Apartment Investment & Management Co 8-K, filed Jun 1, 2020
Apartment Investment & Management Co (AIV)
About this 8-K
Apartment Investment & Management Co filed this 8-K on June 1, 2020.
Items reported
- Item 7.01: Regulation FD disclosure
- Item 9.01: Financial statements and exhibits
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM
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CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported)
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APARTMENT INVESTMENT AND MANAGEMENT COMPANY
(Exact name of registrant as specified in its charter)
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Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
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Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
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Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
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Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
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Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
Securities registered pursuant to section 12(b) of the Act:
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Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the exchange act. ☐
ITEM 7.01.Regulation FD.
On June 2-4, 2020, representatives of Apartment Investment and Management Company (“Aimco”), including Terry Considine, Chairman of the Board and Chief Executive Officer, and Paul Beldin, Executive Vice President and Chief Financial Officer, will meet with investors. During those meetings, Aimco representatives will discuss the attached presentations. The presentations are furnished herewith as Exhibit 99.1 and Exhibit 99.2.
ITEM 9.01. Financial Statements and Exhibits.
(d)The following exhibits are furnished with this report:
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Exhibit No. |
Description |
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Apartment Investment and Management Company Investor Presentation – June 2020 |
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Apartment Investment and Management Company Net Asset Value Presentation – March 31, 2020 |
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Dated: June 1, 2020
APARTMENT INVESTMENT AND MANAGEMENT COMPANY
/s/ Paul Beldin______________________________
Paul Beldin
Executive Vice President and Chief Financial Officer
Investor Presentation Nareit REITweek Conference 2020 June 2-4 Flamingo Point Miami Beach, FL
Financial PERFORMANCE Economic Income is calculated as the per share change in Net Asset Value (NAV) plus Cash Dividends paid, Aimco uses share price at IPO as a proxy for NAV. Calculated using Aimco’s 12/31/19 Net Asset Value per share estimate of $59. Last July Aimco celebrated 25 Years as a public company. Over its first 25 years, compounded annually: Aimco Total Shareholder Return was 11.6%; MSCI US REIT index was 10.2%; S&P 500 was 9.9%. Aimco Economic Income(1) was 14%. 190 of the current S&P 500 companies have been public for 25 years. Aimco outperformed two-thirds of these companies with a total return ~50% above the median. Over the five years ended December 31, 2019, compounded annually: Aimco Total Shareholder Return was 10.4%; MSCI US REIT index was 7.0%; S&P 500 was 11.7%. Aimco Economic Income(2) was 10%.
In Operations, to strengthen relationships with residents that reinforce low resident turnover that is already peer leading; In Redevelopment, to increase annual investment, while maintaining a balance between “long-cycle” and “short-cycle” spending (which can quickly be scaled back when times are uncertain and liquidity is valued); In Portfolio Management, to adjust the current ~50:50 balance between “A” and “B/C+” properties to a greater % of “B” properties with potential for above-average value creation; In Balance Sheet, to seek a lower blended cost of capital while reducing leverage-to-EBITDA; and In Team, to increase the devolution of decision-making to local “hubs” closer to the properties and their local communities. Operations Increase revenue based on high levels of resident retention, through superior customer selection and satisfaction, coupled with disciplined innovation resulting in sustained cost control, to further improve NOI margins. Redevelopment and Development Create value and future earnings growth by the renovation and repositioning of apartment communities through “short-cycle” and “long-cycle” redevelopments. Portfolio Management/ Capital Allocation Own an apartment portfolio diversified by geography and price point with a focus on properties with high land value located in submarkets with outsized future growth prospects. Diversify the portfolio further by maintaining an allocation to both “income” properties, high quality properties with predictable, “low beta” AFFO returns, and “growth” properties, usually with B or C+ rents, where we expect appreciation of the substantial land value will create opportunities for “high alpha” value creation through profitable redevelopment. Balance Sheet Utilize safe property debt that is low-cost, long-dated, amortizing, and non-recourse; limiting entity and refunding risk while maintaining flexibility to sell or redevelop properties. Team Emphasize an intentional culture that is collaborative and productive, based on respect for others and personal responsibility…strengthened by a preference for promotion from within and an explicit talent development and succession planning to produce the strong, stable team that is the enduring foundation of Aimco success. Aimco Economic Income is the result of performance in five key business areas. Strategic focus To further these goals, over the intermediate term, Aimco expects to:
COE refers to Controllable Operating Expenses, defined by Aimco as property level expenses before taxes, insurance, and utilities. Peer group consists of AVB, CPT, EQR, ESS, MAA, and UDR. Peer average COE is calculated, per Aimco’s COE definition, as the CAGR of peer averages. Due to inadequate public Same Store COE disclosure from peers a ten-year or longer comparison is not available. Aimco is in a position of strength due to a focus on operations, and for the next five years, Aimco expects: Above peer average Same Store NOI growth due to: Sustained excellence in operations with world class measured customer satisfaction (4.29 out of 5 in 1Q 2020); Peer-leading average daily occupancy (97.6% in 1Q 2020, 96.6% in April 2020); Disciplined cost control based on innovation, Aimco Same Store COE(1) growth was 1.0% over the last five years, 110 bps below the peer average(2), 0.1% over the last ten years, and negative over the last twelve years(3); and Improving operating margins (73.7% in 2019 and 74.0% in 1Q 2020, peer leading for the past eleven quarters and 130 bps better than the next highest peer in 1Q 2020). Since Aimco achieved peer leading operating margins in 3Q 2017, it has expanded its margins by 250 bps, 140 bps greater than peer average during this time period. Strength in operations 2.1% Peer Avg 1.0% Aimco CAGR
In April and May, Aimco’s operating platform proved resilient when faced with economic turbulence. RESIDENTIAL UPDATE Aimco customer selection has produced a high quality customer base: In April, Aimco recognized 99% of residential revenue, after a 1% provision for Bad Debt. Of the 99%, 96% was received in cash and 3% was accrued based on security deposits available for offset, and the FICO scores of the resident or his guarantor. In May, Aimco recognized 98.3% of residential revenue, after a 1.7% provision for Bad Debt. Of the 98.3%, 95% was received in cash and the remainder was accrued based on security deposits available for offset, and the FICO scores of the resident or his guarantor. Additionally, in May, Aimco collected $1.6 million of cash associated with April and prior months accounts receivable. Aimco has now collected 98% of April rents. Consistent with Aimco’s experience in May, additional May rent collections can be expected in June and subsequent months. Aimco has two markets where rent collections have seen more significant declines. In Los Angeles, rent collection has declined in part due to the economy and in part due to strategic behavior by residents, incentivized by local regulation limiting recourse by landlords. In Miami, rent collection has declined due to the impact of COVID-19 on the tourism and hospitality industries as well as the number of residents who are not U.S. citizens and have either returned home or are ineligible for unemployment assistance. Consumer demand is improving. In mid-March, due to COVID-19, leasing pace was halved. Since the initial reduction and after consideration of seasonality, demand has recovered substantially. The impact on average daily occupancy (“ADO”), heightened by typical friction during the summer leasing season, is a lagging indicator. COMMERCIAL TENANT UPDATE Cash Rent Collection Apr 2020 May 2020 Total Bad Debt as % of Rent OFFICE USES 90% 85% 87% 0% OTHER COMMERCIAL USES OTHER - ACCRUAL BASED 50% 46% 48% 0% OTHER - CASH BASED(1) 7% 10% 8% N/A Operations CHANGES IN SAME STORE RENTAL RATES Apr 2020 Apr 2019 Apr 2018 Prelim May 2020 May 2019 May 2018 RENEWALS 6.0% 5.0% 4.7% 5.3% 5.3% 4.8% NEW LEASES 0.9% 1.6% 0.6% (1.4%) 1.9% 1.7% WEIGHTED AVERAGE 4.2% 3.4% 2.6% 2.4% 3.7% 3.4% Based on the expected economic impact of COVID-19, Aimco wrote off, in the first quarter of 2020, $2.9 million of its straight-line rent receivable and $2.2 million of deferred broker commissions related to leases to commercial tenants with retail, restaurant, and fitness uses. Monthly rent for these tenants is approximately $0.6 million and future rental revenue will be recognized on a cash basis. Aimco currently has security deposits on hand sufficient to cover all but $280k of outstanding rent due. CHANGES IN SAME STORE ADO 2020 2019 2018 FIRST QUARTER 97.6% 97.0% 96.3% APRIL 96.6% 97.0% 96.4% MAY 95.6% 97.0% 96.4%
Aimco prefers redevelopment over development, especially “short-cycle” redevelopments, where common area and amenity upgrades are phased, and apartment homes are renovated in small batches. “SHORT-CYCLE” REDEVELOPMENTS - INVENTORY MANAGEMENT “Short-cycle” redevelopments provide optionality to improve the offering, flexibility to adjust the volume to market demand, and the ability to pause when times are uncertain and liquidity is valued. For example, in March, Aimco announced plans to pause ~$150 million of spending on short-cycle redevelopment and property upgrades. Now with the economy beginning to reopen, Aimco is evaluating the appropriate time to restart some of these projects and will consider advancing those with the highest expected, risk-adjusted, returns. “LONG-CYCLE” REDEVELOPMENTS Aimco engages in “long-cycle”, or “major” redevelopments when the scope of the project, or structure of the community, requires investment in larger building systems. The five projects continuing in long-cycle redevelopment have an estimated cost to complete of ~$212 million, ~$140 million of which is expected to be spent in 2020. At March 31, 2020, Aimco’s exposure to lease-up at long-cycle redevelopment and development communities was 892 apartment homes; 70 homes where construction is complete, 347 homes expected to be delivered during the remainder of 2020, and 475 homes expected to be delivered in 2021. Major redevelopments have comparable value creation to short-cycle redevelopments, but their longer cycle time increases current period earnings dilution. When stabilized, these five communities are expected to contribute approximately $30 million of additional net operating income. PROPERTY UPGRADES Aimco invests annually in upgrades to its apartment homes, these are often high-return, quick-turnaround projects that either increase revenue or decrease operating, or resident paid, expenses. Some examples are kitchen and bath upgrades, LED lighting retrofits, and smart home technology. Redevelopment & Property upgrades
Portfolio MANAGEMENT Aimco’s portfolio is intentionally diversified by geography and price-point. GEOGRAPHY – located in 12 of the largest markets in the nation, and PRICE POINT – allocated now ~50% to properties at the “A” price point and ~50% at the “B/C+” price point. Further diversification is provided by an intentional balance between “income” properties with predictable returns and “growth” properties, where appreciation of the substantial land value is expected to create opportunities for value creation through redevelopment. Together, these properties comprise 94% of Aimco’s 1Q 2020 GAV. Aimco seeks new investments with financial returns greater than those provided by the acquisition of stabilized operating communities. Growth opportunities are provided by: Aimco seeks to mitigate downside risk through: Recent investments have included: Aimco operating expertise Deal structures meeting a specific need of the seller Land value that is a high percentage of total value Complexity Assemblage value The quality of the location Predictability of earnings Value of the collateral Structure of the investment Significant, risk adjusted, improvement in free cash flow returns over properties sold to fund the investment 1001 Brickell Bay Drive Parkmerced Loan and Option The Dranoff Portfolio Avery Row Bent Tree Parc Mosaic ($) Per Share 1Q 2020 GAV Debt NAV Leverage to EBITDA(1) Stabilized Income Apartment Communities 79 24 55 - Non-stabilized Redevelopments – Growth Communities(2) 4 0 4 - Aimco Total Core Portfolio 83 24 59 6.9x 1001 Brickell Bay Drive, Parkmerced, and Other Corporate Assets, net 5 5 0 14.2x Aimco Total Portfolio 88 29 59 7.7x Inclusive of the ~$30 million of additional NOI at stabilization from Growth Communities, Aimco Total Core Portfolio Leverage to EBITDA is 6.6x. Non-stabilized Redevelopments include: 707 Leahy, Eldridge Townhomes, Flamingo Point North Tower, The Fremont, Parc Mosaic, and Prism.
Aimco started 2020 with $650 million of cash and committed credit. At the start of the crisis: Aimco drew down $300 million on its bank lines, now repaid; slowed expected 2020 capital spending by $150 million, or almost one-half; and undertook to increase available credit by another $720 million: a $350 million bank term loan and approximately $370 million in proceeds from new property loans. These new property loans have a weighted average annual interest rate of 2.9% and a weighted average term to maturity of 9.3 years. This financing activity addresses Aimco’s 2020 maturities and $229 million of its 2021-2024 maturities. Balance Sheet Maturity ladder presents a current view of Aimco’s property debt and represents balances at March 31, 2020 adjusted for recent property loan financing activity mentioned above. LEVERAGE-TO-EBITDA Aimco leverage-to-EBITDA at the end of the 1st Quarter was 7.7:1, above its target of < 7:1. Aimco expects to meet its leverage target through a combination of NOI growth and property sales. Property NOI increases, including the $30 million of incremental NOI Aimco expects to receive from its “long-cycle” redevelopment communities now underway, reduces leverage as measured by this metric. Or, the target can be reached by the sale of properties for $600 million. In May, Aimco sold Ravensworth Apartments, for $58.9 million. Aimco utilizes primarily property debt that is low-cost, long-dated, amortizing, and non-recourse; limiting entity and refunding risk while maintaining flexibility to sell or redevelop properties.
TEAM, CULTURE, & ESG TEAM ENGAGEMENT Out of hundreds of participating companies, Aimco is ONE OF SIX recognized as a "Top Place to Work" in Colorado for each of the past eight years. In 2019, Aimco was also recognized as a “Top Place to Work” in the Bay Area. For the past five years, Aimco team engagement scores, on a 1 to 5 scale, have averaged better than 4. Aimco has a long record of Corporate Responsibility. For example: ENVIRONMENTAL Aimco creates a POSITIVE ENVIRONMENTAL IMPACT through efficient utilization and redevelopment of existing assets, and by INVESTING SYSTEMATICALLY in building systems that use energy and water MORE EFFECTIVELY and MORE EFFICIENTLY. SOCIAL Aimco has always worked to be a Good Neighbor, for example, AIMCO CARES provides Aimco team members 15 hours annually of PAID TIME OFF TO VOLUNTEER in the communities where they live and work, and where Aimco does business. In 2019, Aimco team members volunteered over 5,000 HOURS, serving 101 NONPROFITS at 125 VOLUNTEER EVENTS. Aimco also RAISED MORE THAN $500,000 through its annual charity golf tournament to fund help for MILITARY FAMILIES and SCHOLARSHIPS FOR STUDENTS in affordable housing. GOVERNANCE Aimco has always been governed by a HIGHLY ENGAGED and INDEPENDENT Board of Directors, with each independent director serving on each committee so that there are no silos to block transparency. Aimco has been honored for BOARD COMPOSITION, for the last three years, by the Women’s Forum of New York, and, in 2019, by BoardBound for having three or more board seats held by women. Aimco has a systematic program for BOARD REFRESHMENT balancing the perspective of long-serving directors with the FRESH INSIGHTS of new directors. In April, Aimco added two new directors who bring particular expertise in investment banking, capital markets, and corporate, tax, and structuring transactions. Aimco benefits from a cohesive, long-tenured management team and a culture that promotes integrity, collaboration, and innovation.
Why invest in Aimco? Aimco is designed to be resilient in hard times and provides shareholder value through: Best-in-Class Operations: Lower resident turnover through intentional focus on customer selection and satisfaction drives peer-leading margins. Paired-Trade Capital Allocation Discipline: Aimco adheres to a disciplined paired-trade strategy comparing expected unlevered returns on each of its capital allocation uses to the expected unlevered costs of capital. Favorable Risk Adjustment: Aimco’s risk adjustment is more favorable due to its portfolio diversified by: Geography: targeting 12 of the largest markets in the nation; Price Point: balanced with ~50% “A” communities and ~50% “B/C+” communities; and Safe and Flexible Balance Sheet: Aimco is the only REIT in its peer group that uses primarily non-recourse, property level financing while maintaining an investment grade rating as confirmation of the safety of its balance sheet. Bay Parc Miami, FL
APPENDIX
Appendix A – covid-19 response 21 Fitzsimons Aurora, CO PRIORITIZED THE HEALTH AND SAFETY OF TEAMMATES Aimco: formed a cross-functional committee that met daily to re-design how work was done on site, to keep the Aimco team safe while continuing to lease apartments and fulfil service requests; made it clear, and consistent with company policies providing flexibility, that any teammate who felt unsafe at work because of the virus was free to stay home, with pay and without penalty; undertook to pay all costs related to COVID-19 testing and treatment; committed to keep the Aimco team intact, without layoffs or pay cuts; and continued, and increased, regular communications and transparency, providing a steady flow of written, oral, and video reports to the entire team. MADE PROPERTIES SAFER Aimco: increased cleaning, limited in-person interaction, and searched out ways to support those sheltering at home and to meet the needs of the relatively few who reported positive for infection; redeployed construction supervisors to support property service teams, and redeployed dozens of Aimco office workers to join our shared service center team to hold thousands of structured conversations with residents, helping each plan his or her personal adjustment to the crisis; utilized its previous investment in technology and artificial intelligence to adapt to the new conditions of social distancing and sheltering at home; and mindful of the sacrifice of healthcare providers who worked long hours and felt unable to go home without risking infection of their families, provided free use of furnished apartments at 21 Fitzsimons on the Anschutz Medical Campus, Parc Mosaic near Boulder Community Health, and River Club near Newark University Hospital.
Appendix A – covid-19 response REVISED ITS ESTIMATION OF COLLECTABLE OUTSTANDING RENT Aimco revised its estimation of residential bad debt, effective in April, accelerating the estimate of collectability to month-end based on its assessment of the creditworthiness of the tenants and guarantors, based on historical collection percentages for individuals with identical FICO scores. Under the new methodology, April residential bad debt expense was approximately 1% of revenues, an increase of $270k from what would have been the result using Aimco’s former methodology. Aimco also reviewed the viability of its commercial tenants and the related accounting assets for straight-line rent and deferred broker commissions. Approximately $2.5 million, or 3.5%, of Aimco’s monthly revenue is derived from commercial tenants, about one-half office users and one-half other commercial users. In April, Aimco collected 90% of amounts due from office tenants and 30% of rents from the other commercial users. Based on the expected economic impact of COVID-19 and the recession at hand, Aimco wrote off, in the first quarter, $2.9 million (~43%) of its straight-line rent receivable and $2.2 million (~58%) of deferred broker commissions related to leases to commercial tenants with retail, restaurant, and fitness uses. Monthly rent for these tenants is approximately $0.6 million and future rental revenue will be recognized on a cash basis.
Appendix B - Supply outlook Aimco considers competitive new supply to be significant primarily to “A” price point communities in submarkets where completions are projected to be more than 2.0% of existing stock. Even where markets face elevated new supply, the quality of the Aimco offering or its location, or an increase in local demand (for example from job growth), can reduce or offset the impact of new supply. Based on first quarter data, third party experts forecast two submarkets with material investment by Aimco where 2020 increases in supply are expected to be >2%: Mid-Wilshire in Los Angeles; and Center City Philadelphia. Third parties also forecast three submarkets with lesser investments by Aimco, totaling ~6% of GAV, where 2020 increases in supply are forecast to be >2%: One Canal in Boston; Calhoun Beach Club in Minneapolis; Indigo and 707 Leahy in Redwood City, CA. These updated supply forecasts are consistent with expectations entering 2020. Aimco considers first quarter data provided by third parties as preliminary given the uncertainties resulting from COVID-19. Construction delays due to local moratoriums, labor shortages, and supply chain disruptions may result in completion delays beyond what is currently expected. Market Submarket % Aimco GAV Invested in "A" Submarket Graded Communities 2020 Completions as a % of Stock(1) Aimco Specific Mitigating Factors Los Angeles Mid-Wilshire 8.7% 2.7% Deliveries delayed from 2019 cause this submarket to screen at our elevated supply threshold in 2020, if further delays are experienced the impact will be muted in 2020. Philadelphia Center City 6.7% 2.9% The continuing new supply is easing from 2018 and 2019 when Aimco enjoyed robust demand for its apartment homes in Center City and University City. Based on submarket data for deliveries in 2020 as a percentage of 1Q20 forecasted stock as of 1Q 2020, available from Axio/MPF Research.
Appendix C - Parkmerced Aimco’s investment in Parkmerced is a classic Aimco investment. It is a coin flip scenario where: “Heads we win; tails we don’t lose.” A few facts: Heads we win (Aimco expectation): Aimco expects the mezzanine loan and all accrued interest to be repaid either over time, or upon a recapitalization event at the loan’s maturity. The table below shows the resulting value creation assuming the partnership’s value does not appreciate, and no cash interest payments are made. After repayment of the accrued interest, the equity acquired through exercising the option increases Aimco’s return from 10% to 12%. Partnership Appraised Value ($ in millions) Rent Control Portfolio 1,741 Land (Entitled Development Rights) + 369 Gross Asset Value (“GAV”) = 2,110 First Priority Loan - 1,500 Equity Before Mezzanine Loan = 610 Aimco Mezzanine Loan - 275 Equity Behind Mezzanine Loan = 335 ($ in millions) Appraised GAV 2,110 First Priority Loan - 1,500 Aimco Mezzanine Loan - 275 Aimco Accrued Interest - 168 Equity (After Loan and Accrued Interest Repayment) = 167 Aimco Exercises Option X 30% Acquires 30% of Equity for $1.0 Million = 49 Tails we don’t lose (Borrower defaults): A borrower default would prompt a UCC foreclosure. In the event of a foreclosure, Aimco would either receive full payment of its mezzanine loan and all related accrued interest or 100% of the equity in the partnership. Assuming a constant value, the equity would be worth an incremental $167 million, increasing Aimco’s return from 10% to 17%. Three potential risks: Reduced demand for apartment living in San Francisco … although this seems remote given the dynamism of Silicon Valley and high median home prices. Increased interest rates, so these were hedged at closing with the purchase of a “swaption”, or interest rate swap option. Local rent control, which is in place for the rent control portfolio and waived, by contract, with the City for new building on the adjacent land.
FORWARD LOOKING STATEMENTS & other INFORMATION This presentation contains forward-looking statements within the meaning of the federal securities laws, including, without limitation, statements regarding projected results and specifically forecasts of 2020 and future expectations, including but not limited to: AFFO and selected components thereof; Aimco redevelopment and development investments and projected value creation from such investments; Aimco refinancing activities; and Aimco liquidity and leverage metrics. These forward-looking statements are based on management’s judgment as of this date, which is subject to risks and uncertainties. Risks and uncertainties include, but are not limited to: the impact of the COVID-19 pandemic, including on Aimco’s ability to maintain current or meet projected occupancy, rental rate and property operating results; the effect of acquisitions, dispositions, redevelopments and developments; Aimco’s ability to meet budgeted costs and timelines, and achieve budgeted rental rates related to Aimco redevelopments and developments; and Aimco’s 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 Aimco’s 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 Aimco operates 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; Impact of the COVID-19 pandemic on Aimco’s residents, commercial tenants, and operations, including as a result of government restrictions and the overall impact on the real estate industry and economy generally, and the ongoing, dynamic and uncertain nature and duration of the pandemic, all of which heightens the impact of the other risks and factors described below; Financing risks, including the availability and cost of capital markets’ financing; the risk that cash flows from operations may be insufficient to meet required payments of principal and interest; and the risk that 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 Aimco 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 Aimco. In addition, Aimco’s 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 Aimco’s ability to meet the various requirements imposed by the Internal Revenue Code, through actual operating results, distribution levels and diversity of stock ownership. Pursuant to its existing authority to repurchase up to an additional 10.4M shares, Aimco may make repurchases from time to time in the open market or in privately negotiated transactions at the Aimco’s discretion and in accordance with the requirements of the SEC. The timing and amount of repurchases, if at all, will depend on market pricing as well as other conditions. Readers should carefully review Aimco’s financial statements and the notes thereto, as well as the section entitled “Risk Factors” in Item 1A of Aimco’s Annual Report on Form 10-K for the year ended December 31, 2019, in Item 1A of Aimco’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2020, and the other documents Aimco files from time to time with the Securities and Exchange Commission. These forward-looking statements reflect management’s judgment as of this date, and Aimco assumes no obligation to revise or update them to reflect future events or circumstances. This presentation does not constitute an offer of securities for sale. Glossary & Reconciliations of Non-GAAP Financial and Operating Measures Financial and operating measures discussed in this document include certain financial measures used by Aimco management, that are measures not defined under accounting principles generally accepted in the United States, or GAAP. Certain Aimco terms and Non-GAAP measures are defined in the Glossary and Reconciliations of Non-GAAP Financial and Operating Measures included in Aimco’s First Quarter 2020 Earnings Release dated May 7, 2020.
INTRODUCTION Net Asset Value is calculated as the market value of a company's assets less its liabilities and obligations. Net Asset Value is considered useful by some investors because the value of company assets can be readily estimated, even for non-earning assets such as land or properties under development. Net Asset Value has the advantage of incorporating the investment decisions of thousands of real estate investors, enhancing comparability among companies that have differences in their accounting, and avoiding disparity that can result from application of GAAP to investment properties and various ownership structures. While Net Asset Value is not identical to liquidation value in that some costs and benefits are disregarded, it is often considered a floor with upside for value ascribed to the operating platform. Net Asset Value also provides a basis for the perceived quality and predictability of future cash flows as well as their expected growth as these are factors considered by real estate investors. As a result, Net Asset Value can be a valuable starting point for projecting future earnings.
GENERAL DISCLOSURES The information provided in this presentation is intended to assist users in estimating Aimco’s Net Asset Value per share. This is not an offer to sell securities and does not constitute legal, tax, investment or other professional advice on any subject matter. Information provided is not all-inclusive and should not be relied upon as being all-inclusive. This presentation describes a process to estimate Aimco's Net Asset Value per share as of March 31, 2020. This value will fluctuate over time. Aimco's estimated Net Asset Value per share is based upon subjective judgments, assumptions and opinions and includes certain risks and uncertainties. Risks and uncertainties include, but are not limited to: Aimco's ability to maintain current or meet projected occupancy, rental rates and property operating results; the effect of acquisitions, dispositions, redevelopments and developments; Aimco's ability to meet budgeted costs and timelines, and achieve budgeted rental rates related to its redevelopments and developments; and Aimco's ability to meet timelines and budgeted rental rates related to its lease-up properties.
GENERAL DISCLOSURES (CONTINUED) This Net Asset Value per share information is intended to measure Aimco’s value as a going concern, consistent with International Financial Reporting Standards (“IFRS”), and is not necessarily representative of the amount a stockholder could expect to receive in a liquidation event, now or in the future. Certain opportunities are excluded as are transaction costs, transfer taxes, income taxes, and any real estate tax adjustments that may impact the value a stockholder might receive, and a buyer might ascribe to Aimco’s communities (see page 8). Aimco's estimated Net Asset Value is based on management's judgments, assumptions and opinions as of this date, and Aimco assumes no obligation to revise or update them to reflect future events or circumstances. Actual results may differ materially from management's forecasts as of this date and, in addition, will be affected by a variety of risks and factors, some of which are beyond Aimco's 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 Aimco operates 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; Impact of the COVID-19 pandemic on our residents, commercial tenants, and operations, including as a result of government restrictions and overall impact on the real estate industry and economy in generally, and the ongoing, dynamic and uncertain nature and duration of the pandemic, all of which heightens the impact of the other risks and factors described below; Financing risks, including the availability and cost of capital markets financing; the risk that 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;
GENERAL DISCLOSURES (CONTINUED) Insurance risk, 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 Aimco 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 Aimco. In addition, Aimco's 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 its 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 Aimco's financial statements and the notes thereto, as well as the section entitled "Risk Factors" in Item 1A of Aimco's Annual Report on Form 10-K for the year ended December 31, 2019, in Item 1A of Aimco’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2020, and the other documents Aimco files from time to time with the Securities and Exchange Commission.
VALUATION METHODOLOGY Real Estate - Aimco estimated the value of its communities using methods management believes to be appropriate based on the characteristics of the communities. For valuation purposes, Aimco segregated its portfolio into the following categories: Stabilized Portfolio; Redevelopment and Development Communities; and Other Real Estate. Communities in these categories were valued as follows: Stabilized Portfolio - includes 118 communities valued using a direct capitalization rate ("cap rate") method based on annualized 1Q 2020 proportionate property NOI, less a 2% management fee, and market cap rates. This valuation method was utilized to determine approximately 90% of real estate fair value. Redevelopment and Development Communities - includes six communities valued based on discounting projected future cash flows. This valuation method was utilized to determine approximately 8% of real estate fair value. Other Real Estate Portfolio - includes three recently acquired properties: One Ardmore, Prism, and 1001 Brickell Bay Drive, certain land investments valued at Aimco’s cost plus initial investment and one property held at March 31st and subsequently sold. This valuation method was utilized to determine approximately 2% of real estate fair value.
VALUATION METHODOLOGY (CONTINUED) Other Tangible Assets - consist of cash, restricted cash, accounts receivable and other assets, including the Parkmerced Option and Loan, for which Aimco reasonably expects to receive cash through the normal course of operations. Debt - the fair value of Aimco's debt considers the duration of the property debt as well as the quality of property pledged as its security, its loan to value, and debt service coverage. Other Tangible Liabilities - consist of accounts payable, accrued liabilities and other tangible liabilities Aimco reasonably expects to settle in cash through the normal course of operations.
VALUATION METHODOLOGY (CONTINUED) Other Items of Note Real estate values are based on Aimco’s current uses and most importantly do not include the value of unused or underused land or air rights. Real estate values generally do not take into consideration transaction costs or other items such as real estate tax adjustments that may impact the value a buyer might ascribe to Aimco’s communities. This calculation of Aimco’s Net Asset Value includes the value of assets less liabilities and obligations as of March 31, 2020 and does not include asset acquisitions or dispositions subsequent to March 31, 2020. This calculation of Aimco’s Net Asset Value does not include the value of fee income such as property management revenues, or non-recurring investment management revenues. This calculation of Aimco’s Net Asset Value does not consider enterprise value. Additional details of Aimco’s calculations and methodologies are included on the following pages.
March 31, 2020 Estimated Net Asset Value: $59 per share* Estimated NAV per share was up one dollar from the third quarter 2019 calculation. The increase in NAV is attributable to NOI growth in the stabilized portfolio, a decrease in cap rates, and value creation from development and redevelopment. Fair Value of Real Estate: IFRS permit measurement of investment property at fair value. While Aimco does not report under IFRS, it believes the estimation of the fair value of real estate provided herein is determined consistently with IFRS requirements for investment properties. *Refer to additional details and disclosures beginning on page 11. $86 Fair value of Real Estate $5 Fair Value of Other Tangible Assets and Liabilities Cash and restricted cash + Other tangible assets – Other tangible assets -$32 Fair Value of Leverage carrying value of debt + Mark-to-market adjustment + Fair value of preferred equity
March 31, 2020 Estimated Fair Value of Real Estate: $86 per share* Stabilized Real Estate Portfolio Annualized 1Q 2020 NOI Less:Management fee of 2% of revenue Divided By: NOI cap rate of 4.85% Redevelopment and Development Portfolio Cash flows discounted from property stabilization to March 31, 2020. Other Real Estate Portfolio Other Investments: Certain land investments valued at cost plus initial investment and one property held at March 31st and subsequently sold. Recent Acquisitions: Valued at cost plus initial investment. $7 $2 *Refer to additional details and disclosures beginning on page 11. $77
Fair Value of Real Estate as of March 31, 2020 ($M) Stabilized Portfolio NOI, less management fee $ 584 (1 ) NOI cap rate 4.85 % (2 ) Stabilized Portfolio Value $ 12,033 Non-Stabilized Portfolio Redevelopment and Development $ 1,153 (3 ) Other Real Estate $ 317 (4 ) Non-Stabilized Portfolio Value $ 1,470 Fair Value of Real Estate $ 13,503 *Refers to Footnotes beginning on page 14.
Fair Value of Other Assets and Liabilities, Preferred Equity and Debt as of March 31, 2020 ($M) *Refer to Footnotes beginning on page 14. Consolidated Amounts as Reported Ownership Adjustments (5) Fair Value Adjustments Adjusted Amounts Other Tangible Assets Cash and cash equivalents $341 $(1) - $340 Restricted cash $34 $- - $34 Goodwill and other intangible assets $123 - $(123) - (6) Other tangible assets $239 $(14) $82 $307 (7) Option and Mezzanine Investment $286 - - $286 (8) Fair Value of Other Tangible Assets $1,023 $(15) $(41) $967 Other Tangible Liabilities Deferred income and intangible liabilities $90 - $(90) - (9) Accounts payable $62 - - $62 Other tangible liabilities $197 $(1) $(59) $137 (7) Fair Value of Other Tangible Liabilities $349 $(1) $(149) $199 Fair Value Other Tangible Assets and Liabilities, Net $674 $(14) $108 $768 Preferred Equity Preferred noncontrolling interests in Aimco Operating Partnership $96 - - $96 Fair Value of Preferred Equity $96 - - $96 Debt Non-recourse property debt $4,228 $(8) $63 $4,283 Revolving credit facility borrowings $594 - - $594 Fair Value of Debt $4,822 $(8) $63 $4,877 (10) Fair Value of Leverage $4,918 $(8) $63 $4,973
Net Asset Value as of March 31, 2020 ($M, except per share amounts) It bears repeating that this NAV per share calculation is made at a point in time and based on the assumptions noted in this presentation. Results may be expected to fluctuate based on subsequent events, including the impact of COVID on operating results and valuations. Many factors influence this calculation including operating results, changes in use or density, the broader economy, and alternative investment opportunities. Our methodology relies on CBRE reporting of cap rates applicable to transactions in 2H 2019, which incorporated the facts and circumstances then prevalent. If cap rates were to increase or decrease by 25 basis points, then Aimco’s GAV and NAV would change by ~$700M which equates to $4.50 per share. *Refer to Footnotes beginning on page 14. 1Q 2020 Annualized $M Fair Value of Real Estate $13,503 Fair Value of Other Tangible Assets and Liabilities, Net $768 Fair Value of Debt $(4,973) Net Asset Value $9,298 Total Shares, Units and Dilutive Share Equivalents Outstanding 157 (11) Net Asset Value per Share $59
Footnotes 1. Represents Stabilized Portfolio Proportionate Property NOI for the three months ended March 31, 2020, annualized, and adjusted for an assumed property management fee. Market property management fees range between 2.0% and 3.0% with larger, higher quality portfolios at the lower end of that range. For the purposes of this calculation of Net Asset Value, Aimco has assumed a 2% management fee. For the purposes of this calculation of Net Asset Value, 1Q 2020 Property NOI is multiplied by four to arrive at annualized Property NOI. Refer to the following pages for explanation of adjustments for purposes of computing Stabilized Portfolio Property NOI. Three Months Ended March 31, 2020 Stabilized Portfolio NOI ($000s)Consolidated AmountOwnership AdjustmentsAdjustmentsAdjusted Amounts Rental and other property revenues Same Store $188,279 $(323) $(1,171) a $186,785 Acquisitions, Redevelopment and Development 12,797 — (10,071) b 2,726 Other Real Estate 18,459 5 (3,462) c 15,002 Total rental and other property revenues $219,535 $(318) $(14,704) $204,513 Less: Direct property operating expenses Same Store $(48,853) $70 $348 a $(48,435) Acquisitions, Redevelopment and Development (5,088) — 4,357 b (731) Other Real Estate (6,373) 21 994 c (5,358) Total property operating expenses $(60,314) $91 $5,699 $(54,524) Property Net Operating Income $159,221 $(227) $(9,005) $149,989 Less: Assumed property management fee of 2% of revenue (4,391) 6 294 (4,091) Property Net Operating Income after 2% management fee $154,830 $(221) $(8,711) $145,898 Annualized Property Net Operating Income $619,320 $(884) $(34,844) $583,592
Footnotes (continued) (continued) Represents revenues and expenses related to one property held at March 31st and subsequently sold. Represents revenues and expenses related to three development and three redevelopment communities: Parc Mosaic, located in Boulder, Colorado; The Fremont, located in North Aurora, Colorado; Eldridge Townhomes, located in Elmhurst, Illinois; Flamingo Point, located in Miami Beach, Florida; Bay Parc, located in Miami, Florida; and 707 Leahy, located in Redwood City, California. Also included in these adjustments are the revenue and expense items related to recent acquisitions: One Ardmore, located in Ardmore, Pennsylvania and purchased in April 2019; and Prism (formerly 50 Rogers), located in Cambridge, Massachusetts and purchased in June 2019. Aimco’s redevelopment and development communities are valued based on discounted cash flows as described in notes 3 and 4 starting on page 18. For the purpose of this Net Asset Value calculation, Parc Mosaic, The Fremont, Elm Creek Townhomes, Flamingo Point, Bay Parc, and 707 Leahy are included in Aimco’s Redevelopment and Development Portfolio value. For the purpose of this Net Asset Value calculation, One Ardmore, and Prism are included in Aimco’s Other Real Estate Portfolio, valued at their acquisition price plus initial capital expenditures. After excluding the results related to the communities described above, stabilized NOI related to acquisition, redevelopment, and development communities represents the results of operations from the following communities: The Villas at Park La Brea, located in Los Angeles, California; and 88th Street and Second Avenue located in Manhattan, New York. Represents revenue and expenses related primarily to Aimco’s investment in 1001 Brickell Bay Drive, and other land holdings. For the purpose of this Net Asset Value calculation, 1001 Brickell Bay Drive and land are included in Aimco’s Other Real Estate Portfolio. 1001 Brickell Bay Drive is valued at its acquisition price plus initial capital expenditures and land is valued at carrying value.
Footnotes (continued) 2. Represents Aimco’s estimated current NOI cap rate for its Stabilized Portfolio, which was calculated by Aimco on a property-by- property basis, based primarily on information published by CBRE in its 2H 2019 Cap Rate Survey. CBRE is a nationally recognized provider of real estate data. Such Survey includes ranges of current cap rates based on the following community characteristics: market in which the community is located; infill or suburban location within the market; property quality grade; and whether the community is stabilized or value-add. In estimating the appropriate current cap rate for its Stabilized Portfolio, Aimco categorized communities in the portfolio using the framework described above and, using its judgment and detailed knowledge of each community’s condition and location, other than the exceptions noted below, Aimco selected an appropriate current cap rate from within the range provided in CBRE's Cap Rate Survey. The results of this analysis are detailed on the following page.
Footnotes (continued) 2.(continued) Aimco selected cap rate for Atlanta is based on market pricing for properties currently for sale. Based on the quality of its communities and locations within the market, Aimco estimates the current NOI cap rate for its Chicago portfolio is slightly higher than the high end of the range of cap rates indicated by the results of Aimco’s analysis using the CBRE Cap Rate Survey. Aimco estimates the current NOI cap rates for its communities located in New York City are on average 40 basis points lower than the low end of the range of cap rates that is indicated by the results of Aimco's analysis using the CBRE Cap Rate Survey. Aimco believes this lower cap rate is appropriate because the Survey reflects cap rates for the New York City metro area while Aimco’s portfolio is concentrated in Manhattan, where today’s cap rates are lower. Based on the quality of its communities and locations within the market, Aimco estimates the current NOI cap rate for its San Diego portfolio is slightly higher than the high end of the range of cap rates indicated by the results of Aimco’s analysis using the CBRE Cap Rate Survey. 1Q 2020 Stabilized Portfolio Range of CBRE Cap Rates for Aimco's Portfolio CommunitiesApartment HomesWeighted Average Portfolio AgeAverage Revenue per Apartment HomeAverage Rent as a Percentage of Market AverageAverage Quality GradeLowHighAimco Selected Cap Rate Atlanta 4 505 26 $ 1,854 144%A5.1%5.8%4.9%a Bay Area 11 2,522 20 $ 3,162 103%B4.2%4.7%4.4% Boston 15 4,689 34 $ 2,068 83%C+5.0%5.9%5.3% Chicago 7 1,671 26 $ 1,889 122%B5.1%5.4%5.5%b Denver 7 1,925 24 $ 1,707 113%B4.8%5.7%5.1% New York 18 1,039 23 $ 3,406 104%B4.7%5.5%4.3%c Greater Washington, DC 11 5,238 49 $ 1,656 88%C+5.4%6.0%5.5% Los Angeles 13 4,347 15 $ 3,104 150%A4.2%4.8%4.3% Miami 3 873 22 $ 2,300 136%A4.3%4.6%4.5% Philadelphia 8 2,638 21 $ 2,492 169%A4.5%5.0%4.7% San Diego 12 2,423 29 $ 1,987 103%B4.4%4.7%4.9%d Seattle 2 239 7 $ 2,424 120%B4.6%4.9%4.7% Other Markets 7 2,490 27 $ 1,989 118%B4.7%5.4%5.2% Total/Weighted Average 118 30,599 25 $ 2,278 112%B/B+4.6%5.2%4.85%
Footnotes (continued) Represents the value of three communities under development and three communities under redevelopment: Parc Mosaic, located in Boulder, Colorado; The Fremont, located in North Aurora, Colorado; Eldridge Townhomes, located in Elmhurst, Illinois; Flamingo Point & Bay Parc Plaza, located in Miami, Florida; and 707 Leahy located in Redwood City, California. Such communities are valued based on discounted cash flows using the following assumptions: Revenues: based on in-place rents, projected submarket rent growth to property stabilization based on the average of projections published by REIS and Axiometrics, and the completion of redevelopment or development. Expenses: estimated operating costs adjusted for inflation as projected by Moody’s Economy.com; management fee equal to 2% of projected revenue. Cost to complete construction: based on current estimates. Please see Supplemental Schedule 10 to Aimco’s 1Q 2020 Earnings Release for additional information and descriptions of these redevelopments. Terminal value: based on current market cap rate plus 5 basis points per year from March 31, 2020, to property stabilization. Sales cost: 0.55% - 1.05% of terminal value. Discount rate: 4.7% - 5.8% depending on construction and lease-up progress at March 31, 2020.
Footnotes (continued) Represents certain land holdings and three recently purchased buildings; 1001 Brickell Bay Drive, One Ardmore, and Prism. Represents adjustments to reflect Aimco’s share of the financial results of unconsolidated real estate partnerships and to exclude the noncontrolling interest partners’ share of the financial results of consolidated real estate partnerships. For the purpose of this Net Asset Value calculation, no realizable value has been assigned to right of use assets, goodwill or other intangible assets. Adjusted to reflect the removal of deferred tax liability associated with 1001 Brickell Bay Drive which is not expected to be paid during Aimco’s ownership. Aimco includes the value of its deferred tax asset, as value of the asset is expected to be realized in the normal course of business. Represents the carrying value of the Parkmerced Option and Loan, made in the fourth quarter of 2019. Carrying value includes the Loan’s principal amount of $275 million, plus accrued interest. Deferred income and right of use related lease liabilities are excluded from the NAV calculation. Deferred income includes below market lease liabilities, which were recognized under GAAP in connection with purchase of the related apartment communities. Deferred income also includes cash received by Aimco in prior periods required under GAAP to be deferred upon receipt and recognized in income in future periods. Represents the carrying amount of Aimco’s debt. At March 31, 2020 interest rates on multifamily property loans were temporarily elevated due to economic uncertainties resulting from COVID-19, Aimco chose to update the mark-to-market calculation based on interest rates on multifamily property loans that better represent the current market. At May 29, 2020, Aimco’s debt had a mark-to-market liability of $63 million. The fair value of Aimco’s debt considers the duration of the property debt as well as the quality of property pledged as its security, its loan to value, and debt service coverage. Represents total shares of Aimco common stock, common partnership units of the Aimco Operating Partnership held by entities other than Aimco, and potential dilutive share equivalents outstanding, which information may be found in Supplemental Schedule 5b to Aimco’s 1Q 2020 Earnings Release.
Definitions AIMCO OPERATING PARTNERSHIP (OP): AIMCO Properties, L.P., a Delaware limited partnership, is the operating partnership in Aimco’s UPREIT structure. Aimco owns approximately 93.4% of the legal interest in the common partnership units of the Aimco OP and 94.8% of the economic interest in the common partnership units of the Aimco OP. PORTFOLIO QUALITY RATINGS: Aimco measures the quality of apartment communities in its portfolio based on average rents of its 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, Aimco classifies as “A” quality apartment communities those earning rents greater than 125% of local market average; as “B” quality apartment communities those earning rents between 90% and 125% of local market average; “C+” quality apartment communities those earning rents greater than $1,100 per month, but lower than 90% of local market average; and “C” quality apartment communities those earning rents less than $1,100 per month and lower than 90% of local market average.