EX-99.1 2 filename2.htm EX-99.1
Table of Contents

Confidential Treatment Requested by Aimco-LP, Inc.

Pursuant to 17 C.F.R. Section 200.83

 

Exhibit 99.1

Preliminary and Subject to Completion, dated September 30, 2020

            , 2020

Dear Stockholder of Apartment Investment and Management Company and Future Stockholder of Apartment Income REIT:

We are pleased to inform you that the board of directors of Apartment Investment and Management Company (“Aimco”) has announced a plan to spin off its redevelopment and development business and portfolio (which represents less than 10% of Aimco’s existing gross asset value (the estimated fair value), or “GAV”). The spin-off will result in two, focused and independent companies: (i) Aimco-LP, Inc. (which is expected to be renamed Apartment Income REIT, and to be traded on the NYSE under the ticker symbol “            ,” “AIR”), a self-managed real estate investment trust which is expected to provide a simple and transparent way to invest in the multi-family sector: ownership with public market liquidity of a diversified portfolio of apartment communities, with low financial leverage, limited execution risk, best-in-class operations, and sector low management costs; and (ii) Aimco, which is expected to own the growing business of development and redeveloping apartment communities while also pursuing other accretive transactions. With strong, independent boards, dedicated management teams, expanded growth and investment opportunities, and optimized balance sheets, Aimco’s board of directors believes that AIR and Aimco will create greater value separately than as a combined entity. The spin-off will provide investors with the option to choose whether to invest in Aimco’s stabilized multifamily portfolio (through an investment in AIR), its redevelopment and development and transactions business (through an investment in Aimco), or both.

AIR’s business plan will be to: (i) own a diversified portfolio of stabilized properties; (ii) maintain a high quality portfolio with strong property management operations; (iii) maintain a strong balance sheet; (iv) reduce execution risk; and (v) operate with sector low management costs.

Aimco’s business plan will be to: (i) focus on redevelopment and development projects on assets leased from AIR as well as opportunities Aimco sources itself (such as the right to develop multi-family properties, co-located with commercial life science uses to be built by a premier life sciences real estate developer); (ii) undertake complex transactions when warranted by risk-adjusted returns; (iii) maintain sufficient liquidity to support our business model; and (iv) use financial leverage to increase return on equity.

Following the completion of the spin-off, AIR’s portfolio is expected to include 98 stabilized apartment communities, diversified by both geography and price point, with 26,599 apartment homes, including North Tower at Flamingo Point, The Fremont on the Anschutz Medical Campus, Prism in Cambridge, Massachusetts, Eldridge Townhomes in Elmhurst, Illinois, and 707 Leahy Apartments in Redwood City, California (collectively, the “Initial Leased Properties”), which are in-process redevelopment or development properties that we will lease to Aimco following the spin-off. Under the terms of the leases, Aimco will agree to use commercially reasonable efforts to diligently complete the on-going redevelopment and development projects and their lease-ups. Collectively, AIR’s assets have an estimated GAV of $10.4 billion, and an estimated Net Asset Value, or “NAV” (as defined in the enclosed information statement), of $7.8 billion, as of March 31, 2020.

Aimco will own the redevelopment and development business and a portfolio of assets that is expected to consist of 11 stabilized multi-family properties, primarily located in the Boston and San Diego areas, to provide cash flows to help meet its on-going liquidity needs, as well as four other investments, which are: Aimco’s loan to, and equity option in, the partnership owning Parkmerced Apartments located in southwest San Francisco, California; Hamilton on the Bay, a multi-family property located on the waterfront in Miami, Florida with 271 apartment homes as well as the land and zoning to construct 389 additional apartment homes; 1001 Brickell Bay Tower, a 350,000 square foot office building located in Miami, Florida; and the Yacht Club property adjacent to 1001 Brickell. Collectively, Aimco’s assets have an estimated GAV of $1.3 billion, and an estimated NAV of $1.2 billion, as of March 31, 2020 (in each case, without giving effect to the value of the Initial Leased Properties

 

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Confidential Treatment Requested by Aimco-LP, Inc.

Pursuant to 17 C.F.R. Section 200.83

 

or the Non-Core Assets (as defined below)). Aimco is also expected to own a separate portfolio of 16 non-core assets (the “Non-Core Assets”) with an estimated GAV of $0.9 billion, securing property debt of approximately $0.2 billion and a note payable to AIR of approximately $0.5 billion.

In connection with the spin-off, AIR will retain substantially all of Aimco’s existing employees (including Aimco’s existing property management employees), and Aimco will employ approximately              of Aimco’s existing employees. I will serve as AIR’s Chairman and Chief Executive Officer, supported by an experienced executive team dedicated to AIR, including Lisa Cohn, as President and General Counsel, Keith Kimmel, as President, Property Management, Paul Beldin, as Chief Financial Officer, and Conor Wagner, as Chief Investment Officer. I will also serve as Aimco’s Executive Chairman. In addition, I will serve as Aimco’s interim Chief Executive Officer. AIR will provide Aimco with property management services and limited administrative and support services.

We believe that the spin-off and associated transactions will provide a number of benefits to Aimco and AIR. We believe that expected benefits to AIR include:

 

   

Simplicity: A simplified business focused solely on the ownership and active management of stabilized apartment communities;

 

   

Transparency: A business that is more readily understood by investors;

 

   

Predictability: A business that is more predictable due to strong operations and reduced exposure to the execution risk of redevelopment and development;

 

   

Low Leverage: A strong balance sheet with leverage at peer averages and expected lowest cost of leverage, with AIR having the opportunity to issue corporate level debt when its cost is lower than that of non-recourse property debt;

 

   

Higher Operating Income: Funds From Operations (“FFO”) is expected to be increased by (i) the elimination of earnings dilution from properties with reduced or no earnings during their development, redevelopment, or lease-up, and (ii) low management costs (expected to be less than 15 bps of GAV) due to the elimination of overhead costs related to redevelopment and development activities;

 

   

Growth: The expanded opportunity set available to Aimco increases the value of AIR’s option to purchase stabilized properties held by Aimco and AIR will also look to grow through the acquisition of stabilized apartment communities;

 

   

Refreshed Tax Basis: A refreshed tax basis reduces the tax costs of future property sales and so enhances portfolio management, and makes cash dividends more likely to be a return of capital or capital gains for tax purposes, increasing their after-tax value for taxable investors;

 

   

Dividends: Higher FFO supporting higher dividends, with FFO made more predictable due to reduced exposure to redevelopment and development and lower leverage, supporting a higher payout ratio; and

 

   

Independence: AIR, with an independent board of directors and independent management, will be independent of Aimco, with incentives to exercise options that are favorable to AIR and with no obligation to Aimco other than under the terms of the shared services agreements, the leases to Aimco in place at the consummation of the spin-off, Aimco’s right of first refusal to develop or redevelop AIR properties, and the other agreements entered into in order to effect the spin-off.

We believe that expected benefits to Aimco include:

 

   

Opportunity: A pipeline of redevelopment and development opportunities including (i) those which may be sourced from AIR, (ii) a right to develop multi-family properties, co-located with commercial life science uses to be built by a premier life sciences real estate developer, and (iii) the opportunity to pursue real estate opportunities in partnership with AIR

 

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Confidential Treatment Requested by Aimco-LP, Inc.

Pursuant to 17 C.F.R. Section 200.83

 

   

Investment Flexibility: A broader menu of investment choices, now eschewed by AIR that includes transactions that are short-term dilutive, longer-term, more complicated, better measured by NAV creation than FFO, or that involve more non-recourse leverage and which may result in higher investment returns; and

 

   

Independence: Aimco, with an independent board of directors and independent management, will be independent of AIR, with incentives to exercise options that are favorable to Aimco and with no obligation to AIR other than under the terms of the shared services agreements, the leases from AIR in place at the consummation of the spin-off, AIR’s option to purchase stabilized assets from Aimco, and the other agreements entered into in order to effect the spin-off.

In addition, Aimco’s board of directors believes there are potential benefits to both AIR and Aimco from the opportunities to work together in the future when it is in their interests.

The spin-off will be completed through a pro rata distribution of all of the outstanding shares of AIR common stock to Aimco stockholders of record as of the close of business on                  , 2020, the record date for the spin-off. Each Aimco stockholder will receive one share of AIR common stock for each one share of Aimco common stock held as of the close of business on the record date. Immediately prior to such distribution by Aimco, AIMCO Properties, L.P. (which is expected to be renamed Apartment Income REIT, L.P., “AIR OP”) will complete a pro rata distribution of all of the outstanding common limited partnership units of New OP to holders of record of AIR OP common units and common unit equivalents as of the close of business on the record date. The number of shares of Aimco common stock you own will not change as a result of the spin-off. Aimco common stock will continue to be traded on the NYSE after the spin-off under the ticker symbol “AIV.” AIR intends to apply to list its common stock on the NYSE under the symbol “                 .”

If you hold shares of Aimco common stock as of the close of business on the record date for the spin-off, upon completion of the spin-off, you will hold your Aimco common stock and you also will hold AIR common stock.

As more specifically described in the enclosed information statement, the distribution of AIR common stock is intended to be a taxable spin-off. An amount equal to the fair market value of the AIR common stock each stockholder receives on the distribution date (plus any cash in lieu of fractional shares of AIR common stock) will generally be treated as a taxable dividend to the extent of such stockholder’s ratable share of any current or accumulated earnings and profits of Aimco. The excess will be treated as a non-taxable return of capital to the extent of such stockholder’s tax basis in its Aimco common stock and any remaining excess will be treated as capital gain.

No vote of Aimco’s stockholders is required or being sought in connection with the spin-off. Therefore, we are not asking you for a proxy, and you are requested not to send us a proxy. You do not need to make any payment, surrender or exchange your Aimco common stock or take any other action to receive your shares of AIR common stock.

The enclosed information statement, which is being made available to all Aimco stockholders, describes the transactions in detail and contains important information about AIR and AIR OP and their business after the completion of the spin-off. We urge you to read the information statement in its entirety.

We want to thank you for your continued support of Aimco, and we look forward to your support of AIR and AIR OP in the future.

Sincerely,

Terry Considine

Chairman of the Board and

Chief Executive Officer

 

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Confidential Treatment Requested by Aimco-LP, Inc.

Pursuant to 17 C.F.R. Section 200.83

 

Information contained herein is subject to completion or amendment. A Registration Statement on Form 10 relating to these securities has been filed with the U.S. Securities and Exchange Commission under the U.S. Securities Exchange Act of 1934, as amended.

 

PRELIMINARY AND SUBJECT TO COMPLETION, DATED SEPTEMBER 30, 2020

INFORMATION STATEMENT

AIMCO-LP, INC.

Common Stock

(Par Value $0.01 Per Share)

This information statement is being furnished in connection with (i) the pro rata distribution (the “Spin-Off”) by Apartment Investment and Management Company (“Aimco”) to its stockholders of all of the outstanding shares of Class A common stock of Aimco-LP, Inc. (“AIR Common Stock”), a Maryland corporation wholly owned by Aimco (“AIR”), and (ii) the pro rata distribution by AIMCO Properties, L.P. (“AIR OP”), the operating partnership of Aimco, to the holders of AIR OP common limited partnership units (including AIR) and the holders of AIR OP Class I High Performance partnership units (the common limited partnership units and Class I High Performance partnership units, collectively, “AIR OP Common Units”), of all of the outstanding common limited partnership units of Durango OP, LP (“New OP Units”), a new Delaware limited partnership owned by AIR OP and formed to hold the businesses and portfolio of assets described below (“New OP”). Immediately prior to the Spin-Off, AIR will issue $2 million in Class A preferred stock of AIR (the “Class A Preferred Stock”) to Aimco, subject to a binding commitment to sell such Class A Preferred Stock to an unrelated third party.

If you hold shares of common stock of Aimco (“Aimco Common Stock”) as of the close of business on the record date, upon completion of the Spin-Off, you will hold shares of Aimco Common Stock and AIR Common Stock.

The spin-off of Aimco’s redevelopment and development business and portfolio (which represents less than 10% of Aimco’s existing gross asset value (the estimated fair value), or “GAV”) will result in two, focused and

independent, publicly traded companies: (i) AIR, a self-managed REIT (as defined below) which is expected to

provide a simple and transparent way to invest in the multi-family sector: ownership with public market liquidity of a diversified portfolio of apartment communities, with low financial leverage, limited execution risk, best-in-class operations, and sector low management costs; and (ii) Aimco, which is expected to own the growing business of development and redeveloping apartment communities while also pursuing other accretive transactions. With strong, independent boards, dedicated management teams, expanded growth and investment opportunities, and optimized balance sheets, Aimco’s board of directors believes that AIR and Aimco will create greater value separately than as a combined entity.

Following the completion of the Spin-Off, AIR’s portfolio is expected to include 98 stabilized apartment communities, diversified by both geography and price point, with 26,599 apartment homes, including North Tower at Flamingo Point, The Fremont on the Anschutz Medical Campus, Prism in Cambridge, Massachusetts, Eldridge Townhomes in Elmhurst, Illinois, and 707 Leahy Apartments in Redwood City, California (collectively, the “Initial Leased Properties”), which are in-process redevelopment or development properties that we will lease to Aimco following the Spin-Off. Under the terms of the leases, Aimco will agree to use commercially reasonable efforts to diligently complete the on-going redevelopment and development projects and their lease-ups. Aimco will have the option, but not an obligation, to terminate any of the leases for these properties once they reach and maintain stabilization, and receive payment for the redevelopment or development-related improvements, either at a 5% discount to the then-current fair market value of the development and redevelopment improvements if AIR exercises an option to pay such fee, or through a sale of the property to a third party (by AIR and Aimco), with AIR guaranteed to receive an amount attributable to the fair market value of the property at the time of lease inception and Aimco retaining any excess proceeds. In the event of such sale of the property, Aimco may also elect to purchase the property at a purchase price equal to the fair market value thereof at the time of lease inception. Collectively, AIR’s assets have an estimated gross asset value (the estimated fair value), or “GAV,” of $10.4 billion, and an estimated Net Asset Value, or “NAV” (as defined below), of $7.8 billion, as of March 31, 2020.

 

 

 


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Confidential Treatment Requested by Aimco-LP, Inc.

Pursuant to 17 C.F.R. Section 200.83

 

Aimco will own the redevelopment and development business and a portfolio of assets that is expected to consist of 11 stabilized multi-family properties, primarily located in the Boston and San Diego areas, to provide cash flows to help meet its on-going liquidity needs, as well as four other investments, which are Aimco’s loan to, and equity option in, the partnership owning Parkmerced Apartments located in southwest San Francisco, California (the “Parkmerced Loan”); Hamilton on the Bay, a multi-family property located on the waterfront in Miami, Florida with 271 apartment homes as well as the land and zoning to construct 389 additional apartment homes; 1001 Brickell Bay Tower, a 350,000 square foot office building located in Miami, Florida; and the Yacht Club property adjacent to 1001 Brickell. Collectively, Aimco’s assets have an estimated GAV of $1.3 billion, and an estimated NAV of $1.2 billion, as of March 31, 2020 (in each case, without giving effect to the value of the Initial Leased Properties or the Non-Core Assets (as defined below)). Aimco is also expected to own a separate portfolio of 16 non-core assets (the “Non-Core Assets”) with an estimated GAV of $0.9 billion, securing property debt of approximately $0.2 billion and a note payable to AIR of approximately $0.5 billion.

In connection with the Spin-Off, AIR will retain substantially all of Aimco’s existing employees (including Aimco’s existing property management employees), and Aimco will employ approximately              of Aimco’s existing employees. Terry Considine will serve as AIR’s Chairman and Chief Executive Officer, supported by an experienced executive team dedicated to AIR, including Lisa Cohn, as President and General Counsel, Keith Kimmel, as President, Property Management, Paul Beldin, as Chief Financial Officer, and Conor Wagner, as Chief Investment Officer. Mr. Considine will also serve as Aimco’s Executive Chairman. In addition, Mr. Considine will serve as Aimco’s interim Chief Executive Officer. AIR will provide Aimco with property management services and limited administrative and support services.

Each Aimco common stockholder will receive one share of AIR Common Stock for each one share of Aimco Common Stock held of record by such stockholder as of the close of business on                  , 2020 (the “record date”). You will receive cash in lieu of any fractional shares of AIR Common Stock which you would have otherwise received. The date on which the shares of AIR Common Stock will be distributed to you (the “distribution date”) is expected to be                 , 2020. After the Spin-Off is completed, AIR will be an independent, publicly traded company, and the outstanding AIR Common Stock is expected to be owned 100% by Aimco common stockholders.

No vote of Aimco’s stockholders is required or being sought in connection with the Spin-Off. Therefore, we are not asking you for a proxy, and you are requested not to send us a proxy. You will not be required to make any payment, surrender or exchange your Aimco Common Stock or take any other action to receive your shares of AIR Common Stock in connection with the Spin-Off.

In connection with the Spin-Off and related transactions, AIR is expected to be renamed Apartment Income REIT, AIR OP is expected to be renamed Apartment Income REIT, L.P., and New OP is expected to be renamed.

There is no current trading market for AIR Common Stock. We anticipate that a limited market, commonly known as a “when-distributed” trading market, will develop at some point following the record date and prior to the distribution, and that “regular-way” trading in shares of AIR Common Stock will begin on the first trading day following the distribution. If trading begins on a “when-distributed” basis, you may purchase or sell shares of AIR Common Stock up to and including the distribution date, but your transaction will not settle until after the distribution date. AIR intends to apply to list AIR Common Stock on the NYSE under the symbol “            .” As discussed under “The Spin-Off—Listing and Trading of AIR Common Stock,” if you sell your Aimco Common Stock in the “due-bills” market after the record date and before the distribution date, you will also be selling your right to receive shares of AIR Common Stock in connection with the Spin-Off. However, if you sell your Aimco Common Stock in the “ex-distribution” market after the record date and before the distribution date, you will still receive shares of AIR Common Stock in the Spin-Off.

 

 

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Confidential Treatment Requested by Aimco-LP, Inc.

Pursuant to 17 C.F.R. Section 200.83

 

Aimco Common Stock will continue to be traded on the New York Stock Exchange (“NYSE”) after the

Spin-Off under the ticker symbol “AIV.”

AIR will elect to be subject to tax as a real estate investment trust for U.S. federal income tax purposes (“REIT”) commencing with its initial taxable year ending December 31, 2020. To assist AIR in qualifying as a REIT, among other purposes, AIR’s charter will contain certain restrictions limiting ownership of AIR Common Stock by any single stockholder (applying certain “beneficial ownership” rules under the federal securities laws) up to 8.7% (or up to 12.0% upon a waiver from the board of directors of AIR) of outstanding shares of AIR Common Stock, or 15% in the case of certain pension trusts and registered investment companies (or up to 20.0% for such pension trusts or registered investment companies upon a waiver from the board of directors of AIR). The charter will also prohibit anyone from buying shares of AIR’s capital stock if the purchase would result in AIR failing to qualify as a REIT. This could happen if a transaction results in five or fewer individuals (applying certain attribution rules under the Internal Revenue Code of 1986, as amended (the “Code”)) owning 50% or more of the value of all of AIR’s shares of capital stock or fewer individuals (applying certain attribution rules under the Internal Revenue Code of 1986, as amended (the “Code”)) owning 50% or more of the value of all of AIR’s shares of capital stock. See “Description of AIR’s Capital Stock—Restrictions on Transfer and Ownership of AIR Stock.”

AIR is an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”), and, as such, is allowed to provide in this information statement more limited disclosures than an issuer that would not so qualify. Although AIR may choose to take advantage of certain limited exceptions from investor protection laws such as the Sarbanes-Oxley Act of 2002, as amended (the “Sarbanes-Oxley Act”), and the Investor Protection and Securities Reform Act of 2010, for so long as AIR remains an emerging growth company, AIR does not intend to take advantage of these exceptions after the effectiveness of the registration statement of which this information statement is a part. See “Summary—Emerging Growth Company Status.”

In reviewing this information statement, you should carefully consider the matters described under “Risk Factors ” beginning on page 30.

Neither the Securities and Exchange Commission (the “SEC”) nor any state securities commission has approved or disapproved these securities or determined if this information statement is truthful or complete. Any representation to the contrary is a criminal offense.

This information statement does not constitute an offer to sell or the solicitation of an offer to buy any securities.

This information statement is being mailed to Aimco common stockholders beginning on or about              , 2020.

The date of this information statement is              , 2020.

 

 

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Confidential Treatment Requested by Aimco-LP, Inc.

Pursuant to 17 C.F.R. Section 200.83

 

TRADEMARKS AND SERVICE MARKS

Aimco and its subsidiaries own or have rights to various trademarks, logos, service marks, and trade names that each entity uses in connection with the operation of its business. Aimco and its subsidiaries also own or have the rights to copyrights that protect the content of their respective products. Solely for convenience, the trademarks, service marks, trade names, and copyrights referred to in this prospectus are listed without the , ®, and © symbols, but such references do not constitute a waiver of any rights that might be associated with the respective trademarks, service marks, trade names, and copyrights included or referred to in this information statement.

 


Table of Contents

Confidential Treatment Requested by Aimco-LP, Inc.

Pursuant to 17 C.F.R. Section 200.83

 

TABLE OF CONTENTS

 

SUMMARY

     1  

SUMMARY HISTORICAL CONSOLIDATED AND UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL DATA

     27  

RISK FACTORS

     30  

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

     48  

THE SPIN-OFF

     50  

DIVIDEND POLICY

     68  

DESCRIPTION OF FINANCING AND MATERIAL INDEBTEDNESS

     69  

CAPITALIZATION

     70  

UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS

     71  

SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA

     80  

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

     81  

BUSINESS AND PROPERTIES

     134  

MANAGEMENT

     146  

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     156  

CERTAIN RELATIONSHIPS AND RELATED PERSON TRANSACTIONS

     158  

OUR RELATIONSHIP WITH AIMCO FOLLOWING THE SPIN-OFF

     159  

DESCRIPTION OF AIR’S CAPITAL STOCK

     163  

DESCRIPTION OF AIR OP PARTNERSHIP UNITS AND SUMMARY OF AIR OP PARTNERSHIP AGREEMENT

     173  

U.S. FEDERAL INCOME TAX CONSIDERATIONS

     183  

WHERE YOU CAN FIND MORE INFORMATION

     202  

INDEX TO FINANCIAL STATEMENTS

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Table of Contents

Confidential Treatment Requested by Aimco-LP, Inc.

Pursuant to 17 C.F.R. Section 200.83

 

SUMMARY

The following is a summary of material information included in this information statement. This summary may not contain all of the details concerning the Spin-Off or other information that may be important to you. To better understand the Spin-Off and AIR’s business, you should carefully review this entire information statement.

Unless otherwise indicated or the context otherwise requires, any references in this information statement to: (i) “we,” “our,” “us,” the “Company” and “AIR” refer collectively to AIR, AIR OP, and their consolidated subsidiaries; (ii) “Aimco” refers collectively to Aimco, New OP and their consolidated subsidiaries (other than AIR, AIR OP, and their consolidated subsidiaries after the Spin-Off); and (iii) our “charter” refers to AIR’s amended and restated charter that will govern the rights of holders of AIR Common Stock upon the consummation of the Spin-Off.

This information statement has been prepared on a prospective basis on the assumption that, among other things, the Spin-Off will be consummated as contemplated by this information statement. There can be no assurance, however, that the Spin-Off will occur or will occur as so contemplated.

You should not assume that the information contained in this information statement is accurate as of any date other than the date set forth on the cover or as of any earlier date as of which such information is given, as applicable. Changes to the information contained in this information statement may occur after that date, and we undertake no obligation to update the information, except in the normal course of our public disclosure obligations as required by applicable law. In particular, a number of matters contained in this information statement relate to agreements or arrangements that have not yet been finalized and expectations of what may occur. Prior to the completion of the Spin-Off, it is possible that these agreements, arrangements, and expectations may change.

Our Company

The board of directors of Aimco has announced a plan to spin off its redevelopment and development business and portfolio (which represents less than 10% of Aimco’s existing GAV). The Spin-Off will result in two, focused and independent companies: (i) AIR, a self-managed REIT which is expected to provide a simple and transparent way to invest in the multi-family sector: ownership with public market liquidity of a diversified portfolio of apartment communities, with low financial leverage, limited execution risk, best-in-class operations, and sector low management costs; and (ii) Aimco, which is expected to own the growing business of development and redeveloping apartment communities while also pursuing other accretive transactions.

Each of AIR and Aimco will have its own distinctive focus. AIR’s business plan will be to: (i) own a diversified portfolio of stabilized properties; (ii) maintain a high quality portfolio with strong property management operations; (iii) maintain a strong balance sheet; (iv) reduce execution risk; and (v) operate with sector low management costs. We believe that AIR’s simplified business, focused on the ownership and active management of a diversified portfolio of stabilized apartment communities, will be more readily understood by investors and will be more predictable as a result of strong operations and reduced exposure to the execution risk of redevelopment and development. We intend for AIR to have a strong balance sheet with leverage at peer averages and expected lowest cost of leverage. AIR may issue corporate level debt when its cost is lower than that of non-recourse property debt. We further expect that AIR’s Funds From Operations (“FFO”) will increase and be more predictable, supporting higher dividends, as a result of the elimination of earnings dilution from properties with reduced or no earnings during their development, redevelopment or lease-up, lower management costs due to the elimination of overhead costs related to redevelopment and development activities, and lower leverage. The board of directors of Aimco believes there are potential benefits to both AIR and Aimco from the opportunities to work together in the future when it is in their interests.



 

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Confidential Treatment Requested by Aimco-LP, Inc.

Pursuant to 17 C.F.R. Section 200.83

 

In connection with the consummation of the Spin-Off and related transactions, AIR is expected to be renamed Apartment Income REIT, AIR OP is expected to be renamed             , and New OP is expected to be renamed             .

In addition, in connection with the Spin-Off, AIR will retain substantially all of Aimco’s existing employees (including Aimco’s existing property management employees), and Aimco will employ approximately              of Aimco’s existing employees. Terry Considine will serve as AIR’s Chairman and Chief Executive Officer, supported by an experienced executive team dedicated to AIR, including Lisa Cohn, as President and General Counsel, Keith Kimmel, as President, Property Management, Paul Beldin, as Chief Financial Officer, and Conor Wagner, as Chief Investment Officer. Mr. Considine will also serve as Aimco’s Executive Chairman. In addition, Mr. Considine will serve as Aimco’s interim Chief Executive Officer. AIR will provide Aimco with property management services and limited administrative and support services. AIR, directly and through subsidiaries in which it owns all of the outstanding common equity, will be the general and special limited partner of AIR OP. AIR OP will hold substantially all of AIR’s assets and manage the daily operations of AIR’s business directly and indirectly through certain subsidiaries.

Following the completion of the Spin-Off, AIR’s portfolio is expected to include 98 stabilized apartment communities, diversified by both geography and price point, with 26,599 apartment homes, including the Initial Leased Properties. Following the Spin-Off, AIR will lease to Aimco each Initial Leased Property pursuant to leases entered into in accordance with the Master Leasing Agreement (as defined below), each of which is an in-process redevelopment, development or lease-up property. We will also continue to own, and may acquire in the future, certain properties that have potential for redevelopment or development in the future. We may lease these properties to Aimco for redevelopment, development, or lease up in accordance with the terms of the Master Leasing Agreement. Under the terms of the leases, Aimco will agree to use commercially reasonable efforts to diligently complete the on-going redevelopment and development projects and their lease-ups. Aimco will have the option, but not an obligation, to terminate any of the leases for these properties once they reach and maintain stabilization, and receive payment for the redevelopment or development-related improvements, either at a 5% discount to the then-current fair market value of the development and redevelopment improvements if AIR exercises an option to pay such fee, or through a sale of the property to a third party (by AIR and Aimco), with AIR guaranteed to receive an amount attributable to the fair market value of the property at the time of lease inception and Aimco retaining any excess proceeds. In the event of such sale of the property, Aimco may also elect to purchase the property at a purchase price equal to the fair market value thereof at the time of lease inception. Because of this relationship with Aimco, we may also grow the value of our portfolio through our option to purchase stabilized properties held by Aimco.

Collectively, AIR’s assets have an estimated GAV of $10.4 billion, and an estimated NAV of $7.8 billion, as of March 31, 2020.

Aimco will own the redevelopment and development business and a portfolio of assets that is expected to include: (i) Royal Crest Estates (Warwick), located in Warwick, Rhode Island; Royal Crest Estates (Marlboro), located in Marlborough, Massachusetts; Waterford Village, located in Bridgewater, Massachusetts; Wexford Village, located in Worchester, Massachusetts; and Royal Crest Estates (Nashua), located in Nashua, New Hampshire; The Bluffs at Pacifica, located in San Francisco, California; St. George Villas, located in St. George, South Carolina; Casa del Hermosa, located in San Diego, California; Casa del Sur, located in San Diego, California; Casa del Norte, located in San Diego, California; and Casa del Mar, located in San Diego, California (collectively, the “Excluded Seed Properties”), which are stabilized multi-family properties primarily located in the Boston and San Diego areas, to provide cash flows to help meet its on-going liquidity needs; and (ii) certain other investments, consisting of the loan to, and equity option in, the Parkmerced Loan; Hamilton on the Bay, a multi-family property located on the waterfront in Miami, Florida, with 271 apartment homes as well as the land and zoning to construct 389 additional apartment homes; 1001 Brickell Bay Tower, a 350,000 square foot office building located in Miami, Florida; and the Yacht Club property adjacent to 1001 Brickell.



 

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Confidential Treatment Requested by Aimco-LP, Inc.

Pursuant to 17 C.F.R. Section 200.83

 

Collectively, Aimco’s assets have an estimated GAV of $1.3 billion, and an estimated NAV of $1.2 billion, as of March 31, 2020 (in each case, without giving effect to the value of the Initial Leased Properties or the NonCore Assets).

Aimco will also own a separate portfolio of 16 Non-Core Assets with an estimated GAV of $0.9 billion, securing property debt of approximately $0.2 billion and a note payable to AIR of approximately $0.5 billion.

AIR’s expected business activities following the completion of the Spin-Off are summarized below.

Ownership of Apartment Communities and Management of Our Portfolio

We will own a portfolio of apartment communities, diversified by both geography and price point. The portfolio is expected to include 98 apartment communities with 26,599 apartment homes, including the Initial Leased Properties, in which we will hold an average ownership of approximately 93.5% measured by GAV. The portfolio is diversified across several of the largest markets in the United States and is also diversified across “A,” “B,” and “C+” price points, averaging “B” in quality. We may choose to redevelop and grow our portfolio through our relationship with Aimco, as we may lease certain properties to Aimco for development or redevelopment and lease-up, under which leases Aimco will have the option, but not the obligation, to terminate once the properties reach and maintain stabilization generally providing us an investment at a discount to the property’s then-current fair market value.

We will manage our portfolio to allocate investment capital to enhance rent growth and increase long-term capital values through routine investments in property upgrades (such as upgrading kitchens, bathrooms and other interior design aspects) portfolio design, emphasizing land value as well as location and submarket. We will 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 to better manage rental rate volatility. Our price point “A” apartment communities typically provide higher margins but have tenants with fast growing incomes that are more susceptible to competitive housing supply, while our price point “B” and “C” apartment communities typically provide lower margins but have less volatile rental rates and are less susceptible to competitive housing supply. We also plan to maintain a dynamic capital allocation and market selection process, and expect to decrease over time our investment in jurisdictions with high unfunded public liabilities and to increase our allocation to locations with lower public tax burdens, including the southeastern United States.

Our portfolio of apartment communities will be diversified across “A,” “B,” and “C+” price points, averaging “B+” in quality and will also be diversified across several of the largest markets in the United States. Our portfolio will seek to include about one-half “A” rated properties, and about one-half “B” and “C+” rated properties. We believe the diversity of price points allows us to benefit from price-point diversification over various economic and housing cycles.

As part of our portfolio strategy, we may seek to sell communities with lower expected free cash flow internal rates of return and reinvest the proceeds from such sales in accretive uses such as capital enhancements and selective acquisitions of stabilized communities with projected free cash flow internal rates of return higher than expected from the communities being sold. We will look to grow through the acquisition of stabilized apartment communities that we believe we can operate better than its previous owner. Through this disciplined approach to capital recycling, we expect to increase the quality and expected growth rate of our portfolio.

Redevelopment and Development

We do not intend to redevelop or develop apartment communities. Instead, we may choose to redevelop and grow our portfolio through our relationship with Aimco, as we may lease certain properties to Aimco for



 

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development or redevelopment and lease-up. Aimco will redevelop and develop properties for us and increase occupancy at properties that are not stabilized due to a recently completed redevelopment or development, commencing with the Initial Leased Properties. In addition, we may engage third parties to complete certain development, redevelopment or lease-up projects for us.

We expect to lease the Initial Leased Properties (and additional properties if and as may be mutually agreed between us and Aimco in the future) to Aimco pursuant to leases entered into in accordance with the Master Leasing Agreement for a percentage of then-current fair market value. Aimco will then redevelop, develop or lease-up the property with the goal of maximizing long-term value at the community. Upon completion of the redevelopment and development and lease-up, Aimco will have the option, but not an obligation, to terminate any of the leases for these properties once they reach and maintain stabilization, and receive payment for the redevelopment or development-related improvements, either at a 5% discount to the then-current fair market value of the development and redevelopment improvements if AIR exercises an option to pay such fee, or through a sale of the property to a third party (by AIR and Aimco), with AIR guaranteed to receive an amount attributable to the fair market value of the property at the time of lease inception and Aimco retaining any excess proceeds. In the event of such sale of the property, Aimco may also elect to purchase the property at a purchase price equal to the fair market value thereof at the time of lease inception. If Aimco does not exercise its right to terminate a lease, Aimco will have the option to assign the lease to a third party, subject to our consent and right of first refusal.

Aimco may also source its own opportunities and acquire other properties or portfolios from third parties that it believes can be redeveloped or developed or leased-up to become stabilized properties and seek to sell such properties to us once the redevelopment and development and lease-ups are completed. If we, subject to our discretion, agree to acquire any such properties, we will acquire such property from Aimco at a small discount to then-current fair market value. If we do not acquire such properties, Aimco will be permitted to sell such properties to third parties.

Property Management

We will also manage and operate apartment communities. In addition to managing our own properties, pursuant to the Property Management Agreement (as defined below), we initially will provide property management services and certain other property-related services to Aimco for the majority of its properties, and Aimco will generally be obligated to pay to us a property management fee based on an agreed percentage of revenue collected and such other fees as may be mutually agreed for various other services. See “Our Relationship with Aimco Following the Spin-Off.”

We will seek to continuously improve properties under our management 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. Our focus will be on customer satisfaction, resident selection and retention, revenue management and ancillary services, controlling expenses, and improving and maintaining apartment community quality. For further discussion of our focus, see “Business and Properties—Our Company—Property Management.”

In the future, we may seek to provide property management services to third parties, in addition to Aimco.

Our Management Team

In connection with the Spin-Off, AIR will retain substantially all of Aimco’s existing employees (including Aimco’s existing property management employees), and Aimco will employ approximately              of Aimco’s existing employees. Each of AIR and Aimco will have senior management teams focused on the performance of



 

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Pursuant to 17 C.F.R. Section 200.83

 

each company’s respective businesses and value-creation opportunities. We believe that the separation of the Aimco and AIR portfolios, and an experienced senior management team at each of Aimco and AIR will result in the respective businesses each receiving the senior management focus and attention required for each business to realize its potential. Our and Aimco’s senior management teams each have a collective track record of successful redevelopment and development projects, active management of real estate operations, or real estate portfolio management, all within a REIT environment.

Terry Considine will serve as AIR’s Chairman of the board of directors and Chief Executive Officer and as Aimco’s Executive Chairman (and interim Chief Executive Officer, and he will be responsible for ensuring that Aimco and AIR work together collaboratively for their mutual benefit. Mr. Considine will recuse himself from voting as a member of either board of directors during the approval or disapproval of any transactions between the two companies.

In addition, we will have a board of directors that meets the NYSE independence requirements, including being comprised of a majority of independent directors.

REIT Status

We will elect to be treated as a REIT for U.S. federal income tax purposes commencing with our initial taxable year ending December 31, 2020. To maintain REIT status, we must meet a number of organizational and operational requirements, including a requirement that we annually distribute to our stockholders at least 90% of our “real estate investment trust taxable income,” which is generally equivalent to net taxable ordinary income (and may be all cash or a combination of cash and stock satisfying the requirements of applicable law). See “U.S. Federal Income Tax Considerations.”

Overview of the Spin-Off

The board of directors of Aimco has announced a plan to spin off its redevelopment and development business and portfolio (which represents less than 10% of Aimco’s existing GAV). The Spin-Off will result in two, focused and independent companies:

 

   

AIR, a self-managed real estate investment trust which is expected to provide a simple and transparent way to invest in the multi-family sector: ownership with public market liquidity of a diversified portfolio of apartment communities, with low financial leverage, limited execution risk, best-in-class operations, and sector low management costs; and

 

   

Aimco, which is expected to own the growing business of development and redeveloping apartment communities while also pursuing other accretive transactions.

Upon the completion of the Spin-Off, AIR will own, through subsidiaries in which it will own all of the common equity, the general partner interest, and special limited partner interest in AIR OP, which will also have minority third party limited partners, and Aimco will own, directly and through subsidiaries in which it will own all of the common equity, the general partnership interest and special limited partnership interest in New OP, which will also have minority third party limited partners.

Immediately prior to the distribution of New OP Units, New OP will receive, by contribution from AIR OP, certain properties, assets, and liabilities related to the Aimco business in exchange for New OP Units. Following such contribution by AIR OP, on the distribution date, AIR OP will distribute its New OP Units to holders of AIR OP Common Units, including AIR and AIMCO-GP, Inc., a Delaware corporation and the general partner of AIR OP (“AIR OP GP”) (with AIR and AIR OP GP further distributing their New OP Units to Aimco), on a pro rata basis.



 

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Confidential Treatment Requested by Aimco-LP, Inc.

Pursuant to 17 C.F.R. Section 200.83

 

AIR will contribute a portion of its interests in AIR OP and all of its interests in AIR OP GP to two newly formed subsidiary REITs in a taxable transaction in exchange for common and preferred stock in each REIT. Aimco will then distribute on a pro rata basis to all holders of Aimco Common Stock the AIR Common Stock.

On the distribution date, each Aimco common stockholder will receive from Aimco one share of AIR Common Stock for each one share of Aimco Common Stock held as of the close of business on the record date. You will not be required to make any payment, or surrender or exchange your Aimco Common Stock, or take any other action to receive your AIR Common Stock in connection with the Spin-Off. Following such distribution by Aimco, Aimco and AIR will be two, focused and independent, publicly traded companies.

The following transactions also have occurred, or are expected to occur concurrently with, prior to or immediately following the completion of the Spin-Off (collectively, the “Restructuring”):

 

   

Durango GP, LLC (which is expected to be renamed             , “New OP GP”) was formed as a Delaware limited liability company on August 11, 2020 with Aimco as its initial member. New OP was formed as a Delaware limited partnership on August 11, 2020, with AIR OP its sole initial limited partner and New OP GP as its initial general partner.

 

   

AIR OP’s limited partnership agreement is expected (subject to receipt of the requisite approval of AIR OP’s unitholders) to be amended to provide, among other things, that all redemption and exchange rights related to the units of AIR OP will be denominated in AIR Common Stock rather than Aimco Common Stock if the Spin-Off is consummated (see “Description of AIR OP Partnership Units and Summary of AIR OP Partnership Agreement” below).

 

   

In accordance with the terms of the Separation and Distribution Agreement (the “Separation Agreement”), AIR OP will cause the Aimco business (other than (i) a portion of the 16 Non-Core Assets and (ii) its interests in AIMCO Royal Crest—Nashua L.L.C., the Delaware limited liability company that owns Royal Crest Estates (Nashua) (“Royal Crest Nashua LLC”), which entity will be transferred to New OP for no consideration immediately after the distribution of New OP Units pursuant to a binding agreement entered into prior to such distribution) and certain other assets to be contributed to New OP in exchange for 100% of the outstanding New OP Units.

 

   

It is expected that certain entities that will be subsidiaries of New OP after the separation will assume or retain a certain amount of existing secured property-level indebtedness related to the Aimco business, while entities that will be subsidiaries of AIR will assume or retain a certain amount of existing secured property-level indebtedness related to the AIR business.

 

   

It is expected that AIR and its subsidiaries will have a revolving credit facility and a term loan credit facility, each of which may be secured by certain equity interests in subsidiaries of AIR and its subsidiaries, and which credit facilities may either be a continuation of Aimco’s existing revolving credit facility and term loan credit facility, or a replacement thereof on similar terms and conditions. Additional detail on the intended financing, and the treatment of Aimco’s existing credit facilities, will be included in a subsequent amendment to this information statement.

 

   

Substantially all of Aimco’s (and its subsidiaries’) employees will become or remain employees of AIR OP (and its subsidiaries), while approximately of Aimco’s (and its subsidiaries’) employees will become or remain employees of New OP (and its subsidiaries).

 

   

In accordance with the Separation Agreement, AIR OP will distribute 100% of the outstanding New OP Units to the holders of AIR OP Common Units (including AIR and AIR OP GP), pro rata with respect to their ownership of AIR OP Common Units as of the close of business on the record date. Each of the holders of AIR OP Common Units will be entitled to receive one New OP Unit for each one AIR OP Common Unit held as of the close of business on the record date.



 

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Confidential Treatment Requested by Aimco-LP, Inc.

Pursuant to 17 C.F.R. Section 200.83

 

   

AIR and AIR OP GP will distribute their New OP Units to Aimco.

 

   

AIR OP will transfer its interests in Royal Crest Nashua LLC to New OP.

 

   

New OP or its subsidiaries and AIR OP and its subsidiaries will contribute the Non-Core Assets to a partnership (“James-Oxford LP”) in exchange for common and preferred interests in James-Oxford LP. New OP will then contribute its interests in James-Oxford LP to a new subsidiary REIT (“New Sub REIT”). AIR OP and its subsidiaries will sell their interests in James-Oxford LP (other than a less than 5% common interest) to New Sub REIT in exchange for a note payable to AIR OP of $0.5 billion and certain other obligations. The transactions described above are intended to constitute taxable transactions with respect to the interests in James-Oxford LP.

 

   

Aimco will contribute its interest in AIR OP GP to AIR.

 

   

AIR will form             (“REIT 1”) and             (“REIT 2”), Delaware limited liability companies that will each elect to be treated as a corporation and a REIT for U.S. federal income tax purposes commencing with its initial taxable year ending December 31, 2020. AIR will contribute an amount of AIR OP Common Units representing a 34% limited partner interest in AIR OP to REIT 1, and will contribute AIR OP Common Units representing a 34% limited partner interest in AIR OP and its interests in AIR OP GP to REIT 2, each in exchange for common and preferred interests in REIT 1 and REIT 2 (as applicable), which transactions will be taxable for U.S. federal income tax purposes. Following such contributions by AIR, AIR will issue $2 million in Class A Preferred Stock to Aimco, subject to a binding commitment to sell such Class A Preferred Stock to an unrelated third party. REIT 1 and REIT 2 are each expected to also have approximately 125 third party holders of a nominal amount of non-participating non-voting preferred stock with an aggregate initial liquidation preference of approximately $125,000 to satisfy certain requirements for qualifying as a REIT for U.S. federal income tax purposes.

 

   

New OP will form              (“Redev/Dev TRS”), a Delaware limited liability company that will elect to be treated as a corporation for U.S. federal income tax purposes. Redev/Dev TRS and Aimco will jointly file an election to treat Redev/Dev TRS as a taxable REIT subsidiary of Aimco. New OP will then contribute the redevelopment and development business to Redev/Dev TRS.

 

   

AIR OP will form              (“Property Management LLC”) and              (“Property Management TRS”), Delaware limited liability companies. Property Management TRS will elect to be treated as a corporation for U.S. federal income tax purposes. AIR OP will then contribute the property management business to each of Property Management LLC and Property Management TRS. New OP and New Sub REIT will each contribute cash to Property Management TRS in exchange for preferred interests. Property Management TRS will jointly elect with AIR, Aimco, and their applicable subsidiary REITs to be treated as a taxable REIT subsidiary of such entities.

 

   

AIR will issue Class A Preferred Stock to Aimco, subject to a binding commitment to sell such Class A Preferred Stock to an unrelated institutional investor.

 

   

In accordance with the Separation Agreement, Aimco will distribute all of the outstanding AIR Common Stock to Aimco common stockholders as of the record date on a pro rata basis. Each Aimco common stockholder will be entitled to receive one share of AIR Common Stock for each one share of Aimco Common Stock held by such stockholder as of the record date.

 

   

Aimco will sell its Class A Preferred Stock in AIR to an unrelated institutional investor.

 

   

In addition to the Separation Agreement, AIR and AIR OP (or their applicable subsidiaries), on the one hand, and Aimco and New OP (or their applicable subsidiaries), on the other hand, as well as James-Oxford LP (or its applicable subsidiaries) in certain instances, will enter into an Employee Matters



 

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Confidential Treatment Requested by Aimco-LP, Inc.

Pursuant to 17 C.F.R. Section 200.83

 

Confidential Treatment Requested by Aimco-LP, Inc.

Pursuant to 17 C.F.R. Section 200.83

 

 

Agreement (as defined below), a Property Management Agreement, a Master Services Agreement (as defined below), and a Master Leasing Agreement, each as further described below, and certain other agreements as further described below.

Until the Spin-Off has occurred, Aimco has the right to terminate the Spin-Off, even if all of the conditions have been satisfied, if the board of directors of Aimco determines, in its sole discretion, that the Spin-Off is not in the best interests of Aimco and its stockholders or that market conditions or other circumstances are such that the Spin-Off is no longer advisable at that time. We cannot provide any assurances that the Spin-Off will be completed. For a more detailed description of these conditions, see “The Spin-Off—Conditions to the Spin-Off.”

Organizational Structure

In general, we intend to own our assets and conduct substantially all of our business through our operating partnership and its subsidiaries. The following chart depicts a simplified graphical representation of the relevant portion of Aimco’s corporate structure, including AIR, before and after the Spin-Off:

Before the Spin-Off

 

LOGO



 

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Confidential Treatment Requested by Aimco-LP, Inc.

Pursuant to 17 C.F.R. Section 200.83

 

After the Spin-Off

 

LOGO

Reasons for the Spin-Off

Aimco’s current business plan is comprised of three primary activities: (i) investment in a portfolio of multi-family properties diversified by geography and price point, (ii) redevelopment and development of properties where land value comprises a significant percentage of the total property value; and (iii) world-class property management. Consistent with Aimco’s on-going strategic planning, Aimco’s management and board of directors thoroughly evaluated a range of alternatives and transactions, and determined that a spin-off of the redevelopment and development business and portfolio (which represents less than 10% of Aimco’s existing GAV) is the best path forward to enhance value for all stockholders.

Aimco’s board of directors believes that the success of Aimco’s operations was obscured by employing leverage at levels above peers, by the execution risk and related overhead costs associated with redevelopment, development, and lease ups, and by more complicated and non-traditional investments or investment structures, all of which we believe has negatively affected the share price of Aimco Common Stock. As a result, Aimco’s board of directors determined that the separation of Aimco and AIR would allow Aimco’s investors to determine how to invest their money.

The board of directors of Aimco believes that the Spin-Off is in the best interests of Aimco, AIR, and their respective equityholders stockholders for a number of reasons, including the following:

 

   

Creates two, focused and independent, publicly traded companies, each with the opportunity to pursue growth through the execution of different business plans. We believe that having two, focused and independent, publicly traded companies with distinct investment profiles will maximize the strategic focus and financial flexibility to grow and return capital to stockholders. With strong, independent boards, dedicated management teams, expanded growth and investment opportunities, and optimized balance sheets, we believe that AIR and Aimco will create greater value separately than as a combined entity. AIR’s business plan will be to: (i) own a diversified portfolio of stabilized properties;



 

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(ii) maintain a high quality portfolio with strong property management operations; (iii) maintain a strong balance sheet; (iv) reduce execution risk; and (v) operate with sector low management costs. AIR’s focus on the ownership of stabilized properties and active management is expected to result in higher and more predictable earnings, measured by FFO. Aimco’s business plan will be to: (i) focus on redevelopment and development projects on assets leased from AIR as well as opportunities Aimco sources itself (such as the right to develop multi-family properties, co-located with commercial life science uses to be built by a premier life sciences real estate developer); (ii) undertake complex transactions when warranted by risk-adjusted returns; (iii) maintain sufficient liquidity to support our business model; and (iv) use financial leverage to increase return on equity. Aimco’s focus is expected to create long-term value for real estate investors and will provide Aimco with flexibility to pursue broader opportunities, including those that are short-term dilutive, longer-term, more complicated, better measured by NAV creation than FFO, or that involve more, non-recourse leverage.

 

   

Enhances investor transparency, better highlights the attributes of both companies, and provides investors with the option to invest in one or both companies. By separating the AIR business from the rest of Aimco’s business, investors will have the option choose whether to to invest in Aimco’s stabilized multifamily portfolio (through an investment in AIR), its redevelopment and development and transactions business (through an investment in Aimco), or both. The separation will enable potential investors and the financial community to evaluate Aimco and AIR separately and assess the merits, performance, and future prospects of their respective businesses. In addition, we believe the Spin-Off will make AIR and Aimco more competitive and appealing to a broader investor audience moving forward, providing them with the opportunity to invest in two companies with compelling value propositions and distinct risk/reward profiles. AIR is expected to provide a simple and transparent way to invest in the multi-family sector: ownership with public market liquidity of a diversified portfolio of apartment communities, with low financial leverage, limited execution risk, best-in-class operations, and sector low management costs. Aimco’s business is expected to be less predictable in terms of quarter over quarter activity but to also have higher long-term target returns commensurate with such level of risk. Investors can increase their allocation to Aimco or to AIR, depending on their preference.

 

   

Limits AIR’s exposure to risks associated with the redevelopment and development business. AIR will be able to invest in stabilized properties that it believes will better support its underlying business. AIR is expected to have limited to no risk of earnings dilution from non-earning assets, and to have limited execution risk for redevelopment, development, and lease-ups, low leverage and lower overhead costs (both in total dollars and as a percentage of fair market value). Through its close relationship with Aimco, AIR is expected to retain access to some of the advantages of Aimco’s redevelopment and development business without the execution risk, leverage or associated costs.

 

   

Provides our management teams with the ability to focus on our distinct businesses and be more closely aligned with the needs of investors. Each of AIR and Aimco will have a senior management team focused on the performance of its respective business and that will have incentives to exercise options that are favorable to its respective business. The separation of the businesses will give each senior management team the opportunity to focus on the goals and expectations of each company’s investors. We expect that the separation of the experienced senior management teams and other key personnel operating our businesses, will result in the ability for each company to better satisfy the needs of its respective stockholders.

 

   

Improves AIR’s access to public equity markets. It has historically been expensive for Aimco to issue equity, making it difficult for Aimco to grow through raising capital. Aimco’s share price has consistently traded at a discount to NAV, with equity issuances dilutive of NAV per share. The Spin-Off is expected to increase FFO and Adjusted Funds From Operations (“AFFO”) at AIR and



 

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produce a better price to earnings ratio than has previously been given to Aimco while it owned all of the businesses of Aimco and AIR. As a result of the separation, we expect AIR will have access to the capital markets at a non-dilutive price and a strong capital structure tailored to its strategic goals. We believe this will provide AIR with improved access to the public markets, providing it with capital to invest in the acquisition of properties to grow its portfolio.

 

   

Increases Financial Flexibility. Aimco’s board of directors believes that a taxable separation today will increase AIR’s strategic and financial flexibility to grow, return capital, and create long-term value for stockholders. The Spin-Off will result in a refreshed tax basis for AIR, which reduces the tax costs of future property sales and therefore enhances portfolio management. We also expect that this will make cash dividends more likely to be a return of capital or capital gains for tax purposes, increasing their after-tax value for taxable investors.

The board of directors of Aimco also considered a number of potentially negative factors in evaluating the separation and concluded that the potential benefits of the separation outweighed these factors. For more information, please refer to the sections entitled “The Spin-Off—Reasons for the Spin-Off” and “Risk Factors” included elsewhere in this information statement.

Our Relationship with Aimco Following the Spin-Off

After the Spin-Off, AIR and Aimco will be two, focused and independent, publicly traded companies. AIR OP will be approximately 95% owned by AIR, and New OP will be approximately 95% owned by Aimco. To set forth our relationship from and after the Spin-Off, AIR, AIR OP, Aimco, and New OP (and our respective subsidiaries, as applicable) will enter into, among other agreements: (1) the Separation Agreement setting forth the mechanics of the Spin-Off and certain organizational matters, (2) an agreement relating to employee matters (the “Employee Matters Agreement”), (3) agreements pursuant to which AIR will provide property management and related services to Aimco (collectively, the “Property Management Agreement”), (4) an agreement pursuant to which AIR will provide Aimco with limited administrative and support services on an ongoing basis (the “Master Services Agreement”), and (5) a Master Leasing Agreement pursuant to which Aimco may enter into leases with AIR pursuant to which Aimco will lease from AIR certain properties under redevelopment and to be developed or leased-up (including the Initial Leased Properties), and under which Aimco will have certain lease termination rights (the “Master Leasing Agreement”). See “Our Relationship with Aimco Following the Spin-Off” for more details.

Strengths

The Spin-Off is intended to provide us and Aimco with the necessary structure, management, and strategy to create stockholder value. In particular, we believe that Aimco and AIR will have the following respective strengths following the Spin-Off:

 

   

Focused business model. AIR will focus primarily on the ownership and active management of a diverse portfolio of stabilized apartment communities. We believe that a singular and clear focus will create a business that is more readily understood by investors and value for those investors. We expect that AIR will be more predictable as a result of strong operations and reduced exposure to the execution risk of redevelopment and development, and we intend to provide returns to our investors through what we expect to be stable and consistent revenue, principally through collection of rent from the properties we own and receipt of consistent management fees as compensation for our management services. AIR will use its senior management team to manage portfolio allocations, consider opportunities to buy or sell properties, oversee continuing upgrades to its properties through systematic re-investment, make determinations regarding the allocation of capital, establish and execute balance sheet strategies, and oversee third-party property management.



 

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Diverse real estate portfolio. AIR’s real estate portfolio, with properties in several of the largest markets in the United States and numerous states, provides significant geographic diversification and reduces the volatility of rental revenue and reduces the risk of undue concentration in any particular market. AIR’s portfolio is also diversified by price point and quality. We seek price point diversification to better manage rental rate volatility. Our price point “A” apartment communities typically provide higher margins but have tenants with fast growing incomes that are more susceptible to competitive housing supply, while our price point “B” and “C” apartment communities typically provide lower margins but have less volatile rental rates and are less susceptible to competitive housing supply.

 

   

Investment in low risk asset classes. AIR is expected to limit its exposure to risk by (i) investing in a transparent and well understood asset class, a diversified portfolio of high quality, multi-family properties whose cash flows are predictable and generally rising and minimizing the risk of redevelopment and development; and (ii) maintaining a balance sheet with leverage consistent with peer averages.

 

   

Ability to obtain redeveloped and developed properties from Aimco. Although Aimco and AIR will be focused and independent publicly traded companies, we believe there are potential benefits to each from the opportunities they have to work together in the future when it is in their interests. AIR may benefit from Aimco’s acceleration of the development or redevelopment of certain of AIR’s properties that have potential for redevelopment or development in the future. Specifically, we may choose to redevelop and grow our portfolio through our relationship with Aimco, as we may lease certain properties to Aimco for development or redevelopment and lease-up, under which leases Aimco will have the option, but not the obligation, to terminate once the properties reach and maintain stabilization generally providing us an investment at a discount to the property’s then-current fair market value. AIR will also have a right of first refusal over all of Aimco’s stabilized properties (including those acquired after the consummation of the Spin-Off (other than the Excluded Seed Properties and the Non-Core Assets)).

 

   

Management team with relevant experience and incentives aligned with stockholders. AIR’s senior management team will focus solely on AIR’s business and will have incentives to exercise options that are favorable to AIR with no obligation to Aimco other than under the terms of the agreements described in this information statement. AIR will also have asset managers and internal auditors to oversee its performance, and both management and board investment committees to review and approve transactions. AIR’s senior management team has a collective track record of active management of real estate operations and real estate portfolio management, all within a REIT environment.

 

   

Experienced leader with incentives aligned with stockholders. Terry Considine will serve as AIR’s Chairman of the board of directors and Chief Executive Officer and as Aimco’s Executive Chairman of the board of directors. As founder of both companies, Mr. Considine will be responsible for seeing that AIR and Aimco work together collaboratively for their mutual benefit. As a substantial equity holder in AIR, Mr. Considine’s interests are well-aligned with AIR stockholders. In addition, Mr. Considine has over 45 years of experience in the real estate and other industries and served as Chairman of the board of directors and Chief Executive Officer of Aimco since July 1994.

Strategy

Following the Spin-Off, AIR will seek to maximize stockholder value through:

 

   

Diverse investments. We intend to own a portfolio of stabilized properties in top United States markets and focus on properties with high land value located in submarkets with outsized growth prospects. We also intend to maintain a balanced multi-family portfolio consisting of properties diversified across



 

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“A,” “B,” and “C” price points, allowing AIR to benefit from price-point diversification over various economic and housing cycles.

 

   

High quality portfolio with strong property management operations. We will actively manage our portfolio, aiming to maintain high quality properties attractive to customers with above average incomes and prospects. Our apartment communities will generally be equipped with smart home technology and other amenities. We will aim to drive rent growth based on high levels of resident retention through strong customer selection and satisfaction, coupled with disciplined innovation resulting in sustained cost control, to maximize net operating income growth and margins.

 

   

Cautious use of financial leverage. We expect to operate at leverage levels lower than that historically associated with Aimco and at levels in line with our peers. We intend to have a strong, lowcost, low-leverage balance sheet that is flexible and maintains a well-laddered maturity schedule, and plan to target pro forma leverage ratio (net debt / normalized EBITDA) of 5.5:1. Specifically, our leverage immediately after the Spin-Off is expected to be principally comprised of single asset, non-recourse, property level debt. We will consider issuing corporate debt when its cost is lower than non-recourse property debt.

 

   

Reduced Execution Risk. We will be able to reduce the execution risk, overhead costs and vacancy expense associated with redevelopment and development, construction and lease-ups. Instead, we are expected to benefit from a series of valuable opportunities to transact with Aimco to enhance our portfolio, while limiting our exposure to such risks.

Financing

We expect to implement and maintain a capital structure that is adequate to pursue our business plan and a cost of capital that allows us to provide attractive returns to our stockholders and compete for investment opportunities. At the completion of the Spin-Off, it is expected that AIR and its subsidiaries will have a revolving credit facility and a term loan credit facility, each of which may be secured by certain equity interests in subsidiaries of AIR, and which credit facilities may either be a continuation of Aimco’s existing revolving credit facility and term loan credit facility, or a replacement thereof on similar terms and conditions. Additional detail on our intended financing, and the treatment of Aimco’s existing credit facilities, will be included in a subsequent amendment to this information statement.

Over time, we may become party to one or more additional financing arrangements, including credit facilities or other bank debt, bonds, and mortgage financing.

We also anticipate that certain entities that will be our subsidiaries after the Spin-Off will assume or retain a certain amount of existing secured property-level indebtedness related to the properties we will own after the Spin-Off. For additional information concerning our indebtedness, see “Description of Financing and Material Indebtedness.”

Restrictions on Ownership and Transfer of AIR Common Stock

To assist us in complying with the limitations on the concentration of ownership of REIT stock imposed by the Code, among other purposes, our charter will provide for restrictions on ownership and transfer of AIR shares of stock, including, certain restrictions limiting ownership of AIR Common Stock by any single stockholder (applying certain “beneficial ownership” rules under the federal securities laws) up to 8.7% (or up to 12.0% upon a waiver from the board of directors of AIR) of outstanding shares of AIR Common Stock, or 15% in the case of certain pension trusts and registered investment companies (or up to 20.0% for such pension trusts or registered investment companies upon a waiver from the board of directors of AIR). The charter will also prohibit anyone from buying shares of AIR’s capital stock if the purchase would result in AIR losing its REIT status. This could



 

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happen if a transaction results in five or fewer individuals (applying certain attribution rules of the Code) owning 50% or more of the value of all of AIR’s shares of capital stock or in fewer than 100 persons owning all of AIR’s shares of capital stock. See “Description of AIR’s Capital Stock—Restrictions on Transfer and Ownership of AIR Stock.”

Our Tax Status

We will elect to be subject to tax as a REIT for U.S. federal income tax purposes commencing with our initial taxable year ending December 31, 2020. Our qualification as a REIT will depend upon our ability to meet, on a continuing basis, various complex requirements under the Code relating to, among other things, the sources of our gross income, the composition and values of our assets, our distribution levels to our stockholders, and the concentration of ownership of our capital stock. We believe that we will be organized in conformity with the requirements for qualification and taxation as a REIT under the Code, and that our intended manner of operation will enable us to meet the requirements for qualification and taxation as a REIT. In connection with the Spin-Off, we will receive an opinion of Skadden, Arps, Slate, Meagher & Flom LLP (“Skadden, Arps”), to the effect that we will be organized in conformity with the requirements for qualification and taxation as a REIT under the Code, and that our proposed method of operation will enable us to meet the requirements for qualification and taxation as a REIT.

Emerging Growth Company Status

AIR is an “emerging growth company” as defined in the JOBS Act. As an emerging growth company, AIR is permitted to take advantage of certain limited exemptions from various requirements that are otherwise applicable to public companies in this information statement. These provisions include, but are not limited to:

 

   

Providing less than five years of selected financial data in this information statement; and

 

   

Reduced disclosure obligations regarding executive compensation in our periodic reports, proxy statements, and registration statements.

AIR expects to take advantage of these exemptions in this information statement. However, AIR does not intend to take advantage of these exceptions in any other periodic reports, proxy statements, and registration statements after the effectiveness of the registration statement of which this information statement is a part. We cannot predict if investors will find AIR Common Stock less attractive due to the permitted reduced disclosure in this information statement. If some investors find AIR Common Stock less attractive as a result, there may be a less active trading market for AIR Common Stock and our stock price may be more volatile and adversely affected.

In addition, Section 107 of the JOBS Act provides that an emerging growth company may take advantage of the extended transition period provided in Section 13(a) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), for complying with new or revised accounting standards applicable to public companies. In other words, an emerging growth company can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. AIR has elected not to take advantage of this extended transition period for accounting standards, and its election is irrevocable pursuant to Section 107(b) of the JOBS Act.

AIR will remain an emerging growth company until the earliest of (1) the last day of the first fiscal year in which its total annual gross revenues first exceed $1.07 billion, (2) the date on which it is deemed to be a “large accelerated filer,” as defined in Rule 12b-2 under the Exchange Act or any successor statute, which would occur if the market value of AIR Common Stock that is held by non-affiliates exceeds $700 million as of the last business day of its most recently completed second fiscal quarter, (3) the date on which AIR has issued more



 

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than $1 billion in non-convertible debt during the preceding three-year period, and (4) the end of the fiscal year following the fifth anniversary of the date of the first sale of AIR Common Stock pursuant to an effective registration statement filed under the Securities Act of 1933, as amended (the “Securities Act”).

Risks Related to Our Business and the Spin-Off

Our business and the Spin-Off pose a number of risks, including:

 

   

Pandemics, such as COVID-19, may affect our ability to collect rents and late fees from tenants, and our ability to evict tenants, in addition to having other negative effects on our business, which in turn could adversely affect our financial condition and results of operations;

 

   

If Aimco is unable to successfully redevelop or develop new properties in a timely manner or at all or fails to perform under our agreements with it, it could materially adversely affect our operating results and financial condition;

 

   

Failure to generate sufficient net operating income may adversely affect our liquidity, limit our ability to fund necessary capital expenditures, or adversely affect our ability to pay dividends or distributions;

 

   

Competition could limit our ability to lease apartment homes, increase or maintain rents or execute our development strategy;

 

   

Because real estate investments are relatively illiquid, we may not be able to sell apartment communities when appropriate;

 

   

If we are not successful in our acquisition of apartment communities, our results of operations could be adversely affected;

 

   

Although we will be insured for certain risks, the cost of insurance, increased claims activity, or losses resulting from casualty events may affect our financial condition and results of operations;

 

   

We depend on our senior management;

 

   

“Change of control” provisions, such as in our Master Leasing Agreement and our Property Management Agreement, may discourage third parties from acquiring us or from acquiring our properties;

 

   

There may be conflicts of interest in our relationship with Aimco;

 

   

Our debt financing could result in foreclosure of our apartment communities, prevent us from making distributions on our equity, or otherwise adversely affect our liquidity;

 

   

The board of directors of Aimco has reserved the right, in its sole discretion, to amend, modify, or abandon the Spin-Off at any time prior to the distribution;

 

   

The historical and pro forma financial information included in this information statement may not be a reliable indicator of future results;

 

   

We may be unable to achieve some or all of the benefits that we expect to achieve from the Spin-Off;

 

   

The Spin-Off could give rise to disputes or other unfavorable effects, which could materially and adversely affect our business, financial position or results of operations;

 

   

In connection with the Spin-Off, we have assumed and will assume, and will indemnify Aimco for, certain liabilities. If we are required to make payments pursuant to these indemnities, we may need to divert cash to meet those obligations and our financial results could be adversely affected. In addition, Aimco will indemnify us for certain liabilities. These indemnities may not be sufficient to insure us against the full amount of liabilities we incur, and Aimco may not be able to satisfy its obligations in the future;



 

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The Spin-Off may expose us to potential liabilities arising out of state and federal fraudulent conveyance laws;

 

   

Our agreements with Aimco may not reflect terms that would have resulted from arm’s-length negotiations with unaffiliated third parties;

 

   

The distribution of AIR Common Stock is intended to be a taxable spin-off and the distribution will generally be taxable to you as a dividend;

 

   

AIR may fail to qualify as a REIT;

 

   

Complying with the REIT requirements may cause AIR to forgo otherwise attractive business opportunities;

 

   

There is no existing market for AIR Common Stock, and a trading market that will provide you with adequate liquidity may not develop for AIR Common Stock. In addition, once AIR Common Stock begins trading, the market price and trading volume of AIR Common Stock may fluctuate widely;

 

   

We cannot guarantee the timing, amount, or payment of dividends of AIR Common Stock;

 

   

Future sales or distributions of AIR Common Stock could depress the market price for shares of AIR Common Stock;

 

   

The combined post-Spin-Off value of Aimco Common Stock and AIR Common Stock may not equal or exceed the pre-Spin-Off value of Aimco Common Stock;

 

   

AIR and its subsidiaries may be prohibited from making distributions and other payments;

 

   

Limits on ownership of shares specified in AIR’s charter may result in the loss of economic and voting rights by purchasers that violate those limits;

 

   

AIR’s charter may limit the ability of a third-party to acquire control of AIR; and

 

   

The Maryland General Corporation Law may limit the ability of a third-party to acquire control of AIR.

These and other risks related to the Spin-Off and our business are discussed in greater detail under the heading “Risk Factors” in this information statement. You should read and consider all of these risks carefully.

Certain Other Events

On September 29, 2020, Land & Buildings Investment Management, LLC and certain related parties (“L&B”) filed a preliminary solicitation statement related to L&B’s intent to solicit and obtain consents from holders of Aimco’s shares of common stock for purposes of requesting on its and their behalf that a special meeting of Aimco’s stockholders be held (the “Proposed Special Meeting Request”) for the purposes of (1) considering and voting upon a non-binding resolution urging the Aimco board of directors to put any proposed separation or spin-off involving Aimco to a vote of Aimco’s stockholders at a duly called meeting of stockholders and to refrain from proceeding with any such separation or spin-off involving Aimco unless approved by a vote of a majority of Aimco’s stockholders and (2) to transact such other business as may properly come before the special meeting. The Aimco board of directors intends to convene to set a record date for the Proposed Special Meeting Request in due course.



 

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Our Corporate Information

AIR will be a Maryland corporation. Our principal executive offices will be located at 4582 S. Ulster Street, Suite 1700, Denver, CO 80237, and our telephone number is             . We will maintain a website at             . Information contained on or connected to, or that can be accessed from, our website does not and will not constitute part of this information statement or the registration statement on Form 10 of which this information statement is a part.

Questions and Answers about AIR and the Spin-Off

The following are some of the questions that you may have regarding the Spin-Off and brief answers to those questions. For more detailed information about the matters discussed in these questions and answers, see “The Spin-Off” beginning on page 50 and “Our Relationship with Aimco Following the Spin-Off” beginning on page 159. These questions and answers, as well as the Summary beginning on page 1, are not meant to be a substitute for the information contained in the remainder of this information statement, and this information is qualified in its entirety by the more detailed descriptions and explanations contained elsewhere in this information statement. You are urged to read this information statement in its entirety.

 

What is AIR and how will the separation of the AIR business from Aimco benefit the two companies and their stockholders?   

AIR is a self-managed real estate investment trust which is expected to provide a simple and transparent way to invest in the multi-family sector: ownership with public market liquidity of a diversified portfolio of apartment communities, with low financial leverage, limited execution risk, best-inclass operations, and sector low management costs. Aimco is expected to own the growing business of development and redeveloping apartment communities while also pursuing other accretive transactions.

 

With strong, independent boards, dedicated management teams, expanded growth and investment opportunities, and optimized balance sheets, Aimco’s board of directors believes that AIR and Aimco will create greater value separately than as a combined entity. The spin-off will provide investors with the option to choose whether to invest in Aimco’s stabilized multifamily portfolio (through an investment in AIR), its redevelopment and development and transactions business (through an investment in Aimco), or both.

 

Each of AIR and Aimco will have its own distinctive focus. AIR’s business plan will be to: (i) own a diversified portfolio of stabilized properties; (ii) maintain a high quality portfolio with strong property management operations; (iii) maintain a strong balance sheet; (iv) reduce execution risk; and (v) operate with sector low management costs. We believe that AIR’s simplified business, focused on the ownership and active management of a diversified portfolio of stabilized apartment communities, will be more readily understood by investors and will be more predictable as a result of strong operations and reduced exposure to the execution risk of redevelopment and development. We intend for AIR to have a strong balance sheet with leverage at peer averages and

expected lowest cost of leverage. AIR may issue corporate level debt when its cost is lower than that of non-recourse property debt. We further expect that AIR’s FFO will increase and be more predictable, supporting higher dividends, as a result of the elimination of earnings dilution from properties with reduced or no earnings during their development, redevelopment or lease-up, lower management costs due



 

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   to the elimination of overhead costs related to redevelopment and development activities, and lower leverage. The board of directors of Aimco believes there are potential benefits to both AIR and Aimco from the opportunities to work together in the future when it is in their interests.
Why am I receiving this information statement?   

Aimco is delivering this information statement to you because you are a holder of Aimco Common Stock as of the record date for the Spin-Off.

 

Aimco will distribute the AIR Common Stock to the holders of Aimco Common Stock on a pro rata basis. Each Aimco common stockholder will receive one share of AIR Common Stock for each one share of Aimco Common Stock held as of the close of business on the record date. Following the Spin-Off, you will own AIR Common Stock, as well as your Aimco Common Stock. The number of shares of Aimco Common Stock you own will not change as a result of the Spin-Off. This information statement will help you understand how the separation will affect your post-separation ownership in Aimco and AIR.

What are the reasons for the Spin-Off?   

The board of directors of Aimco believes that separating the AIR business and assets from the remainder of Aimco’s businesses and assets is in the best interests of Aimco and its stockholders for a number of reasons, including the following:

 

•  Creates two, focused and independent, publicly traded companies, each with the opportunity to pursue growth through the execution of different business plans;

 

•  Enhances investor transparency, better highlights the attributes of both companies and provides investors with the option to invest in one or both companies;

 

•  Limits AIR’s exposure to risks associated with the redevelopment and development business;

 

•  Provides our management teams with the ability to focus on our distinct businesses and be more closely aligned with the needs of investors;

 

•  Improves AIR’s access to public equity markets; and

 

•  Increases financial flexibility.

 

For more information on the reasons for the Spin-Off, please refer to the

section entitled “The Spin-Off—Reasons for the Spin-Off” included elsewhere in this information statement.

What will AIR’s initial portfolio consist of?   

Following the completion of the Spin-Off, AIR’s portfolio is expected to include 98 stabilized apartment communities, diversified by both geography and price point, with 26,599 apartment homes, including the Initial Leased Properties. Collectively, AIR’s assets have an estimated GAV of $10.4 billion, and an estimated NAV of $7.8 billion, as of March 31, 2020.



 

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Why is AIR referred to as a REIT, and what is a REIT?   

AIR will elect to be subject to tax as a REIT for U.S. federal income tax purposes commencing with its initial taxable year ending December 31, 2020.

 

A REIT is a company that derives most of its income from real property or real estate mortgages and has elected to be subject to tax as a REIT. If a corporation elects to be subject to tax as a REIT and qualifies as a REIT, it will generally not be subject to U.S. federal corporate income taxes on income that it currently distributes to its stockholders. A company’s qualification as a REIT depends on its ability to meet, on a continuing basis, various complex requirements under the Code relating to, among other things, the sources of its gross income, the composition and values of its assets, its distribution levels to its stockholders, and the concentration of ownership of its capital stock.

Why is the separation of AIR structured as a distribution?    Aimco believes that a spin-off, or distribution, of AIR Common Stock to its stockholders is an efficient way to separate our assets from the rest of Aimco’s portfolio and that the Spin-Off will create benefits and value for AIR, Aimco, AIR OP and New OP, and our respective stockholders and unitholders.
How will the separation of AIR work?   

AIR will hold the equity of the entities that hold the AIR business, assets, and liabilities, including the Initial Leased Properties.

 

On the distribution date, Aimco will distribute AIR Common Stock to each holder of Aimco Common Stock on a pro rata basis, with each holder of Aimco Common Stock receiving one share of AIR Common Stock for each one share of Aimco Common Stock held as of the close of business on the record date.

 

The spin off Aimco’s redevelopment and development business and portfolio (which represents less than 10% of Aimco’s existing GAV) will result in two, focused and independent, publicly traded companies. AIR OP will be approximately 95% owned by AIR, while New OP will be approximately 95% owned by Aimco.

What is the record date for the Spin-Off?    The record date for determining the holders of Aimco Common Stock who will receive shares of AIR Common Stock in the Spin-Off is the close of business on                 , 2020.
When will the Spin-Off occur?    The Spin-Off is expected to occur on or about                 , 2020, subject to the satisfaction or waiver of certain conditions described under “The Spin-Off—Conditions to the Spin-Off.”
What do Aimco stockholders need to do to participate in the Spin-Off?    No action is required on the part of Aimco stockholders. If you hold Aimco Common Stock as of the record date, you will not be required to take any action in order to receive shares of AIR Common Stock in the Spin-Off. No vote of Aimco’s stockholders is required or being


 

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   sought in connection with the Spin-Off. Therefore, we are not asking you for a proxy, and you are requested not to send us a proxy. The distribution will not affect the number of outstanding shares of Aimco Common Stock or any rights of Aimco common stockholders, although the market value of each share of Aimco Common Stock will be affected.
How will the rights of holders of Aimco Common Stock change after the Spin-Off?   

Holders of Aimco Common Stock will receive AIR Common Stock in connection with the Spin-Off. The number of shares of Aimco Common Stock you own will not change as a result of the Spin-Off, and your rights with respect to your Aimco Common Stock will not change. However, the market value of each share of Aimco Common Stock will be affected.

 

Following the Spin-Off, we expect that shares of AIR Common Stock will be listed on the NYSE under the symbol “        .” Aimco Common Stock will continue to be traded on the NYSE after the Spin-Off under the ticker symbol “AIV.”

If I sell my shares of Aimco Common Stock prior to the Spin-Off, will I still be entitled to receive AIR Common Stock in the Spin-Off?   

If you hold shares of Aimco Common Stock as of the record date and decide to sell the shares prior to the distribution, you may choose to sell such shares with or without your entitlement to receive shares of AIR Common Stock. If you sell your Aimco Common Stock in the “due-bills” market after the record date and prior to the distribution, you will also be selling your right to receive shares of AIR Common Stock in connection with the Spin-Off. However, if you sell your Aimco Common Stock in the “ex-distribution” market after the record date and prior to the distribution, you will still receive shares of AIR Common Stock in the Spin-Off.

 

If you sell your Aimco Common Stock after the record date and prior to the distribution, you should make sure your bank or broker understands whether you want to sell your Aimco Common Stock with shares of AIR Common Stock you will receive in the Spin-Off or without such shares of AIR Common Stock. You should consult your financial advisors, such as your bank, broker or tax advisor, to discuss your options and alternatives. See “The Spin-Off—Listing and Trading of AIR Common Stock” for additional details.

How will fractional shares be treated in the Spin-Off?    No fractional shares will be distributed in connection with the Spin-Off. Instead, holders of Aimco Common Stock will receive a cash payment equal to the value of such shares in lieu of fractional shares. See “The Spin-Off—Treatment of Fractional Shares.”
What are the U.S. federal income tax consequences of the Spin-Off?    As a REIT, Aimco distributes to its stockholders all or substantially all of its earnings and profits each year. As more specifically described in the sections referenced below, an amount equal to the fair market value of the AIR Common Stock you receive on the distribution date (plus any cash in lieu of fractional shares of AIR Common Stock) will generally be treated as a taxable dividend to the extent of your ratable share of any current or accumulated earnings and profits of Aimco (including gain


 

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recognized by Aimco in connection with the Spin-Off). The excess will be treated as a non-taxable return of capital to the extent of your tax basis in shares of Aimco Common Stock and any remaining excess will be treated as capital gain.

 

Aimco will not be able to advise stockholders of the amount of earnings and profits of Aimco until after the end of the calendar year in which the Spin-Off occurs. Aimco anticipates, however, that it will recognize a substantial amount of capital gain for tax purposes in connection with the Spin-Off that will have the effect of substantially increasing its earnings and profits for the year. Aimco’s current estimate is $1.8 billion to $4.7 billion, assuming a $30 to $50 range for the value of shares of AIR Common Stock in the Spin-Off.

 

In addition, substantial taxable income is expected from approximately $2 billion in property sales, most of which have already closed or are under contract to close prior to the Spin-Off. Such taxable income, estimated at $1.6 billion to $1.7 billion, will be mostly distributed prior to the Spin-Off in the form of dividends of cash and stock, or all stock, based on the election of the individual stockholder. Taxable stockholders will generally recognize taxable income associated with those property sales. A portion of this taxable income is expected to be distributed as part of the Spin-Off.

 

Your tax basis in the shares of AIR Common Stock received will generally equal the fair market value of such shares on the distribution date. The fair market value of AIR Common Stock reported by Aimco to you on IRS Form 1099-DIV may differ from the trading price of shares of AIR Common Stock on the distribution date. Your holding period for such shares will begin the day after the distribution date.

 

Your tax basis in shares of Aimco Common Stock held at the time of the distribution generally will be reduced (but not below zero) if the fair market value of AIR Common Stock distributed by Aimco in the Spin-Off (plus any cash in lieu of fractional shares of AIR Common Stock) exceeds Aimco’s available current and accumulated earnings and profits. Your holding period for such shares of Aimco Common Stock will not be affected by the distribution. Aimco will not be able to advise stockholders of the amount of earnings and profits of Aimco until after the end of the 2020 calendar year.

 

The tax consequences to you of the Spin-Off depend on your individual situation. You are urged to consult with your tax advisor as to the particular tax consequences of the Spin-Off to you, including the applicability of any U.S. federal, state, local, and non-U.S. tax laws. For additional details, see “The Spin-Off—U.S. Federal Income Tax Consequences of the Spin-Off” and “U.S. Federal Income Tax Considerations.”



 

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What are the conditions to the Spin-Off?

  

The Spin-Off is subject to the satisfaction or waiver by Aimco of a number of conditions, including, among others:

 

•  each of the Separation Agreement, the Employee Matters Agreement, the Property Management Agreement, the Master Services Agreement, the Master Leasing Agreement, and certain other ancillary agreements shall have been duly executed and delivered by the parties thereto;

 

•  the Restructuring shall have been completed in accordance with the Separation Agreement (other than those steps in the Restructuring contemplated to occur following the Spin-Off);

 

•  Aimco shall have received such solvency opinions, each in such form and substance, as it shall deem necessary, appropriate or advisable in connection with the consummation of the Spin-Off;

 

•  the receipt by AIR of an opinion from Skadden, Arps to the effect that, commencing with AIR’s taxable year ending December 31, 2020, AIR will be organized in conformity with the requirements for qualification as a REIT under the Code, and AIR’s proposed method of operation will enable us to satisfy the requirements for qualification and taxation as a REIT under the U.S. federal income tax laws;

 

•  the receipt by Aimco of an opinion from Skadden, Arps to the effect that, commencing with Aimco’s taxable year ended December 31, 1994, Aimco has been organized in conformity with the requirements for qualification as a REIT under the Code, and Aimco’s actual method of operation through the date hereof has enabled, and its proposed method of operation will continue to enable, it to satisfy the requirements for qualification and taxation as a REIT under the U.S. federal income tax laws;

 

•  the SEC shall have declared effective AIR’s registration statement on Form 10, of which this information statement is a part, and New OP’s registration statement on Form 10, each under the Exchange Act, and no stop order relating to the registration statements shall be in effect, and no proceedings for such purpose shall be pending before, or threatened by, the SEC, and this information statement shall have been mailed to holders of Aimco Common Stock as of the record date;

 

•  all actions and filings necessary or appropriate under applicable federal, state or foreign securities, or “blue sky” laws and the rules and regulations thereunder, shall have been taken and, where applicable, become effective or been accepted;

 

•  the AIR Common Stock to be distributed in the Spin-Off shall have been accepted for listing on the NYSE, subject to compliance with applicable listing requirements;



 

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•  no order, injunction or decree issued by any court of competent jurisdiction or other legal restraint or prohibition preventing consummation of the Spin-Off, shall be threatened, pending or in effect;

 

•  any material governmental and third-party approvals shall have been obtained and be in full force and effect;

 

•  AIR and Aimco shall have entered into the financing transactions described in this information statement and contemplated to occur on or prior to the Spin-Off, and the respective financings thereunder shall have been consummated and shall be in full force and effect;

 

•  Aimco has entered into a binding agreement with a third party to sell the Class A Preferred Stock;

 

•  Aimco and AIR shall each have taken all necessary actions that may be required to provide for the adoption by AIR of its amended and restated charter and bylaws, and AIR shall have filed its related Articles of Amendment and Restatement with the Maryland State Department of Assessments and Taxation;

 

•  AIR shall have adopted the amended and restated articles of incorporation and amended and restated bylaws; and

 

•  no event or development shall have occurred or exist that, in the judgment of the board of directors of Aimco, in its sole discretion, makes it inadvisable to effect the Spin-Off. We cannot assure you that all of the conditions will be satisfied or waived. See “The Spin-Off—Conditions to the Spin-Off” for additional details.

Can Aimco decide to terminate the Spin-Off even if all the conditions have been satisfied?    Yes. The Spin-Off is subject to the satisfaction or waiver by Aimco of certain conditions. Until the Spin-Off has occurred, Aimco has the right to terminate the Spin-Off, even if all of the conditions have been satisfied, if the board of directors of Aimco determines, in its sole discretion, that the Spin-Off is not in the best interests of Aimco and its stockholders or that market conditions or other circumstances are such that the Spin-Off is no longer advisable at that time.
Does AIR intend to pay cash dividends?    Following the Spin-Off, AIR will be required to distribute annually to holders of its common stock at least 90% of its “real estate investment trust taxable income,” which is generally equivalent to net taxable ordinary income (and may be all cash or a combination of cash and stock satisfying the requirements of applicable law). AIR’s board of directors will determine and declare AIR’s dividends. In making a dividend determination, AIR’s board of directors will consider 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. AIR’s board of directors is expected to target a dividend payout ratio between 65% and 80% of AFFO. For more information, see “Dividend Policy.”


 

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What will happen to Aimco equity awards in connection with the separation?    Any equity awards relating to shares of Aimco Common Stock will be adjusted to reflect the impact of the Spin-Off. Specifically, it is expected that each outstanding time or performance-vesting Aimco equity award will be converted into an award of both 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 will be determined in a manner intended to preserve the aggregate value of the original Aimco equity award as measured immediately before the Spin-Off.
What will be the relationship between Aimco and AIR following the Spin-Off?    After the completion of the Spin-Off, AIR and Aimco will be two, focused and independent, publicly traded companies. AIR and Aimco will enter into the Separation Agreement, the Employee Matters Agreement, the Property Management Agreement, and the Master Services Agreement, the Master Leasing Agreement, among others. Such agreements will govern our relationship with Aimco and its subsidiaries from and after the Spin-Off, including certain allocations of assets and liabilities and obligations attributable to periods prior to the Spin-Off, and our rights and obligations, including indemnification arrangements for certain liabilities after the Spin-Off, ongoing services, including property management services, provided by us to Aimco, or our leases to Aimco of the leased properties, including the Initial Leased Properties. AIR will provide Aimco with property management services and limited administrative and support services. See “Our Relationship with Aimco Following the Spin-Off.”
Will I receive physical certificates representing shares of AIR Common Stock following the Spin-Off?    No. No physical certificates representing shares of AIR Common Stock will be issued. Instead, Aimco, with the assistance of        , the distribution agent, will cause the securities to be issued electronically shares of AIR Common Stock to you or to your bank or brokerage firm or 401(k) plan or other channel on your behalf by way of direct registration in book-entry form. The distribution agent will mail you a book-entry account statement that reflects your shares of AIR Common Stock, or your bank or brokerage firm will credit your account for the securities or it will be reflected in your 401(k) or other statement. A benefit of issuing the securities electronically in book-entry form is that there will be none of the physical handling and safekeeping responsibilities that are inherent in owning physical stock certificates. See “The Spin-Off—Manner of Effecting the Spin-Off.”
What will the price be for my shares of AIR Common Stock and when will I be able to trade such shares?    There is no current trading market for AIR Common Stock. AIR intends to apply to have AIR Common Stock approved for listing on the NYSE under the symbol “        .” We anticipate that a limited market, commonly known as a “when-distributed” trading market, will develop at some point following the record date, and that “regular-way” trading in shares of AIR Common Stock will begin on the first trading day following the distribution. If trading begins on a “when-distributed” is, you may purchase or sell AIR Common Stock up to and including the distribution date, but your transaction will not settle until after the distribution date. We cannot predict the trading prices for AIR Common Stock before, on or after the distribution date.


 

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Will the number of shares of Aimco Common Stock that I own change as a result of the Spin-Off?   

No. The number of shares of Aimco Common Stock you own will not change as a result of the Spin-Off.

 

If you own Aimco Common Stock as of the close of business on the record date, you will receive one share of AIR Common Stock for each share of Aimco Common Stock that you own on the record date.

Will my shares of Aimco Common Stock continue to trade after the Spin-Off?    Yes. Aimco Common Stock will continue to be traded on the NYSE after the Spin-Off under the ticker symbol “AIV.”
Will AIR or AIR OP incur or assume indebtedness in connection with the Spin-Off?    Yes. It is expected that AIR and its subsidiaries will have a revolving credit facility and a term loan credit facility, each of which may be secured by certain equity interests in subsidiaries of AIR, and which credit facilities may either be a continuation of Aimco’s existing revolving credit facility and term loan credit facility, or a replacement thereof on similar terms and conditions. Additional detail on the intended financing thereof, and the treatment of Aimco’s existing credit facilities will be included in a subsequent amendment to this information statement. In addition, we anticipate that AIR and AIR OP (through ownership of our subsidiaries) will assume or retain existing property-level indebtedness related to the properties we will own after the Spin-Off.
Are there risks associated with owning AIR Common Stock?    Yes. Our business is subject to both general and specific risks and uncertainties relating to our business, including risks specific to our ownership of real estate and the real estate industry in which we operate, our leverage, our relationship with Aimco and its subsidiaries, and Aimco’s and AIR’s status as two, focused and independent, publicly traded companies. Our business is also subject to risks relating to the Spin-Off. These risks are described in the “Summary—Risks Related to the Spin-Off” section in this information statement and are described in more detail in the “Risk Factors” section of this information statement. We encourage you to read those sections carefully.
Do I have appraisal rights in connection with the Spin-Off?    No. Aimco stockholders will not have any appraisal rights in connection with the Spin-Off.
Who is the transfer agent for AIR Common Stock?    The transfer agent for the AIR Common Stock will be Computershare Trust Company, N. A.


 

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Where can I get more information?    If you have any questions relating to the Spin-Off, AIR Common Stock, AIR OP Common Units, Aimco Common Stock or New OP Units, you should contact Aimco at:
   Apartment Investment and Management Company
Investor Relations
4582 South Ulster Street, Suite 1700
Denver, CO 80237
   Phone: (303) 793-4661
Email: Investor@aimco.com


 

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SUMMARY HISTORICAL CONSOLIDATED AND

UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL DATA

Set forth below are the summary historical consolidated financial data of Aimco (as Aimco exists prior the Spin-Off, “AIR Predecessor”) and AIR Predecessor’s summary unaudited pro forma combined financial data as of the dates and for the periods presented. The summary historical condensed consolidated financial data as of June 30, 2020, and for the six months ended June 30, 2020 and 2019, as set forth below, was derived from AIR Predecessor’s unaudited condensed consolidated financial statements, which are included elsewhere in this information statement. The summary historical consolidated financial data as of December 31, 2019 and 2018, and for the years ended December 31, 2019, 2018, and 2017, as set forth below, was derived from AIR Predecessor’s audited consolidated financial statements, which are included elsewhere in this information statement. In management’s opinion, the unaudited condensed consolidated financial statements have been prepared on the same basis as the audited consolidated financial statements and include all adjustments, consisting of ordinary recurring adjustments, necessary for a fair presentation of the information for the periods presented. The interim results of operations are not necessarily indicative of operations for a full fiscal year.

AIR Predecessor’s unaudited pro forma consolidated financial data has been derived from the historical consolidated financial statements. AIR Predecessor’s unaudited pro forma condensed consolidated balance sheet as of June 30, 2020, assumes the Spin-Off and the related transactions occurred on June 30, 2020. AIR Predecessor’s unaudited pro forma condensed consolidated statements of operations for the six months ended June 30, 2020, and for the year ended December 31, 2019, assume the Spin-Off and the related transactions occurred on January 1, 2019. The following unaudited pro forma consolidated financial data gives effect to the Spin-Off and the related transactions, including: (i) the distribution of                  shares of AIR Common Stock by Aimco to Aimco common stockholders in the Spin-Off, the distribution of New OP Units by AIR OP to the holders of AIR OP Common Units (and subsequent distribution to Aimco by holders of AIR OP Common Units that are subsidiaries of Aimco), the sale of AIR Class A Preferred Stock to a third party, (ii) the impact of the Property Management Agreement, Master Services Agreement and the Master Leasing Agreement between us and New OP and Aimco, and (iii) incremental costs recorded within general and administrative expenses related to employment agreements.

AIR Predecessor’s unaudited pro forma consolidated financial statements are not necessarily indicative of what our actual financial position and results of operations would have been if the Spin-Off and related transactions occurred on the dates indicated, nor does it purport to represent our future financial position or results of operations. The unaudited pro forma adjustments are based on information and assumptions that we consider reasonable and factually supportable.

Since the information presented below is only a summary and does not provide all of the information contained in the historical consolidated financial statements of AIR Predecessor or our unaudited pro forma consolidated financial statements, including the related notes, you should read the “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and AIR Predecessor’s historical consolidated financial statements and notes thereto and our unaudited pro forma consolidated financial statements and the notes thereto included elsewhere in this information statement.

The accompanying consolidated financial statements have been prepared in accordance with generally acceptable accounting principles (“GAAP”). GAAP requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, and revenues and expenses during the reporting periods. Actual results could differ from these estimates.

AIR expects to operate in a manner intended to enable it to qualify as a REIT under Sections 856-860 of the Code. A REIT that distributes at least 90% of its “real estate investment trust taxable income” as a dividend



 

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to its stockholders each year and which meets certain other conditions will not be taxed on that portion of its taxable income which is distributed to its stockholders. Since AIR will operate as a REIT and distributes 100% of taxable income to its stockholders, no provision for U.S. federal income taxes has been made in the accompanying combined financial statements. The assets are also subject to certain other taxes, including state and local taxes which are included in general and administrative expenses in the combined statements of income.

 

    Six Months Ended June 30,     Year Ended December 31,  

(in thousands, except per share data)

  Pro Forma
2020
(
unaudited)
    2020
(
unaudited)
    2019
(
unaudited)
    Pro Forma
2019
(
unaudited)
    2019     2018     2017  

STATEMENT OF OPERATIONS:

             

Total revenues

  $ 364,851     $ 443,360     $ 454,435     $ 757,787     $ 914,294     $ 972,410     $ 1,005,437  

Total operating expenses

    295,080       375,758       372,917       627,874       757,521       756,654       811,454  

Net income

    35,594       52,181       361,291       570,843       508,027       716,603       347,079  

Net income attributable to AIR per common share—basic

  $ 0.22     $ 0.31     $ 2.25     $ 3.56     $ 3.16     $ 4.34     $ 2.02  

Net income attributable to AIR per common share—diluted

  $ 0.22     $ 0.31     $ 2.25     $ 3.56     $ 3.15     $ 4.34     $ 2.02  

 

     As of June 30,      As of December 31,  

(in thousands)

   Pro Forma
2020
(
unaudited)
     2020
(
unaudited)
     2019      2018  

BALANCE SHEET DATA:

           

Net real estate

   $ 4,720,957      $ 6,008,489      $ 6,019,307      $ 5,723,475  

Total assets

     7,159,802        7,121,147        6,828,739        6,190,004  

Total indebtedness

     4,346,214        4,892,183        4,505,590        4,075,665  

Total liabilities

     4,440,574        5,245,970        4,866,164        4,325,072  

Total equity

     2,620,479        1,774,236        1,860,795        1,763,641  

 

     Six Months Ended
June 30,
    Year Ended December 31,  

(in thousands)

   2020
(
unaudited)
    2019
(
unaudited)
    2019     2018     2017  

CASH FLOW DATA:

          

Net cash provided by operating activities

   $ 184,357     $ 170,039     $ 374,472     $ 396,388     $ 392,072  

Net cash (used in) provided by investing activities

     (160,070     197,525       (205,413     121,846       13,019  

Net cash provided by (used in) financing activities

     240,519       (374,252     (63,952     (588,180     (393,700

 

     Six Months Ended June 30,      Year Ended December 31,  

(in thousands, unaudited)

           2020                      2019              2019      2018     2017  

OTHER DATA:

             

Adjusted Funds From Operations (“AFFO”)(1)

   $ 170,564      $ 156,630      $ 326,865      $ 337,138     $ 331,973  

Annualized Adjusted EBITDAre(1)(2)

     556,808        534,540        570,940        578,328 (3)      564,980 (3) 

 

(1)

AFFO and Adjusted EBITDAre, are non-GAAP financial measures. Since these non-GAAP financial measures are not measures calculated in accordance with U.S. generally accepted accounting principles (“GAAP”), they should not be considered in isolation of, or as a substitute for, our results reported under GAAP as indicators of our operating performance. These measures, as we calculate them, may not be comparable to similarly titled measures employed by other companies. We present these non-GAAP



 

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  measures because management believes that they are meaningful to understanding our performance during the periods presented and its ongoing business. Non-GAAP measures are not prepared in accordance with GAAP and therefore are not necessarily comparable to similarly titled metrics or the financial results of other companies. These non-GAAP measures should be considered a supplement to, not a substitute for, or superior to, the corresponding financial measures calculated in accordance with GAAP. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations” for definitions of AFFO and Adjusted EBITDAre and an important discussion of their uses, inherent limitations, and reconciliations to their most directly comparable GAAP financial measure.
(2)

We calculate Adjusted EBITDAre based on the most recent three-month amounts, annualized.

(3)

For the years ended December 31, 2018 and 2017, we calculated Adjusted EBITDA, annualized. For an explanation of how Adjusted EBITDA is calculated, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”



 

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RISK FACTORS

The following sets forth material risks related to the Spin-Off, AIR’s business, and the AIR Common Stock. You should carefully consider the following risks and other information contained in this information statement in evaluating us and the AIR Common Stock, including the matters addressed in the section entitled “Cautionary Statement Regarding Forward-Looking Statements” contained in this information statement. The risks described below are not the only risks that AIR’s business faces or that the separate companies will face after the consummation of the Spin-Off and the related transactions. Additional risks and uncertainties not currently known or that are currently expected to be immaterial may also materially and adversely affect either company’s business, financial condition, and could, in turn, impact the trading price of the AIR Common Stock.

RISKS RELATED TO OUR BUSINESS

Pandemics, such as COVID-19, may affect our ability to collect rents and late fees from tenants, and our ability to evict tenants, in addition to having other negative effects on our business, which in turn could adversely affect our financial condition and results of operations.

A local, regional, national or international outbreak of a contagious disease, such as COVID-19, could negatively impact our tenants and our operations. The World Health Organization declared COVID-19 to be a pandemic on March 11, 2020. The outbreak of the COVID-19 pandemic has severely impacted global economic activity and caused significant volatility and negative pressure in financial markets. The global impact of the outbreak has been rapidly evolving and many countries, including the United States, have reacted by instituting a wide variety of measures including states of emergency, mandatory quarantines, required business and school closures, implementing “shelter in place” orders, and restricting travel. In addition, many cities and states have enacted, or are considering enacting, exceptions to contractual obligations for residents and commercial tenants, including government mandated rent delays or other abatement measures or concessions or prohibitions on lease terminations or evictions. Many experts predict that the outbreak will trigger a period of material global economic slowdown or a global recession.

Factors that have negatively impacted, or would negatively impact, our operations or those of entities in which we hold a partial interest, during the COVID-19 pandemic or another pandemic include:

 

   

our ability to collect rents and late fees on a timely basis or at all, without reductions or other concessions;

 

   

our ability to evict residents for non-payment and for other reasons;

 

   

our ability to ensure business continuity in the event our continuity of operations plan is not effective or improperly implemented or deployed during a disruption;

 

   

fluctuations in regional and local economies, local real estate conditions, and rental rates;

 

   

our ability to control incremental costs associated with COVID-19;

 

   

our ability to dispose communities at all or on terms favorable to us;

 

   

our ability to complete redevelopments and developments as planned; and

 

   

potential litigation relating to the COVID-19 pandemic.

Given the ongoing and dynamic nature of the circumstances surrounding the COVID-19 pandemic, it is difficult to predict how significant the impact of this outbreak will be on the global economy, our residents and commercial tenants, our communities, and the operations of entities in which we hold a partial interest, or for how long disruptions are likely to continue. The extent of such impact will depend on developments, which are highly uncertain, rapidly evolving and cannot be predicted, including the ability to contain the virus, the duration of measures implemented, and the overall impact of these measures. Such developments, depending on their

 

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nature, duration, and intensity, could have a material adverse effect on our operating results and financial condition. The COVID-19 pandemic also may have the effect of heightening many of the other risks described below.

If Aimco is unable to successfully redevelop or develop new properties in a timely manner or at all or fails to perform under our agreements with it, it could materially adversely affect our financial condition and results of operations.

From time to time, we may receive redeveloped or developed property from Aimco, with the option to pay a certain amount based on then-current fair market value of the redevelopment and development improvements (in some cases, at a small discount thereto) once the applicable property has reached stabilization. We will depend on Aimco to provide newly redeveloped or developed properties. In addition to the risks associated with the ownership of real estate investments in general, there are significant risks to Aimco associated with Aimco’s redevelopment and development activities. If Aimco is unsuccessful in redeveloping or developing properties and fails to perform under our agreements with it, it could have an impact on our ability to grow our portfolio and to acquire stabilized properties at prices favorable to us, which could have a material adverse effect on our financial condition and results of operations.

Failure to generate sufficient net operating income may adversely affect our liquidity, limit our ability to fund necessary capital expenditures, or adversely affect our ability to pay dividends or distributions.

Our ability to fund necessary capital expenditures on our communities depends on, among other things, our ability to generate net operating income in excess of required debt payments. If we are unable to fund capital expenditures on our communities, we may not be able to preserve the competitiveness of our communities, which could adversely affect their net operating income and long-term value.

Our ability to make payments to our investors depends on our ability to generate net operating income in excess of required debt payments and capital expenditure requirements. Our net operating income and liquidity may be adversely affected by events or conditions beyond our control, including:

 

   

the general economic climate;

 

   

an inflationary environment in which the costs to operate and maintain our communities increase at a rate greater than our ability to increase rents, which we can only do upon renewal of existing leases or at the inception of new leases;

 

   

competition from other apartment communities and other housing options;

 

   

local conditions, such as loss of jobs, unemployment rates, or an increase in the supply of apartments, that might adversely affect apartment occupancy or rental rates;

 

   

changes in governmental regulations and the related cost of compliance;

 

   

changes in tax laws and housing laws, including the enactment of rent control laws or other laws regulating multifamily housing; and

 

   

changes in interest rates and the availability of financing.

Competition could limit our ability to lease apartment homes, increase or maintain rents or execute our development strategy.

Our apartment communities and the apartment communities we manage 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.

 

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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 stabilized 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 free cash flow and internal rates of return, and are accretive to net asset value, 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 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.

Rent control laws and other regulations that limit our ability to increase rental rates may negatively impact our rental income and profitability.

State and local governmental agencies may introduce rent control laws or other regulations that limit our ability to increase rental rates, which may affect our rental income. Especially in times of recession and economic slowdown, rent control initiatives can acquire significant political support. If rent controls unexpectedly became applicable to certain of our properties, our revenue from and the value of such properties could be adversely affected.

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

 

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comply with design and construction 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.

Moisture infiltration and resulting mold remediation may be costly.

Although we will be 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. AIR has 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, AIR has not incurred any material costs or liabilities relating to claims of mold exposure or to abate mold conditions. We will 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 will be insured for certain risks, the cost of insurance, increased claims activity, or losses resulting from casualty events may affect our financial condition and results of operations.

We will be 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 will be 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 financial condition and results of operations.

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.

 

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Pursuant to 17 C.F.R. Section 200.83

 

We depend on our senior management.

Our success and our ability to implement and manage anticipated future growth depend, in large part, upon the efforts of our senior management team, who have extensive market knowledge and relationships, and exercise substantial influence over our operational, financing, acquisition, and disposition activity. Members of our senior management team have national or regional industry reputations that attract business and investment opportunities and assist us in negotiations with lenders, existing and potential tenants, and other industry participants. The loss of services of one or more members of our senior management team, or our inability to attract and retain similarly qualified personnel, could adversely affect our business, diminish our investment opportunities, and weaken our relationships with lenders, business partners, existing and prospective tenants, and industry participants, which could adversely affect our financial condition, results of operations, cash flow, per share trading price of AIR Common Stock and ability to make distributions to our stockholders.

Our business and operations would suffer in the event of significant disruptions or cyberattacks 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 cyberattacks.

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 cyberattacks 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, 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 became 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 and data security 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.

“Change of control” provisions, such as in our Master Leasing Agreement and our Property Management Agreement, may discourage third parties from acquiring us or from acquiring our properties.

Upon the occurrence of “change of control” events specified in our Master Leasing Agreement and Property Management Agreement, Aimco will have the right to terminate the Master Leasing Agreement and the Property Management Agreement. The ability for Aimco to terminate the Master Leasing Agreement and the Property

 

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Confidential Treatment Requested by Aimco-LP, Inc.

Pursuant to 17 C.F.R. Section 200.83

 

Management Agreement upon a “change of control” may have the effect of discouraging, delaying or preventing a change of control, even if a change of control would be beneficial to our stockholders, or preventing our stockholders from realizing a premium on the sale of their shares if we were acquired.

There may be conflicts of interest in our relationship with Aimco.

There may be conflicts of interest inherent in our relationship with Aimco insofar as Aimco and its affiliates own apartment communities and other real estate assets some of which may be in close proximity to certain of our apartment communities. Certain business opportunities appropriate for us may also be appropriate for Aimco or its affiliates, and we may compete with Aimco for certain business opportunities. Terry Considine, our Chairman and Chief Executive Officer, will serve as Aimco’s Executive Chairman and interim Chief Executive Officer.

The agreements between Aimco and us generally will not limit or restrict Aimco or its affiliates from engaging in any business or managing other entities that engage in business of the type conducted by us. Aimco does, and may continue to, engage in the ownership of stabilized real estate properties, and Aimco may manage its own properties, which may cause us to compete with Aimco for business opportunities or result in a change in our current business strategy.

Actual, potential, or perceived conflicts have given, and in the future could give, rise to investor dissatisfaction, settlements with stockholders, litigation or regulatory inquiries or enforcement actions. Appropriately dealing with conflicts of interest is complex and difficult, and our reputation could be damaged if we fail, or appear to fail, to deal appropriately with one or more potential, actual or perceived conflicts of interest. Regulatory scrutiny of, or litigation in connection with, conflicts of interest could have a material adverse effect on our reputation, which could materially adversely affect our business in a number of ways, including causing a reluctance of counterparties to do business with us, a decrease in the prices of our equity securities, and a resulting increased risk of litigation and regulatory enforcement actions.

RISKS RELATED TO OUR INDEBTEDNESS AND FINANCING

Our debt financing could result in foreclosure of our apartment communities, prevent us from making distributions on our equity, or otherwise adversely affect our liquidity.

At the completion of the Spin-Off, it is expected that we will have a revolving credit facility and a term loan credit facility, each of which may be secured by our assets, and which credit facilities may either be a continuation of Aimco’s existing revolving credit facility and term loan credit facility, or a replacement thereof on similar terms and conditions. Over time, we may become party to one or more additional financing arrangements, including credit facilities or other bank debt, bonds, and mortgage financing. We also anticipate that certain entities that will be our subsidiaries after the Spin-Off will assume or retain a certain amount of existing secured property-level indebtedness related to the properties we will own after the Spin-Off.

In connection with such financing activities, we will be 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 our indebtedness may not be refinanced or that the terms of any refinancing will not be as favorable as the terms of then-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. At the completion of the Spin-Off, the majority of our apartment communities will be 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 maintain AIR’s qualification as a REIT.

 

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Confidential Treatment Requested by Aimco-LP, Inc.

Pursuant to 17 C.F.R. Section 200.83

 

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 a credit facility, 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.

Increases in interest rates would increase our interest expense and reduce our profitability.

As of December 31, 2019, AIR Predecessor 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, AIR Predecessor 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 may 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 credit facilities may provide, 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 our REIT status. AIR OP’s outstanding preferred units will prohibit the payment of dividends on AIR Common Stock or AIR OP Common Units if we fail to pay the dividends to which the holders of the preferred units are entitled.

 

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Confidential Treatment Requested by Aimco-LP, Inc.

Pursuant to 17 C.F.R. Section 200.83

 

We may increase leverage, which could further exacerbate the risks associated with our substantial indebtedness.

We may decide to increase our leverage. Our board of directors will consider a number of factors when evaluating our level of indebtedness and when making decisions regarding the incurrence of new indebtedness, including the estimated market value of our assets and the ability of particular assets, and our company as a whole, to generate cash flow to cover the expected debt service. Although our credit facilities may limit our ability to incur additional indebtedness, our governing documents do not limit the amount of debt we may incur, and our board of directors may change our target debt levels at any time without the approval of our stockholders. We may incur additional indebtedness from time to time in the future to finance working capital, capital expenditures, investments or acquisitions, or for other purposes. If we do so, the risks related to our indebtedness could intensify.

RISKS RELATED TO THE SPIN-OFF

The board of directors of Aimco has reserved the right, in its sole discretion, to amend, modify or abandon the Spin-Off at any time prior to the distribution.

Until the Spin-Off occurs, Aimco’s board of directors will have the sole discretion to amend, modify or abandon the Spin-Off at any time prior to the distribution. This means Aimco may cancel or delay the planned distribution of AIR Common Stock if at any time the board of directors of Aimco determines, in its sole discretion, that the distribution of the AIR Common Stock or the terms thereof are not in the best interests of Aimco and its stockholders or that market conditions or other circumstances are such that the Spin-Off is no longer advisable at that time. If Aimco’s board of directors determines to terminate the Spin-Off, stockholders of Aimco will not receive any distribution of AIR Common Stock and holders of AIR OP Common Units will not receive any distribution of New OP Units, as applicable, and Aimco will be under no obligation whatsoever to its stockholders to distribute such shares or units. In addition, the Spin-Off is subject to the satisfaction or waiver (by Aimco in its sole discretion) of a number of conditions. See “The Spin-Off—Conditions to the Spin-Off.”

The historical and pro forma financial information included in this information statement may not be a reliable indicator of future results.

Our historical consolidated financial data and our unaudited pro forma consolidated financial data included in this information statement may not reflect our business, financial position results of operations had we been an independent, publicly traded company during the periods presented, or what our business, financial position, results of operations or cash flows will be in the future when we are an independent, publicly traded company. Prior to the Spin-Off, our business has been operated by Aimco as part of one corporate organization and not operated as a stand-alone company.

Our historical consolidated financial data represents the financial position and results of operations of Aimco’s and AIR OP’s consolidated financial statements without giving effect to the Spin-Off. Our historical consolidated financial statements include the parts of the Aimco business that will not be a part of the AIR business after the Spin-Off, and therefore includes income, expenses, and other financial measures not attributable to our business. The consolidated financial statements do not necessarily reflect what our financial position, results of operations or cash flows would have been if we had been a standalone company during the periods presented, nor are they necessarily indicative of our future results of operations, financial position or cash flows.

The pro forma financial data included in this information statement includes adjustments based upon available information that our management believes to be reasonable to reflect these factors. However, the assumptions may change or may be incorrect, and actual results may differ, perhaps significantly. For these reasons, our cost structure may be higher, and our future performance may be worse, than the performance implied by the pro forma financial data presented in this information statement. For additional information about

 

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Confidential Treatment Requested by Aimco-LP, Inc.

Pursuant to 17 C.F.R. Section 200.83

 

the basis of presentation of our combined historical financial data and our pro forma combined financial data included in this information statement, see “Description of Financing and Material Indebtedness,” “Capitalization,” “Summary Historical Consolidated and Unaudited Pro Forma Consolidated Financial Data,” “Unaudited Pro Forma Consolidated Financial Statements,” “Selected Historical Consolidated Financial Data,” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” included elsewhere in this information statement.

We may be unable to achieve some or all of the benefits that we expect to achieve from the Spin-Off.

Following the Spin-Off, we and Aimco will be two, focused and independent, publicly traded companies. However, we may not be able to achieve some or all of the benefits that we expect to achieve as a company independent from Aimco in the time we expect, if at all. For instance, it may take longer than anticipated for us to, or we may never, succeed in growing our business through the acquisition of new stabilized apartments communities or through our active management strategies.

The Spin-Off could give rise to disputes or other unfavorable effects, which could materially and adversely affect our business, financial position or results of operations.

The Spin-Off may lead to increased operating and other expenses, of both a nonrecurring and a recurring nature, and to changes to certain operations, which expenses or changes could arise pursuant to arrangements made between Aimco and us or could trigger contractual rights of, and obligations to, third parties. Disputes with third parties could also arise out of these transactions, and we could experience unfavorable reactions to the Spin-Off from employees, lenders, ratings agencies, regulators or other interested parties. These increased expenses, changes to operations, disputes with third parties or other effects could materially and adversely affect our business, financial position or results of operations. In addition, following the Spin-Off, disputes with Aimco could arise in connection with each of the Separation Agreement, the Employee Matters Agreement, the Property Management Agreement, the Master Services Agreement, the Master Leasing Agreement or certain other agreements.

In connection with the Spin-Off, we have assumed and will assume, and will indemnify Aimco for, certain liabilities. If we are required to make payments pursuant to these indemnities, we may need to divert cash to meet those obligations and our financial results could be adversely affected. In addition, Aimco will indemnify us for certain liabilities. These indemnities may not be sufficient to insure us against the full amount of liabilities we incur, and Aimco may not be able to satisfy its obligations in the future.

Pursuant to the Separation Agreement, we will agree to assume and indemnify Aimco for certain liabilities, which may include, among other items, associated defense costs, settlement amounts, and judgements. Payments pursuant to these indemnities may be significant and could negatively impact our business. Third parties could also seek to hold us responsible for any of the liabilities allocated to Aimco. Aimco will agree to indemnify us for such liabilities, but such indemnities may not be sufficient to protect us against the full amount of such liabilities. In addition, Aimco may not be able to fully satisfy its indemnification obligations with respect to the liabilities we incur. Even if we ultimately succeed in recovering from Aimco, any amounts for which we are held liable, we may be temporarily required to bear these losses ourselves. Each of these risks could negatively affect our business, financial condition, results of operations, and cash flows.

Additionally, we will assume and be responsible for the payment of our share of certain liabilities of Aimco relating to, arising out of or resulting from the matters related to the AIR business and certain separation expenses not otherwise allocated to Aimco (or allocated specifically to us) pursuant to the Separation Agreement, and third parties could seek to hold us responsible for Aimco’s share of any such liabilities. Aimco will indemnify us for their share of any such liabilities, however, such indemnities may not be sufficient to protect us against the full amount of such liabilities, or Aimco may not be able to fully satisfy its indemnification obligations. In addition, even if we ultimately succeed in recovering from Aimco any amounts for which we are

 

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Confidential Treatment Requested by Aimco-LP, Inc.

Pursuant to 17 C.F.R. Section 200.83

 

held liable in excess of our agreed share, we may be temporarily required to bear these losses ourselves. Each of these risks could negatively affect our business, financial condition, results of operations, and cash flows.

For more information, see “Our Relationship with Aimco Following the Spin-Off.”

The Spin-Off may expose us to potential liabilities arising out of state and federal fraudulent conveyance laws.

A court could deem the Spin-Off or certain internal restructuring transactions undertaken by Aimco in connection therewith to be a fraudulent conveyance or transfer. Fraudulent conveyances or transfers are defined to include transfers made or obligations incurred with the actual intent to hinder, delay or defraud current or future creditors or transfers made or obligations incurred for less than reasonably equivalent value when the debtor-transferor was insolvent, or that rendered the debtor-transferor insolvent, inadequately capitalized or unable to pay its debts as they become due.

If a court were to find that any part of the Spin-Off was a fraudulent transfer or conveyance, a court could void the Spin-Off or impose substantial liabilities upon us, which could adversely affect our financial condition and our results of operations. Among other things, the court could require us to fund liabilities of other companies involved in the restructuring transactions for the benefit of creditors, or require stockholders to return any dividends previously paid by AIR. Moreover, a court could void certain elements of the Spin-Off or AIR could be awarded monetary damages for the difference between the consideration received by Aimco or its stockholders and the fair market value of the transferred property at the time of the Spin-Off. Whether a transaction is a fraudulent conveyance or transfer will vary depending upon the jurisdiction whose law is being applied.

Our agreements with Aimco may not reflect terms that would have resulted from arm’s-length negotiations with unaffiliated third parties.

The agreements related to the Spin-Off, including the Separation Agreement, the Employee Matters Agreement, the Property Management Agreement, the Master Services Agreement, the Master Leasing Agreement, and certain other agreements, will have been entered into in the context of the Spin-Off while we are still controlled by Aimco. As a result, they may not reflect terms that would have resulted from arm’s-length negotiations between unaffiliated third parties. The terms of the agreements being entered into in the context of the Spin-Off concern, among other things, allocation of assets and liabilities attributable to periods prior to the Spin-Off and the rights and obligations, including certain indemnification obligations, of Aimco and us after the Spin-Off, certain services provided by us to Aimco and by Aimco to us after the Spin-Off, and Aimco’s lease from us of the Initial Leased Properties. For a more detailed description, see “Our Relationship with Aimco Following the Spin-Off” and “Description of Financing and Material Indebtedness.”

The distribution of AIR Common Stock is intended to be a taxable spin-off and the distribution will generally be taxable to you as a dividend.

The distribution of AIR Common Stock is intended to be a taxable spin-off. An amount equal to the fair market value of AIR Common Stock received by you on the distribution date (plus any cash received in lieu of fractional shares) will generally be treated as a taxable dividend to the extent of your ratable share of any current or accumulated earnings and profits of Aimco, with the excess treated first as a non-taxable return of capital to the extent of your tax basis in shares of Aimco Common Stock and then as capital gain. The fair market value of AIR Common Stock reported by Aimco to you on IRS Form 1099-DIV may differ from the trading price of AIR Common Stock on the distribution date. In addition, Aimco or other applicable withholding agents may be required or permitted to withhold at the applicable rate on all or a portion of the distribution payable to non-U.S. stockholders, and any such withholding would be satisfied by Aimco or such agent withholding and selling a portion of the AIR Common Stock otherwise distributable to non-U.S. stockholders or by withholding from other property held in the non-U.S. stockholder’s account with the withholding agent. Your tax basis in shares of

 

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Confidential Treatment Requested by Aimco-LP, Inc.

Pursuant to 17 C.F.R. Section 200.83

 

Aimco Common Stock held at the time of the distribution will be reduced (but not below zero) if the fair market value of AIR shares distributed by Aimco to you in the distribution (plus any cash received in lieu of fractional shares) exceeds your ratable share of Aimco’s available current and accumulated earnings and profits. Your holding period for such Aimco shares will not be affected by the distribution. Aimco will not be able to advise stockholders of the amount of earnings and profits of Aimco until after the end of the 2020 calendar year.

Additionally, Aimco’s current earnings and profits are measured as of the end of the tax year and are generally allocated to all distributions made during such tax year on a pro rata basis. As a result, a proportionate part of Aimco’s current earnings and profits for the entire taxable year of the Spin-Off will be allocated to the Spin-Off distribution. That proportionate part will be treated as dividend income to you even if you have not held Aimco stock for the entire taxable year of Aimco in which the Spin-Off occurs. Thus, if you did not hold your Aimco Common Stock for the entire taxable year of Aimco in which the Spin-Off occurs, you may be allocated a disproportionate amount of ordinary income attributable to Aimco’s current earnings and profits as a result of the Spin-Off distribution.

Although Aimco will be treating the distribution as a taxable dividend and is ascribing a value to AIR shares in the distribution for tax purposes, this treatment and valuation is not binding on the Internal Revenue Service (the “IRS”) or any other tax authority. These taxing authorities could assert a different treatment, including treating the distributions as a partial liquidation, which could result in different treatment for non-corporate stockholders. Such treatment may result in Aimco having an insufficient dividend paid deduction to eliminate all of its taxable income and could have a material adverse effect on our financial condition.

These taxing authorities could also ascribe a higher valuation to AIR shares, particularly if our stock trades at prices significantly above the value ascribed to AIR shares by Aimco in the period following the distribution. Such a higher valuation may cause a larger reduction in the tax basis of your Aimco shares or may cause you to recognize additional dividend or capital gain income. You should consult your tax advisor as to the particular tax consequences of the distribution to you.

RISKS RELATED TO TAX LAWS AND REGULATIONS

AIR may fail to qualify as a REIT.

If AIR fails to qualify as a REIT, AIR 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, AIR 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, AIR’s failure to qualify as a REIT may place us in default under our credit facilities.

We believe that AIR will operate in a manner that enables it to meet the requirements for qualification and taxation as a REIT. 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. AIR’s 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. AIR’s ability to satisfy the asset tests will depend 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. AIR’s compliance with the REIT annual income and quarterly asset requirements will also depend 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 U.S. 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 IRS will not contend that our interests in subsidiaries or other issuers constitutes a violation of the REIT requirements. Moreover, future economic,

 

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Confidential Treatment Requested by Aimco-LP, Inc.

Pursuant to 17 C.F.R. Section 200.83

 

market, legal, tax, or other considerations may cause AIR to fail to qualify as a REIT, or the board of directors of AIR may determine to revoke its REIT status.

Furthermore, if Aimco fails to remain qualified as a REIT for its 2020 and 2021 taxable years, and AIR will be deemed to be a “successor” of Aimco under Section 856 of the Code, then AIR may also fail to qualify as a REIT. There can be no assurance that Aimco will remain qualified as a REIT for its 2020 and 2021 taxable years.

REIT distribution requirements limit our available cash.

As a REIT, AIR will be subject to annual distribution requirements. AIR OP will pay distributions intended to enable AIR to satisfy its distribution requirements. This will limit the amount of cash available for other business purposes, including amounts to fund our growth. AIR will generally be required to distribute annually at least 90% of its “real estate investment trust taxable income,” which is generally equivalent to net taxable ordinary income (and may be all cash or combination of cash and stock satisfying the requirements of applicable law), 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 AIR’s stockholders to comply with the requirements applicable to REITs under 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 or long-term basis to meet the 90% distribution requirement of the Code.

AIR may be subject to federal, state, and local income taxes in certain circumstances.

Even as a REIT, AIR may be subject to United States federal income and excise taxes in various situations, such as on its undistributed income. AIR could also be required to pay a 100% tax on any net income on non-arm’s-length transactions between AIR and a taxable REIT subsidiary (“TRS”) 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 AIR may be subject to state or local taxation in various state or local jurisdictions in which AIR transacts business. Any taxes imposed on AIR would reduce our operating cash flow and net income and could negatively impact our ability to pay dividends and distributions.

Dividends payable by REITs generally 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 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, and meet certain requirements, may generally 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 AIR Common Stock.

 

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Confidential Treatment Requested by Aimco-LP, Inc.

Pursuant to 17 C.F.R. Section 200.83

 

Complying with the REIT requirements may cause AIR to forgo otherwise attractive business opportunities.

To qualify as a REIT, AIR will need to continually satisfy tests concerning, among other things, the sources of its income, the nature and diversification of its assets, the amounts distributed to AIR stockholders, and the ownership of AIR stock. As a result of these tests, AIR may be required to make distributions to stockholders at disadvantageous times or when AIR 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 AIR and AIR’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 AIR 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 AIR and AIR’s stockholders. Revisions in federal tax laws and interpretations thereof could significantly and negatively affect AIR ability to qualify as a REIT and the tax considerations relevant to an investment in AIR Common Stock, or could cause AIR 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 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 will 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 will likely be 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.

RISKS RELATED TO AIR COMMON STOCK

There is no existing market for AIR Common Stock, and a trading market that will provide you with adequate liquidity may not develop for AIR Common Stock. In addition, once AIR Common Stock begins trading, the market price and trading volume of AIR Common Stock may fluctuate widely.

There is no current trading market for AIR Common Stock. The AIR Common Stock issued in the Spin-Off will be trading publicly for the first time. We anticipate that a limited market, commonly known as a “when-distributed” trading market, will develop at some point following the record date, and that “regular-way” trading in shares of AIR Common Stock will begin on the first trading day following the distribution. However, an active trading market for AIR Common Stock may not develop as a result of the Spin-Off or be sustained in the future. The lack of an active trading market may make it more difficult for you to sell your shares and could lead to our share price being depressed or more volatile.

 

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Confidential Treatment Requested by Aimco-LP, Inc.

Pursuant to 17 C.F.R. Section 200.83

 

For many reasons, including the risks identified in this information statement, the market price of AIR Common Stock following the Spin-Off may be more volatile than the market price of Aimco Common Stock before the Spin-Off. These factors may result in short-term or long-term negative pressure on the value of AIR Common Stock.

We cannot predict the prices at which AIR Common Stock may trade after the Spin-Off. The market price of AIR Common Stock may fluctuate significantly, depending upon many factors, some of which may be beyond our control, including, but not limited to:

 

   

our financial condition and performance;

 

   

the financial condition of our tenants, including Aimco and its subsidiaries, including the extent of tenant bankruptcies or defaults;

 

   

our dividend policy;

 

   

a shift in our investor base;

 

   

the reputation of REITs and real estate investments generally and the attractiveness of REIT equity securities in comparison to other equity securities, including securities issued by other REITs, and fixed income securities;

 

   

uncertainty and volatility in the equity and credit markets;

 

   

fluctuation in interest rates;

 

   

our quarterly or annual earnings, or those of other REITs;

 

   

actual or anticipated fluctuations in our operating results;

 

   

our ability to obtain financing as needed;

 

   

changes in laws and regulations affecting our business;

 

   

changes in accounting standards, policies, guidance, interpretations or principles;

 

   

announcements by us or our competitors of significant investments, acquisitions or dispositions;

 

   

the failure of securities analysts to cover AIR Common Stock after the Spin-Off;

 

   

the failure of securities indices that currently include Aimco Common Stock to add or substitute our common stock for that of Aimco after the completion of the Spin-Off;

 

   

changes in earnings estimates by securities analysts or our ability to meet those estimates;

 

   

the operating performance and stock price of other REITs;

 

   

overall market fluctuations;

 

   

a decline in the real estate markets;

 

   

general economic conditions and other external factors; and

 

   

all other risk factors addressed elsewhere in this information statement.

Stock markets in general have experienced volatility that has often been unrelated to the operating performance of a particular company. These broad market fluctuations may adversely affect the trading price of AIR Common Stock.

 

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Confidential Treatment Requested by Aimco-LP, Inc.

Pursuant to 17 C.F.R. Section 200.83

 

We cannot guarantee the timing, amount, or payment of dividends on AIR Common Stock.

We will be required to distribute annually to holders of AIR Common Stock at least 90% of our “real estate investment trust taxable income,” which is generally equivalent to net taxable ordinary income (and may be all cash or a combination of cash and stock satisfying the requirements of applicable law). Although we expect to target a dividend payout ratio between 65% and 80% of AFFO, our board of directors will determine the amount of, and declare, our dividends. Our board of directors’ decisions regarding the payment of dividends will depend on many factors, such as REIT distribution requirements, current market conditions, liquidity needs, and other uses of cash, such as for deleveraging and accretive investment activities, and other factors that it deems relevant. Our ability to pay dividends will depend on our ongoing ability to generate cash from operations and access the capital markets. We cannot guarantee that we will pay a dividend in the future or continue to pay any dividend if we commence paying dividends. For more information, please refer to “Dividend Policy.”

We may choose to pay dividends in our own stock, in which case you could be required to pay income taxes in excess of the cash dividends you receive.

We may in the future distribute taxable dividends that are payable in cash and shares of AIR Common Stock where up to only 20% (or, for dividends declared between April 1, 2020, and December 31, 2020, 10%) of such a dividend is made in cash. Taxable stockholders receiving such dividends will be required to include the full amount of the dividend as ordinary income to the extent of our current and accumulated earnings and profits for U.S. federal income tax purposes. As a result, stockholders may be required to pay income taxes with respect to such dividends in excess of the cash dividends received. If a U.S. Holder (as defined below under “U.S. Federal Income Tax Considerations”) sells the stock that it receives as a dividend in order to pay this tax, the sale proceeds may be less than the amount included in income with respect to the dividend, depending on the market price of our stock at the time of the sale. Furthermore, with respect to certain Non-U.S. Holders (as defined below under “U.S. Federal Income Tax Considerations”), we may be required to withhold U.S. tax with respect to such dividends, including in respect of all or a portion of such dividend that is payable in stock. In addition, if a significant number of our stockholders determine to sell shares of AIR Common Stock to pay taxes owed on dividends, it may put downward pressure on the trading price of AIR Common Stock.

It is unclear whether and to what extent we will be able to pay taxable dividends in cash and stock in future years. Moreover, the IRS may impose additional requirements with respect to taxable cash/stock dividends, including on a retroactive basis, or assert that the requirements for such taxable cash/stock dividends have not been met.

Future sales or distributions of AIR Common Stock could depress the market price for shares of AIR Common Stock.

The AIR Common Stock that Aimco intends to distribute to its stockholders in the Spin-Off generally may be sold immediately in the public market. Although we have no actual knowledge of any plan or intention on the part of any holder of Aimco Common Stock to sell AIR Common Stock on or after the record date, it is possible that some Aimco stockholders will decide to sell some or all of the shares of AIR Common Stock that they receive in the Spin-Off, including to pay any taxes payable by such stockholders upon receipt of AIR Common Stock.

In addition, some of the holders of Aimco Common Stock are index funds tied to stock or investment indices or are institutional investors bound by various investment guidelines. Companies are generally selected for investment indices, and in some cases selected by institutional investors, based on factors such as market capitalization, industry, trading liquidity, and financial condition. As a company separate from Aimco, we may initially have a lower market capitalization than Aimco has today, and our business will differ from the business of Aimco prior to the Spin-Off. As a result, AIR Common Stock may not qualify for those investment indices. In addition, AIR Common Stock may not meet the investment guidelines of some institutional investors.

 

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Confidential Treatment Requested by Aimco-LP, Inc.

Pursuant to 17 C.F.R. Section 200.83

 

Consequently, these index funds and institutional investors may have to sell some or all of AIR Common Stock they receive in the Spin-Off, which may result in a decline in the price of AIR Common Stock.

Any disposition by a significant stockholder of AIR Common Stock, or the perception in the market that such dispositions could occur, may cause the price of AIR Common Stock to fall. Any such decline could impair our ability to raise capital through future sales of AIR Common Stock. Further, AIR Common Stock may not qualify for other investment indices, including indices specific to REITs, and any such failure may discourage new investors from investing in AIR Common Stock.

The combined post-Spin-Off value of Aimco Common Stock and AIR Common Stock may not equal or exceed the pre-Spin-Off value of Aimco Common Stock.

We cannot assure you that the combined trading prices of Aimco Common Stock and AIR Common Stock after the Spin-Off will be equal to or greater than the trading price of Aimco Common Stock prior to the Spin-Off. Until the market has fully evaluated the stand-alone business of our company, the price at which shares of AIR Common Stock trades may fluctuate more significantly than might otherwise be typical, including volatility caused by general market conditions. Similarly, until the market has fully evaluated the business of Aimco without the portfolio of assets that will be allocated to AIR, the price at which Aimco Common Stock trades may fluctuate more significantly than might otherwise be typical.

RISKS RELATED TO OUR CORPORATE STRUCTURE

AIR and its subsidiaries may be prohibited from making distributions and other payments.

All of AIR’s apartment communities will be owned by subsidiaries of AIR OP, and all of AIR’s operations will be conducted by subsidiaries of Aimco. As a result, AIR will depend on distributions and other payments from AIR OP, and AIR OP will depend on distributions and payments from its subsidiaries in order to satisfy our financial obligations and make payments to our investors. The ability of AIR OP 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 REIT subsidiaries, AIR OP and its subsidiaries, our right to receive assets upon their liquidation or reorganization will be effectively subordinated to the claims of their creditors and any holders of preferred equity senior to our equity investments. 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 AIR’s charter may result in the loss of economic and voting rights by purchasers that violate those limits.

AIR’s charter will limit 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 the board of directors of AIR) of outstanding shares of common stock, or 15% in the case of certain pension trusts, registered investment companies (or up to 20.0% for such pension trusts or registered investment companies upon a waiver from the board of directors of AIR). The charter will also prohibit anyone from buying shares of AIR’s capital stock if the purchase would result in AIR losing its REIT status. This could happen if a transaction results in fewer than 100 persons owning all of AIR’s shares of capital stock or results in five or fewer individuals (applying certain attribution rules of the Code) owning 50% or more of the value of all of AIR’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:

 

   

the transfer will be considered null and void;

 

   

we will not reflect the transaction on AIR’s books;

 

   

we may institute legal action to enjoin the transaction;

 

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Confidential Treatment Requested by Aimco-LP, Inc.

Pursuant to 17 C.F.R. Section 200.83

 

   

we may demand repayment of any dividends received by the affected person on those shares;

 

   

we may redeem the shares;

 

   

the affected person will not have any voting rights for those shares; and

 

   

the shares (and all voting and dividend rights of the shares) will be held in trust for the benefit of one or more charitable organizations designated by AIR.

AIR 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:

 

   

may lose control over the power to dispose of such shares;

 

   

may lose control over the power to dispose of such shares;

 

   

may not recognize profit from the sale of such shares if the market price of the shares increases;

 

   

may be required to recognize a loss from the sale of such shares if the market price decreases; and

 

   

may be required to repay to us any dividends received from us as a result of his or her ownership of the shares.

AIR’s charter may limit the ability of a third-party to acquire control of AIR.

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 AIR without the consent of the board of directors of AIR. AIR’s charter will authorize its board of directors to issue up to                  shares of capital stock. Under AIR’s charter, its board of directors will have the authority to classify and reclassify any of AIR’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 AIR 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 AIR, where there is a difference of opinion between the AIR board of directors and others as to what is in AIR’s stockholders’ best interests.

The Maryland General Corporation Law may limit the ability of a third-party to acquire control of AIR.

As a Maryland corporation, AIR will be subject to various Maryland laws that may have the effect of discouraging offers to acquire AIR and increasing the difficulty of consummating any such offers, where there is a difference of opinion between the AIR board of directors and others as to what is in AIR’s stockholders’ best interests. The Maryland General Corporation Law, specifically the Maryland Business Combination Act, restricts mergers and other business combination transactions between AIR and any person who acquires, directly or indirectly, beneficial ownership of shares of AIR‘s stock representing 10% or more of the voting power without prior approval of the board of directors of AIR. 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 AIR’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 of AIR will have 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, AIR has not adopted a stockholders’ rights plan. In addition, the Maryland

 

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Confidential Treatment Requested by Aimco-LP, Inc.

Pursuant to 17 C.F.R. Section 200.83

 

General Corporation Law provides that a corporation that (x) has at least three directors who are not officers or employees of the entity or related to an acquiring person and (y) has a class of equity securities registered under the Exchange Act, may elect in its charter or bylaws or by resolution of the board of directors to be subject to all or part of a special subtitle that provides that:

 

   

the corporation will have a staggered board of directors;

 

   

any director may be removed only for cause and by the vote of two-thirds of the votes entitled to be cast in the election of directors generally, even if a lesser proportion is provided in the charter or bylaws;

 

   

the number of directors may only be set by the board of directors, even if the procedure is contrary to the charter or bylaws;

 

   

vacancies may only be filled by the remaining directors, even if the procedure is contrary to the charter or bylaws; and

 

   

the secretary of the corporation may call a special meeting of stockholders at the request of stockholders only on the written request of the stockholders entitled to cast at least a majority of all the votes entitled to be cast at the meeting, even if the procedure is contrary to the charter or bylaws.

AIR does not expect to make any of the elections described above effective as of the Spin-Off.

We are an “emerging growth company” and, as a result of the reduced disclosure requirements applicable to emerging growth companies, AIR Common Stock may be less attractive to investors.

We are an “emerging growth company,” as defined in the JOBS Act. An emerging growth company may take advantage of specified exemptions from various requirements that are otherwise applicable generally to public companies in the United States. These provisions include:

 

   

an exemption to include fewer than five years of selected financial data;

 

   

an exemption from the auditor attestation requirement in the assessment of the emerging growth company’s internal control over financial reporting; and

 

   

reduced disclosure about the emerging growth company’s executive compensation arrangements.

As a result, the information that we provide stockholders in this information statement may be different than what is available with respect to many other public companies. If some investors find AIR Common Stock less attractive as a result of our reliance on these exemptions, there may be a less active trading market for AIR Common Stock and our share price may be adversely affected. When we are no longer deemed to be an emerging growth company, we will not be entitled to the exemptions provided in the JOBS Act discussed above.

 

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Confidential Treatment Requested by Aimco-LP, Inc.

Pursuant to 17 C.F.R. Section 200.83

 

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

This information statement includes forward-looking statements, including the sections entitled “Summary,” “Risk Factors,” “The Spin-Off,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and “Business and Properties.” Forward-looking statements include all statements that are not historical statements of fact and those regarding our intent, belief, or expectations, including, but not limited to, statements regarding: the anticipated timing, structure and benefits of the Spin-Off; tax treatment and tax consequences of the Spin-Off, including factors related thereto; any assumed or illustrative tax considerations; and any statements or assumptions regarding holder tax situations; future financing plans, business strategies, growth prospects, and operating and financial performance; and expectations regarding the making of distributions and the payment of dividends.

Words such as “anticipate(s),” “expect(s),” “intend(s),” “plan(s),” “believe(s),” “plan(s),” “may,” “will,” “would,” “could,” “should,” “seek(s)” and similar expressions, or the negative of these terms, are intended to identify such forward-looking statements. These statements are based on management’s current expectations and beliefs and are subject to a number of risks and uncertainties that could lead to actual results differing materially from those projected, forecasted or expected. Although we believe that the assumptions underlying the forward-looking statements are reasonable, we can give no assurance that our expectations will be attained. Factors which could have a material adverse effect on our operations and future prospects or which could cause actual results to differ materially from our expectations include but are not limited to:

 

   

the effects of the coronavirus (COVID-19) pandemic on Aimco’s and AIR’s business and on the global and U.S. economies generally;

 

   

real estate and operating risks, including fluctuations in real estate values and the general economic climate in the markets in which we operate and competition for residents in such markets; national and local economic conditions, including the pace of job growth and the level of unemployment; the amount, location and quality of competitive new housing supply; the timing of acquisitions and dispositions; and changes in operating costs, including energy costs;

 

   

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

 

   

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

 

   

the effects of other global or national health pandemics, epidemics or concerns;

 

   

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

 

   

negative economic conditions in our geographies of operation;

 

   

uninsured or underinsured losses that our properties may experience and other unanticipated expenses, including environmental compliance costs and liabilities;

 

   

our ability to complete financings related to the Spin-Off on acceptable terms or at all;

 

   

our relationship with Aimco following the Spin-Off;

 

   

our ability to manage our indebtedness level, changes in the terms of such indebtedness and changes in market interest rates;

 

   

covenants in our debt agreements and in the Master Leasing Agreement may limit our operational flexibility, and a covenant breach or default could materially and adversely affect our business, financial position, or results of operations;

 

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Confidential Treatment Requested by Aimco-LP, Inc.

Pursuant to 17 C.F.R. Section 200.83

 

   

our ability to pay dividends and the tax treatment of such dividends for our stockholders;

 

   

our or Aimco’s loss of key personnel;

 

   

our ability to qualify or maintain our status as a REIT;

 

   

the ability of AIR, AIR OP, Aimco and New OP to satisfy any necessary conditions to complete the Spin-Off;

 

   

the ability to achieve some or all the benefits that we expect to achieve from the Spin-Off or to successfully operate as an independent, publicly traded company following the Spin-Off;

 

   

activities by stockholder activists, including a proxy contest;

 

   

the ability and willingness of Aimco and its subsidiaries to meet or perform its obligations under any contractual arrangements that are entered into with us in connection with the Spin-Off and any of its obligations to indemnify, defend and hold us harmless from and against various claims, litigation and liabilities;

 

   

unexpected liabilities, disputes or other potential unfavorable effects related to the Spin-Off; and

 

   

additional factors discussed in the sections entitled “Business and Properties,” “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in this information statement.

Forward-looking statements speak only as of the date of this information statement. Except in the normal course of our public disclosure obligations, we expressly disclaim any obligation to release publicly any updates or revisions to any forward-looking statements to reflect any change in our expectations or any change in events, conditions or circumstances on which any statement is based.

 

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Confidential Treatment Requested by Aimco-LP, Inc.

Pursuant to 17 C.F.R. Section 200.83

 

THE SPIN-OFF

Overview of the Spin-Off

Consistent with Aimco’s on-going strategic planning, Aimco’s management and board of directors thoroughly evaluated a range of alternatives and transactions, and determined that a spin-off of the redevelopment and development business and portfolio (which represents less than 10% of Aimco’s existing GAV) is the best path forward to enhance value for all stockholders.

Upon the satisfaction or waiver by Aimco of the conditions to the Spin-Off, which are described in more detail in “—Conditions to the Spin-Off” below, Aimco will effect the Spin-Off by distributing 100% of AIR Common Stock held by Aimco pro rata to holders of Aimco Common Stock. The distribution of AIR Common Stock is expected to take place on                  , 2020. On the distribution date, each holder of Aimco Common Stock will receive one share of AIR Common Stock for each one share of Aimco Common Stock (and cash in lieu of fractional shares of Aimco Common Stock) held as of the close of business on the record date.

You will not be required to make any payment, or surrender or exchange your Aimco Common Stock, or take any other action to receive your AIR Common Stock to which you are entitled on the distribution date.

In connection with the Spin-Off, we will enter into agreements with Aimco that set forth the relationship between us and Aimco following the Spin-Off. See “Our Relationship with Aimco Following the Spin-Off.”

Until the Spin-Off has occurred, Aimco has the right to terminate the Spin-Off, even if all of the conditions have been satisfied, if the board of directors of Aimco determines, in its sole discretion, that the Spin-Off is not in the best interests of Aimco and its stockholders or that market conditions or other circumstances are such that the Spin-Off is no longer advisable at that time. We cannot provide any assurances that the Spin-Off will be completed. For a more detailed description of these conditions, see “—Conditions to the Spin-Off.”

Reasons for the Spin-Off

Aimco’s current business plan is comprised of three primary activities: (i) investment in a portfolio of multi-family properties diversified by geography and price point, (ii) redevelopment and development of properties where land value comprises a significant percentage of the total property value; and (iii) world-class property management. Consistent with Aimco’s on-going strategic planning, Aimco’s management and board of directors thoroughly evaluated a range of alternatives and transactions, and determined that a spin-off of the redevelopment and development business and portfolio (which represents less than 10% of Aimco’s existing GAV) is the best path forward to enhance value for all stockholders.

Aimco’s board of directors believes that the success of Aimco’s operations was obscured by employing leverage at levels above peers, by the execution risk and related overhead costs associated with redevelopment, development, and lease ups, and by more complicated and non-traditional investments or investment structures, all of which we believe has negatively affected the share price of Aimco Common Stock. As a result, Aimco’s board of directors determined that the separation of Aimco and AIR would allow Aimco’s investors to determine how to invest their money.

The board of directors of Aimco believes that the Spin-Off is in the best interests of Aimco, AIR, and their respective equityholders for a number of reasons, including the following:

 

   

Creates two, focused and independent, publicly traded companies, each with the opportunity to pursue growth through the execution of different business plans. We believe that having two, focused and independent, publicly traded companies with distinct investment profiles will maximize the strategic focus and financial flexibility to grow and return capital to stockholders. With strong, independent boards, dedicated management teams, expanded growth and investment opportunities, and optimized balance sheets, we believe that AIR and Aimco will create greater value separately than as a

 

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Confidential Treatment Requested by Aimco-LP, Inc.

Pursuant to 17 C.F.R. Section 200.83

 

 

combined entity. AIR’s business plan will be to: (i) own a diversified portfolio of stabilized properties; (ii) maintain a high quality portfolio with strong property management operations; (iii) maintain a strong balance sheet; (iv) reduce execution risk; and (v) operate with sector low management costs. AIR’s focus on the ownership of stabilized properties and active management is expected to result in higher and more predictable earnings, measured by FFO. Aimco’s business plan will be to: (i) focus on redevelopment and development projects on assets leased from AIR as well as opportunities Aimco sources itself (such as the right to develop multi-family properties, co-located with commercial life science uses to be built by a premier life sciences real estate developer); (ii) undertake complex transactions when warranted by risk-adjusted returns; (iii) maintain sufficient liquidity to support our business model; and (iv) use financial leverage to increase return on equity. Aimco’s focus is expected to create long-term value for real estate investors and will provide Aimco with flexibility to pursue broader opportunities, including those that are short-term dilutive, longer-term, more complicated, better measured by NAV creation than FFO, or that involve more, non-recourse leverage.

 

   

Enhances investor transparency, better highlights the attributes of both companies, and provides investors with the option to invest in one or both companies. By separating the AIR business from the rest of Aimco’s business, investors will have the option to choose whether to invest in Aimco’s stabilized multifamily portfolio (through an investment in AIR), its redevelopment and development and transactions business (through an investment in Aimco), or both. The separation will enable potential investors and the financial community to evaluate Aimco and AIR separately and assess the merits, performance, and future prospects of their respective businesses. In addition, we believe the Spin-Off will make AIR and Aimco more competitive and appealing to a broader investor audience moving forward, providing them with the opportunity to invest in two companies with compelling value propositions and distinct risk/reward profiles. AIR is expected to provide a simple and transparent way to invest in the multi-family sector: ownership with public market liquidity of a diversified portfolio of apartment communities, with low financial leverage, limited execution risk, best-in-class operations, and sector low management costs. Aimco’s business is expected to be less predictable in terms of quarter over quarter activity but to also have higher long-term target returns commensurate with such level of risk. Investors can increase their allocation to Aimco or to AIR, depending on their preference.

 

   

Limits AIR’s exposure to risks associated with the redevelopment and development business. AIR will be able to invest in stabilized properties that it believes will better support its underlying business. AIR is expected to have limited to no risk of earnings dilution from non-earning assets, and to have limited execution risk for redevelopment, development, and lease-ups, low leverage and lower overhead costs (both in total dollars and as a percentage of fair market value). Through its close relationship with Aimco, AIR is expected to retain access to some of the advantages of Aimco’s redevelopment and development business without the execution risk, leverage or associated costs.

 

   

Provides our management teams with the ability to focus on our distinct businesses and be more closely aligned with the needs of investors. Each of AIR and Aimco will have a senior management team focused on the performance of its respective business and that will have incentives to exercise options that are favorable to its respective business. The separation of the businesses will give each senior management team the opportunity to focus on the goals and expectations of each company’s investors. We expect that the separation of the experienced senior management teams and other key personnel operating our businesses, will result in the ability for each company to better satisfy the needs of its respective stockholders.

 

   

Improves AIR’s access to public equity markets. It has historically been expensive for Aimco to issue equity, making it difficult for Aimco to grow through raising capital. Aimco’s share price has consistently traded at a discount to NAV, with equity issuances dilutive of NAV per share. The Spin-Off is expected to increase FFO and AFFO at AIR and produce a better price to earnings ratio than has previously been given to Aimco while it owned all of the businesses of Aimco and AIR. As a result of the separation, we expect AIR will have access to the capital markets at a non-dilutive price

 

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Confidential Treatment Requested by Aimco-LP, Inc.

Pursuant to 17 C.F.R. Section 200.83

 

Confidential Treatment Requested by Aimco-LP, Inc.

Pursuant to 17 C.F.R. Section 200.83

 

 

and a strong capital structure tailored to its strategic goals. We believe this will provide AIR with improved access to the public markets, providing it with capital to invest in the acquisition of properties to grow its portfolio.

 

   

Increases Financial Flexibility. Aimco’s board of directors believes that a taxable separation today will increase AIR’s strategic and financial flexibility to grow, return capital, and create long-term value for stockholders. The Spin-Off will result in a refreshed tax basis for AIR, which reduces the tax costs of future property sales and therefore enhances portfolio management. We also expect that this will make cash dividends more likely to be a return of capital or capital gains for tax purposes, increasing their after-tax value for taxable investors.

The board of directors of Aimco also considered a number of potentially negative factors in evaluating the separation and concluded that the potential benefits of the separation outweighed these factors. For more information, please refer to the section entitled “Risk Factors” included elsewhere in this information statement.

Manner of Effecting the Spin-Off

The general terms and conditions relating to the Spin-Off will be set forth in the Separation Agreement between us and Aimco and New OP. Under the Separation Agreement, the Spin-Off is anticipated to be effective from and after                  , 2020.

Spin-Off

On                  , 2020, the board of directors of Aimco declared the distribution of all AIR Common Stock on the basis of one share of AIR Common Stock for each one share of Aimco Common Stock held of record as of the close of business on the record date. The actual total number of shares of AIR Common Stock to be distributed will depend on the number of shares of Aimco Common Stock outstanding on the record date. The shares of AIR Common Stock to be distributed will constitute all of the outstanding shares of AIR Common Stock immediately after the Spin-Off.

In accordance with the terms of the Separation Agreement, AIR OP will cause the Aimco business (other than its interest in Royal Crest Nashua LLC, which entity will be transferred to New OP for no consideration immediately after the distribution of New OP Units pursuant to a binding agreement entered into prior to such distribution) and certain other assets to be contributed to New OP in exchange for 100% of the outstanding New OP Units. Substantially all of Aimco’s (and its subsidiaries’) employees will become or remain employees of AIR OP (and its subsidiaries), while approximately of Aimco’s (and its subsidiaries’) employees will become or remain employees of New OP (and its subsidiaries).

AIR OP will distribute 100% of the outstanding New OP Units to the holders of AIR OP Common Units (including AIR and AIR OP GP), pro rata with respect to their ownership of AIR OP Common Units as of the record date. AIR and AIR OP GP will distribute their New OP Units to Aimco.

AIR OP will transfer its interests in Royal Crest Nashua LLC to New OP.

New OP or its subsidiaries and AIR OP and its subsidiaries will contribute the Non-Core Assets to James-Oxford LP in exchange for common and preferred interests in James-Oxford LP. New OP will then contribute its interests in James-Oxford LP to New Sub REIT. AIR OP and its subsidiaries will sell their interests in James-Oxford LP (other than a less than 5% common interest) to New Sub REIT in exchange for a note payable to AIR OP of $0.5 billion and certain other obligations. The transactions described above are intended to constitute taxable transactions with respect to the interests in James-Oxford LP.

Aimco will contribute its interest in AIR OP GP to AIR.

 

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Confidential Treatment Requested by Aimco-LP, Inc.

Pursuant to 17 C.F.R. Section 200.83

 

AIR will form REIT 1 and REIT 2, which will each elect to be treated as a corporation and a REIT for U.S. federal income tax purposes commencing with its initial taxable year ending December 31, 2020. AIR will contribute an amount of AIR OP Common Units representing a 34% limited partner interest in AIR OP to REIT 1, and will contribute AIR OP Common Units representing a 34% limited partner interest in AIR OP and its interest in AIR OP GP to REIT 2, each in exchange for common and preferred interests in REIT 1 and REIT 2 Following such contribution by AIR, AIR will issue $2 million in Class A Preferred Stock to Aimco, subject to a binding commitment to sell such Class A Preferred Stock to an unrelated third party. REIT 1 and REIT 2 are expected to also have approximately 125 other holders of a nominal amount of non-participating non-voting preferred stock with an aggregate initial liquidation preference of approximately $125,000 to satisfy certain requirements for qualifying as a REIT for U.S. federal income tax purposes.

New OP will form Redev/Dev and AIR OP will form Property Management LLC and Property Management TRS. It is expected that New OP will contribute the redevelopment and development business to Redev/Dev TRS. AIR OP will then contribute the property management business to each of Property Management LLC and Property Management TRS. New OP and New Sub REIT will each contribute cash to Property Management TRS in exchange for preferred interests.

AIR will issue Class A Preferred Stock to Aimco, subject to a binding commitment to sell such Class A Preferred Stock to an unrelated institutional investor.

Thereafter, Aimco will distribute 100% of the outstanding AIR Common Stock to Aimco common stockholders as of the record date on a pro rata basis.

Immediately following the Spin-Off, Aimco will sell its Class A Preferred Stock in AIR to an unrelated institutional investor.

On the distribution date, (x) each holder of AIR OP Common Units will receive from AIR OP one New OP Unit for each one AIR OP Common Unit held as of the close of business on the record date, and (y) each Aimco common stockholder will receive from Aimco one share of AIR Common Stock for each one share of Aimco Common Stock held as of the close of business on the record date. Following such distribution by Aimco, Aimco and AIR will be two, focused and independent, publicly traded companies. AIR OP will be approximately 95% owned by AIR, while New OP will be approximately 95% owned by Aimco.

Stock Certificates

Neither Aimco nor AIR will be issuing physical certificates representing shares of AIR Common Stock. Instead, if you own Aimco Common Stock as of the close of business on the record date, the shares of AIR Common Stock that you are entitled to receive in the Spin-Off, will be issued electronically, as of the distribution date, to you or to your bank or brokerage firm or 401(k) plan or other channel on your behalf by way of direct registration in book-entry form. A benefit of issuing stock or units electronically in book-entry form is that there will be none of the physical handling and safekeeping responsibilities that are inherent in owning physical certificates.

If you hold physical certificates that represent your shares of Aimco Common Stock and you are the registered holder of the shares of Aimco Common Stock represented by those certificates, the distribution agent will mail you an account statement that reflects the number of shares of AIR Common Stock that have been registered in book-entry form in your name. If you have any questions concerning the mechanics of having shares of common stock registered in book-entry form, you are encouraged to contact Aimco Investor Relations by mail at 4582 South Ulster Street, Suite 1700, Denver, CO 80237, by phone at (303) 793-4661 or by email at                 .

Most Aimco stockholders hold their shares of Aimco Common Stock through a bank or brokerage firm. In such cases, the bank or brokerage firm would be said to hold the stock in “street name” and ownership would be

 

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Confidential Treatment Requested by Aimco-LP, Inc.

Pursuant to 17 C.F.R. Section 200.83

 

Confidential Treatment Requested by Aimco-LP, Inc.

Pursuant to 17 C.F.R. Section 200.83

 

recorded on the bank or brokerage firm’s books. If you hold your Aimco Common Stock through a bank or brokerage firm, your bank or brokerage firm will credit your account for the shares of AIR Common Stock that you are entitled to receive as a result of the Spin-Off. If you have any questions concerning the mechanics of having shares of AIR Common Stock held in “street name,” you are encouraged to contact your bank or brokerage firm.

Results of the Spin-Off

After the completion of the Spin-Off, we and Aimco will be two, focused and independent publicly traded companies. Immediately following the Spin-Off, AIR expects to have approximately                  registered stockholders, based on the number of registered stockholders of Aimco Common Stock. Immediately following the Spin-Off, AIR expects to have approximately                 shares of AIR Common Stock outstanding on a fully diluted basis, based on the number of shares of Aimco Common Stock outstanding on a fully diluted basis as of             . The actual number of shares of AIR Common Stock to be distributed will be determined on the record date and will reflect any changes in the number of shares of Aimco Common Stock between                 , 2020, and the record date. The Spin-Off will not affect the number of outstanding shares of Aimco Common Stock, or any rights of Aimco stockholders. If you hold Aimco Common Stock as of the close of business on the record date, upon completion of the Spin-Off, you will continue to hold your Aimco Common Stock and you will also hold AIR Common Stock.

Effective immediately upon the completion of the Spin-Off, we and Aimco will enter into a number of other agreements to set forth our relationship from and after the Spin-Off concerning, among other things, allocations of assets and liabilities attributable to periods prior to the Spin-Off and the rights and obligations, including indemnification arrangements for certain liabilities after the Spin-Off, ongoing services, including property management services, provided by us to Aimco, or our leases to Aimco of the leased properties, including the Initial Leased Properties. For a more detailed description of these agreements, see “Our Relationship with Aimco Following the Spin-Off” and “Description of Financing and Material Indebtedness.”

Treatment of Fractional Shares

The distribution agent will not distribute any fractional shares of AIR Common Stock in connection with the Spin-Off. Instead, the distribution agent will aggregate all fractional shares of AIR Common Stock into whole shares and sell them on the open market at the prevailing market prices on behalf of those registered holders who otherwise would be entitled to receive a fractional share. We anticipate that these sales will occur as soon as practicable after the distribution date. The distribution agent will then distribute to such registered holders the aggregate cash proceeds of such sale, in an amount equal to their pro rata share of the total proceeds of those sales. Any applicable expenses, including brokerage fees, will be paid by us. We do not expect the amount of any such fees to be material to us.

If you hold physical stock certificates that represent your shares of Aimco Common Stock and you are the registered holder of the Aimco Common Stock represented by those certificates, your check for any cash that you may be entitled to receive instead of fractional shares of AIR Common Stock will be mailed to you separately. If you hold your shares of Aimco Common Stock through a bank or brokerage firm, your bank or brokerage firm will receive, on your behalf, your pro rata share of the aggregate net cash proceeds from the sales and will electronically credit your account for your share of such proceeds.

None of AIR, Aimco or the distribution agent will guarantee any minimum sale price for the fractional shares of AIR Common Stock. None of AIR, Aimco or the distribution agent will pay any interest on the proceeds from the sale of fractional shares. The receipt of cash in lieu of fractional shares will generally be taxable to the recipient holders. Each stockholder entitled to receive cash proceeds from these fractional shares should consult his, her, or its tax advisor as to his, her or its particular circumstances. See “U.S. Federal Income Tax Consequences of the Spin-Off.”

 

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Confidential Treatment Requested by Aimco-LP, Inc.

Pursuant to 17 C.F.R. Section 200.83

 

Listing and Trading of AIR Common Stock

There is no current trading market for AIR Common Stock. A condition to the Spin-Off is the listing of AIR Common Stock on the NYSE. AIR intends to apply to list AIR Common Stock on the NYSE under the symbol “            .”

At some point following the record date and continuing up to and including the distribution date, we expect that there will be two markets in Aimco Common Stock: a “due-bills” market and an “ex-distribution” market. Shares of Aimco Common Stock that trade on the “due-bills” market will trade with an entitlement to shares of AIR Common Stock distributed pursuant to the Spin-Off. Shares of Aimco Common Stock that trade on the “ex-distribution” market will trade without an entitlement to shares of AIR Common Stock distributed pursuant to the Spin-Off. Therefore, if you sell shares of Aimco Common Stock in the “due-bills” market after the record date and before the distribution date, you will be selling your right to receive shares of AIR Common Stock in connection with the Spin-Off. If you own shares of Aimco Common Stock as of the close of business on the record date and sell those shares on the “ex-distribution” market before the distribution date, you will still receive the shares of AIR Common Stock that you would be entitled to receive pursuant to your ownership of the shares of Aimco Common Stock on the record date.

Furthermore, at some point following the record date and continuing up to and including the distribution date, we expect that a limited market, commonly known as a “when-distributed” trading market, will develop in AIR Common Stock. “When-distributed” trading refers to a sale or purchase made conditionally because the security has been authorized but not yet distributed. The “when-distributed” trading market will be a market for shares of AIR Common Stock that will be distributed pro rata to Aimco stockholders on the distribution date. If you own shares of Aimco Common Stock as of the close of business on the record date, you would be entitled to shares of AIR Common Stock distributed pursuant to the Spin-Off. You may trade this entitlement to shares of AIR Common Stock, without trading the shares of Aimco Common Stock you own, on the “when-distributed” market. On the first trading day following the distribution, “when-distributed” trading with respect to AIR Common Stock will end and “regular-way” trading in AIR Common Stock will begin.

Treatment of Aimco Equity Awards

Any equity awards relating to shares of Aimco Common Stock will be adjusted to reflect the impact of the Spin-Off. Specifically, it is expected that each outstanding time or performance-vesting Aimco equity award will be converted into an award of both 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 will be determined in a manner intended to preserve the aggregate value of the original Aimco equity award as measured immediately before the Spin-Off.

U.S. Federal Income Tax Consequences of the Spin-Off

The following is a summary of U.S. federal income tax consequences generally applicable to the Spin-Off, and in particular the distribution by Aimco of AIR Common Stock to stockholders of Aimco. For purposes of this section under this heading “—U.S. Federal Income Tax Consequences of the Spin-Off”: (i) references to “AIR,” “we,” “our” and “us” mean only AIR and not its subsidiaries or other lower-tier entities, except as otherwise indicated; and (ii) references to Aimco refer to Aimco, New OP, and their consolidated subsidiaries (other than AIR and AIR OP and their consolidated subsidiaries after the Spin-Off).

The information in this summary is based on: the Code; current, temporary and proposed regulations promulgated by the U.S. Treasury Department (“Treasury Regulations”); the legislative history of the Code; current administrative interpretations and practices of the IRS; and court decisions; all as currently in effect, and all of which are subject to differing interpretations or to change, possibly with retroactive effect. No assurance can be given that the IRS would not assert, or that a court would not sustain, a position contrary to any of the tax

 

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Confidential Treatment Requested by Aimco-LP, Inc.

Pursuant to 17 C.F.R. Section 200.83

 

consequences described below. The summary is also based upon the assumption that Aimco, AIR, and their respective subsidiaries and affiliated entities will operate in accordance with their applicable organizational documents or partnership agreements and the agreements and other documents applicable the Spin-Off. This summary is for general information only and is not legal or tax advice. The Code provisions applicable to the Spin-Off are highly technical and complex, and this summary is qualified in its entirety by the express language of applicable Code provisions, Treasury Regulations, and administrative and judicial interpretations thereof. Moreover, this summary does not purport to discuss all aspects of U.S. federal income taxation that may be important to a particular investor in light of its investment or tax circumstances, or to investors subject to special tax rules, such as:

 

   

financial institutions;

 

   

insurance companies;

 

   

broker-dealers;

 

   

regulated investment companies;

 

   

partnerships and trusts;

 

   

persons who hold our stock on behalf of another person as a nominee;

 

   

persons who receive our stock through the exercise of employee stock options or otherwise as compensation;

 

   

persons holding our stock as part of a “straddle,” “hedge,” “conversion transaction,” “synthetic security” or other integrated investment;

 

   

and, except to the extent discussed below:

 

   

tax-exempt organizations; and

 

   

foreign investors.

This summary assumes that investors will hold their Aimco Common Stock and AIR Common Stock as a capital asset, which generally means as property held for investment. This summary also assumes that investors will hold their Aimco Common Stock at all times from the record date through the distribution date. Special rules may apply to determine the tax consequences to an investor that purchases or sells Aimco Common Stock between the record date and the distribution date. You are urged to consult your tax advisor regarding the consequences to you of any such sale.

For purposes of this discussion under this heading “U.S. Federal Income Tax Consequences of the Spin-Off,” a U.S. Holder is a stockholder of Aimco that is for U.S. federal income tax purposes:

 

   

a citizen or resident of the United States;

 

   

a corporation created or organized in the United States or under the laws of the United States, or of any state thereof, or the District of Columbia;

 

   

an estate, the income of which is includable in gross income for U.S. federal income tax purposes regardless of its source; or

 

   

a trust if a U.S. court is able to exercise primary supervision over the administration of such trust and one or more U.S. fiduciaries have the authority to control all substantial decisions of the trust.

A “Non-U.S. Holder” is a stockholder of Aimco that is neither a U.S. Holder nor a partnership (or other entity treated as a partnership) for U.S. federal income tax purposes. If a partnership, including for this purpose any entity that is treated as a partnership for U.S. federal income tax purposes, holds Aimco stock, the tax treatment of a partner in the partnership will generally depend upon the status of the partner and the activities of the partnership. An investor that is a partnership and the partners in such partnership should consult their tax advisors about the U.S. federal income tax consequences of the Spin-Off.

 

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Confidential Treatment Requested by Aimco-LP, Inc.

Pursuant to 17 C.F.R. Section 200.83

 

The U.S. federal income tax treatment of the Spin-Off depends in some instances on determinations of fact and interpretations of complex provisions of U.S. federal income tax law for which no clear precedent or authority may be available. In addition, the tax consequences of the Spin-Off to any particular stockholder of Aimco will depend on the stockholder’s particular tax circumstances. You are urged to consult your tax advisor regarding the federal, state, local, and foreign income and other tax consequences to you of the Spin-Off in light of your particular investment or tax circumstances.

Tax Classification of the Spin-off in General

For U.S. federal income tax purposes, the Spin-Off will not be eligible for treatment as a tax-free distribution by Aimco with respect to its stock. Accordingly, the Spin-Off will be treated as if Aimco had distributed to each Aimco common stockholder an amount equal to the fair market value of the AIR Common Stock received by such stockholder (plus any cash received in lieu of fractional AIR shares), determined as of the date of the Spin-Off (such amount, the “spin-off distribution amount”). The tax consequences of the Spin-Off on Aimco’s stockholders are thus generally the same as the tax consequences of Aimco’s cash distributions. The discussion below describes the U.S. federal income tax consequences to a U.S. Holder, a Non-U.S. Holder, and a tax-exempt holder of Aimco stock upon the receipt of AIR Common Stock in the Spin-Off.

Although Aimco intends to take the position that the Spin-Off does not constitute a partial liquidation for U.S. federal income tax purposes, this position is not binding on the IRS or any other tax authority. These tax authorities could assert that the Spin-Off is a distribution in partial liquidation of Aimco for U.S. federal income tax purposes. If the IRS successfully made such an assertion, the portion of the Spin-Off involving a distribution to Aimco’s non-corporate stockholders may be treated as a payment in exchange for such stockholders’ Aimco stock instead of as a dividend.

Although Aimco will ascribe a value to the AIR shares distributed in the Spin-Off, this valuation is not binding on the IRS or any other tax authority. These taxing authorities could ascribe a higher valuation to the distributed AIR shares, particularly if, following the Spin-Off, those shares trade at prices significantly above the value ascribed to those shares by Aimco. Such a higher valuation may affect the distribution amount and thus the tax consequences of the Spin-Off to Aimco’s stockholders.

Aimco will be required to recognize any gain, but will not be permitted to recognize any loss, upon distribution of the AIR shares in the Spin-Off.

Tax Basis and Holding Period of AIR Shares Received by Holders of Aimco Stock

An Aimco stockholder’s tax basis in shares of AIR Common Stock received in the Spin-Off generally will equal the fair market value of such shares on the date of the Spin-Off, and the holding period for such shares will begin the day after the date of the Spin-Off.

Tax Treatment of the Spin-Off to U.S. Holders

The following discussion describes the U.S. federal income tax consequences to a U.S. Holder of Aimco stock upon the receipt of AIR Common Stock in the Spin-Off.

Ordinary Dividends. The portion of the Spin-Off distribution amount received by a U.S. Holder that is payable out of Aimco’s current or accumulated earnings and profits and that is not designated by Aimco as a capital gain dividend will generally be taken into account by such U.S. Holder as ordinary income and will not be eligible for the dividends received deduction for corporations. With limited exceptions, dividends paid by Aimco are not eligible for taxation at the preferential income tax rates for qualified dividends received by U.S. Holders that are individuals, trusts, and estates from taxable C corporations. Such U.S. Holders, however, are taxed at the

 

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Confidential Treatment Requested by Aimco-LP, Inc.

Pursuant to 17 C.F.R. Section 200.83

 

preferential rates on dividends designated by and received from a REIT such as Aimco to the extent that the dividends are attributable to:

 

   

income retained by the REIT in the prior taxable year on which the REIT was subject to corporate level income tax (less the amount of tax);

 

   

dividends received by the REIT from TRSs or other taxable C corporations; or

 

   

income in the prior taxable year from the sales of “built-in gain” property acquired by the REIT from C corporations in carryover basis transactions (less the amount of corporate tax on such income).

Aimco’s current earnings and profits are measured as of the end of the tax year and are generally allocated to all distributions made during such tax year on a pro rata basis. As a result, a proportionate part of Aimco’s current earnings and profits for the entire taxable year of Aimco in which the Spin-Off occurs (including gain recognized by Aimco in connection with the Spin-Off, and other property sales and taxable transactions occurring during the taxable year) will be allocated to the spin-off distribution. That proportionate part will be treated as dividend income even for a stockholder of record that has not held its Aimco stock for the entire taxable year of Aimco in which the Spin-Off occurs. Thus, a stockholder that does not hold its Aimco Common Stock for the entire taxable year of Aimco in which the Spin-Off occurs may be allocated a disproportionate amount of ordinary income attributable to Aimco’s current earnings and profits as a result of the spin-off distribution.

In addition, for taxable years that begin after December 31, 2017, and before January 1, 2026, stockholders that are individuals, trusts or estates are generally entitled to a deduction equal to 20% of the aggregate amount of ordinary income dividends received from a REIT (not including capital gain dividends, as described below, or dividends eligible for reduced rates applicable to qualified dividend income, as described above), subject to certain limitations.

Non-Dividend Distributions. A distribution to Aimco’s U.S. Holders in excess of Aimco’s current and accumulated earnings and profits will generally represent a return of capital and will not be taxable to a stockholder to the extent that the amount of such distribution does not exceed the adjusted basis of the holder’s Aimco shares in respect of which the distribution was made. Rather, the distribution will reduce the adjusted basis of the holder’s shares in Aimco. To the extent that such distribution exceeds the adjusted basis of a U.S. Holder’s Aimco shares, the holder generally must include such distribution in income as long-term capital gain, or short-term capital gain if the holder’s Aimco shares have been held for one year or less.

Capital Gain Dividends. A distribution that Aimco designates as a capital gain dividend will generally be taxed to U.S. Holders as long-term capital gain, to the extent that such distribution does not exceed Aimco’s actual net capital gain for the taxable year, without regard to the period for which the holder that receives such distribution has held its Aimco stock. Corporate U.S. Holders may be required to treat up to 20% of some capital gain dividends as ordinary income. Long-term capital gains are generally taxable at reduced maximum federal rates in the case of U.S. Holders that are individuals, trusts, and estates, and ordinary income rates in the case of stockholders that are corporations.

Tax Treatment of the Spin-Off to Non-U.S. Holders

The following discussion describes the U.S. federal income tax consequences to a Non-U.S. Holder of Aimco stock upon the receipt of AIR Common Stock in the Spin-Off.

Ordinary Dividends. The portion of the spin-off distribution amount received by a Non-U.S. Holder that is (1) payable out of Aimco’s earnings and profits, (2) not attributable to Aimco’s capital gains, and (3) not effectively connected with a U.S. trade or business of the Non-U.S. Holder, will be treated as a dividend that is subject to U.S. withholding tax at the rate of 30%, unless reduced or eliminated by treaty.

 

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Confidential Treatment Requested by Aimco-LP, Inc.

Pursuant to 17 C.F.R. Section 200.83

 

In general, Non-U.S. Holders will not be considered to be engaged in a U.S. trade or business solely as a result of their ownership of Aimco stock. In cases where the dividend income from a Non-U.S. Holder’s investment in Aimco stock is, or is treated as, effectively connected with the Non-U.S. Holder’s conduct of a U.S. trade or business, the Non-U.S. Holder generally will be subject to U.S. federal income tax at graduated rates, in the same manner as U.S. Holders are taxed with respect to such dividends. Such income must generally be reported on a U.S. income tax return filed by or on behalf of the Non-U.S. Holder. The income may also be subject to the 30% (or such lower rate as may be specified by an applicable income tax treaty) branch profits tax in the case of a Non-U.S. Holder that is a corporation.

Non-Dividend Distributions. Unless Aimco’s stock constitutes a U.S. real property interest (“USRPI”), the spin-off distribution amount, to the extent not made out of Aimco’s earnings and profits, will not be subject to U.S. income tax. If Aimco cannot determine at the time of the Spin-Off whether or not the spin-off distribution amount will exceed current and accumulated earnings and profits, Aimco or the applicable withholding agent is expected to withhold on the spin-off distributions at the rate applicable to ordinary dividends, as described above.

If Aimco’s stock constitutes a USRPI, as described below, distributions that it makes in excess of the sum of (a) the stockholder’s proportionate share of Aimco’s earnings and profits, plus (b) the stockholder’s basis in its Aimco stock, will be taxed under the Foreign Investment in Real Property Tax Act of 1980 (“FIRPTA”) in the same manner as if the Aimco stock had been sold, and the collection of the tax would be enforced by a refundable withholding tax at a rate of 15% of the amount by which the distribution exceeds the stockholder’s share of Aimco’s earnings and profits. In such situations, the Non-U.S. Holder would be required to file a U.S. federal income tax return and would be subject to the same treatment and same tax rates as a U.S. Holder with respect to such excess, subject to applicable alternative minimum tax and a special alternative minimum tax in the case of non-resident alien individuals.

Subject to certain exceptions discussed below, Aimco’s stock will be treated as a USRPI if, at any time during a prescribed testing period, 50% or more of its assets consist of interests in real property located within the United States, excluding, for this purpose, interests in real property solely in a capacity as a creditor. We expect that 50% or more of Aimco’s assets will consist of USRPIs. Even if the foregoing 50% test is met, however, Aimco’s stock nonetheless will not constitute a USRPI if Aimco is a “domestically controlled qualified investment entity.” A domestically controlled qualified investment entity includes a REIT, less than 50% of the value of which is held directly or indirectly by Non-U.S. Holders at all times during a specified testing period (after applying certain presumptions regarding the ownership of Aimco stock, as described in the Code). Although it is anticipated that Aimco will be a domestically controlled qualified investment entity, and that a distribution with respect to Aimco’s stock in excess of Aimco’s earnings and profits will not be subject to taxation under FIRPTA, no assurance can be given that Aimco is or will remain a domestically controlled qualified investment entity.

In the event that Aimco is not a domestically controlled qualified investment entity, but its stock is “regularly traded,” as defined by applicable Treasury Regulations, on an established securities market, a distribution to a Non-U.S. Holder nonetheless would not be subject to tax under FIRPTA; provided that the Non-U.S. Holder held 10% or less of Aimco’s stock at all times during a specified testing period. It is anticipated that Aimco’s stock will be regularly traded.

Gain in respect of a non-dividend distribution that would not otherwise be subject to FIRPTA will nonetheless be taxable in the United States to a Non-U.S. Holder in two cases: (1) if the Non-U.S. Holder’s investment in Aimco stock is effectively connected with a U.S. trade or business conducted by such Non-U.S. Holder, the Non-U.S. Holder will be subject to the same treatment as a U.S. Holder with respect to such gain, or (2) if the Non-U.S. Holder is a nonresident alien individual who was present in the United States for 183 days or more during the taxable year and certain other requirements are met, the nonresident alien individual will be subject to a 30% tax on the individual’s capital gain.

 

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Confidential Treatment Requested by Aimco-LP, Inc.

Pursuant to 17 C.F.R. Section 200.83

 

Capital Gain Dividends. Under FIRPTA, a dividend that Aimco makes to a Non-U.S. Holder, to the extent attributable to gains from dispositions of USRPIs that Aimco held directly or through pass-through subsidiaries (such gains, “USRPI Capital Gains”), will, except as described below, be considered effectively connected with a U.S. trade or business of the Non-U.S. Holder and will be subject to U.S. income tax at the rates applicable to U.S. individuals or corporations. Aimco will be required to withhold tax equal to 21% of the maximum amount that could have been designated as a USRPI capital gain dividend. Distributions subject to FIRPTA may also be subject to a 30% branch profits tax in the hands of a Non-U.S. Holder that is a corporation. A distribution is not a USRPI capital gain dividend if Aimco held an interest in the underlying asset solely as a creditor.

In addition, if a Non-U.S. Holder owning more than 10% of Aimco Common Stock disposes of such stock during the 30-day period preceding the ex-dividend date of any dividend payment by Aimco, and such Non-U.S. Holder acquires or enters into a contract or option to acquire Aimco Common Stock within 61 days of the first day of such 30-day period described above, and any portion of such dividend payment would, but for the disposition, be treated as USRPI capital gain to such Non-U.S. Holder under FIRPTA, then such Non-U.S. Holder will be treated as having USRPI capital gain in an amount that, but for the disposition, would have been treated as USRPI capital gain.

Capital gain dividends received by a Non-U.S. Holder that are attributable to dispositions of Aimco’s assets other than USRPIs are not subject to U.S. federal income tax, unless (1) the gain is effectively connected with the Non-U.S. Holder’s U.S. trade or business, in which case the Non-U.S. Holder would be subject to the same treatment as U.S. Holders with respect to such gain, or (2) the Non-U.S. Holder is a nonresident alien individual who was present in the United States for 183 days or more during the taxable year and certain other requirements are met, in which case the Non-U.S. Holder will incur a 30% tax on his capital gains.

A dividend that would otherwise have been treated as a USRPI capital gain dividend will not be so treated or be subject to FIRPTA, and generally will not be treated as income that is effectively connected with a U.S. trade or business, but instead will be treated in the same manner as ordinary income dividends (discussed above); provided that (1) the dividend is received with respect to a class of stock that is regularly traded on an established securities market located in the United States, and (2) the recipient Non-U.S. Holder does not own, actually or constructively more than 10% of that class of stock at any time during the year ending on the date on which the dividend is received. Aimco anticipates that its stock will be “regularly traded” on an established securities exchange.

Special FIRPTA Rules. FIRPTA contains special rules that provide exemptions from FIRPTA and otherwise modify the application of the foregoing FIRPTA rules for particular types of non-U.S. investors, including “qualified foreign pension funds” and their wholly owned foreign subsidiaries and certain widely held, publicly traded “qualified collective investment vehicles.”

Withholding of Amounts Distributable to Non-U.S. Holders in the Spin-off. If withholding is required on any amounts otherwise distributable to a Non-U.S. Holder in the Spin-Off, Aimco or other applicable withholding agents would collect the amount required to be withheld by converting to cash for remittance to the IRS a sufficient portion of AIR Common Stock that such Non-U.S. Holder would otherwise receive or would withhold from other property held in the Non-U.S. Holder’s account with the withholding agent, and such holder may bear brokerage or other costs for this withholding procedure. A Non-U.S. Holder may seek a refund from the IRS of any amounts withheld if it is subsequently determined that the amounts withheld exceeded the holder’s U.S. tax liability for the year in which the Spin-Off occurred.

Other Withholding Rules. Withholding at a rate of 30% generally will be required on dividends (including any portion of the Spin-Off distribution treated as a dividend) made in respect of Aimco Common Stock held by or through certain foreign financial institutions (including investment funds), unless such institution (i) enters into an agreement with the Treasury to report, on an annual basis, information with respect to shares in, and the accounts maintained by, the institution held by certain U.S. persons and by certain non-U.S. entities that are

 

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Confidential Treatment Requested by Aimco-LP, Inc.

Pursuant to 17 C.F.R. Section 200.83

 

wholly or partially owned by U.S. persons and to withhold on certain payments, or (ii) complies with the terms of an intergovernmental agreement between the United States and an applicable foreign country. Accordingly, the entity through which Aimco Common Stock is held will affect the determination of whether such withholding is required. Similarly, dividends made in respect of Aimco Common Stock held by an investor that is a non-financial non-U.S. entity that does not qualify under certain exemptions will be subject to withholding at a rate of 30%, unless such entity either (i) certifies that such entity does not have any “substantial United States owners” or (ii) provides certain information regarding the entity’s “substantial United States owners,” which the applicable withholding agent will in turn provide to the Secretary of the Treasury. An intergovernmental agreement between the United States and an applicable foreign country, or future Treasury Regulations or other guidance, may modify these requirements. Aimco will not pay any additional amounts to stockholders in respect of any amounts withheld. Non-U.S. Holders are encouraged to consult their tax advisors regarding the possible implications of these withholding taxes on their investment in Aimco Common Stock.

Tax Treatment of the Spin-Off to Tax-Exempt Entities

Tax-exempt entities, including qualified employee pension and profit-sharing trusts and individual retirement accounts, generally are exempt from U.S. federal income taxation. Such entities, however, may be subject to taxation on their unrelated business taxable income (“UBTI”). While some investments in real estate may generate UBTI, the IRS has ruled that dividend distributions from a REIT to a tax-exempt entity do not constitute UBTI. Based on that ruling, and provided that (1) a tax-exempt holder has not held Aimco stock as “debt financed property” within the meaning of the Code (i.e., where the acquisition or holding of the property is financed through a borrowing by the tax-exempt holder), and (2) such Aimco stock is not otherwise used in an unrelated trade or business, the Spin-Off generally should not give rise to UBTI to a tax-exempt holder.

Tax-exempt holders that are social clubs, voluntary employee benefit associations, supplemental unemployment benefit trusts, and qualified group legal services plans exempt from U.S. federal income taxation under sections 501(c)(7), (c)(9), (c)(17) and (c)(20) of the Code are subject to different UBTI rules, which will generally require such stockholders to characterize distributions that Aimco makes as UBTI.

In certain circumstances, a pension trust that owns more than 10% of Aimco’s stock could be required to treat a percentage of the dividends as UBTI, if Aimco is a “pension-held REIT.” Aimco will not be a pension-held REIT unless (1) it is required to “look through” one or more of its pension stockholders in order to satisfy certain REIT requirements and (2) either (i) one pension trust owns more than 25% of the value of Aimco’s stock, or (ii) a group of pension trusts, each individually holding more than 10% of the value of Aimco’s stock, collectively owns more than 50% of Aimco’s stock. Certain restrictions on ownership and transfer of Aimco’s stock should generally prevent a tax-exempt entity from owning more than 10% of the value of Aimco’s stock, and should generally prevent Aimco from becoming a pension-held REIT.

Time for Determination of the Tax Impact of the Spin-Off

The actual tax impact of the Spin-Off will be affected by a number of factors that are unknown at this time, including Aimco’s final earnings and profits for 2020 (including as a result of the gain or loss, if any, Aimco recognizes in the Spin-Off or as a result of the internal restructuring transactions necessary to effect the Spin-Off), the fair market value of AIR Common Stock on the date of the Spin-Off, and the extent to which Aimco engages in sales of FIRPTA or other capital assets during the year of the Spin-Off. Thus, a definitive calculation of the U.S. federal income tax impact of the Spin-Off will not be possible until after the end of the 2020 calendar year. Aimco anticipates, however, that it will recognize a substantial amount of capital gain for tax purposes in connection with the Spin-Off that will have the effect of substantially increasing its earnings and profits for the year. In addition, substantial taxable income is expected from certain property sales, most of which have already closed or are under contract to close prior to the Spin-Off. Such taxable income will be mostly distributed prior to the Spin-Off in the form of dividends of cash and stock, or all stock, based on the election of the individual stockholder. Aimco will notify its stockholders of the tax attributes of the Spin-Off (including the

 

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Confidential Treatment Requested by Aimco-LP, Inc.

Pursuant to 17 C.F.R. Section 200.83

 

spin-off distribution amount) on an IRS Form 1099-DIV. The fair market value of AIR Common Stock reported by Aimco to you on IRS Form 1099-DIV may differ from the trading price of AIR Common Stock on the distribution date.

Examples

Set forth below are illustrative examples of the U.S. federal income tax consequences generally applicable to U.S. holders in the transactions described in this information statement. The amounts used in the below examples are not actual results and are meant for illustrative purposes only. Actual results may differ materially from the illustrative examples. We are under no obligation to update any amounts other than in Aimco’s required tax reporting obligations.

Tax Consequences of the Spin-Off

The table below is an illustrative example of the taxable income and federal tax per share from the Spin-Off at various hypothetical values of shares of AIR Common Stock.

Illustrative Example of US Individual Shareholder Federal Tax Implications – Chart 1

 

     Per Share (rounded)  

Illustrative Tax Impact from AIR Share Distribution

        

Hypothetical AIR Share Value After Spinoff

   $ 30.00      $ 40.00      $ 50.00  

Estimated Tax Basis Inside Aimco

   -$ 18.00      -$ 18.00      -$ 18.00  

Taxable Income on AIR Shares

   $ 12.00      $ 22.00      $ 32.00  

Estimated Income Tax Associated with(1)

        

Capital Gain

   $ 1.00      $ 3.50      $ 6.00  

Unrecaptured Section 1250 Gain

   $ 2.00      $ 2.00      $ 2.00  

Total Estimated Income Tax

   $ 3.00      $ 5.50      $ 8.00  

 

(1)

Tax amounts assume a 25% rate for unrecaptured Section 1250 gain, a 20% rate for capital gain, plus net investment income tax of 3.5%. Actual tax rates vary depending on individual circumstances, including personal state taxation.

Tax Basis in Shares of Aimco Common Stock

The table below is an illustrative example of a stockholder’s tax basis in shares of Aimco Common Stock after the completion of the Spin-Off.

Illustrative Example of US Individual Shareholder Federal Tax Implications – Chart 2

 

     Per Share (rounded)  

Illustrative Basis in Aimco Shares After Spin-Off

        

Hypothetical Tax Basis in Aimco Before Spinoff

   $ 30.00      $ 40.00      $ 50.00  

Hypothetical Return of Capital(1)

   -$ 14.00      -$ 14.00      -$ 14.00  

Post Spin Off Tax Basis in Aimco Shares

   $ 16.00      $ 26.00      $ 36.00  

 

(1)

It is expected that the return of capital range will be $10 - $18 per share, but this amount will not be known until after the end of the year. Actual amounts may differ materially.

 

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Confidential Treatment Requested by Aimco-LP, Inc.

Pursuant to 17 C.F.R. Section 200.83

 

Because the distribution of AIR Common Stock is expected to be taxable to the recipient, the depreciable tax basis of properties owned by AIR is expected to be refreshed, making future dividends issued by AIR likely to include less taxable income. The difference, discounted to a net present value, is expected to offset the tax cost of the Spin-Off in approximately eight years, subject to various assumptions, including discount rate. Also, AIR expects each stockholder’s retained basis will be allocated to the related shares of Aimco Common Stock, likely creating the opportunity for an offsetting tax benefit in the form of a capital loss, which can be realized by sale of the shares of Aimco Common Stock. In the future, stockholders may decide to hold both shares AIR Common Stock and Aimco Common Stock, sell both shares AIR Common Stock and Aimco Common Stock, or sell either shares AIR Common Stock and Aimco Common Stock.

After-tax Value of Shares of Aimco Common Stock and AIR Common Stock

The tables below are illustrative of the after-tax value of shares of AIR Common Stock and Aimco Common Stock after the completion of the Spin-Off at various hypothetical AIR and Aimco values and at various pre-Spin-Off stockholder tax basis amounts.

Illustrative Example of US Individual Shareholder Federal Tax Implications

 

     Per Share (rounded)  

Illustrative Tax Impact for Shareholder with $30 Basis in Aimco Before Spin, Selling After Spin

        

Hypothetical AIR Share Value After Spin-off

   $ 30.00      $ 40.00      $ 50.00  

Hypothetical Aimco Share Value After Spin-off

   $ 4.00      $ 6.00      $ 8.00  

Hypothetical Total Value After Spin-Off

   $ 34.00      $ 46.00      $ 58.00  

Hypothetical Tax Basis in AIR Share After Spin-off

   $ 30.00      $ 40.00      $ 50.00  

Hypothetical Tax Basis in Aimco Share After Spin-off (see Chart 2 above)

   $ 16.00      $ 16.00      $ 16.00  

Hypothetical Tax Basis in Total After Spin-off

   $ 46.00      $ 56.00      $ 66.00  

Hypothetical Capital Loss

   -$ 12.00      -$ 10.00      -$ 8.00  

Hypothetical Tax Benefit Associated with Capital Loss(1)

   $ 2.75      $ 2.50      $ 2.00  

Hypothetical Total Value After Spin-off

   $ 34.00      $ 46.00      $ 58.00  

Hypothetical Total Estimated Income Tax on AIR Distribution (see Chart 1 above)

   -$ 3.00      -$ 5.50      -$ 8.00  

Hypothetical Tax Benefit Associated with Capital Loss

   $ 2.75      $ 2.50      $ 2.00  

Total Value After Tax

   $ 33.75      $ 43.00      $ 52.00  
  

 

 

    

 

 

    

 

 

 

 

(1)

Capital loss assuming this loss offsets 20% capital gains plus net investment income taxed at 3.8%

 

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Confidential Treatment Requested by Aimco-LP, Inc.

Pursuant to 17 C.F.R. Section 200.83

 

Confidential Treatment Requested by Aimco-LP, Inc.

Pursuant to 17 C.F.R. Section 200.83

 

Illustrative Example of US Individual Shareholder Federal Tax Implications

 

     Per Share (rounded)  

Illustrative Tax Impact for Shareholder with $40 Basis in Aimco Before Spin, Selling After Spin

        

Hypothetical AIR Share Value After Spin-off

   $ 30.00      $ 40.00      $ 50.00  

Hypothetical Aimco Share Value After Spin-off

   $ 4.00      $ 6.00      $ 8.00  

Hypothetical Total Value After Spin-Off

   $ 34.00      $ 46.00      $ 58.00  

Hypothetical Tax Basis in AIR Share After Spin-off

   $ 30.00      $ 40.00      $ 50.00  

Hypothetical Tax Basis in Aimco Share After Spin-off (see Chart 2 above)

   $ 26.00      $ 26.00      $ 26.00  

Hypothetical Tax Basis in Total After Spin-off

   $ 56.00      $ 66.00      $ 76.00  

Hypothetical Capital Loss

   -$ 22.00      -$ 20.00      -$ 18.00  

Hypothetical Tax Benefit Associated with Capital Loss(1)

   $ 5.25      $ 4.75      $ 4.25  

Hypothetical Total Value After Spin-off

   $ 34.00      $ 46.00      $ 58.00  

Hypothetical Total Estimated Income Tax on AIR Distribution (see Chart 1 above)

   -$ 3.00      -$ 5.50      -$ 8.00  

Hypothetical Tax Benefit Associated with Capital Loss

   $ 5.25      $ 4.75      $ 4.25  

Total Value After Tax

   $ 36.25      $ 45.25      $ 54.25  
  

 

 

    

 

 

    

 

 

 

 

(1)

Capital loss assuming this loss offsets 20% capital gains plus net investment income taxed at 3.8%

Illustrative Example of US Individual Shareholder Federal Tax Implications

 

     Per Share (rounded)  

Illustrative Tax Impact for Shareholder with $50 Basis in Aimco Before Spin, Selling After Spin

        

Hypothetical AIR Share Value After Spin-off

   $ 30.00      $ 40.00      $ 50.00  

Hypothetical Aimco Share Value After Spin-off

   $ 4.00      $ 6.00      $ 5.00  

Hypothetical Total Value After Spin-Off

   $ 34.00      $ 46.00      $ 55.00  

Hypothetical Tax Basis in AIR Share After Spin-off

   $ 30.00      $ 40.00      $ 50.00  

Hypothetical Tax Basis in Aimco Share After Spin-off (see Chart 2 above)

   $ 36.00      $ 36.00      $ 36.00  

Hypothetical Tax Basis in Total After Spin-off

   $ 66.00      $ 76.00      $ 86.00  

Hypothetical Capital Loss

   -$ 32.00      -$ 30.00      -$ 28.00  

Hypothetical Tax Benefit Associated with Capital Loss(1)

   $ 7.50      $ 7.25      $ 6.75  

Hypothetical Total Value After Spin-off

   $ 34.00      $ 46.00      $ 58.00  

Hypothetical Total Estimated Income Tax on AIR Distribution (see Chart 1 above)

   -$ 3.00      -$ 5.50      -$ 8.00  

Hypothetical Tax Benefit Associated with Capital Loss

   $ 7.50      $ 7.25      $ 6.75  

Total Value After Tax

   $ 38.50      $ 47.75      $ 56.75  
  

 

 

    

 

 

    

 

 

 

 

(1)

Capital loss assuming this loss offsets 20% capital gains plus net investment income taxed at 3.8%

 

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Confidential Treatment Requested by Aimco-LP, Inc.

Pursuant to 17 C.F.R. Section 200.83

 

Confidential Treatment Requested by Aimco-LP, Inc.

Pursuant to 17 C.F.R. Section 200.83

 

Conditions to the Spin-Off

We expect that the Spin-Off will be effective on the distribution date; provided that the following conditions, among others, have been satisfied or waived by the board of directors of Aimco:

 

   

each of the Separation Agreement, the Employee Matters Agreement, the Property Management Agreement, the Master Services Agreement, the Master Leasing Agreement, and certain other ancillary agreements shall have been duly executed and delivered by the parties thereto;

 

   

the Restructuring shall have been completed in accordance with the Separation Agreement (other than those steps in the Restructuring contemplated to occur following the Spin-Off);

 

   

Aimco shall have received such solvency opinions, each in such form and substance, as it shall deem necessary, appropriate or advisable in connection with the consummation of the Spin-Off;

 

   

the receipt by AIR of an opinion from Skadden, Arps to the effect that, commencing with AIR’s taxable year ending December 31, 2020, AIR will be organized in conformity with the requirements for qualification as a REIT under the Code, and AIR’s proposed method of operation will enable it to satisfy the requirements for qualification and taxation as a REIT under the U.S. federal income tax laws;

 

   

the receipt by Aimco of an opinion from Skadden, Arps to the effect that, commencing with Aimco’s taxable year ended December 31, 1994, Aimco has been organized in conformity with the requirements for qualification as a REIT under the Code, and Aimco’s actual method of operation through the date hereof has enabled, and its proposed method of operation will continue to enable, it to satisfy the requirements for qualification and taxation as a REIT under the U.S. federal income tax laws;

 

   

the SEC shall have declared effective AIR’s registration statement on Form 10, of which this information statement is a part, and New OP’s registration statement on Form 10, each under the Exchange Act, and no stop order relating to the registration statements shall be in effect, and no proceedings for such purpose shall be pending before, or threatened by, the SEC, and this information statement shall have been mailed to holders of Aimco Common Stock as of the record date;

 

   

all actions and filings necessary or appropriate under applicable federal, state, or foreign securities, or “blue sky” laws and the rules and regulations thereunder, shall have been taken and, where applicable, become effective or been accepted;

 

   

the AIR Common Stock to be distributed in the Spin-Off shall have been accepted for listing on the NYSE, subject to compliance with applicable listing requirements;

 

   

no order, injunction or decree issued by any court of competent jurisdiction or other legal restraint or prohibition preventing consummation of the Spin-Off, shall be threatened, pending or in effect;

 

   

any material governmental and third-party approvals shall have been obtained and be in full force and effect;

 

   

AIR and Aimco shall have entered into the financing transactions described in this information statement and contemplated to occur on or prior to the Spin-Off and the respective financings thereunder shall have been consummated and shall be in full force and effect;

 

   

Aimco shall have entered into a binding agreement with a third party to sell the Class A Preferred Stock;

 

   

Aimco and AIR shall each have taken all necessary actions that may be required to provide for the adoption by AIR of its amended and restated charter and bylaws, and AIR shall have filed its related Articles of Amendment and Restatement with the Maryland State Department of Assessments and Taxation;

 

   

AIR shall have adopted the amended and restated articles of incorporation and amended and restated bylaws; and

 

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Confidential Treatment Requested by Aimco-LP, Inc.

Pursuant to 17 C.F.R. Section 200.83

 

Confidential Treatment Requested by Aimco-LP, Inc.

Pursuant to 17 C.F.R. Section 200.83

 

   

no event or development shall have occurred or exist that, in the judgment of the board of directors of Aimco, in its sole discretion, makes it inadvisable to effect the Spin-Off.

We cannot assure you that all of the conditions will be satisfied or waived.

The fulfillment of the above conditions will not create any obligation on behalf of Aimco to effect the Spin-Off. Until the Spin-Off has occurred, Aimco has the right to terminate the Spin-Off, even if all the conditions have been satisfied, if the board of directors of Aimco determines, in its sole discretion, that the Spin-Off is not in the best interests of Aimco and its stockholders or that market conditions or other circumstances are such that the separation of AIR and Aimco is no longer advisable at that time.

Solvency Opinion

In furtherance of the related condition referenced above, prior to the Spin-Off the boards of directors of each of Aimco and AIR expect to obtain an opinion from an independent financial advisory firm to the effect that, after giving effect to the consummation of the Spin-Off:

 

   

the fair value of the assets of each of Aimco, AIR, New OP, and AIR OP will exceed its debts;

 

   

each of Aimco, AIR, New OP, and AIR OP should each be able to pay its respective debts as they become due in the usual course of business;

 

   

none of Aimco, AIR, New OP, nor AIR OP will have an unreasonably small amount of assets (or capital) for the operation of the businesses in which each is engaged or in which management has indicated each intends to engage; and

 

   

the fair value of the assets of each of Aimco, AIR, New OP, and AIR OP would exceed the sum of its total liabilities and total par value of its issued capital stock.

Regulatory Approvals

We must complete the necessary registration under U.S. federal securities laws of AIR Common Stock, as well as satisfy the NYSE listing requirements for such shares. See “—Conditions to the Spin-Off.”

No Appraisal Rights

None of Aimco’s stockholders will have any appraisal rights or will be entitled to demand payment for their equity in connection with the Spin-Off.

Accounting Treatment

At the completion of the Spin-Off, the balance sheet of AIR will include the assets and liabilities associated with the AIR business, including the properties that will remain with AIR OP. The assets and liabilities of AIR will be recorded at their respective historical carrying values at the Spin-Off in accordance with the provisions of the Financial Accounting Standards Board’s Accounting Standards Codification Topic 505-60, Spinoffs and Reverse Spinoffs. Notwithstanding the legal form of the Spin-Off described elsewhere in this information statement, for accounting and financial reporting purposes, AIR OP will be presented as being the accounting spinnor. This presentation is in accordance with GAAP, specifically FASB ASC 505-60, “Spinoff and Reverse Spinoffs,” and is primarily a result of the relative significance of AIR’s business to Aimco’s business. Further, Aimco has been determined to best represent the predecessor entity to AIR OP. Therefore, our historical financial statements presented herein and in our future filings, with respect to periods prior to the Spin-Off, will be represented by the historical financial statements of Aimco, or AIR Predecessor.

 

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Confidential Treatment Requested by Aimco-LP, Inc.

Pursuant to 17 C.F.R. Section 200.83

 

Reasons for Furnishing this Information Statement

We are furnishing this information statement solely to provide information to Aimco stockholders who will receive shares of AIR Common Stock pursuant to the Spin-Off. You should not construe this information statement as an inducement or encouragement to buy, hold or sell any of our securities or any securities of Aimco, New OP or AIR OP. We believe that the information contained in this information statement is accurate as of the date set forth on the cover. Changes to the information contained in this information statement may occur after that date, and none of AIR, AIR OP, Aimco or New OP undertake any obligation to update the information except in the normal course of their respective business and public disclosure obligations and practices.

Certain Other Events

On September 29, 2020, Land & Buildings Investment Management, LLC and certain related parties (“L&B”) filed a preliminary solicitation statement related to L&B’s intent to solicit and obtain consents from holders of Aimco’s shares of common stock for purposes of requesting on its and their behalf that a special meeting of Aimco’s stockholders be held (the “Proposed Special Meeting Request”) for the purposes of (1) considering and voting upon a non-binding resolution urging the Aimco board of directors to put any proposed separation or spin-off involving Aimco to a vote of Aimco’s stockholders at a duly called meeting of stockholders and to refrain from proceeding with any such separation or spin-off involving Aimco unless approved by a vote of a majority of Aimco’s stockholders and (2) to transact such other business as may properly come before the special meeting. The Aimco board of directors intends to convene to set a record date for the Proposed Special Meeting Request in due course.

 

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Confidential Treatment Requested by Aimco-LP, Inc.

Pursuant to 17 C.F.R. Section 200.83

 

DIVIDEND POLICY

As a REIT, we will be required to distribute annually to holders of AIR Common Stock at least 90% of our “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 (and may be all cash or a combination of cash and stock satisfying the requirements of applicable law). Our board of directors will determine and declare AIR’s dividends. In making a dividend determination, our board of directors will consider 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. Our board of directors is expected to target a dividend payout ratio between 65% and 80% of AFFO. For information regarding risk factors that could materially and adversely affect our ability to make distributions, see “Risk Factors.”

Stockholders receiving such dividend and any future dividend payable in cash or shares of AIR Common Stock will be required to include the full amount of such dividends as ordinary income to the extent of our current and accumulated earnings and profits, as determined for U.S. 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, we 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. For more information regarding the tax treatment of distributions to holders of AIR Common Stock, see “U.S. Federal Income Tax Considerations.”

The board of directors of AIR OP’s general partner will determine and declare distributions to holders of AIR OP Common Units. AIR, directly and through subsidiaries in which it owns all of the outstanding common equity, will, upon completion of the Spin-Off, be the general and special limited partner of AIR OP and will own all of Aimco’s interests in AIR OP. Immediately following the Spin-Off, it is expected that approximately     % of the AIR OP Common Units will be held by AIR, directly or through its subsidiaries. AIR OP will hold substantially all of AIR’s assets and manage the daily operations of AIR’s business directly and indirectly through certain subsidiaries and by engaging Aimco to provide certain management, administrative, and support services, including property management. We will use the distributions paid to us by AIR OP and the REIT subsidiaries (which in turn will use the dividends paid to them by AIR OP to fund the dividends paid to their members) to fund the dividends paid to our stockholders. Accordingly, the per share dividends we pay to our stockholders will generally equal the per unit distributions paid by AIR OP to holders of AIR OP Common Units.

Our credit facilities are expected to include customary covenants, including a restriction on dividends and other restricted payments, but is expected to permit dividends and distributions during any four consecutive fiscal quarters in an aggregate amount of up to 95% of our FFO for such period, subject to certain non-cash adjustments, or such amount as may be necessary to maintain our REIT status. For more information regarding our financing arrangements, see “Description of Financing and Material Indebtedness.”

 

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Confidential Treatment Requested by Aimco-LP, Inc.

Pursuant to 17 C.F.R. Section 200.83

 

DESCRIPTION OF FINANCING AND MATERIAL INDEBTEDNESS

The following summary sets forth information based on our current expectations about the financing arrangements anticipated to be entered into prior to the completion of the Spin-Off. However, we have not yet entered into any commitments with respect to such financing arrangements, and, accordingly, the terms of such financing arrangements have not yet been determined, remain under discussion and are subject to change, including as a result of market conditions.

Credit Facilities

At the completion of the Spin-Off, it is expected that AIR and its subsidiaries will have a revolving credit facility and a term loan credit facility, each of which may be secured by certain equity interests in subsidiaries of AIR, and which credit facilities may either be a continuation of Aimco’s existing revolving credit facility and term loan credit facility, or a replacement thereof on similar terms and conditions. We anticipate that our credit facilities will be guaranteed, jointly and severally, by AIR, AIR OP and certain of our wholly owned subsidiaries. Proceeds are expected to be available to us for general corporate purposes, including funding working capital. We have not yet entered into any commitments with respect to AIR’s financing, and, accordingly, the terms of our financing arrangements have not yet been determined, remain under discussion and are subject to change, including as a function of market conditions.

Over time, we may become party to one or more additional financing arrangements, including credit facilities or other bank debt, bonds, and mortgage financing.

Additional detail on the intended financing thereof, and the treatment of Aimco’s existing credit facilities will be included in a subsequent amendment to this information statement.

Property-level Mortgage Debt

We anticipate that certain entities that will be our subsidiaries after the separation will assume or retain a certain amount of existing secured property-level indebtedness related to certain properties. Specifically, AIR OP or its applicable subsidiaries will retain the existing property level debt that encumbers the properties that we will own after the Spin-Off.

 

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Confidential Treatment Requested by Aimco-LP, Inc.

Pursuant to 17 C.F.R. Section 200.83

 

CAPITALIZATION

The following table sets forth AIR Predecessor’s consolidated cash and cash equivalents and capitalization as of June 30, 2020, on an unaudited historical basis as it existed prior to the Spin-Off, and on a pro forma basis to give effect to the pro forma adjustments included in AIR’s unaudited pro forma consolidated financial data. The information below is not necessarily indicative of what AIR’s capitalization would have been had the Spin-Off and related transactions been completed as of June 30, 2020. In addition, it is not indicative of AIR’s future capitalization. This table should be read in conjunction with “Unaudited Pro Forma Consolidated Financial Statements,” “Selected Historical Consolidated Financial Data,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and AIR Predecessor’s audited consolidated financial statements and notes and unaudited consolidated interim financial statements and notes included elsewhere in this information statement.

 

     As of June 30, 2020  
(in thousands)    Actual      Pro Forma
Adjustments
     Pro Forma  

Cash and cash equivalents

   $ 398,408      $ 458,947      $ 857,355  
  

 

 

    

 

 

    

 

 

 

Indebtedness:

        

Non-recourse property debt, net(1)

   $ 4,543,743      $ (545,969    $ 3,997,774  

Term loan, net

     348,440        —          348,440  
  

 

 

    

 

 

    

 

 

 

Total indebtedness

     4,892,183        (545,969      4,346,214  
  

 

 

    

 

 

    

 

 

 

AIR equity

     1,698,012        778,231        2,476,243  

Noncontrolling interests in consolidated real estate partnerships

     (3,190      68,012        64,822  

Noncontrolling interests in AIR OP

     79,414        —          79,414  
  

 

 

    

 

 

    

 

 

 

Total capitalization

   $ 6,666,419      $ 300,274      $ 6,966,693  
  

 

 

    

 

 

    

 

 

 

 

(1)

Pro forma non-recourse property debt, net, is inclusive of our joint venture partner’s 39% share, or $473.5 million, as of June 30, 2020.

 

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Confidential Treatment Requested by Aimco-LP, Inc.

Pursuant to 17 C.F.R. Section 200.83

 

UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS

The unaudited pro forma consolidated financial statements presented below have been prepared to reflect the effect of certain pro forma adjustments to the historical consolidated financial statements of AIR Predecessor. All significant pro forma adjustments and their underlying assumptions are described more fully in the notes to the unaudited pro forma consolidated financial statements, which you should read in conjunction with such unaudited pro forma consolidated financial statements.

The unaudited pro forma consolidated balance sheet assumes the Spin-Off and the related transactions occurred on June 30, 2020. The unaudited pro forma consolidated statements of operations for the six months ended June 30, 2020, and for the year ended December 31, 2019, assume the Spin-Off and the related transactions occurred on January 1, 2019. Additionally, the unaudited pro forma consolidated balance sheet assumes that a joint venture transaction and apartment community sales, which management considers to be significant to AIR on a pro forma basis, occurred as of June 30, 2020. The unaudited pro forma consolidated statements of operations assume these transactions occurred on January 1, 2019.

These unaudited pro forma consolidated financial statements were prepared in accordance with Article 11 of Regulation S-X, using the assumptions set forth in the accompanying notes. The pro forma adjustments reflect events that are (i) directly attributable to the transactions referred to above, (ii) factually supportable, and (iii) with respect to the statements of income, expected to have a continuing impact on us, including: (i) the distribution of          shares of AIR Common Stock by Aimco to Aimco common stockholders in the Spin-Off, the distribution of New OP Units by AIR OP to the holders of AIR OP Common Units (and subsequent distribution to Aimco by holders of AIR OP Common Units that are subsidiaries of Aimco), the issuance of AIR Class A Preferred Stock to Aimco, subject to a binding commitment to be sold to a third party, (ii) the impact of the Property Management Agreement, Master Services Agreement and the Master Leasing Agreement between us and New OP and Aimco, and (iii) general and administrative expense impacts related to employment agreements.

General and administrative costs that we expect to incur, following the completion of the Spin-Off, are for items such as compensation costs (including equity-based compensation awards), professional services, office costs, and other costs associated with our administrative activities. Our annual general and administrative expenses are anticipated to be approximately 15 basis points of GAV in the first year after the completion of the Spin-Off. This estimate was based on management’s judgment.

In the opinion of Aimco’s senior management team, the unaudited pro forma consolidated financial statements include necessary adjustments that can be factually supported to reflect the effects of the Spin-Off and the related transactions.

The unaudited pro forma consolidated financial statements are presented for illustrative purposes only and not necessarily indicative of what our actual financial position and results of operations would have been if the Spin-Off and related transactions occurred on the dates indicated, nor does it purport to represent our future financial position or results of operations. The unaudited pro forma consolidated financial statements also do not give effect to the potential impact of current financial conditions, any anticipated synergies, operating efficiencies or cost savings that may result from the transactions described above.

The unaudited pro forma consolidated financial statements are derived from and should be read in conjunction with the historical consolidated financial statements and accompanying notes included elsewhere in this information statement.

 

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Table of Contents

Confidential Treatment Requested by Aimco-LP, Inc.

Pursuant to 17 C.F.R. Section 200.83

 

AIR PREDECESSOR

Unaudited Pro Forma Consolidated Balance Sheet

As of June 30, 2020

(in thousands)

 

    AIR
Predecessor

Historical
    New OP
Historical (A)
    Joint
Venture and
Property
Sale
Transactions
    Separation
Pro Forma
Adjustments
    Pro Forma  

ASSETS

         

Buildings and improvements

  $ 6,928,584     $ (924,943   $ (38,888 )(B)    $ (369,219 )(D)    $ 5,595,534  

Land

    1,866,009       (448,297     (30,579 )(B)      (43,587 )(D)      1,343,546  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total real estate

    8,794,593       (1,373,240     (69,467     (412,806     6,939,080  

Accumulated depreciation

    (2,786,104     461,146       19,805 (B)      87,030 (D)      (2,218,123
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net real estate

    6,008,489       (912,094     (49,662     (325,776     4,720,957  

Cash and cash equivalents

    398,408       (4,823     463,770 (B)(C)      —         857,355  

Restricted cash

    44,100       (5,148     (248 )(B)      —         38,704  

Mezzanine investment

    293,427       (293,427     —         —         —    

Note receivable from related party

    —         —         —         534,127 (E)      534,127  

Net investment in sales-type leases

    —         —         —         596,738 (F)      596,738  

Other assets

    376,723       (44,856     (226 )(B)      80,280 (G)      411,921  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total assets

  $ 7,121,147     $ (1,260,348   $ 413,634     $ 885,369     $ 7,159,802  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

LIABILITIES AND EQUITY

         

Non-recourse property debt, net

  $ 4,543,743     $ (487,809   $ (58,160 )(B)    $ —       $ 3,997,774  

Term loan, net

    348,440       —         —         —         348,440  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total indebtedness

    4,892,183       (487,809     (58,160     —         4,346,214  

Accrued liabilities and other

    353,787       (180,288     11,162 (B)      (90,301 )(G)      94,360  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total liabilities

    5,245,970       (668,097     (46,998     (90,301     4,440,574  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Perpetual preferred stock

    —         —         —         2,300 (H)      2,300  

Preferred redeemable noncontrolling interests in Aimco Operating Partnership

    96,449       —         —         —         96,449  

Redeemable noncontrolling interests in consolidated real estate partnership

    4,492       (4,492     —         —         —    

Equity:

         

Common Stock, $0.01 par value

    1,489       —         —         —         1,489  

Additional paid-in capital

    3,491,277       (587,646     392,507 (C)      973,370 (I)      4,269,508  

Accumulated other comprehensive income

    3,807       —         —         —         3,807  

Distributions in excess of earnings

    (1,798,561     —         —         —         (1,798,561
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Aimco equity

    1,698,012       (587,646     392,507       973,370       2,476,243  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Noncontrolling interests in consolidated real estate partnerships

    (3,190     (113     68,125 (C)      —         64,822  

Common noncontrolling interests in Aimco Operating Partnership

    79,414       —         —         —         79,414  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total equity

    1,774,236       (587,759     460,632       973,370       2,620,479  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total liabilities and equity

  $ 7,121,147     $ (1,260,348   $ 413,634     $ 885,369     $ 7,159,802  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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Table of Contents

Confidential Treatment Requested by Aimco-LP, Inc.

Pursuant to 17 C.F.R. Section 200.83

 

AIR PREDECESSOR

Unaudited Pro Forma Condensed Consolidated Statement of Operations

For the Six Months Ended June 30, 2020

(in thousands, except per share amounts)

 

                      Separation Pro Forma Adjustments        
    AIR
Predecessor

Historical
    New OP
Historical (A)
    Joint
Venture and
Property
Sale
Transactions
    Master
Leasing
Agreement (D)
    Property
Management
Agreement (E)
    Other
Adjustments
    Pro Forma  

REVENUES:

             

Rental and other property revenues

  $ 443,360     $ (75,474   $ (5,828 )(B)    $ (226     —         —       $ 361,832  

Property management and other fee income

    —         —         —         —         3,019       —         3,019  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total revenues

    443,360       (75,474     (5,828     (226     3,019       —         364,851  

OPERATING EXPENSES:

             

Property operating expenses

    149,603       (30,671     (1,528 )(B)      (1,346     3,676       —         119,734  

Depreciation and amortization

    198,165       (38,377     (1,517 )(B)      (2,770     607       —         156,108  

General and administrative expenses

    19,804       (3,387     —         —         693       (5,810 )(F)      11,300  

Technology infrastructure expenses

    —         —         —         —         —         4,644 (F)      4,644  

Investment management expenses

    2,305       —         —         —         —         (2,305 )(F)      —    

Other expenses, net

    5,881       (2,010     —         —         —         (577 )(G)      3,294  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

    375,758       (74,445     (3,045     (4,116     4,976       (4,048     295,080  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Interest income

    7,366       (9     —         12,627       —         13,620 (H)      33,604  

Interest expense

    (90,138     11,460       15,039 (B)(C)      (5,397     —         —         (69,036

Gain on dispositions of real estate

    47,204       —         (47,204 )(B)      —         —         —         —    

Mezzanine investment income, net

    13,683       (13,683     —         —         —         —         —    

Income from unconsolidated real estate partnerships

    352       (352     —         —         —         —         —    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income before income tax benefit

    46,069       (3,613     (34,948     11,120       (1,957     17,668       34,339  

Income tax benefit

    6,112       (4,055     —         —         (785 )(I)      (17 )(I)      1,255  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income

    52,181       (7,668     (34,948     11,120       (2,742     17,651       35,594  

Noncontrolling interests:

             

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

    (1     (223     3,259 (C)      —         —         —         3,035  

Net income attributable to preferred noncontrolling interests in Aimco Operating Partnership

    (3,728     —         —         —         —         —         (3,728

Net income attributable to common noncontrolling interests in Aimco Operating Partnership

    (2,475     —         1,657       (527     130       (802     (2,017
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income attributable to noncontrolling interests

    (6,204     (223     4,916       (527     130       (802     (2,710
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income attributable to Aimco

    45,977       (7,891     (30,032     10,593       (2,612     16,849       32,884  

Net income attributable to preferred stockholders

    —         —         —         —         —         (J     —    

Net income attributable to participating securities

    (86     —         —         —         —         —         (86
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income attributable to Aimco common stockholders

  $ 45,891     $ (7,891   $ (30,032   $ 10,593     $ (2,612   $ 16,849     $ 32,798  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Earnings per share:

             

Earnings per share - basic and diluted

  $ 0.31               $ 0.22  

 

  73  

 


Table of Contents

Confidential Treatment Requested by Aimco-LP, Inc.

Pursuant to 17 C.F.R. Section 200.83

 

AIR PREDECESSOR

Unaudited Pro Forma Combined Statement of Operations

For the Year Ended December 31, 2019

(in thousands, except per share data)

 

                      Separation Pro Forma Adjustments        
    AIR
Predecessor
Historical
    New OP
Historical
(A)
    Joint
Venture and
Property
Sale
Transactions
    Master
Leasing
Agreement
(D)
    Property
Management
Agreement
(E)
    Other
Adjustments
    Pro
Forma
 

REVENUES:

             

Rental and other property revenues

  $ 914,294     $ (143,692   $ (13,002 )(B)    $ (5,561   $ —       $ —       $ 752,039  

Property management fee income

    —         —         —         —         5,748       —         5,748  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total revenues

    914,294       (143,692     (13,002     (5,561     5,748       —         757,787  

OPERATING EXPENSES:

             

Property operating expenses

    311,221       (57,541     3,182 (B)      (3,294     7,593       —         261,161  

Depreciation and amortization

    380,171       (64,030     3,256 (B)      (5,588     1,143       —         314,952  

General and administrative expenses

    47,037       (7,062     —         —         1,321       (15,008 )(F)      26,288  

Technology infrastructure expenses

    —         —         —         —         —         8,857 (F)      8,857  

Other expenses, net

    19,092       (2,141     —         —         —         (335 )(G)      16,616  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

    757,521       (130,774     6,438       (8,882     10,057       (6,486     627,874  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Interest income

    11,424       (26     —         25,254       —         27,240 (H)      63,892  

Interest expense

    (168,807     18,598       30,545 (B)(C)      (4,641     —         —         (124,305

Gain on dispositions of real estate

    503,168       —         —         —         —         —         503,168  

Mezzanine investment income, net

    1,531       (1,531     —         —         —         —         —    

Income from unconsolidated real estate partnerships

    803       (935     —         —         —         —         (132
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income before income tax benefit (expense)

    504,892       3,188       11,105       23,934       4,309       33,726       572,536  

Income tax benefit (expense)

    3,135       (3,301     —         —         (1,494 )(I)      (33 )(I)      (1,693
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income

    508,027       (113     11,105       23,934       (5,803     33,693       570,843  

Noncontrolling interests:

             

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

    (187     (206     1,055 (C)      —         —         —         662  

Net income attributable to preferred noncontrolling interests in Aimco Operating Partnership

    (7,708     —         —         —         —         —         (7,708

Net income attributable to common noncontrolling interests in Aimco Operating Partnership

    (26,049     —         (569     (1,227     298       (1,728     (29,275
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income attributable to noncontrolling interests

    (33,944     (206     486       (1,227     298       (1,728     (36,321
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

  74  

 


Table of Contents

Confidential Treatment Requested by Aimco-LP, Inc.

Pursuant to 17 C.F.R. Section 200.83

 

Confidential Treatment Requested by Aimco-LP, Inc.

Pursuant to 17 C.F.R. Section 200.83

 

                      Separation Pro Forma Adjustments        
    AIR
Predecessor
Historical
    New OP
Historical
(A)
    Joint
Venture and
Property
Sale
Transactions
    Master
Leasing
Agreement
(D)
    Property
Management
Agreement
(E)
    Other
Adjustments
    Pro
Forma
 

Net income attributable to Aimco

    474,083       (319     11,591       22,707       (5,505     31,965       534,222  

Net income attributable to preferred stockholders

    (7,335     —         —         —         —         (J     (7,335

Net income attributable to participating securities

    (604     —         —         —         —         —         (604
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income attributable to Aimco common stockholders

  $ 466,144     $ (319   $ 11,591     $ 22,707     $ (5,505   $ 31,965     $ 526,583  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Earnings per share:

             

Basic earnings per share

  $ 3.16               $ 3.56  

Diluted earnings per share

  $ 3.15               $ 3.56  

 

  75  

 


Table of Contents

Confidential Treatment Requested by Aimco-LP, Inc.

Pursuant to 17 C.F.R. Section 200.83

 

AIR PREDECESSOR

Notes to Unaudited Pro Forma Combined Financial Statements

Adjustments to the Unaudited Pro Forma Consolidated Balance Sheet

 

  (A)

New OP-owned communities and the mezzanine investment are currently held through Aimco and its subsidiaries. The pro forma financial statements present New OP as a spin-off and the column “New OP Historical” represents the elimination of the New OP combined historical balance sheet.

 

  (B)

As of June 30, 2020, Aimco has sold one apartment community and is under contract to sell another apartment community, which is expected to close prior to the Spin-Off. The adjustment reflects the removal of the historical basis of the community under contract to sell.

 

  (C)

On September 8, 2020, Aimco completed a joint venture transaction whereby a passive institutional investor purchased a 39% interest in 12 apartment communities. The adjustment reflects the cash received from the transaction and the investor’s share of equity in the communities as an increase to noncontrolling interests in consolidated real estate partnerships, with the net impact reflected in additional paid-in capital.

 

  (D)

Reflects the derecognition of the historical assets and liabilities of the five in-process redevelopment and development properties: North Tower at Flamingo Point, The Fremont, Prism, 707 Leahy, and Eldridge Townhomes. pursuant to the Master Leasing Agreement. AIR will lease these properties to New OP and New OP has the right to complete the on-going redevelopment and development and their lease-ups.

 

  (E)

Reflects AIR’s issuance of a note receivable from New OP in exchange New OP’s purchase of certain properties included in the Spin-Off.

 

  (F)

Reflects AIR’s expected net investment in the sales-type leases of the five properties discussed in (D) above.

 

  (G)

Reflects the assignment of certain other assets and accrued liabilities to New OP in the Spin-Off pursuant to the Separation Agreement. Also reflects the recast of a net deferred tax asset balance of approximately $87 million from accrued liabilities and other to other assets at AIR following the removal of a net deferred tax liability through New OP’s historical financial statements.

 

  (H)

Reflects the issuance of     % Class A Preferred Stock by AIR to Aimco, subject to a binding agreement to sell to a third party, with an aggregate liquidation preference of $2 million, and the issuance to third parties of     % preferred stock by REIT 1 and REIT 2 with an aggregate liquidation preference of $0.3 million.

 

  (I)

Represents the net equity increase to be realized by AIR as a result of the Spin-Off.

Adjustments to the Unaudited Pro Forma Consolidated Statements of Operations

 

  (A)

New OP-owned communities and the mezzanine investment are currently held through Aimco and its subsidiaries. The pro forma financial statements present New OP as a spin-off and the column “New OP Historical” represents the elimination of the New OP combined results of operations.

 

  (B)

Year-to-date June 30, 2020, Aimco has sold one apartment community and is under contract to sell another apartment community, which is expected to close prior to the Spin-Off. The adjustment reflects the removal of the results of operations of these properties.

 

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Table of Contents

Confidential Treatment Requested by Aimco-LP, Inc.

Pursuant to 17 C.F.R. Section 200.83

 

Confidential Treatment Requested by Aimco-LP, Inc.

Pursuant to 17 C.F.R. Section 200.83

 

  (C)

On September 8, 2020, Aimco completed a joint venture transaction whereby a passive institutional investor purchased a 39% interest in 12 apartment communities. The adjustment reflects the investor’s share of the net operations of the joint venture, net of certain property and asset management fees due to Aimco in exchange for operating the communities, and interest expense related to property debt repaid.

 

  (D)

Reflects the elimination of the historical results of operations and recognition of interest income on sales-type leases, pursuant to the Master Leasing Agreement, for the five in-process redevelopment and development properties: North Tower at Flamingo Point, The Fremont, Prism, 707 Leahy, and Eldridge Townhomes. AIR will lease these properties to New OP and New OP has the right to complete the on-going redevelopment and development and their lease ups.

 

  (E)

Reflects the property management fee income, and the recapture of certain property management expenses AIR Predecessor allocated to New OP in its historical financial statements, as AIR will provide property management services to New OP-owned communities pursuant to the Property Management Agreement in exchange for a fee of 4% of revenue collected.

 

  (F)

Reflects the removal of the redevelopment and development, transactions, and joint venture department-level expenses at AIR, as these departments and related expenses will be moved to New OP upon completion of the Spin-Off in accordance with the Employee Matters Agreement. Also includes an adjustment to present separately certain technology infrastructure expenses incurred to support property management and operations.

 

  (G)

Reflects the items of other income (expense), net, associated with the assets and liabilities assigned to New OP.

 

  (H)

Reflects the interest income on the note receivable due from New OP.

 

  (I)

Reflects adjustments to income tax benefit or expense giving effect to pro forma adjustments with an effect on taxable income. The provision for income taxes related to taxable income is based on the estimated statutory tax rate of 26%.

 

  (J)

Reflects the allocation of net income to preferred stockholders to the preferred stock issued by AIR described in Note H to the Unaudited Pro Forma Consolidated Balance Sheet above.

 

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Confidential Treatment Requested by Aimco-LP, Inc.

Pursuant to 17 C.F.R. Section 200.83

 

Confidential Treatment Requested by Aimco-LP, Inc.

Pursuant to 17 C.F.R. Section 200.83

 

UNAUDITED PRO FORMA NON-GAAP FINANCIAL MEASURES

The unaudited pro forma non-GAAP financial measures presented below have been prepared to provide certain non-GAAP information for AIR, giving effect to the pro forma adjustments to the AIR Predecessor historical results of operations to arrive at pro forma AIR results of operations, more fully described above. Please see the Non-GAAP Measures heading under Management’s Discussion and Analysis for further discussion of our nonGAAP measures, including the basis upon which they’re calculated. The unaudited pro forma non-GAAP measures assume the Spin-Off and the related transactions occurred on January 1, 2020.

AIR Nareit Funds from Operations, Pro forma Funds from Operations, and Adjusted Funds from Operations

 

     Pro Forma Six
Months Ended
June 30, 2020
 

Net income attributable to AIR common stockholders

   $  32,798  
Adjustments:   

Real estate depreciation and amortization, net of noncontrolling partners’ interest

     141,023  
Income tax adjustments related to gain on dispositions and other tax-related items      378  
Common noncontrolling interests in AIR OP’s share of above adjustments      (7,320
Amounts allocable to participating securities      (54
  

 

 

 

Nareit FFO attributable to AIR common stockholders

     166,825  
Adjustments, all net of common noncontrolling interest in AIR OP and participating securities:   

Prepayment penalties

     3,808  

Straight-line rent

     1,268  

Severance costs, litigation, and other, net

     (96
  

 

 

 

Pro forma FFO attributable to AIR common stockholders

   $ 171,805  
Capital Replacements, net of common noncontrolling interests in AIR OP and participating securities      (18,568
  

 

 

 

AFFO attributable to AIR common stockholders

     153,237  
  

 

 

 

Annualized Pro forma FFO attributable to AIR common stockholders.

   $  343,610  
  

 

 

 

Annualized AFFO attributable to AIR common stockholders

   $ 306,474  
  

 

 

 
Total share and dilutive share equivalents used to calculate per share amounts      148,670  
Pro forma FFO per AIR common share    $ 1.16  
AFFO per AIR common share    $ 1.03  
Annualized Pro forma FFO per AIR common share    $ 2.31  
Annualized AFFO per AIR common share    $ 2.06  

 

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Pursuant to 17 C.F.R. Section 200.83

 

Confidential Treatment Requested by Aimco-LP, Inc.

Pursuant to 17 C.F.R. Section 200.83

 

AIR EBITDAre and Adjusted EBITDAre

     Pro Forma Six
Months Ended
June 30, 2020
 

Net income

   $ 35,594  

Adjustments:

  

Interest expense

     69,036  

Income tax benefit

     (1,255

Depreciation and amortization

     156,108  
  

 

 

 

EBITDAre

   $  259,483  
  

 

 

 

Net income attributable to noncontrolling interests in consolidated real estate partnerships

     3,035  

EBITDAre adjustments attributable to noncontrolling interests

     (19,888

Interest income received on securitization investment .

     (4,387

Non-cash straight-line rent

     1,268  

Interest income on AIR’s note receivable from New OP

     (13,620
  

 

 

 

Adjusted EBITDAre .

   $ 225,891  
  

 

 

 

Annualized Adjusted EBITDAre

   $ 451,782  
  

 

 

 

 

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Confidential Treatment Requested by Aimco-LP, Inc.

Pursuant to 17 C.F.R. Section 200.83

 

SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA

The following tables set forth the selected historical consolidated financial data and other data of AIR Predecessor as of the dates and for the periods presented. The selected historical condensed consolidated financial data as of June 30, 2020, and for the six months ended June 30, 2020 and 2019, as set forth below, was derived from AIR Predecessor’s unaudited condensed consolidated financial statements, which are included elsewhere in this information statement. The selected historical consolidated financial data as of December 31, 2019, and 2018 and for the years ended December 31, 2019, 2018, and 2017 as set forth below, was derived from AIR Predecessor’s audited consolidated financial statements, which are included elsewhere in this information statement. In management’s opinion, the unaudited condensed consolidated financial statements have been prepared on the same basis as the audited consolidated financial statements and include all adjustments, consisting of ordinary recurring adjustments, necessary for a fair presentation of the information for the periods presented.

These consolidated financial statements herein do not necessarily reflect what AIR Predecessor’s financial position, results of operations or cash flows would have been if it had been a standalone company as of the date or for the periods presented, nor are they necessarily indicative of its future results of operations, financial position or cash flows.

Since the information presented below does not provide all of the information contained in the historical consolidated financial statements of AIR Predecessor, including the related notes, you should read the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and AIR Predecessor’s historical consolidated financial statements and notes thereto included elsewhere in this information statement.

 

(dollar amounts in thousands, except per share data)   Six Months Ended June 30,     Years Ended December 31,  
    2020     2019     2019     2018(1)     2017  
    (unaudited)     (unaudited)                    

OPERATING DATA:

         

Total revenues

  $ 443,360     $ 454,435     $ 914,294     $ 972,410     $ 1,005,437  

Net income

    52,181       361,291       508,027       716,603       347,079  

Net income attributable to AIR Predecessor per common share-diluted(2)

  $ 0.31     $ 2.25     $ 3.15     $ 4.34     $ 2.02  

BALANCE SHEET INFORMATION:

         

Total assets

  $ 7,121,147     $ 6,240,804     $ 6,828,739     $ 6,190,004     $ 6,079,040  

Total indebtedness

    4,892,183       3,997,447       4,505,590       4,075,665       3,861,770  

Non-recourse property debt of partnerships served by Asset Management business

    —         —         —         —         227,141  

OTHER INFORMATION:

         

Cash dividends/distributions declared per common share/unit

  $ 0.82     $ 0.78     $ 1.56     $ 1.52     $ 1.44  

 

(1)

In July 2018, AIR Predecessor sold our Asset Management business and our four affordable apartment communities located in the Hunters Point area of San Francisco.

(2)

On February 20, 2019, AIR Predecessor completed a reverse stock split whereby every 1.03119 Aimco common share and AIR OP Common Partnership Unit (as defined in the AIR OP partnership agreement) was combined into one Aimco common share. AIR Predecessor has revised the outstanding share counts, presentation of share activity, and earnings per share, as if the reverse split occurred on December 31, 2016.

 

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Confidential Treatment Requested by Aimco-LP, Inc.

Pursuant to 17 C.F.R. Section 200.83

 

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

You should read the following in conjunction with the sections in this information statements entitled “Risk Factors,” “Cautionary Statement Regarding Forward-Looking Statements,” “Selected Historical Consolidated Financial Data,” “The Spin-Off,” “Unaudited Pro Forma Consolidated Financial Statements,” “Summary Historical Consolidated and Unaudited Pro Forma Consolidated Financial Data,” “Summary” and “Our Relationship with Aimco Following the Spin-Off” as well as the AIR Predecessor financial statements and related notes thereto, which are incorporated by reference herein. For purposes of this management’s discussion and analysis (“MD&A”) only, all references to the “AIR Predecessor,” “Aimco,” “AIR OP,” “Company,” “we,” “us” or “our” means AIR Predecessor.

The MD&A of AIR’s historical financial condition and results of operations presented below is that of AIR Predecessor. The following refers to and should be read in conjunction with the annual consolidated financial statements and accompanying notes, which are incorporated by reference herein. This MD&A has been included to help provide an understanding of AIR Predecessor’s financial condition, changes in financial condition, and results of operations.

Notwithstanding the legal form of the Spin-Off described elsewhere in this information statement, for accounting and financial reporting purposes, AIR OP will be presented as being the accounting spinnor. This presentation is in accordance with GAAP, specifically FASB ASC 505-60, “Spinoff and Reverse Spinoffs,” and is primarily a result of the relative significance of AIR’s business to Aimco’s business. Further, Aimco has been determined to best represent the predecessor entity to AIR OP. Therefore, our historical financial statements presented herein and in our future filings, with respect to periods prior to the Spin-Off, will be represented by the historical financial statements of Aimco, or AIR Predecessor.

The financial information and results of operations that are discussed in this section relate to AIR Predecessor (unless otherwise specifically stated). Consequently, the discussion in this section relates to AIR Predecessor as it is currently comprised, without giving effect to the Spin-Off and the other transactions contemplated in this information statement. The discussion in this section therefore includes all of AIR Predecessor’s business segments, and does not reflect AIR as it will be constituted following the Spin-Off. As a result, the discussion does not necessarily reflect the expected financial position, results of operations or cash flows of AIR following the Spin-Off or what AIR’s financial position, results of operations, and cash flows would have been had AIR been an independent, publicly traded company during the periods presented. See “Summary,” “The Spin-Off” and “Our Relationship with Aimco Following the Spin-Off” for a discussion of the Spin-Off and related transactions.

The following discussion may contain forward-looking statements that reflect the plans, estimates and beliefs of AIR Predecessor. The words “plans,” “expects,” “will,” “anticipates,” “believes,” “intends,” “projects,” “estimates” or other words of similar meaning and similar expressions, among others, generally identify “forward-looking statements,” which speak only as of the date the statements were made. The matters discussed in these forward-looking statements are subject to risks, uncertainties, and other factors that could cause actual results to differ materially from those set forth in the forward-looking statements.

Factors that could cause actual results or events to differ materially from those anticipated include the matters described under the sections entitled “Risk Factors,” “Summary,” and “Cautionary Statement Regarding Forward-Looking Statements.” AIR disclaims and does not undertake any obligation to update or revise any forward-looking statement, except as required by applicable law.

For the Six Months Ended June 30, 2020, Compared to June 30, 2019

Executive Overview

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

 

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Confidential Treatment Requested by Aimco-LP, Inc.

Pursuant to 17 C.F.R. Section 200.83

 

Confidential Treatment Requested by Aimco-LP, Inc.

Pursuant to 17 C.F.R. Section 200.83

 

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 changes in the per share 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. NAV also provides real estate investors a basis for the perceived quality and predictability of future cash flows as well as their expected growth. Some investors focus on multiples of Adjusted Funds from Operations, or AFFO, and Funds from Operations as defined by the National Association of Real Estate Investment Trusts, or 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.

Our Economic Income is the result of performance in five key business areas:

 

   

increase revenue based on high levels of resident retention, through superior customer selection and satisfaction, coupled with innovation resulting in sustained cost control, to further improve net operating income margins;

 

   

create value and future earnings growth by the renovation and repositioning of apartment communities through short-cycle and long-cycle redevelopments;

 

   

own 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, and diversify the portfolio by maintaining allocation to both “income” properties (high quality properties with predictable, “low beta” AFFO returns, usually with B or C+ rents) where we expect appreciation of the substantial land value will create opportunities for “high alpha” value-creation through profitable redevelopment;

 

   

primarily utilize safe property debt that is low-cost, long-dated, amortizing, and non-recourse, limiting entity and refunding risk while maintaining flexibility to sell or redevelop properties; and

 

   

emphasize an intentional culture that is collaborative and productive, based on respect for others and personal responsibility, strengthened by a preference for promotion from within and explicit talent development and succession planning to produce the strong, stable team that is the enduring foundation of our success.

Impacts of COVID-19 and Government Lockdown

The impact of the COVID-19 pandemic and Government lockdown continued into the second quarter of 2020. We have formed a cross-functional committee of approximately a dozen, from across the company, that meets weekly to adjust to the changing conditions in order to keep our team and our residents safe. We continued our commitment to employees by allowing flexible work arrangements, undertook to pay all costs associated with COVID-19 testing and treatment, kept our team intact without layoffs or pay cuts, and continued clear and frequent communication. Utilizing our previous investment in technology and artificial intelligence, paired with policies providing flexibility, our team continued to lease apartments and fulfill service requests in a safe environment for both the team and our residents.

We also implemented enhanced cleaning procedures and physical distancing measures during the second quarter.

Seeing residents as individuals, each impacted differently by the pandemic and lockdown, our teammates have undertaken to speak to every resident in need, to listen, and to help each solve his or her problems.

We also seek to assist the communities where our residents and employees live and work. Since March, we have provided free temporary furnished housing for healthcare providers at 21 Fitzsimons on the Anschutz Medical Campus, Parc Mosaic near Boulder Community Health, and River Club near Newark University Hospital.

 

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Pursuant to 17 C.F.R. Section 200.83

 

During the three months ended June 30, 2020, we estimate that we incurred $8.0 million of incremental costs related to additional interest costs resulting from our increased liquidity; incremental bad debt expense; lower commercial revenue; local restrictions on our ability to charge late fees; and enhanced cleaning and safety procedures and other COVID-19 related items.

Since the outbreak of the COVID-19 pandemic and government lockdown, we have sold one community and entered into a contract to sell another, both at values greater than their respective gross asset value one year ago. We continue to monitor economic and market conditions and can provide no assurance that a prolonged recession will not result in lower property values and non-cash impairment losses.

As of June 30, 2020, we had $1.2 billion of cash and available credit, providing increased liquidity and financial flexibility.

Residential Rent Collection Update

In response to the economic effects of the COVID-19 pandemic and government lockdown, some jurisdictions where our communities are located, including Los Angeles, Philadelphia, and New York City, have enacted laws seeking to suspend contractual obligations of residents, including government-mandated deferrals, rent freezes, repayment extensions, fee abatement measures or concessions, and prohibitions on lease terminations or evictions for tenants. Some states and municipalities are also implementing rental assistance programs and encouraging landlord-tenant negotiations.

We measure residential rent collection as the amount of payments received as a percentage of all residential amounts billed. The table below represents the percentage of residential billed amounts for the three months ended June 30, 2020, and the month ended July 31, 2020.

 

           2020  
     Three months ended
June 30, 2020
    April     May     June     July  

Payments received during the period

     95.3     95.6     95.1     95.0     95.8

Payments received after period close

     1.9     3.1     1.7     1.1     n/a  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total payments received as of July 31, 2020

     97.2     98.7     96.8     96.1     95.8
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

During the three months ended June 30, 2020, we recognized 98.4% of all residential revenue, treating the balance of 1.6% as bad debt. Of the 98.4% of residential revenue recognized, we collected in cash all but 120 basis points. The amounts uncollected and not reserved as bad debt include balances collateralized by security deposits of approximately 70 basis points, or those considered collectable based on our review of individual customers’ credit of approximately 50 basis points, or $1.0 million.

In July, we recognized 98.4% of all residential revenue, treating the balance of 1.6% as bad debt. Of the 98.4% of residential revenue recognized, we collected 95.8% in cash, 30 basis points is collateralized by security deposits, and $1.6 million, or 2.3%, is expected to be collected in future periods, half of which is expected to be collected in August.

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 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

 

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

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. These short-cycle redevelopments 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. As a result, short-cycle redevelopments provide us the flexibility to maintain current earnings while aligning the timing of the completed apartment homes with market demand. When short-cycle redevelopments are not possible, we may engage in redevelopment activities where an entire building or community is vacated. We refer to these as long-cycle redevelopments. 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.

During the six months ended June 30, 2020, we invested $129.7 million in redevelopment and development. We continued five long-cycle redevelopment and development projects already under construction, including the full redevelopment of the North Tower at Flamingo Point and 707 Leahy; and ground-up construction at The Fremont on the Anschutz Medical Campus; Eldridge Townhomes; and Prism. Our estimated cost to complete these projects is $151.0 million, an amount readily funded from our liquidity.

In the first quarter, we announced plans to pause our short-cycle redevelopments in response to COVID-19 and the government lockdown, and their potential economic ramifications. In June, with the economy beginning to reopen, we resumed short-cycle redevelopments at Bay Parc and the Center Tower at Flamingo Point. Our estimated cost to complete these projects is $13.4 million.

The following table summarizes our significant redevelopment and development communities as of June 30, 2020 (dollars in millions):

 

   

Location

  Homes
Approved for
Redevelopment
    Homes
Completed
    Homes
Leased
    Total
Planned
Investment(1)
    Investment
to Date
    Expected
Initial
Occupancy(2)
    Expected NOI
Stabilization(3)
 

Short-cycle redevelopments

               

Bay Parc

  Miami, FL     90       75       67     $ 27.7     $ 26.4       N/A       N/A  

Flamingo Point Center Tower

  Miami Beach, FL     58       18       13       16.0       3.9       N/A       N/A  

Long-cycle redevelopments

               

707 Leahy(4)

  Redwood City, CA     110       12       41       25.0       21.7       1Q 2020       2Q 2022  

Eldridge Townhomes(5)

  Elmhurst, IL     58       18       29       35.1       31.0       2Q 2020       4Q 2022  

Flamingo Point North Tower

  Miami Beach, FL     366       —         —         171.0       64.4       4Q 2021       2Q 2024  

The Fremont(6)

  Denver, CO (MSA)     253       21       37       87.0       81.1       3Q 2020       1Q 2023  

Parc Mosaic(7)

  Boulder, CO     226       226       175       124.6       123.6       3Q 2019       1Q 2022  

Prism(8)

  Cambridge, MA     136       —         1       73.2       42.1       1Q 2021       3Q 2023  
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

     

Total

      1,297       370       363     $ 559.6     $ 394.2      
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

     

 

(1)

Planned investment relates to the current phase of the redevelopment or development.

 

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(2)

Delivery timing and stabilization is subject to change and are based on the best estimate at this time. Temporary local restrictions halting construction activity and extended “shelter-in-place” orders, related to COVID-19 or otherwise, may delay project completion and impact the timing of stabilization. Any additional delays may also result in increased costs.

(3)

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

(4)

In May 2020, construction resumed following a five-week county-mandated work stoppage. We have completed construction on 43 apartment homes and leased 77% of those completed.

(5)

As of July 31, 2020, 23 townhomes have been delivered and 91% of those have been leased. Construction is on track to deliver the remaining 35 townhomes by year end.

(6)

As of July 31, 2020, 86 apartment homes have been delivered and 49% have been leased. Completion is expected in the fourth quarter 2020.

(7)

Construction is substantially complete. As of July 31, 2020, we had leased 84% of the apartment homes at rents exceeding underwriting.

(8)

In June 2020, COVID-19 related construction bans by The City of Cambridge were lifted, allowing construction activities to resume. Completion of this community is expected in the first quarter of 2021.

As of June 30, 2020, our total estimated net investment at redevelopment and development communities is $559.6 million, of which we have funded $394.2 million. We expect to fund the remaining estimated net investment of $165.4 million on these communities in 2020 and future years, on a leverage-neutral basis, with proceeds from sales of apartment communities with lower forecasted free cash flow, (“FCF”) internal rates of return.

During the three months ended June 30, 2020, we leased 59 redeveloped or newly developed apartment homes. As of June 30, 2020, our exposure to lease-up at long-cycle redevelopment and development communities was 809 apartment homes; 44 homes where construction is complete, 289 homes expected to be delivered during the remainder of 2020, and 476 homes expected to be delivered in 2021.

Portfolio Management and Capital Allocation

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. 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 data 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.

 

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The following table summarizes information about our portfolio relative to the market for the three months ended June 30, 2020:

 

Average revenue per Aimco apartment home(1)

   $     2,254  

Portfolio average rents as a percentage of local market average rents

     112

Percentage A (average revenue per Aimco apartment home $2,942)

     53

Percentage B (average revenue per Aimco apartment home $1,987)

     29

Percentage C+ (average revenue per Aimco apartment home $1,758)

     18

 

(1)

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

Our average monthly revenue per apartment home was $2,254 for the three months ended June 30, 2020, representing an increase of approximately 2% compared to the same period in 2019. This increase is due primarily to growth in Same Store rent, lease-up of redeveloped apartment homes, and the sale of communities with average monthly rent per apartment home lower than those of the retained portfolio, offset partially by lower average fees and other revenue per home.

We follow a disciplined paired trade policy in making investments. 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. We prefer well-located real estate where land is a significant percentage of total value and provides potential upside from development or redevelopment. 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

During the six months ended June 30, 2020, we made no acquisitions.

Dispositions

During the six months ended June 30, 2020, we sold one apartment community located in Annandale, Virginia with 219 homes at a price of $58.9 million, 3% better than its estimated gross asset value one year prior. Net sales proceeds from this transaction were $36.9 million.

In July, we accepted a non-refundable deposit on a community to be sold later in 2020, and agreed to sell this community at a price of approximately $126 million, 3% better than its estimated gross asset value as of December 31, 2019. Proceeds from this transaction are expected to be used to reduce leverage.

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; holding properties with substantial value unencumbered by property debt; maintaining an investment grade rating; and using partners’ capital when it enhances financial returns or reduces investment risk.

 

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Our leverage includes our share of long-term, non-recourse property debt encumbering apartment communities, outstanding borrowings on the revolving credit facility, our term loan, and other leverage. Please refer to the Liquidity and Capital Resources section for additional information regarding our leverage. Other leverage includes mezzanine equity instruments, including preferred OP Units and redeemable noncontrolling interests in a consolidated real estate partnership.

Our target leverage ratios are Net Leverage to Adjusted EBITDAre below 7.0x and Adjusted EBITDAre to Adjusted Interest Expense and Preferred Distributions greater than 2.5x. We calculate Adjusted EBITDAre and Adjusted Interest Expense used in our leverage ratios based on the most recent three-month amounts, annualized. Our leverage ratios for the three months ended June 30, 2020, are presented below:

 

Proportionate Debt to Adjusted EBITDAre

     7.9x  

Net Leverage to Adjusted EBITDAre

     8.1x  

Adjusted EBITDAre to Adjusted Interest Expense

     3.5x  

Adjusted EBITDAre to Adjusted Interest Expense and Preferred Distributions

     3.3x  

Net Leverage to Adjusted EBITDAre increased by 0.4x from March 31, 2020, due primarily to a $6.1 million reduction in quarterly Adjusted EBITDAre primarily as a result of COVID-19 and the government lockdown.

We expect to meet our leverage target through a combination of property net operating income growth, including the $30 million of incremental net operating income we expect to receive from our long-cycle redevelopment communities now underway, and through approximately $350 million of property sales, including the previously mentioned under-contract community, expected to close in 2020. Depending upon the communities sold and the timing of sales, taxable gains may exceed our regular quarterly dividend. If so, our Board of Directors may declare a taxable stock dividend.

Under our revolving credit facility and term loan, we have agreed to maintain a fixed charge coverage ratio of 1.40x, as well as other covenants customary for similar revolving credit arrangements. For the trailing twelve months ended June 30, 2020, our fixed charge coverage ratio was 2.02x. We expect to remain in compliance with these covenants.

Please refer to the Leverage Ratios subsection of the Non-GAAP Measures section for further information about the calculation of our leverage ratios.

Liquidity

Our $1.2 billion liquidity consists of cash and restricted cash balances and available capacity on our revolving credit facility. As of June 30, 2020, we had cash and restricted cash, excluding amounts related to tenant security deposits, of $428.4 million and had the capacity to borrow up to $793.5 million on our revolving credit facility, after consideration of $6.5 million of letters of credit backed by the facility.

We manage our financial flexibility by maintaining an investment grade rating and holding apartment communities that are unencumbered by property debt. As of June 30, 2020, we held unencumbered communities with an estimated fair value, based on GAV, of approximately $2.3 billion.

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

 

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Confidential Treatment Requested by Aimco-LP, Inc.

Pursuant to 17 C.F.R. Section 200.83

 

Financing Activity

During the six months ended June 30, 2020, we placed $608.8 million of new property debt, generating incremental proceeds of $370.6 million, and closed the refinancing of another $79.9 million in July 2020. The loans have a weighted-average term to maturity of 9.3 years and a weighted-average interest rate of 2.9%, lowering our weighted-average borrowing cost of leverage to 3.69%. We addressed all of our 2020 loan maturities and reduced 2021 to 2024 maturities by 18%, resulting in average annual maturities of $262 million remaining for the four years.

Also during the six months ended June 30, 2020, we secured a $350.0 million term loan. Proceeds from the loan were primarily used to repay borrowings on our $800.0 million revolving credit facility. Please refer to the Leverage and Capital Resources section for further information about the terms of our term loan.

Equity Capital Activities

On July 28, 2020, our Board of Directors declared a quarterly cash dividend of $0.41 per share of Common Stock, an increase of 5% compared to the regular quarterly dividends paid in 2019. This amount is payable on August 28, 2020, to stockholders of record on August 14, 2020.

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 2020, we were one of only six recognized as a “Top Workplace” in Colorado for each of the past eight years, and were one of only two real estate companies to receive a BEST award from the Association for Talent Development in recognition of our company-wide success in talent development, marking our third 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 communities and the pace and price at which we redevelop, acquire, and dispose of our apartment communities affect our operating results.

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

Detailed Results of Operations for the Six Months Ended June 30, 2020, Compared to June 30, 2019

Net income decreased by $309.1 million during the six months ended June 30, 2020, compared to 2019, as described more fully below.

Property Operations

We have three segments: (i) Same Store, (ii) Redevelopment and Development, and (iii) Acquisition and Other Real Estate. Our Same Store segment includes communities that have reached a stabilized level of

 

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Confidential Treatment Requested by Aimco-LP, Inc.

Pursuant to 17 C.F.R. Section 200.83

 

operations as of the beginning of a two-year comparable period and maintained it throughout the current and comparable prior year and are not expected to be sold within 12 months. Our Redevelopment and Development segment includes communities that are currently under construction, 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 and Other Real Estate segment includes: (i) communities that we have acquired since the beginning of a two-year comparable period; (ii) communities that are subject to limitations on rent increases; (iii) communities that we expect to sell within 12 months but do not yet meet the criteria to be classified as held for sale; (iv) communities that we expect to redevelop; and (v) certain commercial spaces.

As of June 30, 2020, our Same Store segment included 94 apartment communities with 27,876 apartment homes.

From December 31, 2019, to June 30, 2020, on a net basis, our Same Store segment increased by three apartment communities and 1,227 apartment homes. These changes consisted of:

 

   

the addition of one redeveloped apartment community with 940 apartment homes that was classified as Same Store upon maintaining stabilized operation for the entirety of the periods presented;

 

   

the addition of six acquired apartment communities with 1,480 apartment homes that were classified as Same Store because we have now owned them for the entirety of both periods presented;