dividends paid to holders of Common Stock. During the years ended December 31, 2019, 2018, and 2017, the Aimco Operating Partnership declared distributions per common unit of $1.56, $1.52 and $1.44, respectively.
On February 3, 2019, the Board of Directors of the Aimco Operating Partnership’s general partner authorized a reverse unit split and special distribution in the same form and with the same timing as the reverse stock split and special dividend discussed in Note 7 above. The special distribution to the holders of Aimco Operating Partnership common partnership units that consisted of $72.7 million in cash, 4.8 million common partnership units and $0.4 million of cash paid in lieu of issuing fractional units. Total common partnership units outstanding prior to and following both transactions was unchanged.
Note 9 — Share-Based Compensation
We have a stock award and incentive program to attract and retain officers and independent directors. As of December 31, 2019, approximately 3.9 million shares were available for issuance under our Amended and Restated 2015 Stock Award and Incentive Plan, or the 2015 Plan. The total number of shares available for issuance under this plan may increase due to any forfeiture, cancellation, exchange, surrender, termination or expiration of an award outstanding under our 2007 Stock Award and Incentive Plan. Awards under the 2015 Plan may be in the form of incentive stock options, non-qualified stock options and restricted stock, or other types of awards as authorized under the plan.
Our plans are administered by the Compensation and Human Resources Committee of Aimco’s Board of Directors. In the case of stock options, the exercise price of the options granted may not be less than the fair market value of a share of Common Stock at the date of grant.
Total compensation cost recognized for share-based awards was as follows for the years ended December 31, 2019, 2018, and 2017 (in thousands):
|
| 2019 |
|
| 2018 |
|
| 2017 |
| |||
Share-based compensation expense (1) |
| $ | 8,146 |
|
| $ | 8,550 |
|
| $ | 7,877 |
|
Capitalized share-based compensation (2) |
|
| 962 |
|
|
| 1,215 |
|
|
| 1,374 |
|
Total share-based compensation (3) |
| $ | 9,108 |
|
| $ | 9,765 |
|
| $ | 9,251 |
|
|
|
|
|
|
|
As of December 31, 2019, total unvested compensation cost not yet recognized was $10.3 million. We expect to recognize this compensation over a weighted-average period of approximately 1.6 years.
We grant stock options and restricted stock awards that are subject to time-based vesting and require continuous employment, typically over a period of four years from the grant date, and we refer to these awards as Time-Based Stock Options and Time-Based Restricted Stock, respectively. We also grant stock options, restricted stock awards, and two forms of long-term incentive partnership units, or LTIP units, that vest conditioned on Aimco’s total shareholder return, or TSR, relative to the NAREIT Equity Apartment Index (60% weighting) and the MSCI US REIT Index (40% weighting) over a forward-looking performance period of three years. We refer to these awards as TSR Stock Options, TSR Restricted Stock, TSR LTIP I units, and TSR LTIP II units. Vested LTIP II units may be converted at the holders’ option to LTIP Units for a strike price over a term of 10 years. Earned TSR-based awards, if any, will vest 50% on each of the third anniversary and fourth anniversary of the grant date, based on continued employment. Our Time-Based Stock Options and TSR Stock Options expire generally 10 years from the date of grant.
We recognize compensation cost associated with Time-Based awards ratably over the requisite service periods, which are typically four years. We recognize compensation cost related to the TSR-based awards, which have graded vesting periods, over the requisite service period for each separate vesting tranche of the award, commencing on the grant date. The value of the TSR-based awards take into consideration the probability that the market condition will be achieved; therefore previously recorded compensation cost is not adjusted in the event that the market condition is not achieved and awards do not vest.
We had Time-Based Stock Options, Time-Based Restricted Stock, TSR Stock Options, TSR Restricted Stock, TSR LTIP I units and TSR LTIP II units outstanding as of December 31, 2019.
F-29
Stock Options
The following table summarizes activity for our outstanding stock options, for the years ended December 31, 2019, 2018, and 2017 (options in thousands):
|
| 2019 |
|
| 2018 |
|
| 2017 |
| |||||||||||||||
|
| Number of Options |
|
| Weighted-Average Exercise Price |
|
| Number of Options |
|
| Weighted-Average Exercise Price |
|
| Number of Options |
|
| Weighted-Average Exercise Price |
| ||||||
Outstanding at beginning of year |
|
| 646 |
|
| $ | 40.12 |
|
|
| 648 |
|
| $ | 40.08 |
|
|
| 675 |
|
| $ | 29.55 |
|
Granted |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 184 |
|
|
| 44.07 |
|
Exercised |
|
| (5 | ) |
|
| 8.92 |
|
|
| (2 | ) |
|
| 28.33 |
|
|
| (211 | ) |
|
| 9.90 |
|
Forfeited |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Outstanding at end of year |
|
| 641 |
|
| $ | 40.30 |
|
|
| 646 |
|
| $ | 40.12 |
|
|
| 648 |
|
| $ | 40.08 |
|
Exercisable at end of year |
|
| 458 |
|
| $ | 38.78 |
|
|
| 186 |
|
| $ | 38.18 |
|
|
| 128 |
|
| $ | 37.59 |
|
The intrinsic value of a stock option represents the amount by which the current price of the underlying stock exceeds the exercise price of the option. As of December 31, 2019, stock options outstanding had an aggregate intrinsic value of $7.3 million and a weighted-average remaining contractual term of 6 years. Stock options exercisable as of December 31, 2019, had an aggregate intrinsic value of $5.9 million and a weighted-average remaining contractual term of 5.5 years. The intrinsic value of stock options exercised during the years ended December 31, 2019, 2018, and 2017, was $0.1 million, $0.0 million and $7.1 million, respectively.
During 2017, we granted TSR Stock Options. The weighted-average grant date fair value of stock options granted during the year ended 2017 was $11.39 per option.
Time-Based Restricted Stock Awards
The following table summarizes activity for Time-Based Restricted Stock awards for the years ended December 31, 2019, 2018, and 2017 (shares in thousands):
|
| 2019 |
|
| 2018 |
|
| 2017 |
| |||||||||||||||
|
| Number of Shares |
|
| Weighted-Average Grant-Date Fair Value |
|
| Number of Shares |
|
| Weighted-Average Grant-Date Fair Value |
|
| Number of Shares |
|
| Weighted-Average Grant-Date Fair Value |
| ||||||
Unvested at beginning of year |
|
| 121 |
|
| $ | 40.82 |
|
|
| 155 |
|
| $ | 37.63 |
|
|
| 241 |
|
| $ | 33.61 |
|
Granted |
|
| 48 |
|
|
| 47.71 |
|
|
| 49 |
|
|
| 40.01 |
|
|
| 44 |
|
|
| 44.07 |
|
Vested |
|
| (75 | ) |
|
| 42.76 |
|
|
| (83 | ) |
|
| 34.42 |
|
|
| (130 | ) |
|
| 32.35 |
|
Forfeited |
|
| (2 | ) |
|
| 38.80 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Unvested at end of year |
|
| 92 |
|
| $ | 42.86 |
|
|
| 121 |
|
| $ | 40.82 |
|
|
| 155 |
|
| $ | 37.63 |
|
The aggregate fair value of Time-Based Restricted Stock awards and TSR Restricted Stock awards that vested during the years ended December 31, 2019, 2018, and 2017 was $13.7 million, $8.4 million and $6.0 million, respectively.
TSR Restricted Stock Awards
The following table summarizes activity for TSR Restricted Stock awards for the years ended December 31, 2019, 2018, and 2017 (shares in thousands):
|
| 2019 |
|
| 2018 |
|
| 2017 |
| |||||||||||||||
|
| Number of Shares |
|
| Weighted-Average Grant-Date Fair Value |
|
| Number of Shares |
|
| Weighted-Average Grant-Date Fair Value |
|
| Number of Shares |
|
| Weighted-Average Grant-Date Fair Value |
| ||||||
Unvested at beginning of year |
|
| 171 |
|
| $ | 41.65 |
|
|
| 246 |
|
| $ | 40.70 |
|
|
| 208 |
|
| $ | 39.66 |
|
Granted (1) |
|
| 39 |
|
|
| 54.73 |
|
|
| 44 |
|
|
| 41.71 |
|
|
| 38 |
|
|
| 46.39 |
|
Change in awards (2) |
|
| 216 |
|
|
| 39.67 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Vested |
|
| (213 | ) |
|
| 39.67 |
|
|
| (119 | ) |
|
| 39.72 |
|
|
| — |
|
|
| — |
|
Unvested at end of year |
|
| 213 |
|
| $ | 43.99 |
|
|
| 171 |
|
| $ | 41.65 |
|
|
| 246 |
|
| $ | 40.70 |
|
F-30
|
|
|
|
TSR LTIP I Units
The following table summarizes activity for TSR LTIP I units for the years ended December 31, 2019, 2018, and 2017 (units in thousands):
|
| 2019 |
|
| 2018 |
|
| 2017 |
| |||||||||||||||
|
| Number of Units |
|
| Weighted-Average Grant-Date Fair Value |
|
| Number of Units |
|
| Weighted-Average Grant-Date Fair Value |
|
| Number of Units |
|
| Weighted-Average Grant-Date Fair Value |
| ||||||
Unvested at beginning of year |
|
| 93 |
|
| $ | 43.78 |
|
|
| 45 |
|
| $ | 46.21 |
|
|
| — |
|
| $ | — |
|
Granted |
|
| 6 |
|
|
| 55.17 |
|
|
| 48 |
|
|
| 41.48 |
|
|
| 45 |
|
|
| 46.21 |
|
Unvested at end of year |
|
| 99 |
|
| $ | 44.38 |
|
|
| 93 |
|
| $ | 43.78 |
|
|
| 45 |
|
| $ | 46.21 |
|
TSR LTIP II Units
The following table summarizes activity for TSR LTIP II units for the years ended December 31, 2019 and 2018 (units in thousands):
|
| 2019 |
|
| 2018 |
| ||||||||||
|
| Number of Units |
|
| Weighted-Average Grant-Date Fair Value |
|
| Number of Units |
|
| Weighted-Average Grant-Date Fair Value |
| ||||
Unvested at beginning of year |
|
| 243 |
|
| $ | 8.29 |
|
|
| — |
|
| $ | — |
|
Granted |
|
| 356 |
|
|
| 12.03 |
|
|
| 243 |
|
|
| 8.29 |
|
Unvested at end of year |
|
| 599 |
|
| $ | 10.51 |
|
|
| 243 |
|
| $ | 8.29 |
|
Determination of Grant-Date Fair Value of Awards
We estimated the fair value of TSR-based awards granted in 2019, 2018, and 2017 using a Monte Carlo model with the assumptions set forth in the table below.
The risk-free interest rate reflects the annualized yield of a zero coupon United States Treasury security with a term equal to the expected term of the awards. The expected dividend yield reflects expectations regarding cash dividend amounts per share paid on Aimco’s Common Stock during the expected term of the awards. Expected volatility reflects an average of the historical volatility of Aimco’s Common Stock during the historical period commensurate with the expected term of the award that ended on the date of grant, and the implied volatility is calculated from observed call option contracts closest to the expected term. The derived vesting period of TSR Restricted Stock and TSR LTIP I units was determined based on the graded vesting terms. The expected term of the TSR-options and TSR LTIP II units was based on historical exercises and post-vesting terminations. The valuation assumptions for the 2019, 2018, and 2017 grants were as follows:
|
| 2019 |
|
| 2018 |
|
| 2017 |
| |||
Grant date market value of a common share |
| $ | 49.24 |
|
| $ | 40.95 |
|
| $ | 44.07 |
|
Risk-free interest rate |
|
| 2.59% - 2.66 | % |
|
| 2.32% - 2.68 | % |
|
| 1.57% - 2.22 | % |
Dividend yield |
|
| 3.09 | % |
|
| 3.52 | % |
|
| 3.27 | % |
Expected volatility |
|
| 19.08% - 19.24 | % |
|
| 17.64% - 18.02 | % |
|
| 21.33% - 23.00 | % |
Derived vesting period of TSR Restricted Stock and TSR LTIP I units |
| 3.4 years |
|
| 3.4 years |
|
| 3.4 years |
| |||
Weighted average expected term of TSR Stock Options and LTIP II units |
| 5.8 years |
|
| 5.6 years |
|
| 5.8 years |
|
The grant date fair value for the Time-Based Restricted Stock awards reflects the closing price of a share of Aimco Common Stock on the grant date.
F-31
Note 10 — Income Taxes
Deferred income taxes reflect the net effects of temporary differences between the carrying amounts of assets and liabilities of the TRS entities for financial reporting purposes and the amounts used for income tax purposes. Significant components of our deferred tax liabilities and assets are as follows (in thousands):
|
| December 31, |
| |||||
|
| 2019 |
|
| 2018 |
| ||
Deferred tax liabilities: |
|
|
|
|
|
|
|
|
Real estate and real estate partnership basis differences |
| $ | 126,269 |
|
| $ | 12,058 |
|
Deferred tax assets: |
|
|
|
|
|
|
|
|
Tax credit carryforwards |
| $ | 53,776 |
|
| $ | 67,530 |
|
Net operating, capital and other loss carryforwards |
|
| 6,147 |
|
|
| 7,022 |
|
Accruals and expenses |
|
| 6,138 |
|
|
| 7,432 |
|
Management contracts and other |
|
| 1,379 |
|
|
| 2,064 |
|
Total deferred tax assets |
|
| 67,440 |
|
|
| 84,048 |
|
Valuation allowance |
|
| (4,766 | ) |
|
| (4,930 | ) |
Net deferred tax (liabilities) assets |
| $ | (63,595 | ) |
| $ | 67,060 |
|
As of December 31, 2019, deferred tax liabilities, net, were presented in accrued liabilities and other in our consolidated balance sheets. As of December 31, 2018, deferred tax assets, net, were presented in other assets in our consolidated balance sheets.
During the year ended December 31, 2019, we recognized a $148.8 million deferred tax liability in connection with the acquisition of 1001 Brickell Bay Drive, as discussed in Note 3.
As of December 31, 2019, we had federal and state net operating loss carryforwards, or NOLs, for which the deferred tax asset was approximately $6.1 million, before a valuation allowance of $4.8 million. The NOLs expire in years 2020 to 2038. Subject to certain separate return limitations, we may use these NOLs to offset a portion of state taxable income generated by our TRS entities. As of December 31, 2019, we also had low-income housing and rehabilitation tax credit carryforwards and corresponding deferred tax assets of approximately $53.8 million for income tax purposes that expire in years 2035 to 2039.
A reconciliation of the beginning and ending balance of our unrecognized tax benefits is presented below (in thousands):
|
| 2019 |
|
| 2018 |
|
| 2017 |
| |||
Balance at January 1 |
| $ | 2,618 |
|
| $ | 2,476 |
|
| $ | 2,286 |
|
Additions based on tax position taken in current year |
|
| 2,758 |
|
|
| — |
|
|
| — |
|
Additions based on tax positions related to prior years |
|
| 226 |
|
|
| 142 |
|
|
| 190 |
|
Reductions as a result of a lapse of the applicable statutes |
|
| (522 | ) |
|
| — |
|
|
| — |
|
Balance at December 31 |
| $ | 5,080 |
|
| $ | 2,618 |
|
| $ | 2,476 |
|
Because the statute of limitations has not yet elapsed, our United States federal income tax returns for the year ended December 31, 2014, and subsequent years and certain of our State income tax returns for the year ended December 31, 2014, and subsequent years are currently subject to examination by the IRS or other taxing authorities. If recognized, the unrecognized benefit would affect the effective rate.
In 2014, the IRS initiated an audit of the Aimco Operating Partnership’s 2011 and 2012 tax years. This audit was concluded during the year ended December 31, 2019, with no material effect on our tax benefits, financial condition or results of operations.
Our policy is to include any interest and penalties related to income taxes within the income tax line item in our consolidated statements of operations.
In accordance with the accounting requirements for stock-based compensation, we may recognize tax benefits in connection with the exercise of stock options by employees of our TRS entities and the vesting of restricted stock awards. We recognize the tax effects related to stock-based compensation through earnings in the period the compensation was recognized.
F-32
Significant components of the income tax benefit or expense are as follows and are classified within income tax benefit in our consolidated statements of operations for the years ended December 31, 2019, 2018, and 2017 (in thousands):
|
| 2019 |
|
| 2018 |
|
| 2017 |
| |||
Current: |
|
|
|
|
|
|
|
|
|
|
|
|
Federal |
| $ | 6,115 |
|
| $ | 11,269 |
|
| $ | (938 | ) |
State |
|
| 8,982 |
|
|
| 10,537 |
|
|
| 525 |
|
Total current |
|
| 15,097 |
|
|
| 21,806 |
|
|
| (413 | ) |
Deferred: |
|
|
|
|
|
|
|
|
|
|
|
|
Federal |
|
| (12,891 | ) |
|
| (29,243 | ) |
|
| (10,908 | ) |
State |
|
| (5,341 | ) |
|
| (5,590 | ) |
|
| (3,621 | ) |
Revaluation of deferred taxes due to change in tax rate |
|
| — |
|
|
| — |
|
|
| (15,894 | ) |
Total deferred |
|
| (18,232 | ) |
|
| (34,833 | ) |
|
| (30,423 | ) |
Total benefit |
| $ | (3,135 | ) |
| $ | (13,027 | ) |
| $ | (30,836 | ) |
Consolidated income or loss subject to tax consists of pretax income or loss of our TRS entities and income and gains retained by the REIT. For the years ended December 31, 2019, 2018, and 2017, we had consolidated net loss subject to tax of $21.2 million, net income subject to tax of $158.6 million, and net loss subject to tax of $55.6 million, respectively. Net loss subject to tax for the year ended December 31, 2019 included a $7.7 million net loss of a foreign subsidiary.
The reconciliation of income tax attributable to operations computed at the United States statutory rate to income tax benefit is shown below (dollars in thousands):
|
| 2019 |
|
| 2018 |
|
| 2017 |
| |||||||||||||||
|
| Amount |
|
| Percent |
|
| Amount |
|
| Percent |
|
| Amount |
|
| Percent |
| ||||||
Tax (benefit) provision at United States statutory rates on consolidated income or loss subject to tax |
| $ | (4,442 | ) |
|
| 21.0 | % |
| $ | 33,296 |
|
|
| 21.0 | % |
| $ | (19,459 | ) |
|
| 35.0 | % |
United States branch profits tax on losses of a foreign subsidiary |
|
| (1,813 | ) |
|
| 8.6 | % |
|
| — |
|
|
| — | % |
|
| — |
|
|
| — | % |
State income tax expense, net of federal tax (benefit) expense |
|
| 3,935 |
|
|
| (18.6 | %) |
|
| 12,252 |
|
|
| 7.7 | % |
|
| (1,769 | ) |
|
| 3.2 | % |
Establishment of deferred tax asset related to partnership basis difference (1) |
|
| — |
|
|
| — | % |
|
| — |
|
|
| — | % |
|
| (3,501 | ) |
|
| 6.3 | % |
Effect of permanent differences |
|
| (138 | ) |
|
| 0.7 | % |
|
| 302 |
|
|
| 0.2 | % |
|
| (1,629 | ) |
|
| 2.9 | % |
Tax effect of intercompany transactions (2) |
|
| — |
|
|
| — | % |
|
| (33,250 | ) |
|
| (21.0 | %) |
|
| — |
|
|
| — | % |
Tax credits |
|
| (667 | ) |
|
| 3.2 | % |
|
| (6,897 | ) |
|
| (4.4 | %) |
|
| (9,607 | ) |
|
| 17.3 | % |
Tax reform revaluation (3) |
|
| — |
|
|
| — | % |
|
| 288 |
|
|
| 0.2 | % |
|
| (15,894 | ) |
|
| 28.6 | % |
(Decrease) increase in valuation allowance (4) |
|
| (164 | ) |
|
| 0.8 | % |
|
| (20,434 | ) |
|
| (12.9 | %) |
|
| 21,023 |
|
|
| (37.8 | %) |
Other |
|
| 154 |
|
|
| (0.7 | %) |
|
| 1,416 |
|
|
| 0.9 | % |
|
| — |
|
|
| — | % |
Total income tax benefit |
| $ | (3,135 | ) |
|
| 15.0 | % |
| $ | (13,027 | ) |
|
| (8.3 | %) |
| $ | (30,836 | ) |
|
| 55.5 | % |
|
|
|
|
|
|
|
|
Income taxes paid totaled approximately $12.2 million, $11.5 million and $7.4 million in the years ended December 31, 2019, 2018, and 2017, respectively.
F-33
For income tax purposes, dividends paid to holders of Common Stock primarily consist of ordinary income, capital gains, qualified dividends and unrecaptured Section 1250 gains, or a combination thereof. For the years ended December 31, 2019, 2018, and 2017, dividends per share held for the entire year were estimated to be taxable as follows:
|
| 2019 |
|
| 2018 |
|
| 2017 |
| |||||||||||||||
|
| Amount |
|
| Percentage |
|
| Amount |
|
| Percentage |
|
| Amount |
|
| Percentage |
| ||||||
Ordinary income |
| $ | 0.66 |
|
|
| 20.7 | % |
| $ | 0.51 |
|
|
| 33.4 | % |
| $ | 0.75 |
|
|
| 51.5 | % |
Capital gains |
|
| 1.29 |
|
|
| 40.4 | % |
|
| 0.93 |
|
|
| 61.2 | % |
|
| 0.51 |
|
|
| 35.7 | % |
Qualified dividends |
|
| 0.66 |
|
|
| 20.7 | % |
|
| — |
|
|
| — | % |
|
| 0.02 |
|
|
| 1.6 | % |
Unrecaptured Section 1250 gain |
|
| 0.58 |
|
|
| 18.2 | % |
|
| 0.08 |
|
|
| 5.4 | % |
|
| 0.16 |
|
|
| 11.2 | % |
Total |
| $ | 3.19 |
|
|
| 100.0 | % |
| $ | 1.52 |
|
|
| 100.0 | % |
| $ | 1.44 |
|
|
| 100.0 | % |
Note 11 — Earnings per Share and per Unit
Aimco and the Aimco Operating Partnership calculate basic earnings per common share and basic earnings per common unit based on the weighted-average number of shares of Common Stock and common partnership units outstanding. We calculate diluted earnings per share and diluted earnings per unit taking into consideration dilutive common stock and common partnership unit equivalents and dilutive convertible securities outstanding during the period.
Our common stock and common partnership unit equivalents include options to purchase shares of Common Stock, which, if exercised, would result in Aimco’s issuance of additional shares and the Aimco Operating Partnership’s issuance to Aimco of additional common partnership units equal to the number of shares purchased under the options. These equivalents also include unvested TSR Restricted Stock awards that do not meet the definition of participating securities, which would result in an increase in the number of shares of Common Stock and common partnership units outstanding equal to the number of the shares that vest. Common partnership 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.
Our Time-Based Restricted Stock awards receive non-forfeitable dividends similar to shares of Common Stock and common partnership units prior to vesting, and our TSR LTIP I units and TSR LTIP II units receive non-forfeitable distributions based on specified percentages of the distributions paid to common partnership 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.
Reconciliations of the numerator and denominator in the calculations of basic and diluted earnings per share and per unit for the years ended December 31, 2019, 2018, and 2017 are as follows (in thousands, except per share and per unit data):
| 2019 |
|
| 2018 |
|
| 2017 |
| |||
Earnings per share |
|
|
|
|
|
|
|
|
|
|
|
Numerator: |
|
|
|
|
|
|
|
|
|
|
|
Basic and dilutive net income attributable to Aimco common stockholders | $ | 466,144 |
|
| $ | 656,597 |
|
| $ | 306,861 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator - shares: |
|
|
|
|
|
|
|
|
|
|
|
Basic weighted-average Common Stock outstanding |
| 147,718 |
|
|
| 151,152 |
|
|
| 151,595 |
|
Dilutive share equivalents outstanding |
| 226 |
|
|
| 182 |
|
|
| 465 |
|
Dilutive weighted-average Common Stock outstanding |
| 147,944 |
|
|
| 151,334 |
|
|
| 152,060 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share – basic | $ | 3.16 |
|
| $ | 4.34 |
|
| $ | 2.02 |
|
Earnings per share – dilutive | $ | 3.15 |
|
| $ | 4.34 |
|
| $ | 2.02 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-dilutive share equivalents outstanding |
| — |
|
|
| 269 |
|
|
| 184 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per unit |
|
|
|
|
|
|
|
|
|
|
|
Numerator: |
|
|
|
|
|
|
|
|
|
|
|
Basic and dilutive net income attributable to the Aimco Operating Partnership's common unitholders | $ | 492,177 |
|
| $ | 690,874 |
|
| $ | 321,300 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator - units |
|
|
|
|
|
|
|
|
|
|
|
Basic weighted-average common partnership units outstanding |
| 155,882 |
|
|
| 158,890 |
|
|
| 158,793 |
|
Dilutive partnership unit equivalents outstanding |
| 335 |
|
|
| 183 |
|
|
| 464 |
|
Dilutive weighted-average common partnership units outstanding |
| 156,217 |
|
|
| 159,073 |
|
|
| 159,257 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per unit – basic | $ | 3.16 |
|
| $ | 4.35 |
|
| $ | 2.02 |
|
Earnings per unit – dilutive | $ | 3.15 |
|
| $ | 4.34 |
|
| $ | 2.02 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-dilutive partnership unit equivalents outstanding |
| — |
|
|
| 269 |
|
|
| 184 |
|
F-34
As discussed in Note 7, the Aimco Operating Partnership has various classes of preferred OP Units, which may be redeemed at the holders’ option. The Aimco Operating Partnership may redeem these units for cash, or at its option, shares of Common Stock. As of December 31, 2019, these preferred OP Units were potentially redeemable for approximately 1.9 million shares of Common Stock (based on the period end market price), or cash. The Aimco Operating Partnership has a redemption policy that requires cash settlement of redemption requests for the preferred OP Units, subject to limited exceptions. Accordingly, we have excluded these securities from earnings per share and unit computations for the periods presented above, and we expect to exclude them in future periods.
Note 12 — Fair Value Measurements
Recurring Fair Value Measurements
We measure at fair value on a recurring basis our investment in the securitization trust that holds certain of our property debt, which we classify as AFS debt securities. These investments are presented within other assets in the consolidated balance sheets. We hold several positions in the securitization trust that pay interest currently and we also hold the first loss position in the securitization trust, which accrues interest over the term of the investment. These investments were acquired at a discount to face value and we are accreting the discount to the $100.9 million face value of the investments through interest income using the effective interest method over the remaining expected term of the investments, which as of December 31, 2019, was approximately 1.6 years. Our amortized cost basis for these investments, which represents the original cost adjusted for interest accretion less interest payments received, was $90.0 million and $83.6 million at December 31, 2019 and 2018, respectively.
Our investments in AFS debt securities are classified within Level 2 of the GAAP fair value hierarchy. We estimate the fair value of these investments using an income and market approach with primarily observable inputs, including yields and other information regarding similar types of investments, and adjusted for certain unobservable inputs specific to these investments. The fair value of the positions that pay interest currently typically moves in an inverse relationship with movements in interest rates. The fair value of the first loss position is primarily correlated to collateral quality and demand for similar subordinate commercial mortgage-backed securities.
The following table summarizes fair value for our AFS debt securities as of December 31, 2019 and 2018 (in thousands):
| As of December 31, |
| |||||||||||||||||||||||||||||
| 2019 |
|
| 2018 |
| ||||||||||||||||||||||||||
| Total Fair Value |
|
| Level 1 |
|
| Level 2 |
|
| Level 3 |
|
| Total Fair Value |
|
| Level 1 |
|
| Level 2 |
|
| Level 3 |
| ||||||||
AFS debt securities | $ | 94,251 |
|
| $ | — |
|
| $ | 94,251 |
|
| $ | — |
|
| $ | 88,457 |
|
| $ | — |
|
| $ | 88,457 |
|
| $ | — |
|
Non-Recurring Fair Value Measurements
We believe that the carrying value of the consolidated amounts of cash and cash equivalents, accounts receivables and payables approximated their fair value as of December 31, 2019 and 2018, due to their relatively short-term nature and high probability of realization. The carrying amounts of notes receivable and the revolving credit facility approximated their estimated fair value as of December 31, 2019. We estimate the fair value of our non-recourse property debt using an income and market approach, including comparison of the contractual terms to observable and unobservable inputs such as market interest rate risk spreads, contractual interest rates, remaining periods to maturity, collateral quality and loan to value ratios on similarly encumbered apartment communities within our portfolio. We classify the fair value of our non-recourse property debt within Level 2 of the GAAP valuation hierarchy based on the significance of certain of the unobservable inputs used to estimate its fair value.
The following table summarizes carrying value and fair value of our non-recourse property debt as of December 31, 2019 and 2018 (in thousands):
| As of December 31, |
| |||||||||||||
| 2019 |
|
| 2018 |
| ||||||||||
| Carrying Value |
|
| Fair Value |
|
| Carrying Value |
|
| Fair Value |
| ||||
Non-recourse property debt | $ | 4,251,339 |
|
| $ | 4,298,630 |
|
| $ | 3,937,000 |
|
| $ | 3,893,171 |
|
Note 13 — Business Segments
In 2019, as a result of the 2018 sale of the Asset Management business, we revised the information regularly reviewed by our chief executive officer, who is our chief operating decision maker, to assess our operating performance. We have determined we have 4 segments: Same Store, Redevelopment and Development, Acquisition, and Other Real Estate.
Our Same Store segment includes communities that have reached a stabilized level of operations as of the beginning of a two-year comparable period and maintained it throughout the current and comparable prior year, and are not expected to be sold
F-35
within 12 months. Our Redevelopment and Development segment includes apartment communities that are currently under construction that have not achieved a stabilized level of operations, and those that have been completed in recent years that have not achieved and maintained stabilized operations for both the current and comparable prior year. Our Acquisition segment includes communities that we have acquired since the beginning of a two-year comparable period. Our Other Real Estate segment primarily includes communities that are subject to limitations on rent increases, communities that we expect to sell within 12 months but do not yet meet the criteria to be classified as held for sale, certain retail spaces and 1001 Brickell Bay Drive.
Our chief operating decision maker uses proportionate property net operating income to assess the operating performance of our apartment communities. Proportionate property net operating income is defined as our share of rental and other property revenues, excluding utility costs reimbursed by residents, less our share of property operating expenses, net of utility reimbursements, for consolidated communities. In our consolidated statements of operations, utility reimbursements are included in rental and other property revenues attributable to real estate, in accordance with GAAP.
As of December 31, 2019, our Same Store segment included 91 consolidated apartment communities with 26,649 apartment homes; our Redevelopment and Development segment included 7 consolidated communities with 3,143 homes; our Acquisition segment included 7 consolidated communities with 1,590 homes; and our Other Real Estate segment included 15 consolidated communities with 1,315 homes and 1 office building.
The following tables present the revenues, proportionate property net operating income and income before income tax benefit of our segments on a proportionate basis and excluding our proportionate share of 4 apartment communities with 142 apartment homes that we neither manage nor consolidate, and amounts related to communities sold as of December 31, 2019 for the years ended December 31, 2019, 2018, and 2017 (in thousands):
| Same Store |
|
| Redevelopment and Development |
|
| Acquisition |
|
| Other Real Estate |
|
| Proportionate and Other Adjustments (1) |
|
| Corporate and Amounts Not Allocated to Segments (2) |
|
| Consolidated |
| |||||||
Year ended December 31, 2019: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues | $ | 691,379 |
|
| $ | 75,522 |
|
| $ | 42,038 |
|
| $ | 45,105 |
|
| $ | 33,450 |
|
| $ | 26,800 |
|
| $ | 914,294 |
|
Property operating expenses attributable to real estate |
| 181,802 |
|
|
| 27,919 |
|
|
| 11,715 |
|
|
| 17,717 |
|
|
| 31,140 |
|
|
| 40,928 |
|
|
| 311,221 |
|
Other operating expenses not allocated to segments (3) |
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 446,300 |
|
|
| 446,300 |
|
Total operating expenses |
| 181,802 |
|
|
| 27,919 |
|
|
| 11,715 |
|
|
| 17,717 |
|
|
| 31,140 |
|
|
| 487,228 |
|
|
| 757,521 |
|
Proportionate property net operating income |
| 509,577 |
|
|
| 47,603 |
|
|
| 30,323 |
|
|
| 27,388 |
|
|
| 2,310 |
|
|
| (460,428 | ) |
|
| 156,773 |
|
Other items included in income before income tax benefit (4) |
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 348,119 |
|
|
| 348,119 |
|
Income before income tax benefit | $ | 509,577 |
|
| $ | 47,603 |
|
| $ | 30,323 |
|
| $ | 27,388 |
|
| $ | 2,310 |
|
| $ | (112,309 | ) |
| $ | 504,892 |
|
| Same Store |
|
| Redevelopment and Development |
|
| Acquisition |
|
| Other Real Estate |
|
| Proportionate and Other Adjustments (1) |
|
| Corporate and Amounts Not Allocated to Segments (2) |
|
| Consolidated |
| |||||||
Year ended December 31, 2018: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues | $ | 665,835 |
|
| $ | 76,687 |
|
| $ | 27,923 |
|
| $ | 37,647 |
|
| $ | 31,442 |
|
| $ | 132,876 |
|
| $ | 972,410 |
|
Property operating expenses attributable to real estate |
| 177,466 |
|
|
| 27,836 |
|
|
| 7,689 |
|
|
| 14,910 |
|
|
| 29,323 |
|
|
| 50,677 |
|
|
| 307,901 |
|
Other operating expenses not allocated to segments (3) |
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 448,753 |
|
|
| 448,753 |
|
Total operating expenses |
| 177,466 |
|
|
| 27,836 |
|
|
| 7,689 |
|
|
| 14,910 |
|
|
| 29,323 |
|
|
| 499,430 |
|
|
| 756,654 |
|
Proportionate property net operating income |
| 488,369 |
|
|
| 48,851 |
|
|
| 20,234 |
|
|
| 22,737 |
|
|
| 2,119 |
|
|
| (366,554 | ) |
|
| 215,756 |
|
Other items included in income before income tax benefit (4) |
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 487,820 |
|
|
| 487,820 |
|
Income before income tax benefit | $ | 488,369 |
|
| $ | 48,851 |
|
| $ | 20,234 |
|
| $ | 22,737 |
|
| $ | 2,119 |
|
| $ | 121,266 |
|
| $ | 703,576 |
|
F-36
| Same Store |
|
| Redevelopment and Development |
|
| Acquisition |
|
| Other Real Estate |
|
| Proportionate and Other Adjustments (1) |
|
| Corporate and Amounts Not Allocated to Segments (2) |
|
| Consolidated |
| |||||||
Year ended December 31, 2017: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues | $ | 626,311 |
|
| $ | 72,995 |
|
| $ | — |
|
| $ | 36,869 |
|
| $ | 39,776 |
|
| $ | 229,486 |
|
| $ | 1,005,437 |
|
Property operating expenses attributable to real estate |
| 171,167 |
|
|
| 26,471 |
|
|
| — |
|
|
| 14,121 |
|
|
| 29,782 |
|
|
| 77,585 |
|
|
| 319,126 |
|
Other operating expenses not allocated to segments (3) |
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 492,328 |
|
|
| 492,328 |
|
Total operating expenses |
| 171,167 |
|
|
| 26,471 |
|
|
| — |
|
|
| 14,121 |
|
|
| 29,782 |
|
|
| 569,913 |
|
|
| 811,454 |
|
Proportionate property net operating income |
| 455,144 |
|
|
| 46,524 |
|
|
| — |
|
|
| 22,748 |
|
|
| 9,994 |
|
|
| (340,427 | ) |
|
| 193,983 |
|
Other items included in income before income tax benefit (4) |
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 122,260 |
|
|
| 122,260 |
|
Income before income tax benefit | $ | 455,144 |
|
| $ | 46,524 |
|
| $ | — |
|
| $ | 22,748 |
|
| $ | 9,994 |
|
| $ | (218,167 | ) |
| $ | 316,243 |
|
|
|
|
|
|
|
|
|
The assets of our segments and the consolidated assets not allocated to our segments were as follows (in thousands):
| December 31, 2019 |
|
| December 31, 2018 |
| ||
Same Store | $ | 3,982,586 |
|
| $ | 4,068,880 |
|
Redevelopment and Development |
| 946,390 |
|
|
| 792,126 |
|
Acquisition |
| 623,037 |
|
|
| 507,190 |
|
Other Real Estate |
| 647,725 |
|
|
| 327,092 |
|
Corporate and other assets (1) |
| 629,001 |
|
|
| 494,716 |
|
Total consolidated assets | $ | 6,828,739 |
|
| $ | 6,190,004 |
|
|
|
For the years ended December 31, 2019, 2018, and 2017, capital additions related to our segments were as follows (in thousands):
| 2019 |
|
| 2018 |
|
| 2017 |
| |||
Same Store | $ | 153,944 |
|
| $ | 171,869 |
|
| $ | 215,130 |
|
Redevelopment and Development |
| 194,498 |
|
|
| 138,103 |
|
|
| 84,712 |
|
Acquisition |
| 33,122 |
|
|
| 14,228 |
|
|
| — |
|
Other Real Estate |
| 20,011 |
|
|
| 6,314 |
|
|
| 12,044 |
|
Total capital additions | $ | 401,575 |
|
| $ | 330,514 |
|
| $ | 311,886 |
|
F-37
Note 14 — Unaudited Summarized Consolidated Quarterly Information
Aimco
Aimco’s summarized unaudited consolidated quarterly information for the years ended December 31, 2019 and 2018, is provided below (in thousands, except per share amounts):
|
| Quarter |
| |||||||||||||
2019 |
| First |
|
| Second |
|
| Third |
|
| Fourth |
| ||||
Total revenues |
| $ | 230,235 |
|
| $ | 224,200 |
|
| $ | 229,827 |
|
| $ | 230,032 |
|
Net income |
|
| 291,295 |
|
|
| 69,996 |
|
|
| 3,970 |
|
|
| 142,766 |
|
Net income attributable to Aimco common stockholders |
|
| 271,568 |
|
|
| 59,234 |
|
|
| 2,003 |
|
|
| 133,339 |
|
Net income attributable to Aimco common stockholders per common share – basic |
| $ | 1.88 |
|
| $ | 0.40 |
|
| $ | 0.01 |
|
| $ | 0.90 |
|
Net income attributable to Aimco common stockholders per common share – diluted |
| $ | 1.88 |
|
| $ | 0.40 |
|
| $ | 0.01 |
|
| $ | 0.90 |
|
|
| Quarter |
| |||||||||||||
2018 |
| First |
|
| Second |
|
| Third |
|
| Fourth |
| ||||
Total revenues |
| $ | 247,720 |
|
| $ | 250,187 |
|
| $ | 242,481 |
|
| $ | 232,022 |
|
Net income |
|
| 95,690 |
|
|
| 7,156 |
|
|
| 603,917 |
|
|
| 9,840 |
|
Net income attributable to Aimco common stockholders |
|
| 81,525 |
|
|
| 2,817 |
|
|
| 567,029 |
|
|
| 5,226 |
|
Net income attributable to Aimco common stockholders per common share – basic |
| $ | 0.54 |
|
| $ | 0.02 |
|
| $ | 3.73 |
|
| $ | 0.04 |
|
Net income attributable to Aimco common stockholders per common share – diluted |
| $ | 0.54 |
|
| $ | 0.02 |
|
| $ | 3.73 |
|
| $ | 0.04 |
|
The Aimco Operating Partnership
The Aimco Operating Partnership’s summarized unaudited consolidated quarterly information for the years ended December 31, 2019 and 2018, is provided below (in thousands, except per unit amounts):
|
| Quarter |
| |||||||||||||
2019 |
| First |
|
| Second |
|
| Third |
|
| Fourth |
| ||||
Total revenues |
| $ | 230,235 |
|
| $ | 224,200 |
|
| $ | 229,827 |
|
| $ | 230,032 |
|
Net income |
|
| 291,295 |
|
|
| 69,996 |
|
|
| 3,970 |
|
|
| 142,766 |
|
Net income attributable to the Partnership’s common unitholders |
|
| 286,639 |
|
|
| 62,817 |
|
|
| 2,138 |
|
|
| 140,583 |
|
Net income attributable to the Partnership’s common unitholders per common unit – basic |
| $ | 1.88 |
|
| $ | 0.40 |
|
| $ | 0.01 |
|
| $ | 0.90 |
|
Net income attributable to the Partnership’s common unitholders per common unit – diluted |
| $ | 1.88 |
|
| $ | 0.40 |
|
| $ | 0.01 |
|
| $ | 0.90 |
|
|
| Quarter |
| |||||||||||||
2018 |
| First |
|
| Second |
|
| Third |
|
| Fourth |
| ||||
Total revenues |
| $ | 247,720 |
|
| $ | 250,187 |
|
| $ | 242,481 |
|
| $ | 232,022 |
|
Net income |
|
| 95,690 |
|
|
| 7,156 |
|
|
| 603,917 |
|
|
| 9,840 |
|
Net income attributable to the Partnership’s common unitholders |
|
| 85,274 |
|
|
| 2,949 |
|
|
| 597,100 |
|
|
| 5,551 |
|
Net income attributable to the Partnership’s common unitholders per common unit – basic |
| $ | 0.54 |
|
| $ | 0.02 |
|
| $ | 3.73 |
|
| $ | 0.04 |
|
Net income attributable to the Partnership’s common unitholders per common unit – diluted |
| $ | 0.54 |
|
| $ | 0.02 |
|
| $ | 3.72 |
|
| $ | 0.04 |
|
F-38
APARTMENT INVESTMENT AND MANAGEMENT COMPANY
AIMCO PROPERTIES, L.P.
SCHEDULE III: REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 2019
(In Thousands Except Apartment Home Data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (2) |
|
| As of December 31, 2019 |
| ||||||||||||||||||||||
|
|
|
| (1) |
|
|
|
|
|
|
|
|
| Initial Cost |
|
| Cost Capitalized |
|
|
|
|
|
|
|
|
|
|
|
|
|
| (4) |
|
|
|
|
|
|
|
|
| |||||||
|
| Apartment |
| Date |
|
|
| Year |
| Apartment |
|
|
|
|
|
| Buildings and |
|
| Subsequent to |
|
|
|
|
|
| Buildings and |
|
| (3) |
|
| Accumulated |
|
| Total Cost |
|
| (5) |
| ||||||||
Apartment Community Name |
| Type |
| Consolidated |
| Location |
| Built |
| Homes |
|
| Land |
|
| Improvements |
|
| Consolidation |
|
| Land |
|
| Improvements |
|
| Total |
|
| Depreciation (AD) |
|
| Net of AD |
|
| Encumbrances |
| ||||||||||
Same Store Sales: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
100 Forest Place |
| High Rise |
| Dec 1997 |
| Oak Park, IL |
| 1987 |
|
| 234 |
|
| $ | 2,664 |
|
| $ | 18,815 |
|
| $ | 11,145 |
|
| $ | 2,664 |
|
| $ | 29,960 |
|
| $ | 32,624 |
|
| $ | (16,676 | ) |
| $ | 15,948 |
|
| $ | 34,453 |
|
118-122 West 23rd Street |
| High Rise |
| Jun 2012 |
| New York, NY |
| 1987 |
|
| 42 |
|
|
| 14,985 |
|
|
| 23,459 |
|
|
| 6,914 |
|
|
| 14,985 |
|
|
| 30,373 |
|
|
| 45,358 |
|
|
| (10,461 | ) |
|
| 34,897 |
|
|
| 16,999 |
|
1045 on the Park Apartment Homes |
| Mid Rise |
| Jul 2013 |
| Atlanta, GA |
| 2012 |
|
| 30 |
|
|
| 2,793 |
|
|
| 6,662 |
|
|
| 819 |
|
|
| 2,793 |
|
|
| 7,481 |
|
|
| 10,274 |
|
|
| (1,739 | ) |
|
| 8,535 |
|
|
| — |
|
1582 First Avenue |
| High Rise |
| Mar 2005 |
| New York, NY |
| 1900 |
|
| 17 |
|
|
| 4,281 |
|
|
| 752 |
|
|
| 518 |
|
|
| 4,281 |
|
|
| 1,270 |
|
|
| 5,551 |
|
|
| (650 | ) |
|
| 4,901 |
|
|
| 2,226 |
|
21 Fitzsimons |
| Mid Rise |
| Aug 2014 |
| Aurora, CO |
| 2008 |
|
| 600 |
|
|
| 12,864 |
|
|
| 104,720 |
|
|
| 27,677 |
|
|
| 12,864 |
|
|
| 132,397 |
|
|
| 145,261 |
|
|
| (26,098 | ) |
|
| 119,163 |
|
|
| 89,413 |
|
2200 Grace |
| Mid Rise |
| Dec 1999 |
| Lombard, IL |
| 1971 |
|
| 72 |
|
|
| 642 |
|
|
| 7,788 |
|
|
| 294 |
|
|
| 642 |
|
|
| 8,082 |
|
|
| 8,724 |
|
|
| (4,549 | ) |
|
| 4,175 |
|
|
| 7,448 |
|
2900 on First Apartments |
| Mid Rise |
| Oct 2008 |
| Seattle, WA |
| 1989 |
|
| 135 |
|
|
| 19,070 |
|
|
| 17,518 |
|
|
| 34,356 |
|
|
| 19,070 |
|
|
| 51,874 |
|
|
| 70,944 |
|
|
| (29,578 | ) |
|
| 41,366 |
|
|
| 13,594 |
|
306 East 89th Street |
| High Rise |
| Jul 2004 |
| New York, NY |
| 1930 |
|
| 20 |
|
|
| 2,680 |
|
|
| 1,006 |
|
|
| 1,099 |
|
|
| 2,680 |
|
|
| 2,105 |
|
|
| 4,785 |
|
|
| (1,046 | ) |
|
| 3,739 |
|
|
| 1,816 |
|
322-324 East 61st Street |
| High Rise |
| Mar 2005 |
| New York, NY |
| 1900 |
|
| 40 |
|
|
| 6,372 |
|
|
| 2,224 |
|
|
| 1,598 |
|
|
| 6,372 |
|
|
| 3,822 |
|
|
| 10,194 |
|
|
| (2,009 | ) |
|
| 8,185 |
|
|
| 3,339 |
|
3400 Avenue of the Arts |
| Mid Rise |
| Mar 2002 |
| Costa Mesa, CA |
| 1987 |
|
| 770 |
|
|
| 57,241 |
|
|
| 65,506 |
|
|
| 88,112 |
|
|
| 57,241 |
|
|
| 153,618 |
|
|
| 210,859 |
|
|
| (92,205 | ) |
|
| 118,654 |
|
|
| 142,476 |
|
452 East 78th Street |
| High Rise |
| Jan 2004 |
| New York, NY |
| 1900 |
|
| 12 |
|
|
| 1,982 |
|
|
| 608 |
|
|
| 600 |
|
|
| 1,982 |
|
|
| 1,208 |
|
|
| 3,190 |
|
|
| (548 | ) |
|
| 2,642 |
|
|
| — |
|
510 East 88th Street |
| High Rise |
| Jan 2004 |
| New York, NY |
| 1900 |
|
| 20 |
|
|
| 3,163 |
|
|
| 1,002 |
|
|
| 653 |
|
|
| 3,163 |
|
|
| 1,655 |
|
|
| 4,818 |
|
|
| (726 | ) |
|
| 4,092 |
|
|
| — |
|
514-516 East 88th Street |
| High Rise |
| Mar 2005 |
| New York, NY |
| 1900 |
|
| 36 |
|
|
| 6,282 |
|
|
| 2,168 |
|
|
| 1,617 |
|
|
| 6,282 |
|
|
| 3,785 |
|
|
| 10,067 |
|
|
| (1,868 | ) |
|
| 8,199 |
|
|
| 3,620 |
|
Axiom |
| Mid Rise |
| Apr 2015 |
| Cambridge, MA |
| 2015 |
|
| 115 |
|
|
| — |
|
|
| 63,612 |
|
|
| 2,665 |
|
|
| — |
|
|
| 66,277 |
|
|
| 66,277 |
|
|
| (11,504 | ) |
|
| 54,773 |
|
|
| 32,253 |
|
Bank Lofts |
| High Rise |
| Apr 2001 |
| Denver, CO |
| 1920 |
|
| 125 |
|
|
| 3,525 |
|
|
| 9,045 |
|
|
| 5,797 |
|
|
| 3,525 |
|
|
| 14,842 |
|
|
| 18,367 |
|
|
| (8,109 | ) |
|
| 10,258 |
|
|
| 10,218 |
|
Bay Ridge at Nashua |
| Garden |
| Jan 2003 |
| Nashua, NH |
| 1984 |
|
| 412 |
|
|
| 3,262 |
|
|
| 40,713 |
|
|
| 17,995 |
|
|
| 3,262 |
|
|
| 58,708 |
|
|
| 61,970 |
|
|
| (26,731 | ) |
|
| 35,239 |
|
|
| 50,638 |
|
Bayberry Hill Estates |
| Garden |
| Aug 2002 |
| Framingham, MA |
| 1971 |
|
| 424 |
|
|
| 19,944 |
|
|
| 35,945 |
|
|
| 25,151 |
|
|
| 19,944 |
|
|
| 61,096 |
|
|
| 81,040 |
|
|
| (30,503 | ) |
|
| 50,537 |
|
|
| 44,197 |
|
Bluffs at Pacifica, The |
| Garden |
| Oct 2006 |
| Pacifica, CA |
| 1963 |
|
| 64 |
|
|
| 8,108 |
|
|
| 4,132 |
|
|
| 17,349 |
|
|
| 8,108 |
|
|
| 21,481 |
|
|
| 29,589 |
|
|
| (11,400 | ) |
|
| 18,189 |
|
|
| — |
|
Boston Lofts |
| High Rise |
| Apr 2001 |
| Denver, CO |
| 1890 |
|
| 158 |
|
|
| 3,446 |
|
|
| 20,589 |
|
|
| 6,715 |
|
|
| 3,446 |
|
|
| 27,304 |
|
|
| 30,750 |
|
|
| (14,706 | ) |
|
| 16,044 |
|
|
| 14,927 |
|
Boulder Creek |
| Garden |
| Jul 1994 |
| Boulder, CO |
| 1973 |
|
| 221 |
|
|
| 754 |
|
|
| 7,730 |
|
|
| 20,791 |
|
|
| 754 |
|
|
| 28,521 |
|
|
| 29,275 |
|
|
| (20,708 | ) |
|
| 8,567 |
|
|
| 37,861 |
|
Broadcast Center |
| Garden |
| Mar 2002 |
| Los Angeles, CA |
| 1990 |
|
| 279 |
|
|
| 29,407 |
|
|
| 41,244 |
|
|
| 31,856 |
|
|
| 29,407 |
|
|
| 73,100 |
|
|
| 102,507 |
|
|
| (32,455 | ) |
|
| 70,052 |
|
|
| 96,880 |
|
Broadway Lofts |
| High Rise |
| Sep 2012 |
| San Diego, CA |
| 1909 |
|
| 84 |
|
|
| 5,367 |
|
|
| 14,442 |
|
|
| 7,647 |
|
|
| 5,367 |
|
|
| 22,089 |
|
|
| 27,456 |
|
|
| (6,031 | ) |
|
| 21,425 |
|
|
| 11,298 |
|
Burke Shire Commons |
| Garden |
| Mar 2001 |
| Burke, VA |
| 1986 |
|
| 360 |
|
|
| 4,867 |
|
|
| 23,617 |
|
|
| 19,855 |
|
|
| 4,867 |
|
|
| 43,472 |
|
|
| 48,339 |
|
|
| (27,328 | ) |
|
| 21,011 |
|
|
| 56,855 |
|
Calhoun Beach Club |
| High Rise |
| Dec 1998 |
| Minneapolis, MN |
| 1928 |
|
| 332 |
|
|
| 11,708 |
|
|
| 73,334 |
|
|
| 65,713 |
|
|
| 11,708 |
|
|
| 139,047 |
|
|
| 150,755 |
|
|
| (85,259 | ) |
|
| 65,496 |
|
|
| — |
|
Canyon Terrace |
| Garden |
| Mar 2002 |
| Saugus, CA |
| 1984 |
|
| 130 |
|
|
| 7,508 |
|
|
| 6,601 |
|
|
| 7,008 |
|
|
| 7,508 |
|
|
| 13,609 |
|
|
| 21,117 |
|
|
| (7,711 | ) |
|
| 13,406 |
|
|
| — |
|
Cedar Rim |
| Garden |
| Apr 2000 |
| Newcastle, WA |
| 1980 |
|
| 104 |
|
|
| 761 |
|
|
| 5,218 |
|
|
| 13,873 |
|
|
| 761 |
|
|
| 19,091 |
|
|
| 19,852 |
|
|
| (14,179 | ) |
|
| 5,673 |
|
|
| — |
|
Charlesbank Apartment Homes |
| Mid Rise |
| Sep 2013 |
| Watertown, MA |
| 2012 |
|
| 44 |
|
|
| 3,399 |
|
|
| 11,726 |
|
|
| 1,018 |
|
|
| 3,399 |
|
|
| 12,744 |
|
|
| 16,143 |
|
|
| (2,931 | ) |
|
| 13,212 |
|
|
| — |
|
Chestnut Hall |
| High Rise |
| Oct 2006 |
| Philadelphia, PA |
| 1923 |
|
| 315 |
|
|
| 12,338 |
|
|
| 14,299 |
|
|
| 13,223 |
|
|
| 12,338 |
|
|
| 27,522 |
|
|
| 39,860 |
|
|
| (13,266 | ) |
|
| 26,594 |
|
|
| 35,834 |
|
Creekside |
| Garden |
| Jan 2000 |
| Denver, CO |
| 1974 |
|
| 328 |
|
|
| 3,189 |
|
|
| 12,698 |
|
|
| 7,404 |
|
|
| 3,189 |
|
|
| 20,102 |
|
|
| 23,291 |
|
|
| (13,579 | ) |
|
| 9,712 |
|
|
| 11,066 |
|
Crescent at West Hollywood, The |
| Mid Rise |
| Mar 2002 |
| West Hollywood, CA |
| 1985 |
|
| 130 |
|
|
| 15,765 |
|
|
| 10,215 |
|
|
| 8,281 |
|
|
| 15,765 |
|
|
| 18,496 |
|
|
| 34,261 |
|
|
| (12,337 | ) |
|
| 21,924 |
|
|
| 39,336 |
|
Elm Creek |
| Mid Rise |
| Dec 1997 |
| Elmhurst, IL |
| 1987 |
|
| 400 |
|
|
| 5,910 |
|
|
| 30,830 |
|
|
| 32,788 |
|
|
| 5,910 |
|
|
| 63,618 |
|
|
| 69,528 |
|
|
| (35,969 | ) |
|
| 33,559 |
|
|
| 50,296 |
|
Evanston Place |
| High Rise |
| Dec 1997 |
| Evanston, IL |
| 1990 |
|
| 190 |
|
|
| 3,232 |
|
|
| 25,546 |
|
|
| 16,703 |
|
|
| 3,232 |
|
|
| 42,249 |
|
|
| 45,481 |
|
|
| (20,982 | ) |
|
| 24,499 |
|
|
| — |
|
Four Quarters Habitat |
| Garden |
| Jan 2006 |
| Miami, FL |
| 1976 |
|
| 336 |
|
|
| 2,379 |
|
|
| 17,199 |
|
|
| 32,991 |
|
|
| 2,379 |
|
|
| 50,190 |
|
|
| 52,569 |
|
|
| (30,456 | ) |
|
| 22,113 |
|
|
| 50,716 |
|
Foxchase |
| Garden |
| Dec 1997 |
| Alexandria, VA |
| 1940 |
|
| 2,113 |
|
|
| 15,496 |
|
|
| 96,062 |
|
|
| 64,213 |
|
|
| 15,496 |
|
|
| 160,275 |
|
|
| 175,771 |
|
|
| (92,368 | ) |
|
| 83,403 |
|
|
| 218,337 |
|
Georgetown |
| Garden |
| Aug 2002 |
| Framingham, MA |
| 1964 |
|
| 207 |
|
|
| 12,351 |
|
|
| 13,168 |
|
|
| 4,896 |
|
|
| 12,351 |
|
|
| 18,064 |
|
|
| 30,415 |
|
|
| (9,068 | ) |
|
| 21,347 |
|
|
| 14,355 |
|
Georgetown II |
| Mid Rise |
| Aug 2002 |
| Framingham, MA |
| 1958 |
|
| 72 |
|
|
| 4,577 |
|
|
| 4,057 |
|
|
| 2,316 |
|
|
| 4,577 |
|
|
| 6,373 |
|
|
| 10,950 |
|
|
| (3,871 | ) |
|
| 7,079 |
|
|
| — |
|
Hidden Cove |
| Garden |
| Jul 1998 |
| Escondido, CA |
| 1983 |
|
| 334 |
|
|
| 3,043 |
|
|
| 17,616 |
|
|
| 11,447 |
|
|
| 3,043 |
|
|
| 29,063 |
|
|
| 32,106 |
|
|
| (17,321 | ) |
|
| 14,785 |
|
|
| 51,840 |
|
Hidden Cove II |
| Garden |
| Jul 2007 |
| Escondido, CA |
| 1986 |
|
| 118 |
|
|
| 12,849 |
|
|
| 6,530 |
|
|
| 5,439 |
|
|
| 12,849 |
|
|
| 11,969 |
|
|
| 24,818 |
|
|
| (5,881 | ) |
|
| 18,937 |
|
|
| 20,160 |
|
Hillcreste |
| Garden |
| Mar 2002 |
| Century City, CA |
| 1989 |
|
| 315 |
|
|
| 35,862 |
|
|
| 47,216 |
|
|
| 15,706 |
|
|
| 35,862 |
|
|
| 62,922 |
|
|
| 98,784 |
|
|
| (29,709 | ) |
|
| 69,075 |
|
|
| 61,930 |
|
Hillmeade |
| Garden |
| Nov 1994 |
| Nashville, TN |
| 1986 |
|
| 288 |
|
|
| 2,872 |
|
|
| 16,070 |
|
|
| 22,103 |
|
|
| 2,872 |
|
|
| 38,173 |
|
|
| 41,045 |
|
|
| (22,434 | ) |
|
| 18,611 |
|
|
| 26,756 |
|
Horizons West Apartments |
| Mid Rise |
| Dec 2006 |
| Pacifica, CA |
| 1970 |
|
| 78 |
|
|
| 8,887 |
|
|
| 6,377 |
|
|
| 2,808 |
|
|
| 8,887 |
|
|
| 9,185 |
|
|
| 18,072 |
|
|
| (4,155 | ) |
|
| 13,917 |
|
|
| — |
|
Hunt Club |
| Garden |
| Sep 2000 |
| Gaithersburg, MD |
| 1986 |
|
| 336 |
|
|
| 17,859 |
|
|
| 13,149 |
|
|
| 14,807 |
|
|
| 17,859 |
|
|
| 27,956 |
|
|
| 45,815 |
|
|
| (17,241 | ) |
|
| 28,574 |
|
|
| — |
|
Hyde Park Tower |
| High Rise |
| Oct 2004 |
| Chicago, IL |
| 1990 |
|
| 155 |
|
|
| 4,731 |
|
|
| 14,927 |
|
|
| 16,765 |
|
|
| 4,731 |
|
|
| 31,692 |
|
|
| 36,423 |
|
|
| (11,613 | ) |
|
| 24,810 |
|
|
| 12,301 |
|
Indian Oaks |
| Garden |
| Mar 2002 |
| Simi Valley, CA |
| 1986 |
|
| 254 |
|
|
| 24,523 |
|
|
| 15,801 |
|
|
| 12,124 |
|
|
| 24,523 |
|
|
| 27,925 |
|
|
| 52,448 |
|
|
| (14,829 | ) |
|
| 37,619 |
|
|
| 26,944 |
|
Indigo |
| High Rise |
| Aug 2016 |
| Redwood City, CA |
| 2016 |
|
| 463 |
|
|
| 26,932 |
|
|
| 296,116 |
|
|
| 3,561 |
|
|
| 26,932 |
|
|
| 299,677 |
|
|
| 326,609 |
|
|
| (35,408 | ) |
|
| 291,201 |
|
|
| 135,348 |
|
Island Club |
| Garden |
| Oct 2000 |
| Oceanside, CA |
| 1986 |
|
| 592 |
|
|
| 18,027 |
|
|
| 28,654 |
|
|
| 21,829 |
|
|
| 18,027 |
|
|
| 50,483 |
|
|
| 68,510 |
|
|
| (32,842 | ) |
|
| 35,668 |
|
|
| 93,333 |
|
Latrobe |
| High Rise |
| Jan 2003 |
| Washington, D.C. |
| 1980 |
|
| 175 |
|
|
| 3,459 |
|
|
| 9,103 |
|
|
| 13,380 |
|
|
| 3,459 |
|
|
| 22,483 |
|
|
| 25,942 |
|
|
| (13,313 | ) |
|
| 12,629 |
|
|
| 26,128 |
|
Laurel Crossing |
| Garden |
| Jan 2006 |
| San Mateo, CA |
| 1971 |
|
| 418 |
|
|
| 49,474 |
|
|
| 17,756 |
|
|
| 15,017 |
|
|
| 49,474 |
|
|
| 32,773 |
|
|
| 82,247 |
|
|
| (17,078 | ) |
|
| 65,169 |
|
|
| 104,658 |
|
Lincoln Place (6) |
| Garden |
| Oct 2004 |
| Venice, CA |
| 1951 |
|
| 795 |
|
|
| 128,332 |
|
|
| 10,439 |
|
|
| 340,136 |
|
|
| 44,197 |
|
|
| 350,575 |
|
|
| 394,772 |
|
|
| (143,166 | ) |
|
| 251,606 |
|
|
| 184,330 |
|
Malibu Canyon |
| Garden |
| Mar 2002 |
| Calabasas, CA |
| 1986 |
|
| 698 |
|
|
| 69,834 |
|
|
| 53,438 |
|
|
| 41,577 |
|
|
| 69,834 |
|
|
| 95,015 |
|
|
| 164,849 |
|
|
| (51,078 | ) |
|
| 113,771 |
|
|
| 102,968 |
|
Mariners Cove |
| Garden |
| Mar 2002 |
| San Diego, CA |
| 1984 |
|
| 500 |
|
|
| — |
|
|
| 66,861 |
|
|
| 14,977 |
|
|
| — |
|
|
| 81,838 |
|
|
| 81,838 |
|
|
| (42,171 | ) |
|
| 39,667 |
|
|
| — |
|
Meadow Creek |
| Garden |
| Jul 1994 |
| Boulder, CO |
| 1968 |
|
| 332 |
|
|
| 1,435 |
|
|
| 24,533 |
|
|
| 10,058 |
|
|
| 1,435 |
|
|
| 34,591 |
|
|
| 36,026 |
|
|
| (21,082 | ) |
|
| 14,944 |
|
|
| — |
|
Merrill House |
| High Rise |
| Jan 2000 |
| Falls Church, VA |
| 1964 |
|
| 159 |
|
|
| 1,836 |
|
|
| 10,831 |
|
|
| 7,588 |
|
|
| 1,836 |
|
|
| 18,419 |
|
|
| 20,255 |
|
|
| (10,923 | ) |
|
| 9,332 |
|
|
| — |
|
Monterey Grove |
| Garden |
| Jun 2008 |
| San Jose, CA |
| 1999 |
|
| 224 |
|
|
| 34,325 |
|
|
| 21,939 |
|
|
| 16,051 |
|
|
| 34,325 |
|
|
| 37,990 |
|
|
| 72,315 |
|
|
| (13,236 | ) |
|
| 59,079 |
|
|
| 49,680 |
|
Ocean House on Prospect |
| Mid Rise |
| Apr 2013 |
| La Jolla, CA |
| 1970 |
|
| 53 |
|
|
| 12,528 |
|
|
| 18,805 |
|
|
| 15,336 |
|
|
| 12,528 |
|
|
| 34,141 |
|
|
| 46,669 |
|
|
| (8,635 | ) |
|
| 38,034 |
|
|
| 12,281 |
|
F-39
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (2) |
|
| As of December 31, 2019 |
| ||||||||||||||||||||||
|
|
|
| (1) |
|
|
|
|
|
|
|
|
| Initial Cost |
|
| Cost Capitalized |
|
|
|
|
|
|
|
|
|
|
|
|
|
| (4) |
|
|
|
|
|
|
|
|
| |||||||
|
| Apartment |
| Date |
|
|
| Year |
| Apartment |
|
|
|
|
|
| Buildings and |
|
| Subsequent to |
|
|
|
|
|
| Buildings and |
|
| (3) |
|
| Accumulated |
|
| Total Cost |
|
| (5) |
| ||||||||
Apartment Community Name |
| Type |
| Consolidated |
| Location |
| Built |
| Homes |
|
| Land |
|
| Improvements |
|
| Consolidation |
|
| Land |
|
| Improvements |
|
| Total |
|
| Depreciation (AD) |
|
| Net of AD |
|
| Encumbrances |
| ||||||||||
One Canal |
| High Rise |
| Sep 2013 |
| Boston, MA |
| 2016 |
|
| 310 |
|
| $ | — |
|
| $ | 15,873 |
|
| $ | 178,772 |
|
| $ | — |
|
| $ | 194,645 |
|
| $ | 194,645 |
|
| $ | (29,058 | ) |
| $ | 165,587 |
|
| $ | 108,491 |
|
Pacific Bay Vistas (6) |
| Garden |
| Mar 2001 |
| San Bruno, CA |
| 1987 |
|
| 308 |
|
|
| 28,694 |
|
|
| 62,460 |
|
|
| 40,698 |
|
|
| 23,354 |
|
|
| 103,158 |
|
|
| 126,512 |
|
|
| (39,188 | ) |
|
| 87,324 |
|
|
| 104,664 |
|
Pacifica Park |
| Garden |
| Jul 2006 |
| Pacifica, CA |
| 1977 |
|
| 104 |
|
|
| 12,970 |
|
|
| 6,579 |
|
|
| 8,815 |
|
|
| 12,970 |
|
|
| 15,394 |
|
|
| 28,364 |
|
|
| (7,517 | ) |
|
| 20,847 |
|
|
| 28,613 |
|
Palazzo at Park La Brea, The |
| Mid Rise |
| Feb 2004 |
| Los Angeles, CA |
| 2002 |
|
| 521 |
|
|
| 48,362 |
|
|
| 125,464 |
|
|
| 48,103 |
|
|
| 48,362 |
|
|
| 173,567 |
|
|
| 221,929 |
|
|
| (87,785 | ) |
|
| 134,144 |
|
|
| 165,344 |
|
Palazzo East at Park La Brea, The |
| Mid Rise |
| Mar 2005 |
| Los Angeles, CA |
| 2005 |
|
| 611 |
|
|
| 72,578 |
|
|
| 136,503 |
|
|
| 28,065 |
|
|
| 72,578 |
|
|
| 164,568 |
|
|
| 237,146 |
|
|
| (79,668 | ) |
|
| 157,478 |
|
|
| 192,083 |
|
Pathfinder Village |
| Garden |
| Jan 2006 |
| Fremont, CA |
| 1973 |
|
| 246 |
|
|
| 19,595 |
|
|
| 14,838 |
|
|
| 20,707 |
|
|
| 19,595 |
|
|
| 35,545 |
|
|
| 55,140 |
|
|
| (17,480 | ) |
|
| 37,660 |
|
|
| 55,000 |
|
Peachtree Park |
| Garden |
| Jan 1996 |
| Atlanta, GA |
| 1969 |
|
| 303 |
|
|
| 4,684 |
|
|
| 11,713 |
|
|
| 14,244 |
|
|
| 4,684 |
|
|
| 25,957 |
|
|
| 30,641 |
|
|
| (17,244 | ) |
|
| 13,397 |
|
|
| 27,316 |
|
Plantation Gardens |
| Garden |
| Oct 1999 |
| Plantation, FL |
| 1971 |
|
| 372 |
|
|
| 3,773 |
|
|
| 19,443 |
|
|
| 25,547 |
|
|
| 3,773 |
|
|
| 44,990 |
|
|
| 48,763 |
|
|
| (28,766 | ) |
|
| 19,997 |
|
|
| — |
|
Preserve at Marin |
| Mid Rise |
| Aug 2011 |
| Corte Madera, CA |
| 1964 |
|
| 126 |
|
|
| 13,516 |
|
|
| 30,132 |
|
|
| 82,512 |
|
|
| 13,516 |
|
|
| 112,644 |
|
|
| 126,160 |
|
|
| (32,015 | ) |
|
| 94,145 |
|
|
| 35,451 |
|
Ravensworth Towers |
| High Rise |
| Jun 2004 |
| Annandale, VA |
| 1974 |
|
| 219 |
|
|
| 3,455 |
|
|
| 17,157 |
|
|
| 4,575 |
|
|
| 3,455 |
|
|
| 21,732 |
|
|
| 25,187 |
|
|
| (15,171 | ) |
|
| 10,016 |
|
|
| 19,870 |
|
River Club, The |
| Garden |
| Apr 2005 |
| Edgewater, NJ |
| 1998 |
|
| 266 |
|
|
| 30,579 |
|
|
| 30,638 |
|
|
| 8,468 |
|
|
| 30,579 |
|
|
| 39,106 |
|
|
| 69,685 |
|
|
| (19,159 | ) |
|
| 50,526 |
|
|
| 59,070 |
|
Riverloft |
| High Rise |
| Oct 1999 |
| Philadelphia, PA |
| 1910 |
|
| 184 |
|
|
| 2,120 |
|
|
| 11,286 |
|
|
| 38,090 |
|
|
| 2,120 |
|
|
| 49,376 |
|
|
| 51,496 |
|
|
| (25,765 | ) |
|
| 25,731 |
|
|
| 5,881 |
|
Rosewood |
| Garden |
| Mar 2002 |
| Camarillo, CA |
| 1976 |
|
| 152 |
|
|
| 12,430 |
|
|
| 8,060 |
|
|
| 6,983 |
|
|
| 12,430 |
|
|
| 15,043 |
|
|
| 27,473 |
|
|
| (7,950 | ) |
|
| 19,523 |
|
|
| — |
|
Royal Crest Estates |
| Garden |
| Aug 2002 |
| Warwick, RI |
| 1972 |
|
| 492 |
|
|
| 22,433 |
|
|
| 24,095 |
|
|
| 6,736 |
|
|
| 22,433 |
|
|
| 30,831 |
|
|
| 53,264 |
|
|
| (21,454 | ) |
|
| 31,810 |
|
|
| — |
|
Royal Crest Estates |
| Garden |
| Aug 2002 |
| Nashua, NH |
| 1970 |
|
| 902 |
|
|
| 68,230 |
|
|
| 45,562 |
|
|
| 16,865 |
|
|
| 68,230 |
|
|
| 62,427 |
|
|
| 130,657 |
|
|
| (44,966 | ) |
|
| 85,691 |
|
|
| 70,299 |
|
Royal Crest Estates |
| Garden |
| Aug 2002 |
| Marlborough, MA |
| 1970 |
|
| 473 |
|
|
| 25,178 |
|
|
| 28,786 |
|
|
| 15,100 |
|
|
| 25,178 |
|
|
| 43,886 |
|
|
| 69,064 |
|
|
| (29,314 | ) |
|
| 39,750 |
|
|
| 62,074 |
|
Royal Crest Estates |
| Garden |
| Aug 2002 |
| North Andover, MA |
| 1970 |
|
| 588 |
|
|
| 51,292 |
|
|
| 36,808 |
|
|
| 30,314 |
|
|
| 51,292 |
|
|
| 67,122 |
|
|
| 118,414 |
|
|
| (39,455 | ) |
|
| 78,959 |
|
|
| 81,363 |
|
Saybrook Pointe |
| Garden |
| Dec 2014 |
| San Jose, CA |
| 1995 |
|
| 324 |
|
|
| 32,842 |
|
|
| 84,457 |
|
|
| 25,960 |
|
|
| 32,842 |
|
|
| 110,417 |
|
|
| 143,259 |
|
|
| (19,010 | ) |
|
| 124,249 |
|
|
| 61,073 |
|
Shenandoah Crossing |
| Garden |
| Sep 2000 |
| Fairfax, VA |
| 1984 |
|
| 640 |
|
|
| 18,200 |
|
|
| 57,198 |
|
|
| 26,395 |
|
|
| 18,200 |
|
|
| 83,593 |
|
|
| 101,793 |
|
|
| (62,964 | ) |
|
| 38,829 |
|
|
| 57,204 |
|
Springwoods at Lake Ridge |
| Garden |
| Jul 2002 |
| Woodbridge, VA |
| 1984 |
|
| 180 |
|
|
| 5,587 |
|
|
| 7,284 |
|
|
| 3,790 |
|
|
| 5,587 |
|
|
| 11,074 |
|
|
| 16,661 |
|
|
| (5,064 | ) |
|
| 11,597 |
|
|
| — |
|
Sterling Apartment Homes, The |
| Garden |
| Oct 1999 |
| Philadelphia, PA |
| 1961 |
|
| 534 |
|
|
| 8,871 |
|
|
| 55,365 |
|
|
| 118,250 |
|
|
| 8,871 |
|
|
| 173,615 |
|
|
| 182,486 |
|
|
| (91,452 | ) |
|
| 91,034 |
|
|
| 141,077 |
|
Stonecreek Club |
| Garden |
| Sep 2000 |
| Germantown, MD |
| 1984 |
|
| 240 |
|
|
| 13,593 |
|
|
| 9,347 |
|
|
| 8,450 |
|
|
| 13,593 |
|
|
| 17,797 |
|
|
| 31,390 |
|
|
| (13,092 | ) |
|
| 18,298 |
|
|
| — |
|
Township At Highlands |
| Town Home |
| Nov 1996 |
| Centennial, CO |
| 1985 |
|
| 161 |
|
|
| 1,536 |
|
|
| 9,773 |
|
|
| 10,121 |
|
|
| 1,536 |
|
|
| 19,894 |
|
|
| 21,430 |
|
|
| (13,167 | ) |
|
| 8,263 |
|
|
| 13,120 |
|
Vantage Pointe |
| Mid Rise |
| Aug 2002 |
| Swampscott, MA |
| 1987 |
|
| 96 |
|
|
| 4,748 |
|
|
| 10,089 |
|
|
| 2,661 |
|
|
| 4,748 |
|
|
| 12,750 |
|
|
| 17,498 |
|
|
| (5,806 | ) |
|
| 11,692 |
|
|
| — |
|
Villa Del Sol |
| Garden |
| Mar 2002 |
| Norwalk, CA |
| 1972 |
|
| 120 |
|
|
| 7,476 |
|
|
| 4,861 |
|
|
| 5,050 |
|
|
| 7,476 |
|
|
| 9,911 |
|
|
| 17,387 |
|
|
| (6,000 | ) |
|
| 11,387 |
|
|
| 10,338 |
|
Villas of Pasadena |
| Mid Rise |
| Jan 2006 |
| Pasadena, CA |
| 1973 |
|
| 92 |
|
|
| 9,693 |
|
|
| 6,818 |
|
|
| 4,696 |
|
|
| 9,693 |
|
|
| 11,514 |
|
|
| 21,207 |
|
|
| (5,230 | ) |
|
| 15,977 |
|
|
| — |
|
Vivo |
| High Rise |
| Jun 2016 |
| Cambridge, MA |
| 2015 |
|
| 91 |
|
|
| 6,450 |
|
|
| 35,974 |
|
|
| 5,851 |
|
|
| 6,450 |
|
|
| 41,825 |
|
|
| 48,275 |
|
|
| (11,588 | ) |
|
| 36,687 |
|
|
| 19,810 |
|
Waterford Village |
| Garden |
| Aug 2002 |
| Bridgewater, MA |
| 1971 |
|
| 588 |
|
|
| 29,110 |
|
|
| 28,101 |
|
|
| 11,636 |
|
|
| 29,110 |
|
|
| 39,737 |
|
|
| 68,847 |
|
|
| (29,186 | ) |
|
| 39,661 |
|
|
| 34,464 |
|
Waterways Village |
| Garden |
| Jun 1997 |
| Aventura, FL |
| 1994 |
|
| 180 |
|
|
| 4,504 |
|
|
| 11,064 |
|
|
| 16,910 |
|
|
| 4,504 |
|
|
| 27,974 |
|
|
| 32,478 |
|
|
| (13,996 | ) |
|
| 18,482 |
|
|
| 12,865 |
|
Waverly Apartments |
| Garden |
| Aug 2008 |
| Brighton, MA |
| 1970 |
|
| 103 |
|
|
| 7,920 |
|
|
| 11,347 |
|
|
| 6,844 |
|
|
| 7,920 |
|
|
| 18,191 |
|
|
| 26,111 |
|
|
| (7,441 | ) |
|
| 18,670 |
|
|
| 11,245 |
|
Wexford Village |
| Garden |
| Aug 2002 |
| Worcester, MA |
| 1974 |
|
| 264 |
|
|
| 6,349 |
|
|
| 17,939 |
|
|
| 5,183 |
|
|
| 6,349 |
|
|
| 23,122 |
|
|
| 29,471 |
|
|
| (14,281 | ) |
|
| 15,190 |
|
|
| — |
|
Willow Bend |
| Garden |
| May 1998 |
| Rolling Meadows, IL |
| 1969 |
|
| 328 |
|
|
| 2,717 |
|
|
| 15,437 |
|
|
| 20,130 |
|
|
| 2,717 |
|
|
| 35,567 |
|
|
| 38,284 |
|
|
| (24,855 | ) |
|
| 13,429 |
|
|
| 32,489 |
|
Windrift |
| Garden |
| Mar 2001 |
| Oceanside, CA |
| 1987 |
|
| 404 |
|
|
| 24,960 |
|
|
| 17,590 |
|
|
| 22,254 |
|
|
| 24,960 |
|
|
| 39,844 |
|
|
| 64,804 |
|
|
| (26,130 | ) |
|
| 38,674 |
|
|
| 72,646 |
|
Windsor Park |
| Garden |
| Mar 2001 |
| Woodbridge, VA |
| 1987 |
|
| 220 |
|
|
| 4,279 |
|
|
| 15,970 |
|
|
| 6,366 |
|
|
| 4,279 |
|
|
| 22,336 |
|
|
| 26,615 |
|
|
| (14,287 | ) |
|
| 12,328 |
|
|
| — |
|
Yacht Club at Brickell |
| High Rise |
| Dec 2003 |
| Miami, FL |
| 1998 |
|
| 357 |
|
|
| 31,362 |
|
|
| 32,214 |
|
|
| 18,825 |
|
|
| 31,362 |
|
|
| 51,039 |
|
|
| 82,401 |
|
|
| (19,678 | ) |
|
| 62,723 |
|
|
| 68,351 |
|
Yorktown Apartments |
| High Rise |
| Dec 1999 |
| Lombard, IL |
| 1971 |
|
| 292 |
|
|
| 2,413 |
|
|
| 10,374 |
|
|
| 53,236 |
|
|
| 2,413 |
|
|
| 63,610 |
|
|
| 66,023 |
|
|
| (31,274 | ) |
|
| 34,749 |
|
|
| 30,167 |
|
Total Same Store Sales |
|
|
|
|
|
|
|
|
|
| 26,649 |
|
| $ | 1,411,619 |
|
| $ | 2,597,010 |
|
| $ | 2,149,561 |
|
| $ | 1,322,144 |
|
| $ | 4,746,571 |
|
| $ | 6,068,715 |
|
| $ | (2,188,175 | ) |
| $ | 3,880,540 |
|
| $ | 3,579,476 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Redevelopment and Development: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
236-238 East 88th Street |
| High Rise |
| Jan 2004 |
| New York, NY |
| 1900 |
|
| 42 |
|
| $ | 8,820 |
|
| $ | 2,914 |
|
| $ | 8,734 |
|
| $ | 8,820 |
|
| $ | 11,648 |
|
| $ | 20,468 |
|
| $ | (2,088 | ) |
| $ | 18,380 |
|
| $ | — |
|
707 Leahy |
| Garden |
| Apr 2007 |
| Redwood City, CA |
| 1973 |
|
| 110 |
|
|
| 15,444 |
|
|
| 7,909 |
|
|
| 16,619 |
|
|
| 15,444 |
|
|
| 24,528 |
|
|
| 39,972 |
|
|
| (6,731 | ) |
|
| 33,241 |
|
|
| 8,534 |
|
Bay Parc Plaza |
| High Rise |
| Sep 2004 |
| Miami, FL |
| 2000 |
|
| 474 |
|
|
| 22,680 |
|
|
| 41,847 |
|
|
| 38,851 |
|
|
| 22,680 |
|
|
| 80,698 |
|
|
| 103,378 |
|
|
| (26,606 | ) |
|
| 76,772 |
|
|
| 76,631 |
|
Flamingo Point |
| High Rise |
| Sep 1997 |
| Miami Beach, FL |
| 1960 |
|
| 1,101 |
|
|
| 32,427 |
|
|
| 48,808 |
|
|
| 400,164 |
|
|
| 32,427 |
|
|
| 448,972 |
|
|
| 481,399 |
|
|
| (188,572 | ) |
|
| 292,827 |
|
|
| — |
|
Parc Mosaic |
| Garden |
| Dec 2014 |
| Boulder, CO |
| 1970 |
|
| 226 |
|
|
| 15,300 |
|
|
| — |
|
|
| 107,179 |
|
|
| 15,300 |
|
|
| 107,179 |
|
|
| 122,479 |
|
|
| (461 | ) |
|
| 122,018 |
|
|
| — |
|
Park Towne Place |
| High Rise |
| Apr 2000 |
| Philadelphia, PA |
| 1959 |
|
| 940 |
|
|
| 10,472 |
|
|
| 47,301 |
|
|
| 353,053 |
|
|
| 10,472 |
|
|
| 400,354 |
|
|
| 410,826 |
|
|
| (152,223 | ) |
|
| 258,603 |
|
|
| 196,655 |
|
Villas at Park La Brea, The |
| Garden |
| Mar 2002 |
| Los Angeles, CA |
| 2002 |
|
| 250 |
|
|
| 8,630 |
|
|
| 48,871 |
|
|
| 19,251 |
|
|
| 8,630 |
|
|
| 68,122 |
|
|
| 76,752 |
|
|
| (33,834 | ) |
|
| 42,918 |
|
|
| 51,097 |
|
Other (7) |
|
|
|
|
|
|
|
|
|
| — |
|
|
| 9,598 |
|
|
| — |
|
|
| 82,830 |
|
|
| 9,598 |
|
|
| 82,830 |
|
|
| 92,428 |
|
|
| (2 | ) |
|
| 92,426 |
|
|
| — |
|
Total Redevelopment and Development |
|
|
|
|
|
|
|
|
|
| 3,143 |
|
| $ | 123,371 |
|
| $ | 197,650 |
|
| $ | 1,026,681 |
|
| $ | 123,371 |
|
| $ | 1,224,331 |
|
| $ | 1,347,702 |
|
| $ | (410,517 | ) |
| $ | 937,185 |
|
| $ | 332,917 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
777 South Broad Street |
| Mid Rise |
| May 2018 |
| Philadelphia, PA |
| 2010 |
|
| 146 |
|
| $ | 6,986 |
|
| $ | 67,512 |
|
| $ | 2,596 |
|
| $ | 6,986 |
|
| $ | 70,108 |
|
| $ | 77,094 |
|
| $ | (4,115 | ) |
| $ | 72,979 |
|
| $ | 56,581 |
|
Avery Row |
| Mid Rise |
| Dec 2018 |
| Arlington, VA |
| 2013 |
|
| 67 |
|
|
| 8,165 |
|
|
| 21,348 |
|
|
| 1,812 |
|
|
| 8,165 |
|
|
| 23,160 |
|
|
| 31,325 |
|
|
| (913 | ) |
|
| 30,412 |
|
|
| — |
|
Bent Tree Apartments |
| Garden |
| Feb 2018 |
| Centreville, VA |
| 1986 |
|
| 748 |
|
|
| 46,975 |
|
|
| 113,695 |
|
|
| 20,823 |
|
|
| 46,975 |
|
|
| 134,518 |
|
|
| 181,493 |
|
|
| (9,679 | ) |
|
| 171,814 |
|
|
| — |
|
Locust on the Park |
| High Rise |
| May 2018 |
| Philadelphia, PA |
| 1911 |
|
| 152 |
|
|
| 5,292 |
|
|
| 53,823 |
|
|
| 4,228 |
|
|
| 5,292 |
|
|
| 58,051 |
|
|
| 63,343 |
|
|
| (3,510 | ) |
|
| 59,833 |
|
|
| 34,891 |
|
One Ardmore |
| Mid Rise |
| Apr 2019 |
| Ardmore, PA |
| 2019 |
|
| 110 |
|
|
| 4,929 |
|
|
| 61,631 |
|
|
| 1,387 |
|
|
| 4,929 |
|
|
| 63,018 |
|
|
| 67,947 |
|
|
| (1,560 | ) |
|
| 66,387 |
|
|
| 31,052 |
|
Southstar Lofts |
| High Rise |
| May 2018 |
| Philadelphia, PA |
| 2014 |
|
| 85 |
|
|
| 1,780 |
|
|
| 37,428 |
|
|
| 683 |
|
|
| 1,780 |
|
|
| 38,111 |
|
|
| 39,891 |
|
|
| (2,235 | ) |
|
| 37,656 |
|
|
| 29,624 |
|
The Left Bank |
| Mid Rise |
| May 2018 |
| Philadelphia, PA |
| 1929 |
|
| 282 |
|
|
| — |
|
|
| 130,893 |
|
|
| 13,352 |
|
|
| — |
|
|
| 144,245 |
|
|
| 144,245 |
|
|
| (8,092 | ) |
|
| 136,153 |
|
|
| 80,679 |
|
Other (7) |
|
|
|
|
|
|
|
|
|
| — |
|
|
| 7,890 |
|
|
| — |
|
|
| 14,634 |
|
|
| 7,890 |
|
|
| 14,634 |
|
|
| 22,524 |
|
|
| — |
|
|
| 22,524 |
|
|
| — |
|
Total Acquisition |
|
|
|
|
|
|
|
|
|
| 1,590 |
|
| $ | 82,017 |
|
| $ | 486,330 |
|
| $ | 59,515 |
|
| $ | 82,017 |
|
| $ | 545,845 |
|
| $ | 627,862 |
|
| $ | (30,104 | ) |
| $ | 597,758 |
|
| $ | 232,827 |
|
F-40
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (2) |
|
| As of December 31, 2019 |
| ||||||||||||||||||||||
|
|
|
| (1) |
|
|
|
|
|
|
|
|
| Initial Cost |
|
| Cost Capitalized |
|
|
|
|
|
|
|
|
|
|
|
|
|
| (4) |
|
|
|
|
|
|
|
|
| |||||||
|
| Apartment |
| Date |
|
|
| Year |
| Apartment |
|
|
|
|
|
| Buildings and |
|
| Subsequent to |
|
|
|
|
|
| Buildings and |
|
| (3) |
|
| Accumulated |
|
| Total Cost |
|
| (5) |
| ||||||||
Apartment Community Name |
| Type |
| Consolidated |
| Location |
| Built |
| Homes |
|
| Land |
|
| Improvements |
|
| Consolidation |
|
| Land |
|
| Improvements |
|
| Total |
|
| Depreciation (AD) |
|
| Net of AD |
|
| Encumbrances |
| ||||||||||
Other Real Estate: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1001 Brickell |
| High Rise |
| Jul 2019 |
| Miami, FL |
| 1985 |
|
| — |
|
| $ | 149,519 |
|
| $ | 152,892 |
|
| $ | 5,228 |
|
| $ | 149,519 |
|
| $ | 158,120 |
|
| $ | 307,639 |
|
| $ | (8,053 | ) |
| $ | 299,586 |
|
| $ | — |
|
173 E. 90th Street |
| High Rise |
| May 2004 |
| New York, NY |
| 1910 |
|
| 72 |
|
|
| 12,066 |
|
|
| 4,535 |
|
|
| 8,827 |
|
|
| 12,066 |
|
|
| 13,362 |
|
|
| 25,428 |
|
|
| (4,667 | ) |
|
| 20,761 |
|
|
| — |
|
182-188 Columbus Avenue |
| Mid Rise |
| Feb 2007 |
| New York, NY |
| 1910 |
|
| 32 |
|
|
| 19,123 |
|
|
| 3,300 |
|
|
| 5,769 |
|
|
| 19,123 |
|
|
| 9,069 |
|
|
| 28,192 |
|
|
| (4,603 | ) |
|
| 23,589 |
|
|
| 13,635 |
|
234 East 88th Street |
| Mid Rise |
| Jan 2014 |
| New York, NY |
| 1900 |
|
| 20 |
|
|
| 2,448 |
|
|
| 4,449 |
|
|
| 828 |
|
|
| 2,448 |
|
|
| 5,277 |
|
|
| 7,725 |
|
|
| (1,418 | ) |
|
| 6,307 |
|
|
| — |
|
237-239 Ninth Avenue |
| High Rise |
| Mar 2005 |
| New York, NY |
| 1900 |
|
| 36 |
|
|
| 8,495 |
|
|
| 1,866 |
|
|
| 3,132 |
|
|
| 8,495 |
|
|
| 4,998 |
|
|
| 13,493 |
|
|
| (3,166 | ) |
|
| 10,327 |
|
|
| 5,438 |
|
240 West 73rd Street |
| High Rise |
| Sep 2004 |
| New York, NY |
| 1900 |
|
| 200 |
|
|
| 68,109 |
|
|
| 12,140 |
|
|
| 14,048 |
|
|
| 68,109 |
|
|
| 26,188 |
|
|
| 94,297 |
|
|
| (10,715 | ) |
|
| 83,582 |
|
|
| — |
|
311 & 313 East 73rd Street |
| Mid Rise |
| Mar 2003 |
| New York, NY |
| 1904 |
|
| 34 |
|
|
| 5,678 |
|
|
| 1,609 |
|
|
| 598 |
|
|
| 5,678 |
|
|
| 2,207 |
|
|
| 7,885 |
|
|
| (1,625 | ) |
|
| 6,260 |
|
|
| — |
|
464-466 Amsterdam & 200-210 W. 83rd Street |
| Mid Rise |
| Feb 2007 |
| New York, NY |
| 1910 |
|
| 71 |
|
|
| 25,553 |
|
|
| 7,101 |
|
|
| 9,153 |
|
|
| 25,553 |
|
|
| 16,254 |
|
|
| 41,807 |
|
|
| (6,396 | ) |
|
| 35,411 |
|
|
| 20,094 |
|
518 East 88th Street |
| Mid Rise |
| Jan 2014 |
| New York, NY |
| 1900 |
|
| 20 |
|
|
| 2,233 |
|
|
| 4,315 |
|
|
| 625 |
|
|
| 2,233 |
|
|
| 4,940 |
|
|
| 7,173 |
|
|
| (1,388 | ) |
|
| 5,785 |
|
|
| — |
|
Columbus Avenue |
| Mid Rise |
| Sep 2003 |
| New York, NY |
| 1880 |
|
| 59 |
|
|
| 35,527 |
|
|
| 9,450 |
|
|
| 9,327 |
|
|
| 35,527 |
|
|
| 18,777 |
|
|
| 54,304 |
|
|
| (12,118 | ) |
|
| 42,186 |
|
|
| 24,608 |
|
Heritage Park Escondido |
| Garden |
| Oct 2000 |
| Escondido, CA |
| 1986 |
|
| 196 |
|
|
| 1,055 |
|
|
| 7,565 |
|
|
| 2,945 |
|
|
| 1,055 |
|
|
| 10,510 |
|
|
| 11,565 |
|
|
| (7,188 | ) |
|
| 4,377 |
|
|
| 5,867 |
|
Heritage Park Livermore |
| Garden |
| Oct 2000 |
| Livermore, CA |
| 1988 |
|
| 167 |
|
|
| — |
|
|
| 10,209 |
|
|
| 2,111 |
|
|
| — |
|
|
| 12,320 |
|
|
| 12,320 |
|
|
| (8,576 | ) |
|
| 3,744 |
|
|
| 6,090 |
|
Heritage Village Anaheim |
| Garden |
| Oct 2000 |
| Anaheim, CA |
| 1986 |
|
| 196 |
|
|
| 1,832 |
|
|
| 8,541 |
|
|
| 2,332 |
|
|
| 1,832 |
|
|
| 10,873 |
|
|
| 12,705 |
|
|
| (7,339 | ) |
|
| 5,366 |
|
|
| 7,124 |
|
Mezzo |
| High Rise |
| Mar 2015 |
| Atlanta, GA |
| 2008 |
|
| 94 |
|
|
| 4,292 |
|
|
| 34,178 |
|
|
| 1,817 |
|
|
| 4,292 |
|
|
| 35,995 |
|
|
| 40,287 |
|
|
| (6,918 | ) |
|
| 33,369 |
|
|
| 22,970 |
|
St. George Villas |
| Garden |
| Jan 2006 |
| St. George, SC |
| 1984 |
|
| 40 |
|
|
| 107 |
|
|
| 1,025 |
|
|
| 419 |
|
|
| 107 |
|
|
| 1,444 |
|
|
| 1,551 |
|
|
| (1,290 | ) |
|
| 261 |
|
|
| 293 |
|
Tremont |
| Mid Rise |
| Dec 2014 |
| Atlanta, GA |
| 2009 |
|
| 78 |
|
|
| 5,274 |
|
|
| 18,011 |
|
|
| 3,069 |
|
|
| 5,274 |
|
|
| 21,080 |
|
|
| 26,354 |
|
|
| (4,028 | ) |
|
| 22,326 |
|
|
| — |
|
Other (7) |
|
|
|
|
|
|
|
|
|
| — |
|
|
| 205 |
|
|
| — |
|
|
| 382 |
|
|
| 205 |
|
|
| 382 |
|
|
| 587 |
|
|
| — |
|
|
| 587 |
|
|
| — |
|
Total Other Real Estate |
|
|
|
|
|
|
|
|
|
| 1,315 |
|
| $ | 341,516 |
|
| $ | 281,186 |
|
| $ | 70,610 |
|
| $ | 341,516 |
|
| $ | 351,796 |
|
| $ | 693,312 |
|
| $ | (89,488 | ) |
| $ | 603,824 |
|
| $ | 106,119 |
|
Total Portfolio |
|
|
|
|
|
|
|
|
|
| 32,697 |
|
| $ | 1,958,523 |
|
| $ | 3,562,176 |
|
| $ | 3,306,367 |
|
| $ | 1,869,048 |
|
| $ | 6,868,543 |
|
| $ | 8,737,591 |
|
| $ | (2,718,284 | ) |
| $ | 6,019,307 |
|
| $ | 4,251,339 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-41
APARTMENT INVESTMENT AND MANAGEMENT COMPANY
AIMCO PROPERTIES, L.P.
SCHEDULE III: REAL ESTATE AND ACCUMULATED DEPRECIATION
For the Years Ended December 31, 2019, 2018, and 2017
(In Thousands)
|
| 2019 |
|
| 2018 |
|
| 2017 |
| |||
Total real estate balance at beginning of year |
| $ | 8,308,590 |
|
| $ | 8,478,877 |
|
| $ | 8,486,166 |
|
Additions during the year: |
|
|
|
|
|
|
|
|
|
|
|
|
Acquisitions |
|
| 383,557 |
|
|
| 501,009 |
|
|
| 16,687 |
|
Capital additions |
|
| 404,896 |
|
|
| 348,727 |
|
|
| 354,229 |
|
Dispositions and other |
|
| (359,452 | ) |
|
| (1,020,023 | ) |
|
| (378,205 | ) |
Total real estate balance at end of year |
| $ | 8,737,591 |
|
| $ | 8,308,590 |
|
| $ | 8,478,877 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated depreciation balance at beginning of year |
| $ | 2,585,115 |
|
| $ | 2,848,609 |
|
| $ | 2,730,758 |
|
Depreciation |
|
| 358,661 |
|
|
| 354,208 |
|
|
| 344,960 |
|
Dispositions and other |
|
| (225,492 | ) |
|
| (617,702 | ) |
|
| (227,109 | ) |
Accumulated depreciation balance at end of year |
| $ | 2,718,284 |
|
| $ | 2,585,115 |
|
| $ | 2,848,609 |
|
F-42