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 Quarterly Report on Form 10-Q contains or may contain information that is forward-looking within the meaning of the federal securities laws, including, without limitation, statements regarding: adverse economic and geopolitical conditions, including as a result of the COVID-19 pandemic, which negatively impact our operations, including on our ability to maintain current or meet projected occupancy, rental rate and property operating results; the effect of acquisitions, dispositions, developments, and redevelopments; including 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; the availability and cost of corporate debt; and our ability to comply with debt covenants, including financial coverage ratios. These forward-looking statements are based on management's judgment as of this date, which is subject to risks and uncertainties that could cause actual results to differ materially from our expectations, including, but not limited to: the effects and duration of the COVID-19 pandemic, geopolitical events which may adversely affect the markets in which our securities trade, and other macroeconomic conditions, including, among other things, supply chain challenges, rising interest rates and inflation, all of which heightens the impact of the other risks and factors described herein, and the impact on entities in which we hold a partial interest, including our indirect interest in the partnership that ownsParkmerced Apartments ; 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 and effects of acquisitions, dispositions, developments and redevelopments; expectations regarding sales of apartment communities and the use of proceeds thereof; insurance risks, including the cost of insurance, and natural disasters and severe weather such as hurricanes; supply chain disruptions, particularly with respect to raw materials such as lumber, steel, and concrete; financing risks, including the availability and cost of financing; the risk that cash flows from operations may be insufficient to meet required payments of principal and interest; the risk that earnings may not be sufficient to maintain compliance with debt covenants, including financial coverage ratios; legal and regulatory risks, including costs associated with prosecuting or defending claims and any adverse outcomes; the terms of laws and governmental regulations that affect us and interpretations of those laws and regulations; possible environmental liabilities, including costs, fines or penalties that may be incurred due to necessary remediation of contamination of apartment communities presently owned by us; and such other risks and uncertainties described from time to time in our filings with theSecurities and Exchange Commission ("SEC"). 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 of 1986, as amended (the "Code") and depends on our ability to meet the various requirements imposed by the 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 Item 1A. Risk Factors in Part II of this report. These factors should not be construed as exhaustive and should be read in conjunction with the other cautionary statements that are included elsewhere in this Quarterly Report on Form 10-Q. We undertake no obligation to publicly update or review any forward-looking statement, whether as a result of new information, future developments or otherwise, except as required by law. Readers should also carefully review the section entitled "Risk Factors" described in Item 1A ofApartment Investment and Management Company's andAimco OP L.P.'s combined Annual Report on Form 10-K for the year endedDecember 31, 2022 , and subsequent documents we file from time to time with theSEC . As used herein and except as the context otherwise requires, "we," "our," and "us" refer toApartment Investment and Management Company (which we refer to as Aimco),Aimco OP L.P. (which we refer to asAimco Operating Partnership ) and their consolidated subsidiaries, collectively. Certain financial and operating measures found herein and used by management are not defined under accounting principles generally accepted inthe United States ("GAAP"). These measures are defined and reconciled to the most comparable GAAP measures under the Non-GAAP Measures heading. 24
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Table of Contents Executive Overview
Our mission is to make real estate investments, primarily focused on the
multifamily sector within targeted
Our value proposition includes our:
•
Platform, consisting of a cohesive, talented, and tenured team with diverse real estate industry experience combined with a disciplined and proven investment process;
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Diversified portfolio, consisting of in-process value-add investments, a deep pipeline, which includes approximately 14 million square feet of potential future development, a national portfolio of stabilized multifamily real estate and select indirect and passive investments; and
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Capital redeployment plan of prudent recycling of capital, reallocating our equity to higher returning investments.
Our primary goal is outsized risk adjusted returns and accelerating growth for our shareholders. We are focused on providing superior total-return performance to shareholders, primarily through capital appreciation driven by accretive investment and active portfolio management over multi-year periods. We plan to reinvest earnings to facilitate growth and, therefore, do not presently intend to pay a regular quarterly cash dividend. Our financial objectives are to create value and produce superior, project-level, risk-adjusted returns on equity as measured by the investment period Internal Rate of Return ("IRR") and the project-level Multiple onInvested Capital ("MOIC"). We measure broader performance based on Net Asset Value ("NAV") growth over time.
Our capital allocation strategy is designed to leverage our investment platform and optimize risk-adjusted returns for our shareholders.
Aimco targets a balanced allocation, which includes investments in "Value Add" and "Opportunistic" multifamily real estate, primarily located inSoutheast Florida , theWashington D.C. Metro Area and Colorado's Front Range , plus investment in a geographically diversified portfolio of "Core" and "Core-Plus" apartment communities.
In addition, we currently hold select alternative assets, consisting primarily of indirect, real estate related debt and equity investments. We plan to significantly reduce our allocation to these investments over time.
We have policies in place that support our stated strategy, guide our investment allocations, and manage risk, including to hold at all times a sizeable portion of our net equity in stabilized cash-flowing assets and to require cash or committed credit necessary for completion of development and redevelopment projects prior to their commencement. 25
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Given our stated strategy, it is expected that at any point in time the value-creation process will be ongoing at numerous of our investments. Over time, we expect our enterprise to produce superior returns on equity on a risk-adjusted basis and it is our plan to do so by:
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Benefiting from a national platform while leveraging local and regional expertise
We have corporate headquarters inDenver, Colorado andWashington D.C. Our investment platform is managed by experienced professionals based in three regions, where we will focus our new investment activity:Southeast Florida , theWashington D.C. Metro Area and Colorado's Front Range . By regionalizing this platform, we are able to leverage the in-depth local market knowledge of each regional leader, creating a comparative advantage when sourcing, evaluating, and executing investment opportunities.
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Managing and investing in value-add and opportunistic real estate
Our dedicated team will source and execute development and redevelopment projects, and various other direct investment strategies. Our development and redevelopment portfolio currently includes projects in construction and lease-up. In addition, our team has secured significant, high-quality, future development opportunities, including total potential of more than 14 million square feet, located in high-growth markets. Generally, we seek direct investment opportunities in locations where barriers to entry are high, target customers can be clearly defined and where we have a comparative advantage over others in the market.
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Owning a portfolio of stabilized core and core plus real estate
Our entire portfolio of operating properties includes 26 apartment communities (22 consolidated properties and four unconsolidated properties) with average rents in line with local market averages (generally defined as B class). We also own one commercial office building that is part of an assemblage with an adjacent apartment building. The target composition of our stabilized portfolio will continue to include primarily B multifamily assets, spread across a geographically diversified portfolio, with a bias toward long established residential neighborhoods that rank highly in regard to schools, employment fundamentals and state and regional governance. Core-Plus opportunities offer the opportunity for incremental capital investment while maintaining stabilized cashflow to accelerate income growth and improve asset values.
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Managing and, over time, reducing our allocation to alternative investments
We currently hold select alternative investments, the majority of which originated with Aimco Predecessor and, over time, plan to significantly reduce capital allocated to these investments. Our current allocation to alternative investments includes: our indirect interest in theMezzanine Investment to the Parkmerced partnership, which owns 3,165 apartment homes and future development rights inSan Francisco, California , and our passive equity investments inIQHQ, Inc. ("IQHQ"), a privately-held life sciences real estate development company, and in property technology funds consisting of entities that develop technology related to the real estate industry.
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Maintaining sufficient liquidity and utilizing safe financial leverage
At all times, we will guard our liquidity by maintaining sufficient cash and committed credit.
From time-to-time, we will allocate capital to financial assets designed to mitigate risks elsewhere in the Aimco enterprise. Existing examples include our option to acquire an interest rate swap designed to protect against repricing risk on our maturing liabilities and the use of interest rate caps to provide protection against increases in interest rates on in-place loans. We expect to capitalize our activities through a combination of non-recourse property debt, construction loans, third-party equity, and the recycling of Aimco equity, including retained earnings. We plan to limit the use of recourse leverage, with a strong preference towards non-recourse property-level debt in order to limit risk to the Aimco enterprise. When warranted, we plan to seek equity capital from joint venture partners to improve our cost of capital, further leverage Aimco equity, reduce exposure to a single investment and, in certain cases, for strategic benefits.
The results from the execution of our business plan during the three months
ended
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Financial Results and Recent Highlights
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For the three months endedMarch 31, 2023 , net loss attributable to Aimco common stockholders per share, on a fully dilutive basis, was$0.06 , compared to net income per share of$0.05 for the same period in 2022, primarily due to a reduction in accruedMezzanine Investment income recognition and fair value adjustments on our interest rate options.
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For the three months endedMarch 31, 2023 , revenue and net operating income from ourStabilized Operating Properties were up 11.4% and 13.1%, respectively, year over year, with average monthly revenue per apartment home of$2,227 , up$238 year over year.
Value Add, Opportunistic & Alternative Investments
Development and Redevelopment
We generally seek development and redevelopment opportunities where barriers to entry are high, target customers can be clearly defined, and where we have a comparative advantage over others in the market. We will focus our new investment activity inSoutheast Florida , theWashington D.C. Metro Area and Colorado's Front Range . Our Value Add and Opportunistic investments may also target portfolio acquisitions, operational turnarounds, and re-entitlements. We currently have five active development and redevelopment projects, located in fourU.S. markets, in varying phases of construction and lease-up. These projects remain on track, as measured by budget, lease-up metrics, and current market valuations. Additionally, we have a pipeline of future value-add opportunities totaling approximately 14 million gross square feet of development in our target markets ofSoutheast Florida , theWashington D.C. Metro, andColorado's Front Range . During the three months endedMarch 31, 2023 , we invested$64.8 million in development and redevelopment activities.
Updates include:
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Construction is now complete at the major redevelopment of The
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Construction is progressing on plan at the first phase ofStrathmore Square inBethesda, Maryland , which will contain 220 highly tailored apartment homes when complete in 2025. This suburban infill project is located adjacent to the Grosvenor-Strathmore Metro station and the Strathmore Performing Arts Campus, and is 1.5 miles from TheNational Institutes of Health main campus. Funding for the$164.0 million project is fully secured with Aimco having a remaining equity commitment, as ofMarch 31, 2023 , of$10.7 million .
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Construction remains on schedule and on budget atUpton Place inNorthwest Washington, D.C. We plan to start pre-leasing Upton's 689 apartment homes during the summer of 2023 in anticipation of initial delivery in the fourth quarter of 2023. As ofMarch 31, 2023 , 80% of the project's 105,000 square feet of retail space has been leased.
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Construction is ongoing at Oak Shore, in
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Construction of theBenson Hotel andFaculty Club , a 106-key boutique hotel and event center, with 18,000 square feet of event space, located on the Anschutz Medical Campus inAurora, Colorado . In April, the hotel was completed and open to guests. As the only 'on campus' accommodations, The Benson is garnering strong interest from the many departments and offices located on the surrounding Anschutz Medical Campus which includesThe University of Colorado Medical School ,UC Health Hospital ,Children's Hospital Colorado ,The Rocky Mountain VA Medical Center and the burgeoningFitzsimons Innovation Community . 27
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In the three months endedMarch 31, 2023 , we invested$5.7 million into our future development pipeline projects located inSoutheast Florida , theWashington D.C. Metro, andColorado's Front Range . Programming, design, documentation and entitlement efforts continue with projected unit counts and rentable square footage on track to meet or exceed initial projections. We have receivedUrban Development Review Board approvals related to our34th Street andBiscayne Boulevard properties inMiami's Edgewater neighborhood, conditional approvals on ourBroward Boulevard sites inFort Lauderdale , and earlier this month submitted a major amendment to the existing approval for the first phase of development at its site inFort Lauderdale's Flagler Village neighborhood. As part of our capital allocation strategy, we may choose to monetize certain of our pipeline assets prior to vertical construction in an effort to maximize value add and risk adjusted returns.
Alternative Investments
Our current alternative investments are primarily those investments originated by Aimco Predecessor and include aMezzanine Investment to the Parkmerced partnership secured by a stabilized multifamily property with an option to participate in future multifamily development, as well as three passive equity investments. Over time, we plan to significantly reduce capital allocated to these investments.
Updates for our alternative investments include:
•
InFebruary 2023 , we entered into an agreement to sell ourParkmerced Mezzanine Investment for$167.5 million . The initial$5.0 million deposit received by the purchaser became nonrefundable inApril 2023 when various conditions, including transfer consents, were cleared. The sale is expected to close during the three months endedJune 30, 2023 . Together with the monetization of the$1.5 billion notional swaption, purchased in conjunction with theMezzanine Investment to protect against future interest rate increases, we expect gross proceeds from these transactions to be approximately$220 million .
Investment Activity
We are focused on development and redevelopment, primarily funded through construction loans and joint venture equity.
Updates include:
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InFebruary 2023 , we entered into an option agreement with theFitzsimons Redevelopment Authority . If exercised, the option allows for the long-term lease of 4.8 acres of land located on the Anschutz Medical Campus inAurora, Colorado that can accommodate approximately 850,000 square feet of commercial life science development built out over multiple phases. The option's annual cost is approximately$0.5 million . Operating Property Results We own a diversified portfolio of stabilized apartment communities located in eight majorU.S. markets with average rents in line with local market averages. We also own a commercial office building that is part of an assemblage with an adjacent apartment building.
Highlights for the three months ended
•
Revenue for our Operating segment for the three months endedMarch 31, 2023 , was$36.7 million , up 11.4% year over year, resulting from a$238 increase in average monthly revenue per apartment home to$2,227 , offset with a 50-basis point decrease in Average Daily Occupancy to 98.0%.
•
Expenses for our Operating segment for the three months ended
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Net operating income for our Operating segment for the three months ended
•
1001 Brickell Bay Drive , a waterfront office building inMiami, Florida , is owned as part of a larger assemblage with substantial development potential. Following first quarter lease expirations, as ofMarch 31, 2023 , the building was 77% occupied. 28
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Balance Sheet and Financing Activity
We are highly focused on maintaining a strong balance sheet, including having at all times ample liquidity. As ofMarch 31, 2023 , we had access to$338.6 million in liquidity, including$166.1 million of cash on hand,$22.5 million of restricted cash, and the capacity to borrow up to$150.0 million on our revolving credit facility. Refer to the Liquidity and Capital Resources section for additional information regarding our leverage.
Financial Results of Operations
We have three segments: (i) Development and Redevelopment, (ii) Operating, and (iii) Other.
Our Development and Redevelopment segment includes properties that are under construction or have not achieved stabilization, as well as land assemblages that are being held for future development. Our Operating segment includes 21 residential apartment communities that have achieved stabilized levels of operations as ofJanuary 1, 2022 and maintained it throughout the current year and comparable period. We aggregate all our apartment communities that have reached stabilization into our Operating segment. Our Other segment consists of properties currently owned that are not included in our Development and Redevelopment or Operating segments.
The following discussion and analysis of the results of our operations and financial condition should be read in conjunction with the accompanying condensed consolidated financial statements included in Item 1.
Results of Operations for the three months ended
Net income attributable to Aimco common stockholders decreased by$17.0 million for the three months endedMarch 31, 2023 , compared to the same period in 2022, as described more fully below.
Property Results
As ofMarch 31, 2023 , our Development and Redevelopment segment included 12 properties, five of which were properties that were under construction, while the remaining were land held for development. Our Operating segment included 21 communities with 5,600 apartment homes, and our Other segment included1001 Brickell Bay Drive , our only office building andSt. George Villas . During the three months endedMarch 31, 2023 , we reclassified one residential apartment community from the Other segment to the Operating segment because it reached stabilization. Prior period segment information has been recast based upon our current segment population, and is consistent with how our CODM evaluates the business. The recast conforms with our reportable segment classification as ofMarch 31, 2023 .
We use proportionate property net operating income to assess the operating performance of our segments. Proportionate property net operating income is defined as our share of rental and other property revenues, less direct property operating expenses, but
•
excluding utility reimbursements, for the consolidated communities. In our Condensed Consolidated Statements of Operations, utility reimbursements are included in Rental and other property revenues, in accordance with GAAP;
•
excluding the results of four apartment communities with an aggregate 142
apartment homes that we neither manage nor consolidate, our investment in IQHQ
and the
•
excluding property management costs and casualty gains or losses, reported in consolidated amounts, in our assessment of segment performance.
Please refer to Note 8 to the condensed consolidated financial statements in Item 1 for further discussion regarding our segments, including a reconciliation of these proportionate amounts to consolidated rental and other property revenues and property operating expenses. 29
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Proportionate Property Net Operating Income
The results of our segments for the three months endedMarch 31, 2023 and 2022, as presented below, are based on segment classifications as ofMarch 31, 2023 : Three Months Ended March 31, (in thousands) 2023 2022 $ Change % Change Rental and other property revenues, before utility reimbursements: Development and Redevelopment$ 2,201 $ 48$ 2,153 100.0 % Operating 36,672 32,930 3,742 11.4 % Other 3,694 4,354 (660 ) (15.2 %) Total 42,567 37,332 5,235 14.0 % Property operating expenses, net of utility reimbursements: Development and Redevelopment 2,025 209 1,816 100.0 % Operating 11,186 10,396 790 7.6 % Other 1,192 1,439 (247 ) (17.2 %) Total 14,403 12,044 2,359 19.6 % Proportionate property net operating income: Development and Redevelopment 176 (161 ) 337 (100.0 %) Operating 25,486 22,534 2,952 13.1 % Other 2,502 2,915 (413 ) (14.2 %) Total$ 28,164 $ 25,288 $ 2,876 11.4 %
For the three months ended
•
Development and Redevelopment proportionate property net operating income
increased by
•
Operating proportionate property net operating income increased by$3.0 million , or 13.1%. The increase was attributable primarily to a$3.7 million , or 11.4% increase in rental and other property revenues due to higher average revenues of$238 per apartment home, offset with a 50-basis point decrease in occupancy.
•
Other proportionate property net operating income decreased by
Non-Segment Real Estate Operations
Operating income amounts not attributed to our segments include property management costs, casualty losses, and, if applicable, the results of apartment communities sold or held for sale, reported in consolidated amounts, which we do not allocate to our segments for purposes of evaluating segment performance.
Depreciation and Amortization
For the three months endedMarch 31, 2023 , compared to the same period in 2022, Depreciation and amortization decreased by$6.8 million , or 29.6%, due primarily to the disposition of three properties and the termination of leases of four properties and related relinquishment of the associated leasehold improvements during the year endedDecember 31, 2022 .
General and Administrative Expenses
For the three months endedMarch 31, 2023 , compared to the same period in 2022, General and administrative expenses decreased by$1.1 million , or 11.3%, due primarily to a decrease in expenses for consulting services per the Separation Agreement with AIR, which concluded atDecember 31, 2022 .
Interest Income
For the three months endedMarch 31, 2023 , compared to the same period in 2022, interest income increased by$1.5 million , or 100%, due primarily to interest earned on invested cash. Interest Expense For the three months endedMarch 31, 2023 , compared to the same period in 2022, interest expense decreased by$4.9 million , or 33.4%, due primarily to a decrease related to the prepayment of the notes payable due to AIR, partially offset by an increase related to the refinancing of certain property debt during the year endedDecember 31, 2022 . 30
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Mezzanine Investment Income (Loss), Net
For the three months endedMarch 31, 2023 , we recognized$0.1 million of loss in connection with theMezzanine Investment , compared to$8.2 million of income for the three months endedMarch 31, 2022 , respectively. During the year endedDecember 31, 2022 , we recorded a non-cash impairment and as a result, we have ceased recognition of income on theMezzanine Investment .
Realized and Unrealized Gains (Losses) on Interest Rate Options
We are required to adjust our interest rate options to fair value on a quarterly basis. As a result of the mark-to-market adjustments, we recorded unrealized losses of$1.9 million and unrealized gains of$18.8 million for the three months endedMarch 31, 2023 and 2022, respectively. In addition, we realized gains of$0.8 million for the three months endedMarch 31, 2023 .
Realized and Unrealized Gains (Losses) on Equity Investments
We measure our investment in stock based on its market price at period end and our investments in property technology funds at NAV as a practical expedient. As a result of changes in the values of these investments, we recorded unrealized gains of$0.1 million for the three months endedMarch 31, 2023 , compared to unrealized losses of$4.3 million for the three months endedMarch 31, 2022 .
Other Income (Expense), Net
Other income (expense), net, includes costs associated with our risk management activities, partnership administration expenses, fee income, and certain non-recurring items. For the three months endedMarch 31, 2023 , compared to the same period in 2022, other expenses, net increased by$2.5 million , or 100.0%, primarily due to the incremental expense associated with pre-existing long-term incentive partnership units recorded upon the resignation of one of our board members. Income Tax Benefit (Expense) Certain aspects of our operations, including our development and redevelopment activities, are conducted through taxable REIT subsidiaries, or TRS entities. Additionally, our TRS entities hold investments in one of our apartment communities and1001 Brickell Bay Drive . Our income tax benefit calculated in accordance with GAAP includes income taxes associated with the income or loss of our TRS entities. Income taxes, as well as changes in valuation allowance and incremental deferred tax items in conjunction with intercompany asset transfers and internal restructurings (if applicable), are included in Income tax benefit (expense) in our Condensed Consolidated Statements of Operations. Consolidated GAAP income or loss subject to tax consists of pretax income or loss of our taxable entities and gains retained by the REIT. For the three months endedMarch 31, 2023 , we had consolidated net losses subject to tax of$4.9 million , compared to net losses subject to tax of$14.8 million for the same period in 2022. For the three months endedMarch 31, 2023 , we recognized income tax benefit of$4.2 million , compared to income tax benefit of$4.1 million for the same period in 2022. The change is due primarily to the tax effect of depreciation associated with properties owned by, and activities of, our TRS entities, as well as a reduction to the effective state tax rate expected to apply to the reversal of our existing deferred items.
Critical Accounting Policies and Estimates
We prepare our condensed consolidated financial statements in accordance with GAAP, which requires us to make estimates and assumptions. We believe that the critical accounting policies that involve our more significant judgments and estimates used in the preparation of our condensed consolidated financial statements relate to capitalized costs, impairment of long-lived assets, acquisitions, and theMezzanine Investment . Our critical accounting policies are described in more detail in Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations, of Aimco's andAimco Operating Partnership's combined Annual Report on Form 10-K for the year endedDecember 31, 2022 . There have been no significant changes in our critical accounting policies from those reported in our Form 10-K and we believe that the related judgments and assessments have been consistently applied and produce financial information that fairly depicts the financial condition, results of operations, and cash flows for all periods presented. 31
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Table of Contents Non-GAAP Measures We use EBITDAre and Adjusted EBITDAre in managing our business and in evaluating our financial condition and operating performance. These key financial indicators are non-GAAP measures and are defined and described below. We provide reconciliations of the non-GAAP financial measures to the most comparable financial measure computed in accordance with GAAP.
Earnings Before Interest Expense, Income Taxes, Depreciation and Amortization for Real Estate ("EBITDAre")
EBITDAre and Adjusted EBITDAre are non-GAAP measures, which we believe are useful to investors, creditors, and rating agencies as a supplemental measure of our ability to incur and service debt because they are recognized measures of performance by the real estate industry and allow for comparison of our credit strength to different companies. EBITDAre and Adjusted EBITDAre should not be considered alternatives to net income (loss) as determined in accordance with GAAP as indicators of liquidity. There can be no assurance that our method of calculating EBITDAre and Adjusted EBITDAre is comparable with that of other real estate investment trusts. Nareit defines EBITDAre as net income computed in accordance with GAAP, before interest expense, income taxes, depreciation, and amortization expense, further adjusted for:
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gains and losses on the dispositions of depreciated property;
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impairment write-downs of depreciated property;
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impairment write-downs of investments in unconsolidated partnerships caused by a decrease in the value of the depreciated property in such partnerships; and
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adjustments to reflect our share of EBITDAre of investments in unconsolidated entities.
EBITDAre is defined by Nareit and provides for an additional performance measure independent of capital structure for greater comparability between real estate investment trusts. We define Adjusted EBITDAre as EBITDAre adjusted to exclude the effect of net (income) loss attributable to noncontrolling interests in consolidated real estate partnerships and EBITDAre adjustments attributable to noncontrolling interests, and realized and unrealized (gains) losses on interest rate options, which we believe allow investors to compare a measure of our earnings before the effects of our capital structure and indebtedness with that of other companies in the real estate industry. Additionally, we exclude interest income recognized on ourMezzanine Investment that was accrued but not paid.
The reconciliation of net loss to EBITDAre and Adjusted EBITDAre for the three
months ended
Three Months Ended March 31, 2023 2022 Net income (loss)$ (5,753 ) $ 10,112 Adjustments: Interest expense 9,725 14,601 Income tax (benefit) expense (4,196 ) (4,056 ) Depreciation and amortization 16,271
23,118
Adjustment related to EBITDAre of unconsolidated partnerships 223 257 EBITDAre$ 16,270 $ 44,032 Net (income) loss attributable to redeemable noncontrolling interests in consolidated real estate partnerships (3,274 ) (1,470 ) Net (income) loss attributable to noncontrolling interests in consolidated real estate partnerships (264 ) 2
EBITDAre adjustments attributable to noncontrolling interests
(16 ) (11 ) Mezzanine investment (income) loss, net 128 (8,237 ) Realized and unrealized (gains) losses on interest rate options 1,057 (18,778 ) Adjusted EBITDAre$ 13,901 $ 15,538 32
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Liquidity and Capital Resources
Liquidity
Liquidity is the ability to meet present and future financial obligations. Our primary sources of liquidity are cash flows from operations and borrowing capacity under our loan agreements.
As of
•
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$22.5 million of restricted cash, including amounts related to tenant security deposits and escrows held by lenders for capital additions, property taxes, and insurance; and
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We have commitments for approximately$133.2 million and remaining planned spend of$142.7 million on development and redevelopment projects, with$268.4 million undrawn on our construction loans as ofMarch 31, 2023 . The initial allocation to our joint ventures have remaining unfunded commitments of$9.5 million . We also have unfunded commitments in the amount of$2.3 million related to four investments in entities that develop technology related to the real estate industry. Our principal uses for liquidity include normal operating activities, payments of principal and interest on outstanding debt, capital expenditures, and future investments. Additionally, our third-party property managers may enter into commitments on our behalf to purchase goods and services in connection with the operation of our apartment communities and our office building. Those commitments generally have terms of one year or less and reflect expenditure levels comparable to historical levels.
We believe, based on the information available at this time, that we have sufficient cash on hand and access to additional sources of liquidity to meet our operational needs for the next twelve months.
In the event that our cash and cash equivalents, revolving secured credit facility, and cash provided by operating activities are not sufficient to cover our liquidity needs, we have the means to generate additional liquidity, such as from additional property financing activity and proceeds from apartment community sales. We expect to meet our long-term liquidity requirements, including debt maturities, development and redevelopment spending, and future investment activity, primarily through property financing activity, cash generated from operations, and the recycling of our equity. Our revolving secured credit facility matures inDecember 2023 , prior to consideration of its two one-year extension options.
Leverage and Capital Resources
The availability and cost 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. Any adverse changes in the lending environment could negatively affect our liquidity. We have taken steps to mitigate a portion of our short-term refunding risk. However, if property or development financing options become unavailable, we may consider alternative sources of liquidity, such as reductions in capital spending or apartment community dispositions. As ofMarch 31, 2023 , approximately 83% of our outstanding non-recourse property debt had a fixed interest rate and approximately 17% had a variable interest rate. In addition, the weighted-average rate on our non-recourse debt was 5.3%, and the average remaining term to maturity was 6.9 years. AtMarch 31, 2023 , substantially all of our outstanding non-recourse property debt was either fixed or hedged. Our use of interest rate caps may vary from quarter to quarter depending on lender requirements, recycling of interest rate caps between projects, and our view on forecasted interest rates. While our primary source of leverage is property-level debt and construction loans, we also have a secured$150.0 million credit facility with a syndicate of financial institutions. As ofMarch 31, 2023 , we had no outstanding borrowings under our revolving secured credit facility. Under our revolving secured credit facility, we have agreed to maintain a fixed charge coverage ratio of 1.25X minimum tangible net worth of$625.0 million , and maximum leverage of 60.0% as defined in the credit agreement. We are currently in compliance and expect to remain in compliance with these covenants during the next twelve months. 33
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Changes in Cash, Cash Equivalents, and Restricted Cash
The following discussion relates to changes in consolidated cash, cash equivalents, and restricted cash due to operating, investing and financing activities, which are presented in our Condensed Consolidated Statements of Cash Flows in Item 1 of this report.
Operating Activities
For the three months endedMarch 31, 2023 , net cash provided by operating activities was$5.6 million . Our operating cash flow is primarily affected by rental rates, occupancy levels, and operating expenses related to our portfolio of apartment communities and general and administrative costs. Cash provided by operating activities for the three months endedMarch 31, 2023 , decreased by$0.9 million compared to the same period ended in 2022, due primarily to lower net operating income associated with apartment communities sold in the latter part of 2022 and timing of balance sheet position changes, partially offset by decreased interest payments. Investing Activities For the three months endedMarch 31, 2023 , net cash used in investing activities of$63.2 million consisted primarily of capital expenditures of$64.8 million . Net cash used in investing activities for the three months endedMarch 31, 2023 , decreased by$48.2 million compared to the same period ended in 2022, due primarily to decreased real estate acquisitions and funding of our passive equity investment in IQHQ, partially offset by increased capital expenditures. We have generally funded capital additions with available cash and cash provided by operating activities and construction loans.
Financing Activities
For the three months endedMarch 31, 2023 , net cash provided by financing activities of$16.5 million consisted primarily of proceeds from construction loans, partially offset by repurchases of Common Stock and distributions to noncontrolling interests. Net cash provided by financing activities for the three months endedMarch 31, 2023 , decreased by$21.5 million compared to the same period ended in 2022, due primarily to decreased proceeds from non-recourse property debt and increased common stock repurchased, as well as changes in activity with noncontrolling interests, partially offset by decreased payments on finance leases and increased proceeds from construction loans.
Future Capital Needs
We expect to fund any future acquisitions, development and redevelopment, and other capital spending principally with operating cash flows, short-term borrowings, and debt and equity financing. Our near-term business plan does not contemplate the issuance of equity. We believe, based on the information available at this time, that we have sufficient cash on hand and access to additional sources of liquidity to meet our operational needs for the next twelve months. 34
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