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
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APARTMENT INVESTMENT AND MANAGEMENT COMPANY
(Exact name of registrant as specified in its charter)
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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).
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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 November 12-13, 2019, 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 distribute 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:
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Dated: November 12, 2019
APARTMENT INVESTMENT AND MANAGEMENT COMPANY
/s/ Paul Beldin______________________________
Paul Beldin
Executive Vice President and Chief Financial Officer
Investor Presentation Nareit REITworld 2019 November 12-14 Preserve at Marin Corte Madera, CA
Economic Income and earnings Aimco’s primary measure of long-term financial performance is Economic Income. Measuring Aimco shareholder value creation by the per share change in Net Asset Value (NAV) plus Cash Dividends paid, Aimco Economic Income has compounded: Since IPO through 3Q 2019(1), at 14% annually; and Over the last five years, through 3Q 2019, at 10.2% annually, reflecting lower leverage and stable, full pricing for assets. Aimco publishes its NAV estimate semi-annually; as of 3Q 2019: NAV = $58 per share. At year end 2019, Aimco estimates its NAV will be $59 per share; reflecting one-year Economic Income growth of 8% and five-year Economic Income growth of 10% annually. Over the same 25 years, since IPO, Aimco’s Total Shareholder Return has tracked Economic Income, often with a lag. The result, compounded annually since IPO: AIV up 11.8%; S&P 500 up 9.9% 192 of the current S&P 500 companies have been public for 25 years. Aimco has outperformed two-thirds of these companies with a total return ~40% above the median. ECONOMIC INCOME: Captures the VALUE CREATED and FUTURE GROWTH expectations from investment before they are converted into earnings, and Is Aimco’s compass when deciding to ACCEPT LOWER SHORT-TERM EARNINGS in order to achieve GREATER LONG-TERM GAIN. Aimco accepts lower short-term earnings when it places a stabilized property with current cash flow in redevelopment. For example, when Aimco decided to vacate the North Tower of Flamingo, that decision lowered NOI by $6.4M annually. NOI will be reduced further as properties are sold to fund the cost of construction. NOI is expected to recover as property upgrades are completed and ADO is restored. This paired trade reduces our exposure in Chicago, where revenue growth is expected to be slow and property taxes unpredictable, and increases our exposure in Miami, where the revenue growth rate is expected to be greater than the Suburban Chicago locations we are selling… by approximately 150 basis points. At this time Aimco expects $27M of incremental NOI to be earned in from 2021-2023 from properties in redevelopment and not stabilized by year-end 2020. Aimco also accepted near-term earnings dilution in 2018 when it sold its Asset Management business. 4Q 2019 will be the first quarter where the increasing profitability of apartment operations will be apparent in year-over-year comparisons of FFO and AFFO. At the midpoint of our fourth quarter pro forma FFO guidance, adjusted for comparable capital replacement spending, we expect year-over-year AFFO growth to accelerate to ~6%. In 2020, Aimco forecasts AFFO growth of 6%-8%. See Aimco’s Preliminary 2020 Outlook(2). Represents Aimco’s last published Net Asset Value of $58/sh at 9/30/2019 and share price at IPO as a proxy for NAV. As forecasted in the Aimco Operating Update & Preliminary 2020 Outlook published September 30, 2019. Growth ranges are for midpoint expectations, formal 2020 guidance ranges will be provided in early 2020.
Market-rate acquisition IRRs based on weighted-average, risk-adjusted IRRs in Aimco markets as published by Green Street Advisors. Aimco Economic Income is the result of performance in five key business areas. Operations Drive rent growth based on high levels of resident retention, through superior customer selection and satisfaction, coupled with disciplined innovation resulting in sustained cost control, to maximize NOI margins (peer-leading for each of the last nine quarters). Redevelopment and Development Create value and maximize earnings potential by the renovation and repositioning of apartment communities through small phase and major redevelopments. Portfolio Management/ Capital Allocation Maintain 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. Invest in properties where we expect the appreciation of land to create opportunities for profitable redevelopment. Current capital allocation favors Redevelopment and Development on a risk-adjusted, leverage-neutral basis with average Free Cash Flow IRRs of ~10%, as compared to acquisition of stabilized properties with Free Cash Flow IRRs of 6% to 7%(1), and share repurchases with Free Cash Flow IRRs in the mid-6% range. Balance Sheet Utilize safe property debt that is low-cost, long-dated, amortizing, and non-recourse; limiting entity and refunding risk while maintaining asset flexibility. Team Focus intentionally on a collaborative and productive culture based on respect for others and personal responsibility, reinforced by a preference for promotion from within based on explicit talent development and succession planning to produce the strong, stable team that is the enduring foundation of Aimco success. Strategic focus
PEER-LEADING SAME STORE OPERATIONS YTD through Sept 30, 2019, Aimco has: Revenue growth of 4.0%, 30 bps better than any peer; Expense growth of 1.9%, 60 bps better than any peer; Net operating income (NOI) growth of 4.7%, 50 bps better than any peer; and Same Store NOI margin of 73.2%, 100 bps ahead of the next closest peer. Through October, Aimco has: Completed about 94% of leasing activity expected for the year; Increased average daily occupancy (“ADO”) year-over-year by 60 bps; and Improved blended lease rates year-over-year by 3.5%. Operations Update CHANGES IN SAME STORE RENTAL RATES 1Q 2019 2Q 2019 3Q 2019 Oct 2019 YTD Leases RENEWALS 5.2% 5.0% 4.6% 5.1% 4.9% NEW LEASES 0.8% 2.0% 2.5% 1.0% 2.0% WT. AVG. 2.9% 3.6% 3.6% 3.1% 3.5% AVERAGE DAILY OCCUPANCY (“ADO”) 97.0% 96.9% 96.8% 97.1% 96.9% Indigo Redwood City, CA PRELIMINARY 2020 OUTLOOK(1) Same store communities are expected to contribute $0.13 to $0.15 per share to AFFO growth in 2020 … or 3.7% to 4.1% NOI growth. 2020 Same Store NOI growth results from revenue growth of 3.2% to 3.6% and expense growth limited to 1.8% to 2.2%. As forecasted in the Aimco Operating Update & Preliminary 2020 Outlook published September 30, 2019. Growth ranges are for midpoint expectations, formal 2020 guidance ranges will be provided in early 2020.
Innovation & Productivity Focus on efficient, productive operations: Aimco considers Controllable Operating Expenses ("COE"), defined as property level expenses before taxes, insurance, and utilities, as one measure of operating efficiency. 2019 Same Store COE growth is expected to be 50 bps. For the five years ended 2018, Aimco Same Store COE growth was 1.1%, 100 bps below the peer average.(1) For the five years ended 2018, Aimco Same Store Expense growth was 2.0%, 110 bps below the peer average.(1) For the ten years ended 2018, Aimco Same Store COE growth was flat.(2) For the ten years ended 2018, Aimco Same Store Expense growth was 1.2%, 120 bps below the peer average.(1) Disciplined innovation is the foundation of Aimco cost control efforts. Innovative activities include: Redesign work: moving administrative tasks to the Shared Service Center reduces cost and allows site teams to focus on sales and service. Standardize processes and purchases: reducing complexity, enhancing productivity, and increasing volume discounts. Invest consistently: focus on total lifecycle costs by installing more durable in-unit materials such as plank flooring instead of carpet, and granite countertops instead of laminate. Leverage Technology: meet today’s customer preference for on-line self-service and convenience, while also reducing costs through such innovations as software controls, package lockers, and smart home technology. 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. SS Expense breakout is not publicly reported by MAA in 2014, therefore it was excluded from the 5-year COE average. For the four years ended 2018, Aimco COE growth was 1.3%, 70 bps below peer average (including MAA). Due to inadequate public Same Store COE disclosure from peers a ten-year comparison is not available.
Redevelopment Cycle “SMALL PHASE” REDEVELOPMENTS - INVENTORY MANAGEMENT When practical, Aimco prefers “small phase” redevelopments which provide optionality to improve the offering and flexibility to adjust the volume to market demand. Current examples include Bay Parc and the Center Tower at Flamingo Point. Managing inventory to meet demand optimizes pricing and allows for predictable NOI growth proportional to value creation. “MAJOR” REDEVELOPMENTS Aimco engages in “large phase” or “major” redevelopments when the scope of the project, or structure of the community, requires investment in larger building systems. Major redevelopments have comparable value creation, but their longer cycle time increases current period earnings dilution. Recent examples include The Sterling, Park Towne Place, and the North Tower at Flamingo Point. REDEVELOPMENT CYCLE Redevelopment contribution of value creation to Aimco Economic Income is largely consistent, while current period contribution to AFFO is more volatile, often reduced during construction and increasing as the redevelopment becomes stabilized, as described below. Stabilized Pre-Construction Value Creation Opportunity Based on location and ability to reposition the asset in the market AFFO Growth Opportunity Stabilized NOI, with the potential to outpace the market through repositioning Current Example East 88th and Second Ave. Construction Phase Initial Value Creation GAV is created as redevelopment dollars are spent AFFO Dilution Down units and disruption to leasing from construction, partially offset w/ capitalized interest Current Example 707 Leahy, Flamingo Point Lease-Up Continued Value Creation GAV increases as construction is completed and lease-up begins AFFO Dilution Vacancy during lease up, increased marketing expenses, and minimal or no capitalized interest offset Current Example Parc Mosaic Post Redev NOI Stabilization Value Creation Fully Realized Full accretion from investment and incremental value creation Full AFFO Earnings Maximized earnings potential through intentional community design, targeted marketing, and successful repositioning Achieved up to 2 years after construction completion Current Example Park Towne Place
Redevelopment: 2019 Starts 707 Leahy, Redwood City, CA BEFORE: Aged improvements mask the quality of the location and the opportunity for higher rents. AFTER: Completely rebuilt top-down and inside-out, commanding rents that provide an accretive return on the incremental investment. In the second quarter, Aimco began a $24M major redevelopment of this 110-apartment home community and its amenities. 707 Leahy is located in one of the world’s most dynamic job markets and benefits from higher density than permitted under the current zoning code. Aimco expects to generate a FCF IRR of ~9% on this investment. Status Update On plan, with the first units to be delivered, and the first residents moved-in in 1Q 2020.
Redevelopment: 2019 Starts Flamingo Point, Miami Beach, FL Aimco will complete, by year-end, the initial $40M phase of redevelopment which includes the creation of a 43,000 square foot entry plaza, new retail offerings, common area upgrades, plus extensive landscaping and exterior amenities. Aimco has begun the Major Redevelopment of the 366 apartment homes in the North Tower with initial occupancy expected in 3Q 2021. Aimco believes the construction risk associated with this $170M investment is similar to our recently completed redevelopment of Park Towne Place and The Sterling and the lease-up risk is similar to our One Canal and Indigo developments. Aimco has also begun the Small Phase Redevelopment of the Center Tower. Aimco expects to invest $70M in the renovation of 520 apartment homes, on-the-turn, at a pace dictated by the market, thereby limiting construction and lease-up risk. Aimco believes the risks associated with this $70M investment to be similar to our Saybrook Pointe and Bay Parc redevelopments. Upon completion of the amenities, common areas, and apartments in the North and Center towers, we will have invested $280M, generating a FCF IRR of ~10% on the incremental investment, 400 bps greater than the expected free cash flow from the properties being sold to fund this investment. After redevelopment Flamingo Point will be an exclusive waterfront neighborhood containing distinct and differentiated communities in a resort setting, with tropical landscape, refined and tailored retail offerings, and luxury amenities. We invite you to see for yourself. Aimco will host a tour of Flamingo Point and the Brickell Bay Drive properties the weekend prior to the March 2020 Citi Conference, see page 21 for details. Status Update Amenity construction is on track for completion by year-end. North Tower demolition and initial construction is on-plan, construction is expected to be complete in 3Q 2021. Center Tower renovation of units on-the-turn is on track to commence in 1Q 2020.
Redevelopment Pipeline POTENTIAL REDEVELOPMENT PROJECTS Aimco plans future starts to backfill its redevelopment pipeline taken from opportunities illustrated below. Aimco evaluates projects in a disciplined risk-adjusted manner. In appropriate instances, Aimco uses third-party developers to benefit from their expertise and rely on their credit to minimize construction risk. The menu shown above is representative of the communities whose redevelopment or development is being considered through 2021. Actual projects and their scope will differ depending on approvals. MIAMI Bay Parc (Additional Phases) PHILADELPHIA Chestnut Hall GREATER LA Villas at Park La Brea HillCreste MINNEAPOLIS Calhoun Beach Club (Expanded Scope) GREATER WASHINGTON, DC Bent Tree Foxchase SAN DIEGO Mariner's Cove NEW YORK CITY East 88th & 2nd Ave DENVER Anschutz Expansion (Additional Phases) BAY AREA Preserve at Marin (Expansion) PRELIMINARY 2020 OUTLOOK In 2019, Aimco will invest $240-$260 million in redevelopment and development. Aimco’s preliminary 2020 outlook assumes investment of approximately $250-$300 million in redevelopment and development, predominately on projects already in process.
Portfolio Management Aimco continues to be active in the pursuit of value-creating opportunities both inside and outside its portfolio. Capital Allocation Category Description Aimco Example Covered-land investments Land value that approaches or exceeds the current developed value. Eastpointe/Parc Mosaic & 1001 Brickell Bay Drive/Yacht Club Under-managed communities Communities that benefit from Aimco’s peer-leading operating platform and property management. Bent Tree & Avery Row OP unit transactions Tax-advantaged transactions where Aimco’s UP-REIT platform offers benefit to the seller. Philadelphia portfolio Acquisition of new construction Aimco bears lease-up risk but has no construction risk. Vivo & 50 Rogers acquisitions Stock buybacks Selling assets at market prices to reinvest in the Aimco portfolio at a meaningful discount to NAV. 2018 purchases of 8.7M shares at prices averaging $45 per share AIV has existing authorization to repurchase 10.6M shares Aimco considers unlevered risk-adjusted returns from a menu of capital uses including: Aimco considers portfolio implications and execution risks such as: Aimco considers its cost of unlevered equity capital, including: Capital Enhancements Redevelopment Development Acquisitions Leverage reduction Share buybacks Geographic market concentrations Price point concentrations Competitive new supply Entitlement risk Construction risk Lease-up risk Sale of lower-rated properties Sale of partial interests in higher-rated properties Issuance of shares or OP units Aimco allocates capital on a leverage-neutral basis in accordance with its FCF IRR paired-trade discipline.
Portfolio Management In 2019 Aimco has RE-ALLOCATED CAPITAL from submarkets with lower-growth prospects, such as Suburban Chicago, to submarkets with HIGHER-GROWTH PROSPECTS, such as Miami Beach (through redevelopment of Flamingo Point) and Brickell (through acquisition of 1001 Brickell Bay Drive). 1001 BRICKELL BAY DRIVE In July, Aimco acquired for $157M a 95% interest in the office building located contiguous to its Yacht Club apartments. Combining the two properties, Aimco owns 4.25 acres with more than 600 linear feet of Biscayne Bay frontage. 1001 Brickell Bay Drive (Office Use) Property Sales (Expected) Approximate Spread NOI Yield (Initial at 85% Occ) mid/high - 5% mid/high - 5% +10 bps NOI Yield (Stabilized at 92% Occ) low/mid - 6% mid/high - 5% +60 bps FCF IRR mid - 8% ~6.0% +250 bps Aimco believes Illinois’ unfavorable real estate tax prospects and out-migration will result in lower future growth. Aimco believes Florida’s favorable tax regime and in-migration favor higher-growth prospects.
Portfolio Management 1001 BRICKELL BAY DRIVE Aimco evaluated this acquisition several different ways: Defensive – 1001 Brickell, contiguous to our Yacht Club apartments, was for-sale with existing entitlements to increase density. Aimco considered that a possible redevelopment of the site would disrupt Yacht Club operations and might undermine the potential benefit from Aimco’s future redevelopment of Yacht Club. Land value –The most recent sale of one of Brickell’s ten waterfront parcels was vacant land sold in 2014 for $100 million per acre. At 1.8 acres, the Aimco purchase price was less than that comparable sale. Assemblage value – By right, a developer can build more than 3 million square feet of rentable space on the combined site, 10% more than permitted on the individual sites. This assemblage ‘bonus’ is only available to the owner of both land parcels. Operating as an office building – Aimco, understanding the market is cyclical and timing uncertain, evaluated continuing to operate the building for office uses. Aimco owns ~1M square feet of office and retail space in its portfolio and is knowledgeable about office leasing and required tenant improvement costs. Aimco concluded investment in 1001 Brickell Bay Drive had: LIMITED DOWNSIDE due to the demand for office space in Brickell and the attractive current return from the existing office use; and CONSIDERABLE UPSIDE due to demand in Brickell for more intense real estate uses ranging from office, retail, and hotels to rental apartments and condominiums. The highest land values will likely result from a combination of the above uses, in a premier waterfront development with permanently unobstructed views. Development of mixed-use, high rise buildings is not within Aimco investment policies. We expect such a development will be undertaken by a purchaser of the two properties. In a cash sale, Aimco will have no further involvement. It is possible that Aimco will retain an unsubordinated land lease. It is also possible, if the proposed use were to include rental apartments, that Aimco would purchase the multi-family component on terms consistent with Aimco policies limiting exposure to construction and lease-up risks.
High quality balance sheet Aimco limits risk through balance sheet structure Manage refunding risk by property debt with low leverage, long duration, and regular amortization: 32% LTV 25% LTV refunding risk at maturity after consideration of perpetual preferred securities and annual amortization of property debt, funded through retained earnings 2.8% average annual refunding risk(1), equivalent to peer average. Average duration of Aimco leverage is 8.8 years ~1 year longer than peer average. Limit entity risk: Finance primarily with non-recourse property debt and preferred equity Maintain liquidity and financial flexibility: Ample available credit: $800M revolving credit facility currently largely available A pool of unencumbered properties: Valued at ~$2.4B. Maintain investment grade rating as confirmation of the safety of Aimco’s balance sheet. At 3Q 2019, Aimco total leverage-to-EBITDA(2) was 7.5x. Aimco expects this ratio to be 7.0x by year end 2019, and 6.6x by year end 2020. One Canal Boston, MA Aimco balance sheet data is calculated based on balances at Sept 30, 2019. Refunding risk is calculated as the average annual refunding exposure as a percentage of GAV as estimated by Green Street Advisors. Aimco total leverage-to-EBITDA refers to Proportionate Debt and Preferred Equity to Adjusted EBITDAre as defined in the glossary of Aimco’s Third Quarter 2019 Earnings Release and Supplemental Information.
High quality balance sheet $247M of property debt is payable at par in 2020 but does not mature until 2021; Aimco intends to repay this debt in 2020. Refunding risk is lower than total leverage due to principal amortization paid from retained earnings. Since September 2018, through net leverage decisions, such as property debt refinancing and redeeming Aimco preferred stock, Aimco has reduced its weighted average cost of leverage by approximately 60 bps (~$24M annually) and extended its duration. By growing the value of its unencumbered properties, Aimco has improved the safety and flexibility of its balance sheet.
TEAM AND CULTURE TEAM ENGAGEMENT Out of hundreds of participating companies, Aimco is one of seven recognized as a "Top Place to Work" in Colorado for each of the past seven years. In 2019, Aimco, for the first time, 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. TALENT AND SUCCESSION PLANNING In 2018, Aimco invested $1.9M in team member training and development. Aimco prefers promotion from within and maintains a talent pipeline for every executive officer position, including CEO. Aimco plans in advance for succession. Positions are filled considering the business strategy and needs at the time of a vacancy, with the candidates’ skills, experience, expertise, leadership, and fit. The Aimco Board of Directors participates actively in succession planning and reviews in detail annually candidate development and the executive talent pipeline. Further, the Board engages directly and regularly with executive officers and the candidates for their succession.
Paul Beldin EVP & Chief Financial Officer 11 Years John Bezzant EVP & Chief Investment Officer 13 Years Lisa Cohn EVP & General Counsel 17 Years Miles Cortez EVP & Chief Administrative Officer 18 Years Matt Eilen Property Operations Finance 9 Years Patti Fielding EVP: Debt & Treasurer President: Aimco Investment Partners 22 Years Michael Englhard Redevelopment Construction Services 6 Years Kristina Howe Property Operations & Marketing 17 Years Jennifer Johnson Human Resources 15 Years Keith Kimmel EVP Property Operations 17 Years Didi Meredith Property Operations West Operations 13 Years Leann Morein Compliance 25 Years Kevin Mosher Property Operations East Operations 12 Years Wes Powell EVP Redevelopment 15 Years Terry Considine Chairman & CEO 44 Years Patti Shwayder Government Relations & Communications 17 Years Lynn Stanfield EVP Finance & Tax 18 Years Richard Hawthorne Redevelopment Construction Services 11 Years Martin Sprang Asset Quality & Service 13 Years Aimco benefits from a long-tenured team with an average of 16 years of Aimco service. Andrea Young IT 2019 Hire Aimco senior leadership team
Why invest in Aimco? 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. Aimco invests up to 3% of its GAV at FCF IRRs of ~10% annually in repositioning existing properties and constructing new ones, adding on average, $0.40 to Net Asset Value for every dollar invested in the last 5 years. Since 2016, notwithstanding a fully priced market, Aimco has made $1.5B of opportunistic acquisitions and investments where Aimco had a comparative “advantage” that provided outsized value creation. Indigo, Palazzo (reacquisition of 47% interest from JV partner), Bent Tree Apartments, Philadelphia portfolio, Avery Row, 50 Rogers, and 1001 Brickell Bay Drive; These acquisitions, funded with paired trade sales, increased expected FCF IRR by ~300 bps. Geographically Diversified: Targeting 12 of the largest markets in the nation. Safe and Flexible Balance Sheet: Aimco is the only REIT in its peer group that primarily uses safe, 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 A - Supply outlook Aimco considers competitive new supply to be significant primarily to “A” price point communities in submarkets with completions 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. Third parties forecast that two submarkets with material investments by Aimco are expected to have 2020 increases in supply >2%: Mid-Wilshire in Los Angeles and Center City Philadelphia. Third parties also forecast that three submarkets with lesser investments by Aimco, totaling ~6% of GAV, are expected to have 2020 increases in supply >2%: One Canal in Boston; Calhoun Beach Club in Minneapolis; Indigo and 707 Leahy in Redwood City, CA. On balance, although the submarkets are somewhat different, Aimco expects about one-fifth of its GAV to be subject to significant new supply in 2020, similar to its expectations entering 2017, 2018, and 2019. 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 8.8% 2.5% 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% 3.1% New supply pressure continues; however, it is declining from 2018 and 2019. In the midst of high supply, Aimco has 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 3Q19 forecasted stock as of 3Q 2019, available from Axio/MPF Research.
Appendix B - Preliminary 2020 outlook In late September, Aimco published a preliminary outlook for 2020 to communicate its “Base Case Model” for AFFO and NAV for 2020. Aimco will provide 2020 guidance with the issuance of its fourth quarter 2019 Earnings Release, early in 2020. 2020 AFFO OUTLOOK Aimco’s Base Case Model for 2020 AFFO is 6% to 8% growth from 2019’s expected results; an increase of $0.13 to $0.18 per share. AFFO growth will come primarily from Same Store communities, which are expected to add between $0.13 and $0.15 per share; plus contribution from lease-ups and lower interest expense; less earnings from properties sold to reduce leverage to the Aimco target amount and to fund 2020 redevelopment spending. The Aimco Base Case Model forecasts: positive contribution from the lease up of communities newly acquired or constructed, and those currently under construction and expected to begin leasing in 2020; dilution expected from de-leasing the single 2020 redevelopment start now planned, although not yet approved; and 2020 leverage lower year-over-year by ~$100M with leverage costs lower year-over-year by ~$10M. The Aimco Base Case Model does not include the estimated $27M of incremental annual income, net of incremental expenses, expected in 2021-2023 from properties not yet stabilized at 2020 year-end. The Aimco Base Case Model also forecasts leverage-to-EBITDA to be 6.6x at year end 2020, a reduction of 0.4x from the expected year end 2019 ratio. This will be accomplished primarily by earnings growth. 2019 Current Midpoint of Guidance 2020 Base Case Model Midpoint Range Pro forma FFO per share (Growth) $2.48 $2.59 to $2.64 (5% to 7%) AFFO per share (Growth) $2.19 $2.31 to $2.35 (6% to 8%) Revenue change compared to prior year 3.70% 3.2% to 3.6% Expense change compared to prior year 2.30% 1.8% to 2.2% NOI change compared to prior year 4.20% 3.7% to 4.1%
Appendix B - Preliminary 2020 outlook 2020 NAV & ECONOMIC INCOME OUTLOOK Aimco publishes semi-annually its internal estimate of Net Asset Value. As of 3Q 2019, Aimco estimated its NAV at $58 per share, up $2 from 3Q 2018. Given Aimco’s forecast of 4Q results and assuming unchanged market pricing, Aimco expects its NAV at YE 2019 will be ~$59 per share, driven by NOI growth. Given the Aimco Base Case Model forecasted results and assuming unchanged market pricing, Aimco NAV at YE 2020 will be ~$62 to $64 per share. Assuming the NAV increases described above, 2019 dividends, and 2020 cash dividends increased to reflect forecasted AFFO, Economic Income is expected to provide ~8% return in 2019 and 8% to 11% in 2020. Aimco also included in its preliminary 2020 outlook a summary of Aimco specific factors and policies that consider the possible impact of an unexpected downturn in economic conditions. 2019 Estimate 2020 Base Case Model NAV Growth ~5% ~5% to 8% Dividends ~3% ~3% Economic Income ~8% ~8% to 11% 21 Fitzsimons Aurora, CO
Appendix C – upcoming events Aimco Fourth Quarter 2019 Earnings Conference Call Friday, January 31, 2020 – 1pm ET One-on-One meetings Call to schedule Come see Aimco’s most recent investment in Miami Beach and Brickell. Aimco invites you to tour the Flamingo Point redevelopment and Brickell Bay Drive properties on Saturday or Sunday February 28th and March 1st, 2020 (prior to the Citi REIT Conference). Additional details will be provided in advance. Please contact Matt Foster, Director IR, matthew.foster@aimco.com, (303) 691-4513, for more details. Flamingo Point Miami Beach, FL
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 2019 and 2020 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: 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; 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 10.6M 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, 2018, 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 Third Quarter 2019 Earnings Release dated October 31, 2019.
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 an objective 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 September 30, 2019. 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; 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, 2018, 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 121 communities valued using a direct capitalization rate ("cap rate") method based on annualized 3Q 2019 proportionate property NOI, less a 2% management fee, and market cap rates. This valuation method was utilized to determine approximately 87% of real estate fair value. Redevelopment and Development Communities - includes seven communities valued based on discounting projected future cash flows. This valuation method was utilized to determine approximately 11% of real estate fair value. Other Real Estate Portfolio - includes four recently acquired properties: Avery Row, One Ardmore, 50 Rogers, and 1001 Brickell Bay Drive; and certain land investments valued at Aimco’s cost plus initial investment. 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 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 September 30, 2019 and does not include asset acquisitions or dispositions subsequent to September 30, 2019. 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.
September 30, 2019 Estimated Net Asset Value: $58 per share* $85 $1 -$28 Fair Value of Real Estate Fair Value of Other Tangible Assets and Liabilities Cash and restricted cash + Other tangible assets - Other tangible liabilities Fair Value of Leverage Carrying value of debt + Mark-to-market adjustment + Fair value of preferred equity Estimated NAV per share was up two dollars from the first quarter 2019 calculation. The increase in NAV is attributable to NOI growth in the stabilized portfolio 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.
September 30, 2019 Estimated Fair Value of Real Estate: $85 per share* Stabilized Real Estate Portfolio Less: Annualized 3Q 2019 NOI Management fee of 2% of revenue Divided By: NOI cap rate of 4.9% Redevelopment and Development Portfolio Cash flows discounted from property stabilization to September 30, 2019. Other Real Estate Portfolio $9 $2 $74 Other Investments: Land investments valued at cost. Recent Acquisitions: Avery Row, One Ardmore, 50 Rogers and 1001 Brickell Bay Drive valued at cost plus initial investment. *Refer to additional details and disclosures beginning on page 11.
Fair Value of Real Estate as of September 30, 2019 ($M) Stabilized Portfolio NOI, less management fee $568 (1) NOI cap rate 4.9% (2) Stabilized Portfolio Value $11,592 Non-Stabilized Portfolio Redevelopment and Development $1,431 (3) Other Real Estate 275 (4) Non-Stabilized Portfolio Value $1,706 Fair Value of Real Estate$13,298 *Refer to Footnotes beginning on page 14.
Fair Value of Other Assets and Liabilities, Preferred Equity and Debt as of September 30, 2019 ($M) Consolidated Amounts as Reported Ownership Adjustments (5) Fair Value Adjustments Adjusted Amounts (6 ) (7 ) (8 ) (7 ) (9 ) *Refer to Footnotes beginning on page 14. Other Tangible Assets Cash and cash equivalents $ 52 $(1) $— $ 58 Restricted cash 35 (1)—34 Goodwill and other intangible assets 174 —(174)— Other tangible assets 221 (7)80294 Fair Value of Other Tangible Assets $489 $ (9) $ (94) $386 Other Tangible Liabilities Deferred income and intangible liabilities $130 $— $(130) $— Accounts payable 54 ——54 Other tangible liabilities 213 (1) (61)150 Fair Value of Other Tangible Liabilities $397 $(1) $(191) $204 Fair Value Other Tangible Assets and Liabilities, Net $ 92 $ (8) $ 97 $ 182 Preferred Equity Preferred noncontrolling interests in Aimco Operating Partnership $101 $— $— $101 Perpetual preferred stock — — — — Fair Value of Preferred Equity $101 $— $— $101 Debt Non-recourse property debt $4,276 $(11) $64 $4,329 Term loan, net — — — — Revolving credit facility borrowings — — — — Fair Value of Debt $4,276 $(11) $64 $4,329 Fair Value of Leverage $4,377 $(11) $64 $4,430
Net Asset Value as of September 30, 2019 ($M, except per share amounts) Fair Value of Real Estate$13,298 Fair Value of Other Tangible Assets and Liabilities, Net$182 Fair Value of Debt$(4,430) Net Asset Value $9,050 Total Shares, Units and Dilutive Share Equivalents Outstanding 157 (10) Net Asset Value per Share $58 It bears repeating that this NAV per share calculation is made at a point in time and its result may be expected to fluctuate based on subsequent events. 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 1H 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.
Footnotes Stabilized Portfolio NOI ($000s) Consolidated Amount Ownership Adjustments Adjustments Adjusted Amounts Rental and other property revenues Same Store $179,727 $(672) $— $179,055 Acquisitions, Redevelopment and Development 28,547 — (16,193) a 12,354 Other Real Estate 13,613 370 (3,453) b 10,530 Total rental and other property revenues $221,887 $(302) $(19,646) $201,939 Less: Direct property operating expenses Same Store $(48,428) $208 $— $(48,220) Acquisitions, Redevelopment and Development (10,786) — 7,410 a (3,376) Other Real Estate (5,239) (39) 956 b (4,332) Total Expenses, net of utility reimbursements $(64,453) $169 $8,366 $(55,918) Property Net Operating Income $157,434 $ (133) $(11,280) $146,021 fee $152,996 $ (127) $(10,887) $141,982 Annualized Property Net Operating Income $611,984 $(508) $(43,548) $567,928 1. Represents Stabilized Portfolio Proportionate Property NOI for the three months ended September 30, 2019, 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, 3Q 2019 Property NOI is multiplied by four to arrive at annualized Property NOI. Three Months Ended September 30, 2019 Less: Assumed property management fee of 2% of revenue (4,438) 6 393 (4,039) Property Net Operating Income after 2% management Refer to the following pages for explanation of adjustments for purposes of computing Stabilized Portfolio Property NOI.
Footnotes (continued) (continued) Represents revenues and expenses related to three development and four redevelopment communities: Parc Mosaic, located in Boulder, Colorado; The Fremont, located in North Aurora, Colorado; Elm Creek Townhomes, located in Elmhurst, Illinois; Flamingo Point, located in Miami Beach, Florida; Bay Parc, located in Miami, Florida; Park Towne Place, located in Center City Philadelphia, Pennsylvania; and 707 Leahy, located in Redwood City, California. Also included in these adjustments are the revenue and expense items related to recent acquisitions: Avery Row Apartments, located in Arlington, Virginia and purchased in December 2018; One Ardmore, located in Ardmore, Pennsylvania and purchased in April 2019; and 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, Park Towne Place and 707 Leahy are included in Aimco’s Redevelopment and Development Portfolio value. For the purpose of this Net Asset Value calculation, Avery Row, One Ardmore, and 50 Rogers 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; Bent Tree Apartments located in Centreville, Virginia; four communities located in Center City and University City, Philadelphia, Pennsylvania; and 236 & 238 East 88th Street, located in New York, 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 1H 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) 3Q 2019 Stabilized Portfolio Range of CBRE Cap Rates for Aimco's Portfolio Average Revenue Apartmentper Apartment CommunitiesHomesHome Average Rent as a Percentage of Market Average Average Quality Grade Low High Aimco Selected Cap Rate Atlanta 5 817 $ 1,720 140 % A 5.2% 5.8% 5.0% a Bay Area 11 2,522 $ 3,120 104 % B 4.2% 4.7% 4.4% Boston 15 4,689 $ 2,062 84 % C+ 5.3% 6.2% 5.5% Chicago 7 1,671 $ 1,922 124 % B 5.4% 5.6% 5.7% b Denver 7 1,925 $ 1,717 112 % B 5.1% 5.8% 5.3% Greater New York 18 1,039 $ 3,479 104 % B 4.8% 5.3% 4.4% c Greater Washington, DC 12 5,693 $ 1,649 87 % C+ 5.6% 6.2% 5.8% Los Angeles 13 4,347 $ 3,125 150 % A 4.2% 4.8% 4.3% Miami 3 873 $ 2,307 138 % A 4.3% 4.6% 4.5% Philadelphia 7 1,698 $ 2,556 173 % A 4.6% 5.1% 4.8% San Diego 12 2,423 $ 1,975 103 % B 4.8% 5.3% 5.5% d Seattle 2 239 $ 2,298 121 % B 4.6% 4.8% 4.6% Other Markets 9 2,866 $ 1,923 118 % B 4.9% 5.5% 5.3% Total/Weighted Average 121 30,802 $ 2,247 112 % B 4.7% 5.3% 4.9% Aimco selected cap rate for Atlanta is based on market pricing for properties under contract and in the market for potential 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.
Footnotes (continued) Represents the value of three communities under development and four communities under redevelopment: Parc Mosaic, located in Boulder, Colorado; The Fremont, located in North Aurora, Colorado; Elm Creek Townhomes, located in Elmhurst, Illinois; Flamingo Point & Bay Parc Plaza, located in Miami, Florida; 707 Leahy located in Redwood City, California; and Park Towne Place, located in Center City Philadelphia, Pennsylvania. 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 3Q 2019 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 September 30, 2019, to property stabilization. Sales cost: 0.55% - 1.05% of terminal value. Discount rate: 5.10% - 6.30% depending on construction and lease-up progress at September 30, 2019.
Footnotes (continued) Represents certain land holdings and four recently purchased buildings, 1001 Brickell Bay Drive, One Ardmore, 50 Rogers, and Avery Row. 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. 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 September 30, 2019, Aimco’s debt had a mark-to-market liability of $64 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 3Q 2019 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 94% of the common partnership units of the Aimco OP. PORTFOLIO QUALITY RATINGS: Aimco measures the quality of apartment communities in its Real Estate 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 the local market average; as “B” quality apartment communities those earning rents between 90% and 125% of the local market average; “C+” quality apartment communities those earning rents greater than $1,100 per month, but lower than 90% of the local market average; and “C” quality apartment communities those earning rents less than $1,100 per month and lower than 90% of the local market average.