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

Exhibit 99.1

Preliminary and Subject to Completion, dated August 12, 2020

        , 2020

Dear Common Unitholders and Class I High Performance Unitholders of AIMCO Properties, L.P.:

We are pleased to inform you that the general partner of AIMCO Properties, L.P. (“Spinco OP”) has approved a plan to separate its business into two separate companies. Spinco OP will spin off its redevelopment and development business, its property management business, and a portfolio of assets with an estimated gross asset value (the estimated fair value), or “GAV,” of $1.2 billion and an estimated Net Asset Value, or “NAV” (as defined in the enclosed document), of approximately $0.9 billion , as of March 31, 2020 (in each case, without giving effect to the value of the Initial Leased Properties (as defined below)), through a distribution of its interests in Durango OP, LP (“New OP”), a new limited partnership wholly owned by Spinco OP and formed to hold these businesses and assets, to you.

Apartment Investment and Management Company (“Aimco”) also has approved a plan to spin off a self-managed real estate investment trust, or REIT, for U.S. federal income tax purposes, owning a portfolio of stabilized assets consisting of apartment communities, diversified by both geography and price point, with an estimated GAV of $12.6 billion and an estimated NAV of $8.4 billion, as of March 31, 2020, through a distribution of its interests in Aimco-LP, Inc. (“Spinco”), which at the time of the spin-off will hold a majority of the ownership interests in Spinco OP. After the completion of the transactions, you will hold an interest in two separate and distinct companies: New OP common units, and your Spinco OP common units and/or Spinco OP Class I High Performance partnership units. Aimco is expected to be renamed         , and Spinco OP is expected to be renamed         .

Following the spin-off, Aimco, New OP, and their subsidiaries, will operate the redevelopment and development business and the property management business, and Spinco, Spinco OP, and their subsidiaries, will own substantially all of the portfolio of stabilized assets. The transactions will provide investors the option to invest in Aimco’s stabilized multifamily portfolio (through an investment in Spinco or Spinco OP), its redevelopment and development pipeline and property management business (through an investment in Aimco or New OP), or both. Aimco’s board of directors believes the transactions will provide each company with the opportunity to pursue growth through the execution of different business plans, providing value-creation opportunities that are not available as a combined company. Aimcos board of directors expects that Aimco and Spinco will each benefit as a result of their complementary competencies and close alliance. Aimco and New OP, on the one hand, and Spinco and Spinco OP, on the other hand, have agreed to a partnership to work together to: (1) accelerate the development of the Spinco Land Bank (as defined in the enclosed information statement); (2) provide peer-leading property management for Spinco’s properties; and (3) engage in real estate opportunities with unrelated third parties.

Spinco will continue to be diversified by both geography and price point and will invest only in stabilized properties that it believes have limited execution risk, low leverage, and lower overhead costs. Aimco is expected to generally hold more complex development assets, intended to provide potential opportunities for future value creation. Spinco also will retain some of the advantages of the existing redevelopment and development business without the execution risk, leverage or associated costs through arrangements with Aimco pursuant to which Aimco and its applicable subsidiaries will lease certain properties with redevelopment or development potential from Spinco and its subsidiaries. Spinco or its applicable subsidiaries will also have a right of first refusal over all real property owned or leased by Aimco (subject to certain exceptions) that has reached stabilization.

Aimco and New OP’s portfolio will include certain non-traditional assets, including: Aimco’s loan to, and equity option in, the partnership owning Parkmerced Apartments in southwest San Francisco, California; 1001 Brickell, a 350,000 square foot office building located in Miami, Florida; and the Yacht Club property adjacent

 

  i  


Table of Contents

to 1001 Brickell. Aimco and its subsidiaries also initially will own five stabilized multi-family properties, primarily located in the Boston area, to provide cash flows to help meet Aimco’s on-going liquidity needs. Spinco or its applicable subsidiaries will lease certain in-process redevelopment or development properties to subsidiaries of Aimco, including: North Tower at Flamingo Point; The Fremont on the Anschutz Medical Campus; and Prism in Cambridge, Massachusetts (collectively, the “Initial Leased Properties”). Under the terms of the leases, Aimco or its applicable subsidiaries will agree to use commercially reasonable efforts to diligently complete the on-going redevelopment and development projects and their lease-ups. Aimco or its applicable subsidiaries 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 generally at the then-current GAV of the development and redevelopment improvements (in some cases, at a small discount thereto) if Spinco exercises an option to pay such fee, or through a sale of the property to a third party (by Spinco and Aimco), with Spinco guaranteed to receive an amount attributable to the property without such improvements and Aimco retaining any excess proceeds.

Aimco and its subsidiaries will retain substantially all of Aimco’s existing employees. I will continue to serve as Aimco’s Chairman and Chief Executive Officer, supported by an experienced executive team dedicated to Aimco, including                  , as President, and                , as Chief Financial Officer. I will also serve as Executive Chairman of Spinco. Aimco and its subsidiaries will provide Spinco and its subsidiaries with certain management, administrative, and support services, including property management.

We believe that the spin-off and associated transactions will provide a number of benefits to Aimco and Spinco.

We believe that expected benefits to Aimco and New OP include:

 

   

Opportunity: A pipeline of redevelopment and development opportunities sourced from the Spinco Land Bank;

 

   

Stability: Stable cash flows from providing property management services to Spinco;

 

   

Flexibility: An opportunity set that includes transactions that are more short-term dilutive (e.g., Indigo acquisition), longer-term (e.g., 1001 Brickell Avenue), more complicated (e.g., Casden acquisition), or better measured by NAV creation than Funds From Operations (“FFO”) (e.g., redevelopment to a lower cap rate) or that involve more, non-recourse, leverage (e.g., Parkmerced) than contemplated by Spinco; and

 

   

Independence: Aimco, with an independent board of directors and independent management, will be independent of Spinco, with every incentive to exercise options that are favorable to Aimco and with no obligation to Spinco other than under the unexpired terms of the property management and shared services agreements, the leases from Spinco, the right of first refusal with respect to Aimco’s interests in real property, and the other agreements entered into in order to effect the spin-off.

We believe that expected benefits to Spinco and Spinco OP include:

 

   

Simplicity: A simplified business focused solely on the ownership of stabilized properties;

 

   

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

 

   

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

 

   

Safety: A balance sheet with leverage lower than that historically employed by Aimco, and sufficiently low such that Spinco can accept the entity risk of corporate debt when its cost is lower than that of property debt;

 

  ii  


Table of Contents
   

Income: Current income, as measured by FFO, 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 (less than 15 bps of GAV) due to the elimination of overhead costs related to redevelopment and development activities;

 

   

Growth: The expanded opportunity set of Aimco increases the value of Spinco’s right of first refusal over certain stabilized properties held by Aimco;

 

   

Dividends: Higher and more predictable FFO as a result of fewer cash requirements for redevelopment and development or debt repayment;

 

   

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

 

   

Independence: Spinco, with an independent board of directors and independent management, will be independent of Aimco, with every incentive to exercise options that are favorable to Spinco and with no obligation to Aimco other than under the unexpired terms of the property management and shared services agreements, the leases to Aimco, and the other agreements entered into in order to effect the spin-off.

The transactions will be completed, first, through a pro rata distribution of all of the outstanding common partnership units in New OP (“New OP units”) to holders of Spinco OP common units and Spinco OP Class I High Performance partnership units of record as of the close of business on                 , 2020, the record date for the spin-off and, second, through a pro rata distribution of all of the outstanding shares of Spinco common stock to Aimco stockholders of record as of the close of business on the record date. Each holder of Spinco OP common units and/or Spinco OP Class I High Performance partnership units will receive one New OP unit for each one Spinco OP common unit and for each one Spinco OP Class I High Performance partnership unit, each case held at the close of business on the record date. The number of Spinco OP common units and Spinco OP Class I High Performance partnership units you own will not change as a result of the transactions.

Immediately following the transactions, it is expected that approximately                 % of the New OP units will be held by Aimco, directly or through its subsidiaries. If you hold Spinco OP common units as of the record date for the spin-off, upon completion of the spin-off, you will hold your Spinco OP common units and you also will hold New OP units. If you hold Spinco OP Class I High Performance partnership units as of the record date for the spin-off, upon completion of the spin-off, you will hold your Spinco OP Class I High Performance partnership units and you also will hold New OP units.

As more specifically described in the enclosed information statement, if you hold Spinco OP common units on the record date, you will receive New OP units in the spin-off. You will generally not recognize taxable gain in connection with the spin-off unless gain is triggered as a result of contributions of appreciated property you made to Spinco OP within seven years of the spin-off. In general, unless you have made a contribution of appreciated property to Spinco OP within seven years of the spin-off, you will have a basis in the New OP units you receive equal to the lesser of (i) the tax basis that Spinco OP has in such units immediately prior to the spin-off and (ii) the tax basis you had in your Spinco OP common units immediately prior to the spin-off. The tax basis you will have in your Spinco OP common units following the spin-off will generally equal the tax basis you had in such units immediately prior to the spin-off reduced by the tax basis attributable to the New OP units you receive in the spin-off.

The vote of Spinco OP unitholders is not required in connection with the distribution of New OP units. You do not need to make any payment, surrender or exchange your Spinco OP common units or Spinco OP Class I High Performance partnership units or take any other action to receive your New OP units.

 

  iii  


Table of Contents

The enclosed information statement, which is being made available to all holders of Spinco OP common units and Spinco OP Class I High Performance partnership units, describes the transactions in detail and contains important information about Aimco and New OP and their business after the completion of the spin-off. We urge you to read the document in its entirety.

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

 

Sincerely,
Terry Considine
Chairman of the Board and
Chief Executive Officer of
AIMCO-GP, Inc., AIMCO Properties, L.P.’s
General Partner

 

  iv  


Table of Contents

                , 2020

Dear Future Common Unitholder of Durango OP, LP:

It is our pleasure to welcome you as a future unitholder of our company, Durango OP, LP (“New OP”). Following the distribution by AIMCO Properties, L.P. (“Spinco OP”), the operating partnership of Apartment Investment and Management Company (“Aimco”), of all of the outstanding New OP units to the holders of Spinco OP common limited partnership units and Spinco OP Class I High Performance partnership units, New OP will be a majority owned subsidiary of Aimco and you will hold New OP units. Holders of Spinco OP common units and holders of Spinco OP Class I High Performance partnership units as of the record date for the spin-off will retain their interests in Spinco OP.

Following the spin-off, Aimco, New OP, and their subsidiaries will operate the redevelopment and development business and the property management business, and Spinco, Spinco OP, and their subsidiaries, will own substantially all of the portfolio of stabilized assets. The transactions will provide investors the option to invest in Aimco’s stabilized multifamily portfolio (through an investment in Spinco or Spinco OP), its redevelopment and development pipeline and property management business (through an investment in Aimco or New OP), or both. Aimco’s board of directors believes the transactions will provide each company with the opportunity to pursue growth through the execution of different business plans, providing value-creation opportunities that are not available as a combined company. Aimco’s board of directors expects that Aimco and Spinco will each benefit as a result of their complementary competencies and close alliance. Aimco and New OP, on the one hand, and Spinco and Spinco OP, on the other hand, have agreed to a partnership to work together to: (1) accelerate the development of the Spinco Land Bank (as defined in the enclosed information statement); (2) provide peer-leading property management for Spinco’s properties; and (3) engage in real estate opportunities with unrelated third parties.

Spinco will continue to be diversified by both geography and price point and will invest only in stabilized properties that it believes have limited execution risk, low leverage, and lower overhead costs. Aimco is expected to generally hold more complex development assets, intended to provide potential opportunities for future value creation. Spinco also will retain some of the advantages of the existing redevelopment and development business without the execution risk, leverage or associated costs through arrangements with Aimco pursuant to which Aimco and its subsidiaries will lease certain properties with redevelopment or development potential from Spinco and its subsidiaries. Spinco or its applicable subsidiaries will also have a right of first refusal over all real property owned or leased by Aimco (subject to certain exceptions) that has reached stabilization.

Aimco’s and New OP’s portfolio will include certain non-traditional assets, including: Aimco’s loan to, and equity option in, the partnership owning Parkmerced Apartments in southwest San Francisco, California; 1001 Brickell, a 350,000 square foot office building located in Miami, Florida; and the Yacht Club property adjacent to 1001 Brickell. Aimco and its subsidiaries also initially will own five stabilized multi-family properties, primarily located in the Boston area, to provide cash flows to help meet Aimco’s on-going liquidity needs. Spinco or its applicable subsidiaries will lease certain in-process redevelopment or development properties to subsidiaries of Aimco, including: North Tower at Flamingo Point; The Fremont on the Anschutz Medical Campus; and Prism in Cambridge, Massachusetts. Under the terms of the leases, Aimco or its applicable subsidiaries will agree to use commercially reasonable efforts to diligently complete the on-going redevelopment and development projects and their lease-ups. Aimco or its applicable subsidiaries 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 generally at the then-current GAV of the development and redevelopment improvements (in some cases, at a small discount thereto) if Spinco exercises an option to pay such fee, or through a sale of the property to a third party (by Spinco and Aimco), with Spinco guaranteed to receive an amount attributable to the property without such improvements and Aimco retaining any excess proceeds.

 

  i  


Table of Contents

Aimco and New OP will retain substantially all of Aimco’s existing employees. I will continue to serve as Aimco’s Chairman and Chief Executive Officer, supported by an experienced executive team dedicated to Aimco, including                  , as President, and,                 , as Chief Financial Officer. I will also serve as Executive Chairman of Spinco. Aimco and its subsidiaries will provide Spinco and its subsidiaries with certain management, administrative, and support services, including property management.

We believe that the spin-off and associated transactions will provide a number of benefits to Aimco and Spinco.

We believe that expected benefits to Aimco and New OP include:

 

   

Opportunity: A pipeline of redevelopment and development opportunities sourced from the Spinco Land Bank;

 

   

Stability: Stable cash flows from providing property management services to Spinco;

 

   

Flexibility: An opportunity set that includes transactions that are more short-term dilutive (e.g., Indigo acquisition), longer-term (e.g., 1001 Brickell Avenue), more complicated (e.g., Casden acquisition), or better measured by NAV creation than Funds From Operations (e.g., redevelopment to a lower cap rate) or that involve more, non-recourse, leverage (e.g., Parkmerced) than contemplated by Spinco; and

 

   

Independence: Aimco, with an independent board of directors and independent management, will be independent of Spinco, with every incentive to exercise options that are favorable to Aimco and with no obligation to Spinco other than under the unexpired terms of the property management and shared services agreements, the leases from Spinco, the right of first refusal with respect to Aimco’s interests in real property, and the other agreements entered into in order to effect the spin-off.

We invite you to learn more about New OP and its business by reviewing the enclosed document in its entirety. We are excited by our future prospects and look forward to your support as a holder of New OP common units.

 

Sincerely,
Terry Considine
Chairman of the Board and
Chief Executive Officer of
Durango GP, LLC, Durango OP, LP’s
General Partner

 

  ii  


Table of Contents

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 AUGUST 12, 2020

INFORMATION STATEMENT

Durango OP, LP

Common Limited Partnership Units

 

 

This information statement is being furnished in connection with (i) the pro rata distribution (the “New OP Spin-Off”) by AIMCO Properties, L.P. (“Spinco OP”), the operating partnership of Apartment Investment and Management Company (“Aimco”), to the holders of Spinco OP common limited partnership units (“Spinco OP Common Units”) (including Aimco-LP, Inc., a Maryland corporation wholly owned by Aimco (“Spinco”)), and Spinco OP Class I High Performance partnership units (“Spinco OP HP Units”), of all of the common limited partnership units of Durango OP, LP (“New OP Units”), a new Delaware limited partnership wholly owned by Spinco OP and formed to hold the businesses and portfolio of assets described below (“New OP”), and (ii) the pro rata distribution (the “Spinco Spin-Off” and collectively with the New OP Spin-Off and the related transactions, the “Spin-Off”) by Aimco to its stockholders of all of the outstanding shares of Class A common stock of Spinco (“Spinco Common Stock”).

If you hold Spinco OP Common Units as of the record date, upon completion of the Spin-Off, you will hold Spinco OP Common Units and New OP Units.

The separation of New OP from Spinco OP, and the separation of Spinco from Aimco, will create two separate and distinct companies, each with the opportunity to pursue growth through the execution of different business plans. We believe that having two separate companies will make each more focused and easier to understand than Aimco’s current business plan, providing value-creation opportunities that are not available or are more difficult to achieve as a combined company. If you hold Spinco OP HP Units as of the record date, upon completion of the Spin-Off, you will hold Spinco OP HP Units and New OP Units.

After the completion of the Spin-Off, Aimco will, through New OP and its subsidiaries, own the redevelopment and development business, the property management business, and a portfolio of assets with an estimated gross asset value (the estimated fair value) (“GAV”) of $1.2 billion and an estimated Net Asset Value (as defined below), or “NAV,” of approximately $0.9 billion , as of March 31, 2020. The portfolio will include certain non-traditional assets, including: Aimco’s loan to, and equity option in, the partnership owning Parkmerced Apartments in southwest San Francisco, California (the “Parkmerced Loan”); 1001 Brickell, a 350,000 square foot office building located in Miami, Florida; and the Yacht Club property adjacent to 1001 Brickell. Aimco, New OP, and their subsidiaries will also initially own five stabilized multi-family properties (the “Stabilized Seed Properties”), primarily located in the Boston area, to provide cash flows to help meet its on-going liquidity needs. The five stabilized multi-family properties are Royal Crest Estates (Warwick), located in Warwick Rhode Island; Royal Crest Estates (Marlborough), 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 (which property will be transferred to New OP immediately after the New OP Spin-Off).

In addition to the portfolio of assets owned by Aimco, Aimco, New OP or their applicable subsidiaries will lease from Spinco, North Tower at Flamingo Point, The Fremont on the Anschutz Medical Campus (a property where ground-up construction is expected to be complete prior to the Spin-Off), and Prism in Cambridge, Massachusetts (collectively, the “Initial Leased Properties”), which are in-process redevelopment or development properties. Under the terms of the leases, Aimco or its applicable subsidiaries will agree to use commercially reasonable efforts to diligently complete the on-going redevelopment and development projects and their lease-ups. Aimco or its applicable subsidiaries 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 generally at the then-current GAV of the development and redevelopment improvements (in some cases, at a small discount thereto) if Spinco OP exercises an option to pay such fee, or through a sale of the property to a third party (by Spinco and Aimco), with Spinco guaranteed to receive an amount attributable to the property without such improvements and Aimco retaining any excess proceeds.

In connection with the Spin-Off, Aimco and New OP will retain substantially all of Aimco’s existing employees, either directly or indirectly pursuant to the transfer of employees from Spinco OP (and its subsidiaries) to New OP (and its subsidiaries) prior to the New OP Spin-Off. Terry Considine will continue to serve as Aimco’s Chairman and Chief Executive Officer, supported by an experienced executive team dedicated to Aimco, including                  , as President, and                , as Chief Financial Officer. Mr. Considine will also serve as Executive Chairman of Spinco. Aimco and its subsidiaries will provide Spinco and its subsidiaries with certain management, administrative and support services, including property management.

Each holder of Spinco OP Common Units will receive one New OP Unit for each one Spinco OP Common Unit held at the close of business on                 , 2020 (the “record date”), and each holder of Spinco OP HP Units will receive one New OP Unit for each one Spinco OP HP Unit at the close of business on the record date. The date on which the New OP Units will be distributed to you (the “distribution date”) is expected to be                 , 2020. After the Spin-Off is completed, New OP will be a separate company from Spinco OP and it is expected that approximately         % of the New OP units will be held by Aimco, directly or through its subsidiaries.

No vote of the holders of Spinco OP limited partnership units is required 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 Spinco OP Common Units or Spinco OP HP Units or take any other action to receive your New OP Units in connection with the New OP Spin-Off .

In connection with the Spin-Off, Aimco is expected to be renamed                 , and Spinco OP is expected to be renamed                 . There is no current trading market for New OP Units. New OP has no plans to list any New OP Units on a securities exchange. It is unlikely that any person will make a market in the New OP Units or that an active market for the New OP Units will develop.

New OP 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. In addition, for so long New OP remains an emerging growth company, it may also 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 limited periods. See “Summary—Emerging Growth Company Status.”

 

 

In reviewing this information statement, you should carefully consider the matters described under “Risk Factors” beginning on page 26.

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 holders of Spinco OP Common Units and Spinco OP HP Units beginning on or about                  , 2020.

The date of this information statement is                  , 2020.


Table of Contents

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

TABLE OF CONTENTS

 

SUMMARY

     1  

SUMMARY HISTORICAL COMBINED AND UNAUDITED PRO FORMA FINANCIAL INFORMATION

     23  

RISK FACTORS

     26  

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

     45  

THE SPIN-OFF

     47  

DISTRIBUTION POLICY

     56  

DESCRIPTION OF FINANCING AND MATERIAL INDEBTEDNESS

     57  

CAPITALIZATION

     58  

UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION

     59  

SELECTED HISTORICAL COMBINED FINANCIAL DATA

     64  

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

     66  

BUSINESS AND PROPERTIES

     81  

MANAGEMENT

     92  

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     99  

CERTAIN RELATIONSHIPS AND RELATED PERSON TRANSACTIONS

     100  

OUR RELATIONSHIP WITH SPINCO FOLLOWING THE SPIN-OFF

     101  

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

     105  

DESCRIPTION OF AIMCO’S CAPITAL STOCK

     116  

U.S. FEDERAL INCOME TAX CONSIDERATIONS

     127  

WHERE YOU CAN FIND ADDITIONAL INFORMATION

     145  

INDEX TO FINANCIAL STATEMENTS

     F-1  


Table of Contents

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 Aimco’s and New OP’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 “Aimco” refer collectively to Aimco, New OP, and their consolidated subsidiaries (other than Spinco, Spinco OP, and their consolidated subsidiaries after the completion of the Spin-Off); and (ii) “Spinco,” refers collectively to Spinco, Spinco OP, and their consolidated subsidiaries (other than New OP and its consolidated subsidiaries after the completion 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 a majority of Aimco’s existing portfolio of assets into a separate, publicly traded company that will elect to be treated as a real estate investment trust for U.S. federal income tax purposes (“REIT”), while retaining (through its subsidiaries) Aimco’s redevelopment and development business, Aimco’s property management business, and a portfolio of assets with an estimated GAV of $1.2 billion and an estimated NAV of approximately $0.9 billion , as of March 31, 2020 (in each case, without giving effect to the value of the Initial Leased Properties), and certain directly related liabilities and overhead (collectively, the “Aimco business”). In addition, in connection with the Spin-Off, Aimco and New OP will retain substantially all of Aimco’s existing employees, either directly or indirectly pursuant to the transfer of employees from Spinco OP (and its subsidiaries) to New OP (and its subsidiaries) prior to the New OP Spin-Off. Terry Considine will continue to serve as Aimco’s Chairman and Chief Executive Officer, supported by an experienced executive team dedicated to Aimco, including              , as President, and            , as Chief Financial Officer. Mr. Considine will also serve as Executive Chairman of Spinco. Aimco and its subsidiaries will provide Spinco and its subsidiaries with certain management, administrative and support services, including property management. Aimco, directly and through subsidiaries in which it owns all of the outstanding common equity, will be the general and special limited partner of New OP. New OP will hold substantially all of Aimco’s assets and manage the daily operations of Aimco’s business directly and indirectly through certain subsidiaries. In connection with the consummation of the Spin-Off and related transactions, Aimco intends to change its name to             , and Spinco intends to change its name to             .

Aimco (and New OP), like Spinco (and Spinco OP), will be engaged primarily in multi-family investment but will have its own distinctive focus. In particular, Aimco is expected to hold more complex development assets (in addition to the Stabilized Seed Properties), intended to provide potential opportunities for future value creation, and Spinco is expected to hold stabilized apartment communities, intended to provide predictable returns. The board of directors of Aimco expects that Aimco and Spinco will each benefit as a result of their



 

  1  


Table of Contents

complementary competencies and close alliance. Particularly, Aimco is expected to benefit from flexibility to pursue broader opportunities due to better alignment of equityholder interests. Aimco will have a capital structure and flexible long-term business model that are designed to allow Aimco to deploy a wider array of strategies than would generally be suitable for Spinco and, as a result, to position Aimco to more effectively address the ongoing challenges in the real estate industry. In addition, Aimco is expected to benefit from a pipeline of redevelopment and development opportunities sourced from Spinco. After the Spin-Off, Spinco will continue to own properties (and may acquire properties) that may have potential to be redeveloped or developed in the future. We refer to these properties as the “Spinco Land Bank.”

At the completion of the Spin-Off, Aimco will, through its subsidiaries, own the redevelopment and development business, the property management business, and certain non-traditional assets, including: Aimco’s loan to, and equity option in, the Parkmerced Loan; 1001 Brickell; and the Yacht Club property. Aimco will also retain the Stabilized Seed Properties. We refer to 1001 Brickell, the Yacht Club and the Stabilized Seed Properties as the “Owned Properties.” The Owned Properties and the Parkmerced Loan will serve as “seed” assets and provide us with revenue from rent collection and interest payments to help meet Aimco’s on-going liquidity needs. We also intend to complete redevelopment of 1001 Brickell Bay Tower, Yacht Club at Brickell, and North Tower at Flamingo Point, and to lease-up Prism and The Fremont.

Subsidiaries of Aimco will lease from Spinco the Initial Leased Properties 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. In addition, we may lease from Spinco additional properties from the Spinco Land Bank for redevelopment or development and/or for lease-up in accordance with the terms of the Master Leasing Agreement. Under the terms of the leases, Aimco or its applicable subsidiaries will agree to use commercially reasonable efforts to diligently complete the on-going redevelopment and development projects and their lease-ups. Aimco or its applicable subsidiaries 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 generally at the then-current GAV of the development and redevelopment improvements (in some cases, at a small discount thereto) if Spinco exercises an option to pay such fee, or through a sale of the property to a third party (by Spinco and Aimco), with Spinco guaranteed to receive an amount attributable to the property without such improvements and Aimco retaining any excess proceeds (see “—Redevelopment and Development” below for additional details).

Our expected business activities following the completion of the Spin-Off are summarized below.

Redevelopment and Development

We intend to redevelop and develop apartment communities. We plan to 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 will rely on the expertise and credit of a third-party developer familiar with the local market to limit our exposure to construction risk. We also expect to undertake a range of redevelopments, including: those in which buildings or exteriors are renovated without the need to vacate a significant percentage of apartment homes, or short-cycle redevelopments; those in which significant renovation of apartment homes may be accomplished upon lease expiration and turnover; and those in which an entire building or community is vacated, or long-cycle redevelopments. We may execute redevelopment using various strategies, which will depend on the needs of the party for whom we are doing the redevelopment or development work. For example, we may take a phased approach, in which we renovate an apartment community in stages. Alternatively, we may intend to complete the redevelopment project on an accelerated timeline, with the goal of commencing the lease-up phase and returning the improvements to the other party rapidly to quicken our return on investment. 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.



 

  2  


Table of Contents

We expect to benefit from a pipeline of redevelopment and development opportunities sourced from Spinco and the Spinco Land Bank, and to provide improved stabilized properties to Spinco at a favorable price by redeveloping and developing properties and increasing occupancy at properties that are not stabilized due to a recently completed redevelopment or development, in each case, that are owned by Spinco and leased by us, commencing with the Initial Leased Properties. We expect to lease the Initial Leased Properties (and additional properties if and as may be mutually agreed between us and Spinco in the future) pursuant to leases entered into in accordance with the Master Leasing Agreement for a percentage of then-current GAV and redevelop or develop the property (if required) with the goal of maximizing long-term value at the community and use our property management business to lease-up the property. Upon completion of the redevelopment and development and lease-up, we 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 generally at the then-current GAV of the development and redevelopment improvements (in some cases, at a small discount thereto) if Spinco exercises an option to pay such fee, or through a sale of the property to a third party (by Spinco and Aimco), with Spinco guaranteed to receive an amount attributable to the property without such improvements and Aimco retaining any excess proceeds. If we do not exercise our option to terminate a lease, we will have the option to assign the lease to a third party, subject to Spinco’s or its applicable subsidiaries’ consent and right of first refusal. Our redevelopment and development projects are expected to be funded using our balance sheet or equity from joint ventures.

We may also acquire other properties or portfolios from third parties that we believe can be redeveloped or developed or leased-up to become stabilized properties and sell such properties to Spinco once the redevelopment and development and lease-ups are completed. If Spinco agrees, subject to its discretion, to acquire any such properties, Spinco will acquire such property from us at a small discount to then-current GAV. If Spinco does not acquire such properties, we will be permitted to sell such properties to third parties.

In the future, we may seek to provide redevelopment and development services to third parties, in addition to Spinco.

Property Management

We will also manage and operate apartment communities. We expect that the stability of the property management business will balance out the cyclical and more unpredictable nature of our redevelopment and development business. 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 Spinco for all of its apartment communities, and Spinco 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 Spinco 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 Spinco. We intend to search for opportunities that will allow us to enter into long-term property management agreements with stable margins that require limited capital investment by us.



 

  3  


Table of Contents

Other Real Estate

We will initially own the Owned Properties. In the future, we may also acquire additional properties. The Owned Properties and any additional stabilized properties we may acquire are expected to provide us with a base of steady revenue through rent collection, to help balance the cyclical and more unpredictable nature of our redevelopment and development business. These properties also may serve as sources of collateral and liquidity for our future funding needs. In addition to rent collection, we may extract capital from these assets through investments by third parties for partial ownership or through an outright sale. We may use that capital to invest in properties that we expect will be higher returning, value-add properties. See “Business and Properties—Properties” for more information on the Owned Properties.

Additionally, we may undertake other multi-family investment transactions, such as investments in joint ventures, serving as the multifamily developer for broader development projects, property acquisitions, and the acquisition of general partner positions in partnerships.

We also will own the Parkmerced Loan, which consists of a five-year, $275 million mezzanine loan at a 10% annual rate to the partnership owning the Parkmerced Apartments (secured by a second-priority deed of trust) and a ten-year option to acquire a 30% interest in the partnership at an exercise price of $1 million, increased by 30% of future capital spending to progress redevelopment and development of the Parkmerced Apartments. We expect that the Parkmerced Loan will provide us an attractive return with limited expected downside risk. The option is expected to provide us with an opportunity to participate in substantial value creation from the vested development rights. See “Business and Properties—Properties—Parkmerced Loan” for more information on the Parkmerced Loan.

Our Management Team

In connection with the Spin-Off, we will retain substantially all of Aimco’s existing employees, either directly or indirectly pursuant to the transfer of employees from Spinco OP (and its subsidiaries) to New OP (and its subsidiaries) prior to the New OP Spin-Off. Our senior management team’s focus will be solely on Aimco’s business and will include asset managers and internal auditors to oversee Aimco’s performance, and both management and board investment committees to review and approve transactions. Each of Aimco and Spinco will have senior management teams focused on the performance of each company’s respective businesses and value-creation opportunities. We believe that the separation of the Aimco and Spinco portfolios, and an experienced senior management team at each of Aimco and Spinco, will result in the respective businesses each receiving the senior management focus and attention required to realize its potential. Our and Spinco’s senior management teams each have a collective track record of successful redevelopment and development projects, active management of real estate operations and real estate portfolio management, all within a REIT environment.

Terry Considine will serve as Aimco’s Chairman of the board of directors and Chief Executive Officer and as Executive Chairman of the board of directors of Spinco, and will be responsible for ensuring that Aimco and Spinco work together collaboratively for their mutual benefit. In order to avoid the appearance of a conflict of interest, 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, Aimco has, and will have after the completion of the Spin-Off, a board of directors that meets the NYSE independence requirements, including being comprised of a majority of independent directors. A wholly owned subsidiary of Aimco will be the general partner of New OP. Except as otherwise expressly provided in the New OP partnership agreement, all management powers over the business and affairs of New OP are exclusively vested in the general partner. New OP will have no directors or executive officers.



 

  4  


Table of Contents

Overview of the Spin-Off

The board of directors of Aimco has announced a plan to separate Aimco’s business into two separate, publicly traded companies:

 

   

Aimco, which will focus on redevelopment and development of properties and on property management, and is expected to hold more complex development assets (in addition to the Stabilized Seed Properties), intended to provide potential opportunities for future value creation. Aimco will also retain the Stabilized Seed Properties to provide cash flows to help meet its on-going liquidity needs, as well as three non-traditional assets; and

 

   

Spinco, which will have a portfolio of wholly or partially owned stabilized, multifamily assets, primarily in the largest markets in the United States and diversified by market and price point, with an indefinite holding period that is expected to minimize the execution risks of redevelopment, development and lease-ups, and intended to provide predictable returns.

As a company separate from Spinco, Aimco will be serving investors seeking long-term value creation through redevelopment and development. This strategy provides Aimco flexibility to pursue broader opportunities due to better alignment of equityholder interests.

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

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

Spinco will contribute a portion of its interests in Spinco OP and all of its interests in Spinco OP GP to two newly formed subsidiary REITs in exchange for common and preferred stock in each REIT. Following such contributions by Spinco, Spinco 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. Aimco will then distribute on a pro rata basis to all holders of Aimco Common Stock the Spinco Common Stock. Immediately following such distribution, the Class A Preferred Stock will be sold to a third party.

On the distribution date, each holder of Spinco OP Common Units will receive one New OP Unit for each one Spinco OP Common Unit held at the close of business on the record date, and each holder of Spinco OP HP Units will receive one New OP Unit for each one Spinco OP HP Unit held as of the close of business on the record date. Thereafter, each Aimco common stockholder will receive from Aimco one share of Spinco Common Stock for each one share of Aimco Common Stock held at the close of business on the record date. You will not be required to make any payment, or surrender or exchange your Spinco OP Common Units or Spinco OP HP Units, or take any other action to receive your New OP Units in connection with the New OP Spin-Off. Following such distribution by Spinco OP, New OP and Spinco OP will be two separate 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 (“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 Spinco OP its sole initial limited partner and New OP GP as its initial general partner.



 

  5  


Table of Contents
   

Spinco OP’s limited partnership agreement is expected (subject to receipt of the requisite approval of Spinco OP’s unitholders) to be amended to provide, among other things, that Spinco OP Common Units and Spinco OP HP Units will be redeemable for Spinco Common Stock if the Spin-Off is consummated.

 

   

In accordance with the terms of the Separation and Distribution Agreement (the “Separation Agreement”), Spinco OP will cause the Aimco business (other than 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 New OP Spin-Off pursuant to a binding agreement entered into prior to the New OP Spin-Off) 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 Spinco will assume or retain a certain amount of existing secured property-level indebtedness related to the Spinco business.

 

   

It is expected that Aimco and its subsidiaries (including New OP) will enter into a new revolving secured credit facility. 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 Spinco OP’s (and its subsidiaries’) employees will become or remain employees of New OP (and its subsidiaries).

 

   

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

 

   

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

 

   

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

 

   

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

 

   

Spinco 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. Spinco will contribute an amount of Spinco OP Common Units representing a 34% limited partner interest in Spinco OP to REIT 1, and will contribute Spinco OP Common Units representing a 34% limited partner interest in Spinco OP and its interest in Spinco OP GP to REIT 2, each in exchange for common and preferred interests in REIT 1 and REIT 2 (as applicable). 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.

 

   

Spinco 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 Spinco Common Stock to Aimco common stockholders as of the record date on a pro rata basis.

 

   

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



 

  6  


Table of Contents
   

In addition to the Separation Agreement, Spinco and Spinco OP (or their applicable subsidiaries), on the one hand, and Aimco and New OP (or their applicable subsidiaries), on the other hand, will enter into an Employee Matters Agreement, a Property Management Agreement, a Master Services Agreement, and a Master Leasing Agreement, each as defined and 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, Aimco intends to own its assets and conduct substantially all of its business through New OP and its subsidiaries. The following chart depicts a simplified graphical representation of the relevant portion of Aimco’s corporate structure before and after the Spin-Off:

Before the Spin-Off

 

LOGO



 

  7  


Table of Contents

After the Spin-Off

 

LOGO

Reasons for the Spin-Off

We believe that the share price of Aimco Common Stock has been negatively affected by employing leverage at levels above peers, and by the execution risk and related overhead costs associated with redevelopment, development, and lease ups, and more complicated and non-traditional investments or investment structures. Assets that are under redevelopment, development or lease-up typically are non-earning or low-earning. These aspects of Aimco’s business are expected to continue to weigh on Aimco’s performance and ability to grow through equity issuance. Aimco believes that redevelopment, development, and lease ups remain a valuable part of the multi-family business but recognizes that such aspects may be incompatible with other aspects of Aimco’s business. Aimco also believes that Spinco will be more attractive to investors as a “pure” property ownership business that does not manage its own properties, making it easier for investors and the market to understand and value. The board of directors of Aimco believes that separating the redevelopment and development business, the property management business, and certain assets, liabilities, and overhead from the remainder of Aimco’s business is in the best interests of Aimco, Spinco and their respective stockholders for a number of reasons, including the following:

 

   

Creates two separate companies, each with the opportunity to pursue growth through the execution of different business plans. We believe that having two separate companies will make each more focused and easier to understand, providing value-creation opportunities that are not available or are more difficult to achieve in a combined company. As two separate companies, we believe that Aimco and Spinco will be able to focus on their respective core businesses and will have an enhanced ability to maximize value for their respective stockholders. We believe that the separation will allow investors to better understand Spinco’s business. Spinco’s focus on the ownership of stabilized properties is expected to result in lower overhead costs and reduced leverage, which we believe will create a portfolio of properties with more predictable results. Aimco will focus on creating long-term value for real estate investors, providing Aimco with flexibility to pursue broader opportunities, including those that are more complicated, highly leveraged or take more time to develop. Aimco may pursue value-creating investment opportunities that did not historically fit within its business strategy and will have



 

  8  


Table of Contents
 

the flexibility to implement strategic initiatives aligned with its business plan and prioritize investment spending and capital allocation accordingly. Further, the separation also is expected to provide Aimco with the discipline of market pricing for what previously has been internal transfer pricing for the business it will retain. Aimco believes that this will lead to operational efficiencies and has the potential to enhance the value and profitability of Spinco’s properties. Aimco further expects that Aimco and Spinco will each benefit as a result of their complementary competencies and close alliance.

 

   

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 Spinco business from the rest of Aimco’s business, investors will have the option to invest in Aimco’s stabilized multifamily portfolio (through an investment in Spinco), in Aimco’s redevelopment and development pipeline and property management business (through an investment in Aimco), or in both. The separation will enable potential investors and the financial community to evaluate Aimco and Spinco separately and assess the merits, performance, and future prospects of their respective businesses. Spinco is expected to have more predictable and growing cash flow, providing the opportunity for higher dividends, accretive investments with limited or no drag and complexity, or both, and is expected to benefit from improved Funds From Operations (“FFO”) and Adjusted Funds From Operations (“AFFO”) multiples, reflecting a simpler business plan with more transparent and predictable cash flows. 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.

 

   

Limits Spinco’s exposure to risks associated with the redevelopment and development business. Spinco will be able to invest in stabilized properties that it believes will better support its underlying business. Spinco 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 alliance with Aimco, Spinco is expected to retain 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 Spinco and Aimco will have a senior management team focused on the performance of its respective business and value-creation opportunities. 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 Spinco’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 Spinco 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 Spinco. We believe this will provide Spinco with improved to access the public markets, providing it with capital to invest in the acquisition of properties to grow its portfolio.

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 Spinco Following the Spin-Off

After the completion of the Spin-Off, Spinco OP and New OP will be separate companies. Spinco will be a separate, publicly traded company from Aimco and will elect to be treated as a REIT for U.S. federal income tax



 

  9  


Table of Contents

purposes commencing with its initial taxable year ending December 31, 2020. Aimco currently intends to maintain its REIT status as a separate, publicly traded company, and will continue to invest in its portfolio of rental properties and its redevelopment and development business.

To set forth our relationship from and after the completion of the Spin-Off, Aimco, New OP, Spinco, and Spinco 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) an agreement pursuant to which Aimco and its subsidiaries will provide property management and related services to Spinco and its subsidiaries (the “Property Management Agreement”), (4) an agreement pursuant to which Aimco and its subsidiaries will provide certain management, administrative, and support services to Spinco and its subsidiaries on an ongoing basis (the “Master Services Agreement”), and (5) a Master Leasing Agreement pursuant to which Aimco may enter into leases with Spinco for 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 Spinco Following the Spin-Off” for more details.

Strengths

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

 

   

Ability to engage in more complicated and highly leveraged transactions offering the potential for higher returns. We are expected to hold more complex development assets (in addition to the Stabilized Seed Properties), intended to provide potential opportunities for future value creation. As a company separate from Spinco, we will no longer be serving investors seeking current period returns but can instead focus on creating long-term value for real estate investors, providing Aimco with flexibility to pursue broader opportunities.

 

   

Ability to source a strong pipeline of redevelopment and development from Spinco. Although Spinco and Aimco will be separate companies, Spinco and Aimco will each benefit as a result of their complementary competencies and close alliance. This alliance is expected to provide Aimco with the ability to source redevelopment and development opportunities from Spinco. Spinco is also expected to benefit from a pipeline of newly redeveloped or developed properties improved by Aimco. Aimco will have the option, but not an obligation, to terminate the leases from Spinco and may receive payment from Spinco OP (if Spinco OP exercises an option to pay such fee) based on then-current GAV of the development and redevelopment improvements (in some cases, at a small discount) once the applicable property has reached stabilization. Spinco or its applicable subsidiaries will also have a right of first refusal over all real property owned or leased by Aimco that has reached stabilization (including those acquired after the consummation of the Spin-Off (other than the Stabilized Seed Properties)).

 

   

Balanced business model. Aimco will primarily operate two businesses: the first, being the redevelopment and development business; and the second, being the property management business. The redevelopment and development business is cyclical and can be characterized by extensive periods of non-earning or low-earning assets due to the time it takes to complete the project. The property management business is more stable and can be characterized by receipt of consistent management fees as compensation for our management services. These two businesses are expected to balance each other out, providing investors with moderate exposure to each.

 

   

Management team with relevant experience and incentives aligned with equityholders. Aimco’s senior management team will focus solely on Aimco’s business and will include asset managers and internal auditors to oversee Aimco’s performance, and both management and board investment committees to review and approve transaction. Aimco’s senior management team has a collective track



 

  10  


Table of Contents
 

record of successful redevelopment and development projects, active management of real estate operations, and real estate portfolio management, all within a REIT environment.

 

   

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

 

   

Ability to source funding from stabilized assets. Our portfolio of stabilized assets will initially include the Stabilized Seed Properties: Royal Crest Estates (Warwick), Waterford Village, Royal Crest Estates (Marlborough), Wexford Village, and Royal Crest Estates (Nashua). We may also acquire additional stabilized assets in the future. These assets may serve as sources of collateral and liquidity for Aimco’s future funding needs. We may extract capital from stabilized assets through rent collection, investments by third parties for partial ownership, or an outright sale, and use that capital to invest in properties that we expect will be higher returning, value-add properties.

Strategy

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

 

   

Proactive management. Our senior management team will focus on maximizing the value of our business and assets by redeveloping and developing and leasing-up certain properties that we acquire or lease, collecting contractual rent for stabilized properties that we own, actively operating and managing properties for Spinco and, in the future, other third parties, and using other available tools to maximize value. Such tools may include investing in certain partnerships, managing operations for other businesses under long-term contracts, and originating investments for Spinco. We intend to incentivize management and our employees by structuring compensation, when appropriate, to emphasize a close tie to value creation, including by compensating team members in shares of Aimco Common Stock.

 

   

Faster paced redevelopment and development. As a company separate from Spinco, we intend to be able to complete our redevelopment and development projects at a more rapid pace than if we were a combined company. Our dedicated team will focus on, and proactively oversee and manage, our redevelopment and development projects, providing these projects with the attention we believe is necessary to complete the projects on a more accelerated timeline. We expect that this will allow Aimco to see a faster return on investment.

 

   

Sufficient liquidity to support our business model. We believe that we will have sufficient liquidity to execute our business model through cash or committed credit, and we intend to maintain sufficient liquidity by retaining cash and not paying regular dividends. We expect that our long-dated property debt, short-term construction loans, joint venture equity raised and our cash flow from operations will provide us with sufficient financial capacity to execute our strategy.

 

   

Use financial leverage to increase return on equity. We plan to limit recourse leverage, and to primarily use property-level debt and preferred stock to limit risk to the Aimco entity. In addition, recognizing that the expected holding period for our properties is less than five years, we plan to generally use short-term and floating rate debt with a clear plan for repayment, including options to extend maturity of the debt if preferable to us. When warranted, we may also seek lower cost equity capital from passive joint venture partners or limited partners.



 

  11  


Table of Contents
   

Flexible long-term business model. We believe the combination of our focused strategy, experienced management team, real estate portfolio, and sufficient liquidity will position us to take advantage of the industry trends and create value for our stockholders over time.

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 Aimco and its subsidiaries (including New OP) will enter into a new revolving secured credit facility. Additional detail on our intended financing, and the treatment of our 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 this indebtedness, see “Description of Financing and Material Indebtedness.”

Our Tax Status

Aimco has elected to be taxed as a REIT under the Code commencing with its taxable year ended December 31, 1994, and intends to continue to operate in such a manner. The Code imposes various requirements related to organizational structure, distribution levels, diversity of stock ownership, and certain restrictions with regard to owned assets and categories of income that must be met in order to continue to qualify as a REIT. In connection with the Spin-Off, Aimco will receive an opinion of Skadden, Arps, Slate, Meagher & Flom LLP (“Skadden, Arps”) to the effect that we have been organized in conformity with the requirements for qualification and taxation as a REIT under the Code, and that our actual method of operation has enabled, and our proposed method of operation will continue to enable, us to continue to meet the requirements for qualification and taxation as a REIT.

Certain of Aimco’s operations, or a portion thereof, including property management, risk management, and redevelopment and development projects are conducted through taxable REIT subsidiaries (“TRSs”). A TRS is REIT a subsidiary that has elected to be taxed as a C-corporation and, as such, is subject to corporate-level United States federal corporate income tax. We use TRSs to facilitate our ability to offer certain services and activities to our residents and investment partners, including providing services to Spinco, that cannot be offered directly by a REIT. We also use TRSs to hold investments in certain assets, including the assets we will lease from Spinco.

In the future, our board of directors may determine that maintaining REIT status would no longer be in the best interest of us or our stockholders, which may result from, for example, other business opportunities that we may wish to pursue, and we may elect to discontinue our REIT status. If such determination is made, our election to revoke our REIT status would not require stockholder approval.

Emerging Growth Company Status

New OP is an “emerging growth company” as defined in the JOBS Act. For as long as New OP remains an emerging growth company, New OP may take advantage of certain limited exemptions from various requirements that are otherwise applicable to public companies. These provisions include, but are not limited to:

 

   

Not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act for up to five years;



 

  12  


Table of Contents
   

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

 

   

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

 

   

Exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved.

New OP expects to take advantage of these exemptions in this information statement and in any other periodic reports, proxy statements, and registration statements that pre-date the date on which it ceases to be an emerging growth company. We cannot predict if unitholders will find New OP Units less attractive due to the permitted reduced disclosure in this information statement and in any such other periodic reports, proxy statements, and registration statements.

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. New OP 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.

New OP 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 New OP’s units 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 New OP has issued more 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 New OP’s units 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;

 

   

Redevelopment, development, and construction risks could affect our profitability;

 

   

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;

 

   

We will initially be dependent on Spinco for our pipeline of redevelopment and development opportunities;

 

   

We will initially rely on Spinco for a substantial portion of our revenue;

 

   

Our portfolio of Owned Properties is geographically concentrated in the Northeast region of the United States, which makes us more susceptible to regional and local adverse economic and other conditions than if we owned a more geographically diverse portfolio;

 

   

Our development projects may subject us to certain liabilities, and we are subject to risks associated with developing properties in partnership with others;

 

   

Development of properties entails a lengthy, uncertain and costly entitlement process;



 

  13  


Table of Contents
   

Government regulations and legal challenges may delay the start or completion of the development of our communities, increase our expenses or limit our building of apartments or other activities;

 

   

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 and other assets when appropriate;

 

   

Potential liability or other expenditures associated with potential environmental contamination may be costly;

 

   

Laws benefiting disabled persons may result in our incurrence of unanticipated expenses;

 

   

Moisture infiltration and resulting mold remediation may be costly;

 

   

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;

 

   

Natural disasters and severe weather may affect our financial condition and results of operations;

 

   

We depend on our senior management;

 

   

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;

 

   

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

 

   

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

 

   

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;

 

   

Disruptions in the financial markets could affect our ability to obtain financing and the cost of available financing and could adversely affect our liquidity;

 

   

Increases in interest rates would increase our interest expense and reduce our profitability, and the potential phasing out of LIBOR after 2021 may affect our financial results;

 

   

Covenant restrictions may limit our ability to make payments to our investors;

 

   

We may increase leverage in executing our development plan, which could further exacerbate the risks associated with our substantial indebtedness;

 

   

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 Spinco 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, Spinco will indemnify us for certain liabilities. These indemnities may not be sufficient to insure us against the full amount of liabilities we incur, and Spinco may not be able to satisfy its obligations in the future;



 

  14  


Table of Contents
   

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

 

   

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

 

   

Aimco may fail to qualify as a REIT;

 

   

REIT distribution requirements limit our available cash;

 

   

Aimco may be subject to federal, state, and local income taxes in certain circumstances;

 

   

Dividends payable by REITs generally do not qualify for the reduced tax rates available for some dividends;

 

   

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

 

   

Changes to United States federal income tax laws could materially and adversely affect Aimco and Aimco’s stockholders;

 

   

Government housing regulations may limit the opportunities at some of our apartment communities and failure to comply with resident qualification requirements may result in financial penalties and/or loss of benefits, such as rental revenues paid by government agencies. Additionally, the government may cease to operate or reduce funding for government housing programs which would result in a loss of benefits from those programs;

 

   

There are restrictions on the ability to transfer and redeem New OP Units, there is no public market for New OP Units and holders of New OP Units are subject to dilution;

 

   

Cash distributions by New OP are not guaranteed and may fluctuate with partnership performance;

 

   

Holders of New OP Units have limited voting rights and are limited in their ability to effect a change of control;

 

   

Holders of New OP Units may not have limited liability in specific circumstances;

 

   

Aimco may have conflicts of interest with holders of New OP Units;

 

   

Provisions in the New OP partnership agreement may limit the ability of a holder of New OP Units to challenge actions taken by the general partner; and

 

   

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

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.

Our Corporate Information

New OP is a Delaware limited partnership. Our principal executive offices are located at principal executive offices are located at 4582 South Ulster Street, Suite 1700, Denver, Colorado 80237, and our telephone number is (303) 757-8101. We maintain a website at www.aimco.com. 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.

Questions and Answers About 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 47 and “Our Relationship with Spinco Following the Spin-Off” beginning on



 

  15  


Table of Contents

page 101. 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 New OP and how will the separation of the Spinco business from Aimco benefit the two companies and their stockholders?

  

Prior to the New OP Spin-Off, Spinco OP will transfer to New OP certain assets and liabilities relating to the Aimco business after the completion of the Spin-Off. Following the Spin-Off, New OP will be a majority owned subsidiary of Aimco, and Spinco OP will be a majority owned subsidiary of Spinco.

 

The separation of New OP from Spinco OP and of Spinco from Aimco, and the distribution of New OP Units are intended to provide you with equity investments in two separate companies, each with the opportunity to pursue growth through the execution of different business plans, providing value-creation opportunities that are not available as a combined company.

 

We have decided to pursue this transaction because we believe Aimco and Spinco each will be better positioned to grow and create stockholder value as separate companies. Aimco and Spinco will both be engaged primarily in multi-family investment but will each have its own distinctive focus.

  

Aimco and Spinco will be closely aligned and Aimco and New OP are expected to benefit from a pipeline of redevelopment and development opportunities sourced from Spinco and the Spinco Land Bank.

 

In addition, Aimco will focus on creating long-term value for real estate investors, providing Aimco the flexibility to pursue broader opportunities due to better alignment of equityholder interests, including those that are more complicated, highly leveraged or take more time to develop. In particular, we expect that Aimco’s investors will be seeking long-term value-creation opportunities through development, redevelopment, and other opportunistic investments. Aimco may pursue value-creating investment opportunities that did not historically fit within its business strategy and will have the flexibility to implement strategic initiatives aligned with its business plan and prioritize investment spending and capital allocation accordingly.

 

Aimco will have a capital structure and flexible long-term business model that will allow the company to deploy a wider array of strategies than would generally be suitable for Spinco and, as a result, we believe will be positioned to address the ongoing challenges in the real estate industry.

Why am I receiving this information statement?

  

Aimco is delivering this information statement to you because you are a holder of Spinco OP Common Units or Spinco OP HP Units as of the record date for the New OP Spin-Off.

 

Spinco OP will distribute the New OP Units to the holders of Spinco OP Common Units and holders of Spinco OP HP Units on a pro rata basis. Each holder of Spinco OP Common Units will receive one New OP Unit for each one Spinco OP Common Unit held at the close of business on the record date. Each holder of Spinco OP HP Units will receive one New OP Unit for each one Spinco OP HP Unit held at the close of business on the record date. Following the Spin-Off, you will own New OP Units, as well as the Spinco OP Common Units and/or Spinco OP HP Units, as applicable. The number of Spinco OP Common Units and/or Spinco OP HP Units you own will not



 

  16  


Table of Contents
   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 Spinco OP and New OP.

What are the reasons for the Spin-Off?

  

The board of directors of Aimco believes that separating the Spinco 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 separate 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 Spinco’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; and

 

•  Improves Spinco’s access to public equity markets.

What will Aimco and New OP’s initial portfolio consist of?

   At the completion of the Spin-Off, Aimco will, through its subsidiaries, own the redevelopment and development business, the property management business, and certain non-traditional assets, including: Aimco’s loan to, and equity option in, the Parkmerced Loan; 1001 Brickell; and the Yacht Club property. Aimco will also retain the Stabilized Seed Properties to provide cash flows to help meet Aimco’s on-going liquidity needs. Those five Stabilized Seed Properties are Royal Crest Estates (Warwick), Royal Crest Estates (Marlborough), Waterford Village, Wexford Village, and Royal Crest Estates (Nashua) (which property will be transferred to New OP immediately New OP Spin-Off). In addition, Aimco, New OP or their applicable subsidiaries will lease from Spinco the Initial Leased Properties, which are in-process redevelopment or development properties. Under the terms of the leases, Aimco or its applicable subsidiaries will agree to use commercially reasonable efforts to diligently complete the on-going redevelopment and development projects and their lease-ups. Aimco or its applicable subsidiaries 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 generally at the then-current GAV of the development and redevelopment improvements (in some cases, at a small discount thereto) if Spinco exercises an option to pay such fee, or through a sale of the property to a third party (by Spinco and Aimco), with Spinco guaranteed to receive an amount attributable to the property without such improvements and Aimco retaining any excess proceeds.

Why are the separations of Spinco OP and New OP and Aimco and Spinco structured as distributions?

   Aimco believes that a distribution of New OP Units to the holders of Spinco OP Common Units and Spinco OP HP Units and a distribution of Spinco Common Stock to its stockholders are an efficient way to separate our assets from the rest of Aimco’s portfolio and will create benefits and value for Aimco, Spinco, New OP, and Spinco OP and their respective stockholders and unitholders.


 

  17  


Table of Contents

How will the separations of Spinco OP and New OP and Aimco and Spinco work?

  

Spinco OP will distribute to the holders of Spinco OP Common Units and to the holders of Spinco OP HP Units the equity of New OP, which (through its subsidiaries) will hold the intended post-Spin-Off Aimco business, assets, and liabilities, including the Owned Properties.

 

On the distribution date, each holder of Spinco OP Common Units will receive one New OP Unit for each one Spinco OP Common Unit held at the close of business on the record date, and each of the holders of Spinco OP HP Units will receive one New OP Unit for each one Spinco OP HP Unit held as of the close of business on the record date.

 

On the distribution date, Aimco will distribute to holders of Aimco Common Stock the Spinco Common stock, and Spinco will hold the general partner and special limited partner interest in Spinco OP.

 

The separation of Spinco from Aimco will create two separate and distinct companies, each with what we believe is a better defined core business that will provide key benefits to each company’s equityholders.

What is the record date for the New OP Spin-Off?

   The record date for determining the holders of Spinco OP Common Units and Spinco OP HP Units who will receive New OP Units in the New OP 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 certain conditions described under “The Spin-Off—Conditions to the Spin-Off.”

What do the holders of Spinco OP Common Units and Spinco OP HP Units need to do to participate in the New OP Spin-Off?

  

No action is required on the part of the holders of Spinco OP Common Units or holder of Spinco OP HP Units. If you hold Spinco OP Common Units or Spinco Op HP Units as of the record date, you will not be required to take any action in order to receive New OP Units in the New OP Spin-Off. No vote of Aimco’s stockholders or the holders of Spinco OP Common Units or Spinco OP HP Units is required or sought in connection with the Spin-Off. 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 Spinco OP Common Units or Spinco OP HP Units or any rights of the holders of Spinco OP Common Units or Spinco OP HP Units, although it will affect the value of each outstanding Spinco OP Common Unit and Spinco OP HP Unit.

 

However, we intend to seek the requisite approvals of Spinco OP’s unitholders to amend Spinco OP’s limited partnership agreement to, among other things, replace references to Aimco Common Stock with references to Spinco Common Stock, including with respect to the exchangeability and redeemability of Spinco OP Common Units and Spinco OP HP Units.

How will the rights of holders of Spinco OP Common Units change after the New OP Spin-Off?

   Holders of Spinco OP Common Units will receive New OP Units in connection with the New OP Spin-Off. The number of Spinco OP Common Units you own will not change as a result of the New OP Spin-Off, although the value of each Spinco OP Common Unit will be affected.

How will the rights of holders of Spinco OP HP Units change after the New OP Spin-Off?

   Holders of Spinco OP HP Units will receive New OP Units in connection with the New OP Spin-Off. The number of Spinco OP HP Units you own will not change as a result of the New OP Spin-Off, although the value of each Spinco OP HP Unit will be affected.


 

  18  


Table of Contents

How will fractional New OP Units be treated in the New OP Spin-Off?

   Fractional units will be distributed in connection with the New OP Spin-Off. See “The Spin-Off—Treatment of Fractional Units.”

What are the U.S. federal income tax consequences of the New OP Spin-Off?

   If you hold Spinco OP Common Units on the record date, you will receive New OP Units in the New OP Spin-Off. You will generally not recognize taxable gain in connection with the New OP Spin-Off unless gain is triggered as a result of contributions of appreciated property you made to Spinco OP within seven years of the New OP Spin-Off. In general, unless you have made a contribution of appreciated property to Spinco OP within seven years of the New OP Spin-Off, you will have a basis in the New OP Units you receive equal to the lesser of (i) the tax basis that Aimco OP has in such units immediately prior to the New OP Spin-Off and (ii) the tax basis you had in your Spinco OP Common Units immediately prior to the New OP Spin-Off. The tax basis you will have in your Spinco OP Common Units following the
  

New OP Spin-Off will generally equal the tax basis you had in such units immediately prior to the New OP Spin-Off reduced by the tax basis attributable to the New OP Units you receive in respect thereof in the New OP Spin-Off.

 

The tax consequences to you of the New OP Spin-Off depends on your individual situation. You are urged to consult with your tax advisor as to the particular tax consequences of the New OP 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 New OP Spin-Off.”

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 New OP 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 Spinco of an opinion from Skadden, Arps to the effect that, commencing with Spinco’s taxable year ending December 31, 2020, Spinco will be organized in conformity with the requirements for qualification as a REIT under the Code, and Spinco’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



 

  19  


Table of Contents
  

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 New OP’s registration statement on Form 10, of which this information statement is a part, and Spinco’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 Spinco OP Common Units and Spinco OP HP Units 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 Spinco Common Stock to be distributed in the Spinco 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;

 

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

 

•  Spinco 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.


 

  20  


Table of Contents

What will happen to Spinco OP equity awards in connection with the separation?

   Any equity awards relating to units of Spinco OP will be adjusted to reflect the impact of the New OP Spin-Off. Specifically, it is expected that each outstanding time or performance-vesting Spinco OP equity award will be converted into an award of both units of Spinco OP and units of New OP. The number of units of Spinco OP and the number of units in New OP subject to each converted award will be determined in a manner intended to preserve the aggregate value of the original Spinco OP equity award as measured immediately before the New OP Spin-Off.

What will be the relationship between Aimco and Spinco following the completion of the Spin-Off?

   After the completion of the Spin-Off, Spinco will be a publicly traded company separate from Aimco. Spinco OP will be a majority owned subsidiary of Spinco, while New OP will be a majority owned subsidiary of Aimco. Spinco and Aimco will enter into the Separation Agreement, the Employee Matters Agreement, the Property Management Agreement, the Master Services Agreement, and the Master Leasing Agreement, among others. Such agreements will govern our relationship with Spinco 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 provided by us to Spinco and its subsidiaries, or our leases from Spinco of the leased properties, including the Initial Leased Properties. Terry Considine will continue to serve as Aimco’s Chairman and Chief Executive Officer, supported by an experienced executive team dedicated to Aimco, including                     , as President, and                    , as Chief Financial Officer. Mr. Considine will also serve as Executive Chairman of Spinco. Aimco and its subsidiaries will provide Spinco and its subsidiaries with certain management, administrative, and support services, including property management. See “Our Relationship with Spinco Following the Spin-Off.”

Will I receive physical certificates representing New OP Units following the New OP Spin-Off?

   No. No physical certificates representing New OP Units will be issued. Instead, Aimco, with the assistance of                     , the distribution agent, will cause the securities to be issued electronically 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 New OP Units, 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 certificates. See “The Spin-Off—Manner of Effecting the Spin-Off.”

Will the number of Spinco OP Common Units or Spinco OP HP Units that I own change as a result of the New OP Spin-Off?

  

No. The number of Spinco OP Common Units and Spinco OP HP Units you own will not change as a result of the Spin-Off.

 

If you own Spinco OP Common Units on the record date, you will receive one New OP Unit for each Spinco OP Common Unit that you own on the record date. If you own Spinco OP HP Units on the record date, you will receive one New OP Unit for each Spinco OP HP Unit that you own on the record date.



 

  21  


Table of Contents

Will I receive shares of Spinco Common Stock in the Spinco Spin-Off?

   No. You will not receive any shares of Spinco Common Stock in the Spinco Spin-Off unless you are a holder of Aimco Common Stock on the record date. Being a holder of Spinco OP Common Units and/or Spinco OP HP Units on the record date does not entitle you to receive Spinco Common Stock in the Spin-Off. However, it is expected that (subject to the receipt of the requisite unitholders of Spinco OP) the limited partnership agreement of Spinco OP will be amended in connection with the Spin-Off to, among other things, provide that the redemption rights applicable to Spinco OP Common Units and Spinco OP HP Units currently denominated in shares of Aimco Common Stock will be redenominated in shares of Spinco Common Stock.

Will Aimco or New OP incur or assume indebtedness in connection with the Spin-Off?

   Yes. It is expected that Aimco and its subsidiaries (including New OP) will enter into a new revolving secured credit facility. 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. In addition, we anticipate that Aimco and New OP (through ownership of our subsidiaries) will assume or retain existing property-level indebtedness related to the properties we will own after the completion of the Spin-Off.

Are there risks associated with owning New OP Units?

   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 Spinco and Spinco OP and our status as a separate, publicly traded company from Spinco. 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. Holders of Spinco OP Common Units and Spinco OP HP Units will not have any appraisal rights in connection with the Spin-Off.

Who is the transfer agent for New OP Units?

   The transfer agent for the New OP Units will be Computershare Trust Company, N.A.

Where can I get more information?

  

If you have any questions relating to the Spin-Off, Spinco Common Stock, Spinco OP Common Units, Spinco OP HP 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



 

  22  


Table of Contents

SUMMARY HISTORICAL COMBINED AND UNAUDITED PRO FORMA FINANCIAL INFORMATION

Set forth below are the summary historical combined financial data of New OP’s predecessors (collectively, “New OP Predecessor”) and New OP Predecessor’s summary unaudited pro forma combined financial data as of the dates and for the periods presented. We have not presented historical information of New OP because it has not had any operating activity since its formation on August 11, 2020, other than the issuance of a general partner interest and a limited partner interest to wholly-owned subsidiaries of Aimco. The summary historical condensed combined 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 New OP Predecessor’s unaudited condensed combined financial statements, which are included elsewhere in this information statement. The summary historical combined 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 New OP Predecessor’s audited combined financial statements, which are included elsewhere in this information statement. In management’s opinion, the unaudited condensed combined financial statements have been prepared on the same basis as the audited combined 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.

The historical combined financial statements of New OP Predecessor do not represent the financial position and results of operations of one legal entity, but rather a combination of entities under common control that have been “carved out” from Aimco and Spinco OP’s consolidated financial statements. These historical combined financial statements include expense allocations related to certain centralized corporate costs attributable to New OP Predecessor for management and other services, including, but not limited to, executive oversight, treasury, finance, human resources, tax, accounting, financial reporting, information technology, and investor relations. Depending on the nature of the expense, we have allocated it to New OP Predecessor based on its relative share of total gross potential revenue of Spinco OP, and the relative gross asset value of New OP Predecessor communities as compared to the total gross asset value of all communities held by Spinco OP, which we believe to be reasonable methodologies. These allocations may not be indicative of the actual expenses that would have been incurred had New OP Predecessor operated as an independent company as of the date and for the periods presented. Management believes that the assumptions and estimates used in preparation of the historical combined financial statements of New OP Predecessor are reasonable. However, these historical combined financial statements herein do not necessarily reflect what New OP Predecessor’s financial position, results of operations or cash flows would have been if each 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.

New OP Predecessor’s unaudited pro forma combined financial data has been derived from the historical combined financial statements, which are included elsewhere in this information statement. New OP Predecessor’s unaudited pro forma combined balance sheet as of June 30, 2020, assumes the Spin-Off and the related transactions occurred on June 30, 2020. New OP Predecessor’s pro forma combined 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 combined financial data gives effect to the Spin-Off and the related transactions, including: (i) the anticipated incurrence of new debt by us and the anticipated related interest expense, (ii) the distribution of                  New OP Units to holders of Spinco OP Common Units and Spinco OP HP Units in the New OP Spin-Off, (iii) the impact of the Master Services Agreement and the Master Lease between Spinco and Aimco, and (iv) incremental costs recorded within general and administrative expenses related to employment agreements.

New OP Predecessor’s unaudited pro forma combined financial statements are not necessarily indicative of what our actual financial position and results of operations would have been if the Spin-Off occurred on the dates indicated, nor does it purport to represent our future financial position or results of operations. The unaudited



 

  23  


Table of Contents

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 combined financial statements of New OP Predecessor or our unaudited pro forma combined financial statements, including the related notes, you should read the “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” New OP Predecessor’s historical combined financial statements and notes thereto, and our unaudited pro forma combined financial statements and the notes thereto included elsewhere in this information statement.

The accompanying combined financial statements have been prepared on a carve-out basis in accordance with 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.

 

    Six Months Ended June 30,     Year Ended December 31,  

(in thousands)

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

Statement of Operations:

             

Total revenues

  $       $ 38,870     $ 31,343     $                   $ 70,736     $ 61,198     $ 58,571  

Property operating expenses

      14,780       12,704         27,427       24,945       23,870  

Depreciation and amortization

      20,961       8,147         28,162       15,174       13,604  

General and administrative expenses

      2,104       1,828         3,998       2,609       2,199  

Total operating expenses

      37,845       22,679         59,587       42,728       39,673  

Interest income

      4       —           12       —         —    

Interest expense

      (6,680     (2,877       (7,884     (7,838     (9,805

Mezzanine investment income, net

      13,684       —           1,531       —         —    

Unrealized loss on interest rate option

      (1,080     —           —         —         —    

Other (expenses) income, net

      (190     (135       (380     147       229  

Income tax benefit (expense)

      4,339       (127       3,433       (146     (197

Net income

      11,102       5,525         7,861       10,633       9,125  

Net loss attributable to redeemable noncontrolling interest in consolidated real estate partnership

      233       —           191       —         —    

Net income attributable to New OP Predecessor

  $                   $ 11,335     $ 5,525     $       $ 8,052     $ 10,633     $ 9,125  

 

    As of June 30,     As of December 31,  

(in thousands)

  Pro Forma
2020

(Unaudited)
    2020
(
Unaudited)
    2019     2018  

Balance sheet data:

       

Net real estate

  $                   $ 562,354     $ 574,212     $ 278,163  

Total assets

      888,577       878,376       282,553  

Total indebtedness

      296,699       299,315       150,879  

Total liabilities

      450,947       458,197       157,359  

Total partners’ capital

      433,143       415,459       125,194  


 

  24  


Table of Contents
     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

   $ 13,199     $ 14,151     $ 29,926     $ 26,378     $ 22,210  

Net cash used in provided by investing activities

     (4,915     (6,358     (391,403     (14,173     (14,305

Net cash (used in) provided by financing activities

     (8,872     (8,383     366,261       (12,341     (7,881
          

 

     Six Months Ended
June 30,
     Year Ended
December 31,
 

(in thousands)

   2020
(
Unaudited)
     2019
(
Unaudited)
     2019      2018      2017  

Other data:

              

Adjusted EBITDAre (1)

   $ 35,289      $ 16,647      $ 39,997      $ 33,088      $ 33,056  

 

(1)

Adjusted EBITDAre is a non-GAAP financial measure. Since this non-GAAP financial measure is not a measure calculated in accordance with U.S. generally accepted accounting principles (“GAAP”), it should not be considered in isolation of, or as a substitute for, our results reported under GAAP as indicators of our operating performance. This measure, as we calculate it, may not be comparable to similarly titled measures employed by other companies. We present this non-GAAP measure because management believes that it is 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. This non-GAAP measure 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—Non-GAAP Measures” for the definition of Adjusted EBITDAre and an important discussion of its uses, inherent limitations, and reconciliations to its most directly comparable GAAP financial measure.



 

  25  


Table of Contents

RISK FACTORS

The following sets forth material risks related to the Spin-Off, Aimco’s and New OP’s business following the completion of the Spin-Off, and the New OP Units. You should carefully consider the following risks and other information contained in evaluating us and the New OP Units, 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 Aimco’s and New OP’s business face 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 value of the New OP Units.

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 affects 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 (including our interest in the partnership owning the Parkmerced Apartments), 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 (including our interest in the partnership owning the Parkmerced Apartments), or for how long disruptions are likely to continue. The extent of such impact will depend on developments, which are highly uncertain, rapidly evolving

 

  26  


Table of Contents

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 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.

Redevelopment, development and construction risks could affect our profitability.

Redevelopment and development are subject to numerous risks, including the following:

 

   

we may be unable to obtain, or experience delays in obtaining, necessary zoning, occupancy, or other required governmental or third-party permits and authorizations, which could result in increased costs or the delay or abandonment of opportunities;

 

   

we may incur costs that exceed our original estimates due to increased material, labor, or other costs, such as litigation;

 

   

we may be unable to complete construction and lease-up of an apartment community on schedule, resulting in increased construction and financing costs and a decrease in expected rental revenues;

 

   

occupancy rates and rents at an apartment community may fail to meet our expectations for a number of reasons, including changes in market and economic conditions beyond our control and the development of competing communities;

 

   

we may be unable to obtain financing, including construction loans, with favorable terms, or at all, which may cause us to delay or abandon an opportunity;

 

   

we may abandon opportunities that we have already begun to explore, or stop projects we have already commenced, for a number of reasons, including changes in local market conditions or increases in construction or financing costs, and, as a result, we may fail to recover costs already incurred in exploring those opportunities;

 

   

we are required to pay rent to Spinco on the leased properties, regardless of whether our redevelopments or developments are successful;

 

   

we have the right to terminate our lease with Spinco and may receive payment from Spinco, but the price Spinco generally has the option to pay in such event under the Master Leasing Agreement may be less than what a third party would have been willing to pay us if we sold such lease to a third party;

 

   

we may incur liabilities to third parties during the redevelopment or development process and we may be faced with claims for construction defects after a property has been developed;

 

   

we may face opposition from local community or political groups with respect to the development, construction or operations at a particular site;

 

   

health and safety incidents or other accidents on site may occur during development;

 

   

unexpected events or circumstances may arise during the redevelopment or development process that affect the timing of completion and the cost and profitability of the redevelopment or development; and

 

   

loss of a key member of a redevelopment or development team could adversely affect our ability to deliver redevelopments and developments on time and within our budget.

Some of these development risks may be heightened given current uncertain and potentially volatile market conditions. If market volatility causes economic conditions to remain unpredictable or to trend downwards, we may not achieve our expected returns on properties under development and we could lose some or all of our investments in those properties. In addition, the lead time required to develop, construct, and lease-up a development property may increase which could adversely impact our projected returns or result in a termination of the development project.

 

  27  


Table of Contents

In addition, we may serve as either the construction manager or the general contractor for our development projects. The construction of real estate projects entails unique risks, including risks that the project will fail to conform to building plans, specifications, and timetables. These failures could be caused by labor strikes, weather, government regulations, and other conditions beyond our control. In addition, we may become liable for injuries and accidents occurring during the construction process that are underinsured.

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.

We will initially be dependent on Spinco for our pipeline of redevelopment and development opportunities.

We will initially be dependent on the pipeline of redevelopment and development opportunities sourced by Spinco for a significant portion of our anticipated growth and future revenue. Unless and until we acquire additional sources of redevelopment and development opportunities, we will depend on Spinco. We may not acquire additional sources to further diversify and increase our sources of revenue and reduce our portfolio concentration in the near future or at all. The inability of Spinco to source such opportunities for us efficiently or at all, could have a material adverse effect on us.

We will initially rely on Spinco for a substantial portion of our revenue.

Aimco and its subsidiaries will provide Spinco and its subsidiaries with certain management, administrative, and support services, including property management. Spinco 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 (the “Fees”). We will initially rely on Spinco for payment of the Fees under the Property Management Agreement and the Master Services Agreement, and we expect that the Fees will constitute a substantial portion of our revenue in the future. While we may seek to provide property management services to third parties, in addition to Spinco, in the future, there can be no assurance that any failure, inability or unwillingness on the part of Spinco to satisfy its obligations and payment of Fees under the Property Management Agreement and the Master Services Agreement, would not have a material adverse effect on us.

 

  28  


Table of Contents

Our portfolio of Owned Properties is geographically concentrated in the Northeast region of the United States, which makes us more susceptible to regional and local adverse economic and other conditions than if we owned a more geographically diverse portfolio.

Upon the completion of the Spin-Off, the majority of our Owned Properties will be located in the Northeast region of the United States. As a result, we are particularly susceptible to adverse economic or other conditions in this market (such as periods of economic slowdown or recession, business layoffs or downsizing, industry slowdowns, relocations of businesses, increases in real estate and other taxes, and the cost of complying with governmental regulations or increased regulation), as well as to natural disasters (including earthquakes, storms, and hurricanes), potentially adverse effects of “global warming,” and other disruptions that occur in this market (such as terrorist activity or threats of terrorist activity and other events), any of which may have a greater impact on the value of our assets or on our operating results than if we owned a more geographically diverse portfolio.

We cannot assure you that this market will grow or that underlying real estate fundamentals will be favorable to owners, operators, and developers of office, multifamily or retail assets, or future development assets. Our operations may also be affected if competing assets are built in this market. Moreover, submarkets within our core market may be dependent upon a limited number of industries. Any adverse economic or other conditions in the Northeast region of the United States, or any decrease in demand for office, multifamily, or retail assets could adversely impact our financial condition and results of operations.

Our development projects may subject us to certain liabilities, and we are subject to risks associated with developing properties in partnership with others.

We may hire and supervise third-party contractors to provide construction, engineering, and various other services for development projects. Certain of these contracts may be structured such that we are the principal rather than the agent. As a result, we may assume liabilities in the course of the project and be subjected to, or become liable for, claims for construction defects, negligent performance of work or other similar actions by third parties we have engaged.

Adverse outcomes of disputes or litigation could negatively impact our business, results of operations, and financial condition, particularly if we have not limited the extent of the damages for which we may be liable, or if our liabilities exceed the amounts of the insurance that we carry. Moreover, our tenants may seek to hold us accountable for the actions of contractors because of our role even if we have technically disclaimed liability as a legal matter, in which case we may determine it necessary to participate in a financial settlement for purposes of preserving the tenant or customer relationship or to protect our corporate brand. Acting as a principal may also mean that we pay a contractor before we have been reimbursed by our tenants. This exposes us to additional risks of collection in the event of a bankruptcy, insolvency or a condominium purchaser default. The reverse can occur as well, where a contractor we have paid files for bankruptcy protection or commits fraud with the funds before completing a project which we have funded in part or in full.

Additionally, we may use partnerships and limited liability companies to develop some of our real estate investments. Acting through our wholly owned subsidiaries, we typically will be the general partner or managing member in these partnerships or limited liability companies. There are, however, instances in which we may not control or even participate in management or day-to-day operations of these properties. The use of partnerships and limited liability companies involve special risks associated with the possibility that:

 

   

a partner or member may have interests or goals inconsistent with ours;

 

   

a general partner or managing member may take actions contrary to our instructions, requests, policies or objectives with respect to our real estate investments;

 

   

a partner or member could experience financial difficulties that prevent it from fulfilling its financial or other responsibilities to the project; or

 

   

a partner may not fulfill its contractual obligations.

 

  29  


Table of Contents

In the event any of our partners or members files for bankruptcy, we could be precluded from taking certain actions affecting our project without bankruptcy court approval, which could diminish our control over the project even if we were the general partner or managing member. In addition, if the bankruptcy court were to discharge the obligations of our partner or member, it could result in our ultimate liability for the project being greater than originally anticipated.

Further, disputes between us and a partner may result in litigation or arbitration that may increase our expenses and prevent our management from focusing their time and attention on our business.

To the extent we are a general partner, we may be exposed to unlimited liability, which may exceed our investment or equity in the partnership. If one of our subsidiaries is a general partner of a particular partnership, it may be exposed to the same kind of unlimited liability.

Development of properties entails a lengthy, uncertain and costly entitlement process.

Approval to develop real property sometimes requires political support and generally entails an extensive entitlement process involving multiple and overlapping regulatory jurisdictions and often requires discretionary action by local governments. Real estate projects must generally comply with local land development regulations and may need to comply with state and federal regulations. We may incur substantial costs to comply with legal and regulatory requirements. An increase in legal and regulatory requirements may cause us to incur substantial additional costs, or in some cases cause us to determine that the property is not feasible for development. In addition, our competitors and local residents may challenge our efforts to obtain entitlements and permits for the development of properties. The process to comply with these regulations is usually lengthy and costly, may not result in the approvals we seek, and can be expected to materially affect our development activities.

Government regulations and legal challenges may delay the start or completion of the development of our communities, increase our expenses or limit our building of apartments or other activities.

Various local, state, and federal statutes, ordinances, rules and regulations concerning building, health and safety, site and building design, environment, zoning, sales, and similar matters apply to and/or affect the real estate development industry. In addition, our ability to obtain or renew permits or approvals and the continued effectiveness of permits already granted or approvals already obtained depends on factors beyond our control, such as changes in federal, state, and local policies, rules and regulations, and their interpretations and application.

Municipalities may restrict or place moratoriums on the availability of utilities, such as water and sewer taps. If municipalities in which we operate take such actions, it could have an adverse effect on our business by causing delays, increasing our costs or limiting our ability to operate in those municipalities. These measures may reduce our ability to develop apartment communities and to build and sell other real estate development projects in the affected markets, including with respect to land we may already own, and create additional costs and administration requirements, which in turn may harm our future sales, margins, and earnings.

In addition, there is a variety of legislation being enacted, or considered for enactment, at the federal, state, and local level relating to energy and climate change. This legislation relates to items such as carbon dioxide emissions control and building codes that impose energy efficiency standards. New building code requirements that impose stricter energy efficiency standards could significantly increase our cost to construct buildings. Such environmental laws may affect, for example, how we manage storm water runoff, wastewater discharges, and dust; how we develop or operate on properties on or affecting resources such as wetlands, endangered species, cultural resources, or areas subject to preservation laws; and how we address contamination. As climate change concerns continue to grow, legislation and regulations of this nature are expected to continue and become more costly to comply with. In addition, it is possible that some form of expanded energy efficiency legislation may be passed by the U.S. Congress or federal agencies and certain state legislatures, which may, despite being phased in

 

  30  


Table of Contents

over time, significantly increase our costs of building apartment communities and the sale price to our buyers and adversely affect our sales volumes. We may be required to apply for additional approvals or modify our existing approvals because of changes in local circumstances or applicable law.

Energy-related initiatives affect a wide variety of companies throughout the United States and the world and, because our operations are heavily dependent on significant amounts of raw materials, such as lumber, steel, and concrete, they could have an indirect adverse impact on our operations and profitability to the extent the manufacturers and suppliers of our materials are burdened with expensive cap and trade and similar energy-related taxes and regulations. Our noncompliance with environmental laws could result in fines and penalties, obligations to remediate, permit revocations, and other sanctions.

Governmental regulation affects not only construction activities but also sales activities, mortgage lending activities, and other dealings with consumers. Further, government agencies routinely initiate audits, reviews or investigations of our business practices to ensure compliance with applicable laws and regulations, which can cause us to incur costs or create other disruptions in our business that can be significant. Further, we may experience delays and increased expenses as a result of legal challenges to our proposed communities, whether brought by governmental authorities or private parties.

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.

In addition, there are many developers, managers, and owners of apartment real estate and underdeveloped land, as well as other REITs, private real estate companies, and investors, that compete with us, some of whom have greater financial resources and market share than us. If our competitors prevent us from realizing our real estate development objectives, our performance may fall short of our expectations and adversely affect our business.

Because real estate investments are relatively illiquid, we may not be able to sell apartment communities and other assets 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.

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

 

  31  


Table of Contents

investigation and remediation actions, damages to natural resources, and for potential fines or penalties in connection with such damage or with respect to the improper management of hazardous materials. Moreover, private plaintiffs may potentially make claims for investigation and remediation costs they incur or personal injury, disease, disability, or other infirmities related to the alleged presence of hazardous materials at an apartment community. In addition to potential environmental liabilities or costs associated with our current apartment communities, we may also be responsible for such liabilities or costs associated with communities we acquire or manage in the future, or apartment communities we no longer own or operate.

Laws benefiting disabled persons may result in our incurrence of unanticipated expenses.

Under the Americans with Disabilities Act of 1990, or ADA, all places intended to be used by the public are required to meet certain federal requirements related to access and use by disabled persons. The Fair Housing Amendments Act of 1988, or FHAA, requires apartment communities first occupied after March 13, 1991, to comply with design and construction requirements for disabled access. For those apartment communities receiving federal funds, the Rehabilitation Act of 1973 also has requirements regarding disabled access. These and other federal, state, and local laws may require structural modifications to our apartment communities or changes in policy/practice, or affect renovations of the communities. Noncompliance with these laws could result in the imposition of fines or an award of damages to private litigants and also could result in an order to correct any non-complying feature, which could result in substantial capital expenditures. Although we believe that our apartment communities are substantially in compliance with present requirements, we may incur unanticipated expenses to comply with the ADA, the FHAA, and the Rehabilitation Act of 1973 in connection with the ongoing operation or redevelopment of our apartment communities and the apartment communities we manage.

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. Aimco 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, Aimco 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 real estate assets’ 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 asset 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.

 

  32  


Table of Contents

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 real estate assets. The extent of our casualty losses and loss in operating income in connection with such events is a function of the severity of the event and the total amount of exposure in the affected area. When we have geographic concentration of exposures, a single catastrophe (such as an earthquake) or destructive weather event (such as a hurricane) affecting a region may have a significant adverse effect on our financial condition and results of operations. We cannot accurately predict natural disasters or severe weather, or the number and type of such events that will affect us. As a result, our operating and financial results may vary significantly from one period to the next. Although we anticipate and plan for losses, there can be no assurance that our financial results will not be adversely affected by our exposure to losses arising from natural disasters or severe weather in the future that exceed our previous experience and assumptions.

We depend on our senior management.

Our success 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 and results of operations.

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 and/or commercially sensitive in nature), and a loss of confidence in our security measures, which could harm our business.

 

  33  


Table of Contents

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, 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, Spinco will have the right to terminate the Master Leasing Agreement. The ability for Spinco to terminate the Master Leasing 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.

In addition, Spinco or its applicable subsidiaries will have a right of first refusal on the direct or indirect transfer of any real property owned or, subject to the consent of the landlord, leased by us or our subsidiaries (including indirect transfers pursuant to a transfer of equity interests in any of our subsidiaries that owns or leases such real property) and any rights to acquire real property (or equity interests in entities that own or lease such real property), in each case, with respect to real property for which redevelopment has been substantially completed (if applicable) and that has reached a specified occupancy for a minimum time period and with respect to the Parkmerced Loan (and the equity in the partnership owning the Parkmerced Apartments if the option is exercised, as described below under “Business and Properties—Properties—Parkmerced Loan”), but excluding any such transfers in respect of the Stabilized Seed Properties. This right of first refusal may discourage third parties from negotiation with us with respect to the sale of our real property and may limit the number of interested buyers, and further may prevent us from receiving the maximum price that we may otherwise have obtained for such properties.

See “Our Relationship with Spinco Following the Spin-Off—Master Leasing Agreement.”

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

There may be conflicts of interest inherent in our relationship with Spinco insofar as Spinco and its affiliates manage, redevelop, or develop 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 Spinco or its affiliates, and we may compete with Spinco for certain business opportunities. Terry Considine, Aimco’s Chief Executive Officer and Chairman of the board of directors, will serve as Spinco’s Executive Chairman.

The agreements between Spinco and us generally will not limit or restrict Spinco or its affiliates from engaging in any business or managing other entities that engage in business of the type conducted by us. Spinco may engage in the redevelopment and development of properties or the property management business, which may cause us to compete with Spinco 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.

 

  34  


Table of Contents

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 enter into a new revolving secured credit facility. 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, a significant number 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 Aimco’s qualification as a REIT.

Disruptions in the financial markets could affect our ability to obtain financing and the cost of available financing and could adversely affect our liquidity.

Our ability to obtain financing and the cost of such financing depends on the overall condition of the United States credit markets. During periods of economic uncertainty, the United States credit markets may experience significant liquidity disruptions, which may cause the spreads on debt financings to widen considerably and make obtaining financing, both non-recourse property debt and corporate borrowings such as those under our credit facilities, 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, and the potential phasing out of LIBOR after 2021 may affect our financial results.

We expect that the credit facilities we enter into as of the completion of the Spin-Off will contain variable-rate interest and may be based, in part, on LIBOR. An increase or decrease in LIBOR would likely increase or decrease our interest expense. An increase in interest expense may affect our profitability.

In addition, 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

 

  35  


Table of Contents

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. To the extent any of our credit facilities contain variable-rate interest based, in part, on LIBOR, 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.

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

We may decide to increase our leverage to execute our development plan. 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 New OP Spin-Off and/or the Spinco Spin-Off if at any time the board of directors of Aimco determines, in its sole discretion, that the New OP Spin-Off or the Spinco Spin-Off 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 New OP Spin-Off and/or the Spinco Spin-Off is no longer advisable at that time. If Aimco’s board of directors determines to terminate the New OP Spin-Off and/or the Spin-Off , holders of Spinco OP Common Units and/or Spinco OP HP Units will not receive any distribution of New OP Units and stockholders of Aimco will not receive any distribution of Spinco Common Stock. 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 financial data included in this information statement may not reflect our business, financial position results of operations had we been a separate, 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 a separate, 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.

 

  36  


Table of Contents

Our historical combined financial data does not represent the financial position and results of operations of one legal entity, but rather a combination of entities under common control that have been “carved out” from Aimco’s consolidated financial statements. These historical combined financial statements include expense allocations related to certain centralized corporate costs attributable to New OP Predecessor for management and other services, including, but not limited to, executive oversight, treasury, finance, human resources, tax, accounting, financial reporting, information technology, and investor relations. These allocations may not be indicative of the actual expense that we would have incurred had we operated as a separate, publicly traded company for the periods presented. We believe that the assumptions and estimates used in preparation of the underlying combined financial statements are reasonable. However, the combined 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 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 Combined and Unaudited Pro Forma Financial Information,” “Unaudited Pro Forma Combined Financial Information,” “Selected Historical Combined 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, Spinco will be a publicly traded company separate from us. We may not be able to achieve some or all of the benefits that we expect to achieve as a company separate from Spinco 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 revenues through our development and redevelopment business or 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 Spinco 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 Spinco 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 Spinco 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, Spinco will indemnify us for certain liabilities. These indemnities may not be sufficient to insure us against the full amount of liabilities we incur, and Spinco may not be able to satisfy its obligations in the future.

Pursuant to the Separation Agreement, we will agree to assume and indemnify Spinco for certain liabilities, which may include, among other items, associated defense costs, settlement amounts, and judgements. Payments

 

  37  


Table of Contents

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 Spinco, including those related to Spinco’s business. Spinco 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, Spinco 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 Spinco, 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 Spinco relating to, arising out of or resulting from the matters related to the Aimco business and certain separation expenses not otherwise allocated to Spinco (or allocated specifically to us) pursuant to the Separation Agreement, and third parties could seek to hold us responsible for Spinco’s share of any such liabilities. Spinco 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, and/or Spinco may not be able to fully satisfy its indemnification obligations. In addition, even if we ultimately succeed in recovering from Spinco any amounts for which we are 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 Spinco 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 Aimco. Moreover, a court could void certain elements of the Spin-Off or Spinco could be awarded monetary damages for the difference between the consideration received by Spinco 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 Spinco 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 still control Spinco. 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 Spinco and us after the Spin-Off, certain services provided by us to Spinco and by Spinco to us after the Spin-Off, and our lease from Spinco of the Initial Leased Properties. For a more detailed description, see “Our Relationship with Spinco Following the Spin-Off” and “Description of Financing and Material Indebtedness.”

 

  38  


Table of Contents

RISKS RELATED TO TAX LAWS AND REGULATIONS

Aimco may fail to qualify as a REIT.

If Aimco fails to qualify as a REIT, Aimco will not be allowed a deduction for dividends paid to its stockholders in computing its taxable income, and will be subject to United States federal income tax at regular corporate rates. This would substantially reduce our funds available for distribution to our investors. Unless entitled to relief under certain provisions of the Code, Aimco also would be disqualified from taxation as a REIT for the four taxable years following the year during which it ceased to qualify as a REIT. In addition, Aimco’s failure to qualify as a REIT may place us in default under our credit facilities.

We believe that Aimco operates, and has since its taxable year ended December 31, 1994, operated, in a manner that enables it to meet the requirements for qualification and taxation as a REIT for United States federal income tax purposes. However, qualification as a REIT involves the application of highly technical and complex Code provisions for which only limited judicial and administrative authorities exist. Moreover, even a technical or inadvertent mistake could jeopardize our REIT status. Aimco’s continued qualification as a REIT will depend on its satisfaction of certain asset, income, investment, organizational, distribution, stockholder ownership, and other requirements on a continuing basis. Aimco’s ability to satisfy the asset tests depends upon our analysis of the fair market values of our assets, some of which are not susceptible to a precise determination, and for which we do not obtain independent appraisals. Aimco’s compliance with the REIT annual income and quarterly asset requirements also depends upon our ability to manage successfully the composition of our income and assets on an ongoing basis. Moreover, the proper classification of an instrument as debt or equity for United States federal income tax purposes may be uncertain in some circumstances, which could affect the application of the REIT qualification requirements. Accordingly, there can be no assurance that the Internal Revenue Service (the “IRS”), will not contend that our interests in subsidiaries or other issuers constitutes a violation of the REIT requirements. Moreover, future economic, market, legal, tax, or other considerations may cause Aimco to fail to qualify as a REIT, or the board of directors of Aimco 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 Spinco is deemed to be a “successor” of Aimco under Section 856 of the Code, then Spinco 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, Aimco is subject to annual distribution requirements. Spinco OP pays distributions intended to enable Aimco to satisfy its distribution requirements. This limits the amount of cash available for other business purposes, including amounts to fund our growth. Aimco generally must distribute annually at least 90% of its “real estate investment trust taxable income,” which is generally equivalent to net taxable ordinary income, determined without regard to the dividends paid deduction and excluding any net capital gain, in order for its distributed earnings not to be subject to United States federal corporate income tax. We intend to make distributions to Aimco’s stockholders to comply with the requirements 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.

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

Even if Aimco qualifies as a REIT, Aimco may be subject to United States federal income and excise taxes in various situations, such as on its undistributed income. Aimco could also be required to pay a 100% tax on any net income on non-arm’s-length transactions between Aimco and a taxable REIT subsidiary and on any net income from sales of apartment communities that were held for sale primarily in the ordinary course. State and local tax laws may not conform to the United States federal income tax treatment, and Aimco may be subject to

 

  39  


Table of Contents

state or local taxation in various state or local jurisdictions in which Aimco transacts business. Any taxes imposed on Aimco would reduce our operating cash flow and net income and could negatively impact our ability to pay dividends and distributions.

Dividends payable by REITs 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 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 Aimco Common Stock.

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

To qualify as a REIT for United States federal income tax purposes, Aimco must continually satisfy tests concerning, among other things, the sources of its income, the nature and diversification of its assets, the amounts distributed to Aimco stockholders, and the ownership of Aimco stock. As a result of these tests, Aimco may be required to make distributions to stockholders at disadvantageous times or when Aimco does not have funds readily available for distribution, forgo otherwise attractive investment opportunities, liquidate assets in adverse market conditions, or contribute assets to a TRS that is subject to regular corporate federal income tax.

Changes to United States federal income tax laws could materially and adversely affect Aimco and Aimco’s stockholders.

The present United States federal income tax treatment of REITs may be modified, possibly with retroactive effect, by legislative, judicial, or administrative action at any time, which could affect the United States federal income tax treatment of an investment in Aimco Common Stock. The United States federal income tax rules dealing with REITs constantly are under review by persons involved in the legislative process, the IRS, and the United States Treasury Department, which results in statutory changes as well as frequent revisions to regulations and interpretations. We cannot predict how changes in the tax laws might affect Aimco or Aimco’s stockholders. Revisions in federal tax laws and interpretations thereof could significantly and negatively affect Aimco’s ability to qualify as a REIT and the tax considerations relevant to an investment in Aimco Common Stock, or could cause Aimco to change its investments and commitments.

 

  40  


Table of Contents

Government housing regulations may limit the opportunities at some of our apartment communities and failure to comply with resident qualification requirements may result in financial penalties and/or loss of benefits, such as rental revenues paid by government agencies. Additionally, the government may cease to operate or reduce funding for government housing programs which would result in a loss of benefits from those programs.

We 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 are usually required to obtain the approval of HUD in order to acquire or dispose of a significant interest in or manage a HUD-assisted apartment community. We may not always receive such approval.

RISKS RELATED TO NEW OP UNITS

There are restrictions on the ability to transfer and redeem New OP Units, there is no public market for New OP Units and holders of New OP Units are subject to dilution.

The New OP partnership agreement will restrict the transferability of New OP Units. Until the expiration of a one-year holding period, subject to certain exceptions, investors may not transfer New OP Units without the consent of New OP’s general partner. Thereafter, investors may transfer such New OP Units subject to the satisfaction of certain conditions, including the general partner’s right of first refusal. In addition, after the expiration of the one-year holding period, investors will have the right, subject to the terms of New OP’s partnership agreement, to require New OP to redeem all or a portion of such investor’s New OP Units (in exchange for shares of Aimco Common Stock or cash, in New OP’s discretion) once per quarter on an exchange date set by New OP, provided such investor provides notice at least 45 days prior to the quarterly exchange date. See “Description of New OP Units and Summary of New OP Partnership Agreement—Redemption Rights of Qualifying Parties” and “Description of New OP Units and Summary of New OP Partnership Agreement—Transfers and Withdrawals.” There is no public market for the New OP Units. New OP has no plans to list any New OP Units on a securities exchange. It is unlikely that any person will make a market in the New OP Units, or that an active market for the New OP Units will develop. If a market for the New OP Units develops and the New OP Units are considered “readily tradable” on a “secondary market (or the substantial equivalent thereof),” New OP would be classified as a publicly traded partnership for U.S. federal income tax purposes, which could have a material adverse effect on New OP and its unitholders.

In addition, New OP may issue an unlimited number of additional New OP Units or other securities for such consideration and on such terms as it may establish, without the approval of the holders of New OP Units. Such securities could have priority over the New OP Units as to cash flow, distributions, and liquidation proceeds. The effect of any such issuance may be to dilute the interests of holders of New OP Units.

Cash distributions by New OP are not guaranteed and may fluctuate with partnership performance.

New OP does not intend to make regular distributions to holders of New OP Units (other than what is required for Aimco to maintain its REIT status). The board of directors of New OP’s general partner will determine and declare distributions to holders of New OP Units. There can be no assurance regarding the amounts of available cash that New OP will generate or the portion that its general partner will choose to distribute. The actual amounts of available cash will depend upon numerous factors, including profitability of operations, required principal and interest payments on its debt, the cost of acquisitions (including related debt service payments), its issuance of debt and equity securities, fluctuations in working capital, capital expenditures,

 

  41  


Table of Contents

adjustments in reserves, prevailing economic conditions, and financial, business, and other factors, some of which may be beyond New OP’s control. Cash distributions depend primarily on cash flow, including from reserves, and not on profitability, which is affected by non-cash items. Therefore, cash distributions may be made during periods when Spinco OP records losses and may not be made during periods when it records profits. The New OP partnership agreement gives the general partner discretion in establishing reserves for the proper conduct of the partnership’s business that will affect the amount of available cash. New OP may be required to make reserves for the future payment of principal and interest under its credit facilities and other indebtedness. In addition, New OP’s credit facilities may limits its ability to distribute cash to holders of New OP Units. As a result of these and other factors, there can be no assurance regarding actual levels of cash distributions on New OP Units, and New OP’s ability to distribute cash may be limited during the existence of any events of default under any of its debt instruments.

Holders of New OP Units have limited voting rights and are limited in their ability to effect a change of control.

New OP will be managed and operated by its general partner. Unlike the holders of common stock in a corporation, holders of New OP Units have only limited voting rights on matters affecting New OP’s business. Such matters relate to certain amendments of the partnership agreement and certain transactions such as the institution of bankruptcy proceedings, an assignment for the benefit of creditors and certain transfers by the general partner of its interest in New OP or the admission of a successor general partner. Holders of New OP Units have no right to elect the general partner on an annual or other continuing basis, or to remove the general partner. As a result, holders of New OP Units have limited influence on matters affecting the operation of New OP, and third parties may find it difficult to attempt to gain control over, or influence the activities of, New OP.

The limited partners of New OP are unable to remove the general partner of New OP or to vote in the election of Aimco’s directors unless they own shares of Aimco. In order to comply with specific REIT tax requirements, Aimco’s charter has restrictions on the ownership of its equity securities. As a result, New OP limited partners and Aimco stockholders are limited in their ability to effect a change of control of New OP and Aimco, respectively.

Holders of New OP Units may not have limited liability in specific circumstances.

The limitations on the liability of limited partners for the obligations of a limited partnership have not been clearly established in some states. If it were determined that New OP had been conducting business in any state without compliance with the applicable limited partnership statute, or that the right or the exercise of the right by the New OP unitholders as a group to make specific amendments to the agreement of limited partnership or to take other action under the agreement of limited partnership constituted participation in the “control” of New OP’s business, then a holder of New OP Units could be held liable under specific circumstances for New OP’s obligations to the same extent as the general partner.

Aimco may have conflicts of interest with holders of New OP Units.

Conflicts of interest could arise in the future as a result of the relationships between the general partner of New OP and its affiliates (including Aimco), on the one hand, and New OP or any partner thereof, on the other. The directors and officers of the general partner have fiduciary duties to manage the general partner in a manner beneficial to Aimco, as the sole stockholder of the general partner. At the same time, as the general partner of New OP, it has fiduciary duties to manage New OP in a manner beneficial to New OP and its limited partners. The duties of the general partner of New OP to New OP and its partners may therefore come into conflict with the duties of the directors and officers of the general partner to its sole stockholder, Aimco. Such conflicts of interest might arise in the following situations, among others:

 

   

decisions of the general partner with respect to the amount and timing of cash expenditures, borrowings, issuances of additional interests and reserves in any quarter, will affect whether or the extent to which there is available cash to make distributions in a given quarter;

 

  42  


Table of Contents
   

under the terms of the New OP partnership agreement, New OP will reimburse the general partner and its affiliates for costs incurred in managing and operating Spinco OP, including compensation of officers and employees;

 

   

whenever possible, the general partner seeks to limit New OP’s liability under contractual arrangements to all or particular assets of New OP, with the other party thereto having no recourse against the general partner or its assets;

 

   

any agreements between New OP and the general partner and its affiliates will not grant to the holders of New OP Units, separate and apart from New OP, the right to enforce the obligations of the general partner and such affiliates in favor of New OP. Therefore, the general partner, in its capacity as the general partner of New OP, will be primarily responsible for enforcing such obligations; and

 

   

under the terms of the New OP partnership agreement, the general partner is not restricted from causing New OP to pay the general partner or its affiliates for any services rendered on terms that are fair and reasonable to New OP or entering into additional contractual arrangements with any of such entities on behalf of New OP. Neither the New OP partnership agreement nor any of the other agreements, contracts, and arrangements between New OP, on the one hand, and the general partner of New OP and its affiliates, on the other, are or will be the result of arm’s-length negotiations.

Provisions in the New OP partnership agreement may limit the ability of a holder of New OP Units to challenge actions taken by the general partner.

Delaware law provides that, except as provided in a partnership agreement, a general partner owes the fiduciary duties of loyalty and care to the partnership and its limited partners. The New OP partnership agreement expressly authorizes the general partner to enter into, on behalf of New OP, a right of first opportunity arrangement and other conflict avoidance agreements with various affiliates of New OP and the general partner, on such terms as the general partner, in its sole and absolute discretion, believes are advisable. The latitude given in the New OP partnership agreement to the general partner in resolving conflicts of interest may significantly limit the ability of a holder of New OP Units to challenge what might otherwise be a breach of fiduciary duty. The general partner believes, however, that such latitude is necessary and appropriate to enable it to serve as the general partner of New OP without undue risk of liability.

The New OP partnership agreement limits the liability of the general partner for actions taken in good faith. New OP’s partnership agreement expressly limits the liability of the general partner by providing that the general partner, and its officers and directors, will not be liable or accountable in damages to New OP, the limited partners, or assignees for errors in judgment or mistakes of fact or law or of any act or omission if the general partner or such director or officer acted in good faith. In addition, New OP is required to indemnify the general partner, its affiliates, and their respective officers, directors, employees, and agents to the fullest extent permitted by applicable law, against any and all losses, claims, damages, liabilities, joint or several, expenses, judgments, fines, and other actions incurred by the general partner or such other persons, provided that Spinco OP will not indemnify for (i) willful misconduct or a knowing violation of the law or (ii) for any transaction for which such person received an improper personal benefit in violation or breach of any provision of the partnership agreement. The provisions of Delaware law that allow the common law fiduciary duties of a general partner to be modified by a partnership agreement have not been resolved in a court of law, and the general partner has not obtained an opinion of counsel covering the provisions set forth in the New OP partnership agreement that purport to waive or restrict the fiduciary duties of the general partner that would be in effect under common law were it not for the partnership agreement.

 

  43  


Table of Contents

RISKS RELATED TO OUR ORGANIZATIONAL STRUCTURE

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

All of New OP’s real estate assets will be owned by subsidiaries of New OP. As a result, New OP will depend on distributions and payments from its subsidiaries in order to satisfy our financial obligations and make payments to our equityholders, as applicable. The ability of New 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 and our 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.

 

  44  


Table of Contents

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, benefits, and tax treatment of the Spin-Off; 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 Spinco’s business and on the global and U.S. economies generally;

 

   

real estate and operating risks, including those related to redevelopment and development, 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; competition for redevelopment and development projects; the timing of acquisitions, dispositions, redevelopments and developments; and changes in operating costs, including energy costs;

 

   

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

 

   

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

 

   

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 non-investment grade rating from credit rating agencies;

 

   

our relationship with Spinco and its subsidiaries following the Spin-Off;

 

   

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

 

  45  


Table of Contents
   

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;

 

   

Aimco’s ability to pay dividends and the tax treatment of such dividends for Aimco’s stockholders;

 

   

loss of key personnel;

 

   

Aimco’s ability to maintain its status as a REIT;

 

   

the ability of Aimco, New OP, Spinco or Spinco 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 a smaller company with a narrowed focus following the Spin-Off;

 

   

the ability and willingness of Spinco and its subsidiaries to meet and/or perform their 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.”

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.

 

  46  


Table of Contents

THE SPIN-OFF

Overview of the Spin-Off

The board of directors of Aimco determined upon careful review and consideration that the spin-off of the assets and liabilities related to the Spinco business from the rest of Aimco and Spinco’s establishment as a separate, publicly traded company was in the best interests of Aimco and its 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, Spinco OP will effect the New OP Spin-Off by distributing 100% of New OP Units held by Spinco OP pro rata to holders of Spinco OP Common Units and Spinco OP HP Units. The distribution of New OP Units is expected to take place on                  , 2020. On the distribution date, each holder of Spinco OP Common Units will receive one New OP Unit for each one Spinco OP Common Unit held at the close of business on the record date, and each holder of Spinco OP HP Units will receive one New OP Unit for each one Spinco OP HP Unit held at the close of business on the record date.

Thereafter, Aimco will effect the Spinco Spin-Off by distributing 100% of Spinco Common Stock held by Aimco pro rata to holders of Aimco Common Stock. The distribution of Spinco Common Stock is expected to take place on the distribution date. On the distribution date, each holder of Aimco Common Stock will receive one share of Spinco Common Stock for each one share of Aimco Common Stock held at the close of business on the record date.

You will not be required to make any payment, or surrender or exchange your Spinco OP Common Units or Spinco OP HP Units, or take any other action to receive your New OP Units to which you are entitled on the distribution date.

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

We believe that the share price of Aimco Common Stock has been negatively affected by employing leverage at levels above peers, and by the execution risk and related overhead costs associated with redevelopment, development, and lease ups, and more complicated and non-traditional investments or investment structures. Assets that are under redevelopment, development or lease-up typically are non-earning or low-earning. These aspects of Aimco’s business are expected to continue to weigh on Aimco’s performance and ability to grow through equity issuance. Aimco believes that redevelopment, development, and lease ups remain a valuable part of the multi-family business but recognizes that such aspects may be incompatible with other aspects of Aimco’s business. Aimco also believes that Spinco will be more attractive to investors as a “pure” property ownership business that does not manage its own properties, making it easier for investors and the market to understand and value. The board of directors of Aimco believes that separating the redevelopment and development business, the property management business, and certain assets, liabilities, and overhead from the remainder of Aimco’s business is in the best interests of Aimco, Spinco and their respective stockholders for a number of reasons, including the following:

 

   

Creates two separate companies, each with the opportunity to pursue growth through the execution of different business plans. We believe that having two separate companies will make each more

 

  47  


Table of Contents
 

focused and easier to understand, providing value-creation opportunities that are not available or are more difficult to achieve in a combined company. As two separate companies, we believe that Aimco and Spinco will be able to focus on their respective core businesses and will have an enhanced ability to maximize value for their respective stockholders. We believe that the separation will allow investors to better understand Spinco’s business. Spinco’s focus on the ownership of stabilized properties is expected to result in lower overhead costs and reduced leverage, which we believe will create a portfolio of properties with more predictable results. Aimco will focus on creating long-term value for real estate investors, providing Aimco with flexibility to pursue broader opportunities, including those that are more complicated, highly leveraged or take more time to develop. Aimco may pursue value-creating investment opportunities that did not historically fit within its business strategy and will have the flexibility to implement strategic initiatives aligned with its business plan and prioritize investment spending and capital allocation accordingly. Further, the separation also is expected to provide Aimco with the discipline of market pricing for what previously has been internal transfer pricing for the business it will retain. Aimco believes that this will lead to operational efficiencies and has the potential to enhance the value and profitability of Spinco’s properties. Aimco further expects that Aimco and Spinco will each benefit as a result of their complementary competencies and close alliance.

 

   

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 Spinco business from the rest of Aimco’s business, investors will have the option to invest in Aimco’s stabilized multifamily portfolio (through an investment in Spinco), in Aimco’s redevelopment and development pipeline and property management business (through an investment in Aimco), or in both. The separation will enable potential investors and the financial community to evaluate Aimco and Spinco separately and assess the merits, performance, and future prospects of their respective businesses. Spinco is expected to have more predictable and growing cash flow, providing the opportunity for higher dividends, accretive investments with limited or no drag and complexity, or both, and is expected to benefit from improved FFO and AFFO multiples, reflecting a simpler business plan with more transparent and predictable cash flows. 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.

 

   

Limits Spinco’s exposure to risks associated with the redevelopment and development business. Spinco will be able to invest in stabilized properties that it believes will better support its underlying business. Spinco 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 alliance with Aimco, Spinco is expected to retain 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 Spinco and Aimco will have a senior management team focused on the performance of its respective business and value-creation opportunities. 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 Spinco’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 Spinco 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 Spinco. We believe this will provide Spinco with improved to access the public markets, providing it with capital to invest in the acquisition of properties to grow its portfolio.

 

  48  


Table of Contents

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 “—Reasons for the Spin-Off” and “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 Spinco and Spinco 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 Spinco Common Stock on the basis of one share of Spinco Common Stock for each one share of Aimco Common Stock held of record as of the close of business on the record date. On the same date, Spinco OP GP, as the general partner of Spinco OP, declared the distribution of all of the outstanding New OP Units to the holders of Spinco OP Common Units and holders of Spinco OP HP Units on the basis of one New OP Unit for each one Spinco OP Common Unit held of record as of the close of business on the record date (and the holders thereof that are subsidiaries declares the distribution of such New OP Units to Aimco), and one New OP Unit for each one Spinco OP HP Unit held as of record as of the close of business on the record date. The actual total number of shares of Spinco Common Stock or New OP Units to be distributed will depend on the number of (x) shares of Aimco Common Stock and (y) Spinco OP Common Units and Spinco OP HP Units, respectively, outstanding on the record date. The New OP Units to be distributed will constitute all of the outstanding New OP Units immediately after the New OP Spin-Off.

In accordance with the terms of the Separation Agreement, Spinco OP will cause the Aimco business (other than its interest in Royal Crest Nashua LLC, which 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 Spinco OP’s (and its subsidiaries’) employees will become or remain employees of New OP (and its subsidiaries).

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

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

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

Spinco 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. Spinco will contribute an amount of Spinco OP Common Units representing a 34% limited partner interest in Spinco OP to REIT 1, and will contribute Spinco OP Common Units representing a 34% limited partner interest in Spinco OP and its interests in Spinco OP GP to REIT 2, each in exchange for common and preferred interests in REIT 1 and REIT 2. 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.

 

  49  


Table of Contents

Spinco 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 Spinco 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 Spinco to an unrelated institutional investor.

On the distribution date, (x) each holder of Spinco OP Common Units will receive from Spinco OP one New OP Unit for each one Spinco OP Common Unit held at the close of business on the record date, (y) each holder of Spinco OP HP Units will receive from Spinco OP one New OP Unit for each one Spinco OP HP Unit held at the close of business on the record date, and (z) each Aimco common stockholder will receive from Aimco one share of Spinco Common Stock for each one share of Aimco Common Stock held at the close of business on the record date. Following such distribution by Aimco, Aimco and Spinco will be two separate, publicly-held companies. Spinco OP will be a majority owned subsidiary of Spinco, while New OP will be a majority owned subsidiary of Aimco.

Stock Certificates

Neither Spinco OP nor New OP will be issuing physical certificates representing New OP Units. Instead, if you own Spinco OP Common Units or Spinco OP HP Units as of the close of business on the record date, the New OP Units that you are entitled to receive in the New OP 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 Spinco OP Common Units or Spinco OP HP Units and you are the registered holder of the Spinco OP Common Units or Spinco OP HP Units, respectively, represented by those certificates, the distribution and exchange agent will mail you an account statement that reflects the number of New OP Units that have been registered in book-entry form in your name as a result of the New OP Spin-Off. If you have any questions concerning the mechanics of having shares of stock or units 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              .

Some Spinco OP unitholders hold their Spinco OP Common Units and/or Spinco OP HP Units 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 recorded on the bank or brokerage firm’s books. If you hold your Spinco OP Common Units or Spinco OP HP Units through a bank or brokerage firm, your bank or brokerage firm will credit your account for the units of New OP that you are entitled to receive as a result of the New OP Spin-Off. If you have any questions concerning the mechanics of having New OP Units 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, Spinco will be a separate, publicly traded company from Aimco. Immediately following the Spin-Off, New OP expects to have approximately                  unitholders, based on the number of holders of Spinco OP Common Units and Spinco OP HP Units on             . Immediately following the Spin-Off, New OP expects to have approximately                 New OP Units outstanding on a fully diluted basis, based on the number of Spinco OP Common Units and Spinco OP HP Units outstanding as of                 . The actual number of New OP Units to be distributed will be determined on the record date and will reflect any

 

  50  


Table of Contents

changes in the number of Spinco OP Common Units and Spinco OP HP Units between             , 2020, and the record date. The Spin-Off will not affect the number of outstanding Spinco OP Common Units or Spinco OP HP Units, or any rights of holders of Spinco OP Common Units or Spinco OP HP Units. If you hold Spinco OP Common Units as of the close of business on the record date, upon completion of the Spin-Off, you will continue to hold your Spinco OP Common Units and you will also hold New OP Units. If you hold Spinco OP HP Units as of the close of business on the record date, upon completion of the Spin-Off, you will continue to hold your Spinco OP HP Units and you will also hold New OP Units.

Effective immediately upon the completion of the Spin-Off, we and Spinco will enter into a number of other agreements to set forth our relationship following 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 provided by us to Spinco and its subsidiaries, or our leases from Spinco of the leased properties, including the Initial Leased Properties. For a more detailed description of these agreements, see “Our Relationship with Spinco Following the Spin-Off” and “Description of Financing and Material Indebtedness.”

Treatment of Fractional Units

Fractional New OP Units will be issued to holders of Spinco OP Common Units and Spinco OP HP Units in connection with the New OP Spin-Off.

Listing and Trading of New OP Units

There is no public market for the New OP Units. New OP has no plans to list any New OP Units on a securities exchange. It is unlikely that any person will make a market in the New OP Units, or that an active market for the New OP Units will develop. If a market for the New OP Units develops and the New OP Units are considered “readily tradable” on a “secondary market (or the substantial equivalent thereof),” New OP would be classified as a publicly traded partnership for U.S. federal income tax purposes, which could have a material adverse effect on New OP and its unitholders.

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 Spinco Common Stock. The number of shares of Aimco Common Stock and Spinco 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 New OP Spin-Off

The following is a general discussion of the material U.S. federal income tax consequences of the New OP Spin-Off to U.S. Unit Holders (as defined below). The following discussion is based on the Code, U.S. Treasury regulations promulgated thereunder, and judicial and administrative authorities, rulings, and decisions, all as in effect as of the date of this information statement. These authorities may change, possibly with retroactive effect, and any such change could affect the accuracy of the statements and conclusions set forth in this discussion. This discussion is not a complete description of all of the tax consequences of the New OP Spin-Off and, in particular, does not address any tax reporting requirements, any tax consequences arising under the unearned income Medicare contribution tax pursuant to the Health Care and Education Reconciliation Act of 2010, any considerations with respect to FATCA (which for this purpose means Sections 1471 through 1474 of the Code), any tax withholding under Section 1445 or 1446(f) of the Code and U.S. Treasury regulations thereunder in the event that a U.S. Unit Holder does not provide a properly completed and signed IRS Form W-9, or any tax consequences arising under the laws of any state, local, or foreign jurisdiction, or under any U.S. federal laws other than those pertaining to the income tax.

 

  51  


Table of Contents

The following discussion applies only to U.S. Unit Holders (as defined below) of Spinco OP Common Units and New OP Units who hold such units as a capital asset within the meaning of Section 1221 of the Code (generally, property held for investment). Further, this discussion does not purport to consider all aspects of U.S. federal income taxation that might be relevant to U.S. Unit Holders in light of their particular circumstances and does not apply to U.S. Unit Holders subject to special treatment under the U.S. federal income tax laws (such as, for example, banks and certain other financial institutions, tax-exempt organizations, partnerships, S corporations or other pass-through entities (or investors in partnerships, S corporations or other pass-through entities), regulated investment companies, real estate investment trusts, insurance companies, mutual funds, dealers or brokers in stocks and securities, commodities or currencies, traders in securities that elect to apply a mark-to-market method of accounting, holders who are required to recognize income or gain with respect to the New OP Spin-Off no later than such income or gain is required to be reported on an applicable financial statement under Section 451(b) of the Code, holders subject to the alternative minimum tax provisions of the Code, holders of Spinco OP HP Units, holders who have made contributions of appreciated property to Spinco OP within seven years of the New OP Spin-Off, holders who are parties to a tax protection agreement with respect to their Spinco OP Common Units, persons that are not U.S. Unit Holders, U.S. Unit Holders whose functional currency is not the U.S. dollar, holders who hold Spinco OP Common Units and New OP Units as part of a hedge, straddle, constructive sale, conversion or other integrated transaction, or United States expatriates). Such holders should consult their tax advisors regarding the application of the tax laws to their particular situations.

For purposes of this discussion, the term “U.S. Unit Holder” means a beneficial owner of New OP Units who receives New OP Units in the New OP Spin-Off that is for U.S. federal income tax purposes (i) an individual citizen or resident of the United States, (ii) a corporation, or entity treated as a corporation for U.S. federal income tax purposes, organized in or under the laws of the United States or any state thereof or the District of Columbia, (iii) a trust if (a) a court within the United States is able to exercise primary supervision over the administration of the trust and one or more U.S. persons have the authority to control all substantial decisions of the trust or (b) such trust has made a valid election to be treated as a U.S. person for U.S. federal income tax purposes, or (iv) an estate, the income of which is includible in gross income for U.S. federal income tax purposes regardless of its source.

If an entity or an arrangement treated as a partnership for U.S. federal income tax purposes holds Spinco OP Common Units or New OP Units, the U.S. federal income tax treatment of a partner in such partnership generally will depend on the status of the partner and the activities of the partnership. Any entity treated as a partnership for U.S. federal income tax purposes that holds Spinco OP Common Units or New OP Units, and any partners in such partnership, should consult their tax advisors regarding application of the tax laws to their particular situations.

This discussion is not binding on the IRS. No assurance can be given that the IRS would not assert, or that a court would not sustain, a position contrary to any described herein.

Flow Through of Tax Consequences from Spinco OP

Spinco OP is currently treated as a partnership for U.S. federal income tax purposes. As a partnership, it is not subject to federal taxation on its income. Instead, its taxable income or loss for a taxable year flows through and is includable in the computation of the taxable income and loss of the U.S. Unit Holders regardless of whether any amounts are distributed to them. Pursuant to Section 731(b) of the Code, no gain or loss is generally expected to be recognized by Spinco OP as a result of the New OP Spin-Off.

Direct Tax Consequences to U.S. Unit Holders

Section 731(a) of the Code generally provides that no gain or loss will be recognized by a partner as a result of a distribution of property in kind from a partnership. However, several exceptions exist to this general rule,

 

  52  


Table of Contents

and two of those exceptions could theoretically apply to cause U.S. Unit Holders who have made contributions of appreciated property to Spinco OP within seven years of the New OP Spin-Off to recognize taxable gain as a result of the New OP Spin-Off.

Basis. In general, a U.S. Unit Holder who receives New OP Units in the New OP Spin-Off will have a basis in such units equal to the lesser of (i) the tax basis that Spinco OP had in such units immediately prior to the New OP Spin-Off (as described below) and (ii) the tax basis the holder had in its Spinco OP Common Units immediately prior to the New OP Spin-Off. The tax basis that the holder will have in its Spinco OP Common Units following the New OP Spin-Off will equal the tax basis the holder had in the interest immediately prior to the New OP Spin-Off reduced by the tax basis attributable to the New OP Units distributed in respect thereof in the New OP Spin-Off.

The tax basis that Spinco OP will have in the New OP Units immediately prior to the New OP Spin-Off generally will equal the tax basis that Spinco OP had in the assets that were contributed to New OP immediately prior to such contribution, adjusted to account for any liabilities of Spinco OP that are assumed by New OP.

The above discussion is for informational purposes only and is not tax advice. It is intended to provide only a summary of the material united states federal income tax consequences of the new op spin-off. It is not intended to be a complete analysis or description of all potential united states federal income tax consequences of the New OP Spin-Off. It does not address certain categories of holders of Spinco OP Units, and it does not address state, local or foreign tax consequences. In addition, as noted above, it does not address tax consequences that may vary with, or are contingent upon, individual circumstances. We strongly urge you to consult your tax advisor to determine your particular U.S. federal, state, local, or foreign income or other tax consequences resulting from the New OP Spin-Off in light of your individual circumstances. 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 New OP 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 Spinco of an opinion from Skadden, Arps to the effect that, commencing with Spinco’s taxable year ending December 31, 2020, Spinco will be organized in conformity with the requirements for qualification as a REIT under the Code, and Spinco’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 New OP’s registration statement on Form 10, of which this information statement is a part, and Spinco’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

 

  53  


Table of Contents
 

proceedings for such purpose shall be pending before, or threatened by, the SEC, and this information statement shall have been mailed to holders of Spinco OP Common Units and Spinco OP HP Units 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 Spinco Common Stock to be distributed in the Spinco 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;

 

   

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

 

   

Spinco 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.

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 not in the best interests of Aimco and its stockholders or that market conditions or other circumstances are such that the separation of Spinco 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 Aimco and Spinco 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, Spinco, New OP, and Spinco OP will exceed its debts;

 

   

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

 

   

none of Aimco, Spinco, New OP nor Spinco 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, Spinco, New OP, and Spinco OP would exceed the sum of its total liabilities and total par value of its issued capital stock.

 

  54  


Table of Contents

Regulatory Approvals

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

No Appraisal Rights

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

Accounting Treatment

At the completion of the Spin-Off, the balance sheet of Aimco will include the assets and liabilities associated with the redevelopment business, including the Owned Properties. The assets and liabilities of Aimco will be recorded at their respective historical carrying values at the completion of 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.

Reasons for Furnishing this Information Statement

We are furnishing this information statement solely to provide information to holders of Spinco OP Common Units and Spinco OP HP Units who will receive New OP Units pursuant to the New OP Spin-Off. You should not construe this information statement as an inducement or encouragement to buy, hold or sell any of Aimco’s securities or any securities of Spinco, New OP or Spinco 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 Spinco, Spinco 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.

 

  55  


Table of Contents

DISTRIBUTION POLICY

The board of directors of New OP’s general partner will determine and declare distributions to holders of New OP Units. Aimco, through its wholly owned subsidiaries in which it owns all of the outstanding common equity, will be the general and special limited partner of New OP. Immediately following the Spin-Off, it is expected that approximately                    % of the New OP Units will be held by Aimco, directly or through its subsidiaries. New OP will hold substantially all of Aimco’s assets and manage the daily operations of Aimco’s business directly and indirectly through certain subsidiaries. The distributions paid by New OP to Aimco are used by Aimco to fund the dividends paid to its stockholders.

New OP’s partnership agreement requires the general partner to take such reasonable efforts, as determined by it in its sole and absolute discretion and consistent with Aimco’s requirements for qualification as a REIT, to cause New OP to distribute amounts sufficient to enable the Aimco Partners (as defined below) to transfer funds to Aimco that, together with amounts received by Aimco from sources other than New OP, will allow Aimco to pay stockholder dividends that will (i) satisfy the requirements, or the REIT Requirements, for qualifying as a REIT under the Code and the applicable regulations promulgated by the U.S. Treasury Department and (ii) avoid any U.S. federal income or excise tax liability of Aimco.

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

 

  56  


Table of Contents

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 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 Aimco and its subsidiaries (including New OP) will enter into a new revolving secured credit facility. We anticipate that the credit facilities will be guaranteed, jointly and severally, by Aimco, New 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 Aimco’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 Spin-Off will assume or retain a certain amount of existing secured property-level indebtedness related to certain properties.

 

  57  


Table of Contents

CAPITALIZATION

The following table sets forth New OP Predecessor’s consolidated cash and cash equivalents and capitalization as of June 30, 2020, on an unaudited historical carve-out basis, and on a pro forma basis to give effect to the pro forma adjustments included in New OP Predecessor’s unaudited pro forma combined financial information. The information below is not necessarily indicative of what New OP’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 New OP’s future capitalization. This table should be read in conjunction with “Unaudited Pro Forma Combined Financial Information,” “Selected Historical Combined Financial Data,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and New OP Predecessor’s audited combined financial statements and notes and unaudited condensed combined 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

   $ 4,806      $                    $                
  

 

 

    

 

 

    

 

 

 

Indebtedness:

        

Non-recourse property debt, net

   $ 230,404      $        $    

Note payable due to Spinco OP

     66,295        

Total indebtedness

     296,699        
  

 

 

    

 

 

    

 

 

 

Partners’ capital

     433,143        
  

 

 

    

 

 

    

 

 

 

Total capitalization

   $ 734,648      $        $    

 

  58  


Table of Contents

UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION

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

The unaudited pro forma combined balance sheet assumes the Spin-Off and the related transactions occurred on June 30, 2020. The unaudited pro forma combined statements of operations presented 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.

These unaudited pro forma combined 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 operations, expected to have a continuing impact on us, including: (i) the anticipated incurrence of new debt by us and the anticipated related interest expense, (ii) the distribution of                  New OP Units to holders of Spinco OP Common Units and Spinco OP HP Units in the New OP Spin-Off, (iii) the impact of the Master Services Agreement and the Master Lease between Spinco and Aimco, and (iv) incremental costs recorded within general and administrative expenses related to employment agreements.

General and administrative costs that we expect to incur, following 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 $         to $         in the first year after the Spin-Off. This range was estimated based on the experience of our management and our discussions with outside service providers, consultants, and advisors. Expenses related to equity-based compensation awards that vest immediately upon the Spin-Off are not included in these amounts.

These historical combined financial statements include expense allocations related to certain centralized corporate costs attributable to New OP Predecessor for management and other services, including, but not limited to, executive oversight, treasury, finance, human resources, tax, accounting, financial reporting, information technology, and investor relations. Depending on the nature of the expense, we have allocated it to New OP Predecessor based on its relative share of total gross potential revenue of Spinco OP, and the relative gross asset value of New OP Predecessor communities as compared to the total gross asset value of all communities held by Spinco OP, which we believe to be reasonable methodologies.

In the opinion of Aimco’s senior management team, the unaudited pro forma combined 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 combined 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 occurred on the dates indicated, nor does it purport to represent our future financial position or results of operations. The unaudited pro forma combined 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 combined financial statements are derived from and should be read in conjunction with the historical combined financial statements and accompanying notes included elsewhere in this information statement.

 

  59  


Table of Contents

NEW OP PREDECESSOR

Unaudited Pro Forma Combined Balance Sheet

As of June 30, 2020

 

(in thousands)    Historical     Adjustments     Pro Forma  

ASSETS

      

Buildings and improvements

   $ 406,324     $                   $                

Land

     332,501      
  

 

 

   

 

 

   

 

 

 

Total real estate

   $ 738,825     $       $    

Accumulated depreciation

     (176,471    
  

 

 

   

 

 

   

 

 

 

Net real estate

     562,354      

Cash and cash equivalents

     4,806      

Restricted cash

     1,397      

Mezzanine investment

     293,427      

Other assets

     26,593      
  

 

 

   

 

 

   

 

 

 

Total Assets

   $ 888,577     $       $    
  

 

 

   

 

 

   

 

 

 

LIABILITIES AND EQUITY

      

Non-recourse property debt, net

   $ 230,404     $       $    

Note payable due to Spinco OP

     66,295      

Deferred tax liability

     138,477      

Accrued liabilities and other

     15,771      
  

 

 

   

 

 

   

 

 

 

Total liabilities

   $ 450,947     $       $    
  

 

 

   

 

 

   

 

 

 

Redeemable noncontrolling interests in consolidated real estate partnership

   $ 4,487     $       $    

Equity:

      

Common stock, $0.01 par value

     —         (A)   

Additional paid-in capital

     —         (A)   

Partners’ capital

     433,143       (A)   
  

 

 

   

 

 

   

 

 

 

Total partners’ capital

   $ 433,143     $       $    
  

 

 

   

 

 

   

 

 

 

Total liabilities and partners’ capital

   $ 888,577     $       $    
  

 

 

   

 

 

   

 

 

 

 

See notes to unaudited pro forma combined financial statements.

 

  60  


Table of Contents

NEW OP PREDECESSOR

Unaudited Pro Forma Combined Statement of Operations

For the Six Months Ended June 30, 2020

 

(in thousands)    Historical     Adjustments     Pro Forma  

REVENUES

      

Rental and other property revenues

   $ 38,870     $                   $                

Property management fee income

     —         (B)   

Management fee income

     —         (C)   
  

 

 

   

 

 

   

 

 

 

Total revenues

   $ 38,870     $       $    

OPERATING EXPENSES:

      

Property operating expenses

   $ 14,780     $       $    

Depreciation and amortization

     20,961      

General and administrative expenses

     2,104       (D)   
  

 

 

   

 

 

   

 

 

 

Total operating expenses

   $ 37,845     $       $    
  

 

 

   

 

 

   

 

 

 

Interest income

   $ 4     $       $    

Interest expense

     (6,680    

Mezzanine investment income, net

     13,684      

Unrealized loss on interest rate option

     (1,080    

Other expenses, net

     (190    
  

 

 

   

 

 

   

 

 

 

Income before income tax benefit

     6,763      

Income tax benefit

     4,339       (F)   
  

 

 

   

 

 

   

 

 

 

Net income

     11,102      

Net loss attributable to redeemable noncontrolling interests in consolidated real estate partnership

     233      
  

 

 

   

 

 

   

 

 

 

Net income attributable to New OP Predecessor

   $ 11,335     $       $    
  

 

 

   

 

 

   

 

 

 

 

See notes to unaudited pro forma combined financial statements.

 

  61  


Table of Contents

NEW OP PREDECESSOR

Unaudited Pro Forma Combined Statement of Operations

For the Year Ended December 31, 2019

 

(in thousands)    Historical     Acquisitions(A)     Other
Adjustments
    Pro Forma  

REVENUES

        

Rental and other property revenues

   $ 70,736     $ 7,264     $ —       $                

Property management fee income

       —         (B)   

Management fee income

     —         —         (C)   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total revenues

   $ 70,736     $ 7,264     $       $    

OPERATING EXPENSES:

        

Property operating expenses

   $ 27,427     $ 2,137     $ —       $    

Depreciation and amortization

     28,162       11,136       —      

General and administrative expenses

     3,998       —         (D)   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

   $ 59,587     $ 13,273     $       $    
  

 

 

   

 

 

   

 

 

   

 

 

 

Interest income

   $ 12     $ 12     $ —       $    

Interest expense

     (7,884     (1,357     —      

Mezzanine investment income, net

     1,531       —         24,592 (E)   

Other expenses, net

     (380     (21     —      
  

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) before income tax benefit

     4,428       (7,375    

Income tax benefit

     3,433       3,686       (F)   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

     7,861       (3,689    

Net loss attributable to redeemable noncontrolling interests in consolidated real estate partnership

     191       191       —      
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss) attributable to New OP Predecessor

   $ 8,052     $ (3,498   $       $    
  

 

 

   

 

 

   

 

 

   

 

 

 

 

See notes to unaudited pro forma combined financial statements.

 

  62  


Table of Contents

NEW OP PREDECESSOR

Notes to Unaudited Pro Forma Combined Financial Statements

Adjustments to the Unaudited Pro Forma Combined Balance Sheet

 

  (A)

Reflects the pro forma recapitalization of our equity. As of the distribution date, Aimco equity will be redesignated as our stockholders’ equity and will be allocated between common stock and additional paid-in capital based on the number of shares of our common stock outstanding at the distribution date. Aimco stockholders will receive shares based on a distribution ratio of one share of our common stock for each Aimco common share outstanding as of the record date for the distribution.

Adjustments to the Unaudited Pro Forma Combined Statements of Operations

 

  (A)

Reflects the acquisition of 1001 Brickell Bay Drive during the year ended December 31, 2019 as if the acquisition was completed on January 1, 2019.

 

  (B)

Reflects the fee income related to the Property Management Agreement we will enter into with Spinco upon completion of the spin-off pursuant to which we will provide Spinco and its affiliates with various services to support the operations of their communities in exchange for a            % fee based on        .

 

  (C)

Reflects the fee income related to the Master Services Agreement we will enter into with Spinco upon completion of the spin-off, pursuant to which we will provide Spinco and its affiliates with various advisory, accounting, marketing, and other services for a                % fee based on        .

 

  (D)

Reflects the movement of certain corporate overhead from Spinco to New OP pursuant to the Employee Matters Agreement. Upon completion of the spin-off, the majority of employees employed by Aimco or its subsidiaries prior to the Spin-Off will become or remain employees of New OP and its subsidiaries.

 

  (E)

Reflects the issuance of the Parkmerced mezzanine loan during the year ended December 31, 2019 as if the issuance occurred on January 1, 2019.

 

  (F)

Reflects adjustments to the income tax benefit 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                 %.

 

  63  


Table of Contents

SELECTED HISTORICAL COMBINED FINANCIAL DATA

The following tables set forth the selected historical combined financial data of New OP Predecessor as of the dates and for the periods presented. We have not presented historical information of New OP because it has not had any operating activity since its formation on August 11, 2020, other than the issuance of a general partner interest and a limited partner interest to wholly-owned subsidiaries of Aimco. The selected historical condensed combined 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 New OP Predecessor’s unaudited condensed combined financial statements, which are included elsewhere in this information statement. The selected historical combined 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 New OP Predecessor’s audited combined financial statements, which are included elsewhere in this information statement. The selected historical combined financial data as of December 31, 2017, 2016 and 2015, and for the years ended December 31, 2016 and 2015 as set forth below, was derived from New OP Predecessor’s unaudited combined financial statements. In management’s opinion, the unaudited condensed combined financial statements have been prepared on the same basis as the audited combined financial statements and include all adjustments, consisting of ordinary recurring adjustments, necessary for a fair presentation of the information for the periods presented.

The historical combined financial statements of New OP Predecessor do not represent the financial position and results of operations of one legal entity, but rather a combination of entities under common control that have been “carved out” from Aimco’s consolidated financial statements. These historical combined financial statements include expense allocations related to certain centralized corporate costs attributable to New OP Predecessor for management and other services, including, but not limited to, executive oversight, treasury, finance, human resources, tax, accounting, financial reporting, information technology, and investor relations. Depending on the nature of the expense, we have allocated it to New OP Predecessor based on its relative share of total gross potential revenue of Spinco OP, and the relative gross asset value of New OP Predecessor communities as compared to the total gross asset value of all communities held by Spinco OP, which we believe to be reasonable methodologies. However, the allocations may not be indicative of the actual expenses that would have been incurred had New OP Predecessor operated as an independent, publicly traded company as of the date and for the periods presented. Management believes that the assumptions and estimates used in preparation of the historical combined financial statements of New OP Predecessor are reasonable. However, these combined financial statements herein do not necessarily reflect what New OP 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.

 

  64  


Table of Contents

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

 

(in thousands)    Six Months Ended
June 30,
     Years Ended December 31,  
   2020      2019      2019      2018      2017      2016      2015  
     (unaudited)      (unaudited)                           (unaudited)      (unaudited)  

OPERATING DATA:

                    

Total revenues

   $ 38,870      $ 31,343      $ 70,736      $ 61,198      $ 58,571      $ 56,919      $ 53,582  

Net income

     11,102        5,525        7,861        10,633        9,125        7,054        5,086  

 

(in thousands)    As of
June 30,
     As of December 31,  
   2020      2019      2018      2017      2016      2015  
     (unaudited)                   

(unaudited)

     (unaudited)      (unaudited)  

BALANCE SHEET INFORMATION:

                 

Total assets

   $ 888,577      $ 878,376      $ 282,553      $ 282,381      $ 280,243      $ 283,572  

Total indebtedness

     296,699        299,315        150,879        111,880        185,553        192,944  

 

  65  


Table of Contents

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS

The following is a discussion and analysis of our anticipated financial condition immediately following the Spin-Off. You should read this discussion in conjunction with our unaudited pro forma combined financial information and historical combined financial data and accompanying notes, each of which is included elsewhere in this information statement. For purposes of this management’s discussion and analysis only, all references to “Aimco,” the “Company,” “we,” “us,” or “our” mean New OP Predecessor. This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those projected, forecasted or expected in these forward-looking statements as a result of various factors, including those which are discussed below and elsewhere in this information statement, including “Risk Factors” and “Cautionary Statement Regarding Forward-Looking Statements.” Our financial statements may not necessarily reflect our future financial condition and results of operations, or what they would have been had we been a separate, stand-alone company during the periods presented.

Overview

The board of directors of Aimco is considering a spin off of a majority of Aimco’s existing portfolio of assets into a separate, publicly traded company that will elect to be treated as a REIT, while retaining (through its subsidiaries) Aimco’s redevelopment and development business, Aimco’s property management business, Aimco’s employees, and a portfolio of assets with an estimated GAV of $1.2 billion and an estimated NAV of approximately $0.9 billion, as of March 31, 2020 (in each case, without giving effect to the value of the Initial Leased Properties), and certain directly related liabilities and overhead. In addition, in connection with the Spin-Off, Aimco and New OP will retain substantially all of Aimco’s existing employees, either directly or indirectly pursuant to the transfer of employees from Spinco OP (and its subsidiaries) to New OP (and its subsidiaries) prior to the New OP Spin-Off. New OP and its subsidiaries will provide Spinco and its subsidiaries with certain management, administrative and support services, including property management. Aimco, directly and through subsidiaries in which it owns all of the outstanding common equity, will be the general and special limited partner of New OP. New OP will hold substantially all of Aimco’s assets and manage the daily operations of Aimco’s business directly and indirectly through certain subsidiaries.

Aimco (and New OP), like Spinco (and Spinco OP), will be engaged primarily in multi-family investment but will have its own distinctive focus. In particular, Aimco is expected to hold more complex development assets (in addition to the Stabilized Seed Properties), intended to provide potential opportunities for future value creation, and Spinco is expected to hold stabilized apartment communities, intended to provide predictable returns. The board of directors of Aimco expects that Aimco and Spinco will each benefit as a result of their complementary competencies and close alliance. Particularly, Aimco is expected to benefit from flexibility to pursue broader opportunities due to better alignment of equityholder interests. Aimco will have a capital structure and flexible long-term business model that are designed to allow Aimco to deploy a wider array of strategies than would generally be suitable for Spinco and, as a result, to position Aimco to more effectively address the ongoing challenges in the real estate industry. In addition, New OP is expected to benefit from a pipeline of redevelopment and development opportunities sourced from Spinco and the Spinco Land Bank.

At the completion of the Spin-Off, New OP will, through its subsidiaries, own the redevelopment and development business, the property management business, and certain non-traditional assets, including: Aimco’s loan to, and equity option in, the Parkmerced Loan; 1001 Brickell; and the Yacht Club property. Aimco will also retain the Stabilized Seed Properties. The Owned Properties and the Parkmerced Loan will serve as “seed” assets and provide us with revenue from rent collection and interest payments to help meet Aimco’s on-going liquidity needs. We also intend to complete redevelopment of 1001 Brickell Bay Tower, Yacht Club at Brickell, and North Tower at Flamingo Point, and to lease-up Prism and The Fremont.

Subsidiaries of New OP will lease from Spinco the Initial Leased Properties pursuant to leases entered into in accordance with the Master Leasing Agreement, each of which is an in-process redevelopment, development

 

  66  


Table of Contents

or lease-up property. In addition, we may lease from Spinco additional properties from the Spinco Land Bank for redevelopment or development and/or for lease-up in accordance with the terms of the Master Leasing Agreement. Under the terms of the leases, New OP or its applicable subsidiaries will agree to use commercially reasonable efforts to diligently complete the on-going redevelopment and development projects and their lease-ups. New OP or its applicable subsidiaries 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 generally at the then-current GAV of the development and redevelopment improvements (in some cases, at a small discount thereto) if Spinco exercises an option to pay such fee, or through a sale of the property to a third party, with Spinco guaranteed to receive an amount attributable to the property without such improvements and New OP retaining any excess proceeds.

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

Results of Operations

Our chief operating decision maker, or CODM, assesses our operating performance using proportionate property net operating income, defined as our share of rental and other property revenues, excluding utility costs reimbursed by residents and tenants, less our share of property operating expenses, net of utility reimbursements, for communities. As a result, we have two operating segments, Residential and Commercial, which comprise our reportable segments. Our Residential segment includes communities where our primary activity is residential leasing. Our Commercial segment consists of 1001 Brickell Bay Drive, our only commercial real estate property.

The following discussion and analysis of the results of our operations and financial condition should be read in conjunction with the accompanying unaudited combined financial statements elsewhere in this information statement.

Net income increased by $5.8 million for the six months ended June 30, 2020 compared to 2019, as described more fully below.

Property Operations

As of June 30, 2020, our Residential segment included six communities with 3,076 apartment homes, and our Commercial segment included one office building.

We use proportionate property net operating income to assess the operating performance of our segments. Proportionate property net operating income is defined as our share of rental and other property revenues, excluding utility costs reimbursed by residents and tenants, less our share of property operating expenses, net of utility reimbursements, for combined communities. In our combined statements of operations, utility reimbursements are included in rental and other property revenues, in accordance with GAAP.

We do not include offsite costs associated with property management, reported in combined amounts, in our assessment of segment performance. Accordingly, these items are not allocated to our segment results discussed below.

Please refer to the unaudited combined financial statements elsewhere in this information statement for further discussion regarding our segments, including a reconciliation of these proportionate amounts to combined rental and other property revenues and property operating expenses.

 

  67  


Table of Contents

Proportionate Property Net Operating Income

The results of our segments for the six months ended June 30, 2020 and 2019, are presented below.

 

     Six Months Ended
June 30,
               
(in thousands)    2020      2019      $ Change      % Change  

Rental and other property revenues, before utility reimbursements:

           

Residential

   $ 31,157      $ 30,385      $ 772        2.5%  

Commercial

     6,336        —          6,336        100.0%  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

     37,493        30,385        7,108        23.4%  

Property operating expenses, net of utility reimbursements:

           

Residential

     10,226        10,079        147        1.5%  

Commercial

     1,981        —          1,981        100.0%  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

     12,207        10,079        2,128        21.1%  

Proportionate property net operating income:

           

Residential

     20,931        20,306        625        3.1%  

Commercial

     4,355        —          4,355        100.0%  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 25,286      $ 20,306      $ 4,980        24.5%  
  

 

 

    

 

 

    

 

 

    

 

 

 

For the six months ended June 30, 2020, compared to 2019, our Residential proportionate property net operating income increased by $0.6 million, or 3.1%. This increase was attributable primarily to a $0.8 million, or 2.5%, increase in rental and other property revenues due to higher average revenues of $54 per apartment home comprised of increases in rental rates. Renewal rents increased by 5.8% and new lease rents increased by 1.1%, resulting in a weighted-average increase of 3.6%. The increase in Residential proportionate property net operating income was also attributable to a $0.1 million, or 1.5%, increase in property operating expenses due primarily to higher real estate taxes, offset by lower controllable operating expenses, which exclude utility costs, real estate taxes, and insurance.

Commercial proportionate property net operating income increased by $4.4 million, or 100.0%, for the six months ended June 30, 2020, compared to 2019, due to the acquisition of 1001 Brickell Bay Drive in July 2019.

Non-Segment Real Estate Operations

Operating income amounts not attributed to our segments include offsite costs associated with property management and casualty losses, which we do not allocate to our segments for purposes of evaluating segment performance.

For the six months ended June 30, 2020, compared to 2019, property management expenses were relatively flat.

Depreciation and Amortization

For the six months ended June 30, 2020, compared to 2019, depreciation and amortization expense increased by $12.8 million, or 157.3%, due primarily to depreciation and amortization of assets at 1001 Brickell Bay Drive, acquired in July 2019.

General and Administrative Expenses

For the six months ended June 30, 2020, compared to 2019, general and administrative expenses increased by $0.3 million, or 15.1%, due primarily to increased allocation of expenses from Spinco OP driven by the acquisition of 1001 Brickell Bay Drive and our Parkmerced mezzanine loan investment.

 

  68  


Table of Contents

Other Expenses (Income), Net

Other expenses (income), net, includes costs associated with partnership administration and certain non-recurring items.

For the six months ended June 30, 2020, compared to 2019, other expenses, net, were relatively flat.

Interest Expense

For the six months ended June 30, 2020, compared to 2019, interest expense, which includes the amortization of debt issuance costs, increased $3.8 million, or 132.2%, due primarily to an increase in property-level debt and the issuance of the note payable to Spinco OP in the second half of 2019.

Mezzanine Investment Income, Net

On November 26, 2019, we loaned $275 million to the partnership owning Parkmerced Apartments. For the six months ended June 30, 2020, we recognized $13.7 million of income in connection with the mezzanine loan, net of transaction cost amortization.

We have accrued all interest amounts due as required by GAAP. Our loan is secured by approximately $300 million of borrower equity junior to our loan. In the event we determine that a portion of the loan or accrued interest is not collectable, we will cease income recognition and, if appropriate, recognize an impairment.

Unrealized Loss on Interest Rate Option

During the six months ended June 30, 2020, we recorded a $1.1 million unrealized loss on our interest rate option, which we entered into during the period.

Income Tax Benefit (Expense)

For the six months ended June 30, 2020, we recognized income tax benefit of $4.3 million compared to a $0.1 million provision during the same period in 2019, due primarily to the tax effect of operational losses at 1001 Brickell Bay Drive, acquired July 2019.

Liquidity and Capital Resources

Liquidity

Liquidity is the ability to meet present and future financial obligations. Our primary source of liquidity is cash flow from operations and, as of June 30, 2020, we have $4.8 million in cash and cash equivalents. We also expect to obtain additional liquidity by entering into a revolving credit facility agreement. Spinco OP uses a centralized approach for cash management. Historically, Spinco OP has not charged us interest expense. Our principal uses for liquidity include normal operating activities, payments of principal and interest on outstanding property debt, and capital expenditures. We use our cash and cash equivalents and our cash provided by operating activities to meet short-term liquidity needs.

In the event that our cash and cash equivalents, planned revolving credit facility, and cash provided by operating activities are not sufficient to cover our short-term liquidity needs, we have additional means, such as debt refinancing. We expect to meet our long-term liquidity requirements, such as debt maturities, development and redevelopment spending, and apartment community acquisitions, through primarily non-recourse, long-term borrowings, construction borrowings, and cash generated from operations.

 

  69  


Table of Contents

As of June 30, 2020, we also held unencumbered communities with an estimated fair market value of approximately $293 million.

Leverage and Capital Resources

The availability of credit and its related effect on the overall economy may affect our liquidity and future financing activities, both through changes in interest rates and access to financing. Currently, interest rates are low compared to historical levels and many lenders are active in the market. However, any adverse changes in the lending environment could negatively affect our liquidity. If property or development financing options become unavailable for our future debt needs, we may consider alternative sources of liquidity, such as reductions in capital spending or proceeds from apartment community dispositions.

As of June 30, 2020, approximately 78% of our leverage consisted of property-level, non-recourse, long-dated, amortizing debt. Our property-level debt is fixed-rate, which provides a hedge against increases in interest rates, capitalization rates, and inflation. The weighted-average remaining term to maturity of our property-level debt was 6 years.

As of June 30, 2020, approximately 22% of our leverage consisted of a note payable due to Spinco OP, which is fixed-rate. This debt will mature on November 1, 2024.

Changes in Cash, Cash Equivalents, and Restricted Cash

The following discussion relates to changes in combined cash, cash equivalents, and restricted cash due to operating, investing, and financing activities, which are presented in our combined statements of cash flows elsewhere in this information statement.

Operating Activities

Our operating cash flow is affected primarily by rental rates, occupancy levels, and operating expenses related to our communities. Cash provided by operating activities for the six months ended June 30, 2020, decreased by $1.0 million compared to 2019, due primarily to increased interest on property-level debt, offset partially by higher contribution from our communities.

Investing Activities

Cash used in investing activities for the six months ended June 30, 2020, decreased by $1.4 million compared to 2019, due primarily to lower capital expenditures.

Financing Activities

Cash used in financing activities for the six months ended June 30, 2020, increased by $0.5 million compared to 2019, due primarily to lower repayments on non-recourse property debt, offset partially by lower net contribution from Spinco OP and $12.2 million payment for our interest rate option and related transaction costs.

Future Capital Needs

We expect to fund any future acquisitions, redevelopment, and capital spending principally with proceeds from short-term borrowings, debt and equity financing, and operating cash flows.

Non-GAAP Measures

Various of the key financial indicators we use in managing our business and in evaluating our financial condition and operating performance are non-GAAP measures. Key non-GAAP measures we use are defined and

 

  70  


Table of Contents

described below, and for those non-GAAP financial measures used or disclosed within this annual report, reconciliations of the non-GAAP financial measures to the most comparable financial measure computed in accordance with GAAP are provided.

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

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

 

   

gains and losses on the dispositions of depreciated property;

 

   

impairment write-downs of depreciated property; and

 

   

impairment write-downs of investments in unconsolidated partnerships caused by a decrease in the value of the depreciated property in such partnerships.

EBITDAre is defined by Nareit and provides for an additional performance measure independent of capital structure for greater comparability between real estate investment trusts. We define Adjusted EBITDAre as EBITDAre adjusted to exclude the effect of net income attributable to noncontrolling interests in a consolidated real estate partnership and EBITDAre adjustments attributable to noncontrolling interests, to allow investors to compare a measure of our earnings before the effects of our capital structure and indebtedness with that of other companies in the real estate industry.

The reconciliation of net income to EBITDAre and Adjusted EBITDAre for the six months ended June 30, 2020, and 2019, is as follows (in thousands):

 

         Six Months Ended June 30,      
         2020          2019  

Net income

   $ 11,102      $ 5,525  

Adjustments:

     

Interest expense

     6,680        2,877  

Income tax (benefit) expense

     (4,339      127  

Depreciation and amortization

     20,961        8,147  
  

 

 

    

 

 

 

EBITDAre

   $ 34,404      $ 16,676  
  

 

 

    

 

 

 

Net loss attributable to noncontrolling interests in consolidated real estate partnership

     233        —    

EBITDAre adjustments attributable to noncontrolling interests

     (452      —    

Pro forma adjustment, net(1)

     1,104        (29
  

 

 

    

 

 

 

Adjusted EBITDAre

   $ 35,289      $ 16,647  
  

 

 

    

 

 

 

 

(1)

We calculated Adjusted EBITDAre on a pro forma basis for items affecting year-to-date results that distort comparability between periods.

 

  71  


Table of Contents

Related Party Transactions

Note Payable to Spinco OP

Spinco OP issued a note to New OP Predecessor during the year ended December 31, 2019, for which the principal amount due was $66.3 million as of June 30, 2020. The note has a stated interest rate of 6.5% with a term to maturity of 4.3 years. During the year ended June 30, 2020, we incurred $2.2 million of interest on the note.

Lease Agreement with Spinco OP

During the six months ended June 30, 2020, Spinco OP entered into a lease agreement with 1001 Brickell Bay Drive for office space. The lease term is 37 months, and revenue associated with the lease is recognized on a straight-line basis in rental and other property revenues in our combined statements of operations.

Expense Allocation

We recognized general and administrative expenses of $2.1 million and $1.8 million during the six months ended June 30, 2020 and 2019, respectively. Depending on the nature of the expense, we have allocated it to New OP Predecessor based on its relative share of total gross potential revenue of Spinco OP, and the relative gross asset value of the New OP Predecessor communities as compared to the total gross asset value of all communities held by Spinco OP, which we believe to be reasonable methodologies. These allocated expenses are centralized corporate costs attributable to New OP Predecessor for management and other services, including, but not limited to, executive oversight, treasury, finance, human resources, tax, accounting, financial reporting, information technology, and investor relations.

Insurance

Spinco OP maintains insurance coverages to insure our communities adequately against the risk of loss attributable to fire, earthquake, hurricane, tornado, flood, and other perils. In addition, Spinco OP has third-party insurance coverage (after self-insured retentions) that defray the costs of large workers’ compensation, health, and general liability exposures. Insurance premiums are allocated to our communities based on estimates prepared by a third party insurance broker. The estimates are based on prevailing market rates, age, building characteristics, loss history, location and concentration of the property.

Related Party Property Management Agreement

Spinco OP provided us with property management services for our communities. For the six months ended June 30, 2020 and 2019, we incurred property management fees to Spinco OP of $1.6 million. Property management fees are included in property operating expenses in our combined statements of operations.

Cash Management

Spinco OP uses a centralized approach for cash management. Transfers of cash both to and from New OP Predecessor are included within change in Spinco OP investment, net, on the combined statements of cash flows and contribution from (distribution to) Spinco OP, net, on the combined statements of partners’ capital. Historically, Spinco OP has not charged us interest expense.

Quantitative and Qualitative Disclosures about Market Risk

Our chief market risks are refunding risk, that is the availability of property debt or other cash sources to refund maturing property debt, and repricing risk, that is the possibility of increases in base interest rates and

 

  72  


Table of Contents

credit risk spreads. We use long-dated, fixed-rate, amortizing, non-recourse property debt in order to avoid the refunding and repricing risks of short-term borrowings. We use working capital primarily to fund short-term uses. We make limited use of derivative financial instruments and we do not use them for trading or other speculative purposes.

Market Risk Associated with Loans Secured by Our Portfolio

As of June 30, 2020, 100% of our debt was fixed-rate.

As of June 30, 2020, we had approximately $6.2 million in cash and cash equivalents and restricted cash, a portion of which bears interest at variable rates.

We estimate the fair value of debt instruments as described elsewhere in this information statement. The estimated fair value of total indebtedness, including our note payable to Spinco OP, was approximately $300.8 million as of June 30, 2020, inclusive of a $4.5 million mark-to-market liability. The mark-to-market liability as of December 31, 2019 was $1.2 million.

For the Years Ended December 31, 2019, 2018, and 2017

Results of Operations

The following discussion and analysis of the results of our operations and financial condition should be read in conjunction with the accompanying combined financial statements elsewhere in this information statement.

Net income decreased by $2.8 million for the year ended December 31, 2019 compared to 2018, and increased by $1.5 million for the year ended December 31, 2018 compared to 2017, as described more fully below.

Property Operations

As of December 31, 2019, our Residential segment included six communities with 3,076 apartment homes, and our Commercial segment included one office building.

Please refer to “Results of Operations – Six Months Ended June 30, 2020, Compared to June 30, 2019” for discussion of our use of proportionate property net operating income to assess the operating performance of our segments.

Please refer to the combined financial statements elsewhere in this information statement for further discussion regarding our segments, including a reconciliation of these proportionate amounts to combined rental and other property revenues and property operating expenses.

 

  73  


Table of Contents

Proportionate Property Net Operating Income – Year Ended December 31, 2019 Compared to December 31, 2018

The results of our segments for the years ended December 31, 2019 and 2018, are presented below.

 

     Year Ended December 31,  

(in thousands)

   2019      2018      $ Change      % Change  

Rental and other property revenues, before utility reimbursements:

           

Residential

   $ 61,599      $ 59,482      $ 2,117        3.6%   

Commercial

     6,888        —          6,888        100.0%   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

     68,487        59,482        9,005        15.1%   

Property operating expenses, net of utility reimbursements:

           

Residential

     19,834        19,960        (126      (0.6%)  

Commercial

     1,931        —          1,931        100.0%   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

     21,765        19,960        1,805        9.0%   

Proportionate property net operating income:

           

Residential

     41,765        39,522        2,243        5.7%   

Commercial

     4,957        —          4,957        100.0%   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 46,722      $ 39,522      $ 7,200        18.2%   
  

 

 

    

 

 

    

 

 

    

 

 

 

For the year ended December 31, 2019, compared to 2018, our Residential proportionate property net operating income increased by $2.2 million, or 5.7%. This increase was attributable primarily to a $2.1 million, or 3.6%, increase in rental and other property revenues due to higher average revenues of $52 per apartment home comprised of increases in rental rates. Renewal rents increased by 4.7% and new lease rents increased by 2.7%, resulting in a weighted-average increase of 3.8%. The increase in Residential proportionate property net operating income was also attributable to a $0.1 million, or 0.6%, decrease in property operating expenses due primarily to lower controllable operating expenses, which exclude utility costs, real estate taxes, and insurance. The decrease in controllable operating expense was offset partially by higher real estate taxes.

Commercial proportionate property net operating income increased by $5.0 million, or 100%, for the year ended December 31, 2019, compared to 2018, due to the acquisition of 1001 Brickell Bay Drive in July 2019.

Proportionate Property Net Operating Income – Year Ended December 31, 2018, Compared to December 31, 2017

The results of our Residential segment for the years ended December 31, 2018 and 2017, are presented below. There was no proportionate property net operating income associated with our Commercial segment during these periods, as the only property in the segment was not acquired until 2019.

 

     Year Ended December 31,  

(in thousands)

   2018      2017      $ Change      % Change  

Rental and other property revenues, before utility reimbursements

   $ 59,482      $ 57,122      $ 2,360        4.1%  

Property operating expenses, net of utility reimbursements

     19,960        19,290        670        3.5%  
  

 

 

    

 

 

    

 

 

    

 

 

 

Proportionate property net operating income

   $ 39,522      $ 37,832      $ 1,690        4.5%  
  

 

 

    

 

 

    

 

 

    

 

 

 

For the year ended December 31, 2018, compared to 2017, our Residential proportionate property net operating income increased by $1.7 million, or 4.5%. This increase was attributable primarily to a $2.4 million,

 

  74  


Table of Contents

or 4.1%, increase in rental and other property revenues due to higher average revenues of $42 per apartment home comprised of increases in rental rates and a 1.5% increase in average daily occupancy. Renewal rents increased by 5.1% and new lease rents increased by 3.0%, resulting in a weighted-average increase of 4.0%. The increase in Residential proportionate property net operating income was offset partially by a $0.7 million, or 3.5%, increase in property operating expenses due primarily to higher controllable operating expenses, utility costs, and real estate taxes.

Non-Segment Real Estate Operations

Operating income amounts not attributed to our segments include offsite costs associated with property management and casualty losses, which we do not allocate to our segments for purposes of evaluating segment performance.

For the year ended December 31, 2019, compared to 2018, and the year ended December 31, 2018, compared to 2017, property management expenses were relatively flat.

Depreciation and Amortization

For the year ended December 31, 2019, compared to 2018, depreciation and amortization expense increased by $13.0 million, or 85.6%, due primarily to depreciation and amortization of assets at 1001 Brickell Bay Drive, acquired in July 2019.

For the year ended December 31, 2018, compared to 2017, depreciation and amortization expense increased by $1.6 million, or 11.5%, due primarily to higher capital additions.

General and Administrative Expenses

For the year ended December 31, 2019, compared to 2018, general and administrative expenses increased by $1.4 million, or 53.2%, due primarily to increased allocation of expenses from Spinco OP driven by the acquisition of 1001 Brickell Bay Drive and our Parkmerced mezzanine investment.

For the year ended December 31, 2018, compared to 2017, general and administrative expenses increased by $0.4 million, or 18.6%, due primarily to increased allocation of expenses from Spinco OP.

Other Expenses (Income), Net

Other expenses (income), net, includes costs associated with partnership administration and certain non-recurring items.

For the year ended December 31, 2019, compared to 2018, other expenses, net, increased by $0.5 million, or 358.5%, due primarily to the 2018 settlement resulting from resolution of our litigation against Airbnb and increased allocation of expenses from Spinco OP.

Other expenses (income), net, for the year ended December 31, 2018, compared to 2017, were relatively flat.

Interest Expense

For the year ended December 31, 2019, compared to 2018, interest expense, which includes the amortization of debt issuance costs, was relatively flat.

For the year ended December 31, 2018, compared to 2017, interest expense decreased $2.0 million, or 20.1%, due primarily to lower interest on property-level debt following debt payoff activity.

 

  75  


Table of Contents

Mezzanine Investment Income, Net

On November 26, 2019, we loaned $275 million to the partnership owning Parkmerced Apartments. For the year ended December 31, 2019, we recognized $1.5 million of income in connection with the mezzanine loan, net of transaction cost amortization.

We have accrued all interest amounts due as required by GAAP. Our loan is secured by approximately $300 million of borrower equity junior to our loan. In the event we determine that a portion of the loan or accrued interest is not collectable, we will cease income recognition and, if appropriate, recognize an impairment.

Income Tax Benefit

During the year ended December 31, 2019, we incurred income tax benefit of $3.4 million on the operations of 1001 Brickell Bay Drive, which was acquired in July 2019. During the years ended December 31, 2018 and 2017, we recognized income tax expense of $0.1 million and $0.2 million, respectively, due to certain state franchise taxes.

Liquidity and Capital Resources

Liquidity

Liquidity is the ability to meet present and future financial obligations. Our primary source of liquidity is cash flow from operations and, as of December 31, 2019, we have $5.4 million in cash and cash equivalents.

Please refer to “Liquidity and Capital Resources – Six Months Ended June 30, 2020, Compared to June 30, 2019” above for discussion of our short and long-term sources and uses of liquidity.

As of December 31, 2019, we also held unencumbered communities with an estimated fair market value of approximately $293 million.

Leverage and Capital Resources

The availability of credit and its related effect on the overall economy may affect our liquidity and future financing activities, both through changes in interest rates and access to financing. Currently, interest rates are low compared to historical levels and many lenders are active in the market. However, any adverse changes in the lending environment could negatively affect our liquidity. If property or development financing options become unavailable for our future debt needs, we may consider alternative sources of liquidity, such as reductions in capital spending or proceeds from apartment community dispositions.

As of December 31, 2019, approximately 78% of our leverage consisted of property-level, non-recourse, long-dated, amortizing debt. Our property-level debt is fixed-rate, which provides a hedge against increases in interest rates, capitalization rates, and inflation. The weighted-average remaining term to maturity of our property-level debt was 6.5 years.

As of December 31, 2019, approximately 22% of our leverage consisted of a note payable due to Spinco OP, which is fixed-rate. This debt will mature on November 1, 2024.

Changes in Cash, Cash Equivalents, and Restricted Cash

The following discussion relates to changes in combined cash, cash equivalents, and restricted cash due to operating, investing, and financing activities, which are presented in our combined statements of cash flows elsewhere in this information statement.

 

  76  


Table of Contents

Operating Activities

Our operating cash flow is affected primarily by rental rates, occupancy levels, and operating expenses related to our communities.

Cash provided by operating activities for the year ended December 31, 2019, increased by $3.5 million compared to 2018, due primarily to higher contribution from our communities, offset partially by higher interest on property-level debt.

Cash provided by operating activities for the year ended December 31, 2018, increased by $4.2 million compared to 2017, due primarily to higher contribution from our communities.

Investing Activities

Cash used in investing activities for the year ended December 31, 2019, increased by $377.2 million compared to 2018, due primarily to the $277.6 million payment for the Parkmerced mezzanine loan and related transaction costs, the $95.9 million acquisition of 1001 Brickell Bay Drive, and higher capital expenditures.

Cash used in investing activities were relatively flat for the year ended December 31, 2018, compared to 2017.

Financing Activities

Cash provided by financing activities for the year ended December 31, 2019, increased by $378.6 million compared to 2018, due primarily to higher net contribution from Spinco OP, higher proceeds from non-recourse property debt and proceeds from note payable due to Spinco OP, offset partially by higher principal repayments on non-recourse debt.

Cash used in financing activities for the year ended December 31, 2018, increased by $4.5 million compared to 2017, due primarily to higher net distributions to Spinco OP, offset partially by lower principal repayments on non-recourse debt.

Contractual Obligations

This table summarizes information contained elsewhere in this information statement regarding payments due under contractual obligations and commitments as of December 31, 2019 (in thousands):

 

     Total      Less than One
Year (2020)
     2-3 Years
(2021-2022)
     4-5 Years
(2023-2024)
     More than
Five Years
(2025 and
Thereafter)
 

Non-recourse property debt(1):

   $ 232,888      $ 5,675      $ 43,695      $ 71,953      $ 111,565  

Note payable to Spinco OP

     66,295        —          —          66,295        —    

Interest related to debt(2)

     51,882        11,005        16,411        10,305        14,161  

Construction obligations(3)

     196        196        —          —          —    
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 351,261      $ 16,876      $ 60,106      $ 148,553      $ 125,726  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

(1)

Includes schedules principal amortization and maturity payments.

(2)

Includes interest related to both non-recourse property debt and our note payable to Spinco OP, which are all fixed rate instruments.

(3)

Represents estimated obligations pursuant to construction contracts related to our redevelopment and capital spending. Please refer to Note 10 to the combined financial statements elsewhere in this information statement for additional information regarding these obligations.

 

  77  


Table of Contents

Future Capital Needs

In addition to the items set forth in “Liquidity and Capital Resources—Contractual Obligations” above, we expect to fund any future acquisitions, redevelopment, and capital spending principally with proceeds from short-term borrowings, debt and equity financing, and operating cash flows.

Non-GAAP Measures

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

Please refer to “Non-GAAP Measures” for the six months ended June 30, 2020, and 2019 above for the definition of Adjusted EBITDAre.

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

The reconciliation of net income to EBITDAre and Adjusted EBITDAre for the years ended December 31, 2019, 2018, and 2017, is as follows (in thousands):

 

     Year Ended December 31,  
     2019      2018      2017  

Net income

   $ 7,861      $ 10,633      $ 9,125  

Adjustments:

        

Interest expense

     7,884        7,838        9,805  

Income tax (benefit) expense

     (3,433      146        197  

Depreciation and amortization

     28,162        15,174        13,604  
  

 

 

    

 

 

    

 

 

 

EBITDAre

   $ 40,474      $ 33,791      $ 32,731  
  

 

 

    

 

 

    

 

 

 

Net loss attributable to noncontrolling interests in consolidated real estate partnership

     191        —          —    

EBITDAre adjustments attributable to noncontrolling interests

     (437      —          —    

Pro forma adjustment, net(1)

     (231      (703      325  
  

 

 

    

 

 

    

 

 

 

Adjusted EBITDAre

   $ 39,997      $ 33,088      $ 33,056  
  

 

 

    

 

 

    

 

 

 

 

(1)

We calculated Adjusted EBITDAre on a pro forma basis for items affecting annual results that distort comparability between periods.

Related Party Transactions

Note Payable to Spinco OP

Spinco OP issued a note to New OP Predecessor during the year ended December 31, 2019, for which the principal amount due was $66.3 million as of December 31, 2019. The note has a stated interest rate of 6.5% with a term to maturity of 4.8 years. During the year ended December 31, 2019, we incurred $0.8 million of interest on the note.

Expense Allocation

We recognized general and administrative expenses of $4.0 million, $2.6 million and $2.2 million during the years ended December 31, 2019, 2018, and 2017, respectively. Depending on the nature of the expense, we

 

  78  


Table of Contents

have allocated it to New OP Predecessor based on its relative share of total gross potential revenue of Spinco OP, and the relative gross asset value of the New OP Predecessor communities as compared to the total gross asset value of all communities held by Spinco OP, which we believe to be reasonable methodologies. These allocated expenses are centralized corporate costs attributable to Spinco OP for management and other services, including, but not limited to, executive oversight, treasury, finance, human resources, tax, accounting, financial reporting, information technology, and investor relations.

Insurance

Spinco OP maintains insurance coverages to insure our communities adequately against the risk of loss attributable to fire, earthquake, hurricane, tornado, flood, and other perils. In addition, Spinco OP has third-party insurance coverage (after self-insured retentions) that defray the costs of large workers’ compensation, health, and general liability exposures. Insurance premiums are allocated to our communities based on estimates prepared by a third party insurance broker. The estimates are based on prevailing market rates, age, building characteristics, loss history, location and concentration of the property.

Related Party Property Management Agreement

Spinco OP provided us with property management services for our communities. For the years ended December 31, 2019, 2018, and 2017 we incurred property management fees to Spinco OP of $3.2 million, $3.0 million, and $2.9 million, respectively. Property management fees are included in property operating expenses in our combined statements of operations.

Cash Management

Spinco OP uses a centralized approach for cash management. Transfers of cash both to and from Spinco OP are included within change in Spinco OP investment, net, on the combined statements of cash flows and contribution from (distribution to) Spinco OP, net, on the combined statements of partners’ capital. Historically, Spinco OP has not charged us interest expense.

Critical Accounting Policies and Estimates

We prepare our combined financial statements in accordance with GAAP, which requires us to make estimates and assumptions. We believe that the following critical accounting policies involve our more significant judgments and estimates used in the preparation of our combined financial statements.

Capitalized Costs

We capitalize costs, including certain indirect costs, incurred in connection with our capital additions activities, including redevelopments, other tangible apartment community improvements, and replacements of existing community components. Included in these capitalized costs are payroll costs associated with time spent by employees in connection with the planning, execution, and control of all capital addition activities at our communities. We characterize as “indirect costs” an allocation of certain department costs, including payroll, at the area operations and corporate levels that clearly relate to capital addition activities. We also capitalize interest, property taxes, and insurance during periods in which redevelopments are in progress. We commence capitalization of costs, including certain indirect costs, incurred in connection with our capital addition activities, at the point in time when activities necessary to get communities, apartment homes, or leased spaces ready for their intended use begin. These activities include when communities, apartment homes, or leased spaces are undergoing physical construction, as well as when homes or leased spaces are held vacant in advance of planned construction, provided that other activities such as permitting, planning, and design are in progress. We cease the capitalization of costs when the communities or components thereof are substantially complete and ready for

 

  79  


Table of Contents

their intended use, which is typically when construction has been completed and homes or leased spaces are available for occupancy. We charge costs including ordinary repairs, maintenance, and resident turnover costs to property operating expense, as incurred.

Impairment of Long-Lived Assets

Real estate and other long-lived assets to be held and used are stated at cost, less accumulated depreciation and amortization, unless the carrying amount of the asset is not recoverable. If events or circumstances indicate that the carrying amount of a community may not be recoverable, we make an assessment of its recoverability by comparing the carrying amount to our estimate of the undiscounted future cash flows, excluding interest charges, of the community. If the carrying amount exceeds the estimated aggregate undiscounted future cash flows, we recognize an impairment loss to the extent the carrying amount exceeds the estimated fair value of the community.

Quantitative and Qualitative Disclosures about Market Risk

Our chief market risks are refunding risk, that is the availability of property debt or other cash sources to refund maturing property debt, and repricing risk, that is the possibility of increases in base interest rates and credit risk spreads. We use long-dated, fixed-rate, amortizing, non-recourse property debt in order to avoid the refunding and repricing risks of short-term borrowings. We use working capital primarily to fund short-term uses. We make limited use of derivative financial instruments and we do not use them for trading or other speculative purposes.

Market Risk Associated with Loans Secured by Our Portfolio

As of December 31, 2019, 100% of our debt was fixed-rate.

As of December 31, 2019, we had approximately $6.8 million in cash and cash equivalents and restricted cash, a portion of which bears interest at variable rates.

We estimate the fair value of debt instruments as described elsewhere in this information statement. The estimated fair value of total indebtedness, including our note payable to Spinco OP, was approximately $300.4 million as of December 31, 2019, inclusive of a $1.2 million mark-to-market liability. The mark-to-market liability as of December 31, 2018, was approximately $1.2 million.

 

  80  


Table of Contents

BUSINESS AND PROPERTIES

Our Company

The board of directors of Aimco has announced a plan to spin off a majority of Aimco’s existing portfolio of assets into a separate, publicly traded company that will elect to be treated as a REIT, while retaining (through its subsidiaries) Aimco’s redevelopment and development business, Aimco’s property management business, and a portfolio of assets with an estimated GAV of $1.2 billion and an estimated NAV of approximately $0.9 billion , as of March 31, 2020 (in each case, without giving effect to the value of the Initial Leased Properties), and certain directly related liabilities and overhead. In addition, in connection with the Spin-Off, Aimco and New OP will retain substantially all of Aimco’s existing employees, either directly or indirectly pursuant to the transfer of employees from Spinco OP (and its subsidiaries) to New OP (and its subsidiaries) prior to the New OP Spin-Off. Terry Considine will continue to serve as Aimco’s Chairman and Chief Executive Officer, supported by an experienced executive team dedicated to Aimco, including                  , as President, and                 , as Chief Financial Officer. Mr. Considine will also serve as Executive Chairman of Spinco. Aimco and its subsidiaries will provide Spinco and its subsidiaries with certain management, administrative, and support services, including property management. Aimco, directly and through subsidiaries in which it owns all of the outstanding common equity, will be the general and special limited partner of New OP. New OP will hold substantially all of Aimco’s assets and manage the daily operations of Aimco’s business directly and indirectly through certain subsidiaries. In connection with the consummation of the Spin-Off and related transactions, Aimco intends to change its name to             , and Spinco intends to change its name to             .

Aimco (and New OP), like Spinco (and Spinco OP), will be engaged primarily in multi-family investment but will have its own distinctive focus. In particular, Aimco is expected to hold more complex development assets (in addition to the Stabilized Seed Properties), intended to provide potential opportunities for future value creation, and Spinco is expected to hold stabilized apartment communities, intended to provide predictable returns. The board of directors of Aimco expects that Aimco and Spinco will each benefit as a result of their complementary competencies and close alliance. Particularly, Aimco is expected to benefit from flexibility to pursue broader opportunities due to better alignment of equityholder interests. Aimco will have a capital structure and flexible long-term business model that are designed to allow Aimco to deploy a wider array of strategies than would generally be suitable for Spinco and, as a result, to position Aimco to more effectively address the ongoing challenges in the real estate industry. In addition, Aimco is expected to benefit from a pipeline of redevelopment and development opportunities sourced from Spinco and the Spinco Land Bank.

At the completion of the Spin-Off, Aimco will, through its subsidiaries, own the redevelopment and development business, the property management business, and certain non-traditional assets, including: Aimco’s loan to, and equity option in, the Parkmerced Loan; 1001 Brickell; and the Yacht Club property. Aimco will also retain the Stabilized Seed Properties. The Owned Properties and the Parkmerced Loan will serve as “seed” assets and provide us with revenue from rent collection and interest payments to help meet Aimco’s on-going liquidity needs. We also intend to complete redevelopment of 1001 Brickell Bay Tower, Yacht Club at Brickell, and North Tower at Flamingo Point, and to lease-up Prism and The Fremont.

Subsidiaries of Aimco will lease from Spinco the Initial Leased Properties 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. In addition, we may lease from Spinco additional properties from the Spinco Land Bank for redevelopment or development and/or for lease-up in accordance with the terms of the Master Leasing Agreement. Under the terms of the leases, Aimco or its applicable subsidiaries will agree to use commercially reasonable efforts to diligently complete the on-going redevelopment and development projects and their lease-ups. Aimco or its applicable subsidiaries 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 generally at the then-current GAV of the development and redevelopment improvements (in some cases, at a small discount thereto) if Spinco exercises an

 

  81  


Table of Contents

option to pay such fee, or through a sale of the property to a third party (by Spinco and Aimco), with Spinco guaranteed to receive an amount attributable to the property without such improvements and Aimco retaining any excess proceeds.

Our expected business activities following the completion of the Spin-Off are summarized below.

Redevelopment and Development

We intend to redevelop and develop apartment communities. We plan to 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 will rely on the expertise and credit of a third-party developer familiar with the local market to limit our exposure to construction risk. We also expect to undertake a range of redevelopments, including: those in which buildings or exteriors are renovated without the need to vacate a significant percentage of apartment homes, or short-cycle redevelopments; those in which significant renovation of apartment homes may be accomplished upon lease expiration and turnover; and those in which an entire building or community is vacated, or long-cycle redevelopments. We may execute redevelopment using various strategies, which will depend on the needs of the party for whom we are doing the redevelopment or development work. For example, we may take a phased approach, in which we renovate an apartment community in stages. Alternatively, we may intend to complete the redevelopment project on an accelerated timeline, with the goal of commencing the lease-up phase and returning the improvements to the other party rapidly to quicken our return on investment. Redevelopment work may include seeking entitlements from local governments, which enhance the value of our existing portfolio by increasing density; that is, the right to add apartment homes to a site.

We expect to benefit from a pipeline of redevelopment and development opportunities sourced from Spinco and the Spinco Land Bank, and to provide improved stabilized properties to Spinco at a favorable price by redeveloping and developing properties and increasing occupancy at properties that are not stabilized due to a recently completed redevelopment or development, in each case, that are owned by Spinco and leased by us, commencing with the Initial Leased Properties. We expect to lease the Initial Leased Properties (and additional properties if and as may be mutually agreed between us and Spinco in the future) pursuant to leases entered into in accordance with the Master Leasing Agreement for a percentage of then-current GAV and redevelop or develop the property (if required) with the goal of maximizing long-term value at the community and use our property management business to lease-up the property. Upon completion of the redevelopment and development and lease-up, we 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 generally at the then-current GAV of the development and redevelopment improvements (in some cases, at a small discount thereto) if Spinco exercises an option to pay such fee, or through a sale of the property to a third party (by Spinco and Aimco), with Spinco guaranteed to receive an amount attributable to the property without such improvements and Aimco retaining any excess proceeds. If we do not exercise our option to terminate a lease, we will have the option to assign the lease to a third party, subject to Spinco’s or its applicable subsidiaries’ consent and right of first refusal. Our redevelopment and development projects are expected to be funded using our balance sheet or equity from joint ventures.

We may also acquire other properties or portfolios from third parties that we believe can be redeveloped or developed or leased-up to become stabilized properties and sell such properties to Spinco once the redevelopment and development and lease-ups are completed. If Spinco agrees, subject to its discretion, to acquire any such properties, Spinco will acquire such property from us at a small discount to then-current GAV. If Spinco does not acquire such properties, we will be permitted to sell such properties to third parties.

In the future, we may seek to provide redevelopment and development services to third parties, in addition to Spinco.

 

  82  


Table of Contents

Property Management

We will also manage and operate apartment communities. We expect that the stability of the property management business will balance out the cyclical and more unpredictable nature of our redevelopment and development business. 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 Spinco for all of its apartment communities, and Spinco 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 Spinco 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 the following:

 

   

Customer Satisfaction. Our operating culture will be focused on residents and providing them with a high level of service in a clean, safe, and respectful living environment. We will regularly monitor and evaluate our performance by providing customers with numerous opportunities to grade our work, and will use this customer feedback as a daily management tool. We also intend to publish these customer evaluations online as important and credible information for prospective customers. Certain aspects of our on-site operations will be automated to enable current and future residents to interact with us using methods that are efficient and effective for them, such as making online requests for service work, and executing leases and lease renewals. In addition, we will emphasize the quality of our on-site team members through recruiting, training, and retention programs, which, with continuous and real-time customer feedback, is expected to contribute to improved customer service. We believe that greater customer satisfaction leads to higher resident retention and increased occupancy rates, which in turn leads to increased revenue for our customers and reduced costs.

 

   

Resident Selection and Retention. We believe that one’s neighbors are a meaningful part of the customer experience, together with the location of the community and the physical quality of the apartment homes. Part of our property management strategy will be to focus on attracting and retaining stable, credit-worthy residents who are also good neighbors and are likely to live with us longer. We will have explicit criteria for resident selection, which we will apply to new and renewal leases, including creditworthiness and behavior in accordance with our apartment community standards and our written “Good Neighbor Commitment.”

 

   

Revenue Management and Ancillary Services. We will have a centralized revenue management system that leverages people, processes, and technology to work in partnership with our local property management teams to implement rental rate pricing strategies. We are focused on careful measurements of on-site operations, as we believe that timely and accurate collection of apartment community performance and resident profile data allows us to maximize revenue for our customers through better property management and leasing decisions. We seek to maximize revenue for our customers by performing timely data analysis of new and renewal pricing for each apartment home, thereby enabling us to adjust rents quickly in response to changes in supply and demand and minimize vacancy time. We also generate incremental revenue for our customers by providing or facilitating the provision of services to our residents, including, at certain apartment communities, telecommunications services, parking options, package lockers, and storage space rental.

 

   

Controlling Expenses. Innovation is the foundation of our cost control efforts. Innovative activities we intend to undertake include: taking advantage of economies of scale at the corporate level through electronic procurement, which reduces complexity and increases purchasing volume discounts; focusing on life cycle costs by investing in more durable, longer-lived materials, which reduce turn times and costs; and leveraging technology through such items as smart home capabilities, website

 

  83  


Table of Contents
 

design, and package lockers, which meet today’s customer preference for self-service. Additionally, our efforts to maximize resident retention through our resident selection process described above is expected to result in in reduced turn costs.

 

   

Improving and Maintaining Apartment Community Quality. We believe that the physical condition and amenities of the apartment communities we operate are important factors in our ability to maintain and increase rental rates. We intend to invest in the maintenance and improvement of these communities primarily through capital additions that extend the useful of the community or enhance its condition.

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 Spinco. We intend to search for opportunities that will allow us to enter into long-term property management agreements with stable margins that require limited capital investment by us.

Other Real Estate

We will initially own the Owned Properties. In the future, we may also acquire additional properties. The Owned Properties and any additional stabilized properties we may acquire are expected to provide us with a base of steady revenue through rent collection, to help balance the cyclical and more unpredictable nature of our redevelopment and development business. These properties also may serve as sources of collateral and liquidity for our future funding needs. In addition to rent collection, we may extract capital from these assets through investments by third parties for partial ownership or through an outright sale. We may use that capital to invest in properties that we expect will be higher returning, value-add properties. See “—Properties” for more information on the Owned Properties.

Additionally, we may undertake other multi-family investment transactions, such as investments in joint ventures, serving as the multifamily developer for broader development projects, property acquisitions, and the acquisition of general partner positions in partnerships.

We also will own the Parkmerced Loan, which consists of a five-year, $275 million mezzanine loan at a 10% annual rate to the partnership owning the Parkmerced Apartments (secured by a second-priority deed of trust) and a ten-year option to acquire a 30% interest in the partnership at an exercise price of $1 million, increased by 30% of future capital spending to progress redevelopment and development of the Parkmerced Apartments. We expect that the Parkmerced Loan will provide us an attractive return with limited expected downside risk. The option is expected to provide us with an opportunity to participate in substantial value creation from the vested development rights. See “—Properties—Parkmerced Loan” for more information on the Parkmerced Loan.

Our Management Team

In connection with the Spin-Off, we will retain substantially all of Aimco’s existing employees, either directly or indirectly pursuant to the transfer of employees from Spinco OP (and its subsidiaries) to New OP (and its subsidiaries) prior to the New OP Spin-Off. Our senior management team’s focus will be solely on Aimco’s business and will include asset managers and internal auditors to oversee Aimco’s performance, and both management and board investment committees to review and approve transactions. Each of Aimco and Spinco will have senior management teams focused on the performance of each company’s respective businesses and value-creation opportunities. We believe that the separation of the Aimco and Spinco portfolios, and an experienced senior management team at each of Aimco and Spinco, will result in the respective businesses each receiving the senior management focus and attention required to realize its potential. Our and Spinco’s senior management teams each have a collective track record of successful redevelopment and development projects, active management of real estate operations, and real estate portfolio management, all within a REIT environment.

 

  84  


Table of Contents

Terry Considine will serve as Aimco’s Chairman of the board of directors and Chief Executive Officer and as Executive Chairman of the board of directors of Spinco, and will be responsible for ensuring that Aimco and Spinco work together collaboratively for their mutual benefit. In order to avoid the appearance of a conflict of interest, 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, Aimco has, and will have after the completion of the Spin-Off, a board of directors that meets the NYSE independence requirements, including being comprised of a majority of independent directors. A wholly owned subsidiary of Aimco will be the general partner of New OP. Except as otherwise expressly provided in the New OP partnership agreement, all management powers over the business and affairs of New OP are exclusively vested in the general partner. New OP will have no directors or executive officers.

Strengths

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

 

   

Ability to engage in more complicated and highly leveraged transactions offering the potential for higher returns. We are expected to hold more complex development assets (in addition to the Stabilized Seed Properties), intended to provide potential opportunities for future value creation. As a company separate from Spinco, we will no longer be serving investors seeking current period returns but can instead focus on creating long-term value for real estate investors, providing Aimco with flexibility to pursue broader opportunities.

 

   

Ability to source a strong pipeline of redevelopment and development from Spinco. Although Spinco and Aimco will be separate companies, Spinco and Aimco will each benefit as a result of their complementary competencies and close alliance. This alliance is expected to provide Aimco with the ability to source redevelopment and development opportunities from Spinco. Spinco is also expected to benefit from a pipeline of newly redeveloped or developed properties improved by Aimco. Aimco will have the option, but not an obligation, to terminate the leases from Spinco and may receive payment from Spinco OP (if Spinco OP exercises an option to pay such fee) based on then-current GAV of the development and redevelopment improvements (in some cases, at a small discount) once the applicable property has reached stabilization. Spinco or its applicable subsidiaries will also have a right of first refusal over all real property owned or leased by Aimco that has reached stabilization (including those acquired after the consummation of the Spin-Off (other than the Stabilized Seed Properties)).

 

   

Balanced business model. Aimco will primarily operate two businesses: the first, being the redevelopment and development business; and the second, being the property management business. The redevelopment and development business is cyclical and can be characterized by extensive periods of non-earning or low-earning assets due to the time it takes to complete the project. The property management business is more stable and can be characterized by receipt of consistent management fees as compensation for our management services. These two businesses are expected to balance each other out, providing investors with moderate exposure to each.

 

   

Management team with relevant experience and incentives aligned with equityholders. Aimco’s senior management team will focus solely on Aimco’s business and will include asset managers and internal auditors to oversee Aimco’s performance, and both management and board investment committees to review and approve transaction. Aimco’s senior management team has a collective track record of successful redevelopment and development projects, active management of real estate operations, and real estate portfolio management, all within a REIT environment.

 

   

Experienced leader with incentives aligned with equityholders. Terry Considine will serve as Aimco’s Chairman of the board of directors and Chief Executive Officer and as Executive Chairman of the

 

  85  


Table of Contents
 

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

 

   

Ability to source funding from stabilized assets. Our portfolio of stabilized assets will initially include the Stabilized Seed Properties: Royal Crest Estates (Warwick), Waterford Village, Royal Crest Estates (Marlborough), Wexford Village, and Royal Crest Estates (Nashua). We may also acquire additional stabilized assets in the future. These assets may serve as sources of collateral and liquidity for Aimco’s future funding needs. We may extract capital from stabilized assets through rent collection, investments by third parties for partial ownership, or an outright sale, and use that capital to invest in properties that we expect will be higher returning, value-add properties.

Strategy

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

 

   

Proactive management. Our senior management team will focus on maximizing the value of our business and assets by redeveloping and developing and leasing-up certain properties that we acquire or lease, collecting contractual rent for stabilized properties that we own, actively operating and managing properties for Spinco and, in the future, other third parties, and using other available tools to maximize value. Such tools may include investing in certain partnerships, managing operations for other businesses under long-term contracts and originating investments for Spinco. We intend to incentivize management and our employees by structuring compensation, when appropriate, to emphasize a close tie to value creation, including by compensating team members in shares of Aimco Common Stock.

 

   

Faster paced redevelopment and development. As a company separate from Spinco, we intend to be able to complete our redevelopment and development projects at a more rapid pace than if we were a combined company. Our dedicated team will focus on, and proactively oversee and manage, our redevelopment and development projects, providing these projects with the attention we believe is necessary to complete the projects on a more accelerated timeline. We expect that this will allow Aimco to see a faster return on investment.

 

   

Sufficient liquidity to support our business model. We believe that we will have sufficient liquidity to execute our business model through cash or committed credit, and we intend to maintain sufficient liquidity by retaining cash and not paying regular dividends. We expect that our long-dated property debt, short-term construction loans, joint venture equity raised and our cash flow from operations will provide us with sufficient financial capacity to execute our strategy.

 

   

Use financial leverage to increase return on equity. We plan to limit recourse leverage, and to primarily use property-level debt and preferred stock to limit risk to the Aimco entity. In addition, recognizing that the expected holding period for our properties is less than five years, we plan to generally use short-term and floating rate debt with a clear plan for repayment, including options to extend maturity of the debt if preferable to us. When warranted, we may also seek lower cost equity capital from passive joint venture partners or limited partners.

 

   

Flexible long-term business model. We believe the combination of our focused strategy, experienced management team, real estate portfolio, and sufficient liquidity will position us to take advantage of the industry trends and create value for our stockholders over time.

 

  86  


Table of Contents

Properties

Properties Summary

Our portfolio consists primarily of market rate apartment communities in which we will own a substantial interest or that we will lease from Spinco, after the completion of the Spin-Off. Our portfolio of Stabilized Seed Properties will initially include garden style apartment communities located in three states. In addition, we will own the Yacht Club at Brickell and a 95% interest in 1001 Brickell . 1001 Brickell is a 1.8-acre waterfront parcel in Miami, Florida, currently improved with an office building. The remaining 5% is held by an outside partners and is redeemable at the holder’s option for cash during a three-month exercise period, which begins on July 2, 2022.

A significant number of our Owned Properties will be encumbered by property debt. At June 30, 2020, the Owned Properties were encumbered by, in the aggregate, $233 million of property debt with a weighted-average interest rate of 3.64% and a weighted-average maturity of 6 years. The Owned Properties collateralizing this non-recourse property debt have an estimated aggregate fair value of $586 million, as of March 31, 2020. The Owned Properties that will be unencumbered at the completion of the Spin-Off, have an estimated aggregate fair value of $288 million, as of March 31, 2020.

Spinco or its applicable subsidiaries will have a right of first refusal on the direct or indirect transfer of any real property owned or, subject to the consent of the landlord, leased by us or our subsidiaries (including indirect transfers pursuant to a transfer of equity interests in any subsidiary that owns or leases such real property) and any rights to acquire real property (or equity interests in entities that own or lease such real property), in each case, with respect to real property for which redevelopment has been substantially completed (if applicable) and that has reached a specified occupancy for a minimum time period and with respect to the Parkmerced Loan (and the equity in the partnership owning the Parkmerced Apartments if the option is exercised, as described below under “—Parkmerced Loan”), but in all cases excluding any such transfers in respect of the Stabilized Seed Properties.

Below is a summary of the Owned Properties and the Parkmerced Loan, which we will retain in connection with the Spin-Off:

 

Asset

 

MSA

  

Asset Type

Royal Crest Estates (Warwick)   Providence—Warwick, RI—MA    Stabilized
Waterford Village   Boston—Cambridge—Newton, MA—NH    Stabilized
Royal Crest Estates (Marlborough)   Boston—Cambridge—Newton, MA—NH    Stabilized
Wexford Village   Worcester, MA—CT    Stabilized
Royal Crest Estates (Nashua)   Manchester/Nashua/Concord, NH    Stabilized
Yacht Club at Brickell   Miami-Miami Beach-Kendall, FL    Redevelopment
1001 Brickell Bay Tower   Miami-Miami Beach-Kendall, FL    Redevelopment
Parkmerced Loan   San Francisco-Redwood City-South San Francisco, CA    Mezzanine Investment
Total Assets Spun     

At the completion of the Spin-Off, the Owned Properties and the Parkmerced Loan are expected to have an estimated aggregate GAV of $             billion, an aggregate estimated NAV of $             billion and a weighted average RNOI Cap Rate of         .

 

  87  


Table of Contents

At the completion of the Spin-Off, the Initial Leased Properties are expected to have an estimated aggregate GAV of $             billion and a weighted average RNOI Cap Rate of             . Pursuant to their leases entered into in accordance with the Master Leasing Agreement, the Initial Leased Properties are expected to have an aggregate initial annual lease rate of $        . We intend to redevelop the North Tower at Flamingo Point and to lease-up Prism and The Fremont.

Parkmerced Loan

On November 26, 2019, Aimco made a five-year, $275 million mezzanine loan at a 10% annual rate to the partnership owning the Parkmerced Apartments. The loan is secured by a second-priority deed of trust. Aimco also received a ten-year option to acquire a 30% interest in the partnership at an exercise price of $1 million, increased by 30% of future capital spending to progress redevelopment and development of the Parkmerced Apartments. Pursuant to the Spin-Off, Aimco will transfer to us the loan to, and the equity option in, the partnership.

Parkmerced Apartments is a 152-acre site in the southwest corner of San Francisco, currently improved with 3,221 apartment homes completed shortly before and after World War II. These apartment homes are subject to City of San Francisco rent control. The development of the site is governed by a development agreement that allows for 8,900 total residential units, with the new units exempt from City of San Francisco rent control. The partnership, which is the borrower and in which we have the option to acquire 30% ownership, owns 3,165 of the existing rent-controlled apartment homes, which excludes apartment homes transferred as part of an earlier phase of development to which we are not a party, as well as the vested right to develop 4,093 of the new market-rate homes.

We expected that the Parkmerced Loan will provide us an attractive return with limited expected downside risk. The option is expected to provide us with an opportunity to participate in substantial value creation from the vested development rights.

Employees

In connection with the Spin-Off, Aimco will retain substantially all of Aimco’s existing employees, either directly or indirectly pursuant to the transfer of employees from Spinco OP (and its subsidiaries) to New OP (and its subsidiaries) prior to the distribution of New OP to the holders of Spinco OP Common Units and Spinco OP HP Units. Following the Spin-Off, we expect to have approximately                  employees (including our executive officers). At the completion of the Spin-Off, approximately of our team members will be represented by unions. Additionally, approximately                 will be at the apartment community level performing on-site functions, with the balance managing corporate and area functions, including investment and debt transactions, legal, finance and accounting, information systems, human resources, and other support functions.

None of our employees will be employees of Spinco or any of its subsidiaries following the Spin-Off. However, Terry Considine, who will serve on Aimco’s senior management team as Chief Executive Officer, will also serve as Spinco’s Executive Chairman. However, certain of our employees will provide services, including property management services, to Spinco and its subsidiaries following the Spin-Off pursuant to the Master Services Agreement and the Property Management Agreement. See “Our Relationship with Spinco Following the Spin-Off.”

Competition

In attracting and retaining residents to occupy our apartment communities and the apartment communities that we manage we will compete with numerous other housing providers and property managers. Our apartment communities and the apartment communities we manage will compete directly with other rental apartments, as well as condominiums and single-family homes that are available for rent or purchase in the markets in which

 

  88  


Table of Contents

these apartment communities are located. Principal factors of competition include rent or price charged, attractiveness of the location and apartment community, and the quality and breadth of services. The number of competitive apartment communities relative to demand in a particular area has a material effect on our ability to lease apartment homes at these apartment communities and on the rents charged. In certain markets, there exists an oversupply of newly constructed apartment homes, single-family homes, and condominiums relative to consumer demand, which affects the pricing and occupancy of these rental apartments.

We also will compete with other real estate investors, including apartment REITs, pension and investment funds, partnerships, and investment companies in acquiring, redeveloping, managing, obtaining financing for, and disposing of, apartment communities. This competition will affect our ability to acquire or lease apartment communities we want to add to our portfolio and the price that we pay in such acquisitions or leases; our ability to finance or refinance communities in our portfolio and the cost of such financing; and our ability to dispose of communities we no longer desire to retain in our portfolio and the timing and price available to us when we seek to dispose of such communities.

We believe that the Spin-Off will position us to identify and successfully capitalize on opportunities that meet our investment objectives. For a discussion of the risks associated with competitive conditions affecting our business, see “Risk Factors—Risks Related to Our Business.”

Regulation

General

Apartment communities and their owners are subject to various laws, ordinances, and regulations, including those related to real estate broker licensing and regulations relating to recreational facilities such as swimming pools, activity centers, and other common areas. Changes in laws increasing the potential liability for environmental conditions existing on communities or increasing the restrictions on discharges or other conditions, as well as changes in laws affecting development, construction, and safety requirements, may result in significant unanticipated expenditures, which would adversely affect our net income and cash flows from operating activities. In addition, existing rent control laws, as well as future enactment of rent control or rent stabilization laws, or other laws regulating multifamily housing, may reduce rental revenue or increase operating costs in particular markets.

Environmental

Various federal, state, and local laws subject apartment community owners or operators to liability for management, and the costs of removal or remediation, of certain potentially hazardous materials that may be present at an apartment community. These materials may include lead-based paint, asbestos, polychlorinated biphenyls, and petroleum-based fuels. Such laws often impose liability without regard to fault or whether the owner or operator knew of, or was responsible for, the release or presence of such materials. In connection with the ownership, operation, and management of apartment communities, we could potentially be liable for environmental liabilities or costs associated with our current communities, communities we acquire or manage in the future, or communities we previously owned or operated in the past. See “Risk Factors—Risks Related to Our Business—Potential liability or other expenditures associated with potential environmental contamination may be costly.”

Legal Proceedings

General

In addition to the matters described below, we may become party to various legal actions and administrative proceedings arising in the ordinary course of business, some of which may be covered by our general liability insurance program, and some of which may have a material adverse effect on our consolidated financial condition, results of operations or cash flows.

 

  89  


Table of Contents

Spin-Off

It is expected that, pursuant to the Separation Agreement: (i) any liability arising from or relating to legal proceedings involving the assets to be owned by us will generally be assumed by us and that we will indemnify Spinco and its subsidiaries (and their respective directors, officers, employees, and agents and certain other related parties) against any losses arising from or relating to such legal proceedings; and (ii) Spinco will generally agree to indemnify us (including our subsidiaries, directors, officers, employees (if any), and agents and certain other related parties) for any liability arising from or relating to legal proceedings involving Spinco’s real estate investment business prior to the Spin-Off and its retained properties. Aimco is currently a party to various legal actions and administrative proceedings, including various claims arising in the ordinary course of its business, which will be subject to the indemnities to be provided by Spinco to us or us to Spinco, as applicable. The ultimate outcome of these matters cannot be predicted. The resolution of any such legal proceedings, either individually or in the aggregate, could have a material adverse effect on Spinco’s business, financial position or results of operations, which, in turn, could have a material adverse effect on our business, financial position or results of operations if Spinco is unable to meet its indemnification obligations.

Environmental

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

Aimco is engaged in discussions with the Environmental Protection Agency, or EPA, regarding contaminated groundwater near an Indiana apartment community that has not been owned by Aimco since 2008. The contamination allegedly derives from a dry cleaner that operated on Aimco’s former property, prior to Aimco’s ownership. Aimco undertook a voluntary remediation of the dry cleaner contamination under state oversight. In 2016, EPA listed Aimco’s former community and a number of residential communities in the vicinity on the National Priorities List, or NPL (i.e., as a Superfund site). In May 2018, Aimco prevailed on its federal judicial appeal vacating the Superfund listing. Aimco continues to work with EPA to identify options for clean-up of the site outside the Superfund program. Although the outcome of these processes are uncertain, Aimco does not expect their resolution to have a material adverse effect on its consolidated financial condition, results of operations or cash flows. The liabilities associated with this matter will be allocated to Aimco in connection with the Spin-Off pursuant to the Separation Agreement; as a result, we or certain of our subsidiaries may have direct liabilities in respect thereof and we will also be required, subject to the terms and conditions of the Separation Agreement, to indemnify Spinco and its subsidiaries in respect of any their indemnifiable losses related to such matter.

Aimco also has a contingent liability related to a property in Lake Tahoe, California, regarding environmental contamination from the historic operation of a dry cleaner. An entity owned by Aimco was the former general partner of a now-dissolved partnership that previously owned a site that was a laundromat with a self-service dry-cleaning machine. That entity and the current property owner have been remediating the site since 2009, under the oversight of the Lahontan Regional Water Quality Control Board, or Lahontan. In May 2017, Lahontan issued a final cleanup and abatement order that names four potentially responsible parties,

 

  90  


Table of Contents

acknowledges that there may be additional responsible parties, and requires the named parties to perform additional groundwater investigation and corrective actions with respect to onsite and offsite contamination. Aimco appealed the final order and on June 1, 2020, the court vacated the order against Aimco. However, there are still civil suits pending related to this contingent liability. Although the outcome of this process is uncertain, we do not expect the resolution to have a material adverse effect on our consolidated financial condition, results of operations, or cash flows. The liabilities associated with this matter will be allocated to Aimco in connection with the Spin-Off pursuant to the Separation Agreement; as a result, we or certain of our subsidiaries may have direct liabilities in respect thereof and we will also be required, subject to the terms and conditions of the Separation Agreement, to indemnify Spinco and its subsidiaries in respect of any their indemnifiable losses related to such matter.

We have determined that our legal obligations to remove or remediate certain potentially hazardous materials may be conditional asset retirement obligations, as defined by GAAP. Except in limited circumstances where the asset retirement activities are expected to be performed in connection with a planned construction project or apartment community casualty, we believe that the fair value of our asset retirement obligations cannot be reasonably estimated due to significant uncertainties in the timing and manner of settlement of those obligations. Asset retirement obligations, with respect to those assets and liabilities that will be allocated to us in the Spin-Off, that are reasonably estimable as of December 31, 2019, are immaterial to our consolidated financial condition, results of operations, and cash flows.

Insurance

Our primary lines of insurance coverage are property, general liability, and workers’ compensation. We believe that our insurance coverages adequately insure our apartment communities against the risk of loss attributable to fire, earthquake, hurricane, tornado, flood, terrorism, and other perils, and adequately insure us against other risk. Our coverage includes deductibles, retentions, and limits that are customary in the industry. We have established loss prevention, loss mitigation, claims handling, and litigation management procedures to manage our exposure.

 

  91  


Table of Contents

MANAGEMENT

New OP

A wholly owned subsidiary of Aimco will be the general partner of New OP. Except as otherwise expressly provided in the New OP partnership agreement, all management powers over the business and affairs of New OP are exclusively vested in the general partner. New OP will have no directors or executive officers. See “Description of New OP Units and Summary of New OP Partnership Agreement.”

Directors of Aimco

Set forth below is certain information, as of      , 2020, with respect to the directors who are expected to serve on Aimco’s board of directors following the Spin-Off. We may present additional nominees for appointment to the board of directors in connection with the completion of the Spin-Off and vacancies created on the Aimco board of directors. Each director holds office until his or her successor is duly elected or appointed and qualified or until his or her earlier death, retirement, disqualification, resignation or removal.

Aimco’s charter provides that our board of directors shall consist of a number of directors as fixed by the board of directors, but in no event shall be fewer than three nor more than eleven. Each director is elected for a one-year term of office.

In connection with the Spin-Off,          ,         and         will resign from the board of directors of Aimco and serve as directors of Spinco. Upon completion of the Spin-Off, Aimco expects to have directors, a majority of whom Aimco believes will be determined to be independent, as defined under the NYSE listing requirements. Any changes will be provided in a subsequent amendment to this information statement.

 

Name

  

Age

  

Position

Terry Considine    72    Chairman of the Board and Chief Executive Officer

Terry Considine. Mr. Considine has been Chairman of the board of directors and Chief Executive Officer of Aimco since July 1994. Mr. Considine also serves on the board of directors of Intrepid Potash, Inc., a publicly held producer of potash. Mr. Considine has over 45 years of experience in the real estate and other industries. Among other real estate ventures, in 1975 Mr. Considine founded and subsequently managed the predecessor companies that became Aimco at its initial public offering in 1994.

The background and qualifications of each other expected Aimco director following completion of the Spin-Off will be included in a subsequent amendment to this information statement.

Below is a summary of the qualifications and expertise of our expected directors after the completion of the Spin-Off, including expertise relevant to our business.

 

Summary of Director
Qualifications and
Expertise

   Terry
Considine
 

Accounting and Auditing for Large Business Organizations

  

Business Operations

     X  

Capital Markets

     X  

Corporate Governance

     X  

Customer Service

  

Development

     X  

Executive

     X  

Financial Expertise and Literacy

     X  

Information Technology

  

 

  92  


Table of Contents

Summary of Director
Qualifications and
Expertise

   Terry
Considine
 

Investment and Finance

     X  

Legal

     X  

Marketing and Branding

  

Property Management and Operations

     X  

Real Estate

     X  

Talent Development and Management

     X  

Executive Officers of Aimco

The following table shows the names and ages, as of         , 2020 of the individuals who are expected to serve as Aimco’s executive officers, and the positions each such executive officer will hold, following the Spin-Off. A description of the business experience of each for at least the past five years follows the table.

 

Name

  

Age

  

Position

Terry Considine    72    Chief Executive Officer

Terry Considine. Mr. Considine has been Chairman of the board of directors and Chief Executive Officer of Aimco since July 1994. Mr. Considine also serves on the board of directors of Intrepid Potash, Inc., a publicly held producer of potash. Mr. Considine has over 45 years of experience in the real estate and other industries. Among other real estate ventures, in 1975 Mr. Considine founded and subsequently managed the predecessor companies that became Aimco at its initial public offering in 1994.

The background and qualifications of each other expected Aimco executive officer following completion of the Spin-Off will be included in a subsequent amendment to this information statement.

Independence of Directors of Aimco

The board of directors of Aimco has determined that to be considered independent, an outside director may not have a direct or indirect material relationship with Aimco or its subsidiaries (directly or as a partner, stockholder or officer of an organization that has a relationship with the Company). A material relationship is one that impairs or inhibits, or has the potential to impair or inhibit, a director’s exercise of critical and disinterested judgment on behalf of Aimco and its stockholders. In determining whether a material relationship exists, the board of directors considers all relevant facts and circumstances, including whether the director or a family member is a current or former employee of Aimco, family member relationships, compensation, business relationships and payments, and charitable contributions between Aimco and an entity with which a director is affiliated (as an executive officer, partner or substantial stockholder). The board of directors consults with Aimco’s counsel to ensure that such determinations are consistent with all relevant securities and other laws and regulations regarding the definition of “independent director,” including, but not limited to, those categorical standards set forth in Section 303A.02 of the listing standards of the NYSE as in effect from time to time.

Consistent with these considerations, our board of directors affirmatively has determined that         ,         , and             will be independent directors (collectively the “Independent Directors”).

 

  93  


Table of Contents

Meetings and Committees of Aimco

Aimco has four committees: Audit, Compensation and Human Resources, Nominating and Corporate Governance, and Redevelopment and Construction. Below is a table illustrating the expected committee memberships and chairmen after the completion of the Spin-Off, which will be completed in a subsequent amendment to this information statement. Additional detail on each committee follows the tables.

 

Director

   Audit
Committee
     Compensation
and Human
Resources
Committee
     Nominating and
Corporate
Governance
Committee
     Redevelopment
and
Construction
Committee
 

Terry Considine

                           

 

X

indicates a member of the committee

indicates the committee chairman

*

indicates Lead Independent Director

Audit Committee

The audit committee has been established in accordance with Rule 10A-3 under the Exchange Act and the NYSE listing requirements. The primary responsibilities of the audit committee are to, among other things:

 

   

oversee Aimco’s accounting and financial reporting processes and audits of Aimco’s financial statements;

 

   

be directly responsible for the appointment, compensation, and oversight of the independent auditors and the lead engagement partner and makes its appointment based on a variety of factors;

 

   

review the scope and overall plans for and results of the annual audit and internal audit activities;

 

   

oversee management’s negotiation with Aimco’s independent auditor concerning fees, and exercises final approval over all fees of such independent auditor;

 

   

consult with management and Aimco’s independent auditor with respect to Aimco’s processes for risk assessment and enterprise risk management. Areas involving risk that are reported on by management and considered by the Audit Committee, the other board of director committees or the board of directors, include: operations, liquidity, leverage, finance, financial statements, the financial reporting process, accounting, legal matters, regulatory compliance, information technology and data protection, compensation and human resources;

 

   

consult with management and Aimco’s independent auditor regarding, and provides oversight for, Aimco’s financial reporting process, internal control over financial reporting and Aimco’s internal audit function;

 

   

review and approve Aimco’s policy about the hiring of former employees of independent auditors;

 

   

review and approve Aimco’s policy for the pre-approval of audit and permitted non-audit services by the independent auditor, and reviews and approves any such services provided pursuant to such policy;

 

   

receive reports pursuant to Aimco’s policy for the submission and confidential treatment of communications from team members and others concerning accounting, internal control and auditing matters;

 

   

review and discuss with management and Aimco’s independent auditor quarterly earnings releases prior to their issuance and quarterly reports on Form 10-Q and annual reports on Form 10-K prior to their filing;

 

   

review the responsibilities and performance of Aimco’s internal audit function, approve the hiring, promotion, demotion or termination of the lead internal auditor, and oversee the lead internal auditor’s periodic performance review and changes to his or her compensation;

 

  94  


Table of Contents
   

review with management the scope and effectiveness of Aimco’s disclosure controls and procedures, including for purposes of evaluating the accuracy and fair presentation of Aimco’s financial statements in connection with the certifications made by the CEO and CFO;

 

   

meet regularly with members of Aimco management and with Aimco’s independent auditor, including periodic meetings in executive session;

 

   

perform an annual review of Aimco’s independent auditor, including an assessment of the firm’s experience, expertise, communication, cost, value and efficiency, and including external data relating to audit quality and performance, including recent Public Company Accounting Oversight Board reports on Aimco’s independent auditor and its peer firms;

 

   

perform an annual review of the lead engagement partner of Aimco’s independent auditor and the potential successors for that role; and

 

   

periodically evaluates independent audit service providers.

The audit committee is, and after the Spin-Off will be, entirely composed of members who meet the independence requirements set forth by the SEC, in the NYSE listing requirements and the audit committee charter. Each member of the audit committee is, and after the Spin-Off will be, financially literate in accordance with the NYSE listing requirements and at least one member of the audit committee is, and after the Spin-Off will be, an audit committee financial expert under SEC rules and the NYSE listing standards.

Nominating and Corporate Governance Committee

The primary responsibilities of the nominating and corporate governance committee are to, among other things:

 

   

Focus on board of director candidates and nominees, and specifically:

 

   

plan for board refreshment and succession planning for directors;

 

   

identify and recommend to the board individuals qualified to serve on the board;

 

   

identify, recruit and, if appropriate, interview candidates to fill positions on the board, including persons suggested by stockholders or others; and

 

   

review each board member’s suitability for continued service as a director when his or her term expires and when he or she has a change in professional status and recommends whether or not the director should be re-nominated;

 

   

focus on board composition and procedures as a whole and recommend, if necessary, measures to be taken so that the board reflects the appropriate balance of knowledge, experience, skills, and expertise required for the board as a whole;

 

   

review and suggest revisions to the board if applicable the corporate governance principles applicable to Aimco and its management;

 

   

maintain a related party transaction policy and oversee any potential related party transactions;

 

   

oversee a systematic and detailed annual evaluation of the board, committees, and individual directors in an effort to continuously improve the function of the board;

 

   

oversee Aimco’s commitment to environmental, social and governance issues, and disclosure related thereto;

 

   

consider corporate governance matters that may arise and develops appropriate recommendations, including providing the forum for the board to consider important matters of public policy and vet stockholder input on a variety of matters; and

 

   

review annually Aimco’s public policy advocacy efforts and political and charitable contributions.

 

  95  


Table of Contents

The nominating and corporate governance committee is, and after the Spin-Off will be, entirely composed of members who meet the independence requirements set forth by the SEC, in the NYSE listing requirements and the nominating and corporate governance committee charter.

Compensation and Human Resources Committee

The primary responsibilities of the compensation committee are to, among other things:

 

   

be responsible for succession planning in all leadership positions, both in the short-term and the long-term, with particular focus on CEO succession in the short-term and the long-term;

 

   

oversee Aimco’s management of the talent pipeline process;

 

   

oversee the goals and objectives of Aimco’s executive compensation plans;

 

   

annually evaluate the performance of the CEO;

 

   

determine the CEO’s compensation;

 

   

negotiate and provide for the documentation of any employment agreement (or amendment thereto) with the CEO, as applicable;

 

   

review the decisions made by the CEO as to the compensation of the other executive officers;

 

   

approve and grant any equity compensation;

 

   

review and discuss the Compensation Discussion & Analysis with management;

 

   

oversee Aimco’s submission to a stockholder vote of matters relating to compensation, including advisory votes on executive compensation and the frequency of such votes, incentive and other compensation plans, and amendments to such plans;

 

   

consider the results of stockholder advisory votes on executive compensation and take such results into consideration in connection with the review and approval of executive officer compensation;

 

   

review stockholder proposals and advisory stockholder votes relating to executive compensation matters and recommend to the board Aimco’s response to such proposals and votes;

 

   

review compensation arrangements to evaluate whether incentive and other forms of pay encourage unnecessary or excessive risk taking;

 

   

review and approve the terms of any compensation “clawback” or similar policy or agreement between Aimco and Aimco’s executive officers;

 

   

review periodically the goals and objectives of Aimco’s executive compensation plans, and amend, or recommend that the board amend, these goals and objectives if appropriate; and

 

   

oversee Aimco’s culture, with a particular focus on collegiality, collaboration and team-building.

The compensation committee is, and after the Spin-Off will be, entirely composed of members who meet the independence requirements set forth by the SEC, in the NYSE listing requirements and the compensation committee charter. In the event the members of the compensation committee are not “outside directors” (within the meaning of Section 162(m) of the Code), the committee shall delegate to a subcommittee composed of “outside directors” any and all approvals, certifications, and administrative and other determinations and actions with respect to compensation intended to satisfy the requirements of the “performance-based compensation” exception to Section 162(m).

Other Committees

Our board of directors may establish other committees as it deems necessary or appropriate from time to time.

 

  96  


Table of Contents

Compensation Committee Interlocks and Insider Participation

None of our directors have interlocking or other relationships with other boards of directors, compensation committees or our executive officers that would require disclosure under Item 407(e)(4) of Regulation S-K.

Compensation of Directors of Aimco

In formulating its recommendation for director compensation, the Nominating and Corporate Governance Committee reviews director compensation for independent directors of companies in the real estate industry and companies of comparable market capitalization, revenue, and assets, and considers compensation trends for other NYSE-listed companies and S&P 500 companies. The Nominating and Corporate Governance Committee also considers the relatively small size of the Aimco board of directors as compared to other boards, the participation of each Independent Director on each committee, and the resulting workload on the directors. In addition, the Nominating and Corporate Governance Committee considers the overall cost of the board of directors to Aimco and the cost per director.

Our board of directors determines the compensation to be paid to the individuals who serve as our directors.

Aimco Executive Compensation

We expect to adopt an executive compensation program (the “Compensation Program”) to reward performance, and governance practices in connection with the Compensation Program. The Compensation Program is expected to be comprised of base salary that is competitive with market, cash rewards, and stock/unit options, subject to performance and/or time vesting, to reward executives for achieving short-term business objective, align executives’ compensation with stockholder objectives, and provide an incentive to take a longer-term view of Aimco’s performance.

Additional material details will be provided in a subsequent amendment to this information statement.

Aimco Performance Incentive Plan

We expect to have a performance incentive plan (the “Plan”) to promote our success and to increase stockholder value by providing an additional means through the grant of awards to attract, motivate, retain, and reward selected employees, officers, directors, consultants, and advisors. Our board of directors or one or more committees appointed by our board of directors will administer the Plan. The Plan may authorize stock options, stock appreciation rights, restricted stock, stock bonuses or other forms of awards granted or denominated in Aimco Common Stock, as well as cash incentive awards.

Additional material details will be provided in a subsequent amendment to this information statement.

Aimco Code of Ethics

The board of directors has adopted a code of ethics entitled “Code of Business Conduct and Ethics” that applies to the members of the board of directors, all of Aimco’s executive officers and all team members of Aimco or its subsidiaries, including Aimco’s principal executive officer, principal financial officer, and principal accounting officer. The Code of Business Conduct and Ethics is posted on Aimco’s website (www.aimco.com) and is also available in print to stockholders, upon written request to Aimco’s corporate secretary.

Aimco Corporate Governance Guidelines and Director Stock Ownership

The board of directors has adopted and approved Corporate Governance Guidelines. Those guidelines, which were last updated in January 2020, are available on Aimco’s website (www.aimco.com) and are also available in print to stockholders, upon written request to Aimco’s corporate secretary. In general, the Corporate

 

  97  


Table of Contents

Governance Guidelines address director qualification standards, director responsibilities, the role of the lead independent director, director access to management and independent advisors, director compensation, director orientation and continuing education, the role of the board of directors in planning management succession, stock ownership guidelines and retention requirements, and an annual performance evaluation of the board of directors.

With respect to stock ownership guidelines for the Independent Directors, the Corporate Governance Guidelines provide that by the completion of five years of service, an Independent Director is expected to own, at a minimum, the lesser of 27,500 shares or shares having a value of at least $550,000.

Aimco Corporate Responsibility

At Aimco, corporate responsibility is an important part of our business. As with all other aspects of our business, our corporate responsibility program focuses on continuous improvement, to the benefit of our stockholders, our residents, our team members, our communities, and the environment. We actively discuss these matters with our stockholders and solicit their feedback on our program.

 

  98  


Table of Contents

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

As of immediately prior to the New OP Spin-Off, all of the outstanding New OP Units will be directly owned by Spinco OP. In connection with the New OP Spin-Off, Spinco OP will distribute all of the outstanding New OP Units to holders of Spinco OP Common Units, including Spinco and Spinco OP GP (with Spinco and Spinco OP GP further distributing their New OP Units to Aimco), and holders of Spinco OP HP Units, on a pro rata basis.

The following table provides information with respect to the expected beneficial ownership of New OP Units immediately following the New OP Spin-Off by each person who we believe will be a beneficial owner of more than 5% of the outstanding New OP Units. We based the share amounts on each person’s beneficial ownership of Spinco OP Common Units and Spinco OP HP Units as of          , 2020, unless we indicate some other basis for the unit amounts, and assuming a distribution ratio of one New OP Unit for each one Spinco OP Common Unit and one New OP Unit for each one Spinco OP HP Unit.

Except as otherwise noted in the footnotes below, each person or entity identified below has sole voting and investment power with respect to such securities. Following the New OP Spin-Off, New OP will have outstanding an aggregate of          New OP Units, based upon         Spinco OP Common Units and         Spinco OP HP Units, in each case outstanding as of             , applying the distribution ratio of one New OP Unit for each one Spinco OP Common Unit held as of the record date and one New OP Unit for each one Spinco OP HP Unit held as of the record date.

 

Name and Address(1) of Beneficial Owner

   Number of
New OP Units
     Percentage of
New OP Units
Outstanding(2)
 
     
     

5% or Greater Holders:

     
     
     

 

*

Less than 0.5%

(1)

The address of all of the holders listed above are in the care of New OP, 4582 South Ulster Street, Suite 1700, Denver, Colorado 80237.

(2)

Represents the number of New OP Units beneficially owned by each person divided by the total number of New OP Units outstanding.

 

  99  


Table of Contents

CERTAIN RELATIONSHIPS AND RELATED PERSON TRANSACTIONS

Relationship between Aimco and Spinco

Following the Spin-Off

After the Spin-Off, we and Spinco will each operate as a separate, publicly traded company. To set forth our relationship after the Spin-Off, we and Spinco intend to enter into certain other agreements prior to the Spin-Off, including, among others, the Separation Agreement, the Employee Matters Agreement, the Master Leasing Agreement, and certain other agreements. Terry Considine will continue to serve as Aimco’s Chairman and Chief Executive Officer, supported by an experienced executive team dedicated to Aimco, including          , as President, and        , as Chief Financial Officer. Mr. Considine will also serve as Executive Chairman of Spinco. In addition, we will enter into the Master Services Agreement with Spinco, pursuant to which we will provide Spinco and its subsidiaries with certain management, administrative, and support services, and the Property Management Agreement with Spinco, pursuant to which we will provide Spinco and its subsidiaries with property management services. See “Our Relationship with Spinco Following the Spin-Off.”

Procedures for Approval of Related Person Transactions

We recognize that related person transactions can present potential or actual conflicts of interest and create the appearance that our decisions are based on considerations other than the best interests of New OP and our unitholders. Accordingly, as a general matter, it is our preference to avoid related person transactions. Nevertheless, we recognize that there are situations where related person transactions may be in, or may not be inconsistent with, the best interests of New OP and our unitholders. Aimco’s Nominating and Corporate Governance Committee, pursuant to a written policy approved by the board of directors, has oversight for related person transactions. Aimco’s Nominating and Corporate Governance Committee will review transactions, arrangements or relationships in which (1) the aggregate amount involved will or may be expected to exceed $100,000 in any calendar year, (2) Aimco (or any Aimco entity) is a participant, and (3) any related party has or will have a direct or indirect interest (other than an interest arising solely as a result of being a director of another corporation or organization that is a party to the transaction or a less than 10 percent beneficial owner of another entity that is a party to the transaction). Aimco’s Nominating and Corporate Governance Committee will also give its standing approval for certain types of related person transactions such as certain employment arrangements, director compensation, transactions with another entity in which a related person’s interest is only by virtue of a non-executive employment relationship or limited equity position, and transactions in which all stockholders receive pro rata benefits.

In addition, pursuant to our the Property Management Agreement, Master Services Agreement and Master Leasing Agreement with Spinco, certain transactions, arrangements or relationships between or among us and our subsidiaries and affiliates, on the one hand, and Spinco and its subsidiaries and affiliates, on the other hand, will be subject to (x) the approval of a majority of our independent directors and (y) the approval of a majority of Spinco’s independent directors.

 

  100  


Table of Contents

OUR RELATIONSHIP WITH SPINCO FOLLOWING THE SPIN-OFF

After the Spin-Off, we and Spinco will each operate as a separate, publicly traded company. To set forth our relationship after the Spin-Off, we expect to enter into the following agreements with Spinco, among others: the Separation Agreement, the Employee Matters Agreement, the Property Management Agreement, the Master Services Agreement, and the Master Leasing Agreement.

The Separation Agreement, the Employee Matters Agreement, the Property Management Agreement, the Master Services Agreement, and the Master Leasing Agreement are material agreements that are described below and have been filed as exhibits to the registration statement on Form 10 of which this information statement is a part, and summaries of each of these agreements set forth the terms of the agreements that we believe are material. These summaries are qualified in their entirety by reference to the full text of the applicable agreements, which are incorporated by reference into this information statement. The terms of the agreements described below that will be in effect at the completion of and following the Spin-Off have not yet been finalized. Changes to these agreements, some of which may be material, may be made prior to the Spin-Off.

Separation Agreement

Overview

The Separation Agreement will contain the key provisions relating to the separation of the Spinco assets and liabilities from Aimco and the separation of New OP’s assets and liabilities from Spinco OP. It will also contain other agreements that govern certain aspects of Spinco’s relationship with Aimco that will continue after the Spin-Off. Additional material details will be provided in a subsequent amendment to this information statement.

Transfer of Assets and Assumption of Liabilities

The Separation Agreement will allocate the assets and liabilities of Aimco and its subsidiaries prior to the Spin-Off between Spinco and Aimco and their respective subsidiaries, and describe when and how any required transfers and assumptions of assets and liabilities will occur.

The Spin-Off

The Separation Agreement will govern the rights and obligations of the parties regarding the Spin-Off and the New OP Spin-Off. On the distribution date, Spinco OP will distribute, on a pro rata basis, all of the New OP Units to the holders of Spinco OP Common Units and holders of Spinco OP HP Units, and Aimco will distribute, on a pro rata basis, all of the shares of Spinco Common Stock to Aimco’s stockholders as of the record date.

Conditions

The Separation Agreement will provide that the Spin-Off and New OP Spin-Off are subject to multiple customary conditions that must be satisfied or waived by Aimco, in its sole discretion. For further information regarding these conditions, see “The Spin-Off—Conditions to the Spin-Off.” Even if all of the conditions have been satisfied, Aimco may, in its sole discretion, terminate and abandon the Spin-Off or any related transaction at any time prior to the distribution date.

Access to Information

The Separation Agreement will provide that the parties will exchange, for a period of time to be determined prior to the Spin-Off, certain information required to comply with requirements imposed on the requesting party by a government authority for use in any proceeding or to satisfy audit, accounting, claims defense, regulatory filings, litigation or similar requirements, for use in compensation, benefit or welfare plan administration or other

 

  101  


Table of Contents

bona fide business purposes, or to comply with its obligations under the Separation Agreement or any ancillary agreement. In addition, the parties will use commercially reasonable efforts to make available to each other directors, officers, other employees, and agents as witnesses in any legal, administrative, or other proceeding in which the other party may become involved to the extent reasonably required.

Releases, Allocation of Liabilities and Indemnification

The Separation Agreement will provide for a full and complete release and discharge of all liabilities existing or arising from any acts or events occurring or failing to occur or alleged to have occurred or to have failed to occur or any conditions existing or alleged to have existed at or before the separation, between Aimco and Spinco, except as expressly set forth in the Separation Agreement.

The Separation Agreement will provide that (i) Spinco OP will indemnify, and Spinco will guarantee such indemnification of, Aimco and its affiliates and each of their respective current and former directors, officers, employees, and agents against any and all losses relating to (a) liabilities arising out of our business and operations, whether arising before, at or after the separation (and certain other liabilities allocated to Spinco or Spinco OP pursuant to the Separation Agreement), (b) any breach by Spinco of any provision of the Separation Agreement or any ancillary agreement, and (c) any untrue statement or alleged untrue statement of a material fact or omission or alleged omission to state a material fact required to be stated therein or necessary to make the statements therein not misleading, with respect to information contained in the registration statement or the information statement (other than information that relates solely to Aimco’s business), and (ii) that New OP will indemnify, and Aimco will guarantee such indemnification of, Spinco and its affiliates and each of our respective current and former directors, officers, employees (if any), and agents against any and all losses relating to (a) liabilities of Aimco as of the separation (other than liabilities arising out of our business and operations, whether arising before, at or after the separation (and certain other liabilities allocated to Spinco or Spinco OP pursuant to the Separation Agreement)), (b) any breach by Aimco of any provision of the Separation Agreement or any ancillary agreement, and (c) any untrue statement or alleged untrue statement of a material fact or omission or alleged omission to state a material fact required to be stated therein or necessary to make the statements therein not misleading, with respect to information contained in the registration statement of which this information statement is a part, but only if such information relates solely to Aimco’s business.

The Separation Agreement will also establish dispute resolution procedures with respect to claims subject to indemnification and related matters.

Termination

The Separation Agreement will provide that it may be terminated and the Spin-Off and New OP Spin-Off may be abandoned at any time by Aimco.

Expenses

Except as expressly set forth in the Separation Agreement or in any ancillary agreement, or otherwise agreed in writing, Aimco will be responsible for all costs and expenses incurred and payable on or prior to the distribution date in connection with the Spin-Off and New OP Spin-Off, including costs and expenses relating to legal and tax counsel, financial advisors and accounting advisory work related to the Spin-Off, as well as costs and expenses incurred by either party prior to, on or after the distribution date with respect to the execution and delivery of our credit facilities. Except as expressly set forth in the Separation Agreement or in any ancillary agreement, or as otherwise agreed in writing, all costs and expenses that arise or are payable after the distribution date in connection with the Spin-Off or New OP Spin-Off will otherwise be paid by the party that incurs the applicable costs and expenses.

 

  102  


Table of Contents

Employee Matters Agreement

In connection with the Separation Agreement, Aimco and Spinco will enter into an Employee Matters Agreement to allocate liabilities and responsibilities relating to employment matters, employee compensation and benefits plans and programs, and other related matters.

The Employee Matters Agreement will govern Aimco’s and Spinco’s compensation and employee benefit obligations relating to employees of Aimco following the closing of the transactions, and it generally will allocate liabilities and responsibilities relating to employee compensation and benefit plans and programs for such employees between Aimco and Spinco. The Employee Matters Agreement will provide that Spinco will establish compensation and benefit plans and programs for the Spinco employees, at the times set forth therein. In addition, the Employee Matters Agreement will provide that, unless otherwise specified, Aimco will generally remain responsible for all employee related liabilities related to the occurrences prior to the Spin-Off.

The Employee Matters Agreement will also outline how 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 Spinco Common Stock. The number of shares of Aimco Common Stock and Spinco 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. Similarly, the Employee Matters Agreement will also outline how equity awards relating to units of Spinco OP will be adjusted to reflect the impact of the New OP Spin-Off. As with the Aimco equity awards, it is expected that each outstanding time or performance-vesting Spinco OP equity award will be converted into an award of both units of Spinco OP and units of New OP. The number of units of Spinco OP and the number of units in New OP subject to each converted award will be determined in a manner intended to preserve the aggregate value of the original Spinco OP equity award as measured immediately before the New OP Spin-Off.

The Employee Matters Agreement also will set forth the general principles relating to employee matters, including with respect to the assignment of employees, employment agreements, workers’ compensation, recognition of employee service credit under the Spinco benefit plans and the duplication of benefits.

Additional material details will be provided in a subsequent amendment to this information statement.

Property Management Agreement

Pursuant to the Property Management Agreement, Aimco and its subsidiaries will provide Spinco and its subsidiaries with certain property management and related services at properties owned by Spinco and its subsidiaries.

Additional material details will be provided in a subsequent amendment to this information statement.

Master Services Agreement

Pursuant to the Master Services Agreement, Aimco and its subsidiaries will provide Spinco and its subsidiaries with certain management, administrative, and support services.

Additional material details will be provided in a subsequent amendment to this information statement.

Master Leasing Agreement

In connection with the Separation Agreement, Spinco OP and New OP (or their applicable subsidiaries) will enter into a Master Leasing Agreement that will govern the leasing arrangement between the parties. The Master

 

  103  


Table of Contents

Leasing Agreement will provide that each time the parties thereto wish to execute a lease for a particular property, such parties will cause their applicable affiliates to execute a stand-alone lease, generally in the lease form attached as an exhibit to the Master Leasing Agreement (each, a “Lease”).

Immediately upon the completion of the Spin-Off, a Lease will be executed for each of Prism, The Fremont and the North Tower at Flamingo Point. Additional properties that are in need of redevelopment and/or lease-up may be added to the Master Leasing Agreement and become subject to a Lease, upon agreement of the parties to the Master Leasing Agreement, in accordance with the terms thereof. The initial annual rent for a property will be based on the then-current GAV of the subject property and market NOI cap rates, subject to certain adjustments, and will be further subject to annual escalation as set forth in the applicable Lease. Aimco or its applicable subsidiary will have the right to terminate any such Lease prior to the end of its term once the leased property is stabilized. In connection with such an early termination, Spinco or its applicable subsidiary will generally have an option (and not an obligation) to pay Aimco and its subsidiaries an amount equal to the difference between the then-current GAV of such property and the initial fair market value of such property at the commencement of the Lease term, in some cases at a small discount thereto; if Spinco or its applicable subsidiary does not exercise such option, Aimco or its applicable subsidiary will have the right to cause such property to be sold to a third party (by Spinco and Aimco), with Spinco guaranteed to receive an amount attributable to the property without such improvements and Aimco retaining any excess proceeds.

Additional material details will be provided in a subsequent amendment to this information statement.

Right of First Refusal

During the term of the Master Leasing Agreement, Spinco or its applicable subsidiaries will have a right of first refusal (a “ROFR”) on the direct or indirect transfer of any real property owned or, subject to the consent of the landlord, leased by Aimco or its subsidiaries (including indirect transfers pursuant to a transfer of equity interests in any subsidiary that owns or leases such real property) and any rights to acquire (a) real property (or equity interests in entities that own or lease such real property), in each case, with respect to real property for which redevelopment has been substantially completed (if applicable) and that has reached a specified occupancy for a minimum time period, (b) the Parkmerced Loan, (c) the Parkmerced option agreement, and/or (d) any equity in the partnership owning the Parkmerced Apartments if the aforementioned option is exercised; provided, that, no ROFR will apply to any such transfers in respect of the Stabilized Seed Properties. The ROFR will not apply, however, to transfers of shares of stock in Aimco, certain customary exceptions for transfers to controlled affiliates, and distributions in kind to the stockholders of Aimco.

In the event Spinco OP exercises its ROFR with respect to a property and the parties proceed to a sale of such property, Spinco OP will acquire such property from us at a small discount to then-current GAV. If Spinco OP declines to exercise its ROFR, Aimco may offer the property to a third party on the same terms as those offered to Spinco OP. Any purchase of an Aimco asset by Spinco OP pursuant to a ROFR will be accompanied by a pre-closing tax liability indemnity by Aimco in favor of Spinco OP.

Additional material details will be provided in a subsequent amendment to this information statement.

 

  104  


Table of Contents

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

The following is a summary description of the material terms of the New OP Units and the New OP partnership agreement.

While the following attempts to describe the material terms of our limited partnership units, the description may not contain all of the information that is important to you and is subject to, and is qualified in its entirety by reference to, the New OP partnership agreement, the applicable provisions of the Delaware Revised Uniform Partnership Act (the “Delaware Act”) and other applicable Delaware law. You are encouraged to read the full text of the New OP partnership agreement, the forms of which will be included as exhibits to the registration statement on Form 10, of which this information statement is a part, as well as the provisions of the Delaware Act and other applicable Delaware law.

Certain Differences between the Rights of New OP Unitholders and Spinco OP Common Unitholders and Spinco OP HP Unitholders

Spinco OP and New OP are formed under and governed by Delaware law. New OP will have generally modeled its governance after that of Spinco OP. The chart below provides a summary comparison of certain of the governance features applicable to each of Spinco OP and New OP.

 

Spinco OP Common Units and Spinco OP HP Units

  

New OP Units

Nature of Investment
The Spinco OP Common Units and Spinco OP HP Units constitute equity interests entitling each holder to his or her pro rata share of cash distributions made from Available Cash (as such term is defined in the Spinco OP partnership agreement) to the partners of Spinco OP, a Delaware limited partnership.    The New OP Units constitute equity interests entitling each holder to his or her pro rata share of cash distributions made from Available Cash (as such term is defined in the New OP partnership agreement) to the partners of New OP, a Delaware limited partnership.
Voting Rights
Under the Spinco OP partnership agreement, limited partners have voting rights only with respect to certain limited matters such as certain amendments of the partnership agreement and certain transactions such as the institution of bankruptcy proceedings, an assignment for the benefit of creditors, and certain transfers by the general partner of its interest in Spinco OP or the admission of a successor general partner.    Under the New OP partnership agreement, limited partners have voting rights only with respect to certain limited matters such as certain amendments of the partnership agreement and certain transactions such as the institution of bankruptcy proceedings, an assignment for the benefit of creditors, and certain transfers by the general partner of its interest in New OP or the admission of a successor general partner.
Distributions/Dividends
Subject to the rights of holders of any outstanding Spinco OP Preferred Units, the Spinco OP partnership agreement requires the general partner to cause Spinco OP to distribute quarterly all, or such portion as the general partner may in its sole and absolute discretion determine (provided such amount may not be less than the aggregate Preferred Return Shortfall (as defined in the Spinco OP partnership agreement) of all Partnership Common Units (as defined in the Spinco OP partnership    The New OP partnership agreement requires the general partner to cause New OP to distribute quarterly all, or such portion as the general partner may in its sole and absolute discretion determine , of Available Cash (as defined in the New OP partnership agreement) generated by New OP during such quarter to the general partner, the special limited partner, and the other holders of New OP Units on the record date established by the general partner

 

  105  


Table of Contents

Spinco OP Common Units and Spinco OP HP Units

  

New OP Units

agreement) held by all non-Spinco holders), of Available Cash (as defined in the Spinco OP partnership agreement) generated by Spinco OP during such quarter to the general partner, the special limited partner, the other holders of Spinco OP Common Units, and the holders of Spinco OP HP Units on the record date established by the general partner with respect to such quarter, as follows:

 

•  First, to the non-Spinco holders of Partnership Common Units as of the record date for such distribution, in accordance with the Preferred Return Shortfalls of their Partnership Common Units, until the aggregate Preferred Return Shortfall applicable to all Partnership Common Units held by the non-Spinco holders is zero;

 

•  Second, to Spinco and its subsidiaries other than Spinco OP (the “Spinco Partners”) and its subsidiaries in accordance with the Preferred Return Shortfalls of their Partnership Common Units, until the aggregate Preferred Return Shortfall applicable to all Partnership Common Units held by the Spinco Partners is zero; and

 

•  Third, (i) the non-Spinco holders Sharing Percentage (as defined in the Spinco OP partnership agreement) to the non-Spinco holders, and (ii) the Spinco Partners Sharing Percentage to the Spinco Partners, in each case, allocated among them based on their ownership of Partnership Common Units.

   with respect to such quarter, as follows: to (i) the non-Aimco holders Sharing Percentage (as defined in the New OP partnership agreement) to the non-Aimco holders, and (ii) Aimco and its subsidiaries other than New OP (the “Aimco Partners”) Sharing Percentage to the Aimco Partners, in each case, allocated among them based on their ownership of New OP Units.
Liquidity, Transferability/Redemption and Exchanges

There is no public market for the Spinco OP Common Units or Spinco OP HP Units, and the Spinco OP Common Units and Spinco OP HP Units are not listed on any securities exchange.

 

Under the Spinco OP partnership agreement, until the expiration of one year from the date on which a holder acquired Spinco OP Common Units, subject to certain exceptions, such holder of Spinco OP Common Units may not transfer all or any portion of its Spinco OP Common Units to any transferee without the consent of the general partner, which consent may be withheld in its sole and absolute discretion. After the expiration of one year, such holder of Spinco OP Common Units has the right to transfer all or any portion of its Spinco OP Common Units to any person, subject to the satisfaction of certain conditions specified in the Spinco OP

  

There is no public market for the New OP Units and the New OP Units are not listed on any securities exchange.

 

Under the New OP partnership agreement, until the expiration of one year from the date on which a holder acquired New OP Common Units, subject to certain exceptions, such holder of New OP Units may not transfer all or any portion of its New OP Units to any transferee without the consent of the general partner, which consent may be withheld in its sole and absolute discretion. After the expiration of one year, such holder of New OP Units has the right to transfer all or any portion of its New OP Units to any person, subject to the satisfaction of certain conditions specified in the New OP partnership agreement, including the general partner’s right of

 

  106  


Table of Contents

Spinco OP Common Units and Spinco OP HP Units

  

New OP Units

partnership agreement, including the general partner’s right of first refusal. After the first anniversary of becoming a holder of Spinco OP Common Units, a holder has the right, subject to the terms and conditions of the Spinco OP partnership agreement, to require Spinco OP to redeem all or a portion of such holder’s Spinco OP Common Units in exchange for shares of common stock or a cash amount equal to the value of such shares, as Spinco OP may elect. Upon receipt of a notice of redemption, Spinco OP may, in its sole and absolute discretion but subject to the restrictions on the ownership of common stock imposed under the Aimco charter and the transfer restrictions and other limitations thereof, elect to cause Aimco to acquire some or all of the tendered Spinco OP Common Units in exchange for common stock, based on an exchange ratio of one share of Aimco common stock for each Spinco OP Common Units, subject to adjustment as provided in the Spinco OP partnership agreement.    first refusal. After the first anniversary of becoming a holder of New OP Units, a holder has the right once per quarter on an exchange date set by New OP, subject to the terms and conditions of the New OP partnership agreement, to require New OP to redeem all or a portion of such holder’s New OP Units in exchange for shares of Aimco Common Stock or a cash amount equal to the value of such shares, as New OP may elect. Upon receipt of a notice of redemption, which must be provided at least 45 days prior to the quarterly exchange date, New OP may, in its sole and absolute discretion but subject to the restrictions on the ownership of common stock imposed under the Aimco charter and the transfer restrictions and other limitations thereof, elect to cause Aimco to acquire some or all of the tendered New OP Units in exchange for common stock, based on an exchange ratio of one share of Aimco common stock for each New OP Units, subject to adjustment as provided in the New OP partnership agreement.

Under the Spinco OP partnership agreement, subject to certain exceptions, a holder of Spinco OP HP Units may not transfer all or any portion of its Spinco OP HP Units. Holders of Spinco OP HP Units have the right, subject to the terms and conditions of the Spinco OP partnership agreement, to require Spinco OP to redeem all or a portion of such holder’s Spinco OP HP Units in exchange for an amount of cash per redeemed Spinco OP HP Unit equal to the lesser of (x) the amount that would be received in respect of such Spinco OP HP Unit if Spinco OP sold all of its properties at their fair market value (which may be determined by reference to the value of a share of Aimco Common Stock), paid all of its debts and distributed the remaining proceeds to the partners as provided in the Spinco OP partnership agreement in the event of a winding up of Spinco OP, and (y) in certain circumstances, the amount received in a public offering of shares of Aimco Common Stock. Upon receipt of a notice of redemption, Spinco OP may, in its sole and absolute discretion but subject to the restrictions on the ownership of common stock imposed under the Aimco charter and the transfer restrictions and other limitations thereof, elect to cause Aimco to acquire some or all of the tendered Spinco OP HP Units in exchange for Aimco Common Stock with a value equivalent to the cash amount described in the preceding sentence.

 

Notwithstanding the foregoing, it is expected that the Spinco OP partnership agreement will be amended prior to the consummation of the Spin-Off to replace each

       
reference to Aimco Common Stock with a reference to Spinco Common Stock and each reference to obligations of Aimco in respect thereof with a reference to obligations of Spinco (subject to receipt of the requisite approval of Spinco OP’s unitholders).            

 

  107  


Table of Contents

General

New OP is a limited partnership organized under the provisions of the Delaware Revised Uniform Limited Partnership Act, as amended from time to time, or any successor to such statute, or the Delaware Act, and upon the terms and subject to the conditions set forth in its agreement of limited partnership. New OP GP, a wholly owned subsidiary of Aimco, is the sole general partner of New OP.

Based on the number of Spinco OP Common Units and Spinco OP HP Units outstanding as of              , 2020, it is expected that we will have approximately            New OP Units outstanding upon completion of the New OP Spin-Off.

Purpose And Business

The purpose and nature of New OP is to conduct any business, enterprise or activity permitted by or under the Delaware Act, including, but not limited to, (i) conducting the business of ownership, construction, development, and operation of multifamily rental apartment communities, (ii) entering into any partnership, joint venture, business trust arrangement, limited liability company or other similar arrangement to engage in any business permitted by or under the Delaware Act, or to own interests in any entity engaged in any business permitted by or under the Delaware Act, (iii) conducting the business of providing property and asset management and brokerage services, whether directly or through one or more partnerships, joint ventures, subsidiaries, business trusts, limited liability companies or other similar arrangements, and (iv) doing anything necessary or incidental to the foregoing; provided, however, such business and arrangements and interests may be limited to and conducted in such a manner as to permit Aimco, in the sole and absolute discretion of the general partner, at all times to be classified as a REIT.

Management By The General Partner

Except as otherwise expressly provided in the New OP partnership agreement, all management powers over the business and affairs of New OP are exclusively vested in the general partner. No limited partner of New OP or any other person to whom one or more New OP Units, or long-term incentive program units (“LTIP Units” and, collectively with New OP Units, “Units”) have been transferred (each, an “assignee”) may take part in the operations, management or control (within the meaning of the Delaware Act) of New OP’s business, transact any business in New OP’s name or have the power to sign documents for or otherwise bind New OP. The general partner may not be removed by the limited partners with or without cause, except with the consent of the general partner. In addition to the powers granted to a general partner of a limited partnership under applicable law or that are granted to the general partner under any other provision of the New OP partnership agreement, the general partner, subject to the other provisions of the New OP partnership agreement, has full power and authority to do all things deemed necessary or desirable by it to conduct the business of New OP, to exercise all powers of New OP, and to effectuate the purposes of New OP. New OP may incur debt or enter into other similar credit, guarantee, financing or refinancing arrangements for any purpose (including, without limitation, in connection with any acquisition of properties) upon such terms as the general partner determines to be appropriate. The general partner is authorized to execute, deliver, and perform specific agreements and transactions on behalf of New OP without any further act, approval or vote of the limited partners.

Restrictions on General Partner’s Authority

The general partner may not take any action in contravention of the New OP partnership agreement. The general partner may not, without the prior consent of the limited partners, undertake, on behalf of New OP, any of the following actions or enter into any transaction that would have the effect of such transactions: (i) except as provided in the partnership agreement, amend, modify or terminate the partnership agreement other than to reflect the admission, substitution, termination or withdrawal of partners; (ii) make a general assignment for the benefit of creditors or appoint or acquiesce in the appointment of a custodian, receiver or trustee for all or any

 

  108  


Table of Contents

part of the assets of New OP; (iii) institute any proceeding for bankruptcy on behalf of New OP; or (iv) subject to specific exceptions, approve or acquiesce to the transfer of the New OP general partner interest, or admit into New OP any additional or successor general partners.

Additional Limited Partners

The general partner is authorized to admit additional limited partners to New OP from time to time, on terms and conditions and for such capital contributions as may be established by the general partner in its reasonable discretion. The net capital contribution need not be equal for all partners. No action or consent by the limited partners is required in connection with the admission of any additional limited partner. The general partner is expressly authorized to cause New OP to issue additional interests (i) upon the conversion, redemption or exchange of any debt, Units or other securities issued by New OP, (ii) for less than fair market value, so long as the general partner concludes in good faith that such issuance is in the best interests of the general partner and New OP, and (iii) in connection with any merger of any other entity into New OP if the applicable merger agreement provides that persons are to receive interests in New OP in exchange for their interests in the entity merging into New OP. Subject to Delaware law, any additional partnership interests may be issued in one or more classes, or one or more series of any of such classes, with such designations, preferences, and relative, participating, optional or other special rights, powers and duties as shall be determined by the general partner, in its sole and absolute discretion without the approval of any limited partner, and set forth in a written document thereafter attached to and made an exhibit to the partnership agreement. Without limiting the generality of the foregoing, the general partner has authority to specify (a) the allocations of items of partnership income, gain, loss, deduction, and credit to each such class or series of partnership interests; (b) the right of each such class or series of partnership interests to share in distributions; (c) the rights of each such class or series of partnership interests upon dissolution and liquidation of New OP; (d) the voting rights, if any, of each such class or series of partnership interests; and (e) the conversion, redemption, or exchange rights applicable to each such class or series of partnership interests. No person may be admitted as an additional limited partner without the consent of the general partner, which consent may be given or withheld in the general partner’s sole and absolute discretion.

Indemnification

To the fullest extent permitted by applicable law, New OP shall indemnify each Indemnitee (as defined in the New OP partnership agreement) from and against any and all losses, claims, damages, liabilities, joint or several, expenses (including, without limitation, attorney’s fees and other legal fees and expenses), judgments, fines, settlements, and other amounts arising from any and all claims, demands, actions, suits, or proceedings, civil, criminal, administrative, or investigative, that relate to the operations of New OP as set forth in the New OP partnership agreement in which such Indemnitee may be involved, or is threatened to be involved, as a party or otherwise; provided, however, that New OP shall not indemnify an Indemnitee (i) for willful misconduct or a knowing violation of the law or (ii) for any transaction for which such Indemnitee received an improper personal benefit in violation or breach of any provision of the New OP partnership agreement.

Outstanding Classes Of Units

As of              , 2020, New OP had no outstanding the partnership interests. The expected number of outstanding Units immediately upon completion of the Spin-Off is as follows:

 

Class

   Expected
Outstanding
Units
 

Partnership common units

  

LTIP I units