EX-99.1 2 filename2.htm EX-99.1
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Exhibit 99.1

Preliminary and Subject to Completion, dated September 30, 2020

        , 2020

Dear Holders of Common Units and Common Unit Equivalents of AIMCO Properties, L.P. and Future Holder of Common Units of Durango OP, LP:

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

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

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

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

AIR’s and AIR OP’s portfolio is expected to include 98 stabilized apartment communities, diversified by both geography and price point, with 26,599 apartment homes, including North Tower at Flamingo Point, The Fremont on the Anschutz Medical Campus, Prism in Cambridge, Massachusetts, Eldridge Townhomes in

 

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Elmhurst, Illinois, and 707 Leahy Apartments in Redwood City, California (collectively, the “Initial Leased Properties”), which are in-process redevelopment or development properties that we will lease from AIR following the spin-off. Under the terms of the leases, Aimco will agree to use commercially reasonable efforts to diligently complete the on-going redevelopment and development projects and their lease-ups. Aimco will have the option, but not an obligation, to terminate any of the leases for these properties once they reach and maintain stabilization, and receive payment for the redevelopment or development-related improvements, either at a 5% discount to the then-current fair market value of the development and redevelopment improvements if AIR exercises an option to pay such fee, or through a sale of the property to a third party (by AIR and Aimco), with AIR guaranteed to receive an amount attributable to the fair market value of the property at the time of lease inception and Aimco retaining any excess proceeds. In the event of such sale of the property, Aimco may also elect to purchase the property at a purchase price equal to the fair market value thereof at the time of lease inception. Collectively, AIR’s assets have an estimated GAV of $10.4 billion, and an estimated NAV, of $7.8 billion, as of March 31, 2020.

In connection with the spin-off, AIR will retain substantially all of Aimco’s existing employees (including Aimco’s existing property management employees), and Aimco will employ approximately                  of Aimco’s existing employees. I will serve as Aimco’s Executive Chairman. In addition, I will serve as Aimco’s interim Chief Executive Officer, and will be supported by an experienced executive team dedicated to Aimco, including Wes Powell, as President and Chief Investment Officer, Lynn Stanfield, as Chief Financial Officer, and Jennifer Johnson, as Chief Administrative Officer and General Counsel. I will also serve as AIR’s Chairman and Chief Executive Officer. AIR will provide Aimco with property management services and limited administrative and support services.

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

 

   

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

 

   

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

 

   

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

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

 

   

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

 

   

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

 

   

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

 

   

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

 

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

 

   

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

 

   

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

 

   

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

 

   

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

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

The spin-off 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 AIR OP common limited partnership units and AIR OP Class I High Performance partnership units (collectively, “AIR OP Common 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 AIR common stock to Aimco stockholders of record as of the close of business on the record date. Each holder of AIR OP Common Units will receive one New OP unit for each one AIR OP Common Unit held as of the close of business on the record date. The number of AIR OP Common Units you own will not change as a result of the spin-off.

Immediately following the transactions, it is expected that approximately                 % of the New OP units will be held by Aimco, directly or through its subsidiaries and approximately                 % of the AIR OP units will be held by AIR, directly or through its subsidiaries. If you hold AIR OP Common Units as of the close of business on the record date for the spin-off, upon completion of the spin-off, you will hold your AIR OP Common Units and you also will hold New OP units.

As more specifically described in the enclosed information statement, if you hold AIR 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 AIR OP within seven years of the spin-off. In general, unless you have made a contribution of appreciated property to AIR 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 AIR OP has in such units immediately prior to the spin-off and (ii) the tax basis you had in your AIR OP Common Units immediately prior to the spin-off. The tax basis you will have in your AIR 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. Although there will be little or no taxable income associated with the distribution of New OP Units, substantial taxable income is expected from certain property sales (including the taxable transfers of units in the partnership that holds the Non-Core Assets), most of which have already closed or are under contract to close.

No vote of the holders of AIR OP limited partnership units is required or being sought in connection with the spin-off. Therefore, we are not asking you for a proxy, and you are requested not to send us a proxy. You do

 

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not need to make any payment, surrender or exchange your AIR OP Common Units or take any other action to receive your New OP units.

The enclosed information statement, which is being made available to all holders of AIR OP Common 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 information statement in its entirety.

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

 

Sincerely,

Terry Considine

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

 

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

 

PRELIMINARY AND SUBJECT TO COMPLETION, DATED SEPTEMBER 30, 2020

INFORMATION STATEMENT

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. (“AIR OP”), the operating partnership of Apartment Investment and Management Company (“Aimco”), to the holders of AIR OP common limited partnership units (including Aimco-LP, Inc., a Maryland corporation wholly owned by Aimco (“AIR”)), and the holders of AIR OP Class I High Performance partnership units (the common limited partnership units and Class I High Performance partnership units, collectively, “AIR OP Common Units”), of all of the common limited partnership units of Durango OP, LP (“New OP Units”), a new Delaware limited partnership owned by AIR OP and formed to hold the businesses and portfolio of assets described below (“New OP”), and (ii) the pro rata distribution (the “AIR 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 AIR (“AIR Common Stock”).

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

The spin-off of Aimco’s redevelopment and development business and portfolio (which represents less than 10% of Aimco’s existing gross asset value (the estimated fair value), or “GAV”) will result in two, focused and independent companies: (i) Aimco and New OP, which is expected to own the existing growing business of development and redeveloping apartment communities while also pursuing other accretive transactions; and (ii) AIR, a self-managed REIT (as defined below), and AIR OP, which is expected to provide a simple and transparent way to invest in the multi-family sector: ownership with public market liquidity of a diversified portfolio of apartment communities, with low financial leverage, limited execution risk, best-in-class operations, and sector low management costs. With strong, independent boards, dedicated management teams, expanded growth and investment opportunities, and optimized balance sheets, Aimco’s board of directors believes that AIR (and AIR OP) and Aimco (and New OP) will create greater value separately than as a combined entity.

Following the completion of the Spin-Off, New OP will own the redevelopment and development business and a portfolio of assets that is expected to include (i) Royal Crest Estates (Warwick), located in Warwick, Rhode Island; Royal Crest Estates (Marlboro), located in Marlborough, Massachusetts; Waterford Village, located in Bridgewater, Massachusetts; Wexford Village, located in Worchester, Massachusetts; Royal Crest Estates (Nashua), located in Nashua, New Hampshire; The Bluffs at Pacifica, located in San Francisco, California; St. George Villas, located in St. George, South Carolina; Casa del Hermosa, located in San Diego, California; Casa del Sur, located in San Diego, California; Casa del Norte, located in San Diego, California; and Casa del Mar, located in San Diego, California, which are stabilized multi-family properties primarily located in the Boston and San Diego areas, to provide cash flows to help meets its on-going liquidity needs; and (ii) certain other investments, consisting of the loan to, and equity option in, the partnership owning Parkmerced Apartments located in southwest San Francisco, California (the “Parkmerced Loan”); Hamilton on the Bay, a multi-family property located on the waterfront in Miami, Florida, with 271 apartment homes as well as the land and zoning to construct 389 additional apartment homes; 1001 Brickell Bay Tower, a 350,000 square foot office building located in Miami, Florida; and the Yacht Club property adjacent to 1001 Brickell. Collectively, Aimco’s assets have an estimated gross asset value (the estimated fair value), or “GAV,” of $1.3 billion, and an estimated Net Asset Value, or “NAV” (as defined below), of $1.2 billion, as of March 31, 2020 (in each case, without giving effect to the value of the Initial Leased Properties or the Non-Core Assets (each as defined below)). Aimco is also expected to own a separate portfolio of 16 non-core assets (the “Non-Core Assets”) with an estimated GAV of $0.9 billion, securing property debt of approximately $0.2 billion and a note payable to AIR of approximately $0.5 billion.


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

In connection with the Spin-Off, AIR will retain substantially all of Aimco’s existing employees (including Aimco’s existing property management employees), and Aimco will employ approximately              of Aimco’s existing employees. Terry Considine will serve as Aimco’s Executive Chairman. In addition, Mr. Considine will serve as Aimco’s interim Chief Executive Officer, and will be supported by an experienced executive team dedicated to Aimco, including Wes Powell, as President and                Chief Investment Officer, Lynn Stanfield, as Chief Financial Officer, and Jennifer Johnson, as Chief Administrative Officer and General Counsel. Mr. Considine will also serve as AIR’s Chairman and Chief Executive Officer. AIR will provide Aimco with property management services and limited administrative and support services.

Each holder of AIR OP Common Units will receive one New OP Unit for each one AIR OP Common Unit held as of the close of business on                 , 2020 (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 and AIR OP will be two, focused and independent companies, and it is expected that approximately         % of the New OP units will be held by Aimco, directly or through its subsidiaries and approximately         % of the AIR OP units will be held by AIR, directly or through its subsidiaries.

No vote of the holders of AIR OP limited partnership units is required or being sought in connection with the Spin-Off. Therefore, we are not asking you for a proxy, and you are requested not to send us a proxy. You will not be required to make any payment, surrender or exchange your AIR OP Common 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, New OP is expected to be renamed                 , AIR OP is expected to be renamed Apartment Income REIT, L.P., and AIR is expected to be renamed Apartment Income REIT. 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. Although New OP may choose to take advantage of certain limited exceptions from investor protection laws such as the Sarbanes-Oxley Act of 2002, as amended (the “Sarbanes-Oxley Act”), and the Investor Protection and Securities Reform Act of 2010, for so long as New OP remains an emerging growth company, New OP does not intend to take advantage of these exceptions after the effectiveness of the registration statement of which this information statement is a part. See “Summary—Emerging Growth Company Status.”

 

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In reviewing this information statement, you should carefully consider the matters described under “Risk Factors ” beginning on page 28.

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 AIR OP Common Units beginning on or about                  , 2020.

The date of this information statement is                  , 2020.

 

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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.


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TABLE OF CONTENTS

 

SUMMARY

     1  

SUMMARY HISTORICAL COMBINED AND UNAUDITED PRO FORMA FINANCIAL INFORMATION

     25  

RISK FACTORS

     28  

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

     48  

THE SPIN-OFF

     50  

DISTRIBUTION POLICY

     60  

DESCRIPTION OF FINANCING AND MATERIAL INDEBTEDNESS

     61  

CAPITALIZATION

     62  

UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION

     63  

SELECTED HISTORICAL COMBINED FINANCIAL DATA

     68  

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

     70  

BUSINESS AND PROPERTIES

     87  

MANAGEMENT

     98  

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     105  

CERTAIN RELATIONSHIPS AND RELATED PERSON TRANSACTIONS

     106  

OUR RELATIONSHIP WITH AIR FOLLOWING THE SPIN-OFF

     107  

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

     111  

DESCRIPTION OF AIMCO’S CAPITAL STOCK

     122  

U.S. FEDERAL INCOME TAX CONSIDERATIONS

     130  

WHERE YOU CAN FIND ADDITIONAL INFORMATION

     148  

INDEX TO FINANCIAL STATEMENTS

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

Each of Aimco (and New OP) and AIR (and AIR OP) will have its own distinctive focus. Aimco’s and New OP’s business plan will be to: (i) focus on redevelopment and development projects on assets leased from AIR as well as opportunities Aimco sources itself (such as the right to develop multi-family properties, co-located with commercial life science uses to be built by a premier life sciences real estate developer); (ii) undertake complex transactions when warranted by risk-adjusted returns; (iii) maintain sufficient liquidity to support our business model; and (iv) use financial leverage to increase return on equity. Aimco is expected to benefit from a pipeline of redevelopment and development opportunities including (i) those which may be sourced from AIR, (ii) a right to develop multi-family properties, co-located with commercial life science uses to be built by a premier life sciences real estate developer, and (iii) the opportunity to pursue real estate opportunities in partnership with AIR. After the Spin-Off, AIR will continue to own properties (and may acquire properties) that may have potential to be redeveloped or developed in the future. In addition, Aimco is expected to benefit from a broader menu of investment choices, now eschewed by AIR that includes transactions that are short-term dilutive, longer-term, more complicated, better measured by NAV creation than Funds From Operations (“FFO”), or that involve



 

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more non-recourse leverage and which may result in higher investment returns. The board of directors of Aimco believes there are potential benefits to both Aimco and New OP, and AIR and AIR OP, from the opportunities to work together in the future when it is in their interests.

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

In addition, in connection with the Spin-Off, AIR will retain substantially all of Aimco’s existing employees (including Aimco’s existing property management employees), and Aimco will employ approximately of Aimco’s existing employees. Terry Considine will serve as Aimco’s Executive Chairman. In addition, Mr. Considine will serve as Aimco’s interim Chief Executive Officer, and will be supported by an experienced executive team dedicated to Aimco, including Wes Powell, as President and             Chief Investment Officer, Lynn Stanfield, as Chief Financial Officer, and Jennifer Johnson, as Chief Administrative Officer and General Counsel. Mr. Considine will also serve as AIR’s Chairman and Chief Executive Officer. AIR will provide Aimco with property management services and limited administrative and support services. 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 and by engaging AIR to provide certain management, administrative and support services, including property management services.

 

Following the completion of the Spin-Off, New OP will own the redevelopment and development business and a portfolio of assets that is expected to include: (i) Royal Crest Estates (Warwick), located in Warwick, Rhode Island; Royal Crest Estates (Marlboro), located in Marlborough, Massachusetts; Waterford Village, located in Bridgewater, Massachusetts; Wexford Village, located in Worchester, Massachusetts; Royal Crest Estates (Nashua), located in Nashua, New Hampshire; The Bluffs at Pacifica, located in San Francisco, California; St. George Villas, located in St. George, South Carolina; Casa del Hermosa, located in San Diego, California; Casa del Sur, located in San Diego, California; Casa del Norte, located in San Diego, California; and Casa del Mar, located in San Diego, California (collectively, the “Stabilized Seed Properties”), which are stabilized multi-family properties primarily located in the Boston and San Diego areas, to provide cash flows to help meet its on-going liquidity needs; and (ii) certain other investments, consisting of the loan to, and equity option in, the Parkmerced Loan; Hamilton on the Bay, a multi-family property located on the waterfront in Miami, Florida, with 271 apartment homes as well as the land and zoning to construct 389 additional apartment homes; 1001 Brickell Bay Tower, a 350,000 square foot office building located in Miami, Florida; and the Yacht Club property adjacent to 1001 Brickell. We refer to Hamilton on the Bay, 1001 Brickell, the Yacht Club, and the Stabilized Seed Properties, collectively, as the “Owned Properties.” The Stabilized Seed 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 intend to complete redevelopment of Hamilton on the Bay, 1001 Brickell Bay Tower, Yacht Club at Brickell, and North Tower at Flamingo Point, and to lease-up Prism, The Fremont, Eldridge Townhomes, and 707 Leahy.

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

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

AIR’s and AIR OP’s portfolio is expected to include 98 stabilized apartment communities, diversified by both geography and price point, with 26,599 apartment homes, including the Initial Leased Properties. Following



 

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the Spin-Off, Aimco will lease from AIR 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 AIR additional properties that may have potential to be redeveloped or developed or leased-up in accordance with the terms of the Master Leasing Agreement. Under the terms of the leases, Aimco will agree to use commercially reasonable efforts to diligently complete the on-going redevelopment and development projects and their lease-ups. Aimco will have the option, but not an obligation, to terminate any of the leases for these properties once they reach and maintain stabilization, and receive payment for the redevelopment or development-related improvements, either at a 5% discount to the then-current fair market value of the development and redevelopment improvements if AIR exercises an option to pay such fee, or through a sale of the property to a third party (by AIR and Aimco), with AIR guaranteed to receive an amount attributable to the fair market value of the property at the time of lease inception and Aimco retaining any excess proceeds. In the event of such sale of the property, Aimco may also elect to purchase the property at a purchase price equal to the fair market value thereof at the time of lease inception.

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

Aimco’s and New OP’s 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 which may be sourced from AIR, and to provide improved stabilized properties to AIR 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 AIR 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 AIR in the future) pursuant to leases entered into in accordance with the Master Leasing Agreement for a percentage of then-current fair market value and redevelop, develop or lease-up the property with the goal of maximizing long-term value at the community. Upon completion of the redevelopment and development and lease-up, 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 at a 5% discount to the then-current fair market



 

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value of the development and redevelopment improvements if AIR exercises an option to pay such fee, or through a sale of the property to a third party (by AIR and Aimco), with AIR guaranteed to receive an amount attributable to the fair market value of the property at the time of lease inception and Aimco retaining any excess proceeds. In the event of such sale of the property, Aimco may also elect to purchase the property at a purchase price equal to the fair market value thereof at the time of lease inception. If 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 AIR’s 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 also have the contractual rights to develop multi-family properties, co-located with commercial life science uses to be built by a premier life sciences real estate developer.

We may also source our own opportunities and 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 AIR once the redevelopment and development and lease-ups are completed. If AIR agrees, subject to its discretion, to acquire any such properties, AIR will acquire such property from us at a small discount to then-current fair market value. If AIR 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 AIR.

Other Real Estate

We will initially own the Stabilized Seed Properties. In the future, we may also acquire additional properties. The Stabilized Seed 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 will provide AIR a right of first offer to acquire additional stabilized properties that we are under contract to purchase from third parties for the sum of the agreed-upon purchase price plus a 1% commission. 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 Stabilized Seed 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 10-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.



 

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AIR will Manage a Majority of our Properties

After the Spin-Off, AIR will have the responsibility of managing and operating our stabilized properties. AIR initially will provide property management and certain other property-related services to us for the majority of our properties, and we will generally be obligated to pay to AIR 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 AIR Following the Spin-Off.”

Our Management Team

In connection with the Spin-Off, AIR will retain substantially all of Aimco’s existing employees (including Aimco’s existing property management employees), and Aimco will employ approximately              of Aimco’s existing employees. Each of Aimco and AIR 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 AIR portfolios, and an experienced senior management team at each of Aimco and AIR, will result in the respective businesses each receiving the senior management focus and attention required for each business to realize its potential. Our and AIR’s senior management teams each have a collective track record of successful redevelopment and development projects, active management of real estate operations or real estate portfolio management, all within a REIT environment. In addition, we will have access to AIR’s property management team, who will manage and operate the majority of the apartment communities in our portfolio pursuant to the Property Management Agreement (as defined below).

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

In addition, 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.

Overview of the Spin-Off

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

 

   

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

 

   

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

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 limited partners, and AIR will own, through subsidiaries in which it will own all of the common equity, the general partner interest and special limited partner interest in AIR OP, which will also have minority third party limited partners.



 

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Immediately prior to the New OP Spin-Off, New OP will receive, by contribution from AIR OP, certain properties, assets, and liabilities related to the Aimco business in exchange for New OP Units. Following such contribution by AIR OP, on the distribution date, AIR OP will distribute its New OP Units to holders of AIR OP Common Units, including AIR and AIMCO-GP, Inc., a Delaware corporation and the general partner of AIR OP (“AIR OP GP”) (with AIR and AIR OP GP further distributing their New OP Units to Aimco), on a pro rata basis. You will not be required to make any payment, or surrender or exchange your AIR OP Common Units, or take any other action to receive your New OP Units in connection with the New OP Spin-Off.

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

On the distribution date, each Aimco common stockholder will receive from Aimco one share of AIR Common Stock for each one share of Aimco Common Stock held as of the close of business on the record date. Following such distribution by AIR OP, New OP and AIR OP will be two focused and independent companies.

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

 

   

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

 

   

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

 

   

In accordance with the terms of the Separation and Distribution Agreement (the “Separation Agreement”), AIR OP will cause the Aimco business (other than (i) a portion of the 16 Non-Core Assets and (ii) its interests in AIMCO Royal Crest – Nashua L.L.C., the Delaware limited liability company that owns Royal Crest Estates (Nashua) (“Royal Crest Nashua LLC”), which entity will be transferred to New OP for no consideration immediately after the 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 AIR will assume or retain a certain amount of existing secured property-level indebtedness related to the AIR 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 Aimco’s (and its subsidiaries’) employees will become or remain employees of AIR OP (and its subsidiaries), while approximately of Aimco’s (and its subsidiaries’) employees will become or remain employees of New OP (and its subsidiaries).

 

   

In accordance with the Separation Agreement, AIR OP will distribute 100% of the outstanding New OP Units to the holders of AIR OP Common Units (including AIR and AIR OP GP) pro rata with



 

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respect to their ownership of AIR OP Common Units as of the close of business on the record date. Each of the holders of AIR OP Common Units will be entitled to receive one New OP Unit for each one AIR OP Common Unit held as of the close of business on the record date.

 

   

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

 

   

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

 

   

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

 

   

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

 

   

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

 

   

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

 

   

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

 

   

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

 

   

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

 

   

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



 

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In addition to the Separation Agreement, AIR and AIR OP (or their applicable subsidiaries), on the one hand, and Aimco and New OP (or their applicable subsidiaries), on the other hand, as well as James-Oxford LP (or its applicable subsidiaries) in certain instances, will enter into an Employee Matters Agreement (as defined below), a Property Management Agreement, a Master Services Agreement (as defined below), and a Master Leasing Agreement, each as further described below, and certain other agreements as further described below.

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

Organizational Structure

In general, 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



 

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After the Spin-Off

 

LOGO

Reasons for the Spin-Off

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

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

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

 

   

Creates two focused and independent companies, each with the opportunity to pursue growth through the execution of different business plans. We believe that having two focused and independent companies with distinct investment profiles will maximize the strategic focus and financial flexibility to grow and return capital to equityholders. With strong, independent boards, dedicated management teams, expanded growth and investment opportunities, and optimized balance sheets, we believe that AIR and Aimco will create greater value separately than as a combined entity. Aimco’s (and New OP’s) business plan will be to: (i) focus on redevelopment and development projects on assets leased from AIR as well as opportunities Aimco sources itself (such as the right to



 

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

 

   

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

 

   

Limits AIR’s exposure to risks associated with the redevelopment and development business. AIR will be able to invest in stabilized properties that it believes will better support its underlying business. Because it will not engage in redevelopment or development, AIR is expected to have limited execution risk, reduced overhead costs (both in total dollars and as a percentage of fair market value) and vacancy expense. Through its close relationship with Aimco, AIR is expected to retain access to some of the advantages of Aimco’s redevelopment and development business without the execution risk, leverage or associated costs.

 

   

Provides our management teams with the ability to focus on our distinct businesses and be more closely aligned with the needs of investors. Each of AIR and Aimco will have a senior management team focused on the performance of its respective business and that will have incentives to exercise options that are favorable to its respective business. The separation of the businesses will also 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 equityholders.

 

   

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



 

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the businesses of Aimco and AIR. As a result of the separation, we expect AIR will have access to the capital markets at a non-dilutive price and a strong capital structure tailored to its strategic goals. We believe this will provide AIR with improved access to the public markets, providing it with capital to invest in the acquisition of properties to grow its portfolio.

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 AIR Following the Spin-Off

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

Strengths

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

 

   

Ability to source a strong pipeline of redevelopment and development from AIR. Although AIR and Aimco will be two, focused and independent, publicly traded companies, AIR and Aimco each have the potential to benefit from opportunities to work together in the future when it is in their interests. This relationship is expected to provide Aimco with the ability to source redevelopment and development opportunities from AIR through an arrangement pursuant to which AIR will lease properties in need of redevelopment or development to Aimco. Aimco will have the option, but not an obligation, to terminate any of the leases for these properties once they reach and maintain stabilization, and receive payment for the redevelopment or development-related improvements, either at a 5% discount to the then-current fair market value of the development and redevelopment improvements if AIR exercises an option to pay such fee, or through a sale of the property to a third party (by AIR and Aimco), with AIR guaranteed to receive an amount attributable to the fair market value of the property at the time of lease inception and Aimco retaining any excess proceeds. In the event of such sale of the property, Aimco may also elect to purchase the property at a purchase price equal to the fair market value thereof at the time of lease inception. AIR 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 and the Non-Core Assets)).

 

   

Broad menu of investment choices and ability to engage in transactions which may result in higher investment returns. As a company separate and distinct from AIR, we will no longer be serving



 

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investors seeking current period returns and can focus on pursuing value-creation transactions. We will have a menu of investment choices now eschewed by AIR that includes transactions that are short-term dilutive, longer-term, more complicated, better measured by NAV creation than FFO, or that involve more, non-recourse leverage. We believe that the ability to engage in these transactions will generate higher investment returns.

 

   

Management team with relevant experience and incentives aligned with equityholders. Aimco’s senior management team will focus solely on Aimco’s business and will have incentives to exercise options that are favorable to Aimco with no obligation to AIR other than under the terms of the agreements described in this information statement. Aimco will also have both management and board investment committees to review and approve transactions. Aimco’s senior management team has a collective track record of successful redevelopment and development projects, and real estate portfolio management, all within a REIT environment. In addition, Aimco will rely on AIR’s property management team to operate a majority of its portfolio of properties pursuant to the Property Management Agreement. Aimco will rely on the strengths of AIR’s property management team in connection with targeting customers with above-average income and prospects, achieving high customer satisfaction, achieving above-average customer retention, maintaining high average daily occupancy, increasing income from other services and other assets, and emphasizing control of costs.

 

   

Experienced leader with incentives aligned with equityholders. Terry Considine will serve as Aimco’s Executive Chairman of the board of directors (and as interim Chief Executive Officer) and as AIR’s Chairman of the board of directors and Chief Executive Officer. As founder of both companies, Mr. Considine will be responsible for seeing that Aimco and AIR 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 served as Chairman of the board of directors and Chief Executive Officer of Aimco since July 1994. After the completion of the Spin-Off, Aimco will conduct a search for a seasoned real estate developer to serve as Chief Executive Officer.

 

   

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 (Marlboro), Wexford Village, Royal Crest Estates (Nashua), The Bluffs at Pacifica, St. George Villas, Casa del Hermosa, Casa del Sur, Casa del Norte, and Casa del Mar. 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:

 

   

Redevelopment and development focus. We will undertake redevelopment and development projects on assets leased from AIR, as well as opportunities we source ourselves. In addition, we will also seek to provide redevelopment and development services to third-parties. For example, we have the contractual right to develop multi-family properties, co-located with commercial life science uses to be built by a premier life sciences real estate developer. As a company independent from AIR, 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.



 

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Undertaking complex transactions. We expect to have a broad investment opportunity set and will undertake complicated transactions when warranted by risk-adjusted returns. 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.

 

   

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 non-recourse property debt, construction loans, third party equity capital raised and our retained earnings will provide us with sufficient financial capacity to execute our strategy. We intend to set a formula with which Aimco’s liquidity should comply in order to protect our business.

 

   

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.

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.

In addition, at the completion of the Spin-Off, we will be the obligors on a $534 million note payable to AIR, which will be secured by our interest in the partnership that holds the Non-Core Assets.

For additional information concerning our indebtedness, see “Description of Financing and Material Indebtedness.”

Our Tax Status

Aimco has elected to be taxed as a REIT under the Internal Revenue Code of 1986, as amended (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.



 

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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 AIR, 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 AIR.

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. As an emerging growth company, New OP is permitted to take advantage of certain limited exemptions from various requirements that are otherwise applicable to public companies in this information statement. These provisions include, but are not limited to:

 

 

   

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

 

   

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

New OP expects to take advantage of these exemptions in this information statement. However, New OP does not intend to take advantage of these exceptions in any other periodic reports, proxy statements, and registration statements after the effectiveness of the registration statement of which this information statement is a part. We cannot predict if unitholders will find New OP Units less attractive due to the permitted reduced disclosure in this information statement.

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”).



 

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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 AIR for our pipeline of redevelopment and development opportunities;

 

   

Our portfolio of Stabilized Seed Properties is geographically concentrated in the Northeast region of the United States and in California, 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;

 

   

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;

 

   

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

 

   

We depend on our senior management;

 

   

We will rely on AIR to manage a majority of our properties. If AIR fails to efficiently manage such properties, tenants may not renew their leases or we may become subject to unforeseen liabilities;

 

   

In addition to property management services, we will depend on AIR to conduct our business operations, and any adverse changes in the financial health of AIR or its affiliates or our relationship with them could hinder AIR’s ability to successfully manage our operations;

 

   

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

 

   

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

 

   

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

 

   

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

 

   

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



 

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

 

   

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

 

   

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

 

   

After the Spin-Off, we may be unable to make, on a timely or cost-effective basis, the changes necessary to operate as an independent company;

 

   

Aimco may fail to qualify as a REIT;

 

   

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

 

   

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.

Certain Other Events

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



 

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Our Corporate Information

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 49 and “Our Relationship with AIR Following the Spin-Off” beginning on page 104. 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 AIR business from Aimco benefit the two companies and their stockholders?

  

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

 

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

 

Each of AIR and Aimco will have its own distinctive focus. Aimco’s and New OP’s business plan will be to: (i) focus on redevelopment and development projects on assets leased from AIR as well as opportunities Aimco sources itself (such as the right to develop multi-family properties, co-located with commercial life science uses to be built by a premier life sciences real estate developer); (ii) undertake complex transactions when warranted by risk-adjusted returns; (iii) maintain sufficient liquidity to support our business model; and (iv) use financial leverage to increase return on equity. Aimco is expected to benefit from a pipeline of redevelopment and development opportunities including (i) those which may be sourced from AIR, (ii) a right to develop multi-family properties, co-located with commercial life science uses to be built by a premier life sciences real estate developer, and (iii) the opportunity to pursue real estate opportunities in partnership with AIR. After the Spin-Off, AIR will continue to own properties (and may acquire properties) that may have potential to be redeveloped or developed in the future. In addition, Aimco is expected to benefit from a broader menu of investment choices, now eschewed by AIR that includes



 

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   transactions that are short-term dilutive, longer-term, more complicated, better measured by NAV creation than Funds From Operations (“FFO”), or that involve more non-recourse leverage and which may result in higher investment returns. The board of directors of Aimco believes there are potential benefits to both Aimco and New OP, and AIR and AIR OP, from the opportunities to work together in the future when it is in their interests.

Why am I receiving this information statement?

  

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

 

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

What are the reasons for the Spin-Off?

  

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

 

•  Creates two separate and distinct companies, each with the opportunity to pursue growth through the execution of different business plans;

 

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

 

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

 

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

 

•  Improves AIR’s access to public equity markets.

 

For more information on the reasons for the Spin-Off, please refer to the section entitled “The Spin-Off—Reasons for the Spin-Off” included elsewhere in this information statement.

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

   Following the completion of the Spin-Off, New OP will own the redevelopment and development business and a portfolio of assets that is expected to include the Stabilized Seed Properties, which are stabilized multi-family properties primarily located in the Boston and San Diego areas, to provide cash flows to help meet its on-going liquidity needs, and certain other investments, consisting of the loan to, and equity option in, the Parkmerced Loan; Hamilton on the Bay, a multi-family property located on the waterfront in Miami, Florida, with 271 apartment homes as well as the land and zoning to construct 389 additional apartment homes; 1001 Brickell Bay Tower, a 350,000 square foot office building located in Miami, Florida; and the Yacht Club property adjacent to 1001 Brickell. Collectively, Aimco’s assets have an


 

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estimated GAV of $1.3 billion, and an estimated NAV of $1.2 billion, as of March 31, 2020 (in each case, without giving effect to the value of the Initial Leased Properties or the Non-Core Assets). Aimco will also own a separate portfolio of 16 Non-Core Assets with an estimated GAV of $0.9 billion, securing property debt of approximately $0.2 billion and a note payable to AIR of approximately $0.5 billion.

 

Aimco will lease from AIR the Initial Leased Properties, which are in-process redevelopment or development properties that we will lease from AIR following the Spin-Off. Under the terms of the leases, Aimco will agree to use commercially reasonable efforts to diligently complete the on-going redevelopment and development projects and their lease-ups. Aimco will have the option, but not an obligation, to terminate any of the leases for these properties once they reach and maintain stabilization, and receive payment for the redevelopment or development-related improvements, either at a 5% discount to the then-current fair market value of the development and redevelopment improvements if AIR exercises an option to pay such fee, or through a sale of the property to a third party (by AIR and Aimco), with AIR guaranteed to receive an amount attributable to the fair market value of the property at the time of lease inception and Aimco retaining any excess proceeds. In the event of such sale of the property, Aimco may also elect to purchase the property at a purchase price equal to the fair market value thereof at the time of lease inception.

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

   Aimco believes that a spin-off, or distribution, of New OP Units to the holders of AIR OP Common Units and a distribution of AIR 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, AIR, New OP, and AIR OP and our respective stockholders and unitholders.

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

  

AIR OP will distribute to the holders of AIR OP Common 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, AIR OP will distribute New OP Units to each holder of AIR OP Common Units on a pro rata basis, with each holder of AIR OP Common Units receiving one New OP Unit for each one AIR OP Common Unit held as of the close of business on the record date.

 

Immediately thereafter, Aimco will distribute to holders of Aimco Common Stock the AIR Common Stock, and AIR will hold the general partner and special limited partner interest in AIR OP.

 

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

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

   The record date for determining the holders of AIR OP Common Units who will receive New OP Units in the New OP Spin-Off is the close of business on             , 2020.


 

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When will the Spin-Off occur?

   The Spin-Off is expected to occur on or about             , 2020, subject to the satisfaction or waiver of certain conditions described under “The Spin-Off—Conditions to the Spin-Off.”

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

  

No action is required on the part of the holders of AIR OP Common Units. If you hold AIR OP Common 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 the holders of AIR OP limited partnership units is required or being sought in connection with the Spin-Off. Therefore, we are not asking you for a proxy, and you are requested not to send us a proxy. The distribution will not affect the number of outstanding AIR OP Common Units or any rights of the holders of AIR OP Common Units, although the value of each AIR OP Common Unit will be affected.

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

   Holders of AIR OP Common Units will receive New OP Units in connection with the New OP Spin-Off. The number of AIR OP Common Units you own will not change as a result of the New OP Spin-Off, and your rights with respect to your AIR Common Units will not change (except that AIR OP’s limited partnership agreement is expected (subject to receipt of the requisite approval of AIR OP’s unitholders) to be amended to provide, among other things, that all redemption and exchange rights related to the units of AIR OP will be denominated in AIR Common Stock rather than Aimco Common Stock if the Spin-Off is consummated). However, the value of each AIR OP Common Unit will be affected.

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 AIR 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 AIR OP within seven years of the New OP Spin-Off). However, substantial taxable income is expected from (i) approximately $2 billion in property sales, most of which have already closed or are under contract to close; and (ii) the taxable transfers of James-Oxford LP interests. In general, subject to adjustment with respect to gain recognized as described above, you will have a basis in the New OP Units you receive equal to the lesser of (i) the tax basis that New OP has in such units immediately prior to the New OP Spin-Off and (ii) the tax basis you had in your AIR OP Common Units immediately prior to the New OP Spin-Off. The tax basis you will have in your AIR 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, subject to adjustment with respect to gain recognized as described above. Thus, a holder’s combined tax basis in its AIR OP Common Units and New OP Units will equal the holder’s tax basis in its pre-Spin-Off AIR OP Common Units (as adjusted by activities of the partnerships). 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.”


 

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What are the conditions to the Spin-Off?

  

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

 

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

 

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

 

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

 

•  the receipt by AIR of an opinion from Skadden, Arps to the effect that, commencing with AIR’s taxable year ending December 31, 2020, AIR will be organized in conformity with the requirements for qualification as a REIT under the Code, and AIR’s proposed method of operation will enable 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 AIR’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 AIR OP Common 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 AIR Common Stock to be distributed in the AIR 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;



 

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

 

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

 

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

 

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

 

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

 

We cannot assure you that all of the conditions will be satisfied or waived. See “The Spin-Off—Conditions to the Spin-Off” for additional details.

Can Aimco decide to terminate the Spin-Off even if all the conditions have been satisfied?

   Yes. The Spin-Off is subject to the satisfaction or waiver by Aimco of certain conditions. Until the Spin-Off has occurred, Aimco has the right to terminate the Spin-Off, even if all of the conditions have been satisfied, if the board of directors of Aimco determines, in its sole discretion, that the Spin-Off is not in the best interests of Aimco and its stockholders or that market conditions or other circumstances are such that the Spin-Off is no longer advisable at that time.

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

   Any equity awards relating to units of AIR 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 AIR OP equity award will be converted into an award of both units of AIR OP and units of New OP. The number of units of AIR 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 AIR OP equity award as measured immediately before the New OP Spin-Off.

What will be the relationship between Aimco (and New OP) and AIR (and AIR OP) following the completion of the Spin-Off?

   After the completion of the Spin-Off, AIR will be a publicly traded company separate and distinct from Aimco. AIR OP will be approximately 95% owned by AIR, while New OP will be approximately 95% owned by Aimco. AIR 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 AIR and its subsidiaries from and after the Spin-Off, including certain allocations of assets and liabilities and obligations attributable to periods prior to the Spin-Off, and our rights and obligations, including indemnification arrangements for certain liabilities after the Spin-Off, ongoing services, including property management services, provided by AIR to us, or our leases from AIR of the leased properties, including the Initial Leased Properties. AIR will provide Aimco with property management services and limited administrative and support services. See “Our Relationship with AIR Following the Spin-Off.”


 

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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 AIR OP Common Units that I own change as a result of the New OP Spin-Off?

  

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

 

If you own AIR OP Common Units as of the close of business on the record date, you will receive one New OP Unit for each AIR OP Common Unit that you own on the record date.

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

   No. You will not receive any shares of AIR Common Stock in the AIR Spin-Off unless you are a holder of Aimco Common Stock on the record date. Being a holder of AIR OP Common Units on the record date does not entitle you to receive AIR Common Stock in the Spin-Off. However, it is expected that (subject to the receipt of the requisite unitholders of AIR OP) the limited partnership agreement of AIR OP will be amended in connection with the Spin-Off to, among other things, provide that the redemption rights applicable to AIR OP Common Units currently denominated in shares of Aimco Common Stock will be redenominated in shares of AIR 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. In addition, at the completion of the Spin-Off, we will be the obligors on a $534 million note payable to AIR, which will be secured by our interests in the partnership that holds the Non-Core Assets.

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 AIR and AIR OP, and New OP’s and AIR OP’s status as two, independent companies. Our business is also subject to risks relating to the Spin-Off. These risks are described in the “Summary—Risks Related to the Spin-Off” section in this information statement, and are described in more detail in the “Risk Factors” section of this information statement. We encourage you to read those sections carefully.


 

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Do I have appraisal rights in connection with the Spin-Off?

   No. Holders of AIR OP Common 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, AIR Common Stock, AIR OP Common Units, Aimco Common Stock or New OP Units, you should contact Aimco at:

 

Apartment Investment and Management Company
Investor Relations
4582 South Ulster Street, Suite 1700
Denver, CO 80237

 

Phone: (303) 793-4661
Email: Investor@aimco.com



 

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SUMMARY HISTORICAL 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 AIR 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 AIR 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 AIR 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 AIR OP Common Units in the New OP Spin-Off, (iii) the impact of the Master Services Agreement and the Master Lease between AIR 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



 

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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 generally acceptable accounting principles (“GAAP”). GAAP requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, and revenues and expenses during the reporting periods. Actual results could differ from these estimates.

 

    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  

OPERATING DATA:

             

Total revenues

  $ 75,700     $ 75,474     $ 67,678     $ 156,517     $ 143,692     $ 132,163     $ 127,613  

Total operating expenses

    87,032       72,435       56,456       170,657       128,633       108,693       101,194  

Net (loss) income

    (20,255     7,668       2,488       (29,894     113       3,411       5,199  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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

    228       228       —         382       191       —         —    

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

    (5     (5     12       15       15       5       11  

Net (loss) income attributable to New OP Predecessor

  $ (20,032   $ 7,891     $ 2,500     $ (29,497   $ 319     $ 3,416     $ 5,210  

 

    As of June 30,     As of December 31,  

(in thousands)

  Pro Forma
2020

(unaudited)
    2020
(
unaudited)
    2019     2018  

BALANCE SHEET INFORMATION

       

Net real estate

  $ 912,094     $ 912,094     $ 935,968     $ 655,289  

Total assets

    1,440,466       1,260,348       1,260,125       679,188  

Total indebtedness

    1,088,231       554,104       558,933       420,214  

Total liabilities

    1,348,045       734,392       741,845       451,712  

Total partners’ capital

    87,929       521,464       513,560       227,476  


 

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     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

   $ 28,413     $ 27,404     $ 57,929     $ 53,486     $ 46,683  

Net cash used in investing activities

     (10,756     (17,088     (412,856     (37,844     (50,780

Net cash (used in) provided by financing activities

     (17,806     (10,484     360,242       (15,923     3,993  
          

 

     Six Months Ended
June 30,
     Year Ended
December 31,
 

(in thousands)

   2020
(
unaudited)
     2019
(
unaudited)
     2019      2018      2017  

OTHER DATA:

              

Adjusted EBITDAre (1)

   $ 54,824      $ 37,163      $ 80,071      $ 73,195      $ 68,954  

 

(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.



 

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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 this information statement 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 effects on our business, which in turn could adversely affect our financial condition and results of operations.

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

Factors that have negatively impacted, or would negatively impact, our operations or those of entities in which we hold a partial interest (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

 

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continue. The extent of such impact will depend on developments, which are highly uncertain, rapidly evolving and cannot be predicted, including the ability to contain the virus, the duration of measures implemented and the overall impact of these measures. Such developments, depending on their 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 AIR on the leased properties, regardless of whether our redevelopments or developments are successful;

 

   

we have the right to terminate our lease with AIR and may receive payment from AIR, but the price AIR 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.

 

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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 primarily dependent on AIR for our pipeline of redevelopment and development opportunities.

We will initially be primarily dependent on the pipeline of redevelopment and development opportunities which may be sourced by AIR 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 AIR. 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 AIR to source such opportunities for us efficiently or at all, could have a material adverse effect on us.

Our portfolio of Stabilized Seed Properties is geographically concentrated in the Northeast region of the United States and in California, 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 Stabilized Seed Properties will be located in the Northeast region of the United States or in California. As a result, we are particularly susceptible to adverse economic or other conditions in these markets (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

 

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(including earthquakes, storms, and hurricanes), potentially adverse effects of “global warming,” and other disruptions that occur in these markets (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 these markets 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 these markets. Moreover, submarkets within our core markets may be dependent upon a limited number of industries. Any adverse economic or other conditions in the Northeast region of the United States or in California, 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.

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.

 

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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 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 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,

 

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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 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 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.

 

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

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

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

Under the Americans with Disabilities Act of 1990, or ADA, all places intended to be used by the public are required to meet certain federal requirements related to access and use by disabled persons. The Fair Housing Amendments Act of 1988, or FHAA, requires apartment communities first occupied after March 13, 1991, to 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.

 

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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.

We will rely on AIR to manage a majority of our properties. If AIR fails to efficiently manage such properties, tenants may not renew their leases or we may become subject to unforeseen liabilities.

A majority of our Owned Properties will be managed by AIR. We do not supervise AIR or its managers and employees on a day-to-day basis and we cannot assure you that they will manage such properties in a manner that is consistent with their obligations under our agreements, that they will not be negligent in their performance or engage in other criminal or fraudulent activity, or that they will not otherwise default on their management obligations to us. If any of the foregoing occurs, the relationships with our tenants at such properties could be damaged, which may cause the tenants not to renew their leases, and we could incur liabilities resulting from loss or injury to the properties or to persons at the properties. If we are unable to lease the properties or we become subject to significant liabilities as a result of AIR’s management performance, our financial condition and results of operations could be substantially harmed.

In addition to property management services, we will depend on AIR to conduct our business operations, and any adverse changes in the financial health of AIR or our relationship with it could hinder AIR’s ability to successfully manage our operations.

We will be dependent on AIR to manage our operations, including with respect to our financial controls and reporting, pursuant to the Master Services Agreement. Any adverse changes in the financial condition of AIR, AIR’s ability to retain or replace its employees, or our relationship with AIR, could hinder AIR’s ability to successfully manage our operations, which would materially 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,

 

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accounting and record-keeping systems, and many other key aspects of our business. Our operations rely on the secure processing, storage, and transmission of confidential and other information in our computer systems and networks, which also depend on the strength of our procedures and the effectiveness of our internal controls. Information security risks have generally increased in recent years due to the rise in new technologies and the increased sophistication and activities of perpetrators of cyberattacks.

Despite system redundancy, risk transfer, insurance, indemnification, the implementation of security measures, required employee awareness training, and the existence of a disaster recovery plan for our internal information technology systems, our systems, and systems maintained by third-party vendors with which we do business are vulnerable to damage from any number of sources. We face risks associated with energy blackouts, natural disasters, terrorism, war, telecommunication failures, and cyberattacks and intrusions, such as computer viruses, malware, attachments to e-mails, intrusion, and unauthorized access, including from persons inside our organization or from persons outside our organization with access to our systems. We may also incur additional costs to remedy damages caused by such disruptions. Although we make efforts to maintain the security and integrity of our systems and have implemented various measures to manage the risk of a security breach or disruption, there can be no assurance that our security efforts and measures will be effective or that attempted security breaches or disruptions would not be successful or damaging. Any compromise of our security could also result in a violation of applicable privacy and other laws, significant legal and financial exposure, damage to our reputation, loss or misuse of the information (which may be confidential, proprietary, or commercially sensitive in nature), and a loss of confidence in our security measures, which could harm our business.

We also are subject to laws, rules, and regulations in the United States, such as the California Consumer Protection Act, or CCPA (which became effective on January 1, 2020), relating to the collection, use, and security of employee and other data. Evolving compliance and operational requirements under the CCPA and the privacy and data security laws of other jurisdictions in which we operate impose significant costs that are likely to increase over time. Our failure to comply with laws, rules, and regulations related to privacy and data protection could harm our business or reputation.

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

Upon the occurrence of “change of control” events specified in our Master Leasing Agreement and Property Management Agreement, AIR will have the right to terminate the Master Leasing Agreement and the Property Management Agreement. The ability for AIR to terminate the Master Leasing Agreement and the Property Management Agreement upon a “change of control” may have the effect of discouraging, delaying or preventing a change of control, even if a change of control would be beneficial to our stockholders, or preventing our stockholders from realizing a premium on the sale of their shares if we were acquired.

In addition, AIR 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 (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 by Aimco (if applicable) and that has reached a specified occupancy for a minimum time period and a right of first offer 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 and the Non-Core Assets. This right of first offer and 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 AIR Following the Spin-Off—Master Leasing Agreement.”

 

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

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

The agreements between AIR and us generally will not limit or restrict AIR or its affiliates from engaging in any business or managing other entities that engage in business of the type conducted by us. AIR may engage in the redevelopment and development of properties, which may cause us to compete with AIR for business opportunities or result in a change in our current business strategy.

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

RISKS RELATED TO OUR INDEBTEDNESS AND FINANCING

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

At the completion of the Spin-Off, it is expected that we will 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 addition, at the completion of the Spin-Off, we will be the obligors on a $534 million note payable to AIR.

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

 

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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 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.

 

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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 or the AIR 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 AIR 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 or the AIR Spin-Off is no longer advisable at that time. If Aimco’s board of directors determines to terminate the New OP Spin-Off or the Spin-Off, holders of AIR OP Common Units will not receive any distribution of New OP Units and stockholders of Aimco will not receive any distribution of AIR 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 Aimco been an independent, publicly traded company during the periods presented, or what our business, financial position, results of operations or cash flows will be in the future when Aimco is an independent, publicly traded company. Prior to the Spin-Off, our business has been operated by Aimco as part of one corporate organization and not operated as a stand-alone company.

Our historical 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 Aimco operated as a separate and distinct, 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.

 

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

Following the Spin-Off, we and AIR will be two, focused and independent, publicly traded companies. We may not be able to achieve some or all of the benefits that we expect to achieve as a company independent from AIR 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.

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

Pursuant to the Separation Agreement, we will agree to assume and indemnify AIR for certain liabilities, which may include, among other items, associated defense costs, settlement amounts, and judgements. Payments pursuant to these indemnities may be significant and could negatively impact our business. Third parties could also seek to hold us responsible for any of the liabilities allocated to AIR, including those related to AIR’s business. AIR 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, AIR 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 AIR, 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 AIR relating to, arising out of or resulting from the matters related to the Aimco business and certain separation expenses not otherwise allocated to AIR (or allocated specifically to us) pursuant to the Separation Agreement, and third parties could seek to hold us responsible for AIR’s share of any such liabilities. AIR will indemnify us for their share of any such liabilities, however, such indemnities may not be sufficient to protect us against the full amount of such liabilities, or AIR may not be able to fully satisfy its indemnification obligations. In addition, even if we ultimately succeed in recovering from AIR 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 AIR 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

 

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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 AIR could be awarded monetary damages for the difference between the consideration received by AIR 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 AIR 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 AIR. 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 AIR and us after the Spin-Off, certain services provided by us to AIR and by AIR to us after the Spin-Off, and our lease from AIR of the Initial Leased Properties. For a more detailed description, see “Our Relationship with AIR Following the Spin-Off” and “Description of Financing and Material Indebtedness.”

After the Spin-Off, we may be unable to make, on a timely or cost-effective basis, the changes necessary to operate as an independent company.

In connection with the Spin-Off, AIR will retain substantially all of Aimco’s existing employees (including Aimco’s existing property management employees), and Aimco will employ approximately                     of Aimco’s existing employees. We have no significant historical operations as an independent company from AIR and will not, at the completion of the Spin-Off, have the infrastructure or personnel necessary to operate as an independent company without relying on AIR to provide certain services on an ongoing basis. We may need additional personnel or third-party service providers to successfully operate our business. Upon the completion of the Spin-Off, we will enter into a Master Services Agreement with AIR pursuant to which AIR will provide certain services to us and we will provide certain services to AIR to allow AIR and us to benefit from certain cost efficiencies in sharing certain resources and personnel. As a separate and distinct publicly traded company, Aimco will be subject to, and responsible for, regulatory compliance, including periodic public filings with the SEC and compliance with the NYSE continued listing requirements as well as compliance with generally applicable tax and accounting rules, for which it will generally be reliant on services provided by AIR under the Master Services Agreement. Because our business has not been operated a separate and distinct, publicly traded, we cannot assure you that it will be able to successfully implement the infrastructure or retain or hire the personnel necessary to operate as a separate and distinct, publicly traded company or that we will not incur costs in excess of anticipated costs to establish such infrastructure and retain or hire such personnel. Because we will not be permitted under the terms of the Master Services Agreement to terminate certain services before the completion of the applicable term, we may be obligated to pay rates for the services higher than those a third party would have paid or that we could have provided to ourselves or to charge rates to AIR for the services lower than those a third party would be charged and that we would have received from a third party for such services.

 

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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. 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 U.S. federal income tax purposes may be uncertain in some circumstances, which could affect the application of the REIT qualification requirements. Accordingly, there can be no assurance that the 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 AIR is deemed to be a “successor” of Aimco under Section 856 of the Code, then AIR may also fail to qualify as a REIT. There can be no assurance that Aimco will remain qualified as a REIT for its 2020 and 2021 taxable years.

REIT distribution requirements limit our available cash.

As a REIT, Aimco is subject to annual distribution requirements. AIR 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 as a REIT, Aimco may be subject to United States federal income and excise taxes in various situations, such as on its undistributed income. Aimco could also be required to pay a 100% tax on any net income on non-arm’s-length transactions between Aimco and a taxable REIT subsidiary and on any net income from sales of apartment communities that were held for sale primarily in the ordinary course. State and local tax laws may not conform to the United States federal income tax treatment, and Aimco may be subject to state or local taxation in various state or local jurisdictions in which Aimco transacts business. Any taxes imposed on Aimco would reduce our operating cash flow and net income and could negatively impact our ability to pay dividends and distributions.

 

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The AIR Spin-Off could be treated as a partial liquidation for tax purposes.

The IRS could assert that the AIR Spin-Off is a distribution in partial liquidation of Aimco for U.S. federal income tax purposes. If the IRS successfully made such an assertion, the portion of the AIR Spin-Off involving a distribution to Aimco’s non-corporate shareholders may not be treated as a dividend for U.S. federal income tax purposes, and Aimco would not be allowed a deduction for dividends paid for such portion. Such treatment could reduce Aimco’s ability to reduce or eliminate its taxable income. In such circumstances, Aimco may have to pay additional dividends to stockholders to eliminate its taxable income to avoid being subject to U.S. federal corporate income tax or to satisfy its annual distribution requirements, which would reduce the funds available for distribution to its investors. If Aimco did not eliminate its taxable income, it would be taxed at regular corporate rates on its remaining taxable income. In addition, if Aimco did not satisfy its annual distribution requirements, it could be subject to a non-deductible 4% excise tax to the extent of certain undistributed amounts, or it could have to pay interest to the extent it pays deficiency dividends to satisfy the distribution requirements, as further described below under “U.S. Federal Income Tax Considerations—Taxation of Aimco—Annual Distribution Requirements.” Aimco intends to take the position that the AIR Spin-Off does not constitute a partial liquidation for U.S. federal income tax purposes, but no assurance can be given that the IRS will not challenge this position.

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

REITs are entitled to a United States federal tax deduction for dividends paid to their stockholders. As compared to other taxable corporations, this ability to reduce or eliminate the REIT’s taxable income by paying dividends to stockholders is a principal benefit of maintaining REIT status, generally resulting in a lower combined tax liability of the REIT and its stockholders as compared to that of the combined tax liability of other taxable corporations and their stockholders. Notwithstanding this combined benefit, dividends payable by REITs may result in marginally higher taxes to the stockholder.

C-corporations are generally required to pay United States federal income tax on earnings. After tax earnings are then available for stockholder dividends. The maximum United States federal tax rate applicable to income from “qualified dividends” payable to United States stockholders that are individuals, trusts, and estates is currently 20%, plus the 3.8% investment tax surcharge. While dividends payable by REITs are generally not eligible for the qualified dividend reduced rates, stockholders that are individuals, trusts, or estates, and meet certain requirements, may generally deduct 20% of the aggregate amount of ordinary dividends from REITs. This deduction is available for taxable years beginning after December 31, 2017, and before January 1, 2026, and will generally cause the maximum tax rate for ordinary dividends from REITs to be 29.6%, plus the 3.8% investment tax surcharge. The more favorable tax rates applicable to regular corporate qualified dividends could cause investors who are individuals, trusts, and estates to perceive investments in REITs to be relatively less attractive than investments in the shares of non-REIT corporates that pay dividends, which could adversely affect the value of the shares of REITs, including Aimco Common Stock.

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

To qualify as a REIT, 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

 

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

Government housing regulations may limit the opportunities at some of our apartment communities and failure to comply with resident qualification requirements may result in financial penalties 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.

 

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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, 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 AIR 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 holders of New OP Units 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.

 

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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;

 

   

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 distinct 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 AIR 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.

 

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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.

 

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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 AIR’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 relationship with AIR following the Spin-Off;

 

   

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

 

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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;

 

   

Our or AIR’s loss of key personnel;

 

   

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

 

   

the ability of Aimco, New OP, AIR or AIR 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;

 

   

activities by stockholder activists, including a proxy contest;

 

   

the ability and willingness of AIR to meet 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.

 

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THE SPIN-OFF

Overview of the Spin-Off

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

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

Thereafter, Aimco will effect the AIR Spin-Off by distributing 100% of AIR Common Stock held by Aimco pro rata to holders of Aimco Common Stock. The distribution of AIR Common Stock is expected to take place on the distribution date. On the distribution date, each holder of Aimco Common Stock will receive one share of AIR Common Stock for each one share of Aimco Common Stock (and cash in lieu of fractional shares of Aimco Common Stock) held as of the close of business on the record date.

You will not be required to make any payment, or surrender or exchange your AIR OP Common 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 AIR that set forth the relationship between us and AIR following the Spin-Off. See “Our Relationship with AIR Following the Spin-Off.”

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

Reasons for the Spin-Off

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

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

 

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

 

   

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

 

   

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

 

   

Limits AIR’s exposure to risks associated with the redevelopment and development business. AIR will be able to invest in stabilized properties that it believes will better support its underlying business. Because it will not engage in redevelopment or development, AIR is expected to have limited execution risk, reduced overhead costs (both in total dollars and as a percentage of fair market value) and vacancy expense. Through its close relationship with Aimco, AIR is expected to retain access to some of the advantages of Aimco’s redevelopment and development business without the execution risk, leverage or associated costs.

 

   

Provides our management teams with the ability to focus on our distinct businesses and be more closely aligned with the needs of investors. Each of AIR and Aimco will have a senior management team focused on the performance of its respective business and that will have incentives to exercise options that are favorable to its respective business. The separation of the businesses will also give each senior management team the opportunity to focus on the goals and expectations of each

 

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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 equityholders.

 

   

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

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

Manner of Effecting the Spin-Off

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

Spin-Off

On                  , 2020, the board of directors of Aimco declared the distribution of all AIR Common Stock on the basis of one share of AIR Common Stock for each one share of Aimco Common Stock held of record as of the close of business on the record date. On the same date, AIR OP GP, as the general partner of AIR OP, declared the distribution of all of the outstanding New OP Units to the holders of AIR OP Common Units on the basis of one New OP Unit for each one AIR 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). The actual total number of shares of AIR Common Stock or New OP Units to be distributed will depend on the number of (x) shares of Aimco Common Stock and (y) AIR OP Common 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, AIR OP will cause the Aimco business (other than its interest in Royal Crest Nashua LLC, which entity will be transferred to New OP for no consideration immediately after the distribution of New OP Units pursuant to a binding agreement entered into prior to such distribution) and certain other assets to be contributed to New OP in exchange for 100% of the outstanding New OP Units. Substantially all of Aimco’s (and its subsidiaries’) employees will become or remain employees of AIR OP (and its subsidiaries), while approximately          of Aimco’s (and its subsidiaries’) employees will become or remain employees of New OP (and its subsidiaries).

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

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

New OP or its subsidiaries and AIR OP and its subsidiaries will contribute the Non-Core Assets to James-Oxford LP in exchange for common and preferred interests in James-Oxford LP. New OP will then contribute its

 

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

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

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

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

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

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

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

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

Stock Certificates

Neither AIR OP nor New OP will be issuing physical certificates representing New OP Units. Instead, if you own AIR OP Common 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 AIR OP Common Units and you are the registered holder of the AIR OP Common Units 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

 

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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 AIR OP unitholders hold their AIR OP Common 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 AIR OP Common 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, we and Aimco will be two, focused and independent publicly traded companies. Immediately following the Spin-Off, New OP expects to have approximately                  unitholders, based on the number of holders of AIR OP Common 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 AIR OP Common 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 changes in the number of AIR OP Common Units between             , 2020, and the record date. The Spin-Off will not affect the number of outstanding AIR OP Common Units, or any rights of holders of AIR OP Common Units. If you hold AIR 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 AIR OP Common Units and you will also hold New OP Units.

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

 

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number of shares of Aimco Common Stock and AIR Common Stock subject to each converted award will be determined in a manner intended to preserve the aggregate value of the original Aimco equity award as measured immediately before the Spin-Off.

U.S. Federal Income Tax Consequences of the 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.

The following discussion applies only to U.S. Unit Holders (as defined below) of AIR 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 who have made contributions of appreciated property to AIR OP within seven years of the New OP Spin-Off, holders who are parties to a tax protection agreement with respect to their AIR 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 AIR 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 AIR OP Common 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 AIR 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

 

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for U.S. federal income tax purposes that holds AIR 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 AIR OP

AIR 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 AIR OP as a result of the New OP Spin-Off. However, as described above under “Summary—Overview of the Spin-Off,” following the New OP Spin-Off, New OP will contribute its interests in James-Oxford LP (which will hold the Non-Core Assets) to New Sub REIT in a taxable transaction, and AIR OP and its subsidiaries will sell their interests (other than a less than 5% common interest) in James-Oxford LP to New Sub REIT in exchange for a note payable to AIR OP. Any taxable gain recognized by New OP and AIR OP pursuant to these transactions will be allocated to U.S. Unit Holders in accordance with the terms of the New OP partnership agreement and the AIR OP partnership agreement, respectively.

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, and two of those exceptions could theoretically apply to cause U.S. Unit Holders who have made contributions of appreciated property to AIR 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 an initial basis in such units equal to the lesser of (i) the tax basis that AIR 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 AIR OP Common Units immediately prior to the New OP Spin-Off. The tax basis that the holder will have in its AIR OP Common Units immediately 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. Thus, a holder’s combined tax basis in its AIR OP Common Units and New OP Units will equal the holder’s tax basis in its pre-distribution AIR OP Common Units (as adjusted by activities of the partnerships). However, following the New OP Spin-Off, a U.S. Unit Holder’s basis in its New OP Units and AIR OP Common Units will be increased by any gain recognized by New OP or AIR OP, respectively, in connection with the taxable transfers of James-Oxford LP interests and distributions of the note payable as described above under “Flow Through of Tax Consequences from AIR OP.”

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

 

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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.

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

 

   

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

 

   

the SEC shall have declared effective New OP’s registration statement on Form 10, of which this information statement is a part, and AIR’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 AIR OP Common 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 AIR Common Stock to be distributed in the AIR Spin-Off shall have been accepted for listing on the NYSE, subject to compliance with applicable listing requirements;

 

   

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

 

   

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

 

   

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

 

   

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

 

   

Aimco and AIR shall each have taken all necessary actions that may be required to provide for the adoption by AIR of its amended and restated charter and bylaws, and AIR shall have filed its related

 

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Articles of Amendment and Restatement with the Maryland State Department of Assessments and Taxation;

 

   

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

 

   

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

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

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

Solvency Opinion

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

 

   

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

 

   

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

 

   

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

 

   

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

Regulatory Approvals

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

No Appraisal Rights

None of AIR 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.

 

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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 AIR OP Common 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 AIR, New OP or AIR OP. We believe that the information contained in this information statement is accurate as of the date set forth on the cover. Changes to the information contained in this information statement may occur after that date, and none of AIR, AIR OP, Aimco, or New OP undertake any obligation to update the information except in the normal course of their respective business and public disclosure obligations and practices.

Certain Other Events

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

 

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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.”

 

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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.

Note Payable to AIR

In connection with our retention of the Non-Core Assets, we will become the obligors on a note payable to AIR in an amount equal to $534 million.

Additional detail regarding the note will be included in a subsequent amendment to this information statement.

 

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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

   $ 4,823      $ 95,177      $ 100,000  
  

 

 

    

 

 

    

 

 

 

Indebtedness:

        

Non-recourse property debt, net

   $ 487,809      $ —        $ 487,809  

Notes payable due to AIR and AIR OP

     66,295        534,127        600,422  
  

 

 

    

 

 

    

 

 

 

Total indebtedness

     554,104        534,127        1,088,231  

Partners’ capital

     521,464        (433,535      87,929  
  

 

 

    

 

 

    

 

 

 

Total capitalization

   $ 1,075,568      $ 100,592      $ 1,176,160  
  

 

 

    

 

 

    

 

 

 

 

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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 AIR OP Common Units in the New OP Spin-Off, (iii) the impact of the Master Services Agreement and the Master Lease between AIR 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, including the purchase of services from AIR pursuant to the terms of the Master Services Agreement. 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 AIR 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 AIR 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.

 

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NEW OP PREDECESSOR

Unaudited Pro Forma Combined Balance Sheet

As of June 30, 2020

(In thousands)

 

     Historical     Separation
Pro Forma
Adjustments
    Pro Forma  

ASSETS

      

Buildings and improvements

   $ 924,943     $ —       $ 924,943  

Land

     448,297       —         448,297  
  

 

 

   

 

 

   

 

 

 

Total real estate

     1,373,240       —         1,373,240  

Accumulated depreciation

     (461,146     —         (461,146
  

 

 

   

 

 

   

 

 

 

Net real estate

     912,094       —         912,094  

Cash and cash equivalents

     4,823       95,177 (A)      100,000  

Restricted cash

     5,148       —         5,148  

Lease right of use asset

     —         77,223 (B)      77,223  

Mezzanine investment

     293,427       —         293,427  

Other assets

     44,856       7,718 (C)      52,574  
  

 

 

   

 

 

   

 

 

 

Total assets

   $ 1,260,348     $ 180,118     $ 1,440,466  
  

 

 

   

 

 

   

 

 

 

LIABILITIES AND EQUITY

      

Non-recourse property debt, net

   $ 487,809     $ —       $ 487,809  

Notes payable due to AIR and AIR OP

     66,295       534,127 (D)      600,422  

Lease liability

     —         77,223 (B)      77,223  

Deferred tax liability

     142,599       —         142,599  

Accrued liabilities and other

     37,689       2,303 (C)      39,992  
  

 

 

   

 

 

   

 

 

 

Total liabilities

     734,392       613,653       1,348,045  
  

 

 

   

 

 

   

 

 

 

Redeemable noncontrolling interests in consolidated real estate partnership

     4,492       —         4,492  

Partners’ capital attributable to New OP Predecessor

     521,351       (433,535 )(E)      87,816  

Noncontrolling interests in consolidated real estate partnership

     113       —         113  
  

 

 

   

 

 

   

 

 

 

Total partners’ capital

     521,464       (433,535     87,929  
  

 

 

   

 

 

   

 

 

 

Total liabilities and partners’ capital

   $ 1,260,348     $ 180,118     $ 1,440,466  
  

 

 

   

 

 

   

 

 

 

 

See notes to unaudited pro forma combined financial statements.

 

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NEW OP PREDECESSOR

Unaudited Pro Forma Condensed Combined Statement of Operations

For the Six Months Ended June 30, 2020

(In thousands)

 

          Separation Pro Forma Adjustments        
    Historical     Master Leasing
Agreement(A)
    Property
Management
Agreement(B)
    Other
Adjustments
    Pro Forma  

REVENUES:

         

Rental and other property revenues

  $ 75,474     $ 226     $ —       $ —       $ 75,700  

OPERATING EXPENSES:

         

Property operating expenses

    30,671       1,346       (3,676     —         28,341  

Depreciation and amortization

    38,377       11,737       (607     —         49,507  

Property management fee expense

    —         —         3,019       —         3,019  

General and administrative expenses

    3,387       —         (693     3,471 (C)      6,165  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

    72,435       13,083       (1,957     3,471       87,032  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Interest income

    9       —         —         —         9  

Interest expense

    (11,460     (890     —         (13,620 )(D)      (25,970

Mezzanine investment income, net

    13,683       —         —         —         13,683  

Unrealized loss on interest rate option

    (1,080     —         —         —         (1,080

Income from unconsolidated real estate partnerships

    352       —         —         —         352  

Other expenses (income), net

    (930     —         —         173 (E)      (757
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) before income tax benefit

    3,613       (13,747     1,957       (16,918     (25,095

Income tax benefit

    4,055       —         785       —         4,840  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

    7,668       (13,747     2,742       (16,918     (20,255

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

    228       —         —         —         228  

Net income attributable to noncontrolling interests in consolidated real estate partnership

    (5     —         —         —         (5
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss) attributable to New OP Predecessor

  $ 7,891     $ (13,747   $ 2,742     $ (16,918   $ (20,032
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

See notes to unaudited pro forma combined financial statements.

 

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NEW OP PREDECESSOR

Unaudited Pro Forma Condensed Combined Statement of Operations

For the Year Ended December 31, 2019

(In thousands)

 

                        Separation Pro Forma Adjustments        
REVENUES:    Historical     Acquisitions(F)     Mezzanine
Investment
(G)
     Master
Leasing
Agreement
(A)
    Property
Management
Agreement
(B)
    Other Pro
Forma
Adjustments
    Pro Forma  

Rental and other property revenues

   $ 143,692     $ 7,264     $ —        $ 5,561     $ —       $ —       $ 156,517  

OPERATING EXPENSES:

               

Property operating expenses

     57,541       2,137       —          3,294       (7,593     —         55,379  

Depreciation and amortization

     64,030       11,136       —          23,615       (1,143     —         97,638  

Property management fee expense

     —         —         —          —         5,748       —         5,748  

General and administrative expenses

     7,062       —         —          —         (1,321     6,151 (C)      11,892  
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

     128,633       13,273       —          26,909       (4,309     6,151       170,657  
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Interest income

     26       12       —          —         —         —         38  

Interest expense

     (18,598     (1,357     —          (1,639     —         (27,240 )(D)      (48,834

Mezzanine investment income, net

     1,531       —         24,592        —         —         —         26,123  

Income from unconsolidated real estate partnerships

     935       —         —          —         —         —         935  

Other expenses, net

     (2,141     (21     —          —         —         (335 )(E)      (2,497
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

(Loss) income before income tax benefit

     (3,188     (7,375     24,592        (22,987     4,309       (33,726     (38,375

Income tax benefit

     3,301       3,686       —          —         1,494       —         8,481  
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

     113       (3,689     24,592        (22,987     5,803       (33,726     (29,894

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

     191       191       —          —         —         —         382  

Net loss attributable to noncontrolling interests in consolidated real estate partnership

     15       —         —          —         —         —         15  
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss) attributable to New OP Predecessor

   $ 319     $ (3,498   $ 24,592      $ (22,987   $ 5,803     $ (33,726   $ (29,497
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

See notes to unaudited pro forma combined financial statements.

 

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NEW OP PREDECESSOR

Notes to Unaudited Pro Forma Combined Financial Statements

Adjustments to the Unaudited Pro Forma Combined Balance Sheet

 

  (A)

Reflects AIR Predecessor’s contribution of cash in connection with the separation that is to be used by New OP for general corporate purposes.

 

  (B)

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

 

  (C)

Reflects the assignment of certain other assets and accrued liabilities from AIR to New OP in the Spin-Off pursuant to the Separation Agreement.

 

  (D)

Reflects a note payable to AIR in exchange for the purchase of certain properties included in the Spin-Off.

 

  (E)

Reflects the pro forma recapitalization of our partner’s capital. Aimco common stockholders and common unitholders will receive shares and common units, respectively, based on a distribution ratio of one share or unit for each share or unit outstanding as of the record date for the distribution.

Adjustments to the Unaudited Pro Forma Combined Statements of Operations

 

  (A)

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

 

  (B)

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

 

  (C)

Reflects the addition of the redevelopment and development, transactions, and joint venture department-level expenses at New OP, as these departments and employees will be moved to New OP upon completion of the Spin-Off in accordance with the Employee Matters Agreement.

 

  (D)

Reflects the interest expense on the note payable to AIR.

 

  (E)

Reflects the items of other income (expense), net, associated with the assets and liabilities assigned from AIR.

 

  (F)

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.

 

  (G)

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

 

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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 AIR 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 AIR 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.

 

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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,
     Year Ended December 31,  
OPERATING DATA:    2020      2019      2019      2018      2017      2016     2015  
     (unaudited)      (unaudited)                           (unaudited)     (unaudited)  

Total revenues

   $ 75,474      $ 67,678      $ 143,692      $ 132,163      $ 127,613      $ 123,450     $ 118,345  

Net income (loss)

     7,668        2,488        113        3,411        5,199        (4,189     (163

 

(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

   $ 1,260,348      $ 1,260,125      $ 679,188      $ 689,319      $ 681,171      $ 668,969  

Total indebtedness

     554,104        558,933        420,214        372,920        410,632        453,115  

 

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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 an independent company during the periods presented.

Overview

The Spin-Off

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

Each of Aimco (and New OP) and AIR (and AIR OP) will have its own distinctive focus. Aimco’s and New OP’s business plan will be to: (i) focus on redevelopment and development projects on assets leased from AIR as well as opportunities Aimco sources itself (such as the right to develop multi-family properties, co-located with commercial life science uses to be built by a premier life sciences real estate developer); (ii) undertake complex transactions when warranted by risk-adjusted returns; (iii) maintain sufficient liquidity to support our business model; and (iv) use financial leverage to increase return on equity. Aimco is expected to benefit from a pipeline of redevelopment and development opportunities including (i) those which may be sourced from AIR, (ii) a right to develop multi-family properties, co-located with commercial life science uses to be built by a premier life sciences real estate developer, and (iii) the opportunity to pursue real estate opportunities in partnership with AIR. After the Spin-Off, AIR will continue to own properties (and may acquire properties) that may have potential to be redeveloped or developed in the future. In addition, Aimco is expected to benefit from a broader menu of investment choices, now eschewed by AIR that includes transactions that are short-term dilutive, longer-term, more complicated, better measured by NAV creation than FFO, or that involve more non-recourse leverage and which may result in higher investment returns. The board of directors of Aimco believes there are potential benefits to both Aimco and New OP, and AIR and AIR OP, from the opportunities to work together in the future when it is in their interests.

In addition, in connection with the Spin-Off, AIR will retain substantially all of Aimco’s existing employees (including Aimco’s existing property management employees), and Aimco will employ approximately             of Aimco’s existing employees. Terry Considine will serve as Aimco’s Executive Chairman. In addition, Mr. Considine will serve as Aimco’s interim Chief Executive Officer, and will be supported by an experienced executive team dedicated to Aimco, including Wes Powell, as President and Chief Investment Officer, Lynn Stanfield, as Chief Financial Officer, and Jennifer Johnson, as Chief Administrative Officer and General Counsel. Mr. Considine will also serve as AIR’s Chairman and Chief Executive Officer. AIR will provide Aimco

 

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with property management services and limited administrative and support services. 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 and by engaging AIR to provide certain management, administrative and support services, including property management services.

Following the completion of the Spin-Off, New OP will own the redevelopment and development business and a portfolio of assets that is expected to include the Parkmerced Loan and the Owned Properties. Collectively, Aimco’s assets have an estimated GAV of $1.3 billion, and an estimated NAV of $1.2 billion, as of March 31, 2020 (in each case, without giving effect to the value of the Initial Leased Properties or the Non-Core Assets). Aimco will also own a separate portfolio of 16 Non-Core Assets with an estimated GAV of $0.9 billion, securing property debt of approximately $0.2 billion and a note payable to AIR of approximately $0.5 billion.

AIR’s and AIR OP’s portfolio is expected to include 98 stabilized apartment communities, diversified by both geography and price point, with 26,599 apartment homes, including the Initial Leased Properties which are in-process redevelopment or development properties that we will lease from AIR following the spin-off. Collectively, AIR’s assets have an estimated GAV of $10.4 billion, and an estimated NAV of $7.8 billion, as of March 31, 2020.

Impacts of COVID-19 and Government Lockdown

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

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

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

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

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

 

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We measure residential rent collection as the amount of payments received as a percentage of all residential amounts billed. During the three months ended June 30, 2020, we recognized 98.8% of all residential revenue, treating the balance of 1.2% as bad debt. Of the 98.8% of residential revenue recognized, we collected in cash all but 130 basis points. The amounts uncollected and not reserved as bad debt include those considered collectable based on our review of individual customers’ credit.

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 three operating segments, Residential, Commercial, and Non-Core Assets, 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. Our Non-Core Assets segment consists of communities that are subject to limitations on rent increases and communities that we expect to redevelop.

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 $5.2 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 eight communities with 3,180 apartment homes, our Commercial segment included one office building, and our Non-Core Assets segment included 16 communities with 2,887 apartment homes.

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. Accordingly, the results of operations of our segments discussed below are presented on a proportionate basis and exclude the results of four communities with 142 apartment homes that we do not consolidate.

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 condensed 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.

 

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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,
               
     2020      2019      $ Change      % Change  
(in thousands)                            

Rental and other property revenues, before utility reimbursements:

           

Residential

   $ 32,515      $ 31,711      $ 804        2.5%  

Commercial

     6,336        —          6,336        100.0%  

Non-Core Assets

     33,546        33,482        64        0.2%  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

     72,397        65,193        7,204        11.1%  

Property operating expenses, net of utility reimbursements:

           

Residential

     10,573        10,434        139        1.3%  

Commercial

     1,981        —          1,981        100.0%  

Non-Core Assets

     11,468        10,983        485        4.4%  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

     24,022        21,417        2,605        12.2%  

Proportionate property net operating income:

           

Residential

     21,942        21,277        665        3.1%  

Commercial

     4,355        —          4,355        100.0%  

Non-Core Assets

     22,078        22,499        (421      (1.9%)  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 48,375      $ 43,776      $ 4,599        10.5%  
  

 

 

    

 

 

    

 

 

    

 

 

 

For the six months ended June 30, 2020, compared to 2019, our Residential proportionate property net operating income increased by $0.7 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 $56 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 partially offset by a $0.1 million, or 1.3%, increase in property operating expenses due primarily to an increase in real estate taxes and insurance, partially offset by a decrease in controllable operating expense.

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 consistent.

Depreciation and Amortization

For the six months ended June 30, 2020, compared to 2019, depreciation and amortization expense increased by $12.5 million, or 48.4%, due primarily to depreciation and amortization of assets at 1001 Brickell Bay Drive, acquired in July 2019.

 

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Interest Expense

For the six months ended June 30, 2020, compared to 2019, interest expense, which includes the amortization of debt issuance costs, increased $3.2 million, or 38.9%, due primarily to an increase in property-level debt and the issuance of the note payable to AIR 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)

Some of our apartment communities and 1001 Brickell Bay Drive are owned through TRS entities. Our income tax benefit calculated in accordance with GAAP includes income taxes associated with the income or loss of our TRS entities, including tax on gains on dispositions, for which the tax consequences have been realized or will be realized in future periods. Income taxes related to these items, as well as changes in valuation allowance and the establishment of incremental deferred tax items in conjunction with intercompany asset transfers (if applicable), are included in income tax benefit in our condensed consolidated statements of operations.

For the six months ended June 30, 2020, we recognized income tax benefit of $4.1 million compared to $0.1 million income tax provision during the same period in 2019, due primarily to the tax benefit associated with 1001 Brickell Bay Drive, acquired in 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 secured credit facility agreement. AIR Predecessor uses a centralized approach for cash management. Historically, AIR Predecessor 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 secured 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.

As of June 30, 2020, we also held unencumbered communities with an estimated fair market value, based on GAV, of approximately $535 million.

 

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Leverage and Capital Resources

The availability of credit and its related effect on the overall economy may affect our liquidity and future financing activities, both through changes in interest rates and access to financing. Currently, interest rates are low compared to historical levels and many lenders are active in the market. However, any adverse changes in the lending environment could negatively affect our liquidity. 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 88% of our leverage consisted of property-level, non-recourse, long-dated, amortizing debt. Approximately 89% of our property-level debt is fixed-rate, which provides a hedge against increases in interest rates, capitalization rates, and inflation. The weighted-average remaining term to maturity of our property-level debt was 5.6 years.

As of June 30, 2020, approximately 12% of our leverage consisted of a note payable due to AIR 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, increased by $1.0 million compared to 2019, due primarily to higher contribution from our communities, offset partially by increased interest on debt assumed in connection with our acquisition of 1001 Brickell Bay Drive.

Investing Activities

Cash used in investing activities for the six months ended June 30, 2020, decreased by $6.3 million compared to 2019, due primarily to lower capital expenditures resulting from the completion of projects in 2019 as well as the impact of the COVID-19 pandemic whereby temporary local restrictions halted construction activity at many apartment communities.

Financing Activities

Cash used in financing activities for the six months ended June 30, 2020, increased by $7.3 million compared to 2019, due primarily to the $12.2 million payment for our interest rate option and related transaction costs and lower net contributions from AIR Predecessor, offset partially by lower principal repayments on property debt.

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

 

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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;

 

   

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

 

   

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

EBITDAre is defined by Nareit and provides for an additional performance measure independent of capital structure for greater comparability between real estate investment trusts. We define Adjusted EBITDAre as EBITDAre adjusted to exclude the effect of net income 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

   $ 7,668      $ 2,488  

Adjustments:

     

Interest expense

     11,460        8,252  

Income tax (benefit) expense

     (4,055      132  

Depreciation and amortization

     38,377        25,869  

Adjustment related to EBITDAre of unconsolidated partnerships

     423        420  
  

 

 

    

 

 

 

EBITDAre

   $ 53,873      $ 37,161  
  

 

 

    

 

 

 

Net loss attributable to noncontrolling interests in consolidated real estate partnership

     223        12  

EBITDAre adjustments attributable to noncontrolling interests

     (352      (10

Unrealized loss on derivative(1)

     1,080        —    
  

 

 

    

 

 

 

Adjusted EBITDAre

   $ 54,824      $ 37,163  
  

 

 

    

 

 

 

 

(1)

During the six months ended June 30, 2020, we incurred an unrealized loss on our interest rate option, or swaption, discussed in further detail in Note 5 to the condensed combined financial statements. We have excluded this loss from Adjusted EBITDAre because we believe it is not representative of current operating performance. This loss is included in other expenses, net, on our condensed combined statements of operations.

 

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Net Asset Value

Net Asset Value (“NAV”) is calculated beginning with GAV, represented as the fair value of New OP Predecessor assets along with its other tangible assets; such as cash and restricted cash, accounts receivable and other assets, less the estimated fair value of New OP Predecessor’s liabilities. GAV is calculated using methods management believes to be appropriate based on the characteristics of the communities. For valuation purposes, New OP Predecessor segregates its portfolio into the following categories: Stabilized; Redevelopment and Development; and Other Real Estate. Communities in these categories are valued as follows:

 

   

New OP Predecessor’s Stabilized portfolio is valued using a direct capitalization rate (“cap rate”) method based on New OP Predecessor’s proportionate share of annualized property NOI, less a 2% management fee, and market cap rates. Market cap rates are determined on a property-by-property basis, based primarily on information published by CBRE’s cap rate survey. CBRE is a nationally recognized provider of real estate data. Such survey includes ranges of current cap rates based on the following community characteristics: market in which the community is located; infill or suburban location within the market; property quality grade; and whether the community is stabilized or value-add.

New OP Predecessor categorizes the communities in its Stabilized portfolio using the framework described above and, using its judgment and detailed knowledge of each community’s condition and location, to select a cap rate within the range provided in CBRE’s cap rate survey. Alternatively, if New OP Predecessor is actively marketing a community for sale, the cap rate used for the community may differ from CBRE’s cap rate survey based upon the actual bids New OP Predecessor receives. The range of cap rates included in CBRE’s cap rate survey related to New OP Predecessor’s valuation as of March 31, 2020 ranged from 5.1% to 5.6%, resulting in a weighted average cap rate used in the Company’s valuation of its Stabilized portfolio of approximately 5.4%.

The Stabilized portfolio comprised approximately 71% of New OP Predecessor’s GAV as of March 31, 2020.

 

   

New OP Predecessor’s Other Real Estate portfolio is valued either at New OP Predecessor’s historical cost, which management believes approximated fair value given the recent acquisition of the related properties, or using the same methods as those described for the Stabilized portfolio above for those properties that have current operations and not recently acquired. Other Real Estate comprised approximately 29% of New OP Predecessor’s GAV as of March 31, 2020.

To calculate NAV, GAV is reduced by New OP Predecessor’s liabilities, such as the fair value of its debt and other tangible liabilities; such as, accounts payable and accrued and other liabilities. These liabilities are expected to be settled in cash through the normal course of operations. The Company estimates the fair value of its debt using both income and market approaches, including a comparison of contractual terms to observable and unobservable inputs such as market interest rate risk spreads, contractual rates, remaining periods to maturity, collateral quality, and loan to value ratios.

Related Party Transactions

Note Payable to AIR OP

AIR 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 six months ended June 30, 2020, we incurred $2.2 million of interest on the note. There was no interest incurred on the note during the six months ended June 30, 2019.

Lease Agreement with AIR Predecessor

During the six months ended June 30, 2020, AIR Predecessor 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.

 

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Expense Allocation

We have allocated from AIR Predecessor to New OP Predecessor certain expenses, including property operating expenses, depreciation and amortization, and general and administrative expenses incurred at the corporate level that are attributable to New OP Predecessor on a carve-out basis. Expenses allocated for the six months ended June 30, 2020 and 2019 were $4.1 million and $4.3 million, respectively. Depending on the nature of the expense, we have allocated it to New OP Predecessor based on our relative share of total gross potential revenue of AIR Predecessor, and the relative gross asset value of New OP Predecessor communities as compared to the total gross asset value of all communities held by AIR Predecessor, which we believe to be reasonable methodologies. These allocated expenses are centralized corporate costs attributable to AIR 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

AIR Predecessor 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, AIR Predecessor 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

AIR Predecessor provides us with property management services for our communities. For the six months ended June 30, 2020 and 2019, we incurred property management fees payable to AIR Predecessor of $3.7 million and $3.6 million, respectively. Property management fees are included in property operating expenses in our combined statements of operations.

Cash Management

During these periods, AIR Predecessor used a centralized approach for cash management. Transfers of cash both to and from AIR Predecessor are included within change in AIR Predecessor investment, net, on the combined statements of cash flows and contribution from (distribution to) AIR Predecessor, net, on the combined statements of partners’ capital. Historically, AIR Predecessor 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 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, we had $55.0 million of variable-rate property debt outstanding. We estimate that a change in 30-day LIBOR of 100 basis points with constant credit risk spreads would reduce or increase interest expense by approximately $0.6 million on an annual basis.

As of June 30, 2020, we had approximately $10.0 million in cash and cash equivalents and restricted cash, a portion of which bears interest at variable rates.

 

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We estimate the fair value of debt instruments as described further in Note 5 to the condensed combined financial statements. The estimated fair value of total indebtedness, including our note payable to AIR OP, was approximately $566.8 million as of June 30, 2020, inclusive of a $11.6 million mark-to-market liability. The mark-to-market liability as of December 31, 2019 was $6.0 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 $3.3 million for the year ended December 31, 2019 compared to 2018, and decreased by $1.8 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 eight communities with 3,180 apartment homes, our Commercial segment included one office building, and our Non-Core Assets segment included 16 communities with 2,887 apartment homes.

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.

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

   $ 64,267      $ 62,059      $ 2,208        3.6%   

Commercial

     6,888        —          6,888        100.0%   

Non-Core Assets

     67,079        65,309        1,770        2.7%   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

     138,234        127,368        10,866        8.5%   

Property operating expenses, net of utility reimbursements:

           

Residential

     20,520        20,783        (263      (1.3%)  

Commercial

     1,931        —          1,931        100.0%   

Non-Core Assets

     22,442        20,995        1,447        6.9%   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

     44,893        41,778        3,115        7.5%   

Proportionate property net operating income:

           

Residential

     43,747        41,276        2,471        6.0%   

Commercial

     4,957        —          4,957        100.0%   

Non-Core Assets

     44,637        44,314        323        0.7%   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 93,341      $ 85,590      $ 7,751        9.1%   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

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For the year ended December 31, 2019, compared to 2018, our Residential proportionate property net operating income increased by $2.5 million, or 6.0%. This increase was attributable primarily to a $2.2 million, or 3.6%, increase in rental and other property revenues due to higher average revenues of $57 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 $0.3 million, or 1.3%, decrease in property operating expenses due primarily to a decrease in controllable operating expenses, offset partially by an increase in real estate taxes.

Commercial proportionate property net operating income increased by $5.0 million, or 100.0%, 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 segments 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

           

Residential

   $ 62,059      $ 59,625      $ 2,434        4.1

Non-Core Assets

     65,309        63,504        1,805        2.8
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

     127,368        123,129        4,239        3.4

Property operating expenses, net of utility reimbursements

           

Residential

     20,783        19,942        841        4.2

Non-Core Assets

     20,995        20,475        520        2.5
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

     41,778        40,417        1,361        3.4

Proportionate property net operating income

           

Residential

     41,276        39,683        1,593        4.0

Non-Core Assets

     44,314        43,029        1,285        3.0
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 85,590      $ 82,712      $ 2,878        3.5
  

 

 

    

 

 

    

 

 

    

 

 

 

For the year ended December 31, 2018, compared to 2017, our Residential proportionate property net operating income increased by $1.6 million, or 4.0%. This increase was attributable primarily to a $2.4 million, or 4.1%, increase in rental and other property revenues due to higher average revenues of $52 per apartment home comprised of increases in rental rates and a 1.4% 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 $0.8 million, or 4.2%, increase in property operating expenses due primarily to higher controllable operating expenses, real estate taxes, and utility costs.

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, non-segment real estate operations were consistent.

 

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Depreciation and Amortization

For the year ended December 31, 2019, compared to 2018, depreciation and amortization expense increased by $14.7 million, or 29.7%, 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 $5.2 million, or 11.8%, 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 $1.3 million, or 22.5%, due primarily to increased allocation of expenses from AIR Predecessor 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 were consistent.

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.

Other Expenses, Net

Other expenses, 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 $1.0 million, or 94.1%, due primarily to the 2018 settlement resulting from resolution of our litigation against Airbnb and increased allocation of expenses from AIR Predecessor.

For the year ended December 31, 2018, compared to 2017, other expenses, net, decreased by $2.2 million, or 66.2%, due primarily to a revision in the environmental liabilities reserve for the year ended December 31, 2017.

Income Tax Benefit

Some of our apartment communities and 1001 Brickell Bay Drive are owned through TRS entities. Our income tax benefit calculated in accordance with GAAP includes income taxes associated with the income or loss of our TRS entities, including tax on gains on dispositions, for which the tax consequences have been realized or will be realized in future periods. Income taxes related to these items, as well as changes in valuation allowance and the establishment of incremental deferred tax items in conjunction with intercompany asset transfers (if applicable), are included in income tax benefit in our consolidated statements of operations.

For the year ended December 31, 2019, compared to 2018, income tax benefit increased by $3.6 million due primarily to an income tax benefit associated with 1001 Brickell Bay Drive, which was acquired in July 2019.

For the year ended December 31, 2018, compared to 2017, income tax benefit decreased by $3.5 million due primarily to a tax benefit we recognized in 2017 as a result of the December 2017 tax reform legislation.

 

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Liquidity and Capital Resources

Liquidity

Liquidity is the ability to meet present and future financial obligations. Our primary source of liquidity is cash flow from operations 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, based on GAV, of approximately $545 million. Please refer to “Non-GAAP Measures” above for details regarding our methodology for calculating GAV.

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 88% of our leverage consisted of property-level, non-recourse, long-dated, amortizing debt. Approximately 89% of our property-level debt is fixed-rate, which provides a hedge against increases in interest rates, capitalization rates, and inflation. The weighted-average remaining term to maturity of our property-level debt was 6.1 years.

As of December 31, 2019, approximately 12% of our leverage consisted of a note payable to AIR 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 year ended December 31, 2019, increased by $4.4 million compared to 2018, due primarily to higher contribution from our communities.

Cash provided by operating activities for the year ended December 31, 2018, increased by $6.8 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 $375.0 million compared to 2018, due primarily to the $277.6 million payment for the Parkmerced mezzanine loan and related transaction costs and the $95.9 million acquisition of 1001 Brickell Bay Drive.

 

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Cash used in investing activities for the year ended December 31, 2018, decreased by $12.9 million compared to 2017, due primarily to lower capital expenditures associated with kitchen and bath remodeling, energy conservation projects and investments in more durable, longer-live materials.

Financing Activities

Cash provided by financing activities for the year ended December 31, 2019, increased by $376.2 million compared to 2018, due primarily to higher net contribution from AIR Predecessor, proceeds from the note payable due to AIR OP, lower repayments on property debt, and contribution from noncontrolling interests in a consolidated real estate partnership, offset partially by lower proceeds from property debt.

Cash used in financing activities for the year ended December 31, 2018, increased by $19.9 million compared to 2017, due primarily to lower net contributions from AIR Predecessor and lower proceeds from property debt, offset partially by lower principal repayments on non-recourse property 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)
     1-3 Years
(2021-2022)
     4-5 Years
(2023-2024)
     More than
Five Years
(2025 and
Thereafter)
 

Non-recourse property debt(1)

   $ 493,886      $ 10,303      $ 102,184      $ 139,056      $ 242,343  

Note payable due to AIR OP

     66,295        —          —          66,295        —    

Interest related to debt(2)

     101,257        18,376        32,828        22,016        28,037  

Construction obligations(3)

     1,007        1,007        —          —          —    
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 662,445      $ 29,686      $ 135,012      $ 227,367      $ 270,380  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

(1)

Includes schedules principal amortization and maturity payments.

(2)

Includes interest related to both non-recourse property debt and our note payable due to AIR OP.

(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.

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.

 

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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

   $ 113      $ 3,411      $ 5,199  

Adjustments:

        

Interest expense

     18,598        19,643        21,972  

Income tax (benefit) expense

     (3,301      261        (3,199

Depreciation and amortization

     64,030        49,375        44,156  

Adjustment related to EBITDAre of unconsolidated partnerships

     843        837        844  
  

 

 

    

 

 

    

 

 

 

EBITDAre

   $ 80,283      $ 73,527      $ 68,972  
  

 

 

    

 

 

    

 

 

 

Net loss attributable to noncontrolling interests in consolidated real estate partnership

     206        5        11  

EBITDAre adjustments attributable to noncontrolling interests

     (418      (25      (29

Litigation, net (1)

     —          (312      —    
  

 

 

    

 

 

    

 

 

 

Adjusted EBITDAre

   $ 80,071      $ 73,195      $ 68,954  
  

 

 

    

 

 

    

 

 

 

 

(1)

During 2018, we were engaged in litigation with Airbnb, which was resolved during the fourth quarter of 2018. Due to the unpredictable nature of these proceedings and because we believe they are not representative of current operating performance, related amounts recognized have been excluded from Adjusted EBITDAre.

Related Party Transactions

Note Payable to AIR OP

AIR 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 have allocated from AIR Predecessor to New OP Predecessor certain expenses, including property operating expenses, depreciation and amortization, and general and administrative expenses, incurred at the corporate level that are attributable to New OP Predecessor on a carve-out basis. Expenses allocated for the years ended December 31, 2019, 2018, and 2017, were $9.5 million, $7.6 million, and $7.1 million, respectively. Depending on the nature of the expense, we have allocated it to New OP Predecessor based on our relative share of total gross potential revenue of AIR Predecessor, and the relative gross asset value of New OP Predecessor communities as compared to the total gross asset value of all communities held by AIR Predecessor, which we believe to be reasonable methodologies. These allocated expenses are centralized corporate costs attributable to AIR 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

AIR Predecessor 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, AIR Predecessor has

 

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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

AIR Predecessor provides us with property management services for our communities. For the years ended December 31, 2019, 2018, and 2017, we incurred property management fees payable to AIR Predecessor of $7.5 million, $7.0 million, and $6.7 million, respectively. Property management fees are included in property operating expenses in our combined statements of operations.

Cash Management

During these periods, AIR Predecessor used a centralized approach for cash management. Transfers of cash both to and from AIR Predecessor are included within change in AIR Predecessor investment, net, on the combined statements of cash flows and contribution from (distribution to) AIR Predecessor, net, on the combined statements of partners’ capital. Historically, AIR Predecessor 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 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

 

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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, we had $55.0 million of variable-rate property-level debt outstanding. We estimate that a change in 30-day LIBOR of 100 basis points with constant credit risk spreads would reduce or increase interest expense by approximately $0.6 million on an annual basis.

As of December 31, 2019, we had approximately $10.1 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 in Note 9 to the combined financial statements. The estimated fair value of total indebtedness, including our note payable to AIR OP, was approximately $566.1 million as of December 31, 2019, inclusive of a $6.0 million mark-to-market liability. The mark-to-market asset as of December 31, 2018, was approximately $1.2 million.

 

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BUSINESS AND PROPERTIES

Our Company

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

Each of Aimco (and New OP) and AIR (and AIR OP) will have its own distinctive focus. Aimco’s and New OP’s business plan will be to: (i) focus on redevelopment and development projects on assets leased from AIR as well as opportunities Aimco sources itself (such as the right to develop multi-family properties, co-located with commercial life science uses to be built by a premier life sciences real estate developer); (ii) undertake complex transactions when warranted by risk-adjusted returns; (iii) maintain sufficient liquidity to support our business model; and (iv) use financial leverage to increase return on equity. Aimco is expected to benefit from a pipeline of redevelopment and development opportunities including (i) those which may be sourced from AIR, (ii) a right to develop multi-family properties, co-located with commercial life science uses to be built by a premier life sciences real estate developer, and (iii) the opportunity to pursue real estate opportunities in partnership with AIR. After the Spin-Off, AIR will continue to own properties (and may acquire properties) that may have potential to be redeveloped or developed in the future. In addition, Aimco is expected to benefit from a broader menu of investment choices, now eschewed by AIR that includes transactions that are short-term dilutive, longer-term, more complicated, better measured by NAV creation than Funds From Operations (“FFO”), or that involve more non-recourse leverage and which may result in higher investment returns. The board of directors of Aimco believes there are potential benefits to both Aimco and New OP, and AIR and AIR OP, from the opportunities to work together in the future when it is in their interests.

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

In addition, in connection with the Spin-Off, AIR will retain substantially all of Aimco’s existing employees (including Aimco’s existing property management employees), and Aimco will employ approximately of Aimco’s existing employees. Terry Considine will serve as Aimco’s Executive Chairman. In addition, Mr. Considine will serve as Aimco’s interim Chief Executive Officer, and will be supported by an experienced executive team dedicated to Aimco, including Wes Powell, as President and Chief Investment Officer, Lynn Stanfield, as Chief Financial Officer, and Jennifer Johnson, as Chief Administrative Officer and General Counsel. Mr. Considine will also serve as AIR’s Chairman and Chief Executive Officer. AIR will provide Aimco with property management services and limited administrative and support services. 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 and by engaging AIR to provide certain management, administrative and support services, including property management services.

Following the completion of the Spin-Off, New OP will own the redevelopment and development business and a portfolio of assets that is expected to include the Stabilized Seed Properties, which are stabilized multi-family properties primarily located in the Boston and San Diego areas, to provide cash flows to help meet its on-going liquidity needs, and certain other investments, consisting of the loan to, and equity option in, the Parkmerced Loan; Hamilton on the Bay, a multi-family property located on the waterfront in Miami, Florida, with 271 apartment homes as well as the land and zoning to construct 389 additional apartment homes;

 

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1001 Brickell Bay Tower, a 350,000 square foot office building located in Miami, Florida; and the Yacht Club property adjacent to 1001 Brickell. The Stabilized Seed 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 intend to complete redevelopment of Hamilton on the Bay, 1001 Brickell Bay Tower, Yacht Club at Brickell, and North Tower at Flamingo Point, and to lease-up Prism, The Fremont, Eldridge Townhomes, and 707 Leahy.

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

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

AIR’s and AIR OP’s portfolio is expected to include 98 stabilized apartment communities, diversified by both geography and price point, with 26,599 apartment homes, including the Initial Leased Properties. Following the Spin-Off, Aimco will lease from AIR 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 AIR additional properties that may have potential to be redeveloped or developed or leased-up in accordance with the terms of the Master Leasing Agreement. Under the terms of the leases, Aimco will agree to use commercially reasonable efforts to diligently complete the on-going redevelopment and development projects and their lease-ups. Aimco will have the option, but not an obligation, to terminate any of the leases for these properties once they reach and maintain stabilization, and receive payment for the redevelopment or development-related improvements, either at a 5% discount to the then-current fair market value of the development and redevelopment improvements if AIR exercises an option to pay such fee, or through a sale of the property to a third party (by AIR and Aimco), with AIR guaranteed to receive an amount attributable to the fair market value of the property at the time of lease inception and Aimco retaining any excess proceeds. In the event of such sale of the property, Aimco may also elect to purchase the property at a purchase price equal to the fair market value thereof at the time of lease inception.

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

Aimco’s and New OP’s 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

 

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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 which may be sourced from AIR, and to provide improved stabilized properties to AIR 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 AIR 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 AIR in the future) pursuant to leases entered into in accordance with the Master Leasing Agreement for a percentage of then-current fair market value and redevelop, develop or lease-up the property with the goal of maximizing long-term value at the community. Upon completion of the redevelopment and development and lease-up, 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 at a 5% discount to the then-current fair market value of the development and redevelopment improvements if AIR exercises an option to pay such fee, or through a sale of the property to a third party (by AIR and Aimco), with AIR guaranteed to receive an amount attributable to the fair market value of the property at the time of lease inception and Aimco retaining any excess proceeds. In the event of such sale of the property, Aimco may also elect to purchase the property at a purchase price equal to the fair market value thereof at the time of lease inception. If 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 AIR’s 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 also have the contractual rights to develop multi-family properties, co-located with commercial life science uses to be built by a premier life sciences real estate developer.

We may also source our own opportunities and 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 AIR once the redevelopment and development and lease-ups are completed. If AIR agrees, subject to its discretion, to acquire any such properties, AIR will acquire such property from us at a small discount to then-current fair market value. If AIR 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 AIR.

Other Real Estate

We will initially own the Stabilized Seed Properties. In the future, we may also acquire additional properties. The Stabilized Seed 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 will provide AIR a right of first offer to acquire additional stabilized properties that we are under contract to purchase from third parties for the sum of the agreed-upon purchase price plus a 1% commission. 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 Stabilized Seed 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.

 

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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 10-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.

AIR will Manage a Majority of our Properties

After the Spin-Off, AIR will have the responsibility of managing and operating our stabilized properties. AIR initially will provide property management and certain other property-related services to us for the majority of our properties, and we will generally be obligated to pay to AIR 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 AIR Following the Spin-Off.”

Our Management Team

In connection with the Spin-Off, AIR will retain substantially all of Aimco’s existing employees (including Aimco’s existing property management employees), and Aimco will employ approximately                  of Aimco’s existing employees. Each of Aimco and AIR 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 AIR portfolios, and an experienced senior management team at each of Aimco and AIR, will result in the respective businesses each receiving the senior management focus and attention required for each business to realize its potential. Our and AIR’s senior management teams each have a collective track record of successful redevelopment and development projects, active management of real estate operations or real estate portfolio management, all within a REIT environment. In addition, we will have access to AIR’s property management team, who will manage and operate the majority of the apartment communities in our portfolio pursuant to the Property Management Agreement (as defined below).

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

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

 

   

Ability to source a strong pipeline of redevelopment and development from AIR. Although AIR and Aimco will be two, focused and independent, publicly traded companies, AIR and Aimco each have the potential to benefit from opportunities to work together in the future when it is in their interests. This

 

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relationship is expected to provide Aimco with the ability to source redevelopment and development opportunities from AIR through an arrangement pursuant to which AIR will lease properties in need of redevelopment or development to Aimco. Aimco will have the option, but not an obligation, to terminate any of the leases for these properties once they reach and maintain stabilization, and receive payment for the redevelopment or development-related improvements, either at a 5% discount to the then-current fair market value of the development and redevelopment improvements if AIR exercises an option to pay such fee, or through a sale of the property to a third party (by AIR and Aimco), with AIR guaranteed to receive an amount attributable to the fair market value of the property at the time of lease inception and Aimco retaining any excess proceeds. In the event of such sale of the property, Aimco may also elect to purchase the property at a purchase price equal to the fair market value thereof at the time of lease inception. AIR 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 and the Non-Core Assets)).

 

   

Broad menu of investment choices and ability to engage in transactions which may result in higher investment returns. As a company separate and distinct from AIR, we will no longer be serving investors seeking current period returns and can focus on pursuing value-creation transactions. We will have a menu of investment choices now eschewed by AIR that includes transactions that are short-term dilutive, longer-term, more complicated, better measured by NAV creation than FFO, or that involve more, non-recourse leverage. We believe that the ability to engage in these transactions will generate higher investment returns.

 

   

Management team with relevant experience and incentives aligned with equityholders. Aimco’s senior management team will focus solely on Aimco’s business and will have incentives to exercise options that are favorable to Aimco with no obligation to AIR other than under the terms of the agreements described in this information statement. Aimco will also have both management and board investment committees to review and approve transactions. Aimco’s senior management team has a collective track record of successful redevelopment and development projects, and real estate portfolio management, all within a REIT environment. In addition, Aimco will rely on AIR’s property management team to operate a majority of its portfolio of properties pursuant to the Property Management Agreement. Aimco will rely on the strengths of AIR’s property management team in connection with targeting customers with above-average income and prospects, achieving high customer satisfaction, achieving above-average customer retention, maintaining high average daily occupancy, increasing income from other services and other assets, and emphasizing control of costs.

 

   

Experienced leader with incentives aligned with equityholders. Terry Considine will serve as Aimco’s Executive Chairman of the board of directors (and as interim Chief Executive Officer) and as AIR’s Chairman of the board of directors and Chief Executive Officer. As founder of both companies, Mr. Considine will be responsible for seeing that Aimco and AIR 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 served as Chairman of the board of directors and Chief Executive Officer of Aimco since July 1994. After the completion of the Spin-Off, Aimco will conduct a search for a seasoned real estate developer to serve as Chief Executive Officer.

 

   

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 (Marlboro), Wexford Village, Royal Crest Estates (Nashua), The Bluffs at Pacifica, St. George Villas, Casa del Hermosa, Casa del Sur, Casa del Norte, and Casa del Mar. 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.

 

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Strategy

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

 

   

Redevelopment and development focus. We will undertake redevelopment and development projects on assets leased from AIR, as well as opportunities we source ourselves. In addition, we will also seek to provide redevelopment and development services to third-parties. For example, we have the contractual right to develop multi-family properties, co-located with commercial life science uses to be built by a premier life sciences real estate developer. As a company independent from AIR, 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.

 

   

Undertaking complex transactions. We expect to have a broad investment opportunity set and will undertake complicated transactions when warranted by risk-adjusted returns. 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.

 

   

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 non-recourse property debt, construction loans, third party equity capital raised and our retained earnings will provide us with sufficient financial capacity to execute our strategy. We intend to set a formula with which Aimco’s liquidity should comply in order to protect our business.

 

   

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.

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 AIR, after the completion of the Spin-Off. Our portfolio of Stabilized Seed Properties will initially include garden style apartment communities located in five states. In addition, we will own Hamilton on the Bay, the Yacht Club at Brickell and a 95% interest in 1001 Brickell Bay Tower. 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 partner 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 the completion of the Spin-Off, the Owned Properties are expected to be encumbered by, in the aggregate, $         million of property debt with a weighted-average interest rate of     % and a weighted-average maturity of      years. The Owned Properties collateralizing this non-recourse property debt have an estimated aggregate fair value of $         million, as of March 31, 2020. We expect that the estimated aggregate fair value of the Owned Properties that will be unencumbered at the completion of the Spin-Off, will be $         million.

AIR 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 (including indirect transfers pursuant to a transfer of equity interests

 

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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 by Aimco (if applicable) and that has reached a specified occupancy for a minimum time period and a right of first offer 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 and the Non-Core Assets.

Below is a summary of the Owned Properties and the Parkmerced Loan, which we will own as a result of the Spin-Off:

 

Asset

 

MSA

 

Share of

Apartment

Homes

  

Asset Type

Royal Crest Estates (Warwick)   Providence—Warwick, RI—MA   492    Stabilized
Waterford Village   Boston—Cambridge—Newton, MA—NH   588    Stabilized
Royal Crest Estates (Marlboro)   Boston—Cambridge—Newton, MA—NH   473    Stabilized
Wexford Village   Worcester, MA—CT   264    Stabilized
Royal Crest Estates (Nashua)   Manchester/Nashua/Concord, NH   902    Stabilized
The Bluffs as Pacifica   San Francisco, CA   64    Stabilized
St. George Villas(1)   St. George, SC   11    Partnership
Casa del Hermosa(1)   San Diego, CA   20    Partnership
Casa del Sur(1)   San Diego, CA   15    Partnership
Casa del Norte(1)   San Diego, CA   17    Partnership
Casa del Mar(1)   San Diego, CA   20    Partnership
Hamilton on the Bay   Miami, FL   271    Redevelopment
Yacht Club at Brickell   Miami-Miami Beach-Kendall, FL   357    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     3,494   

 

(1)

Partially owned assets managed by a third-party operator.

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, The Fremont, Eldridge Townhomes, and 707 Leahy.

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 10-year option to acquire a 30% interest in the partnership at an exercise price of $1 million,

 

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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.

Non-Core Assets

In addition, we will, through our subsidiary, James-Oxford LP, own a separate portfolio of 16 multi-family properties with an estimated GAV of $0.9 billion, securing property debt of approximately $0.2 billion and a note payable to AIR for approximately $0.5 billion. The note payable to AIR will be secured by our interests in James-Oxford LP.

Below is a summary of the Non-Core Assets:

 

Asset

  

MSA

  

Share of
Apartment
Homes

  

Asset Type

AIMCO 118-122 West 23rd Street    New York, NY    42    Stabilized
Hillmeade    Nashville, TN    288    Stabilized
1045 on the Park Apartment Homes    Atlanta, GA    30    Stabilized
Plantation Gardens    Plantation, FL    372    Stabilized
Elm Creek    Elmhurst, IL    400    Stabilized
Willow Bend    Rolling Meadows, IL    328    Stabilized
Evanston Place    Evanston, IL    190    Stabilized
Yorktown Apartments    Lombard, IL    292    Stabilized
Hyde Park Tower    Chicago, IL    155    Stabilized
2200 Grace    Lombard, IL    72    Stabilized
Bank Lofts    Denver, CO    125    Stabilized
Cedar Rim    Newcastle, WA    104    Stabilized
Pathfinder Village    Fremont, CA    246    Stabilized
2900 on First Apartments    Seattle, WA    135    Stabilized
AIMCO 173 East 90th Street    New York, NY    72    Stabilized
AIMCO 237 Ninth Avenue    New York, NY    36    Stabilized
Total Assets       2,887   

 

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Employees

In connection with the Spin-Off, AIR will retain substantially all of Aimco’s existing employees (including Aimco’s existing property management employees), and Aimco will retain approximately          of Aimco’s existing employees.

However, certain of AIR’s employees will provide services to us following the Spin-Off pursuant to the Master Services Agreement. See “Our Relationship with AIR Following the Spin-Off.”

Competition

In attracting and retaining residents to occupy our apartment communities and the apartment communities that AIR manages for us, we and AIR will compete with numerous other housing providers and property managers. Our apartment communities 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 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 AIR’s ability to lease our 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 and AIR also will compete with other real estate investors, including apartment REITs, pension and investment funds, partnerships, and investment companies in acquiring, redeveloping, developing, 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 will 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 and associated transactions 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 and AIR’s 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

 

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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.

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 AIR 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) AIR 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 AIR’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 AIR to us or us to AIR, 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 AIR’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 AIR 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

 

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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 AIR 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, 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 AIR 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 and general liability. 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.

 

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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 11. 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 AIR. 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 Interim 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

  

 

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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    Interim Chief Executive Officer
Wesley W. Powell    40    President and Chief Investment Officer
H. Lynn C. Stanfield    45    Chief Financial Officer
Jennifer Johnson       Chief Administrative Officer and General Counsel

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.

Wesley W. Powell. Mr. Powell was appointed as Aimco’s Executive Vice President, Redevelopment in January 2018. In addition to redevelopment activities nationally, Mr. Powell has responsibility for Aimco’s acquisition activities in the eastern region. From August 2013 to January 2018, Mr. Powell served as Aimco’s Senior Vice President, Redevelopment with responsibility for the eastern region. Since joining Aimco in January 2004, Mr. Powell has held various positions, including Asset Manager, Director and Vice President of Redevelopment. Prior to joining Aimco, Mr. Powell was a Staff Architect with Ai Architecture (now Perkins & Will) in Washington, D.C.

H. Lynn C. Stanfield. Ms. Stanfield was appointed as Aimco’s Executive Vice President, Financial Planning & Analysis and Capital Allocation in October 2018. In addition to Financial Planning & Analysis and Capital Allocation, she has responsibility for Strategy and Tax. Ms. Stanfield has previously led Aimco’s Investor Relations and Asset Management. Since joining Aimco in March 1999, Ms. Stanfield has held various positions, including Manager of the Tax Department, Vice President, Tax, and Senior Vice President, Tax and Financial Planning & Analysis. Prior to joining Aimco, Ms. Stanfield was engaged in public accounting at Ernst and Young with a focus on partnership and real estate clients and served as Assistant Professor of Accounting at Erskine College.

Jennifer Johnson.

 

The background and qualifications of each other expected Aimco executive officer (if any) 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,

 

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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”).

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;

 

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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;

 

   

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;

 

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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.

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;

 

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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.

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 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

 

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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 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.

 

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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 AIR OP. In connection with the New OP Spin-Off, AIR OP will distribute all of the outstanding New OP Units to holders of AIR OP Common Units, including AIR and AIR OP GP (with AIR and AIR OP GP further distributing their New OP Units to Aimco), 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 AIR OP Common 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 AIR OP Common 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         AIR OP Common Units outstanding as of             , applying the distribution ratio of one New OP Unit for each one AIR OP Common 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)