Partners’ Capital

Partnership Preferred Units Owned by Aimco

At December 31, 2018 and 2017, the Aimco Operating Partnership had outstanding preferred units in classes and amounts similar to Aimco’s Preferred Stock described in Note 6, or Partnership Preferred Units. All of these Partnership Preferred Units were owned by Aimco during the periods presented.

The Partnership Preferred Units are senior to the Aimco Operating Partnership’s common partnership units. The Partnership Preferred Units do not have voting rights, except the right to approve certain changes to the Aimco Operating Partnership’s Partnership Agreement that would adversely affect holders of such class of units. Distributions on Partnership Preferred Units are subject to being declared by the General Partner. The Partnership Preferred Units are redeemable by the Aimco Operating Partnership only in connection with a concurrent redemption by Aimco of the corresponding Aimco Preferred Stock held by unrelated parties.

As discussed in Note 6, during the year ended December 31, 2016, Aimco redeemed its Class Z Cumulative Preferred Stock. In connection with this redemption, the Aimco Operating Partnership redeemed from Aimco a corresponding number of Partnership Preferred Units.

Redeemable Preferred OP Units

In addition to the Partnership Preferred Units owned by Aimco, the Aimco Operating Partnership has outstanding various classes of redeemable Partnership Preferred Units owned by third parties, which we refer to as preferred OP Units. As of December 31, 2018 and 2017, the Aimco Operating Partnership had the following classes of preferred OP Units (stated at their redemption values, in thousands, except unit and per unit data):



	Distributions per Annum				Units Issued and Outstanding		Redemption Values
Class of Preferred Units	Percent		Per Unit		2018	2017	2018		2017
Class One	8.75	%	$	8.00	90,000	90,000	$	8,229	$	8,229
Class Two	1.92	%	$	0.48	14,240	17,750	356		444
Class Three	7.88	%	$	1.97	1,338,524	1,338,524	33,463		33,462
Class Four	8.00	%	$	2.00	644,954	644,954	16,124		16,124
Class Six	8.50	%	$	2.13	773,693	780,036	19,342		19,501
Class Seven	7.87	%	$	1.97	27,960	27,960	699		699
Class Nine	6.00	%	$	1.50	243,112	243,112	6,078		6,078
Class Ten	6.00	%	$	1.50	680,000	680,000	17,000		17,000
Total					3,812,483	3,822,336	$	101,291	$	101,537

Each class of preferred OP Units is currently redeemable at the holders’ option. The Aimco Operating Partnership, at its sole discretion, may settle such redemption requests in cash or cause Aimco to issue shares of its Common Stock with a value equal to the redemption price. In the event the Aimco Operating Partnership requires Aimco to issue shares of Common Stock to settle a redemption request, the Aimco Operating Partnership would issue to Aimco a corresponding number of common partnership units. The Aimco Operating Partnership has a redemption policy that requires cash settlement of redemption requests for the preferred OP Units, subject to limited exceptions. Subject to certain conditions, the Class Four and Class Six preferred OP Units may be converted into common OP Units.

These redeemable units are classified within temporary equity in Aimco’s consolidated balance sheets and within temporary capital in the Aimco Operating Partnership’s consolidated balance sheets.

During the years ended December 31, 2018, 2017 and 2016, approximately 10,000, 67,000 and 69,000 preferred OP Units, respectively, were redeemed in exchange for cash, and no preferred OP Units were redeemed in exchange for shares of Aimco Common Stock.

The Class Ten preferred OP Units were issued as partial consideration for an acquisition during the year ended December 31, 2016.

The following table presents a reconciliation of the Aimco Operating Partnership’s preferred OP Units during the years ended December 31, 2018, 2017 and 2016 (in thousands):



	2018			2017			2016
Balance at January 1	$	101,537		$	103,201		$	87,926
Preferred distributions	(7,740		)	(7,764		)	(7,239		)
Redemption of preferred units and other	(246		)	(1,664		)	(1,725		)
Issuance of preferred units	—			—			17,000
Net income	7,740			7,764			7,239
Balance at December 31	$	101,291		$	101,537		$	103,201

Common Partnership Units

In the Aimco Operating Partnership’s consolidated balance sheets, the common partnership units held by Aimco are classified within Partners’ Capital as General Partner and Special Limited Partner capital and the common OP Units are classified within Limited Partners’ capital. In Aimco’s consolidated balance sheets, the common OP Units are classified within permanent equity as common noncontrolling interests in the Aimco Operating Partnership.

Common partnership units held by Aimco are not redeemable whereas common OP Units are redeemable at the holders’ option, subject to certain restrictions, on the basis of one common OP Unit for either one share of Common Stock or cash equal to the fair value of a share of Common Stock at the time of redemption. Aimco has the option to deliver shares of Common Stock in exchange for all or any portion of the common OP Units tendered for redemption. When a limited partner redeems a common OP Unit for Common Stock, Limited Partners’ capital is reduced and the General Partner and Special Limited Partners’ capital is increased.

During the years ended December 31, 2018, 2017 and 2016, approximately 224,000, 268,000 and 248,000 common OP Units, respectively, were redeemed in exchange for cash, and no common OP Units were redeemed in exchange for shares of Common Stock.

The holders of the common OP Units receive distributions, prorated from the date of issuance, in an amount equivalent to the dividends paid to holders of Common Stock. During the years ended December 31, 2018, 2017 and 2016, the Aimco Operating Partnership declared distributions per common unit of $1.52, $1.44 and $1.32, respectively

On February 3, 2019, the Board of Directors of the Aimco Operating Partnership’s general partner authorized a reverse unit split in which every 1.03119 common partnership units will be combined into one common partnership unit. The reverse split is effective at the close of business on February 20, 2019, and corresponds to a similar split effected by Aimco with respect to its common shares at the same time. On the same date, the Board of Directors also declared a special distribution to the holders of Aimco Operating Partnership common partnership units that consists of $71.5 million in cash and 4.8 million common partnership units. The special distribution will be payable on March 22, 2019, to unitholders of record as of February 22, 2019. The special distribution also corresponds to a similar special dividend paid at the same time to holders of Aimco common shares. The reverse split was authorized in order to neutralize the dilutive impact of the units issued in the special distribution. As a result, total common partnership units outstanding following completion of both the special distribution and the reverse unit split are expected to be unchanged from the total common partnership units outstanding immediately prior to the transactions.

Pro forma Earnings per Common Unit (Unaudited)

In financial statements issued after the effective date of the reverse unit split, we are required to retroactively recognize the reverse unit split in the calculation of basic and diluted earnings per unit. The units issued in connection with the special distribution will be included in the calculation of basic and diluted earnings per unit on a prospective basis, and are therefore not included in the pro forma amounts disclosed below. If the reverse unit split had been effective prior to issuance of these financial statements, basic and diluted weighted average units outstanding and earnings per unit for the years ending December 31, 2018, 2017 and 2016 would have been (units in thousands):



	2018		2017		2016
Weighted average units, basic	158,890		158,793		158,808
Weighted average units, diluted	159,073		159,257		159,194
Basic earnings per unit	$	4.35	$	2.02	$	2.76
Diluted earnings per unit	$	4.34	$	2.02	$	2.75