10-K 1 a201610-k.htm 10-K 2016 Document

 
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_______________________________________
Form 10-K
(Mark One)
x
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the fiscal year ended December 31, 2016
OR
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from          to
Commission File Number 1-13232 (Apartment Investment and Management Company)
Commission File Number 0-24497 (AIMCO Properties, L.P.)
 
Apartment Investment and Management Company
AIMCO Properties, L.P.
(Exact name of registrant as specified in its charter)
Maryland (Apartment Investment and Management Company)
 
84-1259577
 
Delaware (AIMCO Properties, L.P.)
 
84-1275621
 
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
 
 
 
 
 
4582 South Ulster Street, Suite 1100
 
 
 
Denver, Colorado
 
80237
 
(Address of principal executive offices)
 
(Zip Code)
 
(303) 757-8101
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
 
Title of Each Class
  
Name of Each Exchange on Which Registered
 
Class A Common Stock (Apartment Investment and Management Company)
  
New York Stock Exchange
 
Class A Cumulative Preferred Stock (Apartment Investment and Management Company)
 
New York Stock Exchange
 
 
 
 
 
Securities registered pursuant to Section 12(g) of the Act:
 
 
None (Apartment Investment and Management Company)
Partnership Common Units (AIMCO Properties, L.P.)
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined by Rule 405 of the Securities Act.
 
Apartment Investment and Management Company: Yes x    No o
AIMCO Properties, L.P.: Yes x    No o
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
 
Apartment Investment and Management Company: Yes o    No x
AIMCO Properties, L.P.: Yes o    No x
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
 
Apartment Investment and Management Company: Yes x    No o
AIMCO Properties, L.P.: Yes x    No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
 
Apartment Investment and Management Company: Yes x    No o
AIMCO Properties, L.P.: Yes x    No o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.
 
Apartment Investment and Management Company: Yes x    No o
AIMCO Properties, L.P.: Yes x    No o


Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” “non-accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
 
Apartment Investment and Management Company:
 
Large accelerated filer
x
 
Accelerated filer
o
 
Non-accelerated filer
o
(Do not check if a smaller reporting company)
Smaller reporting company
o
 
AIMCO Properties, L.P.:
 
Large accelerated filer
o
 
Accelerated filer
x
 
Non-accelerated filer
o
(Do not check if a smaller reporting company)
Smaller reporting company
o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
 
Apartment Investment and Management Company: Yes o    No x
AIMCO Properties, L.P.: Yes o    No x
The aggregate market value of the voting and non-voting common stock of Apartment Investment and Management Company held by non-affiliates of Apartment Investment and Management Company was approximately $6.9 billion as of June 30, 2016. As of February 23, 2017, there were 157,017,376 shares of Class A Common Stock outstanding.
As of February 23, 2017, there were 164,649,570 Partnership Common Units outstanding.
_______________________________________________________
Documents Incorporated by Reference
Portions of Apartment Investment and Management Company’s definitive proxy statement to be issued in conjunction with Apartment Investment and Management Company’s annual meeting of stockholders to be held April 25, 2017, are incorporated by reference into Part III of this Annual Report.
 


EXPLANATORY NOTE
This filing combines the Annual Reports on Form 10-K for the fiscal year ended December 31, 2016, of Apartment Investment and Management Company, or Aimco, and AIMCO Properties, L.P., or the Aimco Operating Partnership. Where it is important to distinguish between the two entities, we refer to them specifically. Otherwise, references to “we,” “us” or “our” mean collectively Aimco, the Aimco Operating Partnership and their consolidated entities.
Aimco, a Maryland corporation, is a self-administered and self-managed real estate investment trust, or REIT. Aimco, through wholly-owned subsidiaries, is the general and special limited partner of and, as of December 31, 2016, owned a 95.4% ownership interest in the common partnership units of, the Aimco Operating Partnership. The remaining 4.6% interest is owned by limited partners. As the sole general partner of the Aimco Operating Partnership, Aimco has exclusive control of the Aimco Operating Partnership’s day-to-day management.
The Aimco Operating Partnership holds all of Aimco’s assets and manages the daily operations of Aimco’s business. Pursuant to the Aimco Operating Partnership agreement, Aimco is required to contribute to the Aimco Operating Partnership any assets which it may acquire including all proceeds from the offerings of its securities. In exchange for the contribution of these assets, Aimco receives additional interests in the Aimco Operating Partnership with similar terms (e.g., if Aimco contributes proceeds of a stock offering, Aimco receives partnership units with terms substantially similar to the stock issued by Aimco).
We believe combining the periodic reports of Aimco and the Aimco Operating Partnership into this single report provides the following benefits:
•
We present our business as a whole, in the same manner our management views and operates the business;
•
We eliminate duplicative disclosure and provide a more streamlined and readable presentation since a substantial portion of the disclosures apply to both Aimco and the Aimco Operating Partnership; and
•
We save time and cost through the preparation of a single combined report rather than two separate reports.
We operate Aimco and the Aimco Operating Partnership as one enterprise, the management of Aimco directs the management and operations of the Aimco Operating Partnership, and the members of the Board of Directors of Aimco are identical to those of the Aimco Operating Partnership.
We believe it is important to understand the few differences between Aimco and the Aimco Operating Partnership in the context of how Aimco and the Aimco Operating Partnership operate as a consolidated company. Aimco has no assets or liabilities other than its investment in the Aimco Operating Partnership. Also, Aimco is a corporation that issues publicly traded equity from time to time, whereas the Aimco Operating Partnership is a partnership that has no publicly traded equity. Except for the net proceeds from stock offerings by Aimco, which are contributed to the Aimco Operating Partnership in exchange for additional limited partnership interests (of a similar type and in an amount equal to the shares of stock sold in the offering), the Aimco Operating Partnership generates all remaining capital required by its business. These sources include the Aimco Operating Partnership’s working capital, net cash provided by operating activities, borrowings under its revolving credit facility, the issuance of debt and equity securities, including additional partnership units, and proceeds received from the sale of apartment communities.
Equity, partners’ capital and noncontrolling interests are the main areas of difference between the consolidated financial statements of Aimco and those of the Aimco Operating Partnership. Interests in the Aimco Operating Partnership held by entities other than Aimco, which we refer to as OP Units, are classified within partners’ capital in the Aimco Operating Partnership’s financial statements and as noncontrolling interests in Aimco’s financial statements.
To help investors understand the differences between Aimco and the Aimco Operating Partnership, this report provides separate consolidated financial statements for Aimco and the Aimco Operating Partnership; a single set of consolidated notes to such financial statements that includes separate discussions of each entity’s stockholders’ equity or partners’ capital, as applicable; and a combined Management’s Discussion and Analysis of Financial Condition and Results of Operations section that includes discrete information related to each entity.
This report also includes separate Part II, Item 9A. Controls and Procedures sections and separate Exhibits 31 and 32 certifications for Aimco and the Aimco Operating Partnership in order to establish that the requisite certifications have been made and that Aimco and the Aimco Operating Partnership are both compliant with Rule 13a-15 or Rule 15d-15 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and 18 U.S.C. §1350.



APARTMENT INVESTMENT AND MANAGEMENT COMPANY
AIMCO PROPERTIES, L.P.
TABLE OF CONTENTS
ANNUAL REPORT ON FORM 10-K
For the Fiscal Year Ended December 31, 2016
 
 
 
Item
 
Page
 
 
1.
1A.
1B.
2.
3.
4.
 
 
 
 
 
5.
6.
7.
7A.
8.
9.
9A.
9B.
 
 
 
 
 
10.
11.
12.
13.
14.
 
 
 
 
 
15.
16.



FORWARD-LOOKING STATEMENTS
The Private Securities Litigation Reform Act of 1995 provides a “safe harbor” for forward-looking statements in certain circumstances. Certain information included in this Annual Report contains or may contain information that is forward-looking, within the meaning of the federal securities laws, including, without limitation, statements regarding: our ability to maintain current or meet projected occupancy, rental rates and property operating results; the effect of acquisitions, dispositions, developments and redevelopments; our ability to meet budgeted costs and timelines, and achieve budgeted rental rates related to our development and redevelopment investments; expectations regarding sales of our apartment communities and the use of proceeds thereof; and our ability to comply with debt covenants, including financial coverage ratios.
Actual results may differ materially from those described in these forward-looking statements and, in addition, will be affected by a variety of risks and factors, some of which are beyond our control, including, without limitation:
•
Real estate and operating risks, including fluctuations in real estate values and the general economic climate in the markets in which we operate and competition for residents in such markets; national and local economic conditions, including the pace of job growth and the level of unemployment; the amount, location and quality of competitive new housing supply; the timing of acquisitions, dispositions, redevelopments and developments; and changes in operating costs, including energy costs;
•
Financing risks, including the availability and cost of capital markets financing and 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 and natural disasters and severe weather such as hurricanes; and
•
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.
In addition, our current and continuing qualification as a real estate investment trust involves the application of highly technical and complex provisions of the Internal Revenue Code and depends on our ability to meet the various requirements imposed by the Internal Revenue Code, through actual operating results, distribution levels and diversity of stock ownership.
Readers should carefully review our financial statements and the notes thereto, as well as the section entitled “Risk Factors” described in Item 1A of this Annual Report and the other documents we file from time to time with the Securities and Exchange Commission.
PART I

Item 1. Business
The Company
Apartment Investment and Management Company, or Aimco, is a Maryland corporation incorporated on January 10, 1994. Aimco is a self-administered and self-managed real estate investment trust, or REIT, focused on the ownership, management, redevelopment and limited development of quality apartment communities located in the largest coastal and job growth markets of the United States.
Aimco, through its wholly-owned subsidiaries, AIMCO-GP, Inc. and AIMCO-LP Trust, owns a majority of the ownership interests in AIMCO Properties, L.P., or the Aimco Operating Partnership, a Delaware limited partnership formed on May 16, 1994. Aimco conducts all of its business and owns all of its assets through the Aimco Operating Partnership.
As of December 31, 2016, our real estate portfolio consisted of 189 apartment communities with 46,311 apartment homes.
Business Overview
Our business activities are defined by a commitment to our core values of integrity, respect, collaboration, performance and a focus on our customers. These values and our corporate mission, “to consistently provide quality apartment homes in a respectful environment delivered by a team of people who care,” shape our culture. In all of our interactions with residents, team members, business partners, lenders and equity holders, we aim to be the best owner and operator of apartment communities and an outstanding corporate citizen.

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Our principal financial objective is to provide predictable and attractive returns to our equity holders. We measure our total return using growth in Economic Income and our current return using Adjusted Funds From Operations (each of which are defined under the Non-GAAP Measures heading in Item 7). Our business plan to achieve this principal financial objective is to:
•
operate our portfolio of desirable apartment homes with valued amenities, with a high level of focus on customer selection and customer satisfaction, and in an efficient manner that realizes the benefits of our corporate systems and local management expertise;
•
improve our portfolio of apartment communities, which is diversified both by geography and by price point, and which averages “B/B+” in quality (defined under the Portfolio Management heading in the Executive Overview in Item 7) by selling apartment communities with lower projected free cash flow returns and investing the proceeds from such sales through property upgrades, redevelopment, development and acquisitions with projected free cash flow returns higher than expected from the communities sold;
•
use financial leverage primarily in the form of non-recourse, long-dated, fixed-rate property debt and perpetual preferred equity, a combination which reduces our refunding and re-pricing risk and which provides a hedge against increases in interest rates; and
•
emphasize a collaborative, respectful and performance-oriented culture with high team engagement.
Our business is organized around our strategic areas of focus: property operations; redevelopment and development; portfolio management; balance sheet; and culture. Our strategic areas of focus are described in more detail below. Recent accomplishments in the execution of such strategies are discussed in the Executive Overview in Item 7.
Property Operations
We own and operate a portfolio of conventional apartment communities, diversified by both geography and price point, as further discussed in Portfolio Management below. We also operate a portfolio of affordable apartment communities, which primarily consists of communities owned through low-income housing tax credit partnerships, and with rents generally paid, in whole or part, by a government agency. As the tax credit delivery or compliance periods for these apartment communities expire, between 2017 and 2023, we expect to sell these communities and reinvest the proceeds in our conventional portfolio. Our conventional and affordable portfolios comprise our reportable segments.
Our property operations are primarily organized into two geographic areas, the East and West. To manage our portfolio more efficiently and to increase the benefits from our local management expertise, we give direct responsibility for operations within each area to area operations leaders with regular senior management oversight. To enable the area operations leaders to focus on sales and service, as well as to improve financial control and budgeting, we have dedicated area financial officers who support the operations leaders. Additionally, with the exception of routine maintenance and purchases and installation of equipment, we have specialized teams that manage capital spending related to redevelopments and developments, thus reducing the need for the area operations leaders to spend time on oversight of such activities.
We seek to improve our property operations by: employing service-oriented, well-trained team members; taking advantage of advances in technology; standardizing business processes, operational measurements and internal reporting; and enhancing financial controls over field operations. We focus on the following areas:
•
Customer Satisfaction. Our operating culture is focused on our residents. We regularly monitor and evaluate our performance through a customer satisfaction tracking system, and we publicly report these results. Our goal is to provide our residents with a high level of service in clean, safe and attractive communities. We believe that higher customer satisfaction leads to higher resident retention, which in turn leads to higher revenue and reduced costs. We have automated certain aspects of our on-site operations to enable our current and future residents to interact with us using methods that are efficient and effective for them, such as making on-line requests for service work and executing leases and lease renewals on-line. In addition, we emphasize the quality of our on-site team members through recruiting, training and retention programs as well as providing continuous, real-time feedback, which we believe contributes to improved customer service and leads to increased occupancy rates and enhanced operational performance.
•
Resident Selection and Retention. In apartment communities, neighbors are a meaningful part of the value provided, together with the location of the community and the physical quality of the apartment homes. Part of our property operations strategy is to focus on attracting and retaining credit-worthy residents who are also good neighbors. We have structured goals and coaching for all of our sales personnel, a tracking system for inquiries and a standardized renewal communication program. We have standardized residential financial stability requirements and have policies and monitoring practices to maintain our resident quality.

3

•
Revenue Management and Ancillary Services. For our conventional apartment communities, we have a centralized revenue management system that leverages people, processes and technology to work in partnership with our area operational management teams to develop rental rate pricing. We seek to increase revenue, net operating income and free cash flow by optimizing the balance between rental and occupancy rates, as well as taking into consideration the cost of preparing an apartment home for a new resident. We are also focused on careful measurements of on-site operations, as we believe that timely and accurate collection of apartment community performance and resident profile data will enable us to maximize revenue through better property management and leasing decisions. We seek to maximize profit by performing timely data analysis of new and renewal pricing for each apartment home, thereby enabling us to adjust rents quickly in response to changes in supply and demand and minimize vacancy time. We also generate incremental revenue by providing services to our residents, including, at certain apartment communities, telecommunications services, parking options and storage space rental.
•
Controlling Expenses. Cost controls are accomplished by local focus at the area level; centralizing tasks that can be more efficiently performed by specialists in our shared service center, which reduces costs and allows our site teams to focus on sales and service; taking advantage of economies of scale at the corporate level; through electronic procurement; and focusing on life cycle costs by investing in more durable, longer-lived materials, which reduce turn times and costs.
•
Improving and Maintaining Apartment Community Quality. We believe that the physical condition and amenities of our apartment communities are important factors in our ability to maintain and increase rental rates. We invest in the maintenance and improvement of our apartment communities primarily through: Property Upgrades, which may include kitchen and bath remodeling, energy conservation projects and investments in longer-lived materials as described above, all of which are generally lesser in scope than redevelopment additions and do not significantly disrupt property operations; Capital Improvements, which are non-redevelopment capital additions that are made to enhance the value, profitability or useful life of an apartment community from its original purchase condition; and Capital Replacements, which are capital additions made to replace the portion of an apartment community consumed during our ownership period. During 2016, we invested approximately $2,000 per apartment home in Property Upgrades, $400 per apartment home in Capital Improvements and $1,100 per apartment home in Capital Replacements at our conventional apartment homes.
Redevelopment and Development
We invest in the redevelopment of certain apartment communities in superior locations, when we believe the investment will yield risk-adjusted returns in excess of those from apartment communities sold in paired trades or in excess of the cost of equity issued to fund the equity component of the redevelopments. We expect to create value equal to 25% to 35% of our investment in our redevelopments.
We have undertaken a range of redevelopments, including those in which buildings or exteriors are renovated without the need to vacate apartment homes; 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 wholly vacated. We execute our redevelopments using a phased approach, in which we renovate portions of an apartment community in stages, which allows additional flexibility in the timing and amount of our investment and the ability to tailor our product offerings to customer response and rent achievement. Redevelopment and development work may include seeking entitlements from local governments, which, for redevelopments, enhance the value of our existing portfolio by increasing density, that is, the right to add apartment homes to a site.
In addition, we may undertake ground-up development, either directly in connection with the redevelopment of an existing apartment community or on a more limited basis at a new location. In such cases, we may rely on a third-party developer with expertise in the local market and with contracts that limit our exposure to construction risk.
Portfolio Management
Portfolio management involves the ongoing allocation of investment capital to meet our geographic and product type goals. We target geographic diversification in our portfolio in order to optimize risk-adjusted returns and to avoid the risk of undue concentration in any particular market. We seek to balance the portfolio by owning communities that offer apartment homes with a range of prices so as to diversify our exposure to economic downturns and to competitive new building supply. We also seek to own properties with the potential for profitable redevelopment.
Our portfolio strategy seeks predictable rent growth from a portfolio of apartment communities that is diversified across “A,” “B” and “C+” price points, averaging “B/B+” in quality, and that is also diversified among the largest coastal and job growth markets in the United States. Please refer to the Executive Overview heading under Item 7 for a description of our portfolio quality ratings.

4

As part of our portfolio strategy, we seek to sell each year up to 10% of the apartment communities in our portfolio with lower projected free cash flow returns and to reinvest the proceeds from such sales in property upgrades, redevelopment of communities in our current portfolio, occasional development of new communities and selective acquisitions with projected free cash flow returns higher than expected from the communities sold. Through this disciplined approach to capital recycling, we have significantly increased the quality and expected growth rate of our portfolio.
Balance Sheet and Liquidity
Our leverage strategy seeks to increase financial returns while using leverage with appropriate caution. We target the ratio of Proportionate Debt plus Preferred Equity to Adjusted EBITDA to be below 7.0x and we target the ratio of Adjusted EBITDA to Adjusted Interest Expense and Preferred Dividends to be greater than 2.5x. We also focus on the ratios of Proportionate Debt to Adjusted EBITDA and Adjusted EBITDA to Adjusted Interest Expense. Please refer to the Non-GAAP Measures heading under Item 7 for definitions of these terms.
Approximately 94% of our leverage at December 31, 2016, consisted of property-level, non-recourse, long-dated, amortizing debt, and 6% consisted of perpetual preferred equity. Our leverage had weighted average maturity of 9.8 years (assuming a 40 year term for perpetual preferred equity) and a weighted average cost of 4.90%. The composition of our leverage reduces our refunding and re-pricing risk. Approximately 98% of our property-level debt is fixed-rate, which provides a hedge against increases in interest rates, capitalization rates and inflation.
Although our primary source of leverage is property-level, non-recourse, long-dated, fixed-rate, amortizing debt, we also have a revolving credit arrangement, which we use for working capital and other short-term purposes. Please refer to the Executive Overview and Liquidity and Capital Resources headings under Item 7 for additional information regarding our balance sheet and liquidity.
Culture
Our culture is the key to our success. Our emphasis on a collaborative, respectful and performance-oriented culture is what enables the continuing transformation of the Aimco business. In 2016, Aimco was recognized by the Denver Post as a Top Work Place for the fourth consecutive year. We were one of only three mid-size companies to be named a Top Work Place in Colorado for the past four consecutive years.
Competition
In attracting and retaining residents to occupy our apartment communities we compete with numerous other housing alternatives. Our apartment communities compete directly with other rental apartments as well as condominiums and single-family homes that are available for rent or purchase in the markets in which our apartment communities are located. Principal factors of competition include rent or price charged, attractiveness of the location and apartment community and quality and breadth of services. The number of competitive apartment communities relative to demand in a particular area has a material effect on our ability to lease apartment homes at our communities and on the rents we charge. In certain markets there exists an oversupply of single-family homes and condominiums relative to consumer demand, which affect the pricing and occupancy of our rental apartments.
We also compete with other real estate investors, including other apartment REITs, pension and investment funds, partnerships and investment companies in acquiring, redeveloping, managing, obtaining financing for and disposing of apartment communities. This competition affects our ability to acquire apartment communities we want to add to our portfolio and the price that we pay in such acquisitions; our ability to finance or refinance communities in our portfolio and the cost of such financing; and our ability to dispose of communities we no longer desire to retain in our portfolio and the timing and price for which we dispose of such communities.
Taxation
Aimco
Aimco has elected to be taxed as a REIT under the Internal Revenue Code of 1986, as amended, which we refer to as the Code, commencing with our taxable year ended December 31, 1994, and intends to continue to operate in such a manner. The Code imposes various requirements related to organizational structure, distribution levels, diversity of stock ownership and certain restrictions with regard to owned assets and categories of income that must be met in order to continue to qualify as a REIT. If Aimco continues to qualify for taxation as a REIT, Aimco will generally not be subject to United States federal corporate income tax on its taxable income that is currently distributed to stockholders. This treatment substantially eliminates the “double taxation” (at the corporate and stockholder levels) that generally results from an investment in a corporation.

5

Certain of Aimco’s operations or a portion thereof, including property management, asset management and risk management are conducted through taxable REIT subsidiaries, each of which we refer to as a TRS. A TRS is a subsidiary C-corporation that has not elected REIT status and, as such, is subject to United States federal corporate income tax. We use TRS entities to facilitate our ability to offer certain services and activities to our residents and investment partners that cannot be offered directly by a REIT. We also use TRS entities to hold investments in certain apartment communities, including redevelopment communities.
The Aimco Operating Partnership
The Aimco Operating Partnership is treated as a “pass-through” entity for United States federal income tax purposes and is not subject to United States federal income taxation. Partners in the Aimco Operating Partnership, however, are subject to tax on their allocable share of partnership income, gains, losses, deductions and credits, regardless of whether the partners receive any actual distributions of cash or other property from the Aimco Operating Partnership during the taxable year. Generally, the characterization of any particular item is determined by the Aimco Operating Partnership, rather than at the partner level, and the amount of a partner’s allocable share of such item is governed by the terms of the Aimco Operating Partnership’s Partnership Agreement. The Aimco Operating Partnership is subject to tax in certain states.
Regulation
General
Apartment communities and their owners are subject to various laws, ordinances and regulations, including those related to real estate broker licensing and regulations relating to recreational facilities such as swimming pools, activity centers and other common areas. Changes in laws increasing the potential liability for environmental conditions existing on apartment 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, future enactment of rent control or rent stabilization laws, such as legislation that has been considered in New York and certain cities in California, or other laws regulating multifamily housing may reduce rental revenue or increase operating costs in particular markets.
Environmental
Various federal, state and local laws subject apartment community owners or operators to liability for management, and the costs of removal or remediation, of certain potentially hazardous materials that may be present at an apartment community. These materials may include lead-based paint, asbestos, polychlorinated biphenyls and petroleum-based fuels. Such laws often impose liability without regard to fault or whether the owner or operator knew of, or was responsible for, the release or presence of such materials. In connection with the ownership, operation and management of apartment communities, we could potentially be liable for environmental liabilities or costs associated with our current apartment communities, communities we acquire or manage in the future, or communities we previously owned or operated in the past. These and other risks related to environmental matters are described in more detail in Item 1A. Risk Factors.
Insurance
Our primary lines of insurance coverage are property, general liability and workers’ compensation. We believe that our insurance coverages adequately insure our apartment communities against the risk of loss attributable to fire, earthquake, hurricane, tornado, flood, terrorism and other perils, and adequately insure us against other risk. Our coverage includes deductibles, retentions and limits that are customary in the industry. We have established loss prevention, loss mitigation, claims handling and litigation management procedures to manage our exposure.
Employees
At December 31, 2016, we had 1,456 team members, of which 978 were at the apartment community level, performing various on-site functions, with the balance managing corporate and area operations, including investment and debt transactions, legal, financial reporting, accounting, information systems, human resources and other support functions. As of December 31, 2016, unions represented 81 of our team members. We have never experienced a work stoppage and believe we maintain satisfactory relations with our team members.
Available Information
Our combined Annual Report on Form 10-K, our combined Quarterly Reports on Form 10-Q, Current Reports on Form 8-K filed by Aimco or the Aimco Operating Partnership and any amendments to any of those reports that we file with the Securities and Exchange Commission are available free of charge as soon as reasonably practicable through Aimco’s website at www.aimco.com. The information contained on Aimco’s website is not incorporated into this Annual Report. Aimco’s Common

6

Stock is listed on the New York Stock Exchange under the symbol “AIV.” In 2016, Aimco’s chief executive officer submitted his annual corporate governance listing standards certification to the New York Stock Exchange, which certification was unqualified.
Item 1A. Risk Factors
The risk factors noted in this section and other factors noted throughout this Annual Report, describe certain risks and uncertainties that could cause our actual results to differ materially from those contained in any forward-looking statement.
Redevelopment, development and construction risks could affect our profitability.
We are currently redeveloping, and we intend to continue to redevelop, certain of our apartment communities. During 2017, we expect to invest $100 million to $200 million in redevelopment and development activities. Redevelopment and development are subject to the following risks:
•
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 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 may incur liabilities to third parties during the redevelopment or development process;
•
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.
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 apartment 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 apartment communities, we may not be able to preserve the competitiveness of our communities, which could adversely affect our 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.

7

Competition could limit our ability to lease apartment homes or increase or maintain rents.
Our apartment communities compete for residents with other housing alternatives, including other rental apartments and condominiums, and, to a lesser degree, single-family homes that are available for rent, as well as new and existing condominiums and single-family homes for sale. Competitive residential housing as well as household formation and job creation in a particular area could adversely affect our ability to lease apartment homes and to increase or maintain rental rates.
Because real estate investments are relatively illiquid, we may not be able to sell apartment communities when appropriate.
Real estate investments are relatively illiquid and cannot always be sold quickly. REIT tax rules also restrict our ability to sell apartment communities. Thus, we may not be able to change our portfolio promptly in response to changes in economic or other market conditions. Our ability to dispose of apartment communities in the future will depend on prevailing economic and market conditions, including the cost and availability of financing. This could have a material adverse effect on our financial condition or results of operations.
If we are not successful in our acquisition of apartment communities, our results of operations could be adversely affected.
The selective acquisition of apartment communities is a component of our strategy. However, we may not be able to complete transactions successfully in the future. Although we seek to acquire apartment communities when such acquisitions increase our free cash flow internal rate of returns and are accretive to Net Asset Value, such transactions may fail to perform in accordance with our expectations. In particular, following acquisition, the value and operational performance of an apartment community may be diminished if obsolescence or neighborhood changes occur before we are able to redevelop or sell the community. This could have an adverse effect on our financial condition or results of operations.
Our existing and future debt financing could render us unable to operate, result in foreclosure of our apartment communities, prevent us from making distributions on our equity or otherwise adversely affect our liquidity.
We are subject to the risk that our cash flow from operations will be insufficient to make required payments of principal and interest, and the risk that existing indebtedness may not be refinanced or that the terms of any refinancing will not be as favorable as the terms of existing indebtedness. If we fail to make required payments of principal and interest on our non-recourse debt, our lenders could foreclose on the apartment communities and other collateral securing such debt, which would result in loss of income and asset value to us. As of December 31, 2016, the majority of our apartment communities were encumbered by debt. Our organizational documents do not limit the amount of debt that we may incur, and we have significant amounts of debt outstanding. Payments of principal and interest may leave us with insufficient cash resources to operate our communities or pay distributions required to be paid in order to maintain Aimco’s qualification as a REIT.
Disruptions in the financial markets could affect our ability to obtain financing and the cost of available financing and could adversely affect our liquidity.
Our ability to obtain financing and the cost of such financing depends on the overall condition of the United States credit markets. During periods of economic uncertainty, the United States credit markets may experience significant liquidity disruptions, which may cause the spreads on debt financings to widen considerably and make obtaining financing, both non-recourse property debt and corporate borrowings, such as those under our revolving credit agreement, more difficult. Additionally, Federal Home Loan Mortgage Corporation, or Freddie Mac, and Federal National Mortgage Association, or Fannie Mae, have historically provided significant capital at a relatively low cost to finance multifamily properties. Freddie Mac and Fannie Mae are under conservatorship by the Housing Finance Agency, and their future role in the housing finance market is uncertain. If there is any significant reduction in Freddie Mac’s or Fannie Mae’s level of involvement in the secondary credit markets, it may adversely affect the pricing at which we may obtain non-recourse property debt financing.
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, each of which would adversely affect our liquidity.
Increases in interest rates would increase our interest expense and reduce our profitability.
As of December 31, 2016, on a consolidated basis, we had approximately $101.5 million of variable-rate indebtedness outstanding. We estimate that an increase in 30-day LIBOR of 100 basis points with constant credit risk spreads would reduce our net income and the amount of net income attributable to our common security holders (including Aimco common stockholders and the Aimco Operating Partnership’s common unitholders) by approximately $0.9 million on an annual basis.

8

At December 31, 2016, we had approximately $131.2 million in cash and cash equivalents and restricted cash, a portion of which bear interest at variable rates indexed to LIBOR-based rates, and which may mitigate the effect of an increase in variable rates on our variable-rate indebtedness discussed above.
Covenant restrictions may limit our ability to make payments to our investors.
Some of our debt and other securities contain covenants that restrict our ability to make distributions or other payments to our investors unless certain financial tests or other criteria are satisfied. Our revolving credit agreement provides, among other things, that we may make distributions to our investors during any four consecutive fiscal quarters in an aggregate amount that does not exceed the greater of 95% of our Funds From Operations for such period, subject to certain non-cash adjustments, or such amount as may be necessary to maintain Aimco’s REIT status. Our outstanding classes of preferred stock or preferred units prohibit the payment of dividends on our Common Stock or common partnership units if we fail to pay the dividends to which the holders of the preferred stock or preferred units are entitled.
Our subsidiaries may be prohibited from making distributions and other payments to us.
All of Aimco’s apartment communities are owned, and all of Aimco’s operations are conducted, by the Aimco Operating Partnership. Further, many of the Aimco Operating Partnership’s apartment communities are owned by other subsidiaries. As a result, Aimco depends on distributions and other payments from the Aimco Operating Partnership, and the Aimco Operating Partnership depends on distributions and payments from its subsidiaries in order to satisfy our collective financial obligations and make payments to our investors. The ability of the Aimco Operating Partnership and its subsidiaries to make such distributions and other payments depends on their earnings and cash flows and may be subject to statutory or contractual limitations. As an equity investor in the Aimco Operating Partnership and its subsidiaries, our right to receive assets upon their liquidation or reorganization will be effectively subordinated to the claims of their creditors. To the extent that we are recognized as a creditor of such subsidiaries, our claims may still be subordinate to any security interest in or other lien on their assets and to any of their debt or other obligations that are senior to our claims.
Potential liability or other expenditures associated with potential environmental contamination may be costly.
Various federal, state and local laws subject apartment community owners or operators to liability for management, and the costs of removal or remediation, of certain potentially hazardous materials that may be present in the land or buildings of an apartment community. Potentially hazardous materials may include polychlorinated biphenyls, petroleum-based fuels, lead-based paint, or asbestos, among other materials. Such laws often impose liability without regard to fault or whether the owner or operator knew of, or was responsible for, the presence of such materials. The presence of, or the failure to manage or remediate properly, these materials may adversely affect occupancy at such apartment communities as well as the ability to sell or finance such apartment communities. In addition, governmental agencies may bring claims for costs associated with investigation and remediation actions, damages to natural resources and for potential fines or penalties in connection with such damage or with respect to the improper management of hazardous materials. Moreover, private plaintiffs may potentially make claims for investigation and remediation costs they incur or personal injury, disease, disability or other infirmities related to the alleged presence of hazardous materials at an apartment community. In addition to potential environmental liabilities or costs associated with our current apartment communities, we may also be responsible for such liabilities or costs associated with communities we acquire or manage in the future, or apartment communities we no longer own or operate.
Laws benefiting disabled persons may result in our incurrence of unanticipated expenses.
Under the Americans with Disabilities Act of 1990, or ADA, all places intended to be used by the public are required to meet certain federal requirements related to access and use by disabled persons. The Fair Housing Amendments Act of 1988, or FHAA, requires apartment communities first occupied after March 13, 1991, to comply with design and construction 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.

9

Moisture infiltration and resulting mold remediation may be costly.
Although we are proactively engaged in managing moisture intrusion and preventing the presence of mold at our apartment communities, it is not unusual for periodic moisture intrusion issues to cause mold in isolated locations within an apartment community. We have implemented policies, procedures and training, and include a detailed moisture intrusion and mold assessment during acquisition due diligence. We believe these measures will manage mold exposure at our apartment communities and will minimize the effects that mold may have on our residents. To date, we have not incurred any material costs or liabilities relating to claims of mold exposure or to abate mold conditions. We have only limited insurance coverage for property damage claims arising from the presence of mold and for personal injury claims related to mold exposure. Because the law regarding mold is unsettled and subject to change, we can make no assurance that liabilities resulting from the presence of or exposure to mold will not have a material adverse effect on our consolidated financial condition or results of operations.
We may be subject to litigation associated with partnership transactions that could increase our expenses and prevent completion of beneficial transactions.
We have engaged in, and may continue to engage in, the selective acquisition of interests in partnerships controlled by us that own apartment communities. In some cases, we have acquired the general partner of a partnership and then made an offer to acquire the limited partners’ interests in the partnership. In these transactions, we may be subject to litigation based on claims that we, as the general partner, have breached our fiduciary duty to our limited partners or that the transaction violates the relevant partnership agreement or state law. Although we intend to comply with our fiduciary obligations and the relevant partnership agreements, we may incur costs in connection with the defense or settlement of this type of litigation. In some cases, this type of litigation may adversely affect our desire to proceed with, or our ability to complete, a particular transaction. Any litigation of this type could also have a material adverse effect on our financial condition or results of operations.
Government housing regulations may limit the opportunities at some of our apartment communities and failure to comply with resident qualification requirements may result in financial penalties and/or loss of benefits, such as rental revenues paid by government agencies. Additionally, the government may cease to operate or reduce funding for government housing programs which would result in a loss of benefits.
We own equity interests in consolidated and unconsolidated 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.
Additionally, there is no guarantee that the government will continue to operate these programs or that the programs will be operated in a manner that generates benefits consistent with those received in the past. Any cessation of or change in the administration of benefits from these government housing programs may result in our loss or reduction in the amount of the benefits we receive under these programs, including rental subsidies. During 2016, 2015 and 2014, our rental revenues include $80.2 million, $73.4 million and $74.6 million, respectively, of subsidies from government agencies. Of the 2016 subsidies, approximately 13.6% related to communities benefiting from housing assistance contracts that expire in 2017, which we are in the process of renewing or anticipate renewing, and the remainder related to communities benefiting from housing assistance contracts that expire after 2017 and have a weighted average term of 8.4 years. Any loss or reduction in the amount of these benefits may adversely affect our liquidity and results of operations.
Although we are insured for certain risks, the cost of insurance, increased claims activity or losses resulting from casualty events may affect our operating results and financial condition.
We are insured for a portion of our consolidated apartment communities’ exposure to casualty losses resulting from fire, earthquake, hurricane, tornado, flood and other perils, which insurance is subject to deductibles and self-insurance retention. We recognize casualty losses or gains based on the net book value of the affected apartment community and the amount of any related insurance proceeds. In many instances, the actual cost to repair or replace the apartment community may exceed its net book value and any insurance proceeds. We recognize the uninsured portion of losses as casualty losses in the periods in which they are incurred. In addition, we are self-insured for a portion of our exposure to third-party claims related to our employee health insurance plans, workers’ compensation coverage and general liability exposure. With respect to our exposure to claims of third parties, we establish reserves at levels that reflect our known and estimated losses. The ultimate cost of losses and the impact of unforeseen

10

events may vary materially from recorded reserves, and variances may adversely affect our operating results and financial condition. We purchase insurance to reduce our exposure to losses and limit our financial losses on large individual risks. The availability and cost of insurance are determined by market conditions outside our control. No assurance can be made that we will be able to obtain and maintain insurance at the same levels and on the same terms as we do today. If we are not able to obtain or maintain insurance in amounts we consider appropriate for our business, or if the cost of obtaining such insurance increases materially, we may have to retain a larger portion of the potential loss associated with our exposures to risks.
Natural disasters and severe weather may affect our operating results and financial condition.
Natural disasters such as earthquakes and severe weather such as hurricanes may result in significant damage to our apartment communities. The extent of our casualty losses and loss in operating income in connection with such events is a function of the severity of the event and the total amount of exposure in the affected area. When we have geographic concentration of exposures, a single catastrophe (such as an earthquake) or destructive weather event (such as a hurricane) affecting a region may have a significant adverse effect on our financial condition and results of operations. We cannot accurately predict natural disasters or severe weather, or the number and type of such events that will affect us. As a result, our operating and financial results may vary significantly from one period to the next. Although we anticipate and plan for losses, there can be no assurance that our financial results will not be adversely affected by our exposure to losses arising from natural disasters or severe weather in the future that exceed our previous experience and assumptions.
We depend on our senior management.
Our success depends upon the retention of our senior management, including Terry Considine, our chief executive officer. We have a succession planning and talent development process that is designed to identify potential replacements and develop our team members to provide depth in the organization and a bench of talent on which to draw. However, there are no assurances that we would be able to find qualified replacements for the individuals who make up our senior management if their services were no longer available. The loss of services of one or more members of our senior management team could have a material adverse effect on our business, financial condition and results of operations. We do not currently maintain key-man life insurance for any of our employees.
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, including any applicable alternative minimum tax, or AMT. This would substantially reduce our funds available for distribution to our investors. Unless entitled to relief under certain provisions of the Code, Aimco also would be disqualified from taxation as a REIT for the four taxable years following the year during which it ceased to qualify as a REIT. In addition, Aimco’s failure to qualify as a REIT would place us in default under our revolving credit agreement.
We believe that Aimco operates, and has since its taxable year ended December 31, 1994 operated, in a manner that enables it to meet the requirements for qualification as a REIT for United States federal income tax purposes. Aimco’s continued qualification as a REIT will depend on its satisfaction of certain asset, income, investment, organizational, distribution, stockholder ownership and other requirements on a continuing basis. Aimco’s ability to satisfy the asset tests depends upon our analysis of the fair market values of our assets, some of which are not susceptible to a precise determination, and for which we do not obtain independent appraisals. Aimco’s compliance with the REIT annual income and quarterly asset requirements also depends upon our ability to manage successfully the composition of our income and assets on an ongoing basis. Moreover, the proper classification of an instrument as debt or equity for United States federal income tax purposes may be uncertain in some circumstances, which could affect the application of the REIT qualification requirements. Accordingly, there can be no assurance that the Internal Revenue Service, or the IRS, will not contend that our interests in subsidiaries or other issuers constitutes a violation of the REIT requirements. Moreover, future economic, market, legal, tax or other considerations may cause Aimco to fail to qualify as a REIT, or Aimco’s Board of Directors may determine to revoke its REIT status.
REIT distribution requirements limit our available cash.
As a REIT, Aimco is subject to annual distribution requirements. The Aimco Operating Partnership pays distributions intended to enable Aimco to satisfy its distribution requirements. This limits the amount of cash available for other business purposes, including amounts to fund our growth. Aimco generally must distribute annually at least 90% of its REIT taxable income, determined without regard to the dividends paid deduction and excluding any net capital gain, in order for its distributed earnings not to be subject to United States federal corporate income tax. We intend to make distributions to Aimco’s stockholders to comply with the requirements of the Code. However, differences in timing between the recognition of taxable income and the actual receipt of cash could require us to sell apartment communities or borrow funds on a short-term or long-term basis to meet the 90% distribution requirement of the Code.

11

Aimco may be subject to federal and state income taxes, in certain circumstances.
Even if Aimco qualifies as a REIT, Aimco may be subject to United States federal income and excise taxes in various situations, such as on its undistributed income. Aimco could also be required to pay a 100% tax on any net income on non-arm’s length transactions between Aimco and a taxable REIT subsidiary and on any net income from sales of apartment communities that were held for sale to customers in the ordinary course. In addition, Aimco could be subject to AMT, on items of tax preference. State and local tax laws may not conform to the United States federal income tax treatment, and Aimco may be subject to state or local taxation in various state or local jurisdictions, including those in which 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.
Legislative or regulatory action could adversely affect stockholders.
Regular corporate dividends are taxed at a lower rate than REIT dividends, which could cause non-corporate investors to perceive investments in REITs to be relatively less attractive than investments in the stock of non-REIT corporations that pay dividends, which could adversely affect the value of Aimco Common Stock. However, as a REIT, Aimco generally would not be subject to federal or state corporate income taxes on that portion of its ordinary income or capital gain that it distributes currently to its stockholders, and we thus expect to avoid the “double taxation” to which other corporations are typically subject. Investors are urged to consult their tax advisors with respect to the tax rates that apply to them.
It is possible that future legislation would result in a REIT having fewer tax advantages and it could become more advantageous for a company that invests in real estate to elect to be taxed, for federal income tax purposes, as a corporation. Tax law changes may adversely affect the taxation of a stockholder. Any such changes could have an adverse effect on an investment in Aimco Common Stock or on the market value or the sale potential of our assets.
Tax Legislation Impacts Certain U.S. Federal Income Tax Rules Applicable to REITs.
The Protecting Americans from Tax Hikes Act of 2015, or PATH Act, contains changes to certain aspects of the U.S. federal income tax rules applicable to REITs. The PATH Act modifies various rules that apply to a REIT’s ownership of and business relationship with its TRS entities, and reduces (beginning in 2018) the value of a REIT’s assets that may be in TRS entities from 25% to 20%. The PATH Act makes permanent the reduction of the period (from ten years to five years) during which a REIT is subject to corporate-level tax on the recognition of built-in gains in assets of an acquired corporation. The PATH Act also makes multiple changes related to the Foreign Investment in Real Property Tax Act, expands prohibited transaction safe harbors and qualifying hedges, and repeals the preferential dividend rule for publicly-offered REITs. Lastly, the PATH Act adjusts the way a REIT calculates earnings and profits in certain circumstances to avoid double taxation at the stockholder level, and expands the types of assets and income treated as qualifying for purposes of the REIT requirements. Investors are urged to consult their tax advisors with respect to these changes and the potential effect on their investment in Aimco’s Common Stock.
Limits on ownership of shares in Aimco’s charter may result in the loss of economic and voting rights by purchasers that violate those limits.
Aimco’s charter limits ownership of Common Stock by any single stockholder (applying certain “beneficial ownership” rules under the federal securities laws) to 8.7% (or up to 12.0% upon a waiver from Aimco’s Board of Directors) of outstanding shares of Common Stock, or 15% in the case of certain pension trusts, registered investment companies and Mr. Considine (or up to 18.0% for such pension trusts or registered investment companies upon a waiver from Aimco’s Board of Directors). Aimco’s charter also limits ownership of Aimco’s Common Stock and preferred stock by any single stockholder to 8.7% of the value of the outstanding Common Stock and preferred stock, or 15% in the case of certain pension trusts, registered investment companies and Mr. Considine. The charter also prohibits anyone from buying shares of Aimco’s capital stock if the purchase would result in Aimco losing its REIT status. This could happen if a transaction results in fewer than 100 persons owning all of Aimco’s shares of capital stock or results in five or fewer persons (applying certain attribution rules of the Code) owning 50% or more of the value of all of Aimco’s shares of capital stock. If anyone acquires shares in excess of the ownership limit or in violation of the ownership requirements of the Code for REITs:
•
the transfer will be considered null and void;
•
we will not reflect the transaction on Aimco’s books;
•
we may institute legal action to enjoin the transaction;

12

•
we may demand repayment of any dividends received by the affected person on those shares;
•
we may redeem the shares;
•
the affected person will not have any voting rights for those shares; and
•
the shares (and all voting and dividend rights of the shares) will be held in trust for the benefit of one or more charitable organizations designated by Aimco.
Aimco may purchase the shares of capital stock held in trust at a price equal to the lesser of the price paid by the transferee of the shares or the then current market price. If the trust transfers any of the shares of capital stock, the affected person will receive the lesser of the price paid for the shares or the then current market price. An individual who acquires shares of capital stock that violate the above rules bears the risk that the individual:
•
may lose control over the power to dispose of such shares;
•
may not recognize profit from the sale of such shares if the market price of the shares increases;
•
may be required to recognize a loss from the sale of such shares if the market price decreases; and
•
may be required to repay to us any dividends received from us as a result of his or her ownership of the shares.
Aimco’s charter may limit the ability of a third-party to acquire control of Aimco.
The 8.7% ownership limit discussed above may have the effect of delaying or precluding acquisition of control of Aimco by a third-party without the consent of Aimco’s Board of Directors. Aimco’s charter authorizes its Board of Directors to issue up to 510,587,500 shares of capital stock. As of December 31, 2016, 500,787,260 shares were classified as Common Stock, of which 156,888,381 were outstanding, and 9,800,240 shares were classified as preferred stock, of which 5,000,000 were outstanding. Under Aimco’s charter, its Board of Directors has the authority to classify and reclassify any of Aimco’s unissued shares of capital stock into shares of capital stock with such preferences, conversion or other rights, voting power restrictions, limitations as to dividends, qualifications or terms or conditions of redemptions as the Board of Directors may determine. The authorization and issuance of a new class of capital stock could have the effect of delaying or preventing someone from taking control of Aimco, even if a change in control were in Aimco’s stockholders’ best interests.
The Maryland General Corporation Law may limit the ability of a third-party to acquire control of Aimco.
As a Maryland corporation, Aimco is subject to various Maryland laws that may have the effect of discouraging offers to acquire Aimco and increasing the difficulty of consummating any such offers, even if an acquisition would be in Aimco’s stockholders’ best interests. The Maryland General Corporation Law, specifically the Maryland Business Combination Act, restricts mergers and other business combination transactions between Aimco and any person who acquires, directly or indirectly, beneficial ownership of shares of Aimco’s stock representing 10% or more of the voting power without Aimco’s Board of Directors’ prior approval. Any such business combination transaction could not be completed until five years after the person acquired such voting power, and generally only with the approval of stockholders representing 80% of all votes entitled to be cast and 66-2/3% of the votes entitled to be cast, excluding the interested stockholder, or upon payment of a fair price. The Maryland General Corporation Law, specifically the Maryland Control Share Acquisition Act, provides generally that a person who acquires shares of Aimco’s capital stock representing 10% or more of the voting power in electing directors will have no voting rights unless approved by a vote of two-thirds of the shares eligible to vote. Additionally, the Maryland General Corporation Law provides, among other things, that the board of directors has broad discretion in adopting stockholders’ rights plans and has the sole power to fix the record date, time and place for special meetings of the stockholders. To date, Aimco has not adopted a stockholders’ rights plan. In addition, the Maryland General Corporation Law provides that a corporation that:
•
has at least three directors who are not officers or employees of the entity or related to an acquiring person; and
•
has a class of equity securities registered under the Securities Exchange Act of 1934, as amended,
may elect in its charter or bylaws or by resolution of the board of directors to be subject to all or part of a special subtitle that provides that:
•
the corporation will have a staggered board of directors;
•
any director may be removed only for cause and by the vote of two-thirds of the votes entitled to be cast in the election of directors generally, even if a lesser proportion is provided in the charter or bylaws;
•
the number of directors may only be set by the board of directors, even if the procedure is contrary to the charter or bylaws;
•
vacancies may only be filled by the remaining directors, even if the procedure is contrary to the charter or bylaws; and

13

•
the secretary of the corporation may call a special meeting of stockholders at the request of stockholders only on the written request of the stockholders entitled to cast at least a majority of all the votes entitled to be cast at the meeting, even if the procedure is contrary to the charter or bylaws.
To date, Aimco has not made any of the elections described above.
Item 1B. Unresolved Staff Comments
None.
Item 2. Properties
Our portfolio includes garden style, mid-rise and high-rise apartment communities located in 22 states and the District of Columbia. Our portfolio strategy seeks predictable rent growth from a portfolio of apartment communities diversified among the largest coastal and job growth markets in the United States, and that is diversified across “A,” “B” and “C+” price points, averaging “B/B+” in quality. As of December 31, 2016, our portfolio of conventional apartment communities consisted of roughly 50% “A” quality communities and 50% “B” and “C+” quality communities (as measured by gross asset value). Please refer to the Executive Overview heading under Item 7 for a description of our portfolio quality ratings. The following table sets forth information on all of our apartment communities as of December 31, 2016:
 
Number of Apartment Communities
 
Number of Apartment Homes
 
Average Economic Ownership
Conventional:
 
 
 
 
 
Atlanta
5

 
817

 
100
%
Bay Area
12

 
2,632

 
100
%
Boston
15

 
4,689

 
100
%
Chicago
10

 
3,246

 
100
%
Denver
8

 
2,065

 
98
%
Greater Washington DC
13

 
5,325

 
99
%
Los Angeles
14

 
4,543

 
86
%
Miami
5

 
2,612

 
100
%
New York
18

 
1,040

 
100
%
Philadelphia
5

 
2,802

 
97
%
San Diego
12

 
2,423

 
97
%
Seattle
2

 
239

 
100
%
Total target markets
119

 
32,433

 
97
%
Other markets
15

 
5,489

 
99
%
Total conventional owned
134

 
37,922

 
97
%
Affordable
55

 
8,389

 
95
%
Total
189

 
46,311

 
98
%
At December 31, 2016, we owned an equity interest in and consolidated within our financial statements 178 apartment communities containing 45,482 apartment homes. These consolidated apartment communities contained, on average, 256 apartment homes, with the largest community containing 2,113 apartment homes. These apartment communities offer residents a range of amenities, including resort pools with cabanas, grills, clubhouses, spas, fitness centers, dog parks and large open spaces. Many of the apartment homes offer features such as granite countertops, wood flooring, stainless steel appliances, fireplaces, spacious closets, washer and dryer connections, balconies and patios. Some of our premier apartment communities also offer premium features including designer kitchens and bathroom finishes. Additional information on our consolidated apartment communities is contained in “Schedule III - Real Estate and Accumulated Depreciation” in this Annual Report on Form 10-K. At December 31, 2016, we also held an equity interest in and did not consolidate within our financial statements 11 apartment communities containing 829 apartment homes.
The majority of our consolidated apartment communities are encumbered by property debt. At December 31, 2016, 155 of our consolidated apartment communities were encumbered by, in aggregate, $3.9 billion of property debt with a weighted average interest rate of 4.78% and a weighted average maturity of 8.0 years. Each of the non-recourse property debt instruments comprising this total are collateralized by one of our apartment communities, without cross-collateralization, with an estimated aggregate fair value of $11.9 billion. Refer to Note 4 to the consolidated financial statements in Item 8 for additional information regarding our property debt. As of December 31, 2016, we held unencumbered apartment communities with an estimated fair value of $1.6 billion.

14

Item 3. Legal Proceedings
As further discussed in Note 5 to the consolidated financial statements in Item 8, we are engaged in discussions with regulatory agencies regarding environmental matters at apartment communities we, or predecessor entities, previously owned. Although the outcome of the process we are undergoing for these environmental matters is uncertain, we do not expect the resolution to have a material adverse effect on our consolidated financial condition, results of operations or cash flows.
Item 4. Mine Safety Disclosures
Not applicable.

15

PART II

Item 5. Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Aimco
Aimco’s Common Stock has been listed and traded on the NYSE under the symbol “AIV” since July 22, 1994. The following table sets forth the quarterly high and low sales prices of our Common Stock, as reported on the NYSE, and the dividends declared in the periods indicated:
Quarter Ended
High
 
Low
 
Dividends
Declared
(per share)
December 31, 2016
$
45.45

 
$
39.88

 
$
0.33

September 30, 2016
47.59

 
43.30

 
0.33

June 30, 2016
44.16

 
39.57

 
0.33

March 31, 2016
41.82

 
35.45

 
0.33

 
 
 
 
 
 
December 31, 2015
$
40.83

 
$
35.88

 
$
0.30

September 30, 2015
40.43

 
34.71

 
0.30

June 30, 2015
39.66

 
36.52

 
0.30

March 31, 2015
41.55

 
36.59

 
0.28

Aimco’s Board of Directors determines and declares its dividends. In making a dividend determination, Aimco’s Board of Directors considers a variety of factors, including: REIT distribution requirements; current market conditions; liquidity needs; and other uses of cash, such as for deleveraging and accretive investment activities. Aimco’s Board of Directors targets a dividend payout ratio of approximately 65% of Adjusted Funds From Operations (which is defined in Item 7). In January 2017, Aimco’s Board of Directors declared a cash dividend of $0.36 per share on its Common Stock. On an annualized basis, this represents an increase of 9% compared to the dividends paid in 2016. This dividend is payable on February 28, 2017, to stockholders of record on February 17, 2017. Aimco’s Board of Directors anticipates similar per share quarterly cash dividends for the remainder of 2017. However, the Board of Directors may adjust the dividend amount or the frequency with which the dividend is paid based on then prevailing circumstances.
On February 23, 2017, the closing price of the Common Stock was $45.96 per share, as reported on the NYSE, and there were 157,017,376 shares of Common Stock outstanding, held by 1,842 stockholders of record. The number of holders does not include individuals or entities who beneficially own shares but whose shares are held of record by a broker or clearing agency, but does include each such broker or clearing agency as one recordholder.
As a REIT, Aimco is required to distribute annually to holders of its Common Stock at least 90% of its “real estate investment trust taxable income,” which, as defined by the Code and United States Department of Treasury regulations, is generally equivalent to net taxable ordinary income.
From time to time, Aimco may issue shares of Common Stock in exchange for OP Units, defined under The Aimco Operating Partnership heading below. Please refer to Note 7 to the consolidated financial statements in Item 8 for further discussion of such exchanges. Aimco may also issue shares of Common Stock in exchange for limited partnership interests in consolidated real estate partnerships. During the year ended December 31, 2016, we did not issue any shares of Common Stock in exchange for OP Units or limited partnership interests in consolidated real estate partnerships.
Aimco’s Board of Directors has, from time to time, authorized Aimco to repurchase shares of its outstanding capital stock. There were no repurchases of Aimco shares during the year ended December 31, 2016. As of December 31, 2016, Aimco was authorized to repurchase approximately 19.3 million shares. This authorization has no expiration date. These repurchases may be made from time to time in the open market or in privately negotiated transactions.

16

Performance Graph
The following graph compares cumulative total returns for Aimco’s Common Stock, the MSCI US REIT Index, the Standard & Poor’s 500 Total Return Index (the “S&P 500”), and the NAREIT Apartment Index. The MSCI US REIT Index is published by Morgan Stanley Capital International Inc., a provider of equity indices. The NAREIT Apartment Index is published by The National Association of Real Estate Investment Trusts, or NAREIT, a representative of real estate investment trusts and publicly traded real estate companies with interests in United States real estate and capital markets. The MSCI REIT Index reflects total shareholder return for a broad range of REITs and the NAREIT Apartment Index provides a more direct multifamily peer comparison of total shareholder return. The indices are weighted for all companies that fit the definitional criteria of the particular index and are calculated to exclude companies as they are acquired and add them to the index calculation as they become publicly traded companies. All companies that fit the definitional criteria and existed at the point in time presented are included in the index calculations. The graph assumes the investment of $100 in Aimco’s Common Stock and in each index on December 31, 2011, and that all dividends paid have been reinvested. The historical information set forth below is not necessarily indicative of future performance.
a201610-kq3_chartx11413a01.jpg
 
For the fiscal years ended December 31,
Index
2011
2012
2013
2014
2015
2016
Aimco (1)
$
100.00

$
121.68

$
120.41

$
178.25

$
198.12

$
232.37

MSCI US REIT (1)
100.00

117.77

120.68

157.34

161.30

175.17

NAREIT Apartment Index (2)
100.00

106.93

100.31

140.06

163.10

167.76

S&P 500 (1)
100.00

116.00

153.57

174.60

177.01

198.18

(1) Source: SNL Financial, an offering of S&P Global Market Intelligence © 2017
(2) Source: National Association of Real Estate Investment Trusts
The Performance Graph will not be deemed to be incorporated by reference into any filing by Aimco under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, except to the extent that Aimco specifically incorporates the same by reference.

17

The Aimco Operating Partnership
Interests in the Aimco Operating Partnership that are held by limited partners other than Aimco are referred to as OP Units. OP Units include common partnership units and high performance units, which we refer to as common OP Units, as well as partnership preferred units, or preferred OP Units. There is no public market for the Aimco Operating Partnership’s common partnership units, including OP Units, and we have no intention of listing the common partnership units on any securities exchange. In addition, the Aimco Operating Partnership’s Partnership Agreement restricts the transferability of common partnership units, including OP Units. The following table sets forth the distributions declared per common partnership unit in each quarterly period during the two years ended December 31, 2016 and 2015:
Quarter Ended
2016
 
2015
December 31
$
0.33

 
$
0.30

September 30
0.33

 
0.30

June 30
0.33

 
0.30

March 31
0.33

 
0.28

We intend for the Aimco Operating Partnership’s future distributions per common partnership unit to be equal to Aimco’s Common Stock dividends.
At February 23, 2017, there were 164,649,570 common partnership units and equivalents outstanding (157,017,376 of which were held by Aimco) that were held by 2,731 unitholders of record.
The Aimco Operating Partnership’s Partnership Agreement generally provides that after holding common OP Units for one year, limited partners other than Aimco have the right to redeem their common OP Units for cash, subject to our prior right to cause Aimco to acquire some or all of the common OP Units tendered for redemption in exchange for shares of Aimco Common Stock. Common OP Units redeemed for shares of Aimco Common Stock are exchanged on a one-for-one basis (subject to antidilution adjustments).
No common OP Units or preferred OP Units held by Limited Partners were redeemed in exchange for shares of Aimco Common Stock during the year ended December 31, 2016.
The following table summarizes the Aimco Operating Partnership’s repurchases of common OP Units for the three months ended December 31, 2016:
Fiscal period
Total Number of Units Purchased
 
Average Price Paid per Unit
 
Total Number of Units Purchased as Part of Publicly Announced Plans or Programs (1)
 
Maximum Number of Units that May Yet Be Purchased Under Plans or Programs (1)
October 1 - October 31, 2016
2,879

 
$
42.66

 
N/A
 
N/A
November 1 - November 30, 2016
2,048

 
43.23

 
N/A
 
N/A
December 1 - December 31, 2016
27,698

 
41.49

 
N/A
 
N/A
Total
32,625

 
$
41.70

 
 
 
 
(1)
The terms of the Aimco Operating Partnership’s Partnership Agreement do not provide for a maximum number of units that may be repurchased, and other than the express terms of the Aimco Operating Partnership’s Partnership Agreement, the Aimco Operating Partnership has no publicly announced plans or programs of repurchase. However, whenever Aimco repurchases its Common Stock, it is expected that Aimco will fund the repurchase with a concurrent repurchase by the Aimco Operating Partnership of common partnership units held by Aimco at a price per unit that is equal to the price per share paid for the Common Stock. Refer to the preceding discussion of Aimco’s authorization for equity repurchases.
Dividend and Distribution Payments
Our revolving credit agreement includes customary covenants, including a restriction on dividends and other restricted payments, but permits dividends and distributions during any four consecutive fiscal quarters in an aggregate amount of up to 95% of Aimco’s Funds From Operations for such period, subject to certain non-cash adjustments, or such amount as may be necessary to maintain Aimco’s REIT status.

18

Item 6. Selected Financial Data
The following selected financial data is based on audited historical financial statements of Aimco and the Aimco Operating Partnership. This information should be read in conjunction with such financial statements, including the notes thereto, and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included herein or in previous filings with the Securities and Exchange Commission.
 
For The Years Ended December 31,
 
2016
 
2015
 
2014
 
2013
 
2012
 
(dollar amounts in thousands, except per share data)
OPERATING DATA:
 
 
 
 
 
 
 
 
 
Total revenues (1)
$
995,854

 
$
981,310

 
$
984,363

 
$
974,053

 
$
958,511

Net income (1)
483,273

 
271,983

 
356,111

 
237,825

 
195,361

Net income attributable to Aimco/the Aimco Operating Partnership per common share/unit – diluted
$
2.67

 
$
1.52

 
$
2.06

 
$
1.40

 
$
0.61

 
 
 
 
 
 
 
 
 
 
BALANCE SHEET INFORMATION:
 
 
 
 
 
 
 
 
 
Total assets (2)
$
6,232,818

 
$
6,118,681

 
$
6,068,631

 
$
6,046,579

 
$
6,363,366

Total indebtedness (2)
3,884,632

 
3,849,141

 
4,108,025

 
4,355,849

 
4,378,966

 
 
 
 
 
 
 
 
 
 
OTHER INFORMATION:
 
 
 
 
 
 
 
 
 
Dividends/distributions declared per common share/unit
$
1.32

 
$
1.18

 
$
1.04

 
$
0.96

 
$
0.76


(1)
Effective January 1, 2014, we adopted a new accounting standard, which revised the definition of a discontinued operation. In the selected financial data presentation above, total revenues for the years ended December 31, 2013 and 2012 excludes revenue generated by discontinued operations of $62.2 million and $140.6 million, respectively. Net income for the years ended December 31, 2013 and 2012 includes income from discontinued operations, net of tax, of $203.2 million and $214.1 million, respectively.
(2)
Effective January 1, 2016, we adopted new accounting standards, which revised the presentation of debt issue costs. In the selected financial data presented above, the total assets and total indebtedness as of December 31, 2015, 2014, 2013 and 2012, have been recast to reflect the reclassification of unamortized debt issue costs related to property debt from total assets to total indebtedness.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Executive Overview
We are focused on the ownership, management, redevelopment and limited development of quality apartment communities diversified by geography in the largest coastal and job growth markets in the United States and also diversified across price points.
Our principal financial objective is to provide predictable and attractive returns to our equity holders, as measured by growth in Economic Income and Adjusted Funds From Operations. Economic Income is our measure of total return and Adjusted Funds From Operations is our measure of current return. In 2016, Economic Income totaled approximately $7 per share, representing a 15% return on our estimated net asset value at the beginning of that measurement period. Adjusted Funds From Operations was $1.97 per share, an increase of 5% as compared to 2015. Our calculation of Economic Income relies upon net asset value, or NAV. NAV and Adjusted Funds From Operations are non-GAAP measures and are defined under the Non-GAAP Measures heading below.
Our business and strategic areas of focus are described in more detail within the Business Overview in Item 1. Execution of our goals within our strategic areas of focus drove solid results for Aimco in 2016, as further described in the sections that follow.
Property Operations
We own and operate a portfolio of conventional apartment communities, diversified by both geography and price point. At December 31, 2016, our conventional portfolio included 134 apartment communities with 37,922 apartment homes in which we held an average ownership of approximately 97%. We also operate a portfolio of affordable apartment communities, which primarily consists of communities owned through low-income housing tax credit partnerships, and with rents generally paid, in whole or part, by a government agency. Consolidated apartment communities that we manage within our conventional and affordable portfolios comprise our reportable segments and generated 90% and 10%, respectively, of our proportionate property net operating income, or NOI, (defined below under the Results of Operations – Property Operations heading) during the year ended December 31, 2016.

19

In our conventional same store portfolio, revenue and expense grew 4.7% and 1.4%, respectively, leading to 6.2% growth in property net operating income. Revenue growth was due to a weighted average rent increase of 4.0% and an average daily occupancy of 95.9%, which was consistent with 2015. We focus on customer satisfaction and resident retention, which results in lower resident turnover and reduces vacancy related costs. We receive approximately 90,000 customer satisfaction surveys annually and achieved an average rating of 4.18 (on a 1 to 5 scale) for the year ended December 31, 2016.
Our focus on efficient operations through centralization of administrative tasks, optimization of economies of scale at the corporate level and investment in more durable, longer-lived materials has helped us control operating expenses. As a result of these efforts, our conventional same store controllable operating expenses, which we define as property level operating expenses before real estate taxes, insurance and utilities, had a compound annual growth rate of 2.1% over the last three years.
For the year ended December 31, 2016, our conventional portfolio provided 68% operating margins and 62% free cash flow, or FCF, margins. FCF is defined under the Non-GAAP Measures heading below.
Redevelopment and Development
During the year ended December 31, 2016, we invested $155.4 million in redevelopment, $85.2 million of which related to the ongoing redevelopment of Park Towne Place and The Sterling, mixed-use communities located in Center City Philadelphia. We are redeveloping the three of the four towers at Park Towne Place, one at a time, and at December 31, 2016, we had completed lease-up of the South Tower and had leased 70% of the apartment homes in the East Tower. Rental rates are consistent with underwriting. Based on the success of the first two towers, we commenced redevelopment of the North Tower during 2016, completing de-leasing in the third quarter and starting construction in the fourth quarter. We will continue to evaluate the success of the redevelopment and may redevelop the fourth tower in the community.
We are redeveloping The Sterling, a 30-story building, two or three floors at a time, and at December 31, 2016, we had completed 88% of the apartment homes, of which 92% had been leased. Rental rates are in line with underwriting. Three floors, representing 12% of the homes, and 37,000 square feet of commercial space remain under construction with anticipated completion in second quarter 2017.
During 2016, we commenced four additional redevelopments with an estimated net investment of $81.4 million. These redevelopments include: Bay Parc Plaza in Miami, Florida; Saybrook Pointe in San Jose, California; Yorktown in suburban Chicago; and the second phase of redevelopment at The Palazzo at Park La Brea in Los Angeles, California. For additional information regarding these redevelopments, please refer to the discussion under the Liquidity and Capital Resources heading below.
During 2016, we achieved NOI stabilization at three redeveloped apartment communities in California, Lincoln Place in Venice, Ocean House on Prospect in La Jolla and Preserve at Marin in Corte Madera. The redevelopment of these apartment communities resulted in value creation of approximately $170.0 million, or about 30% of our $582.0 million investment in these projects.
During 2016, we invested $31.8 million in development, primarily in the completion of One Canal in Boston. Lease-up is nearing completion, with 86% of the apartment homes occupied at December 31, 2016, a pace well ahead of schedule and at rental rates consistent with underwriting.
During 2016, our Vivo community in Cambridge, Massachusetts achieved stabilized occupancy two months ahead of schedule with rental rates consistent with underwriting.
See below under the Liquidity and Capital Resources – Redevelopment and Development heading for additional information regarding our ongoing redevelopments at December 31, 2016.
Portfolio Management
Our portfolio strategy seeks predictable rent growth from a portfolio of apartment communities that is diversified across “A,” “B,” and “C+” price points, averaging “B/B+” in quality, and that is diversified across the largest coastal and job growth markets in the U.S. We measure conventional apartment community quality based on average rents of our apartment homes compared to local market average rents as reported by a third-party provider of commercial real estate performance and analysis. Under this rating system, we classify as “A” quality apartment communities those earning rents greater than 125% of the local market average, as “B” quality apartment communities those earning rents between 90% and 125% of the local market average; as “C+” quality apartment communities those with rents greater than $1,100 per month, but lower than 90% of local market average; and as “C” quality apartment communities those with rents less than $1,100 per month and lower than 90% of local market average. We classify as “B/B+” quality a portfolio that on average earns rents between 100% and 125% of the local market average rents where the portfolio is located. Although some companies and analysts within the multifamily real estate industry use apartment community quality ratings of “A,” “B” and “C,” some of which are tied to local market rent averages, the metrics used to classify apartment community quality as well as the timing for which local markets rents are calculated may vary from company to company.

20

Accordingly, our rating system for measuring apartment community quality is neither broadly nor consistently used in the multifamily real estate industry.
As part of our portfolio strategy, we seek to sell each year up to 10% of the apartment communities in our portfolio with lower projected free cash flow returns and invest the proceeds from such sales through property upgrades and redevelopment of communities in our current portfolio, occasional development of new communities and selective acquisition of apartment communities with projected free cash flow returns higher than expected from the communities sold. Through this disciplined approach to capital recycling, we have significantly increased the quality and expected growth rate of our portfolio as evidenced by increased average revenue per apartment home for the portfolio and higher average rents compared to local market average rents.
 
Three Months Ended
 
December 31,
 
2016
 
2013
Percentage of Conventional Net Operating Income in target markets
88
%
 
88
%
Average Revenue per Effective Apartment Home (1)
$
1,978

 
$
1,469

Portfolio Average Rents as a Percentage of Local Market Average Rents
113
%
 
105
%
Percentage A (4Q 2016 Average Revenue per Effective Apartment Home $2,505)
52
%
 
38
%
Percentage B (4Q 2016 Average Revenue per Effective Apartment Home $1,771)
34
%
 
37
%
Percentage C+ (4Q 2016 Average Revenue per Effective Apartment Home $1,595)
14
%
 
18
%
Percentage C
—
%
 
7
%
(1) Represents average monthly rental and other property revenues divided by the number of occupied apartment homes multiplied by our economic interest in the apartment community as of the end of the current period.
During the three months ended December 31, 2016, our conventional portfolio average revenue per effective apartment home was $1,978, an increase of 34.6% as compared to the three months ended December 31, 2013. This increase was due to rent growth from the improved quality of our portfolio, driven in part by the sale of conventional apartment communities during these periods with average monthly revenues per effective apartment home substantially lower than those of the retained portfolio, and also by our reinvestment of the sales proceeds through redevelopment, development and acquisition of apartment communities with higher rents and better free cash flow return prospects.
After several years of above-trend rent growth, we are seeing rent growth in many markets decelerate due to competitive new supply. As a result of our diversification by both geography and price point, our exposure to competitive new supply is largely limited to approximately one quarter of our portfolio, represented by “A” price point communities in submarkets with more than 2% supply growth projected over the next year. This exposure is mitigated in some submarkets where the rate of job growth exceeds the rate of supply growth, and in other submarkets where our “A” rents are substantially lower than the rents charged by new supply.
As we execute our portfolio strategy, we expect to increase conventional portfolio average revenue per apartment home at a rate greater than market rent growth; increase FCF margins; and increase the percentage of our conventional property net operating income earned in our target markets.
During the year ended December 31, 2016, we sold seven conventional apartment communities with 3,045 apartment homes for gross proceeds of $517.0 million. After payment of transaction costs, working capital adjustments and distributions to noncontrolling interests, our share of the net proceeds totaled $509.1 million. We sold one apartment community from our low-income housing tax credit portfolio for gross proceeds of $27.5 million. After repayment of property debt, payment of transaction costs and distributions to noncontrolling interests, our share of the net proceeds totaled $10.3 million. We invested these proceeds in redevelopment and development discussed below, as well as the acquisition for $320 million of Indigo, a 463-home apartment community in Redwood City, California that was in the final stages of construction at the time of acquisition. As of December 31, 2016, leasing was well ahead of schedule, with 77% of apartment homes occupied at rental rates consistent with underwriting.
Balance Sheet and Liquidity
Our leverage strategy seeks to increase financial returns while using leverage with appropriate caution. We target the ratio of Proportionate Debt and Preferred Equity to Adjusted EBITDA to be below 7.0x and we target the ratio of Adjusted EBITDA to Adjusted Interest Expense and Preferred Dividends to be greater than 2.5x. We also focus on the ratios of Proportionate Debt to Adjusted EBITDA and Adjusted EBITDA to Adjusted Interest Expense. Proportionate Debt, Adjusted EBITDA and Adjusted Interest Expense, as used in these ratios, are non-GAAP financial measures, which are defined and reconciled under the Non-GAAP Measures - Leverage Ratios heading below. Preferred Equity represents Aimco’s preferred stock and the Aimco Operating

21

Partnership’s preferred OP units. Our leverage ratios for the trailing twelve month periods ended December 31, 2016 and 2015, are presented below:
 
Trailing Twelve Months Ended December 31,
 
2016
 
2015
Proportionate Debt to Adjusted EBITDA
6.3x
 
6.4x
Proportionate Debt and Preferred Equity to Adjusted EBITDA
6.7x
 
6.8x
Adjusted EBITDA to Adjusted Interest Expense
3.2x
 
3.1x
Adjusted EBITDA to Adjusted Interest Expense and Preferred Dividends
2.9x
 
2.8x
We expect future leverage reduction from earnings growth, especially as apartment communities now being redeveloped are completed and the lease-up of Indigo is completed, and from regularly scheduled property debt amortization funded from retained earnings. As of December 31, 2016, we held unencumbered apartment communities with an estimated fair value of approximately $1.6 billion.
Two credit rating agencies rate our creditworthiness, using different methodologies and ratios for assessing our credit. In 2015, both of these agencies upgraded our credit rating and outlook to BBB- (stable), an investment grade rating. Although some of the ratios they use are similar to those we use to measure our leverage, there are differences in our methods of calculation and therefore our leverage ratios disclosed above are not indicative of the ratios that may be calculated by these agencies.
During 2016, we closed fixed-rate, non-recourse, amortizing, property loans totaling $393.5 million with a weighted average term of 9.4 years and weighted average interest rate of 3.2%, which were on average 145 basis points over the corresponding Treasury rates at the time of pricing. During 2016, we also amended our $600.0 million revolving credit facility, extending its maturity to January 2022. For additional information regarding our leverage, please see the discussion under the Liquidity and Capital Resources heading.
Culture
Our culture is the key to our success. Our emphasis on a collaborative, respectful, and performance-oriented culture is what enables the continuing transformation of the Aimco business. In 2016, Aimco was recognized by the Denver Post as a Top Work Place for the fourth consecutive year. We were one of only three mid-size companies to be named a Top Work Place in Colorado for the past four consecutive years.
Key Financial Indicators
The key financial indicators that we use in managing our business and in evaluating our operating performance are Economic Income, our measure of total return, and Adjusted Funds From Operations, our measure of current return. In addition to these indicators, we evaluate our operating performance and financial condition using: Pro forma Funds From Operations; FCF capitalization rate; NOI capitalization rate; same store property operating results; proportionate property NOI; average revenue per effective apartment home; financial coverage ratios; and net leverage. Certain of these financial indicators are non-GAAP financial measures, which are defined, further described and, for certain of the measures, reconciled to comparable GAAP-based measures, under the Non-GAAP Measures heading below.
Results of Operations
Because our operating results depend primarily on income from our apartment communities, the supply of and demand for apartments influences our operating results. Additionally, the level of expenses required to operate and maintain our apartment communities and the pace and price at which we redevelop, acquire and dispose of our apartment communities affect our operating results.
The following discussion and analysis of the results of our operations and financial condition should be read in conjunction with the accompanying consolidated financial statements in Item 8.

22

Overview
2016 compared to 2015
Net income attributable to Aimco and net income attributable to the Aimco Operating Partnership increased by $181.7 million and $190.8 million, respectively, for the year ended December 31, 2016, as compared to the year ended December 31, 2015. The increase in income was principally due to an increase in gains on dispositions of real estate, partially offset by an increase in depreciation and amortization resulting from redeveloped and developed apartment communities placed into service during 2016 and from recent acquisitions.

2015 compared to 2014
Net income attributable to Aimco and net income attributable to the Aimco Operating Partnership decreased by $60.5 million and $64.3 million, respectively, for the year ended December 31, 2015, as compared to the year ended December 31, 2014. The decrease in income was principally due to a decrease in gains on dispositions of real estate, partially offset by the effect of various other items discussed below.
The following paragraphs discuss these and other items affecting the results of operations of Aimco and the Aimco Operating Partnership in more detail.
Property Operations
As described under the preceding Executive Overview heading, our owned real estate portfolio consists primarily of conventional apartment communities. We also operate a portfolio of affordable apartment communities, the majority of which are held in low-income housing tax credit partnerships. Our conventional and affordable real estate operations that we manage and that are not classified as held for sale at the end of the current period comprise our reportable segments.
Due to the range of our economic ownership interests in our apartment communities, we use proportionate property NOI to assess the operating performance of our apartment communities and our operating segments. Proportionate property NOI reflects our share of rental and other property revenues reduced by direct property operating expenses, including real estate taxes, for the consolidated apartment communities that we manage. Accordingly, the results of operations of our conventional and affordable segments discussed below are presented on a proportionate basis and exclude the results of four conventional apartment communities with 142 apartment homes and eight affordable apartment communities with 727 apartment homes that we do not manage and one affordable community with 52 apartment homes that was classified as held for sale as of December 31, 2016.
We do not include property management revenues, offsite costs associated with property management or casualty-related amounts, in our assessment of segment performance. Accordingly, these items are not allocated to our segment results discussed below. Refer to Note 12 in the consolidated financial statements in Item 8 for further discussion regarding our reportable segments, including a reconciliation of these proportionate amounts to consolidated rental and other property revenues and property operating expenses.
Conventional Real Estate Operations
Our Conventional segment consists of apartment communities we classify as Conventional Same Store and Conventional Non-Same Store. Conventional Same Store apartment communities are those that have reached stabilized occupancy as of the beginning of a two year comparable period and maintained it throughout the current and comparable prior year, and that are not expected to be sold within 12 months. Conventional Non-Same Store consists of conventional redevelopment and development apartment communities, which are those currently under construction that are not occupancy stabilized and those that have been completed in recent years that had not achieved and maintained stabilized occupancy for both the current and comparable prior year, and conventional acquisition apartment communities, which are those we have acquired since the beginning of a two year comparable period. Conventional Non-Same Store also includes apartment communities subject to agreements that limit the amount by which we may increase rents; apartment communities that had not reached or maintained a stabilized level of occupancy as of the beginning of a two year comparable period, often due to a casualty event; and apartment communities expected to be sold within 12 months but do not yet meet the criteria to be classified as held for sale.
As of December 31, 2016, as defined by our segment performance metrics, our conventional portfolio consisted of the following:
•
101 Conventional Same Store apartment communities with 30,893 apartment homes; and
•
29 Conventional Non-Same Store apartment communities with 6,887 apartment homes.

23

From December 31, 2015, to December 31, 2016, on a net basis, our Conventional Same Store portfolio decreased by six apartment communities and 2,256 apartment homes. This change consisted of:
•
five conventional redevelopment apartment communities with 1,544 apartment homes that were reclassified into Conventional Non-Same Store;
•
one apartment community with 246 apartment homes reclassified into Conventional Non-Same Store as a result of a casualty event; and
•
five apartment communities with 1,727 apartment homes sold during the period.
These decreases were offset by the addition of five apartment communities that were reclassified from Conventional Non-Same Store, including three acquisition communities with 818 apartment homes as we have now owned them for the entirety of both periods presented, and two redeveloped apartment communities with 443 apartment homes that were reclassified upon maintaining stabilized occupancy for the entirety of both periods presented.
Our proportionate conventional portfolio results for the years ended December 31, 2016 and December 31, 2015, as presented below, are based on the apartment community classifications as of December 31, 2016.
 
Year Ended December 31,
(in thousands)
2016
 
2015
 
$ Change
 
% Change
Rental and other property revenues:
 
 
 
 
 
 
 
Conventional Same Store
$
635,472

 
$
606,952

 
$
28,520

 
4.7
%
Conventional Non-Same Store
168,863

 
145,189

 
23,674

 
16.3
%
Total
804,335

 
752,141

 
52,194

 
6.9
%
Property operating expenses:
 
 
 
 
 
 
 
Conventional Same Store
192,280

 
189,658

 
2,622

 
1.4
%
Conventional Non-Same Store
65,659

 
56,899

 
8,760

 
15.4
%
Total
257,939

 
246,557

 
11,382

 
4.6
%
Property net operating income:
 
 
 
 
 
 
 
Conventional Same Store
443,192

 
417,294

 
25,898

 
6.2
%
Conventional Non-Same Store
103,204

 
88,290

 
14,914

 
16.9
%
Total
$
546,396

 
$
505,584

 
$
40,812

 
8.1
%
For the year ended December 31, 2016, as compared to 2015, our conventional segment’s proportionate property NOI increased $40.8 million, or 8.1%.
For the year ended December 31, 2016, as compared to 2015, Conventional Same Store proportionate property NOI increased by $25.9 million, or 6.2%. This increase was primarily attributable to a $28.5 million, or 4.7%, increase in rental and other property revenues due to higher average revenues (approximately $82 per effective home), comprised primarily of increases in rental rates of 4.0%. Rental rates on new leases transacted during the year ended December 31, 2016, were 2.4% higher than expiring lease rates, and renewal rates were 5.7% higher than expiring lease rates. The increase in Conventional Same Store rental and other property revenues was partially offset by a $2.6 million, or 1.4%, increase in property operating expenses, primarily due to increases in real estate taxes, personnel costs and repairs and maintenance, partially offset by lower utilities expenses and insurance costs. During the year ended December 31, 2016, as compared to 2015, controllable operating expenses, which exclude utility costs, real estate taxes and insurance, increased by $1.6 million, or 1.9%.
Our Conventional Non-Same Store proportionate property NOI increased by $14.9 million during the year ended December 31, 2016, as compared to 2015. This increase is attributable to the following:
•
$7.8 million increase due to the NOI stabilization of three redeveloped communities (Lincoln Place, Ocean House on Prospect and Preserve at Marin);
•
$2.6 million due to completing lease-up of Vivo and nearing completion of the lease-up of Indigo and One Canal;
•
$3.4 million due to apartment communities we acquired during 2015; and
•
$1.1 million due to other net increases in proportionate property NOI including the continued lease-up of redeveloped homes at Park Towne Place and The Sterling, offset by decreases due to apartment homes taken out of service for our current redevelopments.

24

As of December 31, 2015, our conventional portfolio consisted of the following:
•
102 Conventional Same Store apartment communities with 31,422 apartment homes; and
•
27 Conventional Non-Same Store apartment communities with 5,855 apartment homes.
Our proportionate conventional portfolio results for the years ended December 31, 2015 and 2014, as presented below, are based on the apartment community classifications as of December 31, 2015 (excluding amounts related to apartment communities sold or classified as held for sale during 2016).
 
Year Ended December 31,
(in thousands)
2015
 
2014
 
$ Change
 
% Change
Rental and other property revenues:
 
 
 
 
 
 
 
Conventional Same Store
$
622,031

 
$
594,501

 
$
27,530

 
4.6
%
Conventional Non-Same Store
130,110

 
89,290

 
40,820

 
45.7
%
Total
752,141

 
683,791

 
68,350

 
10.0
%
Property operating expenses:
 
 
 
 
 
 
 
Conventional Same Store
194,283

 
190,517

 
3,766

 
2.0
%
Conventional Non-Same Store
52,274

 
37,868

 
14,406

 
38.0
%
Total
246,557

 
228,385

 
18,172

 
8.0
%
Property net operating income:
 
 
 
 
 
 
 
Conventional Same Store
427,748

 
403,984

 
23,764

 
5.9
%
Conventional Non-Same Store
77,836

 
51,422

 
26,414

 
51.4
%
Total
$
505,584

 
$
455,406

 
$
50,178

 
11.0
%
For the year ended December 31, 2015, as compared to 2014, our conventional segment’s proportionate property NOI increased $50.2 million, or 11.0%.
For the year ended December 31, 2015, as compared to 2014, Conventional Same Store proportionate property NOI increased by $23.8 million, or 5.9%. This increase was primarily attributable to a $27.5 million, or 4.6%, increase in rental and other property revenues due to higher average revenues (approximately $78 per effective home), comprised of increases in rental rates, utility reimbursements and other fees, including parking. Rental rates on new leases transacted during the year ended December 31, 2015, were 4.4% higher than expiring lease rates, and renewal rates were 5.5% higher than expiring lease rates. The increase in Conventional Same Store rental and other property revenues was partially offset by a $3.8 million, or 2.0%, increase in property operating expenses, primarily due to increases in real estate taxes and repairs and maintenance. During the year ended December 31, 2015, as compared to 2014, controllable operating expenses, which exclude utility costs, real estate taxes and insurance, increased by $2.0 million, or 2.3%.
Our Conventional Non-Same Store proportionate property NOI increased by $26.4 million during the year ended December 31, 2015, as compared to 2014. Proportionate property NOI increased $13.1 million due to apartment communities that we acquired in 2015 and 2014. Proportionate property NOI increased $13.3 million due to higher revenues per apartment home and higher average daily occupancy associated with apartment homes placed into service following completion of construction activities at Lincoln Place, Preserve at Marin and Pacific Bay Vistas, partially offset by a reduction in revenue associated with apartment homes taken out of service at our Park Towne Place and The Sterling redevelopments during 2015.
Affordable Real Estate Operations
Our affordable portfolio consists primarily of apartment communities that we manage that are owned through low-income housing tax credit partnerships. At December 31, 2016 and 2015, our affordable portfolio consisted of 46 apartment communities with 7,610 apartment homes.
For the year ended December 31, 2016, as compared to 2015, our affordable portfolio’s proportionate property NOI increased $6.1 million, or 10.9%. The increase was primarily attributed to an increase in rental income driven by higher rental rates, including market rate increases on four apartment communities that were approved in 2016 by the Department of Housing and Urban Development, partially offset by higher personnel and repairs and maintenance costs.
For the year ended December 31, 2015, as compared to 2014, the proportionate property NOI of our affordable apartment communities increased $1.6 million, or 2.9%. The increase was attributable to an increase in rental income driven primarily by higher rental rates of $23 per month on apartment homes.

25

Non-Segment Real Estate Operations
Real estate operations NOI amounts not attributed to our conventional or affordable segments include offsite costs associated with property management and casualty losses, reported in consolidated amounts, which we do not allocate to our conventional or affordable segments for purposes of evaluating segment performance (see Note 12 to the consolidated financial statements in Item 8).
For the years ended December 31, 2016, 2015 and 2014, casualty losses totaled $5.8 million, $8.3 million and $11.8 million, respectively. Casualty losses during the year ended December 31, 2016, included claims related to fire damage, water damage resulting from a storm affecting several communities, and water damage resulting from damaged pipes at several other communities. Casualty losses during the year ended December 31, 2015, included losses resulting from property damage and snow removal costs associated with the severe snow storms in the Northeast. Casualty losses during the year ended December 31, 2014, included losses from the severe weather associated with the 2014 “Polar Vortex,” which affected many of our apartment communities in the Northeast and Midwest, as well as damage to one of our apartment communities resulting from a severe hail storm.
Tax Credit and Asset Management Revenues
We sponsor certain consolidated partnerships that acquire, develop and operate qualifying affordable housing apartment communities and are structured to provide for the pass-through of tax credits and deductions to their partners. We recognize income associated with the delivery of tax credits and deductions generated by these partnerships to their partners.
For the year ended December 31, 2016, as compared to the year ended December 31, 2015, tax credit and asset management revenues decreased $3.0 million. This decrease was primarily attributable to $6.6 million lower amortization of deferred tax credit income primarily due to delivery of substantially all of the tax credits on various apartment communities in prior periods, partially offset by a $3.6 million fee earned for assisting a third-party property owner in a mark-up-to-market renewal related to a property we previously owned.
For the year ended December 31, 2015, as compared to the year ended December 31, 2014, tax credit and asset management revenues decreased $7.2 million. This decrease was attributable to a decrease in amortization of deferred tax credit income primarily due to delivery of substantially all of the tax credits on various apartment communities during 2014 and 2015, and a decrease in disposition and other transactional fees earned in 2015 as compared to 2014.
Certain of the apartment communities within our tax credit partnerships have delivered substantially all of the tax credits, or are anticipated to deliver substantially all of the tax credits during 2017. As the tax credit delivery and compliance periods for these apartment communities expire, amortization of deferred income associated with the delivery of tax credits and deductions will decrease. Additionally, during the year ended December 31, 2016, we acquired an investor limited partner’s interest in one of the tax credit partnerships prior to the end of the tax credit delivery period and as such we are no longer obligated to deliver tax credits. We expect amortization of deferred tax credit income to decrease from $17.6 million in the year ended December 31, 2016, to approximately $11 million for the year ending December 31, 2017.
Investment Management Expenses
For the year ended December 31, 2016, compared to the year ended December 31, 2015, investment management expenses decreased $1.5 million primarily due to lower acquisition-related costs.
For the year ended December 31, 2015, compared to the year ended December 31, 2014, investment management expenses decreased $1.5 million primarily due to increases in acquisition and other costs, partially offset by an increase in personnel and related costs.
Depreciation and Amortization
During the years ended December 31, 2016, 2015 and 2014, depreciation and amortization totaled $333.1 million, $306.3 million and $282.6 million, respectively. The $26.8 million increase from 2015 to 2016 was primarily due to amounts placed in service as we completed apartment homes in our Park Towne Place and The Sterling redevelopments, the completion of our One Canal and Vivo developments, our acquisition of Indigo and other capital additions, partially offset by decreases associated with apartment communities sold. The $23.7 million increase from 2014 to 2015 was primarily due to apartment homes placed into service as we completed our redevelopments and apartment communities we acquired in 2014 and 2015, partially offset by decreases associated with apartment communities sold.

26

General and Administrative Expenses
In recent years, we have worked toward simplifying our business, including winding down the portion of our business that generates transaction-based activity fees and reducing the number of partnerships that own our conventional apartment communities by acquiring the noncontrolling interests in these partnerships, which allowed us to reduce overhead and other costs associated with these activities. These and other simplification activities, along with our scale reductions, have allowed us to reduce our offsite costs, which consist of general and administrative expenses, property management and investment management expenses, by $6.5 million, or 8.1%, over the last three years.
For the year ended December 31, 2016, compared to the year ended December 31, 2015, general and administrative expenses, excluding incentive compensation, decreased by approximately $0.2 million. Inclusive of incentive compensation, general and administrative expense increased $1.8 million, primarily due to higher incentive compensation based on our performance against key performance indicators in 2016 as compared to 2015.
For the year ended December 31, 2015, compared to the year ended December 31, 2014, general and administrative expenses decreased $0.9 million, or 2.1%, primarily due to reductions in personnel and related costs, partially offset by an increase in administrative costs, including travel and consulting costs.
Other Expenses, Net
Other expenses, net includes franchise taxes, costs associated with our risk management activities, partnership administration expenses and certain non-recurring items.
For the year ended December 31, 2016, compared to the year ended December 31, 2015, other expenses, net increased by $3.9 million. The increase was primarily due an increased estimate for future environmental costs, which is further discussed in Note 5 to the consolidated financial statements in Item 8, partially offset by lower legal and related costs.
For the year ended December 31, 2015, compared to the year ended December 31, 2014, other expenses, net decreased by $4.0 million. The decrease was due to a $1.8 million provision for real estate impairment loss we recognized during the year ended December 31, 2014, related to the estimated costs to sell an apartment community, inclusive of prepayment penalties. The decrease was also due to lower legal and other costs as well as the favorable resolution of certain legal matters in 2015, partially offset by higher environmental costs associated with an apartment community we no longer own.
Interest Expense
For the year ended December 31, 2016, compared to the year ended December 31, 2015, interest expense, which includes the amortization of deferred financing costs and prepayment penalties incurred in financing activities, decreased by $3.3 million, or 1.7%. The decrease was primarily attributed to lower average outstanding balances from our repayment of non-recourse property debt and to a lesser extent from a lower average cost of debt on property loans refinanced during the year, resulting in an $8.1 million reduction in interest expense, and a $4.9 million reduction of interest expense on debt related to apartment community dispositions. These decreases were partially offset by increased interest expense on debt associated with apartment community acquisitions and on One Canal, the construction of which was completed during 2016 and for which we ceased interest capitalization, and higher average borrowings on our revolving credit facility.
For the year ended December 31, 2015, compared to the year ended December 31, 2014, interest expense decreased by $21.3 million, or 9.6%. The decrease was primarily the result of lower average outstanding balances on non-recourse property debt for our existing apartment communities, decreases in property debt resulting from apartment community dispositions and higher prepayment penalties incurred in 2014. These decreases in interest expense were partially offset by increases related to our acquisition of apartment communities and on three of our redevelopments which reached completion of construction and therefore ceased capitalization of related interest expense.
Other, Net
Other, net includes our equity in the income or loss of unconsolidated real estate partnerships, and the results of operations related to our legacy asset management business, which we account for under the profit sharing method, as further discussed in Note 3 to the consolidated financial statements in Item 8.
During the years ended December 31, 2016, 2015 and 2014, other, net primarily consisted of $5.6 million and $0.2 million of net income and $0.8 million of net losses, respectively, related to our legacy asset management business. The increase in net income of the legacy asset management business from 2015 to 2016 was primarily due to the 2016 gain on the derecognition of the net liabilities of a portion of the legacy asset management business, as further described in Note 3 to the consolidated financial statements in Item 8. After income taxes and noncontrolling interest allocations, our share of the net results of the legacy asset

27

management business totaled $4.4 million of net loss, $3.6 million of net income and $1.2 million of net loss for the years ended December 31, 2016, 2015 and 2014, respectively.
Income Tax Benefit
Certain of our operations or a portion thereof, including property management, asset management and risk management are conducted through TRS entities. Additionally, some of our apartment communities, including redevelopment communities, are owned through TRS entities. Income taxes related to the results of continuing operations of our TRS entities (before gains on dispositions) are included in income tax benefit in our consolidated statements of operations.
For the year ended December 31, 2016, compared to the year ended December 31, 2015, income tax benefit decreased by $2.3 million, from $27.5 million to $25.2 million, primarily due to lower net losses recognized by apartment communities owned by our TRS entities, partially offset by higher historic tax credits associated with the redevelopment of certain apartment communities and utilization of low-income housing tax credits from our acquisition of the outside limited partner’s interest in a tax credit partnership.
For the year ended December 31, 2015, compared to the year ended December 31, 2014, income tax benefit increased by $7.5 million, from $20.0 million to $27.5 million, primarily due to the taxable income generated by our low-income housing tax credit business prior to the intercompany sale of this business in late 2014 to the Aimco Operating Partnership, and an increase in historic tax credits.
Based on the ongoing simplification of our TRS entities, and lower planned investment in redevelopments eligible for historic tax credits, we anticipate a reduction in our income tax benefit during the year ending December 31, 2017, to a range of $19 million to $22 million.
Prior to December 15, 2014, the interests in our low-income housing tax credit business were owned through TRS entities. On December 15, 2014, our TRS entities sold the interests held in our tax credit business to the Aimco Operating Partnership. Through the date of sale the income resulting from these interests was subject to income taxes. Subsequent to the sale of the tax credit business, the income resulting from interests held in the tax credit business will not result in federal income tax liability. In accordance with GAAP applicable to income tax accounting for intercompany transactions, net tax expense associated with the sale, totaling approximately $3.5 million, was deferred within our consolidated balance sheet at the time of sale, and is being recognized in earnings as the assets of the tax credit business affect our GAAP income or loss, through depreciation, impairment losses, or sales to third-party entities. Refer to the Recent Accounting Pronouncements heading within Note 2 to the consolidated financial statements in Item 8 for a discussion of a change in accounting standards affecting the remaining deferred tax associated with this and other intercompany transactions.
Gain on Dispositions of Real Estate, Net of Tax
During the year ended December 31, 2016, we sold eight consolidated apartment communities for an aggregate sale price of $544.5 million, resulting in net proceeds of $524.2 million, and a net gain of $393.8 million (which is net of $6.4 million of related income taxes). During the year ended December 31, 2015, we sold 11 consolidated apartment communities for an aggregate sales price of $404.3 million, resulting in net proceeds of $229.4 million, and a net gain of $180.6 million (which is net of $1.8 million of related income taxes). During the year ended December 31, 2014, we sold 30 consolidated apartment communities for an aggregate sales price of $735.6 million, resulting in net proceeds of $456.6 million and a net gain of approximately $288.6 million (which is net of $36.1 million of related income taxes).
NOI capitalization rate and FCF capitalization rate are benchmarks used in the real estate industry for relative comparison of real estate valuations, including for apartment community sales, and are defined and further described under the Non-GAAP Measures heading below. The NOI and FCF capitalization rates for sales of our consolidated conventional apartment communities during the years ended December 31, 2016, 2015 and 2014, were as follows:
 
2016
 
2015
 
2014
NOI capitalization rate
5.6
%
 
6.1
%
 
6.8
%
Free Cash Flow capitalization rate
4.9
%
 
4.9
%
 
5.3
%
The apartment communities sold during 2016, 2015 and 2014 were primarily outside of our target markets or in less desirable locations within our target markets and had average revenues per apartment home significantly below those of our retained portfolio. Accordingly, the NOI and FCF capitalization rates for these properties may not be indicative of those of our retained portfolio.

28

Noncontrolling Interests in Consolidated Real Estate Partnerships
Noncontrolling interests in consolidated real estate partnerships reflects the results of our consolidated real estate partnerships allocated to the owners who are not affiliated with Aimco. The amounts of income or loss of our consolidated real estate partnerships that we allocate to owners not affiliated with Aimco include their share of property management fees, interest on notes and other amounts that we charge to these partnerships.
For the years ended December 31, 2016, 2015 and 2014, we allocated net income of $25.3 million, $4.8 million, and $24.6 million, respectively, to noncontrolling interests in consolidated real estate partnerships. The amounts of net income allocated to noncontrolling interests were lower in 2015 relative to 2016 and 2014, primarily due to our derecognition of the noncontrolling interests in 2016 and recognition of deferred asset management fees in 2014 related to the legacy asset management business, as well as the allocation of gain on dispositions of real estate to noncontrolling interests.
Net Income Attributable to Aimco Preferred Stockholders and the Aimco Operating Partnership’s Preferred Unitholders
Net income attributable to Aimco preferred stockholders and the Aimco Operating Partnership’s preferred unitholders increased by $0.2 million and $0.5 million, respectively, during the year ended December 31, 2016, as compared to the year ended December 31, 2015. These increases were partly due to our July 2016 redemption of the Class Z preferred shares. In connection with the redemption, we wrote off previously deferred issuance costs of $1.3 million. Additionally, the $0.7 million excess of the redemption value over the carrying amount was reflected in the net income attributable to Aimco Preferred Stockholders and Aimco Operating Partnership’s Preferred Unitholders. These increases were partially offset by a decrease in preferred dividends due to the timing of redemption of the Class Z preferred stock and our March 2015 redemption of Series A CRA Preferred Stock.
Net income attributable to Aimco preferred stockholders and the Aimco Operating Partnership’s preferred unitholders increased by $3.8 million and $4.3 million, respectively, during the year ended December 31, 2015, as compared to the year ended December 31, 2014. These increases were primarily due to the issuance during May 2014 of $125.0 million of preferred securities with a 6.875% dividend/distribution rate, and were also partly attributable to the write-off of previously deferred issuance costs in connection with our March 2015 redemption of preferred securities. See Notes 6 and 7 to the consolidated financial statements in Item 8 for further discussion of our preferred securities.
Critical Accounting Policies and Estimates
We prepare our consolidated financial statements in accordance with GAAP, which requires us to make estimates and assumptions. We believe that the following critical accounting policies involve our more significant judgments and estimates used in the preparation of our consolidated financial statements.
Capitalized Costs
We capitalize costs, including certain indirect costs, incurred in connection with our capital additions activities, including redevelopments and developments, other tangible apartment community improvements and replacements of existing apartment community components. Included in these capitalized costs are payroll costs associated with time spent by site employees in connection with the planning, execution and control of all capital additions activities at the apartment community level. We characterize as “indirect costs” an allocation of certain department costs, including payroll, at the area operations and corporate levels that clearly relate to capital additions activities. We also capitalize interest, property taxes and insurance during periods in which redevelopments and developments are in progress. We commence capitalization of costs, including certain indirect costs, incurred in connection with our capital addition activities, at the point in time when activities necessary to get apartment communities ready for their intended use begin. These activities include when apartment communities or apartment homes are undergoing physical construction, as well as when apartment homes are held vacant in advance of planned construction, provided that other activities such as permitting, planning and design are in progress. We cease the capitalization of costs when the apartment communities or components thereof are substantially complete and ready for their intended use, which is typically when construction has been completed and apartment homes are available for occupancy. We charge costs including ordinary repairs, maintenance and resident turnover costs to property operating expense, as incurred. Refer to the discussion of investing activities within the Liquidity and Capital Resources section for a summary of costs capitalized during the periods presented.
Impairment of Long-Lived Assets
Real estate and other long-lived assets to be held and used are stated at cost, less accumulated depreciation and amortization, unless the carrying amount of the asset is not recoverable. If events or circumstances indicate that the carrying amount of an apartment community may not be recoverable, we make an assessment of its recoverability by comparing the carrying amount to our estimate of the undiscounted future cash flows, excluding interest charges, of the apartment community. If the carrying amount

29

exceeds the estimated aggregate undiscounted future cash flows, we recognize an impairment loss to the extent the carrying amount exceeds the estimated fair value of the apartment community.
As part of our portfolio strategy, we seek to sell each year up to 10% of the apartment communities in our portfolio with lower projected FCF returns, and to reinvest the proceeds from such sales in property upgrades and redevelopment of communities in our current portfolio, occasional development of new communities and selective acquisitions with projected FCF returns higher than expected for the communities sold. As we execute this strategy, we evaluate alternatives to sell or reduce our interest in apartment communities that do not align with our long-term investment strategy, although there is no assurance that we will sell or reduce our investment in such apartment communities during the desired time frame. For any apartment communities that are sold or meet the criteria to be classified as held for sale during the next 12 months, the reduction in the estimated holding period for these apartment communities may result in impairment losses.
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.
Funds from Operations, Pro forma Funds From Operations and Adjusted Funds From Operations are non-GAAP financial measures, which are defined and further described below under the Funds From Operations and Adjusted Funds From Operations heading.
FCF, as calculated for our retained portfolio, represents an apartment community’s property NOI, less spending for capital replacements, which represents our estimation of the capital additions made to replace capital assets consumed during our ownership period (further discussed under the Funds From Operations and Adjusted Funds From Operations heading and the Liquidity and Capital Resources heading). FCF margin represents an apartment community’s NOI less $1,200 per apartment home of assumed annual capital replacement spending, as a percentage of the apartment community’s rental and other property revenues. Capital replacement spending is a method of measuring the cost of capital asset usage during the period; therefore we believe that FCF is useful to investors as a supplemental measure of apartment community performance because it takes into consideration costs incurred during the period to replace capital assets that have been consumed during our ownership.
NOI capitalization rate and FCF capitalization rate are benchmarks used in the real estate industry for relative comparison of real estate valuations, including for apartment community sales. For purposes of calculating such capitalization rates for apartment community sales, NOI capitalization rate represents an apartment community’s trailing twelve month NOI prior to sale, less a management fee equal to 3% of revenue, divided by gross proceeds. FCF capitalization rate represents an apartment community’s NOI (as calculated for NOI capitalization rate) less $1,200 per apartment home of assumed annual capital replacement spending, divided by gross proceeds.
Funds From Operations and Adjusted Funds From Operations
Funds From Operations, or FFO, is a non-GAAP financial measure that we believe, when considered with the financial statements determined in accordance with GAAP, is helpful to investors in understanding our performance because it captures features particular to real estate performance by recognizing that real estate generally appreciates over time or maintains residual value to a much greater extent than do other depreciable assets such as machinery, computers or other personal property. The National Association of Real Estate Investment Trusts, or NAREIT, defines FFO as net income or loss computed in accordance with GAAP, excluding gains from sales of, and impairment losses recognized with respect to, depreciable real estate, plus depreciation and amortization related to real estate, and after adjustments for unconsolidated partnerships and joint ventures. Adjustments for unconsolidated partnerships and joint ventures are calculated on the same basis to determine FFO. We calculate FFO attributable to Aimco common stockholders (diluted) by subtracting, if dilutive, redemption or repurchase related preferred stock issuance costs and dividends on preferred stock, and adding back dividends/distributions on dilutive preferred securities and premiums or discounts on preferred stock redemptions or repurchases.
In addition to FFO, we compute Pro forma FFO and Adjusted FFO, or AFFO, which are also non-GAAP financial measures that we believe are helpful to investors in understanding our performance. Pro forma FFO represents FFO attributable to Aimco common stockholders (diluted), excluding preferred equity redemption-related amounts (adjusted for noncontrolling interests). Preferred equity redemption-related amounts (gains or losses) are items that periodically affect our operating results and we exclude these items from our calculation of Pro forma FFO because such amounts are not representative of our operating performance. AFFO represents Pro forma FFO reduced by Capital Replacements (also adjusted for noncontrolling interests), which represents our estimation of the capital additions made to replace capital assets consumed during our ownership period. When we make capital additions at an apartment community, we evaluate whether the additions enhance the value, profitability or useful life of

30

an asset as compared to its condition at the time we purchased the apartment community. We classify as Capital Improvements those capital additions that meet these criteria and we classify as Capital Replacements those that do not. AFFO is a key financial indicator we use to evaluate our operational performance and is one of the factors that we use to determine the amounts of our dividend payments.
FFO, Pro forma FFO and AFFO should not be considered alternatives to net income (loss), as determined in accordance with GAAP, as indications of our performance. Although we use these non-GAAP measures for comparability in assessing our performance compared to other REITs, not all REITs compute these same measures and those who do, may not compute them in the same manner. Additionally, computation of AFFO is subject to our definition of Capital Replacement spending. Accordingly, there can be no assurance that our basis for computing these non-GAAP measures is comparable with that of other REITs.
For the years ended December 31, 2016, 2015 and 2014, Aimco’s FFO, Pro forma FFO and AFFO are calculated as follows (in thousands):
 
2016
 
2015
 
2014
Net income attributable to Aimco common stockholders (1)
$
417,781

 
$
235,966

 
$
300,220

Adjustments:
 
 
 
 
 
Real estate depreciation and amortization, net of noncontrolling partners’ interest
314,840

 
288,611

 
265,548

Gain on dispositions and other, net of noncontrolling partners’ interest
(381,131
)
 
(174,797
)
 
(299,219
)
Income tax provision related to gain on disposition of real estate
6,374

 
1,758

 
36,058

Common noncontrolling interests in Aimco Operating Partnership’s share of above adjustments (2)
2,782

 
(5,548
)
 
(777
)
Amounts allocable to participating securities
88

 
(473
)
 
(5
)
FFO attributable to Aimco common stockholders – diluted
$
360,734

 
$
345,517

 
$
301,825

Preferred equity redemption related amounts
1,877

 
658

 
—

Pro forma FFO attributable to Aimco common stockholders – diluted
$
362,611

 
$
346,175

 
$
301,825

Capital Replacements, net of common noncontrolling interests in Aimco Operating Partnership and participating securities
(55,289
)
 
(53,925
)
 
(56,051
)
AFFO attributable to Aimco common stockholders – diluted
$
307,322

 
$
292,250

 
$
245,774

 
 
 
 
 
 
Weighted average common shares outstanding – diluted (FFO, Pro forma FFO and
AFFO) (3)
156,391

 
155,570

 
146,002

 
 
 
 
 
 
Net income attributable to Aimco per common share – diluted
$
2.67

 
$
1.52

 
$
2.06

FFO per share – diluted
$
2.31

 
$
2.22

 
$
2.07

Pro Forma FFO per share – diluted
$
2.32

 
$
2.23

 
$
2.07

AFFO per share – diluted
$
1.97

 
$
1.88

 
$
1.68

(1)
Represents the numerator for calculating Aimco’s earnings per common share in accordance with GAAP (see Note 10 to the consolidated financial statements in Item 8).
(2)
During the years ended December 31, 2016, 2015 and 2014, the Aimco Operating Partnership had outstanding, on average, 7,760,597, 7,656,626 and 7,723,822 common OP Units and equivalents.
(3)
Represents the denominator for Aimco’s earnings per common share – diluted, calculated in accordance with GAAP, plus common share equivalents that are dilutive for FFO, Pro forma FFO and AFFO.
For the year ended December 31, 2016 as compared to the 2015, Pro forma FFO increased 4% (on a diluted per share basis) primarily as a result of: Conventional Same Store property NOI growth, increased contribution from development, redevelopment and acquisition apartment communities, lower interest expense and lower casualty losses. The increases were partially offset by the loss of income from apartment communities that were sold in 2016 and 2015 and a lower income tax benefit due to the simplification of our TRS entities. For the same period, AFFO increased 5% (on a diluted per share basis), primarily as a result of the Pro forma FFO growth.
The Aimco Operating Partnership does not separately compute or report FFO, Pro forma FFO or AFFO. However, based on Aimco’s method for allocation of such amounts to noncontrolling interests in the Aimco Operating Partnership, as well as the limited differences between Aimco’s and the Aimco Operating Partnership’s net income amounts during the periods presented, FFO, Pro forma FFO and AFFO amounts on a per unit basis for the Aimco Operating Partnership would be expected to be substantially the same as the corresponding per share amounts for Aimco.

31

Economic Income
Economic Income represents the change in estimated NAV, per share plus cash dividends per share. We believe Economic Income is important to investors as it represents a measure of the total return we have earned for our stockholders. NAV, as used in our calculation of Economic Income, is a non-GAAP measure and represents the estimated fair value of assets net of liabilities attributable to Aimco’s common stockholders and the Aimco Operating Partnership’s common unitholders on a diluted basis. We believe NAV is considered useful by some investors in valuing shares in public real estate companies because it seeks to value the assets held by public companies in a manner similar to those values established in private transactions. Our estimated NAV per share and the quoted share price of Aimco Common Stock are not necessarily equal.
We estimate NAV on a semiannual basis, as of the end of the first and third quarters. Economic Income for 2016, was calculated using the change in NAV per share between September 30, 2015 and 2016. NAV will fluctuate over time. This NAV information should not be relied upon as representative of the amount a stockholder could expect to receive in a liquidation event, now or in the future. Certain assets are excluded as are certain liabilities such as taxes and transaction costs associated with a liquidation. In addition, NAV is based on management’s subjective judgments, assumptions and opinions as of the date of determination. We assume no obligation to revise or update NAV to reflect subsequent or future events or circumstances. Our NAV estimate is subject to a variety of risks and uncertainties, many of which are beyond our control, including, without limitation, those described in Item 1A. Risk Factors.
A reconciliation of NAV to total equity, which we believe is the most directly comparable GAAP measure, is provided below (in millions, except per share data):
 
September 30, 2016
Total equity
 
 
$
1,828

Fair value adjustment for real estate
 
 
 
 
Less: real estate, at depreciated cost
$
(5,756
)
 
 
 
Plus: fair value of real estate (1)
12,341

 
 
 
 
Adjustment to present real estate at fair value
 
 
6,585

Fair value adjustment for total indebtedness
 
 
 
 
Plus: total indebtedness, net
4,056

 
 
 
Less: fair value of indebtedness (2)
(3,851
)
 
 
 
 
Adjustment to present indebtedness at fair value
 
 
205

Adjustments to present other tangible assets, liabilities and preferred equity at fair value (3)
 
 
(19
)
Estimated NAV
 
 
$
8,599

 
Total shares, units and dilutive share equivalents (4)
 
 
165

Estimated NAV per weighted average common share and unit - diluted
 
 
$
52

(1)
We compute NAV by estimating the value of our conventional communities and our affordable apartment communities that are not held through low-income housing tax credit partnerships using a variety of methods we believe are appropriate based on the characteristics of the communities, including applying market-based capitalization rates published by a third party to annualized apartment community NOI for the most recent quarter; discounted projected future cash flows; and contract price for apartment communities scheduled for sale.
(2)
We calculate the fair value of our debt based on the money-weighted average interest rate on our debt, which rate takes into account the timing of amortization and maturities, and a market rate that takes into account the duration of the property debt as well as loan-to-value and coverage ratios.
(3)
Other tangible assets and liabilities were generally valued at their carrying amounts and reduced by the noncontrolling interests’ portion of these amounts and exclude intangible assets and liabilities reflected on our consolidated balance sheet. Our affordable communities held in low-income housing tax credit partnerships are consolidated for GAAP purposes where we expect to receive substantially all of the operating cash as well as a significant portion of the residual cash in payment of various fees and loans under the governing agreements. Our interests in these affordable communities is valued at the discounted future cash flows we expect to receive pursuant to the governing agreements, and such value is included in the value of other tangible assets for our NAV computation. The fair value of our preferred equity includes a mark-to-market adjustment for listed securities based on their closing share price on the valuation date.
(4)
Total shares, units and dilutive share equivalents represents Common Stock, OP Units, participating unvested restricted shares and the dilutive effect of common stock equivalents outstanding as of September 30, 2016.

32

Leverage Ratios
As discussed under the Balance Sheet and Liquidity heading, as part of our leverage strategy, we target the ratio of Proportionate Debt and Preferred Equity to Adjusted EBITDA to be below 7.0x and we target the ratio of Adjusted EBITDA to Adjusted Interest Expense and Preferred Dividends to be greater than 2.5x. We believe these ratios are important measures as they are commonly used by investors and analysts to assess the relative financial risk associated with balance sheets of companies within the same industry, and they are believed to be similar to measures used by rating agencies to assess entity credit quality.
Proportionate Debt, as used in our leverage ratios, is a non-GAAP measure and represents our share of the debt obligations recognized in our consolidated financial statements, as well as our share of the debt obligations of our unconsolidated partnerships, reduced by our share of the cash and restricted cash of our consolidated and unconsolidated partnerships, and also by our investment in the subordinate tranches of a securitization trust that holds certain of our property debt (essentially, our investment in our own non-recourse property loans).
In our Proportionate Debt computation, we increase our recorded debt by unamortized debt issue costs because these amounts represent cash expended in earlier periods and do not reduce our contractual obligations, and we reduce our recorded debt obligations by the amounts of cash and restricted cash on-hand (such restricted cash amounts being primarily restricted under the terms of our property debt agreements), assuming these amounts would be used to reduce our outstanding leverage. We further reduce our recorded debt obligations by the value of our investment in a securitization trust that holds certain of our property debt, as our payments of principal and interest associated with such property debt will ultimately repay our investments in the trust. We believe Proportionate Debt is useful to investors as it is a measure of our net exposure to debt obligations. Proportionate Debt, as used in our leverage ratios, is calculated as set forth in the table below.
Preferred Equity, as used in our leverage ratios, represents the redemption amounts for Aimco’s preferred stock and the Aimco Operating Partnership’s preferred OP Units. Preferred Equity, although perpetual in nature, is another component of our overall leverage.
Adjusted EBITDA is a non-GAAP measure. We believe Adjusted EBITDA provides investors relevant and useful information because it allows investors to view income from our operations on an unleveraged basis, before the effects of taxes, depreciation and amortization, gains or losses on sales of and impairment losses related to real estate and various other items described below.
Adjusted EBITDA represents Aimco’s share of the consolidated amount of our net income, adjusted to exclude the effect of the following items for the reasons set forth below:
•
interest expense, preferred dividends and interest income we earn on our investment in the subordinate tranches of a securitization trust that holds certain of our property debt, to allow investors to compare a measure of our performance before the effects of our capital structure with that of other companies in the real estate industry;
•
income taxes, to allow investors to measure our performance independent of income taxes, which may vary significantly from other companies within our industry due to leverage and tax planning strategies, among other considerations;
•
depreciation and amortization, gains or losses on dispositions and impairment losses related to real estate, for reasons similar to those set forth in our discussion of FFO, Pro forma FFO and AFFO in the preceding section; and
•
other items, including gains on dispositions of non-depreciable assets, as these are items that periodically affect our operations but that are not necessarily representative of our ongoing ability to service our debt obligations.
While Adjusted EBITDA is a relevant measure of performance and is commonly used in leverage ratios, it does not represent net income as defined by GAAP, and should not be considered as an alternative to net income in evaluating our performance.  Further, our definition and computation of Adjusted EBITDA may not be comparable to similar measures reported by other companies.

Adjusted Interest Expense, as calculated in our leverage ratios, is a non-GAAP measure that we believe is meaningful for investors and analysts as it presents our share of current recurring interest requirements associated with leverage. Our calculation of Adjusted Interest Expense is set forth in the table below. We exclude from our calculation of Adjusted Interest Expense:
•
debt prepayment penalties, which are items that, from time to time, affect our operating results, but are not representative of our scheduled interest obligations;
•
the amortization of debt issue costs, as these amounts have been expended in previous periods and are not representative of our current or prospective debt service requirements; and

33

•
the income we receive on our investment in the securitization trust that holds certain of our property debt, as this income is being generated indirectly from interest we pay with respect to property debt held by the trust.
Preferred Dividends represents the preferred dividends paid on Aimco’s preferred stock and the preferred distributions paid on the Aimco Operating Partnership’s preferred OP Units, exclusive of preferred equity redemption related amounts. We add Preferred Dividends to Adjusted Interest Expense for a more complete picture of the interest and dividend requirements of our leverage, inclusive of perpetual preferred equity.
For the years ended December 31, 2016 and 2015, reconciliations of the most closely related GAAP measures to our calculations of Proportionate Debt, Preferred Equity, Adjusted EBITDA, Adjusted Interest Expense and Preferred Dividends, as used in our leverage ratios, are as follows (in thousands):
 
December 31,
 
2016
 
2015
Total indebtedness
$
3,884,632

 
$
3,849,141

Adjustments:
 
 
 
Debt issue costs related to non-recourse property debt
22,945

 
24,019

Proportionate share adjustments related to debt obligations of consolidated and unconsolidated partnerships
(136,794
)
 
(139,295
)
Cash and restricted cash
(131,150
)
 
(137,745
)
Proportionate share adjustments related to cash and restricted cash held by consolidated and unconsolidated partnerships
2,320

 
2,893

Securitization trust investment and other
(74,294
)
 
(65,449
)
Proportionate Debt
$
3,567,659

 
$
3,533,564

 
 
 
 
Preferred stock
$
125,000

 
$
159,126

Preferred OP Units
103,201

 
87,926

Preferred Equity
228,201

 
247,052

Proportionate Debt plus Preferred Equity
$
3,795,860

 
$
3,780,616

 
Year Ended December 31,
 
2016
 
2015
Net income attributable to Aimco Common Stockholders
$
417,781

 
$
235,966

Adjustments:
 
 
 
Interest expense, net of noncontrolling interest
191,548

 
194,423

Income tax benefit
(26,159
)
 
(29,549
)
Depreciation and amortization, net of noncontrolling interest
325,865

 
298,880

Gains on disposition and other, net of income taxes and noncontrolling partners’ interests
(374,757
)
 
(173,039
)
Preferred stock dividends
11,994

 
11,794

Interest income earned on securitization trust investment
(6,825
)
 
(6,092
)
Net income attributable to noncontrolling interests in Aimco Operating Partnership
28,242

 
19,447

Other items, net
(1,723
)
 
2,246

Adjusted EBITDA
$
565,966

 
$
554,076


34

 
Year Ended December 31,
 
2016
 
2015
Interest expense
$
196,389

 
$
199,685

Adjustments:
 
 
 
Proportionate share adjustments related to interest of consolidated and unconsolidated partnerships
(4,841
)
 
(5,262
)
Debt prepayment penalties and other non-interest items
(3,295
)
 
(6,068
)
Amortization of debt issue costs
(4,685
)
 
(4,227
)
Interest income earned on securitization trust investment
(6,825
)
 
(6,092
)
Adjusted Interest Expense
$
176,743

 
$
178,036

 
 
 
 
Preferred stock dividends
$
11,994

 
$
11,794

Preferred stock redemption related amounts
(1,980
)
 
(695
)
Preferred OP Unit distributions
7,239

 
6,943

Preferred Dividends
17,253

 
18,042

Adjusted Interest Expense and Preferred Dividends
$
193,996

 
$
196,078


Liquidity and Capital Resources
Liquidity is the ability to meet present and future financial obligations. Our primary source of liquidity is cash flow from our operations. Additional sources are proceeds from sales of apartment communities, proceeds from refinancings of existing property debt, borrowings under new property debt, borrowings under our revolving credit facility and proceeds from equity offerings.
Our principal uses for liquidity include normal operating activities, payments of principal and interest on outstanding property debt, capital expenditures, dividends paid to stockholders, distributions paid to noncontrolling interest partners and acquisitions of apartment communities. We use our cash and cash equivalents and our cash provided by operating activities to meet short-term liquidity needs. In the event that our cash and cash equivalents and cash provided by operating activities are not sufficient to cover our short-term liquidity needs, we have additional means, such as short-term borrowing availability and proceeds from apartment community sales and refinancings. We may use our revolving credit facility for working capital and other short-term purposes, such as funding investments on an interim basis. We expect to meet our long-term liquidity requirements, such as debt maturities and apartment community acquisitions, through long-term borrowings (primarily non-recourse), the issuance of equity securities (including OP Units), the sale of apartment communities and cash generated from operations.
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. We believe we have mitigated much of this exposure by reducing our short and intermediate term maturity risk through refinancing such loans with long-dated, fixed-rate property debt. However, if property financing options become unavailable for our further debt needs, we may consider alternative sources of liquidity, such as reductions in capital spending or proceeds from apartment community dispositions.
Our investment grade rating would be useful to access capital through the sale of bonds in private or public transactions. However, our intention and historical practice has been to raise debt capital in the form of property-level, non-recourse, long-dated, fixed-rate, amortizing debt, the cost of which is generally less than that of recourse debt and the terms of which also provide for greater balance sheet safety.
At December 31, 2016, approximately 94% of our leverage consisted of property-level, non-recourse, long-dated, amortizing debt and 6% consisted of perpetual preferred equity. The weighted average maturity of our property-level debt was 8.0 years, with $260.2 million of our unpaid principal balances maturing during 2017. On average, 8.6% of our unpaid principal balances will mature each year from 2018 through 2020. Approximately 98% of our property-level debt is fixed-rate, which provides a hedge against increases in interest rates, capitalization rates and inflation.
Our primary source of leverage is property-level, non-recourse, long-dated, fixed-rate, amortizing debt. We also have a Credit Agreement with a syndicate of financial institutions that provides for $600.0 million of revolving loan commitments, which we use for working capital and other short-term purposes. At December 31, 2016, we had $17.9 million of outstanding borrowings under the Credit Agreement, and we had the right to borrow an additional $570.3 million, after consideration of the outstanding borrowings and $11.8 million for undrawn letters of credit backed by the Credit Agreement. The Credit Agreement provides us with an option to expand the aggregate loan commitments, subject to customary conditions, by up to $200.0 million. Our borrowings

35

under the Credit Agreement represented less than 1% of our total leverage as of December 31, 2016 and the interest rate on our outstanding borrowings was 2.09% at December 31, 2016.
As of December 31, 2016, our outstanding perpetual preferred equity represented approximately 6% of our total leverage. Our preferred securities are perpetual in nature; however, for illustrative purposes, we compute the weighted average maturity of our total leverage assuming a 40-year maturity on our preferred securities.
The combination of non-recourse property level debt, borrowings under our Credit Agreement and perpetual preferred equity that comprises our total leverage, reduces our refunding and re-pricing risk. The weighted average maturity for our total leverage described above was 9.8 years as of December 31, 2016.
Under the Credit Agreement, we have agreed to maintain Fixed Charge Coverage ratio of 1.40x, as well as other covenants customary for similar revolving credit arrangements. For the year ended December 31, 2016, our Fixed Charge Coverage ratio was 1.96x, compared to ratio of 1.89x for the year ended December 31, 2015. We expect to remain in compliance with this covenant during the next 12 months.
At December 31, 2016, we had $61.2 million in cash and cash equivalents and $69.9 million of restricted cash, an increase of $10.5 million and a decrease of $17.1 million, respectively, from December 31, 2015. Restricted cash primarily consists of reserves and escrows held by lenders for bond sinking funds, capital additions, property taxes and insurance and escrows related to resident security deposits. At December 31, 2016, we had approximately $700 million of cash and restricted cash on hand and credit available on our Credit Agreement.
The following discussion relates to changes in cash due to operating, investing and financing activities, which are presented in our consolidated statements of cash flows in Item 8 of this report.
Operating Activities
For the year ended December 31, 2016, our net cash provided by operating activities of $377.7 million was primarily related to operating income from our consolidated apartment communities, which is affected primarily by rental rates, occupancy levels and operating expenses related to our portfolio of apartment communities. Cash provided by operating activities for the year ended December 31, 2016, increased by $17.8 million as compared to the year ended December 31, 2015, primarily due to improved operating results of our conventional portfolio, including increased contribution from redevelopment and development apartment communities and a decrease in cash paid for interest primarily due to repayment of non-recourse property debt. These increases in cash provided by operating activities were partially offset by a decrease in the NOI associated with apartment communities we sold during 2016 and 2015.
Investing Activities
For the year ended December 31, 2016, our net cash used in investing activities of $97.8 million consisted primarily of our purchase of Indigo and other capital expenditures, partially offset by proceeds from the sale of apartment communities. We funded a portion of our purchase of Indigo with $25 million in nonrefundable deposits provided to the seller in 2015 and a portion was funded at closing through the issuance of $17 million of preferred OP units. The balance of the purchase was funded through a combination of proceeds from non-recourse property debt and from the sale of apartment communities.
Capital expenditures totaled $346.6 million, $367.2 million and $367.3 million during the years ended December 31, 2016, 2015 and 2014, respectively. We generally fund capital additions with cash provided by operating activities and cash proceeds from apartment community sales.
We categorize our capital spending broadly into six primary categories:
•
capital replacements, which represent capital additions made to replace the portion of acquired apartment communities consumed during our period of ownership;
•
capital improvements, which are non-redevelopment capital additions that are made to enhance the value, profitability or useful life of an apartment community from its original purchase condition;
•
property upgrades, which may include kitchen and bath remodeling, energy conservation projects and investments in longer-lived materials designed to reduce turnover and maintenance costs, all of which are generally lesser in scope than redevelopment additions and do not significantly disrupt property operations;
•
redevelopment additions, which represent capital additions intended to enhance the value of the apartment community through the ability to generate higher average rental rates, and may include costs related to entitlement, which enhance

36

the value of a community through increased density, and costs related to renovation of exteriors, common areas or apartment homes;
•
development additions, which represent construction and related capitalized costs associated with ground-up development of apartment communities; and
•
casualty replacements spending, which represent construction and related capitalized costs incurred in connection with the restoration of an apartment community after a casualty event such as a severe snow storm, hurricane, tornado or flood.
We exclude from these measures the amounts of capital spending related to apartment communities sold or classified as held for sale at December 31, 2016.
A summary of the capital spending for these categories, along with a reconciliation of the total for these categories to the capital expenditures reported in the accompanying consolidated statements of cash flow for the years ended December 31, 2016, 2015 and 2014, are presented below (dollars in thousands):
 
2016
 
2015
 
2014
Capital replacements
$
46,821

 
$
45,786

 
$
48,523

Capital improvements
17,019

 
20,894

 
25,028

Property upgrades
76,094

 
48,070

 
46,867

Redevelopment additions
155,398

 
117,794

 
181,952

Development additions
31,823

 
115,638

 
46,928

Casualty replacements
8,473

 
5,803

 
5,799

Total capital additions
335,628

 
353,985

 
355,097

Plus: additions related to apartment communities sold or held for sale
2,886

 
8,963

 
12,357

Consolidated capital additions
338,514

 
362,948

 
367,454

Plus: net change in accrued capital spending
8,131

 
4,232

 
(130
)
Capital expenditures per consolidated statement of cash flows
$
346,645

 
$
367,180

 
$
367,324

For the years ended December 31, 2016, 2015 and 2014, we capitalized $9.6 million, $11.7 million and $14.2 million of interest costs, respectively, and $32.9 million, $28.2 million and $29.2 million of other direct and indirect costs, respectively.
Redevelopment and Development
During the year ended December 31, 2016, we invested $155.4 million in our redevelopments, the majority of which related to six apartment communities detailed on the following table, and we invested $31.8 million in development, which primarily related to the completion of One Canal.
Information regarding our redevelopments and developments at December 31, 2016, is presented below (dollars in millions):
 
Location
 
Apartment Homes to be Redeveloped or Developed
 
Estimated / Actual Net Investment
 
Inception-to-Date Net Investment
 
Expected Stabilized Occupancy
 
Expected NOI Stabilization
In Active Construction
 
 
 
 
 
 
 
 
 
 
 
Bay Parc Plaza
Miami, FL
 
—

 
$
16.0

 
$
1.6

 
(1)
 
(1)
Palazzo at Park La Brea
Los Angeles, CA
 
389

 
24.5

 
7.8

 
2Q 2018
 
3Q 2019
Park Towne Place
Philadelphia, PA
 
701

 
136.3

 
108.7

 
1Q 2018
 
2Q 2019
Saybrook Pointe
San Jose, CA
 
324

 
15.2

 
5.0

 
1Q 2019
 
2Q 2020
The Sterling
Philadelphia, PA
 
534

 
73.0

 
63.5

 
3Q 2017
 
4Q 2018
Yorktown
Lombard, IL
 
292

 
25.7

 
8.5

 
3Q 2018
 
4Q 2019
In Lease-up
 
 
 
 
 
 
 
 
 
 
 
One Canal
Boston, MA
 
310

 
195.0

 
191.9

 
1Q 2017
 
2Q 2018
Total
 
 
2,550

 
$
485.7

 
$
387.0

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(1) This phase of the redevelopment project encompasses common area, amenity improvements and the creation of a new retail space.
Net investment represents the total actual or estimated investment, net of tax and other credits earned as a direct result of our redevelopment or development of the community.

37

NOI Stabilization represents the period in which we expect the communities to achieve stabilized rents and operating costs, generally five quarters after occupancy stabilization.
During the year ended December 31, 2016, we invested $85.2 million in the ongoing redevelopment of Park Towne Place and The Sterling, mixed-use communities located in Center City Philadelphia. We are redeveloping three of the four towers at Park Towne Place, one at a time, and at December 31, 2016, had completed 468 of the 701 apartment homes being redeveloped. We completed lease-up of the homes in the South Tower and 70% of the apartment homes in the East Tower were leased at rental rates consistent with underwriting. Based on the success of the first two towers, we commenced redevelopment of the North Tower during 2016. We will continue to evaluate the success of the redevelopment and may redevelop the fourth tower in the community.
We are redeveloping The Sterling, a 30-story building, two or three floors at a time, and at December 31, 2016, we had completed redevelopment of 472 of the 534 apartment homes in The Sterling on schedule and at a cost consistent with underwriting. We had leased 92% of the completed homes at rental rates in line with underwriting.
During 2016, we began redevelopment of four communities with an aggregate expected net investment of approximately $81.4 million. These redevelopments consist of the following:
•
Bay Parc Plaza, a 471 apartment home community located in Miami, Florida. This phase of redevelopment includes improvements to lobby areas, redesign of the retail space, updates to the landscaping and expansion of the pool deck;
•
The Palazzo at Park La Brea, a 521 apartment home community located in the Mid-Wilshire district of Los Angeles, California. This phase of redevelopment includes the renovation of 389 apartment homes on the first three floors, or 75% of the homes in the community. The redevelopment also includes enhancements to the corridors on these floors. As of December 31, 2016, 123 of the 389 apartment homes approved for redevelopment were completed at a cost consistent with underwriting and 79% of the completed homes were leased at rates ahead of underwriting;
•
Saybrook Pointe, a 324 apartment home community located in San Jose, California. Redevelopment of this community includes redesigned kitchens and open living space within the apartment homes; and
•
Yorktown, a 364 apartment home community located in Lombard, Illinois. Redevelopment of Yorktown will include upgrading apartment homes, expansion of the fitness center and renovation of common areas.
During 2016, we invested $31.8 million in development, primarily in the completion of One Canal in Boston. Lease-up is nearing completion, with 86% of the apartment homes occupied at December 31, 2016, at rental rates consistent with underwriting.
We expect our total redevelopment and development spending to range from $100 million to $200 million for the year ending December 31, 2017.
Financing Activities
For the year ended December 31, 2016, our net cash used in financing activities of $269.5 million was primarily attributed to principal payments on property loans, dividends paid to common security holders, distributions paid to noncontrolling interests and redemptions of preferred stock, partially offset by proceeds from non-recourse property debt.
Principal payments on property loans during the year totaled $371.9 million, consisting of $79.6 million of scheduled principal amortization and repayments of $292.3 million. Proceeds from non-recourse property debt borrowings during the period consisted of the closing of $393.5 million fixed-rate, amortizing, non-recourse property loans with a weighted average term of 9.4 years, in addition to $24.2 million for construction draws related to One Canal. We like the discipline of financing our investments in real estate through the use of amortizing, fixed-rate non-recourse property debt, as the amortization gradually reduces our leverage, reduces our refunding risk and the fixed-rate provides a hedge against increases in interest rates.

38

Equity and Partners’ Capital Transactions
The following table presents our dividend and distribution activity, which is included in our net cash used in financing activities during the year ended December 31, 2016 (dollars in thousands):
 
2016
Cash distributions paid by the Aimco Operating Partnership to holders of noncontrolling interests in consolidated real estate partnerships
$
18,253

Cash distributions paid by the Aimco Operating Partnership to preferred unitholders (1)
17,253

Cash distributions paid by the Aimco Operating Partnership to common unitholders (2)
216,493

Total cash distributions paid by the Aimco Operating Partnership
$
251,999

 
 
Cash distributions paid by Aimco to holders of noncontrolling interests in consolidated real estate partnerships
$
18,253

Cash distributions paid by Aimco to holders of OP Units
17,453

Cash dividends paid by Aimco to preferred stockholders
10,014

Cash dividends paid by Aimco to common stockholders
206,279

Total cash dividends and distributions paid by Aimco
$
251,999

 
 
(1)
$10.0 million represented distributions to Aimco, and $7.2 million represented distributions paid to holders of OP Units.
(2)
$206.3 million represented distributions to Aimco, and $10.2 million represented distributions paid to holders of OP Units.

Pursuant to an At-The-Market offering program active at December 31, 2016, Aimco has the capacity to issue up to 3.5 million shares of its Common Stock. In the event of any such issuances, Aimco would contribute the net proceeds to the Aimco Operating Partnership in exchange for a number of partnership common units equal to the number of shares issued and sold. Additionally, the Aimco Operating Partnership and Aimco have a shelf registration statement that provides for the issuance of debt securities by the Aimco Operating Partnership and equity securities by Aimco.
Contractual Obligations
This table summarizes information contained elsewhere in this Annual Report on Form 10-K regarding payments due under contractual obligations and commitments as of December 31, 2016 (in thousands):
 
Total
Less than One Year
1-3 Years
3-5 Years
More than Five Years
Non-recourse property debt (1)
$
3,889,647

$
346,519

$
856,830

$
1,189,941

$
1,496,357

Revolving credit facility borrowings (2)
17,930

—

—

—

17,930

Interest related to long-term debt (3)
1,052,441

185,303

300,991

185,360

380,787

Office space lease obligations
4,234

2,559

1,522

153

—

Ground lease obligations (4)
88,057

1,093

2,486

3,094

81,384

Construction obligations (5)
89,488

83,498

5,990

—

—

Total
$
5,141,797

$
618,972

$
1,167,819

$
1,378,548

$
1,976,458

 
 
 
 
 
 
(1)
Includes scheduled principal amortization and maturity payments related to our non-recourse property debt. Excludes long-term debt collateralized by assets classified as held for sale as of December 31, 2016.
(2)
Includes outstanding borrowings on our revolving credit facility assuming repayment at the contractual maturity date. Our revolving credit facility is subject to an annual commitment fee (0.25% of aggregate commitments), which is not included in the amounts above.
(3)
Includes interest related to both fixed-rate and variable-rate non-recourse property debt and our variable rate revolving credit facility borrowings. Interest related to variable-rate debt is estimated based on the rate effective at December 31, 2016. Refer to Note 4 to the consolidated financial statements in Item 8 for a description of average interest rates associated with our debt.
(4)
These ground leases expire in years ranging from 2056 to 2087.
(5)
Represents estimated obligations pursuant to construction contracts related to our redevelopment, development and other capital spending. Refer to Note 5 to the consolidated financial statements in Item 8 for additional information regarding these obligations.
In addition to the amounts presented in the table above, at December 31, 2016, we had $125.0 million (liquidation value) of Aimco’s perpetual preferred stock outstanding with an annual dividend yield of 6.9% and $103.2 million (liquidation value) of redeemable preferred OP Units of the Aimco Operating Partnership outstanding with annual distribution yields ranging from 1.92% to 8.8%. The dividends and distributions that accrue on the perpetual preferred stock and redeemable preferred OP Units are cumulative and are paid quarterly.

39

Additionally, we may enter into commitments to purchase goods and services in connection with the operations of our apartment communities. Those commitments generally have terms of one year or less and reflect expenditure levels comparable to our historical expenditures.
Future Capital Needs
In addition to the items set forth in “Contractual Obligations” above, we expect to fund any future acquisitions, redevelopment, development and other capital spending principally with proceeds from apartment community sales, short-term borrowings, debt and equity financing and operating cash flows. Our near-term business plan does not contemplate the issuance of equity.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Our primary market risk exposure is to the availability of property debt or other cash sources to refund maturing property debt and to changes in base interest rates and credit risk spreads. Our liabilities are not subject to any other material market rate or price risks. We use predominantly long-dated, fixed-rate, amortizing, non-recourse property debt in order to avoid the refunding and repricing risks of short-term borrowings. We use short-term debt financing and working capital primarily to fund short-term uses and generally expect to refinance such borrowings with cash from operating activities, proceeds from apartment community sales, long-term debt or equity financings. We make limited use of derivative financial instruments and we do not use them for trading or other speculative purposes.
As of December 31, 2016, on a consolidated basis, we had approximately $83.6 million of variable-rate property-level debt outstanding and $17.9 million of variable-rate borrowings under our revolving credit facility. We estimate that an increase in 30-day LIBOR of 100 basis points with constant credit risk spreads would reduce our net income, the amount of net income attributable to Aimco common stockholders and the amount of net income attributable to the Aimco Operating Partnership’s common unitholders by approximately $0.9 million, on an annual basis.
At December 31, 2016, we had approximately $131.2 million in cash and cash equivalents and restricted cash, a portion of which bear interest at variable rates and may mitigate the effect of an increase in variable rates on our variable-rate debt discussed above.
We estimate the fair value for our debt instruments as described in Note 11 to the consolidated financial statements in Item 8. The estimated aggregate fair value of our consolidated total debt (inclusive of outstanding borrowings under our revolving credit facility) was approximately $4.0 billion at December 31, 2016, inclusive of a $63.2 million mark-to-market liability (a decrease of $56.6 million as compared to the mark-to-market liability at December 31, 2015). The combined carrying value of our consolidated debt (excluding unamortized debt issue costs) was $3.9 billion at December 31, 2016. If market rates for our fixed-rate debt were higher by 100 basis points with constant credit risk spreads, the estimated fair value of our debt discussed above would have decreased from $4.0 billion to $3.8 billion. If market rates for our debt discussed above were lower by 100 basis points with constant credit risk spreads, the estimated fair value of our fixed-rate debt would have increased from $4.0 billion to $4.1 billion.
Item 8. Financial Statements and Supplementary Data
The independent registered public accounting firm’s reports, consolidated financial statements and schedule listed in the “Index to Financial Statements” on page F-1 of this Annual Report are filed as part of this report and incorporated herein by this reference.
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
None.

40

Item 9A. Controls and Procedures
Aimco
Disclosure Controls and Procedures
Aimco’s management, with the participation of Aimco’s chief executive officer and chief financial officer, has evaluated the effectiveness of its disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act), as of the end of the period covered by this report. Based on such evaluation, Aimco’s chief executive officer and chief financial officer have concluded that, as of the end of such period, Aimco’s disclosure controls and procedures are effective.
Management’s Report on Internal Control Over Financial Reporting
Aimco’s management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is defined in Rule 13a-15(f) and 15d-15(f) under the Exchange Act as a process designed by, or under the supervision of, our principal executive and principal financial officers and effected by our Board of Directors, management and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that:
•
pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of assets;
•
provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures are being made only in accordance with authorizations of our management and directors; and
•
provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risks that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Management assessed the effectiveness of Aimco’s internal control over financial reporting as of December 31, 2016. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework (2013 Framework).
Based on their assessment, management concluded that, as of December 31, 2016, Aimco’s internal control over financial reporting is effective.
Aimco’s independent registered public accounting firm has issued an attestation report on Aimco’s internal control over financial reporting.
Changes in Internal Control Over Financial Reporting
There has been no change in Aimco’s internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the fourth quarter of 2016 that has materially affected, or is reasonably likely to materially affect, Aimco’s internal control over financial reporting.

41

Report of Independent Registered Public Accounting Firm

The Board of Directors and Stockholders of
Apartment Investment and Management Company
We have audited Apartment Investment and Management Company’s (the “Company”) internal control over financial reporting as of December 31, 2016, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 Framework) (the COSO criteria). The Company’s management is responsible for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2016, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of the Company as of December 31, 2016 and 2015, and the related consolidated statements of operations, comprehensive income, equity, and cash flows for each of the three years in the period ended December 31, 2016, and our report dated February 24, 2017 expressed an unqualified opinion thereon.
/s/ ERNST & YOUNG LLP

Denver, Colorado
February 24, 2017


42

The Aimco Operating Partnership
Disclosure Controls and Procedures
The Aimco Operating Partnership’s management, with the participation of the chief executive officer and chief financial officer of Aimco, who are the equivalent of the Aimco Operating Partnership’s chief executive officer and chief financial officer, respectively, has evaluated the effectiveness of the Aimco Operating Partnership’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this report. Based on such evaluation, the chief executive officer and chief financial officer of Aimco have concluded that, as of the end of such period, the Aimco Operating Partnership’s disclosure controls and procedures are effective.
Management’s Report on Internal Control Over Financial Reporting
Management of the Aimco Operating Partnership is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is defined in Rule 13a-15(f) and 15d-15(f) under the Exchange Act as a process designed by, or under the supervision of, our principal executive and principal financial officers and effected by our Board of Directors, management and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that:
•
pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of assets;
•
provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures are being made only in accordance with authorizations of our management and directors; and
•
provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risks that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Management assessed the effectiveness of the Aimco Operating Partnership’s internal control over financial reporting as of December 31, 2016. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework (2013 Framework).
Based on their assessment, management concluded that, as of December 31, 2016, the Aimco Operating Partnership’s internal control over financial reporting is effective.
The Aimco Operating Partnership’s independent registered public accounting firm has issued an attestation report on the Aimco Operating Partnership’s internal control over financial reporting.
Changes in Internal Control Over Financial Reporting
There has been no change in the Aimco Operating Partnership’s internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the fourth quarter of 2016 that has materially affected, or is reasonably likely to materially affect, the Aimco Operating Partnership’s internal control over financial reporting.

43

Report of Independent Registered Public Accounting Firm

The Partners of
AIMCO Properties, L.P.
We have audited AIMCO Properties, L.P.’s (the “Partnership”) internal control over financial reporting as of December 31, 2016, based on criteria established in Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 Framework) (the COSO criteria). The Partnership’s management is responsible for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Partnership’s internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, the Partnership maintained, in all material respects, effective internal control over financial reporting as of December 31, 2016, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of the Partnership as of December 31, 2016 and 2015, and the related consolidated statements of operations, comprehensive income, partners’ capital, and cash flows for each of the three years in the period ended December 31, 2016, and our report dated February 24, 2017 expressed an unqualified opinion thereon.
/s/ ERNST & YOUNG LLP

Denver, Colorado
February 24, 2017

44

Item 9B. Other Information
None.
PART III

Item 10. Directors, Executive Officers and Corporate Governance
Each member of the board of directors of Aimco also is a director of the general partner of the Aimco Operating Partnership. The officers of Aimco are also the officers of the general partner of the Aimco Operating Partnership and hold the same titles. The information required by this item for both Aimco and the Aimco Operating Partnership is presented jointly under the captions “Board of Directors and Executive Officers,” “Corporate Governance Matters - Code of Ethics,” “Other Matters - Section 16(a) Beneficial Ownership Reporting Compliance,” “Corporate Governance Matters - Meetings and Committees: Nominating and Corporate Governance Committee,” “Corporate Governance Matters - Meetings and Committees: Audit Committee” and “Corporate Governance Matters - Meetings and Committees: Audit Committee Financial Expert” in the proxy statement for Aimco’s 2017 annual meeting of stockholders and is incorporated herein by reference.
Item 11. Executive Compensation
The information required by this item is presented under the captions “Compensation Discussion & Analysis,” “Compensation and Human Resources Committee Report to Stockholders,” “Summary Compensation Table,” “Grants of Plan-Based Awards in 2016,” “Outstanding Equity Awards at Fiscal Year End 2016,” “Option Exercises and Stock Vested in 2016,” “Potential Payments Upon Termination or Change in Control” and “Corporate Governance Matters - Director Compensation” in the proxy statement for Aimco’s 2017 annual meeting of stockholders and is incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The information required by this item, for both Aimco and the Aimco Operating Partnership, is presented under the captions “Security Ownership of Certain Beneficial Owners and Management” and “Securities Authorized for Issuance Under Equity Compensation Plans” in the proxy statement for Aimco’s 2017 annual meeting of stockholders and is incorporated herein by reference. In addition, as of February 23, 2017, Aimco, through its consolidated subsidiaries, held 95.4% of the Aimco Operating Partnership’s common partnership units outstanding.
Item 13. Certain Relationships and Related Transactions, and Director Independence
The information required by this item is presented under the caption “Certain Relationships and Related Transactions” and “Corporate Governance Matters - Independence of Directors” in the proxy statement for Aimco’s 2017 annual meeting of stockholders and is incorporated herein by reference.
Item 14. Principal Accountant Fees and Services
The information required by this item is presented under the caption “Principal Accountant Fees and Services” in the proxy statement for Aimco’s 2017 annual meeting of stockholders and is incorporated herein by reference.
PART IV
Item 15. Exhibits and Financial Statement Schedules
(a)(1)
The financial statements listed in the Index to Financial Statements on Page F-1 of this report are filed as part of this report and incorporated herein by reference.
(a)(2)
The financial statement schedule listed in the Index to Financial Statements on Page F-1 of this report is filed as part of this report and incorporated herein by reference.
(a)(3)
The Exhibit Index is incorporated herein by reference.

45

INDEX TO EXHIBITS (1) (2)
EXHIBIT NO.
DESCRIPTION
3.1
Charter (Exhibit 3.1 to Aimco’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2016, is incorporated herein by this reference)
3.2
Amended and Restated Bylaws (Exhibit 3.1 to Aimco’s Current Report on Form 8-K dated January 26, 2016, is incorporated herein by this reference)
10.1
Fourth Amended and Restated Agreement of Limited Partnership of the Aimco Operating Partnership, dated as of July 29, 1994, as amended and restated as of February 28, 2007 (Exhibit 10.1 to Aimco’s Annual Report on Form 10-K for the year ended December 31, 2006, is incorporated herein by this reference)
10.2
First Amendment to Fourth Amended and Restated Agreement of Limited Partnership of the Aimco Operating Partnership, dated as of December 31, 2007 (Exhibit 10.1 to Aimco’s Current Report on Form 8-K, dated December 31, 2007, is incorporated herein by this reference)
10.3
Second Amendment to the Fourth Amended and Restated Agreement of Limited Partnership of the Aimco Operating Partnership, dated as of July 30, 2009 (Exhibit 10.1 to Aimco’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2009, is incorporated herein by this reference)
10.4
Third Amendment to the Fourth Amended and Restated Agreement of Limited Partnership of the Aimco Operating Partnership, dated as of September 2, 2010 (Exhibit 10.1 to Aimco’s Current Report on Form 8-K, dated September 3, 2010, is incorporated herein by this reference)
10.5
Fourth Amendment to the Fourth Amended and Restated Agreement of Limited Partnership of the Aimco Operating Partnership, dated as of July 26, 2011 (Exhibit 10.1 to Aimco’s Current Report on Form 8-K, dated July 26, 2011, is incorporated herein by this reference)
10.6
Fifth Amendment to the Fourth Amended and Restated Agreement of Limited Partnership of the Aimco Operating Partnership, dated as of August 24, 2011 (Exhibit 10.1 to Aimco’s Current Report on Form 8-K, dated August 24, 2011, is incorporated herein by this reference)
10.7
Sixth Amendment to the Fourth Amended and Restated Agreement of Limited Partnership of the Aimco Operating Partnership, dated as of December 31, 2011 (Exhibit 10.1 to Aimco’s Current Report on Form 8-K, dated December 31, 2011, is incorporated herein by this reference)
10.8
Seventh Amendment to the Fourth Amended and Restated Agreement of Limited Partnership of the Aimco Operating Partnership, dated as of May 13, 2014 (Exhibit 10.1 to Aimco’s Current Report on Form 8-K, dated May 15, 2014, is incorporated herein by this reference)
10.9
Eighth Amendment to the Fourth Amended and Restated Agreement of Limited Partnership of the Aimco Operating Partnership, dated as of October 31, 2014 (Exhibit 10.1 to Aimco’s Current Report on Form 8-K, dated November 4, 2014, is incorporated herein by this reference)
10.10
Ninth Amendment to the Fourth Amended and Restated Agreement of Limited Partnership of the Aimco Operating Partnership, dated as of August 16, 2016 (Exhibit 10.1 to Aimco’s Current Report on Form 8-K, dated August 16, 2016, is incorporated herein by this reference)
10.11
Tenth Amendment to the Fourth Amended and Restated Agreement of Limited Partnership of AIMCO Properties, L.P., dated as of January 31, 2017 (Exhibit 10.1 to Aimco’s Current Report on Form 8-K, dated January 31, 2017, is incorporated herein by this reference)
10.12
Amended and Restated Senior Secured Credit Agreement, dated as of December 22, 2016, among Aimco, the Aimco Operating Partnership, AIMCO/Bethesda Holdings, Inc., the lenders from time to time party thereto, KeyBank National Association, as administrative agent, swing line lender and a letter of credit issuer, Wells Fargo Bank, N.A.and PNC Bank National Association, as syndication agents and Citibank, N.A., Bank of America, N.A. and Regions Bank, as co-documentation agents (Exhibit 10.1 to Aimco’s Current Report on Form 8-K, dated December 22, 2016, is incorporated herein by this reference)
10.13
Master Indemnification Agreement, dated December 3, 2001, by and among Aimco, the Aimco Operating Partnership., XYZ Holdings LLC, and the other parties signatory thereto (Exhibit 10.2 to Aimco’s Current Report on Form 8-K, dated December 6, 2001, is incorporated herein by this reference)
10.14
Tax Indemnification and Contest Agreement, dated December 3, 2001, by and among Aimco, National Partnership Investments, Corp., and XYZ Holdings LLC and the other parties signatory thereto (Exhibit 10.3 to Aimco’s Current Report on Form 8-K, dated December 6, 2001, is incorporated herein by this reference)
10.15
Employment Contract executed on December 29, 2008, by and between the Aimco Operating Partnership and Terry Considine (Exhibit 10.1 to Aimco’s Current Report on Form 8-K, dated December 29, 2008, is incorporated herein by this reference)*
10.16
2007 Stock Award and Incentive Plan (Appendix A to Aimco’s Proxy Statement on Schedule 14A filed with the Securities and Exchange Commission on March 20, 2007 is incorporated herein by this reference)*
10.17
Form of Restricted Stock Agreement (2007 Stock Award and Incentive Plan) (Exhibit 10.2 to Aimco’s Current Report on Form 8-K, dated April 30, 2007, is incorporated herein by this reference)*

46

10.18
Form of Non-Qualified Stock Option Agreement (2007 Stock Award and Incentive Plan) (Exhibit 10.3 to Aimco’s Current Report on Form 8-K, dated April 30, 2007, is incorporated herein by this reference)*
10.19
2007 Employee Stock Purchase Plan (Appendix B to Aimco’s Proxy Statement on Schedule 14A filed with the Securities and Exchange Commission on March 20, 2007, is incorporated herein by this reference)*
10.20
Apartment Investment and Management Company 2015 Stock Award and Incentive Plan (as amended and restated January 31, 2017) (Exhibit 10.2 to Aimco’s Current Report on Form 8-K, dated January 31, 2017, is incorporated herein by this reference)*
10.21
Form of Performance Restricted Stock Agreement (2015 Stock Award and Incentive Plan) (Exhibit 10.24 to Aimco’s Annual Report on Form 10-K for the year ended December 31, 2015, is incorporated herein by this reference)*
10.22
Form of Restricted Stock Agreement (2015 Stock Award and Incentive Plan) (Exhibit 10.25 to Aimco’s Annual Report on Form 10-K for the year ended December 31, 2015, is incorporated herein by this reference)*
10.23
Form of Non-Qualified Stock Option Agreement (2015 Stock Award and Incentive Plan) (Exhibit 10.26 to Aimco’s Annual Report on Form 10-K for the year ended December 31, 2015, is incorporated herein by this reference)*
10.24
Form of LTIP Unit Agreement (2015 Stock Award and Incentive Plan) (Exhibit 10.3 to Aimco’s Current Report on Form 8-K, dated January 31, 2017, is incorporated herein by this reference)*
10.25
Form of Performance Vesting LTIP Unit Agreement (2015 Stock Award and Incentive Plan) (Exhibit 10.4 to Aimco’s Current Report on Form 8-K, dated January 31, 2017, is incorporated herein by this reference)*
10.26
Form of Non-Qualified Stock Option Agreement (2015 Stock Award and Incentive Plan)*
21.1
List of Subsidiaries
23.1
Consent of Independent Registered Public Accounting Firm - Aimco
23.2
Consent of Independent Registered Public Accounting Firm - Aimco Operating Partnership
31.1
Certification of Chief Executive Officer pursuant to Securities Exchange Act Rules 13a-14(a)/15d-14(a), as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 - Aimco
31.2
Certification of Chief Financial Officer pursuant to Securities Exchange Act Rules 13a-14(a)/15d-14(a), as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 - Aimco
31.3
Certification of Chief Executive Officer pursuant to Securities Exchange Act Rules 13a-14(a)/15d-14(a), as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 - Aimco Operating Partnership
31.4
Certification of Chief Financial Officer pursuant to Securities Exchange Act Rules 13a-14(a)/15d-14(a), as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 - Aimco Operating Partnership
32.1
Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 - Aimco
32.2
Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 - Aimco
32.3
Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 - Aimco Operating Partnership
32.4
Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 - Aimco Operating Partnership
99.1
Agreement regarding disclosure of long-term debt instruments - Aimco
99.2
Agreement regarding disclosure of long-term debt instruments - Aimco Operating Partnership
101
XBRL (Extensible Business Reporting Language). The following materials from Aimco’s and the Aimco Operating Partnership’s combined Annual Report on Form 10-K for the year ended December 31, 2016, formatted in XBRL: (i) consolidated balance sheets; (ii) consolidated statements of operations; (iii) consolidated statements of comprehensive income; (iv) consolidated statements of equity and consolidated statements of partners’ capital; (v) consolidated statements of cash flows; (vi) notes to the consolidated financial statements; and (vii) financial statement schedule (3).
(1)
Schedule and supplemental materials to the exhibits have been omitted but will be provided to the Securities and Exchange Commission upon request.
(2)
The Commission file numbers for exhibits is 001-13232 (Aimco) and 0-24497 (the Aimco Operating Partnership), and all such exhibits remain available pursuant to the Records Control Schedule of the Securities and Exchange Commission.
(3)
As provided in Rule 406T of Regulation S-T, this information is furnished and not filed for purposes of Sections 11 and 12 of the Securities Act of 1933 and Section 18 of the Securities Exchange Act of 1934.
*
Management contract or compensatory plan or arrangement
Item 16. Form 10-K Summary
None.

47

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, each registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

APARTMENT INVESTMENT AND
MANAGEMENT COMPANY
 
 
By:
/s/ TERRY CONSIDINE    
 
Terry Considine
 
Chairman of the Board and
Chief Executive Officer
Date:
February 24, 2017
AIMCO PROPERTIES, L.P.
 
 
By:
AIMCO-GP, Inc., its General Partner
 
 
By:
/s/ TERRY CONSIDINE    
 
Terry Considine
 
Chairman of the Board and
Chief Executive Officer
Date:
February 24, 2017

48

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of each registrant and in the capacities and on the dates indicated.

Signature
 
Title
Date
APARTMENT INVESTMENT AND MANAGEMENT COMPANY
 
 
 
 
 
AIMCO PROPERTIES, L.P.
 
By: AIMCO-GP, Inc., its General Partner
 
 
 
 
 
 
/s/ TERRY CONSIDINE
 
Chairman of the Board and
February 24, 2017
Terry Considine
 
Chief Executive Officer
(principal executive officer)
 
 
 
 
 
/s/ PAUL BELDIN
 
Executive Vice President and
February 24, 2017
Paul Beldin
 
Chief Financial Officer
(principal financial officer)
 
 
 
 
 
/s/ ANDREW HIGDON
 
Senior Vice President and
February 24, 2017
Andrew Higdon
 
Chief Accounting Officer
(principal accounting officer)
 
 
 
 
 
/s/ THOMAS L. KELTNER
 
Director
February 24, 2017
Thomas L. Keltner
 
 
 
 
 
 
 
/s/ J. LANDIS MARTIN
 
Director
February 24, 2017
J. Landis Martin
 
 
 
 
 
 
 
/s/ ROBERT A. MILLER
 
Director
February 24, 2017
Robert A. Miller
 
 
 
 
 
 
 
/s/ KATHLEEN M. NELSON
 
Director
February 24, 2017
Kathleen M. Nelson
 
 
 
 
 
 
 
/s/ MICHAEL A. STEIN
 
Director
February 24, 2017
Michael A. Stein
 
 
 
 
 
 
 
/s/ NINA A. TRAN
 
Director
February 24, 2017
Nina A. Tran
 
 
 


49

APARTMENT INVESTMENT AND MANAGEMENT COMPANY
AIMCO PROPERTIES, L.P.


INDEX TO FINANCIAL STATEMENTS

 
Page
Financial Statements:
 
 
 
 
 
 
 
 
 
Financial Statement Schedule:
 
 
 
All other schedules are omitted because they are not applicable or the required information is shown in the financial statements or notes thereto.
 


F-1


REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM


The Board of Directors and Stockholders of
Apartment Investment and Management Company

We have audited the accompanying consolidated balance sheets of Apartment Investment and Management Company (the “Company”) as of December 31, 2016 and 2015, and the related consolidated statements of operations, comprehensive income, equity and cash flows for each of the three years in the period ended December 31, 2016. Our audits also included the financial statement schedule listed in the accompanying Index to Financial Statements. These financial statements and schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of the Company at December 31, 2016 and 2015, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2016, in conformity with U.S. generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company’s internal control over financial reporting as of December 31, 2016, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 Framework) and our report dated February 24, 2017, expressed an unqualified opinion thereon.    
/s/ ERNST & YOUNG LLP
Denver, Colorado
February 24, 2017


F-2

APARTMENT INVESTMENT AND MANAGEMENT COMPANY
CONSOLIDATED BALANCE SHEETS
As of December 31, 2016 and 2015
(In thousands, except share data)

 
2016
 
2015
ASSETS
 
 
 
Buildings and improvements
$
6,627,374

 
$
6,446,326

Land
1,858,792

 
1,861,157

Total real estate
8,486,166

 
8,307,483

Accumulated depreciation
(2,730,758
)
 
(2,778,022
)
Net real estate
5,755,408

 
5,529,461

Cash and cash equivalents
61,244

 
50,789

Restricted cash
69,906

 
86,956

Other assets
344,915

 
448,405

Assets held for sale
1,345

 
3,070

Total assets