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Section 1: 10-K (10-K 2017)

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Table of Contents

 
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_______________________________________
Form 10-K
(Mark One)
x
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the fiscal year ended December 31, 2017
OR
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from          to
Commission File Number 1-13232 (Apartment Investment and Management Company)
Commission File Number 0-24497 (AIMCO Properties, L.P.)
 
Apartment Investment and Management Company
AIMCO Properties, L.P.
(Exact name of registrant as specified in its charter)
Maryland (Apartment Investment and Management Company)
 
84-1259577
 
Delaware (AIMCO Properties, L.P.)
 
84-1275621
 
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
 
 
 
 
 
4582 South Ulster Street, Suite 1100
 
 
 
Denver, Colorado
 
80237
 
(Address of principal executive offices)
 
(Zip Code)
 
(303) 757-8101
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
 
Title of Each Class
  
Name of Each Exchange on Which Registered
 
Class A Common Stock (Apartment Investment and Management Company)
  
New York Stock Exchange
 
Class A Cumulative Preferred Stock (Apartment Investment and Management Company)
 
New York Stock Exchange
 
 
 
 
 
Securities registered pursuant to Section 12(g) of the Act:
 
 
None (Apartment Investment and Management Company)
Partnership Common Units (AIMCO Properties, L.P.)
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined by Rule 405 of the Securities Act.
 
Apartment Investment and Management Company: Yes x    No o
AIMCO Properties, L.P.: Yes x    No o
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
 
Apartment Investment and Management Company: Yes o    No x
AIMCO Properties, L.P.: Yes o    No x
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
 
Apartment Investment and Management Company: Yes x    No o
AIMCO Properties, L.P.: Yes x    No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
 
Apartment Investment and Management Company: Yes x    No o
AIMCO Properties, L.P.: Yes x    No o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.
 
Apartment Investment and Management Company: Yes o     No x
AIMCO Properties, L.P.: Yes x    No o


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Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” “non-accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
 
Apartment Investment and Management Company:
 
Large accelerated filer
x
 
Accelerated filer
o
 
Non-accelerated filer
o
(Do not check if a smaller reporting company)
Smaller reporting company
o
 
 
 
 
Emerging growth company
o
 
 
 
 
 
 
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. o
 
AIMCO Properties, L.P.:
 
Large accelerated filer
o
 
Accelerated filer
x
 
Non-accelerated filer
o
(Do not check if a smaller reporting company)
Smaller reporting company
o
 
 
 
 
Emerging growth company
o
 
 
 
 
 
 
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. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
 
Apartment Investment and Management Company: Yes o    No x
AIMCO Properties, L.P.: Yes o    No x
The aggregate market value of the voting and non-voting common stock of Apartment Investment and Management Company held by non-affiliates of Apartment Investment and Management Company was approximately $6.7 billion as of June 30, 2017. As of February 27, 2018, there were 157,330,262 shares of Class A Common Stock outstanding.
As of February 27, 2018, there were 164,901,915 Partnership Common Units outstanding.
_______________________________________________________
Documents Incorporated by Reference
Portions of Apartment Investment and Management Company’s definitive proxy statement to be issued in conjunction with Apartment Investment and Management Company’s annual meeting of stockholders to be held May 1, 2018, are incorporated by reference into Part III of this Annual Report.
 


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EXPLANATORY NOTE
This filing combines the Annual Reports on Form 10-K for the fiscal year ended December 31, 2017, of Apartment Investment and Management Company, or Aimco, and AIMCO Properties, L.P., or the Aimco Operating Partnership. Where it is important to distinguish between the two entities, we refer to them specifically. Otherwise, references to “we,” “us” or “our” mean collectively Aimco, the Aimco Operating Partnership and their consolidated entities.
Aimco, a Maryland corporation, is a self-administered and self-managed real estate investment trust, or REIT. Aimco, through wholly-owned subsidiaries, is the general and special limited partner of and, as of December 31, 2017, owned a 95.5% ownership interest in the common partnership units of, the Aimco Operating Partnership. The remaining 4.5% interest is owned by limited partners. As the sole general partner of the Aimco Operating Partnership, Aimco has exclusive control of the Aimco Operating Partnership’s day-to-day management.
The Aimco Operating Partnership holds all of Aimco’s assets and manages the daily operations of Aimco’s business. Pursuant to the Aimco Operating Partnership agreement, Aimco is required to contribute to the Aimco Operating Partnership any assets which it may acquire including all proceeds from the offerings of its securities. In exchange for the contribution of these assets, Aimco receives additional interests in the Aimco Operating Partnership with similar terms (e.g., if Aimco contributes proceeds of a stock offering, Aimco receives partnership units with terms substantially similar to the stock issued by Aimco).
We believe combining the periodic reports of Aimco and the Aimco Operating Partnership into this single report provides the following benefits:
We present our business as a whole, in the same manner our management views and operates the business;
We eliminate duplicative disclosure and provide a more streamlined and readable presentation because a substantial portion of the disclosures apply to both Aimco and the Aimco Operating Partnership; and
We save time and cost through the preparation of a single combined report rather than two separate reports.
We operate Aimco and the Aimco Operating Partnership as one enterprise, the management of Aimco directs the management and operations of the Aimco Operating Partnership, and the members of the Board of Directors of Aimco are identical to those of the Aimco Operating Partnership.
We believe it is important to understand the few differences between Aimco and the Aimco Operating Partnership in the context of how Aimco and the Aimco Operating Partnership operate as a consolidated company. Aimco has no assets or liabilities other than its investment in the Aimco Operating Partnership. Also, Aimco is a corporation that issues publicly traded equity from time to time, whereas the Aimco Operating Partnership is a partnership that has no publicly traded equity. Except for the net proceeds from stock offerings by Aimco, which are contributed to the Aimco Operating Partnership in exchange for additional limited partnership interests (of a similar type and in an amount equal to the shares of stock sold in the offering), the Aimco Operating Partnership generates all remaining capital required by its business. These sources include the Aimco Operating Partnership’s working capital, net cash provided by operating activities, borrowings under its revolving credit facility, the issuance of debt and equity securities, including additional partnership units, and proceeds received from the sale of apartment communities.
Equity, partners’ capital and noncontrolling interests are the main areas of difference between the consolidated financial statements of Aimco and those of the Aimco Operating Partnership. Interests in the Aimco Operating Partnership held by entities other than Aimco, which we refer to as OP Units, are classified within partners’ capital in the Aimco Operating Partnership’s financial statements and as noncontrolling interests in Aimco’s financial statements.
To help investors understand the differences between Aimco and the Aimco Operating Partnership, this report provides separate consolidated financial statements for Aimco and the Aimco Operating Partnership; a single set of consolidated notes to such financial statements that includes separate discussions of each entity’s stockholders’ equity or partners’ capital, as applicable; and a combined Management’s Discussion and Analysis of Financial Condition and Results of Operations section that includes discrete information related to each entity.
This report also includes separate Part II, Item 9A. Controls and Procedures sections and separate Exhibits 31 and 32 certifications for Aimco and the Aimco Operating Partnership in order to establish that the requisite certifications have been made and that Aimco and the Aimco Operating Partnership are both compliant with Rule 13a-15 or Rule 15d-15 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and 18 U.S.C. §1350.



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APARTMENT INVESTMENT AND MANAGEMENT COMPANY
AIMCO PROPERTIES, L.P.
TABLE OF CONTENTS
ANNUAL REPORT ON FORM 10-K
For the Fiscal Year Ended December 31, 2017
 
 
 
Item
 
Page
 
 
1.
1A.
1B.
2.
3.
4.
 
 
 
 
 
5.
6.
7.
7A.
8.
9.
9A.
9B.
 
 
 
 
 
10.
11.
12.
13.
14.
 
 
 
 
 
15.
16.



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FORWARD-LOOKING STATEMENTS
The Private Securities Litigation Reform Act of 1995 provides a “safe harbor” for forward-looking statements in certain circumstances. Certain information included in this Annual Report contains or may contain information that is forward-looking, within the meaning of the federal securities laws, including, without limitation, statements regarding: our ability to maintain current or meet projected occupancy, rental rates and property operating results; the effect of acquisitions, dispositions, redevelopments and developments; our ability to meet budgeted costs and timelines, and achieve budgeted rental rates related to our redevelopment and development investments; expectations regarding sales of our apartment communities and the use of proceeds thereof; and our 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 our 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 we operate and competition for residents in such markets; national and local economic conditions, including the pace of job growth and the level of unemployment; the amount, location and quality of competitive new housing supply; the timing 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 our 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;
Insurance risks, including the cost of insurance, 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 us 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 us.
In addition, our current and continuing qualification as a real estate investment trust involves the application of highly technical and complex provisions of the Internal Revenue Code and depends on our 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 our financial statements and the notes thereto, as well as the section entitled “Risk Factors” described in Item 1A of this Annual Report and the other documents we file from time to time with the Securities and Exchange Commission.
PART I

Item 1. Business
The Company
Apartment Investment and Management Company, or Aimco, is a Maryland corporation incorporated on January 10, 1994. Aimco is a self-administered and self-managed real estate investment trust, or REIT, focused on the ownership, management, redevelopment and limited development of quality apartment communities located in some of the largest markets in the United States.
Aimco, through its wholly-owned subsidiaries, AIMCO-GP, Inc. and AIMCO-LP Trust, owns a majority of the ownership interests in AIMCO Properties, L.P., or the Aimco Operating Partnership, a Delaware limited partnership formed on May 16, 1994. Aimco conducts all of its business and owns all of its assets through the Aimco Operating Partnership.
As of December 31, 2017, we had ownership interests in 182 apartment communities with 43,802 apartment homes.
Business Overview
Our business activities are defined by a commitment to our core values of integrity, respect, collaboration, performance and a focus on our customers. These values and our corporate mission, “to consistently provide quality apartment homes in a respectful environment delivered by a team of people who care,” shape our culture. In all of our interactions with residents, team members, business partners, lenders, and equity holders, we aim to be the best owner and operator of apartment communities and an outstanding corporate citizen.

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Our principal financial objective is to provide predictable and attractive returns to our equity holders. We measure our current return using Adjusted Funds From Operations and our long-term return using Economic Income (each of which are defined under the Non-GAAP Measures heading in Item 7). Our business plan to achieve this principal financial objective is to:
operate our portfolio of desirable apartment homes with a high level of focus on customer selection and customer satisfaction and in an efficient manner that produces predictable and growing Free Cash Flow, which is defined under the Operational Excellence heading, below;
improve our portfolio of apartment communities, which is diversified both by geography and by price point by selling apartment communities with lower projected free cash flow internal rates of return and investing the proceeds from such sales through capital enhancements, redevelopment, development, and acquisitions with greater land value, higher expected rent growth, and projected free cash flow internal rates of return in excess of those expected from the communities sold;
use low levels of financial leverage primarily in the form of non-recourse, long-dated, fixed-rate property debt and perpetual preferred equity, a combination which reduces our refunding and re-pricing risk and which provides a hedge against increases in interest rates; and
focus intentionally on a collaborative and productive culture based on respect for others and personal responsibility.
Our business is organized around five areas of strategic focus: operational excellence; redevelopment; portfolio management; balance sheet; and team and culture. Our areas of strategic focus are described in more detail below. Recent accomplishments in the execution of such strategies are discussed in the Executive Overview in Item 7.
Operational Excellence
We own and operate a portfolio of market rate apartment communities diversified by both geography and price point, which we refer to as our Real Estate portfolio. At December 31, 2017, our Real Estate portfolio included 136 apartment communities with 36,904 apartment homes in which we held an average ownership of 99%. This portfolio was divided about two thirds by value to our “Same Store” portfolio of stabilized apartment communities and about one third by value to “Other Real Estate,” which includes recently acquired communities and communities under redevelopment or development whose long-term financial contribution is not yet stabilized.
We also held nominal ownership positions in partnerships that own 46 low-income housing tax credit apartment communities with 6,898 apartment homes. We provide services to these partnerships and receive fees and other payments in return. Our relationship with these partnerships is different than real estate ownership and is better described as an asset management business, or Asset Management.
To manage our property operations efficiently and to increase the benefits from our local management expertise, we give direct responsibility for operations within each area to area operations leaders with regular oversight by senior management. To enable the area operations leaders to focus on sales and service, as well as to improve financial control and budgeting, we have dedicated area financial officers who support the operations leaders. Additionally, with the exception of routine maintenance and purchases and installation of equipment, we have specialized teams that manage capital spending related to larger and more complicated construction.
We seek to improve our property operations by: employing service-oriented, well-trained team members; taking advantage of advances in technology; centralizing operational tasks where efficient to do so; standardizing business processes, operational measurements, and internal reporting; and enhancing financial controls over field operations. We focus on the following areas:
Customer Satisfaction. Our operating culture is focused on our residents and providing them with a high level of service in a clean, safe, and respectful living environment. We regularly monitor and evaluate our performance by providing customers with numerous opportunities to grade our work. In 2017, we received 84,000 customer grades averaging 4.25 on a five-point scale. We use this customer feedback as a daily management tool. We also publish on-line these customer evaluations as important and credible information for prospective customers. We have automated certain aspects of our on-site operations to enable current and future residents to interact with us using methods that are efficient and effective for them, such as making on-line requests for service work and executing leases and lease renewals on-line. In addition, we emphasize the quality of our on-site team members through recruiting, training and retention programs, which, with the continuous, real-time customer feedback, contributes to improved customer service. We believe that greater customer satisfaction leads to higher resident retention and increased occupancy rates, which in turn leads to increased revenue and reduced costs.
Resident Selection and Retention. In our apartment communities, we believe that one’s neighbors are a meaningful part of the customer experience, together with the location of the community and the physical quality of the apartment homes.

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Part of our property operations strategy is to focus on attracting and retaining stable, credit-worthy residents who are also good neighbors. We have explicit criteria for resident selection, which we apply to new leases and to renewal leases, including creditworthiness and behavior in accordance with our community standards and our written “Good Neighbor Commitment.” Our focus on resident selection and retention led to 53% of expiring leases being renewed in 2017, which is above peer average.
Revenue Management and Ancillary Services. We have a centralized revenue management system that leverages people, processes, and technology to work in partnership with our local property management teams to develop rental rate pricing. We seek to increase Free Cash Flow, which we define as net operating income less Capital Replacements, by optimizing the balance between rental and occupancy rates, as well as taking into consideration costs such as preparing an apartment home for a new resident. We are focused on careful measurements of on-site operations, as we believe that timely and accurate collection of apartment community performance and resident profile data will enable us to maximize Free Cash Flow through better property management and leasing decisions. We seek to maximize profit by performing timely data analysis of new and renewal pricing for each apartment home, thereby enabling us to adjust rents quickly in response to changes in supply and demand and minimize vacancy time. We also generate incremental revenue by providing services to our residents, including, at certain apartment communities, telecommunications services, parking options, package lockers, and storage space rental.
Controlling Expenses. Innovation is the foundation of our cost control efforts. Innovative activities include: moving administrative tasks to our shared service center, which reduces costs and allows site teams to focus on sales and service; taking advantage of economies of scale at the corporate level, through electronic procurement which reduces complexity and increases purchasing volume discounts; focusing on life cycle costs by investing in more durable, longer-lived materials, which reduce turn times and costs; and leveraging technology to enhance the customer experience through website design and package lockers, which meet today’s customer preference for self-service. For the year ended December 31, 2017 compared to 2016, Same Store property operating expenses increased by 0.7%. Same Store controllable operating expenses, which we define as property operating expenses excluding taxes, insurance and utility expenses, decreased by 1.3%. The compounded annual growth rate for Same Store controllable operating expenses for the past decade is negative 0.4%.
Improving and Maintaining Apartment Community Quality. We believe that the physical condition and amenities of our apartment communities are important factors in our ability to maintain and increase rental rates. We invest in the maintenance and improvement of our apartment communities primarily through: Capital Enhancements, which may include kitchen and bath remodeling, energy conservation projects, and investments in longer-lived materials as described above, all of which are generally lesser in scope than is a redevelopment and do not significantly disrupt property operations; Capital Improvements, which extend the useful life of an apartment community from its condition at our date of purchase; and Capital Replacements, which are capital additions made to replace the portion of an apartment community consumed during our ownership. During 2017, we invested approximately $2,800 per apartment home in Capital Enhancements, $470 per apartment home in Capital Improvements, and $1,050 per apartment home in Capital Replacements.
Redevelopment
Redevelopment is our second line of business where we create value equal to 25% to 35% of our incremental investment by repositioning communities within the Aimco portfolio and by constructing new communities. We measure the rate and quality of financial returns by Net Asset Value creation, an important component of Economic Income, our primary measure of long-term financial performance (Net Asset Value is defined under the Non-GAAP Measures heading in Item 7). We invest to earn risk-adjusted returns in excess of those expected from the apartment communities sold in paired trades to fund the redevelopment and development.
We undertake a range of redevelopments, including those in which buildings or exteriors are renovated without the need to vacate apartment homes; those in which significant renovation of apartment homes may be accomplished upon lease expiration and turnover; and those in which an entire building or community is vacated. We often execute redevelopments using a phased approach, in which we renovate an apartment community in stages. Redevelopment work may include seeking entitlements from local governments, which enhance the value of our existing portfolio by increasing density, that is, the right to add apartment homes to a site.
We also undertake ground-up development when warranted by risk-adjusted investment returns, either directly in connection with the redevelopment of an existing apartment community or, on a more limited basis, at a new location. When warranted, we rely on the expertise and credit of a third-party developer familiar with the local market to limit our exposure to construction risk.
Of these two activities, we favor redevelopment because it permits adjustment of the scope and timing of spending to align with changing market conditions and customer preferences.

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Portfolio Management
Our portfolio management strategy involves the allocation of investment capital to enhance rent growth and increase long term capital values through portfolio design emphasizing land value as well as location and submarket. We target geographic diversification in our portfolio in order to reduce the volatility of our rental revenue and to reduce the risk of undue concentration in any particular market. Similarly, we seek price point diversification by owning communities that offer apartment homes at rents below those asked by competitive new building supply.
Our portfolio of apartment communities is diversified across “A,” “B,” and “C+” price points, averaging “B/B+” in quality and is also diversified among some of the largest markets in the United States. Please refer to the Executive Overview heading under Item 7 for a description of our portfolio quality ratings. At December 31, 2017, our Real Estate portfolio was allocated about one half to “A” rated properties, and about one half to “B” and “C+” rated properties.
As part of our portfolio strategy, we seek to sell up to 10% of our portfolio annually and to reinvest the proceeds from such sales in accretive uses such as capital enhancements, redevelopments, occasional developments, and selective acquisitions with projected free cash flow internal rates of return higher than expected from the communities being sold. Through this disciplined approach to capital recycling, we have significantly increased the quality and expected rental rate growth of our portfolio.
Balance Sheet
Our leverage strategy seeks to increase financial returns while using leverage with appropriate caution. We limit risk through balance sheet structure, employing low leverage, primarily non-recourse and long-dated property debt; build financial flexibility by maintaining ample unused and available credit as well as holding properties with substantial value unencumbered by property debt; and use partners’ capital when it enhances financial returns or reduces investment risk.
We target the ratio of Proportionate Debt plus Preferred Equity to Adjusted EBITDA to be below 7.0x and we target the ratio of Adjusted EBITDA to Adjusted Interest Expense and Preferred Dividends to be greater than 2.5x. Please refer to the Non-GAAP Measures heading under Item 7 for definitions of these terms. Our leverage includes our share of long-term, non-recourse property debt secured by apartment communities in our Real Estate portfolio, our term loan, outstanding borrowings under our revolving credit facility, and outstanding preferred equity.
Our liquidity consists of cash balances and available capacity on our revolving line of credit. At December 31, 2017, we had on hand $616.6 million in cash and restricted cash plus available capacity on our line of credit.
We also manage our financial flexibility by maintaining an investment grade rating and holding apartment communities that are unencumbered by property debt. At December 31, 2017, we held unencumbered apartment communities with an estimated fair market value of approximately $1.8 billion, up 12.5% year-over year.
Please refer to the Executive Overview and Liquidity and Capital Resources headings under Item 7 for additional information regarding our balance sheet and liquidity.
Team and Culture
Our team and culture are keys to our success. Our intentional focus on a collaborative and productive culture based on respect for others and personal responsibility is reinforced by a preference for promotion from within based on succession planning and talent development to produce a strong, stable team that is the enduring foundation of our success. In 2017, Aimco was recognized by the Denver Post as a Top Work Place. We are one of only a dozen Colorado companies of all sizes that have earned this designation for five consecutive years.
Competition
In attracting and retaining residents to occupy our apartment communities, we compete with numerous other housing providers. Our apartment communities compete directly with other rental apartments as well as condominiums and single-family homes that are available for rent or purchase in the markets in which our apartment communities are located. Principal factors of competition include rent or price charged, attractiveness of the location and apartment community, and the quality and breadth of services. The number of competitive apartment communities relative to demand in a particular area has a material effect on our ability to lease apartment homes at our communities and on the rents we charge. In certain markets, there exists an oversupply of newly-constructed apartment homes, single-family homes, and condominiums relative to consumer demand, which affects the pricing and occupancy of our rental apartments.
We also compete with other real estate investors, including other apartment REITs, pension and investment funds, partnerships, and investment companies in acquiring, redeveloping, managing, obtaining financing for, and disposing of apartment communities. This competition affects our ability to acquire apartment communities we want to add to our portfolio and the price that we pay

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in such acquisitions; our ability to finance or refinance communities in our portfolio and the cost of such financing; and our ability to dispose of communities we no longer desire to retain in our portfolio and the timing and price available to us when we seek to dispose of such communities.
Taxation
Aimco
Aimco has elected to be taxed as a REIT under the Internal Revenue Code of 1986, as amended, which we refer to as the Code, commencing with our taxable year ended December 31, 1994, and intends to continue to operate in such a manner. The Code imposes various requirements related to organizational structure, distribution levels, diversity of stock ownership, and certain restrictions with regard to owned assets and categories of income that must be met in order to continue to qualify as a REIT. If Aimco continues to qualify for taxation as a REIT, Aimco will generally not be subject to United States federal corporate income tax on its taxable income that is currently distributed to stockholders. This treatment substantially eliminates the “double taxation” (at the corporate and stockholder levels) that generally results from an investment in a corporation.
Certain of Aimco’s operations or a portion thereof, including property management and risk management are conducted through taxable REIT subsidiaries, each of which we refer to as a TRS. A TRS is a subsidiary C-corporation that has not elected REIT status and, as such, is subject to United States federal corporate income tax. We use TRS entities to facilitate our ability to offer certain services and activities to our residents and investment partners that cannot be offered directly by a REIT. We also use TRS entities to hold investments in certain apartment communities.
The Aimco Operating Partnership
The Aimco Operating Partnership is treated as a “pass-through” entity for United States federal income tax purposes and is not subject to United States federal income taxation. Partners in the Aimco Operating Partnership, however, are subject to tax on their allocable share of partnership income, gains, losses, deductions, and credits, regardless of whether the partners receive any actual distributions of cash or other property from the Aimco Operating Partnership during the taxable year. Generally, the characterization of any particular item is determined by the Aimco Operating Partnership, rather than at the partner level, and the amount of a partner’s allocable share of such item is governed by the terms of the Aimco Operating Partnership’s Partnership Agreement. The Aimco Operating Partnership is subject to tax in certain states.
Regulation
General
Apartment communities and their owners are subject to various laws, ordinances, and regulations, including those related to real estate broker licensing and regulations relating to recreational facilities such as swimming pools, activity centers and other common areas. Changes in laws increasing the potential liability for environmental conditions existing on apartment communities or increasing the restrictions on discharges or other conditions, as well as changes in laws affecting development, construction, and safety requirements, may result in significant unanticipated expenditures, which would adversely affect our net income and cash flows from operating activities. In addition, existing rent control laws, as well as future enactment of rent control or rent stabilization laws, such as legislation that has been considered in New York and certain cities in California, or other laws regulating multifamily housing may reduce rental revenue or increase operating costs in particular markets.
Environmental
Various federal, state, and local laws subject apartment community owners or operators to liability for management, and the costs of removal or remediation, of certain potentially hazardous materials that may be present at an apartment community. These materials may include lead-based paint, asbestos, polychlorinated biphenyls, and petroleum-based fuels. Such laws often impose liability without regard to fault or whether the owner or operator knew of, or was responsible for, the release or presence of such materials. In connection with the ownership, operation, and management of apartment communities, we could potentially be liable for environmental liabilities or costs associated with our current apartment communities, communities we acquire or manage in the future, or communities we previously owned or operated in the past. These and other risks related to environmental matters are described in more detail in Item 1A. Risk Factors.
Insurance
Our primary lines of insurance coverage are property, general liability, and workers’ compensation. We believe that our insurance coverages adequately insure our apartment communities against the risk of loss attributable to fire, earthquake, hurricane, tornado, flood, terrorism, and other perils, and adequately insure us against other risk. Our coverage includes deductibles, retentions and

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limits that are customary in the industry. We have established loss prevention, loss mitigation, claims handling, and litigation management procedures to manage our exposure.
Employees
At December 31, 2017, we had approximately 1,350 team members, of which about 1,000 were at the apartment community level performing on-site functions, or at our shared service center performing tasks that have been centralized there, with the balance managing corporate and area functions, including investment and debt transactions, legal, finance and accounting, information systems, human resources and other support functions. As of December 31, 2017, unions represented approximately 80 of our team members. We have never experienced a work stoppage and believe we maintain satisfactory relations with our team members.
Available Information
Our combined Annual Report on Form 10-K, our combined Quarterly Reports on Form 10-Q, Current Reports on Form 8-K filed by Aimco or the Aimco Operating Partnership and any amendments to any of those reports that we file with the Securities and Exchange Commission are available free of charge as soon as reasonably practicable through Aimco’s website at www.aimco.com. The information contained on Aimco’s website is not incorporated into this Annual Report. Aimco’s Common Stock is listed on the New York Stock Exchange under the symbol “AIV.” In 2017, Aimco’s chief executive officer submitted his annual corporate governance listing standards certification to the New York Stock Exchange, which certification was unqualified.
Item 1A. Risk Factors
The risk factors noted in this section and other factors noted throughout this Annual Report, describe certain risks and uncertainties that could cause our actual results to differ materially from those contained in any forward-looking statement.
Redevelopment, development and construction risks could affect our profitability.
We are currently redeveloping certain of our apartment communities. During 2018, we expect to invest $120 million to $200 million in redevelopment and development activities. Redevelopment and development are subject to numerous risks, including the following:
we may be unable to obtain, or experience delays in obtaining, necessary zoning, occupancy, or other required governmental or third-party permits and authorizations, which could result in increased costs or the delay or abandonment of opportunities;
we may incur costs that exceed our original estimates due to increased material, labor or other costs, such as litigation;
we may be unable to complete construction and lease-up of an apartment community on schedule, resulting in increased construction and financing costs and a decrease in expected rental revenues;
occupancy rates and rents at an apartment community may fail to meet our expectations for a number of reasons, including changes in market and economic conditions beyond our control and the development of competing communities;
we may be unable to obtain financing with favorable terms, or at all, which may cause us to delay or abandon an opportunity;
we may abandon opportunities that we have already begun to explore, or stop projects we have already commenced, for a number of reasons, including changes in local market conditions or increases in construction or financing costs, and, as a result, we may fail to recover costs already incurred in exploring those opportunities;
we may incur liabilities to third parties during the redevelopment or development process;
unexpected events or circumstances may arise during the redevelopment or development process that affect the timing of completion and the cost and profitability of the redevelopment or development; and
loss of a key member of a redevelopment or development team could adversely affect our ability to deliver redevelopments and developments on time and within our budget.
Failure to generate sufficient net operating income may adversely affect our liquidity, limit our ability to fund necessary capital expenditures or adversely affect our ability to pay dividends or distributions.
Our ability to fund necessary capital expenditures on our apartment communities depends on, among other things, our ability to generate net operating income in excess of required debt payments. If we are unable to fund capital expenditures on our apartment communities, we may not be able to preserve the competitiveness of our communities, which could adversely affect their net operating income and long term value.

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Our ability to make payments to our investors depends on our ability to generate net operating income in excess of required debt payments and capital expenditure requirements. Our net operating income and liquidity may be adversely affected by events or conditions beyond our control, including:
the general economic climate;
an inflationary environment in which the costs to operate and maintain our communities increase at a rate greater than our ability to increase rents, which we can only do upon renewal of existing leases or at the inception of new leases;
competition from other apartment communities and other housing options;
local conditions, such as loss of jobs, unemployment rates, or an increase in the supply of apartments, that might adversely affect apartment occupancy or rental rates;
changes in governmental regulations and the related cost of compliance;
changes in tax laws and housing laws, including the enactment of rent control laws or other laws regulating multifamily housing; and
changes in interest rates and the availability of financing.
Competition could limit our ability to lease apartment homes or increase or maintain rents.
Our apartment communities compete for residents with other housing alternatives, including other rental apartments and condominiums, and, to a lesser degree, single-family homes that are available for rent, as well as new and existing condominiums and single-family homes for sale. Competitive residential housing as well as household formation and job creation in a particular area could adversely affect our ability to lease apartment homes and to increase or maintain rental rates.
Because real estate investments are relatively illiquid, we may not be able to sell apartment communities when appropriate.
Real estate investments are relatively illiquid and generally cannot be sold quickly. REIT tax rules also restrict our ability to sell apartment communities. Thus, we may not be able to change our portfolio promptly in response to changes in economic or other market conditions. Our ability to dispose of apartment communities in the future will depend on prevailing economic and market conditions, including the cost and availability of financing. This could have a material adverse effect on our financial condition or results of operations.
If we are not successful in our acquisition of apartment communities, our results of operations could be adversely affected.
The selective acquisition of apartment communities is a component of our strategy. However, we may not be able to complete transactions successfully in the future. Although we seek to acquire apartment communities when such acquisitions increase our free cash flow internal rate of returns and are accretive to Net Asset Value, such transactions may fail to perform in accordance with our expectations. In particular, following acquisition, the value and operational performance of an apartment community may be diminished if obsolescence or neighborhood changes occur before we are able to redevelop or sell the community. This could have an adverse effect on our financial condition or results of operations.
Our existing and future debt financing could result in foreclosure of our apartment communities, prevent us from making distributions on our equity, or otherwise adversely affect our liquidity.
We are subject to the risk that our cash flow from operations will be insufficient to make required payments of principal and interest, and the risk that existing indebtedness may not be refinanced or that the terms of any refinancing will not be as favorable as the terms of existing indebtedness. If we fail to make required payments of principal and interest on our non-recourse debt, our lenders could foreclose on the apartment communities and other collateral securing such debt, which would result in the loss to us of income and asset value. As of December 31, 2017, the majority of our apartment communities were encumbered by debt. Our organizational documents do not limit the amount of debt that we may incur, and we have significant amounts of debt outstanding. Payments of principal and interest may leave us with insufficient cash resources to operate our communities or pay distributions required to be paid in order to maintain Aimco’s qualification as a REIT.
Disruptions in the financial markets could affect our ability to obtain financing and the cost of available financing and could adversely affect our liquidity.
Our ability to obtain financing and the cost of such financing depends on the overall condition of the United States credit markets. During periods of economic uncertainty, the United States credit markets may experience significant liquidity disruptions, which may cause the spreads on debt financings to widen considerably and make obtaining financing, both non-recourse property debt and corporate borrowings, such as those under our revolving credit agreement, more difficult. In particular, apartment

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borrowers have benefited from the historic willingness of Federal National Mortgage Association, or Fannie Mae, and the Federal Home Loan Mortgage Corporation, or Freddie Mac, to make substantial amounts of loans secured by multi-family properties, even in times of economic distress. These two lenders are federally chartered and subject to federal regulation, making uncertain their prospects and ability to provide liquidity in a future downturn.
If our ability to obtain financing is adversely affected, we may be unable to satisfy scheduled maturities on existing financing through other sources of liquidity, which could result in lender foreclosure on the apartment communities securing such debt and loss of income and asset value, each of which would adversely affect our liquidity.
Increases in interest rates would increase our interest expense and reduce our profitability.
As of December 31, 2017, we had approximately $399.8 million of variable-rate indebtedness outstanding associated with our Real Estate portfolio. We estimate that an increase in 30-day LIBOR of 100 basis points with constant credit risk spreads would reduce our net income and the amount of net income attributable to our common security holders (including Aimco common stockholders and the Aimco Operating Partnership’s common unitholders) by approximately $3.8 million on an annual basis.
At December 31, 2017, our Real Estate portfolio had approximately $95.3 million in cash and cash equivalents and restricted cash, a portion of which bear interest at variable rates indexed to LIBOR-based rates, which may partially mitigate the effect of an increase in variable rates on our variable-rate indebtedness discussed above.
Covenant restrictions may limit our ability to make payments to our investors.
Some of our debt and other securities contain covenants that restrict our ability to make distributions or other payments to our investors unless certain financial tests or other criteria are satisfied. Our revolving credit agreement provides, among other things, that we may not make distributions to our investors during any four consecutive fiscal quarters in an aggregate amount greater than 95% of our Funds From Operations for such period, subject to certain non-cash adjustments, or such amount as may be necessary to maintain Aimco’s REIT status. Our outstanding classes of preferred stock or preferred units prohibit the payment of dividends on our Common Stock or common partnership units if we fail to pay the dividends to which the holders of the preferred stock or preferred units are entitled.
The Aimco Operating Partnership and its subsidiaries may be prohibited from making distributions and other payments.
All of Aimco’s apartment communities are owned, and all of Aimco’s operations are conducted, by the Aimco Operating Partnership. Further, many of the Aimco Operating Partnership’s apartment communities are owned by subsidiaries of the Aimco Operating Partnership. As a result, Aimco depends on distributions and other payments from the Aimco Operating Partnership, and the Aimco Operating Partnership depends on distributions and payments from its subsidiaries in order to satisfy our financial obligations and make payments to our investors. The ability of the Aimco Operating Partnership and its subsidiaries to make such distributions and other payments depends on their earnings and cash flows and may be subject to statutory or contractual limitations. As an equity investor in the Aimco Operating Partnership and its subsidiaries, our right to receive assets upon their liquidation or reorganization will be effectively subordinated to the claims of their creditors. To the extent that we are recognized as a creditor of such subsidiaries, our claims may still be subordinate to any security interest in or other lien on their assets and to any of their debt or other obligations that are senior to our claims.
Potential liability or other expenditures associated with potential environmental contamination may be costly.
Various federal, state and local laws subject apartment community owners or operators to liability for management, and the costs of removal or remediation, of certain potentially hazardous materials that may be present in the land or buildings of an apartment community. Potentially hazardous materials may include polychlorinated biphenyls, petroleum-based fuels, lead-based paint, or asbestos, among other materials. Such laws often impose liability without regard to fault or whether the owner or operator knew of, or was responsible for, the presence of such materials. The presence of, or the failure to manage or remediate properly, these materials may adversely affect occupancy at such apartment communities as well as the ability to sell or finance such apartment communities. In addition, governmental agencies may bring claims for costs associated with investigation and remediation actions, damages to natural resources and for potential fines or penalties in connection with such damage or with respect to the improper management of hazardous materials. Moreover, private plaintiffs may potentially make claims for investigation and remediation costs they incur or personal injury, disease, disability or other infirmities related to the alleged presence of hazardous materials at an apartment community. In addition to potential environmental liabilities or costs associated with our current apartment communities, we may also be responsible for such liabilities or costs associated with communities we acquire or manage in the future, or apartment communities we no longer own or operate.

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Laws benefiting disabled persons may result in our incurrence of unanticipated expenses.
Under the Americans with Disabilities Act of 1990, or ADA, all places intended to be used by the public are required to meet certain federal requirements related to access and use by disabled persons. The Fair Housing Amendments Act of 1988, or FHAA, requires apartment communities first occupied after March 13, 1991, to comply with design and construction requirements for disabled access. For those apartment communities receiving federal funds, the Rehabilitation Act of 1973 also has requirements regarding disabled access. These and other federal, state and local laws may require structural modifications to our apartment communities or changes in policy/practice, or affect renovations of the communities. Noncompliance with these laws could result in the imposition of fines or an award of damages to private litigants and also could result in an order to correct any non-complying feature, which could result in substantial capital expenditures. Although we believe that our apartment communities are substantially in compliance with present requirements, we may incur unanticipated expenses to comply with the ADA, the FHAA and the Rehabilitation Act of 1973 in connection with the ongoing operation or redevelopment of our apartment communities.
Moisture infiltration and resulting mold remediation may be costly.
Although we are proactively engaged in managing moisture intrusion and preventing the presence of mold at our apartment communities, it is not unusual for periodic moisture intrusion to cause mold in isolated locations within an apartment community. We have implemented policies, procedures and training, and include a detailed moisture intrusion and mold assessment during acquisition due diligence. We believe these measures will manage mold exposure at our apartment communities and will minimize the effects that mold may have on our residents. To date, we have not incurred any material costs or liabilities relating to claims of mold exposure or to abate mold conditions. We have only limited insurance coverage for property damage claims arising from the presence of mold and for personal injury claims related to mold exposure.
Government housing regulations may limit the opportunities at some of our apartment communities and failure to comply with resident qualification requirements may result in financial penalties and/or loss of benefits, such as rental revenues paid by government agencies. Additionally, the government may cease to operate or reduce funding for government housing programs which would result in a loss of benefits from those programs.
We own equity interests in consolidated and unconsolidated entities that own certain apartment communities that benefit from governmental programs intended to provide housing to people with low or moderate incomes. These programs, which are usually administered by the United States Department of Housing and Urban Development, or HUD, or state housing finance agencies, typically provide one or more of the following: mortgage insurance; favorable financing terms; tax-exempt interest; historic or low-income housing tax credits; or rental assistance payments to the apartment community owners. As a condition of the receipt of assistance under these programs, the apartment communities must comply with various requirements, which typically limit rents to pre-approved amounts and limit our choice of residents to those with incomes at or below certain levels. Failure to comply with these requirements may result in financial penalties or loss of benefits. We are usually required to obtain the approval of HUD in order to acquire or dispose of a significant interest in or manage a HUD-assisted apartment community. We may not always receive such approval.
Additionally, there is no guarantee that the government will continue to operate these programs or that the programs will be operated in a manner that generates benefits consistent with those received in the past. Any cessation of or change in the administration of benefits from these government housing programs may result in our loss or reduction in the amount of the benefits we receive under these programs, including rental subsidies. During 2017, 2016 and 2015, rental revenues for our Real Estate portfolio included $30.6 million, $30.9 million and $25.6 million, respectively, from subsidies from government agencies. Of the 2017 subsidies, approximately 23.9% related to communities sold during 2017 leaving about $7.1 million related to communities benefiting from housing assistance contracts that expire in 2018, which we are in the process of renewing or anticipate renewing, and $16.2 million related to communities benefiting from housing assistance contracts that expire after 2018 and had a weighted average term of 8.0 years. Any loss or reduction in the amount of these benefits may adversely affect our liquidity and results of operations.
We also hold nominal ownership positions in partnerships owning low-income housing tax credit communities. We provide services to these partnerships and receive fees and other payments in return. We refer to this relationship as our Asset Management business. During 2017, 2016 and 2015, rental revenues of communities owned by partnerships served by our Asset Management business included $49.0 million, $49.3 million and $47.8 million, respectively, of subsidies from government agencies.
Although we are insured for certain risks, the cost of insurance, increased claims activity or losses resulting from casualty events may affect our operating results and financial condition.
We are insured for a portion of our consolidated apartment communities’ exposure to casualty losses resulting from fire, earthquake, hurricane, tornado, flood and other perils, which insurance is subject to deductibles and self-insurance retention. We recognize casualty losses or gains based on the net book value of the affected apartment community and the amount of any related

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insurance proceeds. In many instances, the actual cost to repair or replace the apartment community may exceed its net book value and any insurance proceeds. We recognize the uninsured portion of losses as casualty losses in the periods in which they are incurred. In addition, we are self-insured for a portion of our exposure to third-party claims related to our employee health insurance plans, workers’ compensation coverage and general liability exposure. With respect to our exposure to claims of third parties, we establish reserves at levels that reflect our known and estimated losses. The ultimate cost of losses and the impact of unforeseen events may vary materially from recorded reserves, and variances may adversely affect our operating results and financial condition. We purchase insurance to reduce our exposure to losses and limit our financial losses on large individual risks. The availability and cost of insurance are determined by market conditions outside our control. No assurance can be made that we will be able to obtain and maintain insurance at the same levels and on the same terms as we do today. If we are not able to obtain or maintain insurance in amounts we consider appropriate for our business, or if the cost of obtaining such insurance increases materially, we may have to retain a larger portion of the potential loss associated with our exposures to risks.
Natural disasters and severe weather may affect our operating results and financial condition.
Natural disasters such as earthquakes and severe weather such as hurricanes may result in significant damage to our apartment communities. The extent of our casualty losses and loss in operating income in connection with such events is a function of the severity of the event and the total amount of exposure in the affected area. When we have geographic concentration of exposures, a single catastrophe (such as an earthquake) or destructive weather event (such as a hurricane) affecting a region may have a significant adverse effect on our financial condition and results of operations. We cannot accurately predict natural disasters or severe weather, or the number and type of such events that will affect us. As a result, our operating and financial results may vary significantly from one period to the next. Although we anticipate and plan for losses, there can be no assurance that our financial results will not be adversely affected by our exposure to losses arising from natural disasters or severe weather in the future that exceed our previous experience and assumptions.
We depend on our senior management.
Our success depends upon the retention of our senior management, including Terry Considine, our chief executive officer. We have a succession planning and talent development process that is designed to identify potential replacements and develop our team members to provide depth in the organization and a bench of talent on which to draw. However, there are no assurances that we would be able to find qualified replacements for the individuals who make up our senior management if their services were no longer available. The loss of services of one or more members of our senior management team could have a material adverse effect on our business, financial condition and results of operations. We do not currently maintain key-man life insurance for any of our employees.
Aimco may fail to qualify as a REIT.
If Aimco fails to qualify as a REIT, Aimco will not be allowed a deduction for dividends paid to its stockholders in computing its taxable income, and will be subject to United States federal income tax at regular corporate rates. This would substantially reduce our funds available for distribution to our investors. Unless entitled to relief under certain provisions of the Code, Aimco also would be disqualified from taxation as a REIT for the four taxable years following the year during which it ceased to qualify as a REIT. In addition, Aimco’s failure to qualify as a REIT would place us in default under our revolving credit agreement.
We believe that Aimco operates, and has since its taxable year ended December 31, 1994 operated, in a manner that enables it to meet the requirements for qualification as a REIT for United States federal income tax purposes. Aimco’s continued qualification as a REIT will depend on its satisfaction of certain asset, income, investment, organizational, distribution, stockholder ownership and other requirements on a continuing basis. Aimco’s ability to satisfy the asset tests depends upon our analysis of the fair market values of our assets, some of which are not susceptible to a precise determination, and for which we do not obtain independent appraisals. Aimco’s compliance with the REIT annual income and quarterly asset requirements also depends upon our ability to manage successfully the composition of our income and assets on an ongoing basis. Moreover, the proper classification of an instrument as debt or equity for United States federal income tax purposes may be uncertain in some circumstances, which could affect the application of the REIT qualification requirements. Accordingly, there can be no assurance that the Internal Revenue Service, or the IRS, will not contend that our interests in subsidiaries or other issuers constitutes a violation of the REIT requirements. Moreover, future economic, market, legal, tax or other considerations may cause Aimco to fail to qualify as a REIT, or Aimco’s Board of Directors may determine to revoke its REIT status.
REIT distribution requirements limit our available cash.
As a REIT, Aimco is subject to annual distribution requirements. The Aimco Operating Partnership pays distributions intended to enable Aimco to satisfy its distribution requirements. This limits the amount of cash available for other business purposes, including amounts to fund our growth. Aimco generally must distribute annually at least 90% of its REIT taxable income, determined without regard to the dividends paid deduction and excluding any net capital gain, in order for its distributed earnings not to be

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subject to United States federal corporate income tax. We intend to make distributions to Aimco’s stockholders to comply with the requirements of the Code. However, differences in timing between the recognition of taxable income and the actual receipt of cash could require us to sell apartment communities or borrow funds on a short-term or long-term basis to meet the 90% distribution requirement of the Code.
Aimco may be subject to federal and state income taxes, in certain circumstances.
Even if Aimco qualifies as a REIT, Aimco may be subject to United States federal income and excise taxes in various situations, such as on its undistributed income. Aimco could also be required to pay a 100% tax on any net income on non-arm’s length transactions between Aimco and a taxable REIT subsidiary and on any net income from sales of apartment communities that were held for sale primarily in the ordinary course. State and local tax laws may not conform to the United States federal income tax treatment, and Aimco may be subject to state or local taxation in various state or local jurisdictions in which Aimco transacts business. Any taxes imposed on Aimco would reduce our operating cash flow and net income and could negatively impact our ability to pay dividends and distributions.
Dividends payable by REITs do not qualify for the reduced tax rates available for some dividends.
REITs are entitled to a U.S. federal tax deduction for dividends paid to their stockholders. As compared to other taxable corporations, this ability to reduce or eliminate the REIT’s taxable income by paying dividends to stockholders is a principal benefit of maintaining REIT status, generally resulting in a lower combined tax liability of the REIT and its stockholders as compared to that of the combined tax liability of other taxable corporations and their stockholders. Notwithstanding this combined benefit, dividends payable by REITs may result in marginally higher taxes to the stockholder.
C-corporations are generally required to pay U.S. federal income tax on earnings. After tax earnings are then available for stockholder dividends. The maximum U.S. federal tax rate applicable to income from "qualified dividends" payable to U.S. stockholders that are individuals, trusts and estates is currently 20%, plus the 3.8% investment tax surcharge. While dividends payable by REITs are generally not eligible for the qualified dividend reduced rates, stockholders that are individuals, trusts or estates may deduct 20% of the aggregate amount of ordinary dividends from REITs. This deduction is available for taxable years beginning after December 31, 2017 and before January 1, 2026 and will generally cause the maximum tax rate for ordinary dividends from REITs to be 29.6%, plus the 3.8% investment tax surcharge.
Beginning in 2018, REIT dividends payable to individuals, trusts and estates can be taxed at 20% for capital gains and qualified dividends, 25% for unrecaptured Section 1250 gains, or 29.6% for ordinary dividends, whereas qualified dividends from C-corporations are generally taxed at 20%. Both are subject to the 3.8% investment tax surcharge. Based on the character of Aimco’s 2017 REIT dividends, the effective U.S. federal income tax rate that would be be paid on Aimco’s 2018 dividends by stockholders who are individuals, trusts and estates would be 25.5% before considering the 3.8% investment tax surcharge. To the extent, the character of Aimco’s 2018 REIT dividends are similar to that of 2017, Aimco dividends would be taxed at a marginal rate 5.5% higher than the rate for a C-corporation dividend. In 2017, the ordinary income portion of of Aimco’s REIT taxable income was elevated compared to prior years. If the character of Aimco’s 2018 REIT dividends are similar to the average of the last three years, Aimco dividends would be taxed at a marginal rate 4.6% higher than the rate for a C-corporation dividend.
Changes to U.S. federal income tax laws could materially and adversely affect Aimco and Aimco's stockholders.
The present U.S. federal income tax treatment of REITs may be modified, possibly with retroactive effect, by legislative, judicial or administrative action at any time, which could affect the U.S. federal income tax treatment of an investment in Aimco Common Stock. The U.S. federal income tax rules dealing with REITs constantly are under review by persons involved in the legislative process, the IRS and the U.S. Treasury Department, which results in statutory changes as well as frequent revisions to regulations and interpretations. The recently enacted Tax Cuts and Jobs Act made substantial changes to the Code. Among those changes are a significant permanent reduction in the generally applicable corporate tax rate, changes in the taxation of individuals and other non-corporate taxpayers that generally but not universally reduce their tax rates on a temporary basis subject to ‘‘sunset” provisions, the elimination or modification of various currently allowed deductions (including substantial limitations on the deductibility of interest and, in the case of individuals, the deduction for personal state and local taxes), certain additional limitations on the deduction of net operating losses, and preferential rates of taxation on most ordinary REIT dividends and certain business income derived by noncorporate taxpayers in comparison to other ordinary income recognized by such taxpayers. The effect of these and the many other changes made in the Tax Cuts and Jobs Act is highly uncertain, both in terms of their direct effect on the taxation of an investment in our common stock and their indirect effect on market conditions generally. Furthermore, many of the provisions of the Tax Cuts and Jobs Act will require guidance through the issuance of Treasury regulations in order to assess their effect. There may be a substantial delay before such regulations are promulgated, increasing the uncertainty as to the ultimate effect of the statutory amendments on Aimco. There may also be technical corrections legislation proposed with respect to the Tax Cuts and Jobs Act, the effect and timing of which cannot be predicted and may be adverse to Aimco or Aimco's stockholders.

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Investors are urged to consult their tax advisors with respect to these changes and the potential effect on their investment in Aimco’s Common Stock.
Limits on ownership of shares specified in Aimco’s charter may result in the loss of economic and voting rights by purchasers that violate those limits.
Aimco’s charter limits ownership of Common Stock by any single stockholder (applying certain “beneficial ownership” rules under the federal securities laws) to 8.7% (or up to 12.0% upon a waiver from Aimco’s Board of Directors) of outstanding shares of Common Stock, or 15% in the case of certain pension trusts, registered investment companies and Mr. Considine (or up to 18.0% for such pension trusts or registered investment companies upon a waiver from Aimco’s Board of Directors). Aimco’s charter also limits ownership of Aimco’s Common Stock and preferred stock by any single stockholder to 8.7% of the value of the outstanding Common Stock and preferred stock, or 15% in the case of certain pension trusts, registered investment companies and Mr. Considine. The charter also prohibits anyone from buying shares of Aimco’s capital stock if the purchase would result in Aimco losing its REIT status. This could happen if a transaction results in fewer than 100 persons owning all of Aimco’s shares of capital stock or results in five or fewer persons (applying certain attribution rules of the Code) owning 50% or more of the value of all of Aimco’s shares of capital stock. If anyone acquires shares in excess of the ownership limit or in violation of the ownership requirements of the Code for REITs:
the transfer will be considered null and void;
we will not reflect the transaction on Aimco’s books;
we may institute legal action to enjoin the transaction;
we may demand repayment of any dividends received by the affected person on those shares;
we may redeem the shares;
the affected person will not have any voting rights for those shares; and
the shares (and all voting and dividend rights of the shares) will be held in trust for the benefit of one or more charitable organizations designated by Aimco.
Aimco may purchase the shares of capital stock held in trust at a price equal to the lesser of the price paid by the transferee of the shares or the then current market price. If the trust transfers any of the shares of capital stock, the affected person will receive the lesser of the price paid for the shares or the then current market price. An individual who acquires shares of capital stock that violate the above rules bears the risk that the individual:
may lose control over the power to dispose of such shares;
may not recognize profit from the sale of such shares if the market price of the shares increases;
may be required to recognize a loss from the sale of such shares if the market price decreases; and
may be required to repay to us any dividends received from us as a result of his or her ownership of the shares.
Aimco’s charter may limit the ability of a third-party to acquire control of Aimco.
The 8.7% and other ownership limits discussed above may have the effect of delaying or precluding acquisition by a third-party of control of Aimco without the consent of Aimco’s Board of Directors. Aimco’s charter authorizes its Board of Directors to issue up to 510,587,500 shares of capital stock. As of December 31, 2017, 500,787,260 shares were classified as Common Stock, of which 157,189,447 were outstanding, and 9,800,240 shares were classified as preferred stock, of which 5,000,000 were outstanding. Under Aimco’s charter, its Board of Directors has the authority to classify and reclassify any of Aimco’s unissued shares of capital stock into shares of capital stock with such preferences, conversion or other rights, voting power restrictions, limitations as to dividends, qualifications or terms or conditions of redemptions as the Board of Directors may determine. The authorization and issuance of a new class of capital stock could have the effect of delaying or preventing someone from taking control of Aimco, where there is a difference of opinion between the Aimco Board of Directors and others as to what is in Aimco’s stockholders’ best interests.
The Maryland General Corporation Law may limit the ability of a third-party to acquire control of Aimco.
As a Maryland corporation, Aimco is subject to various Maryland laws that may have the effect of discouraging offers to acquire Aimco and increasing the difficulty of consummating any such offers, where there is a difference of opinion between the Aimco Board of Directors and others as to what is in Aimco’s stockholders’ best interests. The Maryland General Corporation Law, specifically the Maryland Business Combination Act, restricts mergers and other business combination transactions between Aimco

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and any person who acquires, directly or indirectly, beneficial ownership of shares of Aimco’s stock representing 10% or more of the voting power without Aimco’s Board of Directors’ prior approval. Any such business combination transaction could not be completed until five years after the person acquired such voting power, and generally only with the approval of stockholders representing 80% of all votes entitled to be cast and 66-2/3% of the votes entitled to be cast, excluding the interested stockholder, or upon payment of a fair price. The Maryland General Corporation Law, specifically the Maryland Control Share Acquisition Act, provides generally that a person who acquires shares of Aimco’s capital stock representing 10% or more of the voting power in electing directors will have no voting rights unless approved by a vote of two-thirds of the shares eligible to vote. Additionally, the Maryland General Corporation Law provides, among other things, that the board of directors has broad discretion in adopting stockholders’ rights plans and has the sole power to fix the record date, time and place for special meetings of the stockholders. To date, Aimco has not adopted a stockholders’ rights plan. In addition, the Maryland General Corporation Law provides that a corporation that:
has at least three directors who are not officers or employees of the entity or related to an acquiring person; and
has a class of equity securities registered under the Securities Exchange Act of 1934, as amended,
may elect in its charter or bylaws or by resolution of the board of directors to be subject to all or part of a special subtitle that provides that:
the corporation will have a staggered board of directors;
any director may be removed only for cause and by the vote of two-thirds of the votes entitled to be cast in the election of directors generally, even if a lesser proportion is provided in the charter or bylaws;
the number of directors may only be set by the board of directors, even if the procedure is contrary to the charter or bylaws;
vacancies may only be filled by the remaining directors, even if the procedure is contrary to the charter or bylaws; and
the secretary of the corporation may call a special meeting of stockholders at the request of stockholders only on the written request of the stockholders entitled to cast at least a majority of all the votes entitled to be cast at the meeting, even if the procedure is contrary to the charter or bylaws.
To date, Aimco has not made any of the elections described above.
Item 1B. Unresolved Staff Comments
None.

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Item 2. Properties
Additional information about our consolidated apartment communities is contained in “Schedule III - Real Estate and Accumulated Depreciation” in this Annual Report on Form 10-K. Refer to Note 4 to the consolidated financial statements in Item 8 for additional information regarding property debt.
Our Real Estate portfolio is diversified by both price point and geography and consists of market rate apartment communities in which we own a substantial interest. Our Real Estate portfolio includes garden style, mid-rise and high-rise apartment communities located in 22 states and the District of Columbia. Our portfolio strategy seeks predictable rent growth from a portfolio of apartment communities diversified among some of the largest markets in the United States, and that is diversified across “A,” “B” and “C+” price points, averaging “B/B+” in quality. As of December 31, 2017, our Real Estate portfolio consisted of roughly one half “A” quality communities and one half “B” and “C+” quality communities (as measured by gross asset value). Please refer to the Executive Overview heading under Item 7 for a description of our portfolio quality ratings. The following table sets forth information on the apartment communities in our Real Estate portfolio as of December 31, 2017:
 
Number of Apartment Communities
 
Number of Apartment Homes
 
Average Economic Ownership
Atlanta
5

 
817

 
100
%
Bay Area
16

 
3,236

 
100
%
Boston
15

 
4,689

 
100
%
Chicago
10

 
3,246

 
100
%
Denver
8

 
2,065

 
98
%
Greater New York
18


1,040

 
100
%
Greater Washington, DC
13

 
5,325

 
99
%
Los Angeles
13

 
4,347

 
100
%
Miami
5

 
2,652

 
100
%
Philadelphia
5

 
2,796

 
97
%
San Diego
12

 
2,423

 
97
%
Seattle
2

 
239

 
100
%
Other markets
14

 
4,029

 
97
%
Total Real Estate portfolio
136

 
36,904

 
99
%
At December 31, 2017, we owned an equity interest in 136 apartment communities with 36,904 apartment homes in our Real Estate portfolio. We consolidated 132 of these apartment communities with 36,762 apartment homes.
These consolidated apartment communities contained, on average, 279 apartment homes, with the largest community containing 2,113 apartment homes. These apartment communities offer residents a range of amenities, including resort pools with cabanas, grills, clubhouses, spas, fitness centers, package lockers, dog parks and large open spaces. Many of the apartment homes offer features such as granite countertops, wood flooring, stainless steel appliances, fireplaces, spacious closets, washer and dryer connections, balconies and patios.
The majority of our consolidated apartment communities are encumbered by property debt. At December 31, 2017, apartment communities in our Real Estate portfolio were encumbered by, in aggregate, $3.5 billion of property debt with a weighted average interest rate of 4.6% and a weighted average maturity of 7.2 years. The apartment communities collateralizing this non-recourse property debt have an estimated aggregate fair value of $10.9 billion. At December 31, 2017, we held unencumbered apartment communities with an estimated fair value of approximately $1.8 billion.
At December 31, 2017, we also held nominal ownership positions in partnerships that own 46 apartment communities with 6,898 apartment homes that qualify for low-income housing tax credits and are structured to provide for the pass through of tax credits and tax deductions to their partners. We provide asset management and other services to these partnerships and receive fees and other payments in return. In accordance with accounting principles generally accepted in the United States of America, or GAAP, we consolidate most of these partnerships, which own an aggregate of 39 apartment communities with 6,211 apartment homes.
Item 3. Legal Proceedings
As further discussed in Note 5 to the consolidated financial statements in Item 8, we are engaged in discussions with regulatory agencies regarding environmental matters at apartment communities we, or predecessor entities, previously owned. Although the outcome of these matters is uncertain, we do not expect the resolution to have a material adverse effect on our consolidated financial condition, results of operations or cash flows.

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Additionally, as further discussed in Note 3 to the consolidated financial statements in Item 8, in January 2018 we reached an agreement to settle litigation pertaining to the ownership of a property we acquired in 2014.
Item 4. Mine Safety Disclosures
Not applicable.

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PART II

Item 5. Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Aimco
Aimco’s Common Stock has been listed and traded on the NYSE under the symbol “AIV” since July 22, 1994. The following table sets forth the quarterly high and low sales prices of our Common Stock, as reported on the NYSE, and the dividends declared in the periods indicated:
Quarter Ended
High
 
Low
 
Dividends
Declared
(per share)
December 31, 2017
$
45.47

 
$
43.15

 
$
0.36

September 30, 2017
46.45

 
42.42

 
0.36

June 30, 2017
44.99

 
42.64

 
0.36

March 31, 2017
46.53

 
43.11

 
0.36

 
 
 
 
 
 
December 31, 2016
$
45.45

 
$
39.88

 
$
0.33

September 30, 2016
47.59

 
43.30

 
0.33

June 30, 2016
44.16

 
39.57

 
0.33

March 31, 2016
41.82

 
35.45

 
0.33

Aimco’s Board of Directors determines and declares its dividends. In making a dividend determination, Aimco’s Board of Directors considers a variety of factors, including: REIT distribution requirements; current market conditions; liquidity needs; and other uses of cash, such as for deleveraging and accretive investment activities. Aimco’s Board of Directors targets a dividend payout ratio between 65% and 70% of Adjusted Funds From Operations (which is defined in Item 7). In January 2018, Aimco’s Board of Directors declared a cash dividend of $0.38 per share on its Common Stock. On an annualized basis, this represents an increase of 6% compared to the dividends paid in 2017. This dividend is payable on February 28, 2018, to stockholders of record on February 16, 2018. Aimco’s Board of Directors anticipates similar per share quarterly cash dividends for the remainder of 2018. However, the Board of Directors may adjust the dividend amount or the frequency with which the dividend is paid based on then prevailing circumstances.
On February 27, 2018, the closing price of Aimco Common Stock was $38.43 per share, as reported on the NYSE, and there were 157,330,262 shares of Common Stock outstanding, held by 1,741 stockholders of record. The number of holders does not include individuals or entities who beneficially own shares but whose shares are held of record by a broker or clearing agency, but does include each such broker or clearing agency as one record holder.
As a REIT, Aimco is required to distribute annually to holders of its Common Stock at least 90% of its “real estate investment trust taxable income,” which, as defined by the Code and United States Department of Treasury regulations, is generally equivalent to net taxable ordinary income.
From time to time, Aimco may issue shares of Common Stock in exchange for OP Units, defined under The Aimco Operating Partnership heading below. Please refer to Note 7 to the consolidated financial statements in Item 8 for further discussion of such exchanges. Aimco may also issue shares of Common Stock in exchange for limited partnership interests in consolidated real estate partnerships. During the year ended December 31, 2017, Aimco did not issue any shares of Common Stock in exchange for OP Units or limited partnership interests in consolidated real estate partnerships.
Aimco’s Board of Directors has, from time to time, authorized Aimco to repurchase shares of its outstanding capital stock. There were no repurchases of Aimco shares during the year ended December 31, 2017. As of December 31, 2017, Aimco was authorized to repurchase approximately 19.3 million shares. This authorization has no expiration date. These repurchases may be made from time to time in the open market or in privately negotiated transactions.

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Performance Graph
The following graph compares cumulative total returns for Aimco’s Common Stock, the MSCI US REIT Index, the NAREIT Apartment Index, and the Standard & Poor’s 500 Total Return Index (the “S&P 500”). The MSCI US REIT Index is published by Morgan Stanley Capital International Inc., a provider of equity indices. The NAREIT Apartment Index is published by The National Association of Real Estate Investment Trusts, or NAREIT, a representative of real estate investment trusts and publicly traded real estate companies with interests in United States real estate and capital markets. The MSCI REIT Index reflects total shareholder return for a broad range of REITs and the NAREIT Apartment Index provides a more direct multifamily peer comparison of total shareholder return. The indices are weighted for all companies that fit the definitional criteria of the particular index and are calculated to exclude companies as they are acquired and to add companies to the index calculation as they become publicly traded companies. All companies that fit the definitional criteria and existed at the point in time presented are included in the index calculations. The graph assumes the investment of $100 in Aimco’s Common Stock and in each index on December 31, 2012, and that all dividends paid have been reinvested. The historical information set forth below is not necessarily indicative of future performance.
392397205_chart-c70efe86f6555bbea2b.jpg
 
For the fiscal years ended December 31,
Index
2012
2013
2014
2015
2016
2017
Aimco (1)
$
100.00

$
98.95

$
146.49

$
162.81

$
190.96

$
189.68

MSCI US REIT (1)
100.00

102.47

133.60

136.97

148.75

156.29

NAREIT Apartment Index (2)
100.00

93.80

130.97

152.52

156.88

162.72

S&P 500 (1)
100.00

132.39

150.51

152.59

170.84

208.14

(1) Source: S&P Global Market Intelligence © 2018
(2) Source: National Association of Real Estate Investment Trusts
The Performance Graph will not be deemed to be incorporated by reference into any filing by Aimco under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, except to the extent that Aimco specifically incorporates the same by reference.

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The Aimco Operating Partnership
Interests in the Aimco Operating Partnership that are held by limited partners other than Aimco are referred to as OP Units. OP Units include common partnership units, which we refer to as common OP Units, as well as partnership preferred units, or preferred OP Units. There is no public market for the Aimco Operating Partnership’s common partnership units, including OP Units, and we have no intention of listing the common partnership units on any securities exchange. In addition, the Aimco Operating Partnership’s Partnership Agreement restricts the transferability of common partnership units, including OP Units. The following table sets forth the distributions declared per common partnership unit in each quarterly period during the two years ended December 31, 2017 and 2016:
Quarter Ended
2017
 
2016
December 31
$
0.36

 
$
0.33

September 30
0.36

 
0.33

June 30
0.36

 
0.33

March 31
0.36

 
0.33

The Aimco Operating Partnership’s Board of Directors determines and declares its distributions. Aimco, through wholly-owned subsidiaries, is the general and special limited partner of and, as of December 31, 2017, owned a 95.5% ownership interest in the common partnership units of the Aimco Operating Partnership and the Aimco Operating Partnership holds all of Aimco’s assets and manages the daily operations of Aimco’s business. The distributions paid by the Aimco Operating Partnership to Aimco are used by Aimco to fund the dividends paid to its stockholders.  Accordingly, the per share dividends Aimco pays to its stockholders generally equal the per share distributions paid by the Aimco Operating Partnership to holders of its common partnership units.
At February 27, 2018, there were 164,901,915 common partnership units and equivalents outstanding (157,330,262 of which were held by Aimco) that were held by 2,624 unitholders of record.
The Aimco Operating Partnership’s Partnership Agreement generally provides that after holding common OP Units for one year, limited partners other than Aimco have the right to redeem their common OP Units for cash or, at our election, shares of Aimco Common Stock.
No common OP Units or preferred OP Units held by Limited Partners were redeemed for shares of Aimco Common Stock during the year ended December 31, 2017.
The following table summarizes the Aimco Operating Partnership’s repurchases of common OP Units for the three months ended December 31, 2017:
Fiscal period
Total Number of Units Purchased
 
Average Price Paid per Unit
 
Total Number of Units Purchased as Part of Publicly Announced Plans or Programs
 
Maximum Number of Units that May Yet Be Purchased Under Plans or Programs
October 1 - October 31, 2017
1,212

 
$
45.04

 
N/A
 
N/A
November 1 - November 30, 2017
4,155

 
44.26

 
N/A
 
N/A
December 1 - December 31, 2017
2,685

 
44.42

 
N/A
 
N/A
Total
8,052

 
$
44.43

 
 
 
 
Dividend and Distribution Payments
Our revolving credit agreement includes customary covenants, including a restriction on dividends and other restricted payments, but permits dividends and distributions during any four consecutive fiscal quarters in an aggregate amount of up to 95% of Aimco’s Funds From Operations for such period, subject to certain non-cash adjustments, or such amount as may be necessary to maintain Aimco’s REIT status.

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Item 6. Selected Financial Data
The following selected financial data is based on audited historical financial statements of Aimco and the Aimco Operating Partnership. This information should be read in conjunction with such financial statements, including the notes thereto, and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included herein or in previous filings with the Securities and Exchange Commission.
 
Years Ended December 31,
 
2017
 
2016
 
2015
 
2014
 
2013
 
(dollar amounts in thousands, except per share data)
OPERATING DATA:
 
 
 
 
 
 
 
 
 
Total revenues (1)
$
1,005,437

 
$
995,854

 
$
981,310

 
$
984,363

 
$
974,053

Net income (1)
347,079

 
483,273

 
271,983

 
356,111

 
237,825

Net income attributable to Aimco/the Aimco Operating Partnership per common share/unit – diluted
$
1.96

 
$
2.67

 
$
1.52

 
$
2.06

 
$
1.40

 
 
 
 
 
 
 
 
 
 
BALANCE SHEET INFORMATION:
 
 
 
 
 
 
 
 
 
Total assets
$
6,079,040

 
$
6,232,818

 
$
6,118,681

 
$
6,068,631

 
$
6,046,579

Total indebtedness
3,861,770

 
3,648,206

 
3,599,648

 
3,852,885

 
4,090,653

Non-recourse property debt of partnerships served by Asset Management business
227,141

 
236,426

 
249,493

 
255,140

 
265,196

 
 
 
 
 
 
 
 
 
 
OTHER INFORMATION:
 
 
 
 
 
 
 
 
 
Dividends/distributions declared per common share/unit
$
1.44

 
$
1.32

 
$
1.18

 
$
1.04

 
$
0.96


(1)
Effective January 1, 2014, we adopted a new accounting standard, which revised the definition of a discontinued operation. In the selected financial data presentation above, for the year ended December 31, 2013, total revenues excludes revenue generated by discontinued operations of $62.2 million and net income includes income from discontinued operations, net of tax, of $203.2 million.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Executive Overview
We are focused on the ownership, management, redevelopment and limited development of quality apartment communities located in some of the largest markets in the United States.
Our principal financial objective is to provide predictable and attractive returns to our equity holders. We measure our current return using Adjusted Funds From Operations, or AFFO, and our long-term total return using Economic Income. In 2017, AFFO grew by 7.6% to $2.12 per share. Over the last five years, our Economic Income grew at a compound annual return of 13.7%, comprised of 10.6% compounded annual growth in net asset value, or NAV, per share and $5.78 in cash dividends per share paid over the period. We also use Pro forma Funds From Operations, or Pro forma FFO, as a measure of operational performance. Economic Income, NAV, AFFO, and Pro forma FFO are non-GAAP measures and are defined under the Non-GAAP Measures heading below.
Our business and five areas of strategic focus are described in more detail within the Business Overview in Item 1. The results from execution of our business plan in 2017 are further described in the sections that follow.
Net income attributable to common stockholders per common share decreased by $0.71 for the year ended December 31, 2017, as compared to 2016, primarily due to lower gains on the sale of apartment communities and higher depreciation expense, partially offset by increased contribution from property net operating income more fully described below.
Pro forma FFO per share increased $0.13, or 5.6%, for the year ended December 31, 2017, as compared to 2016. The primary driver of this increase was property net operating income growth of $0.11 per share, consisting of:
$0.10 from Same Store property net operating income growth of 4.2%, driven primarily by a 3.2% increase in revenue and almost flat expense growth;
$0.12 from the lease-up over the last 12 months of more than 800 renovated homes at redevelopment communities and completion of the lease-up of One Canal in Boston, and Indigo in Redwood City, California; and

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$0.02 from our Other Real Estate apartment communities, primarily due to rate increases; partially offset by
$0.13 lower property net operating income from apartment communities sold in 2016 to fund redevelopment and development activities and acquisitions.
As compared to 2016, lower interest rates, higher tax benefit, higher transactional income and other factors, partially offset by lower deferred tax credit income, contributed an additional $0.02 to Pro forma FFO per share.
The $0.13 increase in year-over-year Pro forma FFO per share plus $0.02 in lower capital replacement spending due to fewer apartment homes increased AFFO by $0.15, or 7.6% per share.
Operational Excellence
We own and operate a portfolio of market rate apartment communities diversified by both geography and price point. At December 31, 2017, our Real Estate portfolio included 136 apartment communities with 36,904 apartment homes in which we held an average ownership of approximately 99%.
Our property operations team delivered solid results for our Real Estate portfolio for the year ended December 31, 2017. Highlights include:
Same Store net operating income growth greater than 4% for the seventh year in a row;
Same Store rent increases on renewals and new leases averaged 4.6% and 0.6%, respectively, for a weighted average increase of 2.5%; and
Completion of the lease-up of One Canal in Boston, and Indigo in Redwood City, California.
Our focus on efficient operations through productivity initiatives such as centralization of administrative tasks, optimization of economies of scale at the corporate level, and investment in more durable, longer-lived materials has helped us control operating expenses. As a result of these efforts, our Same Store controllable operating expenses, which we define as property operating expenses before real estate taxes, insurance and utilities, decreased by 1.3% for the year ended December 31, 2017 compared to 2016. The compounded annual growth rate for Same Store controllable operating expenses for the past decade is negative 0.4%.
For the year ended December 31, 2017, our Real Estate portfolio provided 69% net operating income margins and 64% Free Cash Flow margins. Free Cash Flow is defined under the Non-GAAP Measures heading below.
In addition to those communities in our Real Estate portfolio, as of December 31, 2017, we held nominal ownership positions (generally less than 1%) in partnerships that own 46 low-income housing tax credit communities with 6,898 apartment homes. We provide asset management and other services to these partnerships and receive fees and other payments in return. Our relationship with these partnerships is different than real estate ownership and is better described as an Asset Management business. We have limited upside or downside exposure. In accordance with GAAP, we consolidate most of these partnerships and communities, thus reflecting their operating results as though they were our own until our fee and other interests have been repaid, generally upon sale of the underlying communities.
Redevelopment
Our second line of business is the redevelopment and development of apartment communities where we create value equal to 25% to 35% of our incremental investment by repositioning communities within the Aimco portfolio and by constructing new communities. We measure the rate and quality of financial returns by Net Asset Value creation, an important component of Economic Income, our primary measure of long-term financial performance. We invest to earn risk-adjusted returns in excess of those expected from the apartment communities sold in paired trades to fund the redevelopment or development.
We also undertake ground-up development when warranted by risk-adjusted investment returns, either directly in connection with the redevelopment of an existing apartment community or, on a more limited basis, at a new location. When warranted, we rely on the expertise and credit of a third-party developer familiar with the local market to limit our exposure to construction risk.
Of these two activities, we favor redevelopment because it permits adjustment of the scope and timing of spending to align with changing market conditions and customer preferences.
During the year ended December 31, 2017, we invested $172.4 million primarily in our ongoing redevelopment and development projects.

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During the year ended December 31, 2017, we completed construction on the third tower of Park Towne Place in Center City, Philadelphia. As of December 31, 2017, the first three towers combined were 89% leased with approximately 40 homes remaining to be leased at the third redeveloped tower to reach occupancy stabilization. Based on these results, we decided to proceed with a $40 million redevelopment of the fourth and final tower. We have completed de-leasing and commenced construction on this tower, and lease-up is scheduled to commence in the spring of 2018.
We have planned and entitled a new $117.0 million, 226 apartment home community to be known as Parc Mosaic, located in Boulder, Colorado on the site of our Eastpointe community. As part of this plan, as of December 31, 2017, we completed the de-leasing of Eastpointe and commenced demolition and construction. The site is two miles from the new Google campus and is across the street from Ball Aerospace’s Technology Campus and Foothills Hospital. Building in Boulder is highly regulated and new supply is limited, notwithstanding higher enrollment at the University of Colorado and increased employment generally.
Inclusive of these two new projects, our total estimated net investment in redevelopment and development activities is $714.6 million, with a projected weighted average net operating income yield on these investments of 6.1%, assuming untrended rents. As of December 31, 2017, $513.1 million of this total has been funded.
During 2017, we leased over 800 apartment homes at our redevelopment communities. As of December 31, 2017, our lease-up exposure at active redevelopment and development projects included approximately 611 apartment homes, of which 232 were in the fourth tower of Park Towne Place, which we expect to be available for lease beginning in the summer of 2018 and 215 were in Parc Mosaic, which we expect to be available for lease beginning in the summer of 2019.
See below under the Liquidity and Capital Resources – Redevelopment/Development heading for additional information regarding our redevelopment and development investment during the year ended December 31, 2017.
Portfolio Management
Our portfolio of apartment communities is diversified across “A,” “B,” and “C+” price points, averaging “B/B+” in quality and is diversified across some of the largest markets in the U.S. We measure the quality of apartment communities in our Real Estate portfolio based on average rents of our 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, we classify 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; as “C+” quality apartment communities those earning rents greater than $1,100 per month, but lower than 90% of local market average; and as “C” quality apartment communities those earning rents less than $1,100 per month and lower than 90% of local market average. We classify as “B/B+” quality a portfolio that on average earns rents between 100% and 125% of the local market average rents where the portfolio is located. Although some companies and analysts within the multifamily real estate industry use apartment community quality ratings of “A,” “B,” and “C,” some of which are tied to local market rent averages, the metrics used to classify apartment community quality as well as the period for which local market rents are calculated may vary from company to company. Accordingly, our rating system for measuring apartment community quality is neither broadly nor consistently used in the multifamily real estate industry.
As part of our portfolio strategy, we seek to sell up to 10% of our portfolio annually and to reinvest the proceeds from such sales in accretive uses such as capital enhancements, redevelopments, occasional developments, and selective acquisitions with projected Free Cash Flow internal rates of return higher than expected from the communities being sold. Through this disciplined approach to capital recycling, we have significantly increased the quality and expected growth rate of our portfolio, resulting in a compound annual growth rate in average revenue per Aimco apartment home of 8.8% over the last three years.
 
Three Months Ended
 
December 31,
 
2017
 
2014
Average Revenue per Aimco apartment home (1)
$
2,123

 
$
1,650

Portfolio Average Rents as a Percentage of Local Market Average Rents
113
%
 
108
%
Percentage A (4Q 2017 Average Revenue per Aimco Apartment Home $2,707)
53
%
 
45
%
Percentage B (4Q 2017 Average Revenue per Aimco Apartment Home $1,848)
32
%
 
33
%
Percentage C+ (4Q 2017 Average Revenue per Aimco Apartment Home $1,721)
15
%
 
5
%
Percentage C
%
 
17
%
(1) Represents average monthly rental and other property revenues divided by the number of occupied apartment homes multiplied by our ownership interest in the apartment community as of the end of the current period.

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The quality of our portfolio improved through value created by our redevelopment and transaction activities, contributing to the increase in average revenue per apartment home. The increase is due to rent growth from the improved quality of our portfolio, driven in part by the sale of apartment communities with average monthly revenues per Aimco apartment home lower than those of the retained portfolio, and also by our reinvestment of the sales proceeds through redevelopment, development and acquisition of apartment communities with higher rents and better free cash flow return prospects than the apartment communities sold.
As we execute our portfolio strategy, we expect to increase average revenue per Aimco apartment home for our Real Estate portfolio at a rate greater than market rent growth; increase free cash flow margins; and maintain sufficient geographic and price point diversification to moderate volatility and concentration risk.
During the year ended December 31, 2017, we sold five apartment communities with 2,291 apartment homes for a gain of $297.9 million and gross proceeds of $397.0 million resulting in net proceeds of $381.1 million. Two of these apartment communities were affordable communities located in Washington, DC and Philadelphia, and three were located in southern New Jersey and southern Virginia.
In January 2018, we agreed to sell our interests in the entities owning the La Jolla Cove property in settlement of legal actions filed in 2014 by a group of disappointed buyers who had hoped to acquire the property. As a result of the settlement, we recognized a gross impairment loss of $35.8 million in our 2017 results, $25.6 million of which relates to the establishment of a deferred tax liability assumed in connection with our acquisition of the business entities. Upon closing of the transaction, the tax liability will be assumed by the buyer, resulting in no economic loss. The remaining $10.2 million loss is offset by cash distributions we received during our ownership and avoided legal costs for continued litigation. On an economic basis, we agreed to sell these entities at roughly our purchase price, adjusted for retained cash distributions and avoided legal costs.
Also in January 2018, we sold three additional apartment communities with 513 apartment homes for a gain of approximately $50.0 million, net of tax, and gross proceeds of $71.9 million, resulting in $64.6 million in net proceeds. Two of these communities are located in southern Virginia and one is located in suburban Maryland.
Proceeds from the 2017 and 2018 sales were used to repay outstanding borrowings on our revolving credit facility, effectively funding the equity portion of the Palazzo reacquisition, as further discussed in Note 3 to the consolidated financial statements in Item 8, as well as our 2017 redevelopment and development activities.
Balance Sheet
We target net leverage of $3.8 billion. At December 31, 2017, our leverage of $3.9 billion was above this target due to the timing of the three apartment community sales discussed above that closed in January 2018.
Our leverage includes our share of long-term, non-recourse property debt encumbering apartment communities in our Real Estate portfolio, our term loan, outstanding borrowings on the revolving credit facility and outstanding preferred equity. In our calculation of leverage, we exclude non-recourse property debt obligations of consolidated partnerships served by our Asset Management business, as these are not our obligations and they have limited effect on the amount of fees and other amounts we expect to receive in our role as asset manager for these partnerships.
Our leverage strategy seeks to increase financial returns while using leverage with appropriate caution. We limit risk through balance sheet structure, employing low leverage, primarily non-recourse and long-dated property debt; build financial flexibility by maintaining ample unused and available credit as well as holding properties with substantial value unencumbered by property debt; and use partners’ capital when it enhances financial returns or reduces investment risk.
We target the ratio of Proportionate Debt and Preferred Equity to Adjusted EBITDA to be below 7.0x and we target the ratio of Adjusted EBITDA to Adjusted Interest Expense and Preferred Dividends to be greater than 2.5x.
Proportionate Debt, Adjusted EBITDA and Adjusted Interest Expense, as used in these ratios, are non-GAAP financial measures, which are further discussed and reconciled under the Non-GAAP Measures Leverage Ratios heading. Preferred Equity represents Aimco’s preferred stock and the Aimco Operating Partnership’s preferred OP Units. Our leverage ratios for the three months ended December 31, 2017, are presented below:
Proportionate Debt to Adjusted EBITDA
 6.5x
Proportionate Debt and Preferred Equity to Adjusted EBITDA
 6.9x
Adjusted EBITDA to Adjusted Interest Expense
 3.3x
Adjusted EBITDA to Adjusted Interest Expense and Preferred Dividends
 3.1x

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We calculate our leverage ratios based on the most recent three month amounts, annualized. Our calculation of Adjusted EBITDA in our leverage ratios has been adjusted on a pro forma basis to reflect the disposition of five apartment communities during the period as if the sales had closed on October 1, 2017. The effect of this pro forma adjustment may be found in the Adjusted EBITDA reconciliation under the Non-GAAP Measures heading.
During 2017, we closed or rate-locked nine fixed-rate, non-recourse, amortizing, property loans totaling $550.8 million. On a weighted basis, the term of these loans averaged 9.1 years and their interest rates averaged 3.48%, 123 basis points above the corresponding treasury rates at the time of pricing.
Also during 2017, we restructured five fixed-rate, non-recourse, amortizing, property loans totaling $17.4 million, extending their maturity dates from 2018 to 2023 and reducing their weighted average interest rate from 4.13% to 3.63%.
The net effect of 2017 property debt refinancing activities has been to lower our weighted average fixed interest rates by about 20 basis points to 4.64%, generating prospective annual interest savings of approximately $6.6 million.
Our liquidity consists of cash balances and available capacity on our revolving line of credit. As of December 31, 2017, we had on hand $616.6 million of cash and restricted cash plus available capacity on our revolving line of credit.
We also manage our financial flexibility by maintaining an investment grade rating and holding apartment communities that are unencumbered by property debt. At December 31, 2017, we held unencumbered apartment communities with an estimated fair market value of approximately $1.8 billion, up 12.5% year-over-year.
Two credit rating agencies rate our creditworthiness, using different methodologies and ratios for assessing our credit, and both have rated our credit and outlook as BBB- (stable), an investment grade rating. Although some of the ratios they use are similar to those we use to measure our leverage, there are differences in our methods of calculation and therefore our leverage ratios disclosed above are not indicative of the ratios that may be calculated by these agencies.
For additional information regarding our leverage, please see the discussion under the Liquidity and Capital Resources heading.
Team and Culture
Our team and culture are keys to our success. Our intentional focus on a collaborative and productive culture based on respect for others and personal responsibility is reinforced by a preference for promotion from within based on succession planning and talent development to produce a strong, stable team that is the enduring foundation of our success. In 2017, Aimco was recognized by the Denver Post as a Top Work Place. We are one of only a dozen Colorado companies of all sizes that have earned this designation for five consecutive years.
Key Financial Indicators
The key financial indicators that we use in managing our business and in evaluating our operating performance are Economic Income, our measure of total return, and Adjusted Funds From Operations, our measure of current return. In addition to these indicators, we evaluate our operating performance and financial condition using: Pro forma Funds From Operations; FCF; same store property operating results; proportionate property net operating income; average revenue per effective apartment home; leverage ratios; and net leverage. Certain of these financial indicators are non-GAAP financial measures, which are defined, further described and, for certain of the measures, reconciled to comparable GAAP-based measures under the Non-GAAP Measures heading below.
Results of Operations
Because our operating results depend primarily on income from our apartment communities, the supply of and demand for apartments influences our operating results. Additionally, the level of expenses required to operate and maintain our apartment communities and the pace and price at which we redevelop, acquire and dispose of our apartment communities affect our operating results.
The following discussion and analysis of the results of our operations and financial condition should be read in conjunction with the accompanying consolidated financial statements in Item 8.
Overview
2017 compared to 2016
Net income attributable to Aimco and net income attributable to the Aimco Operating Partnership decreased by $114.6 million and $120.0 million, respectively, for the year ended December 31, 2017 as compared to 2016. The decrease in income was

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principally due to a decrease in gain on dispositions of real estate and an increase in depreciation and amortization resulting from redeveloped apartment homes placed into service and the completion of One Canal and the acquisition of Indigo in 2016, partially offset by improved operating results as further described below.

2016 compared to 2015
Net income attributable to Aimco and net income attributable to the Aimco Operating Partnership increased by $181.7 million and $190.8 million, respectively, for the year ended December 31, 2016 as compared to 2015. The increase in income was principally due to an increase in gain on dispositions of real estate, partially offset by an increase in depreciation and amortization resulting from redeveloped apartment homes placed into service and the completion of One Canal and the acquisition of Indigo in 2016.
The following paragraphs discuss these and other items affecting the results of operations of Aimco and the Aimco Operating Partnership in more detail.
Property Operations
As described under the preceding Executive Overview heading, our Real Estate segment consists primarily of market rate apartment communities in which we hold a substantial equity ownership interest.
We use proportionate property net operating income to assess the operating performance of our Real Estate portfolio. Proportionate property net operating income reflects our share of rental and other property revenues less direct property operating expenses, including real estate taxes, for consolidated apartment communities we manage. Accordingly, the results of operations of our Real Estate segment discussed below are presented on a proportionate basis and exclude the results of four apartment communities with 142 apartment homes that we neither manage nor consolidate.
We do not include offsite costs associated with property management or casualty-related amounts in our assessment of segment performance. Accordingly, these items are not allocated to our segment results discussed below. Refer to Note 12 in the consolidated financial statements in Item 8 for further discussion regarding our reportable segments, including a reconciliation of these proportionate amounts to consolidated rental and other property revenues and property operating expenses.
Real Estate Proportionate Property Net Operating Income
We classify apartment communities within our Real Estate segment as Same Store and Other Real Estate. Same Store communities are those that have reached a stabilized level of operations as of the beginning of a two-year comparable period and maintained it throughout the current and comparable prior year, and are not expected to be sold within 12 months. Other Real Estate includes apartment communities that do not meet the Same Store definition, including, but not limited to: redevelopment and development apartment communities, which are those currently under construction that have not achieved a stabilized level of operations and those that have been completed in recent years that have not achieved and maintained stabilized operations for both the current and comparable prior year; acquisition apartment communities, which are those we have acquired since the beginning of a two-year comparable period; and communities that we expect to sell within 12 months but do not yet meet the criteria to be classified as held for sale.
As of December 31, 2017, as defined by our segment performance metrics, our Real Estate segment consisted of 92 Same Store communities with 26,386 apartment homes and 37 Other Real Estate communities with 9,863 apartment homes.
From December 31, 2016 to December 31, 2017, on a net basis, our Same Store portfolio decreased by nine communities and decreased by 4,507 apartment homes. These changes consisted of:
the addition of three redeveloped apartment communities with 974 apartment homes that were classified as Same Store upon maintaining stabilized operations for the entirety of both periods presented;
the addition of one acquired apartment community with 94 apartment homes that was classified as Same Store because we have now owned it for the entirety of both periods presented;
the reduction of five apartment communities with 2,460 apartment homes for which we commenced redevelopment during the period;
the reduction of two apartment communities with 906 apartment homes we expected to sell during 2017;
the reduction of three apartment communities with 1,696 apartment homes sold during the period; and
the reduction of three apartment communities with 513 apartment homes held for sale.

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As of December 31, 2017, our Other Real Estate communities included:
15 apartment communities with 6,386 apartment homes in redevelopment or development;
2 apartment communities with 578 apartment homes recently acquired;
4 apartment communities with 604 apartment homes owned that receive forms of government rental assistance; and
16 apartment communities with 2,295 apartment homes that do not meet the definition of Same Store because they are either subject to agreements that limit the amount by which we may increase rents or have not reached or maintained a stabilized level of occupancy as of the beginning of a two-year comparable period, often due to a casualty event.
Prior to 2017, five of the Other Real Estate communities were classified as part of our former Affordable segment. The results of operations for these communities are reflected in the comparable periods in the tables below.
Our Real Estate segment results for the years ended December 31, 2017 and 2016, as presented below, are based on the apartment community classifications as of December 31, 2017.
 
Year Ended December 31,
(in thousands)
2017
 
2016
 
$ Change
 
% Change
Rental and other property revenues:
 
 
 
 
 
 
 
Same Store communities
$
587,562

 
$
569,522

 
$
18,040

 
3.2
%
Other Real Estate communities
266,929

 
222,065

 
44,864

 
20.2
%
Total
854,491

 
791,587

 
62,904

 
7.9
%
Property operating expenses:
 
 
 
 
 
 
 
Same Store communities
167,356

 
166,134

 
1,222

 
0.7
%
Other Real Estate communities
97,830

 
85,502

 
12,328

 
14.4
%
Total
265,186

 
251,636

 
13,550

 
5.4
%
Proportionate property net operating income:
 
 
 
 
 
 
 
Same Store communities
420,206

 
403,388

 
16,818

 
4.2
%
Other Real Estate communities
169,099

 
136,563

 
32,536

 
23.8
%
Total
$
589,305

 
$
539,951

 
$
49,354

 
9.1
%
For the year ended December 31, 2017 compared to 2016, our Real Estate segment’s proportionate property net operating income increased $49.4 million, or 9.1%.
Same Store proportionate property net operating income increased by $16.8 million, or 4.2%. This increase was primarily attributable to an $18.0 million, or 3.2%, increase in rental and other property revenues due to higher average revenues ($59 per effective home), comprised primarily of increases in rental rates. Renewal rents (the rent paid by an existing resident who renewed her lease compared to the rent she previously paid) were up 4.6% for the year ended December 31, 2017, and new lease rents (the rent paid by a new resident compared to the rent paid by the previous resident of the same apartment home) were up 0.6%, resulting in a weighted average increase of 2.5%. The increase in Same Store rental and other property revenues was partially offset by a $1.2 million, or 0.7%, increase in property operating expenses, primarily due to increases in real estate taxes. During the year ended December 31, 2017 compared to 2016, controllable operating expenses, which exclude utility costs, real estate taxes and insurance, decreased by $1.0 million, or 1.3%.
The proportionate property net operating income of Other Real Estate communities increased by $32.5 million, or 23.8%, due to:
redevelopment and lease-up activities during the year ended December 31, 2017, which helped contribute to incremental property net operating income of $20.9 million compared to 2016; and
higher property net operating income of $11.6 million from other communities, including the effect of our increased ownership interest in the Palazzo communities from our June 2017 reacquisition of the 47% limited partner interest in the related joint venture.

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As of December 31, 2016, as defined by our segment performance metrics, our Real Estate portfolio consisted of 95 Same Store apartment communities with 28,684 apartment homes and 34 Other Real Estate communities with 7,531 apartment homes.
As of December 31, 2016, our Other Real Estate communities included:
13 apartment communities with 4,725 apartment homes in redevelopment or development;
3 apartment communities with 672 apartment homes recently acquired;
4 apartment communities with 604 apartment homes owned that receive forms of government rental assistance; and
14 apartment communities with 1,530 apartment homes that do not meet the definition of Same Store because they are either subject to agreements that limit the amount by which we may increase rents or have not reached or maintained a stabilized level of occupancy as of the beginning of a two-year comparable period, often due to a casualty event.
Our Real Estate segment results for the years ended December 31, 2016 and 2015, as presented below, are based on the apartment community classifications as of December 31, 2016, including the five Other Real Estate communities that were classified as part of our former Affordable segment until 2017, and excluding amounts related to apartment communities sold or classified as held for sale during 2017.
 
Year Ended December 31,
(in thousands)
2016
 
2015
 
$ Change
 
% Change
Rental and other property revenues:
 
 
 
 
 
 
 
Same Store communities
$
604,663

 
$
577,159

 
$
27,504

 
4.8
%
Other Real Estate communities
186,924

 
159,920

 
27,004

 
16.9
%
Total
791,587

 
737,079

 
54,508

 
7.4
%
Property operating expenses:
 
 
 
 
 
 
 
Same Store communities
181,077

 
179,186

 
1,891

 
1.1
%
Other Real Estate communities
70,559

 
61,603

 
8,956

 
14.5
%
Total
251,636

 
240,789

 
10,847

 
4.5
%
Proportionate property net operating income:
 
 
 
 
 
 
 
Same Store communities
423,586

 
397,973

 
25,613

 
6.4
%
Other Real Estate communities
116,365

 
98,317

 
18,048

 
18.4
%
Total
$
539,951

 
$
496,290

 
$
43,661

 
8.8
%
For the year ended December 31, 2016 compared to 2015, our Real Estate segment’s proportionate property net operating income increased $43.7 million, or 8.8%.
Same Store proportionate property net operating income increased by $25.6 million, or 6.4%. This increase was primarily attributable to a $27.5 million, or 4.8%, increase in rental and other property revenues due to higher average revenues ($85 per effective home), comprised primarily of increases in rental rates. Renewal rents (the rent paid by an existing resident who renewed her lease compared to the rent she previously paid) were up 5.7% for the year ended December 31, 2016, and new lease rents (the rent paid by a new resident compared to the rent paid by the previous resident of the same apartment home) were up 2.4%, resulting in a weighted average increase of 4.0%. The increase in Same Store rental and other property revenues was partially offset by a $1.9 million, or 1.1%, increase in property operating expenses, primarily due to increases in real estate taxes, personnel costs and repairs and maintenance, partially offset by lower utilities expenses and insurance costs. During the year ended December 31, 2016 compared to 2015, controllable operating expenses, which exclude utility costs, real estate taxes and insurance, increased by $1.4 million, or 1.7%.
The proportionate property net operating income of Other Real Estate communities increased by $18.0 million during the year ended December 31, 2016 compared to 2015. This increase is attributable to the following:
$7.8 million increase due to the net operating income stabilization of three redeveloped communities;
$3.7 million due to lease-up activities at acquired and redeveloped apartment communities, partially offset by decreases due to apartment homes taken out of service for redevelopment; and
$6.5 million from other communities, including apartment communities we acquired in 2015 and market rate increases at four apartment communities that were approved in 2016 by the Department of Housing and Urban Development.

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Non-Segment Real Estate Operations
Operating income amounts not attributed to our Real Estate segment include offsite costs associated with property management, casualty losses, and the results of apartment communities sold or held for sale, reported in consolidated amounts, which we do not allocate to our Real Estate segment for purposes of evaluating segment performance (see Note 12 to the consolidated financial statements in Item 8).
For the years ended December 31, 2017, 2016 and 2015, casualty losses totaled $8.2 million, $5.6 million and $7.0 million, respectively. Casualty losses were elevated during the year ended December 31, 2017, primarily due to hurricane damage. Casualty losses were elevated during the year ended December 31, 2015, primarily due to losses resulting from property damage and snow removal costs associated with the severe snow storms in the Northeast.
For the years ended December 31, 2017, 2016 and 2015, apartment communities previously in our Real Estate portfolio that were sold or classified as held for sale as of December 31, 2017 generated net operating income of $26.5 million, $46.8 million and $68.8 million, respectively.
Asset Management Results
As further discussed in Note 2 to the consolidated financial statements in Item 8, we provide asset management and other services to certain consolidated partnerships that own apartment communities that qualify for low-income housing tax credits and are structured to provide for the pass-through of tax credits and tax deductions to their partners.
Contribution from Asset Management included in our consolidated financial statements includes: fees and other amounts paid to us from the net operating income of partnerships served by our Asset Management business less interest expense incurred on non-recourse property debt obligations of the partnerships; income associated with delivery of tax credits to the third-party investors in the partnerships (including amounts received during the period and amounts received in previous periods); and transactional revenue and other income less asset management expenses (including certain allocated offsite costs related to the operation of this business).
The contribution from Asset Management for the years ended December 31, 2017, 2016 and 2015, is presented in the table below.
 
Year Ended December 31,
(in thousands)
2017
 
2016
 
2015
Net operating income of partnerships served by the Asset Management business
$
43,745

 
$
43,161

 
$
41,887

Interest expense on non-recourse property debt of partnerships
(13,031
)
 
(13,387
)
 
(12,984
)
Amount available for payment of Asset Management fees
30,714

 
29,774

 
28,903

Tax credit income, net
10,049

 
16,546

 
22,819

Asset management expenses
(5,934
)
 
(5,804
)
 
(6,770
)
Transactional revenue and other income
5,208

 
8,290

 
3,146

Contribution from the Asset Management business
$
40,037

 
$
48,806

 
$
48,098

For the periods presented above, the contribution from the Asset Management business fluctuated for the reasons discussed below.
Increases in the amount available for payment of Asset Management fees generated by the partnerships were primarily attributed to increases in rental income due to higher rates, partially offset by the loss of net operating income from communities sold and higher operating expenses, including personnel and repairs and maintenance costs.
Tax credit income, net, decreased primarily due to the delivery of substantially all of the tax credits on various partnerships and our 2016 acquisition of an investor limited partner’s interest in one of the tax credit partnerships (and their rights to undelivered tax credits) prior to the end of the tax credit delivery period. Following the purchase, we recognized tax benefits in our results of operations, which largely offset the tax credit income we otherwise would have recognized.
Transactional revenues for the year ended December 31, 2017 includes $2.4 million in fees earned in connection with the disposition of real estate and for the year ended December 31, 2016 includes a $3.6 million fee earned for assisting a third-party property owner in a mark-up-to-market renewal related to an affordable community we previously owned. Other income, for each of the years presented, includes results related to the Napico business, which is further described under the Other, net heading below.

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We expect the contribution to our net income from the Asset Management business to decline in future years as we continue to deliver the final tax credits for these partnerships and, as part of our plan to exit the Asset Management business, the partnerships sell the underlying apartment communities.
Depreciation and Amortization
For the year ended December 31, 2017 compared to 2016, depreciation and amortization expense increased by $33.1 million primarily due to renovated apartment homes placed in service after their completion, a full year of depreciation following the 2016 completion of our One Canal development and 2016 acquisition of Indigo, and other capital additions, partially offset by decreases associated with apartment communities sold.
For the year ended December 31, 2016 compared to 2015, depreciation and amortization expense increased by $26.8 million primarily due to renovated apartment homes placed in service after their completion, the completion of our One Canal and Vivo developments, and our 2016 acquisition of Indigo and other capital additions, partially offset by decreases associated with apartment communities sold.
General and Administrative Expenses
In recent years, we have worked toward simplifying our business, which allowed us to reduce overhead and other costs. This simplification and our scale reductions have allowed us to reduce our offsite costs, which consist of general and administrative expenses, property management expenses and investment management expenses, by $11.6 million, or 15.1%, over the last three years.
For the year ended December 31, 2017 compared to 2016, general and administrative expenses decreased $3.1 million, primarily due to lower personnel and related costs including incentive compensation, professional services, technology costs and other corporate costs.
For the year ended December 31, 2016 compared to 2015, general and administrative expenses, excluding incentive compensation, decreased by approximately $0.2 million. Inclusive of incentive compensation, general and administrative expenses increased $0.5 million, primarily due to our performance against key performance indicators in 2016 as compared to 2015.
Other Expenses, Net
Other expenses, net includes franchise taxes, costs associated with our risk management activities, partnership administration expenses and certain non-recurring items.
For the year ended December 31, 2017 compared to 2016, other expenses, net decreased by $2.9 million. The decrease was primarily due to the 2016 recognition of estimated future environmental clean-up and abatement costs associated with the matters discussed in Note 5 to the consolidated financial statements in Item 8, partially offset by legal costs we incurred related to a challenge to the title of a property we acquired in 2014.
For the year ended December 31, 2016 compared to 2015, other expenses, net increased by $3.9 million. The increase was primarily due to the 2016 environmental costs discussed above, partially offset by lower legal and related costs.
Provision for Real Estate Impairment Loss
In January 2018, we agreed to sell our interests in the entities owning the La Jolla Cove property in settlement of legal actions filed in 2014 by a group of disappointed buyers who had hoped to acquire the property. As a result of the settlement, we recognized in our 2017 results a gross impairment loss of $35.8 million, $25.6 million of which relates to the establishment of a deferred tax liability assumed in connection with our acquisition of the business entities. Upon closing of the transaction, the tax liability will be assumed by the buyer, resulting in no economic loss to Aimco. The remaining $10.2 million loss is offset by cash distributions paid to us during our ownership and avoided legal costs for continued litigation. On an economic basis, we agreed to sell these entities at roughly our purchase price, adjusted for retained cash distributions and avoided legal costs.
We recognized no provisions for impairment losses during the years ended December 31, 2016 or 2015.
Interest Expense
For the year ended December 31, 2017 compared to 2016, interest expense, which includes the amortization of debt issuance costs and amortization of deferred financing costs, decreased by $1.8 million, or 0.9%. The decrease was primarily due to lower average outstanding balances on non-recourse property debt for our Real Estate apartment communities and lower interest rates, resulting in an $11.9 million reduction in interest expense. These decreases were partially offset by higher amounts outstanding on corporate borrowings (including our term loan and incremental line borrowings used to temporarily fund the reacquisition of

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the Palazzo limited partner interests) and a decrease in capitalized interest associated with our redevelopment and development activities.
For the year ended December 31, 2016 compared to 2015, interest expense decreased by $3.3 million, or 1.7%. The decrease was primarily attributed to lower average outstanding balances from our repayment of non-recourse property debt and to a lesser extent from a lower average cost of debt on property loans refinanced during the year, resulting in an $8.1 million reduction in interest expense, and a $4.9 million reduction of interest expense on debt related to apartment community dispositions. These decreases were partially offset by increased interest expense on debt associated with apartment community acquisitions and on One Canal, the construction of which was completed during 2016 and for which we ceased interest capitalization, and higher average borrowings on our revolving credit facility.
Other, Net
Other, net includes our equity in the income or loss of unconsolidated real estate partnerships, and the results of operations related to the Napico business, which we accounted for under the profit sharing method prior to the derecognition of the final property during 2017.
For the year ended December 31, 2017 compared to 2016, net income of the Napico business increased by $2.1 million. For the year ended December 31, 2016 compared to 2015, net income of the Napico business increased by $5.4 million. As discussed in Note 3 to the consolidated financial statements in Item 8, in 2017 we derecognized the assets and liabilities related to the final Napico property, and in 2016 we partially derecognized the assets and liabilities of the Napico business, resulting in gains that contributed to the increase in other, net in both years.
Income Tax Benefit
Certain of our operations, including property management and risk management, are conducted through TRS entities. Additionally, some of our apartment communities are owned through TRS entities.
Our income tax benefit calculated in accordance with GAAP includes: (a) historic tax credits that offset income tax obligations of our TRS entities; (b) income taxes associated with the income or loss of our TRS entities, for which the tax consequences have been realized or will be realized in future periods; and (c) low income housing tax credits that offset REIT taxable income, primarily from retained capital gains. Income taxes related to these items (before gains on dispositions) are included in income tax benefit in our consolidated statements of operations.
Income tax benefit for the periods presented also reflects GAAP taxes associated with income and gains related to the Napico business, which was partially deconsolidated in 2016 and for which the final property was deconsolidated in 2017.
For the year ended December 31, 2017 compared to 2016, income tax benefit increased by $6.9 million, from $25.2 million to $32.1 million. The increase is primarily due to higher tax benefit associated with low-income housing tax credits from our September 2016 acquisition of the limited partner interests in a tax credit partnership, higher net operating losses at the TRS entities (including the La Jolla Cove impairment loss discussed above) and the $0.5 million net tax benefit we recognized as a result of the December 2017 tax reform legislation (as further discussed in Note 9 to the consolidated financial statements in Item 8). These increases were partially offset by a decrease in historic tax credits associated with the redevelopment of certain apartment communities, including the timing of final certification on one redevelopment in 2016.
For the year ended December 31, 2016 compared to 2015, income tax benefit decreased by $2.3 million, primarily due to lower net losses recognized by apartment communities owned by our TRS entities, partially offset by higher historic tax credits associated with the redevelopment of certain apartment communities and higher tax benefit associated with low-income housing tax credits from our acquisition of the limited partner interests in a tax credit partnership.

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Gain on Dispositions of Real Estate, Net of Tax
The table below summarizes dispositions of apartment communities from our Real Estate portfolio and of consolidated partnerships served by our Asset Management business during the years ended (dollars in millions):
 
 
December 31,
 
 
2017
 
2016
 
2015
Real Estate
 
 
 
 
 
 
Number of apartment communities sold
 
5

 
7

 
11

Gross proceeds
 
$
397.0

 
$
517.0

 
$
404.3

Net proceeds (1)
 
$
385.3

 
$
511.0

 
$
229.4

Gain on disposition, net of tax
 
$
298.0

 
$
377.3

 
$
180.6

 
 
 
 
 
 
 
Asset Management
 
 
 
 
 
 
Number of apartment communities sold
 
2

 
1

 
N/A

Gross proceeds
 
$
10.9

 
$
27.5

 
N/A

Net proceeds (1)
 
$
5.0

 
$
13.2

 
N/A

Gain on disposition, net of tax
 
$
1.6

 
$
16.5

 
N/A

(1)
Net proceeds are after repayment of debt, if any, net working capital settlements, payment of transaction costs and debt prepayment penalties, if applicable.

The apartment communities sold from our Real Estate portfolio during 2017, 2016 and 2015 were primarily located outside of our primary markets or in lower-rated locations within our primary markets and had average revenues per apartment home significantly below those of our retained portfolio.
Noncontrolling Interests in Consolidated Real Estate Partnerships
Noncontrolling interests in consolidated real estate partnerships reflects the results of our consolidated real estate partnerships allocated to the owners who are not affiliated with Aimco. The amounts of income or loss of our consolidated real estate partnerships that we allocate to owners not affiliated with Aimco include their share of property management fees, interest on notes and other amounts that we charge to these partnerships.
For the years ended December 31, 2017, 2016 and 2015, we allocated net income of $9.1 million, $25.3 million, and $4.8 million, respectively, to noncontrolling interests in consolidated real estate partnerships. The amount of net income allocated to noncontrolling interests was driven by three primary factors: the operations of the consolidated apartment communities; gains on the sale of apartment communities with noncontrolling interest holders; and the results of operations of the Napico business, as further discussed below.
The amount of net income allocated to noncontrolling interests resulting from operations of the consolidated apartment communities was $2.4 million, $4.4 million and $4.2 million for the years ended December 31, 2017, 2016 and 2015, respectively. The decrease from 2016 to 2017 is primarily due to the June 30, 2017 reacquisition of our limited partner’s interest in the Palazzo joint venture.
Gains on the sale of apartment communities allocated to noncontrolling interests totaled $7.3 million, $13.0 million and $6.0 million for the years ended December 31, 2017, 2016 and 2015, respectively.
As discussed in Note 3 to the consolidated financial statements in Item 8, we derecognized the Napico business in two transactions, which occurred in 2016 and 2017. We allocated $8.1 million of the gain on sale and a $0.6 million net loss, respectively, to the noncontrolling interest holders in connection with the 2017 and 2016 transactions. In 2015, we allocated a net loss of $5.4 million to the noncontrolling interest holders from the results of Napico operations.
Net Income Attributable to Aimco Preferred Stockholders and the Aimco Operating Partnership’s Preferred Unitholders
Net income attributable to Aimco preferred stockholders and the Aimco Operating Partnership’s preferred unitholders decreased by $3.4 million and $2.9 million, respectively, during the year ended December 31, 2017 as compared to 2016. These decreases were primarily due to Aimco’s redemption of its Class Z Preferred Stock in 2016. In connection with the redemption, we wrote off previously deferred issuance costs of $1.3 million. Additionally, the $0.7 million excess of the redemption value over the

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carrying amount was reflected in the net income attributable to Aimco Preferred Stockholders and Aimco Operating Partnership’s Preferred Unitholders for the year ended December 31, 2016.
Net income attributable to Aimco preferred stockholders and the Aimco Operating Partnership’s preferred unitholders increased by $0.2 million and $0.5 million, respectively, during the year ended December 31, 2016 as compared to 2015. These increases were primarily due to Aimco’s redemption of its Class Z Preferred Stock described above, which resulted in $2.0 million of redemption related charges, partially offset by $1.1 million of lower dividends.
Critical Accounting Policies and Estimates
We prepare our consolidated financial statements in accordance with GAAP, which requires us to make estimates and assumptions. We believe that the following critical accounting policies involve our more significant judgments and estimates used in the preparation of our consolidated financial statements.
Capitalized Costs
We capitalize costs, including certain indirect costs, incurred in connection with our capital additions activities, including redevelopments and developments, other tangible apartment community improvements and replacements of existing apartment community components. Included in these capitalized costs are payroll costs associated with time spent by site employees in connection with the planning, execution and control of all capital additions activities at the apartment community level. We characterize as “indirect costs” an allocation of certain department costs, including payroll, at the area operations and corporate levels that clearly relate to capital additions activities. We also capitalize interest, property taxes and insurance during periods in which redevelopments and developments are in progress. We commence capitalization of costs, including certain indirect costs, incurred in connection with our capital addition activities, at the point in time when activities necessary to get apartment communities ready for their intended use begin. These activities include when apartment communities or apartment homes are undergoing physical construction, as well as when apartment homes are held vacant in advance of planned construction, provided that other activities such as permitting, planning and design are in progress. We cease the capitalization of costs when the apartment communities or components thereof are substantially complete and ready for their intended use, which is typically when construction has been completed and apartment homes are available for occupancy. We charge costs including ordinary repairs, maintenance and resident turnover costs to property operating expense, as incurred. Refer to the discussion of investing activities within the Liquidity and Capital Resources section for a summary of costs capitalized during the periods presented.
Impairment of Long-Lived Assets
Real estate and other long-lived assets to be held and used are stated at cost, less accumulated depreciation and amortization, unless the carrying amount of the asset is not recoverable. If events or circumstances indicate that the carrying amount of an apartment community may not be recoverable, we make an assessment of its recoverability by comparing the carrying amount to our estimate of the undiscounted future cash flows, excluding interest charges, of the apartment community. If the carrying amount exceeds the estimated aggregate undiscounted future cash flows, we recognize an impairment loss to the extent the carrying amount exceeds the estimated fair value of the apartment community.
As part of our portfolio strategy, we seek to sell up to 10% of our portfolio annually and to reinvest the proceeds from such sales in accretive uses such as capital enhancements, redevelopments, occasional developments, and selective acquisitions with projected Free Cash Flow internal rates of return higher than expected from the communities being sold. As we execute this strategy, we evaluate alternatives to sell or reduce our interest in apartment communities that do not align with our long-term investment strategy, although there is no assurance that we will sell or reduce our investment in such apartment communities during the desired time frame. For any apartment communities that are sold or meet the criteria to be classified as held for sale during the next 12 months, the reduction in the estimated holding period for these apartment communities may result in impairment losses.
Non-GAAP Measures
Various of the key financial indicators we use in managing our business and in evaluating our financial condition and operating performance are non-GAAP measures. Key non-GAAP measures we use are defined and described below, and for those non-GAAP financial measures used or disclosed within this annual report, reconciliations of the non-GAAP financial measures to the most comparable financial measure computed in accordance with GAAP are provided.
Funds from Operations, Pro forma Funds From Operations and Adjusted Funds From Operations are non-GAAP financial measures, which are defined and further described below under the Funds From Operations and Adjusted Funds From Operations heading. Economic Income and Net Asset Value are non-GAAP financial measures defined and further described below under the Economic Income heading.

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Free Cash Flow, or FCF, as calculated for our retained portfolio, represents an apartment community’s property net operating income, or NOI, less spending for capital replacements, which represents our estimation of the capital additions made to replace capital assets consumed during our ownership period (further discussed under the Funds From Operations and Adjusted Funds From Operations heading and the Liquidity and Capital Resources heading). FCF margin represents an apartment community’s NOI less $1,200 per apartment home of assumed annual capital replacement spending, as a percentage of the apartment community’s rental and other property revenues. Capital replacement spending is a method of measuring the cost of capital asset usage during the period; therefore we believe that FCF is useful to investors as a supplemental measure of apartment community performance because it takes into consideration costs incurred during the period to replace capital assets that have been consumed during our ownership.
Funds From Operations and Adjusted Funds From Operations
Funds From Operations, or FFO, is a non-GAAP financial measure that we believe, when considered with the financial statements determined in accordance with GAAP, is helpful to investors in understanding our performance because it captures features particular to real estate performance by recognizing that real estate generally appreciates over time or maintains residual value to a much greater extent than do other depreciable assets such as machinery, computers or other personal property. The National Association of Real Estate Investment Trusts, or NAREIT, defines FFO as net income or loss computed in accordance with GAAP, excluding gains from sales of, and impairment losses recognized with respect to, depreciable real estate, plus depreciation and amortization related to real estate, and after adjustments for unconsolidated partnerships and joint ventures. Adjustments for unconsolidated partnerships and joint ventures are calculated on the same basis to determine FFO. We calculate FFO attributable to Aimco common stockholders (diluted) by subtracting, if dilutive, redemption or repurchase related preferred stock issuance costs and dividends on preferred stock.
In addition to FFO, we compute Pro forma FFO and Adjusted FFO, or AFFO, which are also non-GAAP financial measures that we believe are helpful to investors in understanding our performance. Pro forma FFO represents FFO attributable to Aimco common stockholders (diluted), excluding preferred equity redemption-related amounts (adjusted for noncontrolling interests). Preferred equity redemption-related amounts (gains or losses) are items that periodically affect our operating results and we exclude these items from our calculation of Pro forma FFO because such amounts are not representative of our operating performance.
Additionally in 2017, we recognized a net tax benefit associated with the December 2017 tax reform legislation consisting of a benefit related to the revaluation of net deferred tax liabilities of Aimco’s taxable REIT subsidiaries, partially offset by a valuation allowance related to deferred tax assets. We excluded this net tax benefit from our computation of Pro forma FFO because this type of tax benefit occurs infrequently and is not representative of our operating performance.
AFFO represents Pro forma FFO reduced by Capital Replacements (also adjusted for noncontrolling interests), which represents our estimation of the capital additions made to replace capital assets consumed during our ownership period. When we make capital additions at an apartment community, we evaluate whether the additions extend the useful life of an asset as compared to its condition at the time we purchased the apartment community. We classify as Capital Improvements those capital additions that meet these criteria and we classify as Capital Replacements those that do not. AFFO is a key financial indicator we use to evaluate our operational performance and is one of the factors that we use to determine the amounts of our dividend payments.
FFO, Pro forma FFO and AFFO should not be considered alternatives to net income (loss), as determined in accordance with GAAP, as indications of our performance. Although we use these non-GAAP measures for comparability in assessing our performance compared to other REITs, not all REITs compute these same measures and those who do may not compute them in the same manner. Additionally, computation of AFFO is subject to our definition of Capital Replacement spending. Accordingly, there can be no assurance that our basis for computing these non-GAAP measures is comparable with that of other REITs.

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For the years ended December 31, 2017, 2016 and 2015, Aimco’s FFO, Pro forma FFO and AFFO are calculated as follows (in thousands):
 
2017
 
2016
 
2015
Net income attributable to Aimco common stockholders (1)
$
306,861

 
$
417,781

 
$
235,966

Adjustments:
 
 
 
 
 
Real estate depreciation and amortization, net of noncontrolling partners’ interest
352,109

 
314,840

 
288,611

Gain on dispositions and other, net of noncontrolling partners’ interest
(262,583
)
 
(381,131
)
 
(174,797
)
Income tax provision related to gain on disposition of real estate
(8,265
)
 
6,374

 
1,758

Common noncontrolling interests in Aimco Operating Partnership’s share of above adjustments (2)
(3,810
)
 
2,782

 
(5,548
)
Amounts allocable to participating securities
(81
)
 
88

 
(473
)
FFO attributable to Aimco common stockholders – diluted
$
384,231

 
$
360,734

 
$
345,517

Revaluation of deferred tax accounts, net of common noncontrolling interests in Aimco Operating Partnership and participating securities
(498
)
 

 

Preferred equity redemption related amounts, net of common noncontrolling interests in Aimco Operating Partnership and participating securities

 
1,877

 
658

Pro forma FFO attributable to Aimco common stockholders – diluted
$
383,733

 
$
362,611

 
$
346,175

Capital Replacements, net of common noncontrolling interests in Aimco Operating Partnership and participating securities
(51,760
)
 
(55,289
)
 
(53,925
)
AFFO attributable to Aimco common stockholders – diluted
$
331,973

 
$
307,322

 
$
292,250

Weighted average common shares outstanding – diluted (FFO, Pro forma FFO and
AFFO) (3)
156,796

 
156,391

 
155,570

 
 
 
 
 
 
Net income attributable to Aimco per common share – diluted
$
1.96

 
$
2.67

 
$
1.52

FFO per share – diluted
$
2.45

 
$
2.31

 
$
2.22

Pro Forma FFO per share – diluted
$
2.45

 
$
2.32

 
$
2.23

AFFO per share – diluted
$
2.12

 
$
1.97

 
$
1.88

(1)
Represents the numerator for calculating Aimco’s earnings per common share in accordance with GAAP (see Note 10 to the consolidated financial statements in Item 8).
(2)
During the years ended December 31, 2017, 2016 and 2015, the Aimco Operating Partnership had outstanding, on average, 7,422,334, 7,760,597 and 7,656,626 common OP Units.
(3)
Represents the denominator for Aimco’s earnings per common share – diluted, calculated in accordance with GAAP.
Refer to the Executive Overview for discussion of our Pro forma FFO and AFFO results for 2017, as compared to their comparable periods in 2016.
Refer to the Liquidity and Capital Resources section for further information regarding our capital investing activities, including Capital Replacements.
The Aimco Operating Partnership does not separately compute or report FFO, Pro forma FFO or AFFO. However, based on Aimco’s method for allocation of such amounts to noncontrolling interests in the Aimco Operating Partnership, as well as the limited differences between Aimco’s and the Aimco Operating Partnership’s net income amounts during the periods presented, FFO, Pro forma FFO and AFFO amounts on a per unit basis for the Aimco Operating Partnership would be expected to be substantially the same as the corresponding per share amounts for Aimco.
Economic Income
Economic Income represents stockholder value creation as measured by the change in estimated NAV per share plus cash dividends per share. We believe Economic Income is important to investors as it represents a measure of the total return we have earned for our stockholders. NAV, as used in our calculation of Economic Income, is a non-GAAP measure and represents the estimated fair value of assets net of liabilities attributable to Aimco’s common stockholders and the Aimco Operating Partnership’s common unitholders on a diluted basis. We believe NAV is considered useful by some investors in real estate companies because the value of company assets can be readily estimated, even for non-earning assets such as land or properties under development. NAV has the advantage of incorporating the investment decisions of thousands of real estate investors. We believe it enhances comparability among companies that have differences in their accounting. While NAV 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.

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NAV 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.
Our estimated NAV per share and the quoted share price of Aimco Common Stock are not necessarily equal. Although we use Economic Income and NAV for comparability in assessing our value creation compared to other REITs, not all REITs publish these measures and those who do may not compute them in the same manner. Accordingly, there can be no assurance that our basis for computing these measures is comparable with that of other REITs.
We report NAV on a semiannual basis, as of the end of the first and third quarters. Economic Income for 2017, was calculated using the change in NAV per share between September 30, 2016 and 2017. NAV will fluctuate over time. This NAV information should not be relied upon as representative of the amount a stockholder could expect to receive in a liquidation event, now or in the future. Certain assets are excluded as are certain liabilities such as taxes and transaction costs associated with a liquidation. In addition, NAV is based on management’s subjective judgments, assumptions and opinions as of the date of determination. We assume no obligation to revise or update NAV to reflect subsequent or future events or circumstances. Our NAV estimate is subject to a variety of risks and uncertainties, many of which are beyond our control, including, without limitation, those described in Item 1A. Risk Factors.
A reconciliation of NAV to Aimco’s total equity, which we believe is the most directly comparable GAAP measure, as of September 30, 2017, is provided below (in millions, except per share data):
Total equity
 
 
 
$
1,436

Fair value adjustment for Real Estate portfolio
 
 
 
 
 
Less: consolidated real estate, at depreciated cost
 
$
(5,543
)
 
 
 
Plus: fair value of real estate (1)
 
 
 
 
 
Stabilized portfolio fair value (2)
$
10,059

 
 
 
 
Non-stabilized portfolio fair value (3)
2,741

 
 
 
 
Total real estate at fair value

12,800

 
 
 
Adjustment to present real estate at fair value
 
 
 
7,257

Fair value adjustment for total indebtedness
 
 
 
 
 
Plus: consolidated total indebtedness, net related to Real Estate portfolio
 
4,162

 
 
 
Less: fair value of indebtedness related to real estate shown above (4)
 
(4,232
)
 
 
 
 
Adjustment to present indebtedness at fair value
 
 
 
(70
)
Plus: fair value of Asset Management business (5)
 
 
 
213

Adjustments to present other tangible assets, liabilities and preferred equity at fair value (6)
 
 
 
(189
)
Estimated NAV
 
 
 
$
8,647

 
Total shares, units and dilutive share equivalents (7)
 
 
 
164

Estimated NAV per weighted average common share and unit - diluted
 
 
 
$
53

(1)
We compute NAV by estimating the value of our communities, using methods we believe are appropriate based on the characteristics of the communities. For purposes of estimating NAV, real estate at fair value disclosed above includes wholly owned apartment communities plus our proportionate share of communities held by non-wholly owned entities (both consolidated and unconsolidated), and excludes the estimated fair value of communities that are part of the Asset Management business. The value of Asset Management communities is factored into the valuation of the Asset Management portfolio as described in footnote 5. A reconciliation of our consolidated apartment communities to those communities included in total real estate at fair value in the table above is as follows:
Consolidated apartment communities as of September 30, 2017
176

Less: Consolidated communities in the Asset Management portfolio
(39
)
Plus: Unconsolidated apartment communities
4

Apartment communities in total real estate at fair value for NAV
141

For valuation purposes at September 30, 2017, we segregated these 141 communities into the following categories: stabilized portfolio and non-stabilized portfolio.
(2)
As of September 30, 2017, our stabilized portfolio includes 123 communities that had reached stabilized operations and were not expected to be sold within twelve months. We value this portfolio using a direct capitalization rate method based on the annualized proportionate property NOI for the three months ended September 30, 2017, less a 2% management fee. Market property management fees range between 1.5% and 3.0% with larger, higher quality portfolios at the lower end of that range. The weighted average estimated capitalization rate as applied to the annualized property NOI was 5.1%, which we calculate on a property-by-property basis, based

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primarily on information published by a third-party. Community characteristics that we use to determine comparable market capitalization rates include: the 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. We used this valuation method for approximately 79% of real estate fair value at September 30, 2017.
(3)
The non-stabilized portfolio includes seven apartment communities under redevelopment at September 30, 2017 and two apartment communities in lease-up. We valued these communities by discounting projected future cash flows. Key assumptions used to estimate the value of these communities include: revenues, which are based on in-place rents, projected submarket rent growth to community stabilization based on projections published by third parties and adjusted for the impacts of redevelopment; expenses, which are based on estimated operating costs adjusted for inflation and a management fee equal to 2% of projected revenue; estimated remaining costs to complete construction; and a terminal value based on current market capitalization rates plus five basis points per year from September 30, 2017 to community stabilization. Discount rates applied to estimated future cash flows of these communities ranged between 6.00% and 7.15% depending on construction and lease-up progress. We used this valuation method for approximately 17% of the real estate fair value at September 30, 2017. The non-stabilized portfolio also included nine apartment communities under contract for sale, which were valued at sales contract price and represent approximately 4% of real estate fair value at September 30, 2017.
(4)
We calculate the fair value of indebtedness related to real estate as the carrying value of our non-recourse property debt adjusted for the mark-to-market liability on our fixed-rate property debt as of September 30, 2017, plus the outstanding balances on the revolving line of credit and term loan, which approximate their fair value as of September 30, 2017. The mark-to-market has been computed using a money-weighted average interest rate of 4.15%, which rate takes into account the timing of amortization and maturities, and a market rate of 3.75%, which rate takes into account the duration of the existing property debt, the loan-to-value and debt service coverage, as well as timing of amortization and maturities. For purposes of estimating NAV, the fair value of debt includes our proportionate share of debt related to non-wholly owned entities (both consolidated and unconsolidated), and excludes non-recourse property debt obligations of consolidated partnerships of the Asset Management business, which is factored into the valuation of the Asset Management business as described in footnote 5.
(5)
We estimate our share of the fair value of the Asset Management business as the present value of the expected future cash flows of various low-income housing tax credit partnerships using a 7% discount rate. As further discussed in Note 2 to the consolidated financial statements in Item 8, the future cash flows we expect to receive include fees and other amounts to be paid from cash flows from the operation of the underlying communities and proceeds from sale of the underlying communities after repayment of any associated property-level debt. The key assumptions used to estimate the future cash flows we expect to receive include: operating cash flow, which is based on an estimate of contractual rents and expenses reflecting expected increases; the value of the underlying apartment communities, which we value using a direct capitalization rate method similar to that described in footnote 2 above; and the estimated sale date of the apartment communities, which is generally upon or shortly after the expiration of the tax credit compliance periods.
(6)
Other tangible assets consist of cash, restricted cash, accounts receivable and other assets for which we reasonably expect to receive cash through the normal course of operations or another future event. Other tangible liabilities consist of accounts payable, accrued liabilities and other tangible liabilities we reasonably expect to settle in cash through the normal course of operations or another future event. Other tangible assets and liabilities were generally valued at their carrying amounts and reduced by the noncontrolling interests’ portion of these amounts and exclude intangible assets and liabilities reflected on our consolidated balance sheet. The fair value of our preferred stock is estimated as the closing share price on September 30, 2017, less accrued dividends. Such accrued dividends are assumed to be accounted for in the closing share price and these amounts are also included in other tangible liabilities.
(7)
Total shares, units and dilutive share equivalents represents Common Stock, OP Units, participating unvested restricted shares and the dilutive effect of common stock equivalents outstanding as of September 30, 2017.
Leverage Ratios
As discussed under the Balance Sheet and Liquidity heading, as part of our leverage strategy, we target the ratio of Proportionate Debt and Preferred Equity to Adjusted EBITDA to be below 7.0x and we target the ratio of Adjusted EBITDA to Adjusted Interest Expense and Preferred Dividends to be greater than 2.5x. We believe these ratios are important measures as they are commonly used by investors and analysts to assess the relative financial risk associated with balance sheets of companies within the same industry, and they are believed to be similar to measures used by rating agencies to assess entity credit quality.
We calculate our leverage ratios based on the most recent three month amounts, annualized.
Proportionate Debt, as used in our leverage ratios, is a non-GAAP measure and includes our share of the long-term, non-recourse property debt secured by apartment communities in the Real Estate portfolio, our term loan, and outstanding borrowings under our revolving credit facility, reduced by our share of the cash and restricted cash of our consolidated and unconsolidated partnerships owning communities in our Real Estate portfolio, and also by our investment in the subordinate tranches of a securitization trust that holds certain of our property debt (essentially, an investment in our own non-recourse property loans).
In our Proportionate Debt computation, we increase our recorded debt by unamortized debt issue costs because these amounts represent cash expended in earlier periods and do not reduce our contractual obligations, and we reduce our recorded debt obligations by the amounts of cash and restricted cash on-hand (such restricted cash amounts being primarily restricted under the terms of

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our property debt agreements) assuming these amounts would be used to reduce our outstanding leverage. We further reduce our recorded debt by the value of our investment in a securitization trust that holds certain of our property debt, as our payments of principal and interest associated with such property debt will ultimately repay our investments in the trust.
We exclude from our leverage the non-recourse property debt obligations of consolidated partnerships served by our Asset Management business. The non-recourse property debt obligations of these partnerships are not our obligations and have limited effect on the amount of fees and other payments we expect to receive.
We believe Proportionate Debt is useful to investors as it is a measure of our net exposure to debt obligations. Proportionate Debt, as used in our leverage ratios, is calculated as set forth in the table below.
Preferred Equity, as used in our leverage ratios, represents the redemption amounts for Aimco’s preferred stock and the Aimco Operating Partnership’s preferred OP Units. Preferred Equity, although perpetual in nature, is another component of our overall leverage.
Adjusted EBITDA is a non-GAAP measure. We believe Adjusted EBITDA provides investors relevant and useful information because it allows investors to view income from our operations on an unleveraged basis, before the effects of taxes, depreciation and amortization, gains or losses on sales of and impairment losses related to real estate and various other items described below.
Adjusted EBITDA represents Aimco’s share of the consolidated amount of our net income, adjusted to exclude the effect of the following items for the reasons set forth below:
Adjusted Interest Expense, defined below, to allow investors to compare a measure of our earnings before the effects of our indebtedness with that of other companies in the real estate industry;
preferred dividends, to allow investors to compare a measure of our performance before the effects of our capital structure and indebtedness with that of other companies in the real estate industry;
income taxes, to allow investors to measure our performance independent of income taxes, which may vary significantly from other companies within our industry due to leverage and tax planning strategies, among other factors;
depreciation and amortization, gains or losses on dispositions and impairment losses related to real estate, for similar reasons to those set forth in our discussion of FFO, Pro forma FFO and AFFO in the preceding section; and
other items, including gains on dispositions of non-depreciable assets, as these are items that periodically affect our operations but that are not necessarily representative of our ability to service our debt obligations.
While Adjusted EBITDA is a relevant measure of performance and is commonly used in leverage ratios, it does not represent net income as defined by GAAP, and should not be considered as an alternative to net income in evaluating our performance. Further, our definition and computation of Adjusted EBITDA may not be comparable to similar measures reported by other companies.

Adjusted Interest Expense, as calculated in our leverage ratios, is a non-GAAP measure that we believe is meaningful for investors and analysts as it presents our share of current recurring interest requirements associated with leverage. Our calculation of Adjusted Interest Expense is set forth in the table below. Adjusted Interest Expense represents our proportionate share of interest expense on non-recourse property debt encumbering apartment communities in the Real Estate portfolio and interest expense on our term loan and revolving credit facility borrowings. We exclude from our calculation of Adjusted Interest Expense:
debt prepayment penalties, which are items that, from time to time, affect our operating results, but are not representative of our scheduled interest obligations;
the amortization of debt issue costs, as these amounts have been expended in previous periods and are not representative of our current or prospective debt service requirements; and
the income we receive on our investment in the securitization trust that holds certain of our property debt, as this income is being generated indirectly from interest we pay with respect to property debt held by the trust.
Preferred Dividends represents the preferred dividends paid on Aimco’s preferred stock and the preferred distributions paid on the Aimco Operating Partnership’s preferred OP Units, exclusive of preferred equity redemption related amounts. We add Preferred Dividends to Adjusted Interest Expense for a more complete picture of the interest and dividend requirements of our leverage, inclusive of perpetual preferred equity.

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Reconciliations of the most closely related GAAP measures to our calculations of Proportionate Debt, Preferred Equity, Adjusted EBITDA, Adjusted Interest Expense and Preferred Dividends, as used in our leverage ratios, are as follows (in thousands):
 
December 31, 2017
Total indebtedness associated with Real Estate portfolio
$
3,861,770

Adjustments:
 
Debt issue costs related to non-recourse property debt
17,932

Debt issue costs related to term loan
499

Proportionate share adjustments related to debt obligations of consolidated and unconsolidated partnerships
(9,560
)
Cash and restricted cash
(95,325
)
Proportionate share adjustments related to cash and restricted cash held by consolidated and unconsolidated partnerships
1,271

Securitization trust investment and other
(82,794
)
Proportionate Debt
$
3,693,793

 
 
Preferred stock
$
125,000

Preferred OP Units
101,537

Preferred Equity
226,537

Proportionate Debt and Preferred Equity
$
3,920,330

 
Three Months Ended December 31, 2017
Net income attributable to Aimco Common Stockholders
$
262,097

Adjustments:
 
Adjusted Interest Expense
42,219

Income tax benefit
(17,248
)
Depreciation and amortization, net of noncontrolling interest
97,418

Gain on dispositions and other, net of income taxes and noncontrolling partners’ interests
(255,516
)
Preferred stock dividends
2,149

Net income attributable to noncontrolling interests in Aimco Operating Partnership
14,374

Pro forma adjustment (1)
(4,248
)
Adjusted EBITDA
$
141,245

 
 
Annualized Adjusted EBITDA
$
564,980

 
 
(1) In our calculation of leverage ratios for the three months ended December 31, 2017, we adjusted our calculation of Adjusted EBITDA to reflect the disposition of five apartment communities sold during the period as if they had closed on October 1, 2017, because the proceeds from these sales were used to reduce leverage as of December 31, 2017.

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Three Months Ended December 31, 2017
Interest expense
$
49,193

Interest expense related to non-recourse property debt obligations of consolidated partnerships served by our Asset Management business
(3,166
)
Interest expense attributable to Real Estate portfolio
46,027

Adjustments:
 
Proportionate share adjustments related to interest of consolidated and unconsolidated partnerships
(105
)
Debt prepayment penalties and other non-interest items
(496
)
Amortization of debt issue costs
(1,393
)
Interest income earned on securitization trust investment
(1,814
)
Adjusted Interest Expense
$
42,219

 
 
Preferred stock dividends
2,149

Preferred OP Unit distributions
1,938

Preferred Dividends
4,087

Adjusted Interest Expense and Preferred Dividends
$
46,306

 
 
Annualized Adjusted Interest Expense
$
168,876

Annualized Adjusted Interest Expense and Preferred Dividends
$
185,224


Liquidity and Capital Resources
Liquidity
Liquidity is the ability to meet present and future financial obligations. Our primary source of liquidity is cash flow from our operations. Additional sources are proceeds from sales of apartment communities, proceeds from refinancings of existing property debt, borrowings under new property debt, borrowings under our Credit Agreement, as defined below, including our revolving credit facility, and proceeds from equity offerings.
Our principal uses for liquidity include normal operating activities, payments of principal and interest on outstanding property debt, capital expenditures, dividends paid to stockholders, distributions paid to noncontrolling interest partners and acquisitions of apartment communities. We use our cash and cash equivalents and our cash provided by operating activities to meet short-term liquidity needs. In the event that our cash and cash equivalents and cash provided by operating activities are not sufficient to cover our short-term liquidity needs, we have additional means, such as short-term borrowing availability and proceeds from apartment community sales and refinancings. We may use our revolving credit facility for working capital and other short-term purposes, such as funding investments on an interim basis. We expect to meet our long-term liquidity requirements, such as debt maturities, redevelopment spending and apartment community acquisitions, through long-term borrowings (primarily non-recourse), the issuance of equity securities (including OP Units), the sale of apartment communities and cash generated from operations.
As of December 31, 2017, our primary sources of liquidity were as follows:
$60.5 million in cash and cash equivalents;
$34.8 million of restricted cash, which consists primarily of escrows related to resident security deposits and reserves and escrows held by lenders for capital additions, property taxes and insurance; and
$521.3 million of available capacity to borrow under our revolving credit facility (which is more fully described below), after consideration of outstanding borrowings of $67.2 million and $11.5 million of letters of credit backed by the facility.
At December 31, 2017, we also held unencumbered apartment communities with an estimated fair market value of approximately $1.8 billion. Each of the amounts presented above exclude amounts attributable to partnerships served by our Asset Management business.
Leverage and Capital Resources
The availability of credit and its related effect on the overall economy may affect our liquidity and future financing activities, both through changes in interest rates and access to financing. Currently, interest rates are low compared to historical levels and many lenders are active in the market. However, any adverse changes in the lending environment could negatively affect our

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liquidity. We believe we have mitigated much of this exposure by reducing our short and intermediate term maturity risk through refinancing such loans with long-dated, fixed-rate property debt. However, if property financing options become unavailable for our further debt needs, we may consider alternative sources of liquidity, such as reductions in capital spending or proceeds from apartment community dispositions.
Two credit rating agencies rate our creditworthiness and both have rated our credit and outlook as BBB- (stable), an investment grade rating. Our investment grade rating would be useful in accessing capital through the sale of bonds in private or public transactions. However, our intention and historical practice has been to raise debt capital in the form of property-level, non-recourse, long-dated, fixed-rate, amortizing debt, the cost of which is generally less than that of recourse debt and the terms of which also provide for greater balance sheet safety.
At December 31, 2017, approximately 86.7% of our leverage consisted of property-level, non-recourse, long-dated, amortizing debt. Approximately 97.7% of our property-level debt is fixed-rate, which provides a hedge against increases in interest rates, capitalization rates and inflation. The weighted average maturity of our property-level debt was 7.2 years.
For property debt encumbering the communities in our Real Estate portfolio, $173.7 million of our unpaid principal balances mature during 2018, of which $111.5 million was refinanced in January 2018 with ten-year, fixed-rate, non-recourse property debt. On average, 13.6% of our unpaid principal balances will mature each year from 2019 through 2021.
While our primary source of leverage is property-level, non-recourse, long-dated, fixed-rate, amortizing debt, we have a Senior Secured Credit Agreement with a syndicate of financial institutions, which we refer to as our Credit Agreement. Our Credit Agreement provides for $600.0 million of revolving loan commitments. As of December 31, 2017, we had $67.2 million of outstanding borrowings under our revolving loan commitments, representing 1.6% of our total leverage. The Credit Agreement provides us with an option to expand the aggregate loan commitments, subject to customary conditions, by up to $200.0 million.
During 2017, we amended the Credit Agreement to add a $250.0 million term loan to fund partially our reacquisition of limited partner interests in the Palazzo joint venture. The term loan represents 6.1% of our total leverage as of December 31, 2017, matures on June 30, 2018, has a one-year extension option and bears interest at 30-day LIBOR plus 135 basis points.
As of December 31, 2017, our outstanding perpetual preferred equity represented approximately 5.5% of our total leverage. Our preferred securities are perpetual in nature; however, for illustrative purposes, we compute the weighted average maturity of our total leverage assuming a 40-year maturity on our preferred securities.
The combination of non-recourse property level debt, borrowings under our Credit Agreement and perpetual preferred equity that comprises our total leverage, reduces our refunding and re-pricing risk. The weighted average maturity for our total leverage described above was 8.5 years as of December 31, 2017.
Under the Credit Agreement, we have agreed to maintain Fixed Charge Coverage ratio of 1.40x, as well as other covenants customary for similar revolving credit arrangements. For the year ended December 31, 2017, our Fixed Charge Coverage ratio was 2.01x, compared to ratio of 1.96x for the year ended December 31, 2016. We expect to remain in compliance with this covenant during the next 12 months.
Changes in Cash and Cash Equivalents
The following discussion relates to changes in consolidated cash and cash equivalents due to operating, investing and financing activities, which are presented in our consolidated statements of cash flows in Item 8 of this report.
Operating Activities
For the year ended December 31, 2017, our net cash provided by operating activities was $394.1 million. Our operating cash flow is affected primarily by rental rates, occupancy levels and operating expenses related to our portfolio of apartment communities. Cash provided by operating activities for the year ended December 31, 2017, increased by $16.4 million compared to 2016, due to improved operating results of our Same Store communities and increased contribution from redevelopment and lease-up communities, partially offset by a decrease in the net operating income associated with apartment communities we sold during 2016.

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Investing Activities
For the year ended December 31, 2017, net cash provided by investing activities of $14.7 million consisted primarily of $402.2 million in proceeds from the sale of apartment communities, partially offset by capital expenditures.
For the years ended December 31, 2017, 2016 and 2015, we sold and acquired various apartment communities as further discussed in Note 3 to the consolidated financial statements in Item 8.
Capital additions for our Real Estate segment totaled $338.0 million, $321.0 million and $340.3 million during the years ended December 31, 2017, 2016 and 2015, respectively. We generally fund capital additions with cash provided by operating activities and cash proceeds from sales of apartment communities.
We categorize capital spending for communities in our Real Estate portfolio broadly into six primary categories:
capital replacements, which represent capital additions made to replace the portion of acquired apartment communities consumed during our period of ownership;
capital improvements, which represent capital additions made to replace the portion of acquired apartment communities consumed prior to our period of ownership;
capital enhancements, which may include kitchen and bath remodeling, energy conservation projects and investments in longer-lived materials designed to reduce turnover and maintenance costs, all of which are generally lesser in scope than redevelopment additions and do not significantly disrupt property operations;
redevelopment additions, which represent capital additions intended to enhance the value of the apartment community through the ability to generate higher average rental rates, and may include costs related to entitlement, which enhance the value of a community through increased density, and costs related to renovation of exteriors, common areas or apartment homes;
development additions, which represent construction and related capitalized costs associated with development of apartment communities; and
casualty capital additions, which represent construction and related capitalized costs incurred in connection with the restoration of an apartment community after a casualty event such as a severe snow storm, hurricane, tornado, flood or fire.
We exclude from these measures the amounts of capital spending related to apartment communities sold or classified as held for sale at the end of the period, as well as amounts expended by consolidated partnerships served by our Asset Management business as such amounts generally do not affect the amount of cash flow we expect to receive from the operation and ultimate disposition of these communities.
A summary of the capital spending for these categories, along with a reconciliation of the total for these categories to the capital expenditures reported in the accompanying consolidated statements of cash flows for the years ended December 31, 2017, 2016 and 2015, are presented below (dollars in thousands):
 
2017
 
2016
 
2015
Real Estate
 
 
 
 
 
Capital replacements
$
38,037

 
$
39,749

 
$
38,009

Capital improvements
17,039

 
15,147

 
16,759

Capital enhancements
101,497

 
74,544

 
47,927

Redevelopment additions
158,141

 
155,399

 
117,794

Development additions
14,248

 
31,823

 
115,638

Casualty capital additions
9,060

 
4,304

 
4,184

Real Estate capital additions
338,022

 
320,966

 
340,311

Plus: additions related to consolidated Asset Management communities, apartment communities sold or held for sale, and other adjustments
16,207

 
17,548

 
22,637

Consolidated capital additions
354,229

 
338,514

 
362,948

Plus: net change in accrued capital spending
3,875

 
8,131

 
4,232

Capital expenditures per consolidated statement of cash flows
$
358,104

 
$
346,645

 
$
367,180


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For the years ended December 31, 2017, 2016 and 2015, we capitalized $7.6 million, $9.6 million and $11.7 million of interest costs, respectively, and $36.0 million, $32.9 million and $28.2 million of other direct and indirect costs, respectively.
Redevelopment/Development
Information regarding our redevelopments and developments at December 31, 2017, is presented below (dollars in millions):
 
Location
 
Apartment Homes Approved for Redevelopment or Development
 
Estimated Net Investment
 
Inception-to-Date Net Investment
 
Expected Stabilized Occupancy (1)
 
Expected NOI Stabilization (1)
Under Redevelopment or Development
 
 
 
 
 
 
 
 
 
 
Bay Parc
Miami, FL
 
15

 
$
20.0

 
$
15.3

 
(2)
 
(2)
Calhoun Beach Club
Minneapolis, MN
 
275

 
28.7

 
9.4

 
(3)
 
(3)
Flamingo South Beach
Miami, FL
 
N/A

 
9.7

 
4.2

 
(4)
 
(4)
Palazzo at Park La Brea
Los Angeles, CA
 
389

 
24.5

 
16.2

 
2Q 2020
 
3Q 2021
Palazzo East at Park La Brea
Los Angeles, CA
 
611

 
28.0

 
0.8

 
4Q 2020
 
1Q 2022
Parc Mosaic
Boulder, CO
 
226

 
117.0

 
27.0

 
4Q 2020
 
1Q 2022
Park Towne Place
Philadelphia, PA
 
942

 
176.0

 
140.8

 
1Q 2019
 
2Q 2020
Saybrook Pointe
San Jose, CA
 
324

 
18.3

 
14.9

 
1Q 2019
 
2Q 2020
Yorktown
Lombard, IL
 
292

 
25.7

 
18.3

 
(5)
 
(5)
 
 
 
 
 
 
 
 
 
 
 
 
Lease-up complete, NOI stabilization period
 
 
 
 
 
 
 
 
One Canal
Boston, MA
 
310

 
195.2

 
195.2

 
 
 
2Q 2018
The Sterling
Philadelphia, PA
 
534

 
71.5

 
71.0

 
 
 
4Q 2018
Total
 
 
3,918

 
$
714.6

 
$
513.1

 
 
 
 
(1)
Redevelopments provide us with the flexibility to align the timing of completed apartment homes with market demand. As such, expected occupancy stabilization and expected NOI Stabilization dates may change as market conditions evolve.
(2)
This phase of redevelopment encompasses common areas, amenity improvements, residential homes on one floor and the creation of a new retail space.
(3)
In response to market conditions, during 2017, we decided to pause redevelopment activities pertaining to apartment homes and will reassess an appropriate time to resume such activity. Redevelopment of common areas, such as corridors, is ongoing and expected to be complete in early 2018.
(4)
This phase of the redevelopment encompasses common areas and security system upgrades.
(5)
In response to market conditions, during 2017, we decided to pause redevelopment activities and will reassess an appropriate time to resume redevelopment activity.
Net investment represents the total actual or estimated investment, net of tax and other credits earned as a direct result of our redevelopment or development of the community.
NOI Stabilization represents the period in which we expect the communities to achieve stabilized rents and operating costs, generally five quarters after occupancy stabilization.
During the year ended December 31, 2017, we invested $172.4 million primarily in our ongoing redevelopment and development projects.
During the year ended December 31, 2017, we completed construction on the third tower of Park Towne Place in Center City, Philadelphia. As of December 31, 2017, the first three towers combined were 89% leased with approximately 40 homes remaining to be leased at the third redeveloped tower to reach occupancy stabilization. Based on these results, we decided to proceed with a $40 million redevelopment of the fourth and final tower. We have completed de-leasing and commenced construction on this tower, and lease-up is scheduled to commence in the spring of 2018.
Also in Center City Philadelphia, during the year ended December 31, 2017, we completed redevelopment and the lease-up of the 534 apartment homes at The Sterling and substantially completed the reconfiguration of the second floor commercial space, upgrades to the third and fourth floor commercial space and upgrades to residential common areas.

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We have planned and entitled a new $117.0 million, 226 apartment home community to be known as Parc Mosaic, located in Boulder, Colorado on the site of our Eastpointe community. As part of this plan, as of December 31, 2017, we completed the de-leasing of Eastpointe and commenced demolition and construction. The site is two miles from the new Google campus and is across the street from Ball Aerospace’s Technology Campus and Foothills Hospital. Building in Boulder is highly regulated and new supply is limited, notwithstanding higher enrollment at the University of Colorado and increased employment generally.
Inclusive of the redevelopment and development projects discussed above, during the year ended December 31, 2017 we expanded our redevelopment and development pipeline by $228.9 million. The total estimated net investment for these redevelopment and development communities is $714.6 million, with a projected weighted average net operating income yield on these investments of 6.1% assuming untrended rents. As of December 31, 2017, $513.1 million of this total has been funded.
We expect our total redevelopment and development spending to range from $120 million to $200 million for the year ending December 31, 2018.
Financing Activities
For the year ended December 31, 2017, our net cash used in financing activities of $393.3 million was primarily attributed to our reacquisition of the limited partner interests in the Palazzo communities, dividends paid to common security holders, distributions paid to noncontrolling interests and principal payments on property loans, partially offset by proceeds from the term loan, net borrowings on our revolving credit facility, and proceeds from non-recourse property debt.
Net borrowings on our revolving credit facility primarily relate to the timing of property debt financing activities and apartment community dispositions. Proceeds from non-recourse property debt borrowings during the year consisted of the closing of seven fixed-rate, non-recourse, amortizing, property loans totaling $308.8 million. On a weighted basis, the term of these loans averaged 8.2 years and their interest rates averaged 3.48%, 121 basis points more than the corresponding 10-year Treasury rate at the time of pricing.
We like the discipline of financing our investments in real estate through the use of fixed-rate, amortizing, non-recourse property debt, as the amortization gradually reduces our leverage and reduces our refunding risk, the fixed-rate provides a hedge against increases in interest rates, and the non-recourse feature avoids entity risk.
Principal payments on property loans during the year totaled $409.2 million, consisting of $85.1 million of scheduled principal amortization and repayments of $324.1 million.
Net cash used in financing activities also includes $260.8 million of payments to equity holders, as further detailed in the table below.
Equity and Partners’ Capital Transactions
The following table presents our dividend and distribution activity, which is included in our net cash used in financing activities during the year ended December 31, 2017 (dollars in thousands):
 
2017
Cash distributions paid by the Aimco Operating Partnership to holders of noncontrolling interests in consolidated real estate partnerships
$
8,367

Cash distributions paid by the Aimco Operating Partnership to preferred unitholders (1)
16,358

Cash distributions paid by the Aimco Operating Partnership to common unitholders (2)
236,044

Total cash distributions paid by the Aimco Operating Partnership
$
260,769

 
 
Cash distributions paid by Aimco to holders of noncontrolling interests in consolidated real estate partnerships
$
8,367

Cash distributions paid by Aimco to holders of OP Units
18,431

Cash dividends paid by Aimco to preferred stockholders
8,594

Cash dividends paid by Aimco to common stockholders
225,377

Total cash dividends and distributions paid by Aimco
$
260,769

 
 
(1)
$8.6 million represented distributions to Aimco, and $7.8 million represented distributions paid to holders of OP Units.
(2)
$225.4 million represented distributions to Aimco, and $10.6 million represented distributions paid to holders of OP Units.



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Contractual Obligations
This table summarizes information contained elsewhere in this Annual Report on Form 10-K regarding payments due under contractual obligations and commitments as of December 31, 2017 (in thousands):
 
Total
Less than One Year
1-3 Years
3-5 Years
More than Five Years
Non-recourse property debt - Real Estate (1)
$
3,563,041

$
248,540

$
915,257

$
1,064,282

$
1,334,962

Revolving credit facility borrowings (2)
67,160



67,160


Term loan (3)
250,000

250,000




Interest related to long-term debt - Real Estate (4)
785,945

163,403

251,541

131,621

239,380

Office space lease obligations
5,676

2,203

2,013

1,460


Ground lease obligations (5)
86,409

1,179

2,793

3,100

79,337

Construction obligations (6)
91,125

78,232

12,893



Total
$
4,849,356

$
743,557

$
1,184,497

$
1,267,623

$
1,653,679

 
 
 
 
 
 
(1)
Includes scheduled principal amortization and maturity payments related to our non-recourse property debt secured by communities in our Real Estate portfolio.
(2)
Includes outstanding borrowings on our revolving credit facility assuming repayment at the contractual maturity date. Our revolving credit facility is subject to an annual commitment fee (0.25% of aggregate commitments), which is not included in the amounts above.
(3)
Represents the term loan that matures on June 30, 2018 and has a one-year extension option.
(4)
Includes interest related to both fixed-rate and variable-rate non-recourse property debt, our variable-rate revolving credit facility borrowings, and our variable-rate term loan. Interest related to variable-rate debt is estimated based on the rate effective at December 31, 2017. Refer to Note 4 to the consolidated financial statements in Item 8 for a description of average interest rates associated with our debt.
(5)
These ground leases expire in years ranging from 2063 to 2087.
(6)
Represents estimated obligations pursuant to construction contracts related to our redevelopment, development and other capital spending. Refer to Note 5 to the consolidated financial statements in Item 8 for additional information regarding these obligations.
In addition to the amounts presented in the table above, at December 31, 2017, we had $125.0 million (liquidation value) of Aimco’s perpetual preferred stock outstanding with an annual dividend yield of 6.9% and $101.5 million (liquidation value) of redeemable preferred OP Units of the Aimco Operating Partnership outstanding with annual distribution yields ranging from 1.92% to 8.8%. The dividends and distributions that accrue on the perpetual preferred stock and redeemable preferred OP Units are cumulative and are paid quarterly.
At December 31, 2017, communities owned by partnerships served by our Asset Management business were encumbered by $231.4 million of non-recourse property debt, $43.3 million of which matures in the next five years. The partnerships’ future obligation for interest related to this debt is $124.6 million, $52.3 million of which will be incurred over the next five years. The non-recourse property debt obligations of these partnerships have limited effect on the amount of fees and other payments we expect to receive.
Additionally, we may enter into commitments to purchase goods and services in connection with the operations of our apartment communities. Those commitments generally have terms of one year or less and reflect expenditure levels comparable to our historical expenditures.
Future Capital Needs
In addition to the items set forth in “Contractual Obligations” above, we expect to fund any future acquisitions, redevelopment, development and other capital spending principally with proceeds from apartment community sales, short-term borrowings, debt and equity financing and operating cash flows. Our near-term business plan does not contemplate the issuance of equity.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Our chief market risks are refunding risk, that is the availability of property debt or other cash sources to refund maturing property debt, and re-pricing risk, that is the possibility of increases in base interest rates and credit risk spreads. We use predominantly long-dated, fixed-rate, amortizing, non-recourse property debt in order to avoid the refunding and repricing risks of short-term borrowings. We use short-term debt financing and working capital primarily to fund short-term uses and generally expect to refinance such borrowings with cash from operating activities, proceeds from apartment community sales, long-term debt or equity financings. We make limited use of derivative financial instruments and we do not use them for trading or other speculative purposes.
Market Risk Associated with Loans Secured by Our Real Estate Portfolio
As of December 31, 2017, on a consolidated basis, we had approximately $82.7 million of variable-rate property-level debt outstanding and $317.2 million of variable-rate borrowings under our Credit Agreement, including a $250.0 million term loan that matures on June 30, 2018. We estimate that a change in 30-day LIBOR of 100 basis points with constant credit risk spreads would reduce or increase net income attributable to Aimco common stockholders and the Aimco Operating Partnership’s common unitholders by approximately $3.8 million on an annual basis.
At December 31, 2017, our Real Estate segment had approximately $95.3 million in cash and cash equivalents and restricted cash, a portion of which bears interest at variable rates, which may offset somewhat a change in rates on our variable-rate debt discussed above.
We estimate the fair value of debt instruments as described in Note 11 to the consolidated financial statements in Item 8. The estimated fair value of indebtedness associated with the Real Estate portfolio was approximately $3.9 billion at December 31, 2017, inclusive of a $55.1 million mark-to-market liability. The mark-to-market liability decreased by $9.8 million as compared to the mark-to-market liability at December 31, 2016.
If market rates for consolidated fixed-rate debt were higher by 100 basis points with constant credit risk spreads, the estimated fair value of debt discussed above would decrease from $3.9 billion to $3.8 billion. If market rates for consolidated debt discussed above were lower by 100 basis points with constant credit risk spreads, the estimated fair value of consolidated fixed-rate debt would increase from $3.9 billion in the aggregate to $4.0 billion.
Market Risk Associated with Our Asset Management Business
The carrying value of non-recourse property debt of the partnerships served by our Asset Management business of $227.1 million and $236.4 million approximated its estimated fair value at December 31, 2017 and 2016, respectively. All of the non-recourse property debt of these partnership is fixed-rate debt. We do not believe this indebtedness represents a market risk for Aimco because increases or decreases in the fair value of the indebtedness are not expected to have a significant effect on the fees we expect to collect from these consolidated partnerships.
Item 8. Financial Statements and Supplementary Data
The independent registered public accounting firm’s reports, consolidated financial statements and schedule listed in the “Index to Financial Statements” on page F-1 of this Annual Report are filed as part of this report and incorporated herein by this reference.
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
None.

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Item 9A. Controls and Procedures
Aimco
Disclosure Controls and Procedures
Aimco’s management, with the participation of Aimco’s chief executive officer and chief financial officer, has evaluated the effectiveness of its disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act), as of the end of the period covered by this report. Based on such evaluation, Aimco’s chief executive officer and chief financial officer have concluded that, as of the end of such period, Aimco’s disclosure controls and procedures are effective.
Management’s Report on Internal Control Over Financial Reporting
Aimco’s management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is defined in Rule 13a-15(f) and 15d-15(f) under the Exchange Act as a process designed by, or under the supervision of, our principal executive and principal financial officers and effected by our Board of Directors, management and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that:
pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of assets;
provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures are being made only in accordance with authorizations of our management and directors; and
provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risks that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Management assessed the effectiveness of Aimco’s internal control over financial reporting as of December 31, 2017. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework (2013 Framework).
Based on their assessment, management concluded that, as of December 31, 2017, Aimco’s internal control over financial reporting is effective.
Aimco’s independent registered public accounting firm has issued an attestation report on Aimco’s internal control over financial reporting.
Changes in Internal Control Over Financial Reporting
There has been no change in Aimco’s internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the fourth quarter of 2017 that has materially affected, or is reasonably likely to materially affect, Aimco’s internal control over financial reporting.

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Stockholders of
Apartment Investment and Management Company
Opinion on Internal Control over Financial Reporting
 
We have audited Apartment Investment and Management Company’s internal control over financial reporting as of December 31, 2017, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, Apartment Investment and Management Company (the Company) maintained, in all material respects, effective internal control over financial reporting as of December 31, 2017, based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 2017 and 2016, and the related consolidated statements of operations, comprehensive income, equity and cash flows for each of the three years in the period ended December 31, 2017 and the related notes and financial statement schedule listed in the accompanying Index to Financial Statements of the Company and our report dated February 28, 2018 expressed an unqualified opinion thereon.

Basis for Opinion

The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.
 
Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

Definition and Limitations of Internal Control Over Financial Reporting
 
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
 
/s/ ERNST & YOUNG LLP

Denver, Colorado
February 28, 2018


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The Aimco Operating Partnership
Disclosure Controls and Procedures
The Aimco Operating Partnership’s management, with the participation of the chief executive officer and chief financial officer of Aimco, who are the equivalent of the Aimco Operating Partnership’s chief executive officer and chief financial officer, respectively, has evaluated the effectiveness of the Aimco Operating Partnership’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this report. Based on such evaluation, the chief executive officer and chief financial officer of Aimco have concluded that, as of the end of such period, the Aimco Operating Partnership’s disclosure controls and procedures are effective.
Management’s Report on Internal Control Over Financial Reporting
Management of the Aimco Operating Partnership is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is defined in Rule 13a-15(f) and 15d-15(f) under the Exchange Act as a process designed by, or under the supervision of, our principal executive and principal financial officers and effected by our Board of Directors, management and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that:
pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of assets;
provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures are being made only in accordance with authorizations of our management and directors; and
provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risks that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Management assessed the effectiveness of the Aimco Operating Partnership’s internal control over financial reporting as of December 31, 2017. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework (2013 Framework).
Based on their assessment, management concluded that, as of December 31, 2017, the Aimco Operating Partnership’s internal control over financial reporting is effective.
The Aimco Operating Partnership’s independent registered public accounting firm has issued an attestation report on the Aimco Operating Partnership’s internal control over financial reporting.
Changes in Internal Control Over Financial Reporting
There has been no change in the Aimco Operating Partnership’s internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the fourth quarter of 2017 that has materially affected, or is reasonably likely to materially affect, the Aimco Operating Partnership’s internal control over financial reporting.

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Partners of
AIMCO Properties, L.P.
Opinion on Internal Control over Financial Reporting
 
We have audited AIMCO Properties, L.P.’s internal control over financial reporting as of December 31, 2017, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, AIMCO Properties, L.P. (the Partnership) maintained, in all material respects, effective internal control over financial reporting as of December 31, 2017, based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Partnership as of December 31, 2017 and 2016, and the related consolidated statements of operations, comprehensive income, partners’ capital and cash flows for each of the three years in the period ended December 31, 2017 and the related notes and financial statement schedule listed in the accompanying Index to Financial Statements of the Partnership and our report dated February 28, 2018 expressed an unqualified opinion thereon.

Basis for Opinion

The Partnership’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Partnership’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Partnership in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
 
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.

Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

Definition and Limitations of Internal Control Over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
 
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
 
/s/ ERNST & YOUNG LLP

Denver, Colorado
February 28, 2018

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Item 9B. Other Information
None.
PART III

Item 10. Directors, Executive Officers and Corporate Governance
Each member of the board of directors of Aimco also is a director of the general partner of the Aimco Operating Partnership. The officers of Aimco are also the officers of the general partner of the Aimco Operating Partnership and hold the same titles. The information required by this item for both Aimco and the Aimco Operating Partnership is presented jointly under the captions “Board of Directors and Executive Officers,” “Corporate Governance Matters - Code of Ethics,” “Other Matters - Section 16(a) Beneficial Ownership Reporting Compliance,” “Corporate Governance Matters - Meetings and Committees: Nominating and Corporate Governance Committee,” “Corporate Governance Matters - Meetings and Committees: Audit Committee” and “Corporate Governance Matters - Meetings and Committees: Audit Committee Financial Expert” in the proxy statement for Aimco’s 2018 annual meeting of stockholders and is incorporated herein by reference.
Item 11. Executive Compensation
The information required by this item is presented under the captions “Compensation Discussion & Analysis,” “Compensation and Human Resources Committee Report to Stockholders,” “Summary Compensation Table,” “Grants of Plan-Based Awards in 2017,” “Outstanding Equity Awards at Fiscal Year-End 2017,” “Option Exercises and Stock Vested in 2017,” “Potential Payments Upon Termination or Change in Control” and “Corporate Governance Matters - Director Compensation” in the proxy statement for Aimco’s 2018 annual meeting of stockholders and is incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The information required by this item, for both Aimco and the Aimco Operating Partnership, is presented under the captions “Security Ownership of Certain Beneficial Owners and Management” and “Securities Authorized for Issuance Under Equity Compensation Plans” in the proxy statement for Aimco’s 2018 annual meeting of stockholders and is incorporated herein by reference. In addition, as of February 27, 2018, Aimco, through its consolidated subsidiaries, held 95.4% of the Aimco Operating Partnership’s common partnership units outstanding.
Item 13. Certain Relationships and Related Transactions, and Director Independence
The information required by this item is presented under the caption “Certain Relationships and Related Transactions” and “Corporate Governance Matters - Independence of Directors” in the proxy statement for Aimco’s 2018 annual meeting of stockholders and is incorporated herein by reference.
Item 14. Principal Accountant Fees and Services
The information required by this item is presented under the caption “Principal Accountant Fees and Services” in the proxy statement for Aimco’s 2018 annual meeting of stockholders and is incorporated herein by reference.
PART IV
Item 15. Exhibits and Financial Statement Schedules
(a)(1)
The financial statements listed in the Index to Financial Statements on Page F-1 of this report are filed as part of this report and incorporated herein by reference.
(a)(2)
The financial statement schedule listed in the Index to Financial Statements on Page F-1 of this report is filed as part of this report and incorporated herein by reference.
(a)(3)
The Exhibit Index is incorporated herein by reference.

50