(NYSE: AIV) - Apartment Investment and Management Company (“Aimco”) has executed definitive agreements with AIR Communities (“AIR”) that will result in more than $100 million of realized value creation for Aimco shareholders, eliminate the $469 million obligation related to the four leased properties from AIR, and lead directly to the refinance or repayment of nearly $1 billion of debt.
Following the successful development and lease-up of 707 Leahy in Redwood City, CA, Prism in Cambridge, MA, Flamingo Point North Tower in Miami Beach, FL and The Fremont on the Anschutz Medical Campus in Aurora, CO, Aimco and AIR have agreed to cancel Aimco’s leasehold interest in each property on or before September 1, 2022. AIR will pay Aimco $200 million in return for cancellation of the leases of the four properties which were valued at $469 million in 2020. For Aimco, this outcome results in a profit, net of costs, of approximately $100 million, which will be realized about 18 months sooner than originally anticipated. Proceeds will be used to reduce leverage and increase cash on hand.
As previously announced, Aimco and AIR have agreed on the early repayment of the $534 million of notes due AIR, originally scheduled to mature in January 2024 and carrying an annual rate of 5.2%. Aimco will pay to AIR a spread maintenance fee of approximately $18 million, the sizing of which is subject to the yield on one- and two-year treasuries at the time of repayment. Aimco expects to repay, prior to the end of June, approximately $400 million with funds on hand generated from the sale of its Pathfinder Village asset and proceeds from the refinancing of 14 stabilized properties with fixed-rate debt at a blended rate of 4.37% (net of interest rate hedge proceeds) and an average term to maturity of 9.4 years. Pursuant to its agreement with AIR, Aimco plans to complete the repayment of the balance on or before August 1, 2022, with funds sourced from financing efforts currently in progress.
Following repayment of the AIR note and collapse of the four property leases, nearly all of Aimco’s property debt financing will be in the form of long-dated, non-recourse, fixed-rate loans, floating-rate construction loans with interest rate caps, and fixed rate long-term land and property leases.
In addition, Aimco will acquire from AIR for $7.2 million its minority limited partner position in the 16 properties that presently secure the AIR note.
Aimco and AIR have also agreed to continue their strategic relationship with AIR providing property management services to Aimco and the companies working together to identify future development opportunities where Aimco provides particular expertise. As such, Aimco and AIR have agreed to an amended Master Leasing Agreement (“MLA”).
Notably, under agreed amendments to the MLA, AIR’s purchase option to acquire completed development and redevelopment properties has been replaced with an AIR right of first offer (“ROFO”) on development and redevelopment assets that Aimco chooses to bring to market within one year following stabilization. These changes reflect the companies’ shared commitment to work together in a spirit of collaboration while allowing each the freedom to execute on their respective business plans.
In accordance with Aimco policy, each of these agreements and transactions was reviewed in detail and approved by a committee comprised entirely of independent directors.
Wes Powell, Aimco President and CEO noted: “I am thankful to the Aimco team for executing successfully on this initial class of development properties leased from AIR Communities. Construction efforts were actively managed, resulting in on-time and on-budget delivery despite challenging conditions, while the strong lease-up results highlight the value of customer-focused design and tailored offerings. The expertise of the Aimco development team, combined with the early monetization of these investments, will benefit shareholders with returns well ahead of our initial expectations.”
Mr. Powell continued, “Aimco’s early payoff of the AIR note reduces the vast majority of our near-term refunding risk and eliminates the single largest entanglement stemming from Aimco and AIR’s separation, furthering each company’s independence from the other. I greatly value our strong working relationship with AIR and look forward to collaborating on future opportunities where our complementary skills and investment objectives can lead to additional mutually beneficial outcomes.”
Additional details can be found in the SEC Form 8-K filed by Aimco on June 21, 2022.
This document contains forward-looking statements within the meaning of the federal securities laws. Forward-looking statements include all statements that are not historical statements of fact and those regarding our intent, belief, or expectations, including, but not limited to, the statements in this document regarding our 2022 plans and goals, including our 2022 pipeline investments and projects, and our plans to eliminate certain near-term debt maturities. We caution investors not to place undue reliance on any such forward-looking statements.
Words such as “anticipate(s),” “expect(s),” “intend(s),” “plan(s),” “believe(s),” “may,” “will,” “would,” “could,” “should,” “seek(s)” and similar expressions, or the negative of these terms, are intended to identify such forward-looking statements. These forward-looking statements are not guarantees of future performance, conditions or results, and involve a number of known and unknown risks, uncertainties, assumptions and other important factors, many of which are outside the control of Aimco that could cause actual results or outcomes to differ materially from those discussed in the forward-looking statement. Important factors, among others, that may affect actual results or outcomes include, but are not limited to: (i) the risk that the 2022 plans and goals may not be completed, as expected, in a timely manner or at all, (ii) the inability to recognize the anticipated benefits of the pipeline investments and projects, and (iii) changes in general economic conditions, including, increases in interest rates and as a result of the COVID-19 pandemic. Although we believe that the assumptions underlying the forward-looking statements are reasonable, we can give no assurance that our expectations will be attained.
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, 2021, and subsequent Quarterly Reports on Form 10-Q and other documents Aimco files from time to time with the SEC. These filings identify and address important risks and uncertainties that could cause actual events and results to differ materially from those contained in the forward-looking statements.
These forward-looking statements reflect management’s judgment and expectations as of this date, and Aimco assumes no (and disclaims any) obligation to revise or update them to reflect future events or circumstances.
Aimco is a diversified real estate company primarily focused on value add, opportunistic, and alternative investments, targeting the U.S. multifamily sector. Aimco’s mission is to make real estate investments where outcomes are enhanced through our human capital so that substantial value is created for investors, teammates, and the communities in which we operate. Aimco is traded on the New York Stock Exchange as AIV. For more information about Aimco, please visit our website www.aimco.com.
Sr. Director of Capital Markets and Investor Relations