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Basis of Presentation and Summary of Significant Accounting Policies (Policies) | 6 Months Ended
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Jun. 30, 2023
Organization, Consolidation and Presentation of Financial Statements [Abstract] |
Basis of Presentation | Basis of Presentation The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles in the U.S. ("GAAP") have been condensed or omitted in accordance with such rules and regulations, although management believes the disclosures are adequate to prevent the information presented from being misleading. In the opinion of management, all adjustments, consisting of normal recurring items, considered necessary for a fair presentation have been included. Operating results for the three and six months ended June 30, 2023, are not necessarily indicative of the results that may be expected for the year ending December 31, 2023. The Condensed Consolidated Balance Sheets of Aimco and Aimco Operating Partnership as of December 31, 2022 have been derived from their respective audited financial statements at that date, but do not include all of the information and disclosures required by GAAP for complete financial statements. For further information, refer to the financial statements and notes thereto included in Aimco’s and Aimco Operating Partnership’s combined Annual Report on Form 10-K for the year ended December 31, 2022. Except where indicated, the footnotes refer to both Aimco and Aimco Operating Partnership.
Principles of Consolidation | Principles of Consolidation The accompanying condensed consolidated financial statements include the accounts of Aimco, Aimco Operating Partnership, and their consolidated subsidiaries. Aimco Operating Partnership’s condensed consolidated financial statements include the accounts of Aimco Operating Partnership and its consolidated subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation. We consolidate a variable interest entity (“VIE”) in which we are considered the primary beneficiary. The primary beneficiary is the entity that has (i) the power to direct the activities that most significantly impact the entity's economic performance and (ii) the obligation to absorb losses of the VIE or the right to receive benefits from the VIE that could be significant to the VIE. As used herein, and except where the context otherwise requires, “partnership” refers to a limited partnership or a limited liability company and “partner” refers to a partner in a limited partnership or a member of a limited liability company. Certain reclassifications have been made to prior period amounts to conform to the current period condensed consolidated financial statement presentation with no effect on the Company’s previously reported results of operations, financial position, or cash flows.
Common Noncontrolling Interests in Aimco Operating Partnership | Common Noncontrolling Interests in Aimco Operating Partnership Common noncontrolling interests in Aimco Operating Partnership consist of OP Units held by third parties, and are reflected in Aimco’s accompanying Condensed Consolidated Balance Sheets as Common Noncontrolling Interests in Aimco Operating Partnership. Aimco Operating Partnership’s income or loss is allocated to the holders of OP Units, other than Aimco, based on the weighted-average number of OP Units (including Aimco) outstanding during the period. For the periods ended June 30, 2023 and 2022, the holders of OP Units had a weighted-average economic ownership interest in Aimco Operating Partnership of approximately 5.1%, and 5.0%, respectively. Substantially all of the assets and liabilities of Aimco are held by Ai mco Operating Partnership. Redeemable Noncontrolling Interests in Consolidated Real Estate Partnerships Redeemable noncontrolling interests consist of equity interests held by a limited partner in a consolidated real estate partnership that has a finite life. If a consolidated real estate partnership includes redemption rights that are not within our control, the noncontrolling interest is included as temporary equity. Redeemable noncontrolling interests in consolidated real estate partnerships as of June 30, 2023, consists of the following: (i) a $102.0 million preferred equity interest in an entity that owns a portfolio of operating apartment communities and (ii) equity interests in two separate consolidated joint ventures that are actively developing residential apartment communities. Capital contributions, distributions, and net income attributable to redeemable noncontrolling interests in consolidated real estate partnerships are determined in accordance with the relevant partnership agreements. These interests are presented as Redeemable noncontrolling interests in consolidated real estate partnerships in our Condensed Consolidated Balance Sheet as of June 30, 2023. The following table shows changes in our redeemable noncontrolling interests in consolidated real estate partnerships from December 31, 2022 to June 30, 2023 (in thousands):
Balance at December 31, 2022 |  | $ | 166,826 |
Capital contributions |  |  | 125 |
Distributions |  |  | (5,152 | )
Net income |  |  | 6,849 |
Balance at June 30, 2023 |  | $ | 168,648 |
Mezzanine Investment | Mezzanine Investment In November 2019, Aimco Predecessor made a five-year, $275.0 million mezzanine loan to the partnership owning the “Parkmerced Apartments” located in southwest San Francisco (the “Mezzanine Investment”). The loan bears interest at a 10% annual rate, accruing if not paid from property operations. Ownership of the subsidiaries that originated and hold the Mezzanine Investment was retained by AIR following the Separation. The Separation Agreement with AIR provides for AIR to transfer ownership of the subsidiaries that originated and hold the Mezzanine Investment, a related equity option to acquire a 30% interest in the partnership owning Parkmerced Apartments and the interest rate option, or swaption, that provides partial protection against future refinancing risk to Aimco through 2024 once required third-party consents are received. At the time of Separation and as of the date of this filing, legal title of these subsidiaries had not yet transferred to us. Until legal title of the subsidiaries is transferred, AIR is obligated to pass payments received on the Mezzanine Investment to us, and we are obligated to indemnify AIR against any costs and expenses related thereto. We have the risks and rewards of ownership of the Mezzanine Investment and have recognized an asset related to our right to receive the Mezzanine Investment from AIR. On a periodic basis, we evaluate our Mezzanine Investment for impairment. We assess whether there are any indicators that imply the value of our investment may be impaired. These include assessments of both the underlying property performance and general market conditions in place. An investment is considered impaired if we determine that its fair value is less than the net carrying value of the investment on an other-than-temporary basis. Cash flow projections for the investments consider property level factors such as expected future operating income, trends and prospects, as well as the effects of demand, competition and other factors. We consider various qualitative factors to determine if a decrease in the value of our investment is other-than-temporary. These factors include the loan’s maturity date, our intent and ability to retain our investment in the entity, and the financial condition and long-term prospects of the entity. Prior to recording a non-cash impairment charge during the three months ended December 31, 2022, we recognized as income the net amounts earned on the Mezzanine Investment by AIR on its equity investment that were due to be paid to us when collected to the extent the income was supported by the change in the counterparty’s claim to the net assets of the underlying borrower. The income recognized primarily represented the interest accrued under the terms of the underlying Mezzanine Investment. In June 2023, we closed on the sale of a 20% non-controlling participation in the Mezzanine Investment for $33.5 million. Pursuant to the terms of the agreement, the purchaser has the option to acquire the remaining 80% for an additional $134 million plus interest accruing at no less than 19% annually through May 2024 when the option expires. The purchaser pre-paid $4 million of interest at the time of closing. So long as the purchaser's option remains unexercised, Aimco receives a first priority return from any payments made to service or pay down the Mezzanine Investment equal to $134 million plus no less than a 19% annualized return as well as 80% of any residual payments after the purchaser receives a 10% annualized retu rn on its subordinate investment. Additionally, Aimco is responsible for the servicing and administration of the Mezzanine Investment. Because Aimco receives first priority and a higher annualized return than the purchaser, the sale and transfer of the financial interest does not qualify for sale accounting in accordance with GAAP. Therefore, the portion of the Mezzanine Investment that was sold, which has a carrying amount of $31.5 million, remains in Mezzanine investment in our Condensed Consolidated Balance Sheet. We have also recorded the cash received from the purchaser as a liability, which is included in Mezzanine investment - participation sold in our Condensed Consolidated Balance Sheet. Transaction costs have been deferred and presented as a direct reduction from the related liability in Mezzanine investment - participation sold in our Condensed Consolidated Balance Sheet. The cash flows associated with the Mezzanine investment - participation sold have been included in Cash Flows from Financing Activities in the Condensed Consolidated Statements of Cash Flows.
Income Tax Benefit (Expense) | Income Tax Benefit (Expense) Certain aspects of our operations, including our development and redevelopment activities, are conducted through taxable REIT subsidiaries, or TRS entities. Additionally, our TRS entities hold investments in one of our apartment communities and 1001 Brickell Bay Drive. Our income tax benefit (expense) calculated in accordance with GAAP includes income taxes associated with the income or loss of our TRS entities. Income taxes, as well as changes in valuation allowance and incremental deferred tax items in conjunction with intercompany asset transfers and internal restructurings (if applicable), are included in Income tax benefit (expense) in our Condensed Consolidated Statements of Operations. Consolidated GAAP income or loss subject to tax consists of pretax income or loss of our taxable entities and gains retained by the REIT. For the three and six months ended June 30, 2023, we had consolidated net losses subject to tax of $2.5 million and $7.4 million, respectively. For the three and six months ended June 30, 2022, we had consolidated net income subject to tax of $181.4 million and $166.6 million, respectively. For the three months ended June 30, 2023, we recognized an income tax benefit of $0.4 million, compared to income tax expense of $46.0 million during the same period in 2022. The change is due primarily to GAAP income taxes associated with the lease modification income recognized in the second quarter of 2022. For the six months ended June 30, 2023, we recognized an income tax benefit of $4.6 million compared to income tax expense of $41.9 million during the same period in 2022. The change is primarily due to GAAP income taxes associated with the lease modification income recognized in the second quarter of 2022, as well as a change in the first quarter of 2023 to the effective state tax rate expected to apply to the reversal of deferred taxes.
Use of Estimates | Use of Estimates The preparation of our condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts included in the financial statements and accompanying notes thereto. Actual results could differ from those estimates.
Cash Equivalents | Cash Equivalents We classify highly liquid investments with an original maturity of three months or less as cash equivalents. We maintain cash equivalents in financial institutions in excess of insured limits. We have not experienced any losses in these accounts in the past and believe that we are not exposed to significant credit risk because our accounts are deposited with major financial institutions.
Restricted Cash | Restricted Cash Restricted cash consists of tenant security deposits, capital replacement reserves, insurance reserves, and cash restricted as required by our debt agreements.
Other Assets, net | Other Assets, net Other assets were comprised of the following amounts (in thousands):
| June 30, 2023 |  |  | December 31, 2022 |
Other investments | $ | 65,554 |  |  | $ | 63,982 |
Deferred costs, deposits, and other |  | 18,493 |  |  |  | 20,460 |
Prepaid expenses and real estate taxes |  | 13,851 |  |  |  | 17,363 |
Intangible assets, net |  | 13,632 |  |  |  | 14,160 |
Corporate fixed assets |  | 9,341 |  |  |  | 8,371 |
Accounts receivable, net of allowances of $346 and $1,206 as of June 30, 2023 and December 31, 2022, respectively |  | 4,202 |  |  |  | 4,079 |
Deferred tax assets |  | 1,788 |  |  |  | 2,321 |
Due from third-party property manager |  | 1,143 |  |  |  | 1,669 |
Due from affiliates |  | 636 |  |  |  | 274 |
Total other assets, net | $ | 128,640 |  |  | $ | 132,679 |
Recent Accounting Pronouncements | Recent Accounting Pronouncements In March 2020, the FASB issued Accounting Standards Update ("ASU") No. 2020-04,“Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting”, which provides optional expedients to debt, derivatives, and other contracts that refer to LIBOR or another reference rate expected to be discontinued because of reference rate reform. The original ASU was effective as of its issuance date and provided temporary relief through December 31, 2022, which was extended through December 31, 2024 by ASU 2022-06, "Reference Rate Reform (Topic 848): Deferral of the Sunset Date of Topic 848". We are transitioning to the Secured Overnight Financing Rate ("SOFR") effective July 1, 2023. There is not a material impact on our consolidated financial statements as a result of this transition.
Fair Value of Financial Instruments | On a recurring basis, we measure at fair value our interest rate options. Our interest rate options are classified within Level 2 of the GAAP fair value hierarchy, and we estimate their fair value using pricing models that rely on observable market information, including contractual terms, market prices, and interest rate yield curves. The fair value adjustment is included in earnings in Realized and unrealized gains (losses) on interest rate options in our Condensed Consolidated Statements of Operations. Changes in fair value are reflected as a non-cash transaction in adjustments to arrive at cash flows from operations, any upfront premium is reflected in Purchase of interest rate options, and any proceeds are reflected in Proceeds from interest rate options in our Condensed Consolidated Statements of Cash Flows.

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