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Basis of Presentation and Summary of Significant Accounting Policies | 6 Months Ended
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Jun. 30, 2024
Organization, Consolidation and Presentation of Financial Statements [Abstract] |
Basis of Presentation and Summary of Significant Accounting Policies | Note 2 — Basis of Prese ntation and Summary of Significant Accounting Policies 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, 2024, are not necessarily indicative of the results that may be expected for the year ending December 31, 2024. The accompanying condensed consolidated financial statements include the accounts of Aimco, Aimco Operating Partnership, and their consolidated entities. Aimco Operating Partnership’s condensed consolidated financial statements include the accounts of Aimco Operating Partnership and its consolidated entities. All significant intercompany balances and transactions have been eliminated in consolidation. 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. The Condensed Consolidated Balance Sheets of Aimco and Aimco Operating Partnership as of December 31, 2023 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, 2023. Except where indicated, the footnotes refer to both Aimco and Aimco Operating Partnership. Principles of Consolidation We account for joint ventures and other similar entities in which we hold an ownership interest in accordance with the consolidation guidance. We first evaluate whether each entity is a variable interest entity ("VIE"). Under the VIE model, we consolidate an entity 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. In addition, when an entity is not a VIE, we consolidate an entity under the voting model when we control the entity through ownership of a majority voting interest. Refer to Note 6 for further information. 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 OP Units held by Aimco) outstanding during the period. For the periods ended June 30, 2024 and 2023, the holders of OP Units had a weighted-average economic ownership interest in Aimco Operating Partnership of approximately 5.2%, and 5.1%, 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 the right to require such partnership to redeem all or a portion of the noncontrolling interest in accordance with the partnership agreement. 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, 2024, consists of the following: (i) a preferred equity interest in an entity that owns a portfolio of operating apartment communities, and (ii) equity interests in two separate consolidated joint ventures with residential apartment communities under construction and in lease-up. 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 Sheets as of June 30, 2024. The assets of our consolidated real estate partnerships must first be used to settle the liabilities of the consolidated real estate partnerships. The consolidated real estate partnership’s creditors do not have recourse to the general credit of Aimco Operating Partnership. The following table shows changes in our redeemable noncontrolling interests in consolidated real estate partnerships from December 31, 2023 to June 30, 2024 (in thousands):
|  | 2024 |
Balance at Beginning of Period |  | $ | 171,632 |
Contributions |  |  | 150 |
Distributions |  |  | (4,091 | )
Net income |  |  | 7,158 |
Balance at June 30, 2024 |  | $ | 174,849 |
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. Legal 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, and a related equity option to acquire a 30% interest in the partnership owning Parkmerced Apartments. 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. The carrying value of the Mezzanine Investment was zero as of June 30, 2024. 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, we receive a first priority return from any payments made to service or pay down the Mezzanine Investment equal to $134.0 million plus no less than a 19% annualized return as well as 80% of any residual payments after the purchaser receives a 10% annualized return on its subordinate investment. Additionally, we are responsible for the servicing and administration of the Mezzanine Investment. Because we receive first priority and a higher return than the purchaser, the partial sale and transfer of the financial interest did not qualify for sale accounting in accordance with GAAP. Therefore, we recorded the cash received from the purchaser as a liability, which is included in Accrued liabilities and other in our Condensed Consolidated Balance Sheets. Although the cash received is accounted for as a liability in accordance with GAAP, no amount is due to the purchaser until after we receive $134.0 million plus our annualized return. Tr ansaction costs have been deferred and are presented as a direct reduction from the related liability, which is included in Accrued liabilities and other in our Condensed Consolidated Balance Sheets. The cash flows associated with this partial Mezzanine Investment sale have been included in Cash Flows from Financing Activities in our Condensed Consolidated Statements of Cash Flows. Investment in IQHQ In 2020, Aimco Predecessor made a $50.0 million commitment to IQHQ, a privately held life sciences real estate development company. In 2022, after fully funding our commitment, 22% of our original investment in IQHQ was redeemed for $16.5 million. Our remaining investment in IQHQ, with a cost basis of $39.2 million, was adjusted upward to $59.7 million at the same per share value as the cash redemption per share. We account for our investment in IQHQ using the measurement alternative. Under the measurement alternative, the investment is measured at cost less impairment if any needed, with subsequent adjustments for observable price changes of identical or similar investments of the same issuer since it does not have a readily determinable fair value. On a periodic basis, we perform a qualitative impairment assessment on our investment in IQHQ in accordance with GAAP. During the three months ended June 30, 2024, we determined that our investment in IQHQ was impaired after consideration of factors, including adverse capital market conditions, increased real estate development costs, and IQHQ's financial condition. As a result, we recorded a non-cash impairment charge of $47.0 million to reduce the carrying value of the investment in IQHQ to $12.7 million as of June 30, 2024. The non-cash impairment is reflected in Realized and unrealized gains (losses) on equity investments in our Condensed Consolidated Statements of Operations for the periods ended June 30, 2024, and as a reduction in the carrying value of Other investments included in Other assets, net in our Condensed Consolidated Balance Sheets as of June 30, 2024. No impairment losses were recognized during the periods ended June 30, 2023.
|  | As of June 30, 2024 |  |  | As of December 31, 2023 |
Equity ownership in IQHQ under measurement alternative: |  |  |  |  |  |
Initial cost |  |  | 39,185 |  |  |  | 39,185 |
Cumulative upward adjustments |  |  | 20,501 |  |  |  | 20,501 |
Cumulative impairment |  |  | (46,972 | ) |  |  | — |
Total carrying value |  | $ | 12,714 |  |  | $ | 59,686 |
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 income and, if applicable, gains retained by the REIT. For the three and six months ended June 30, 2024, we had consolidated net losses subject to tax of $5.3 million and $11.9 million, respectively. For the three and six months ended June 30, 2023, we had consolidated net losses subject to income tax of $2.5 million and $7.4 million, respectively. For the three months ended June 30, 2024, we recognized an income tax benefit of $2.2 million, compared to income tax benefit of $0.4 million during the same period in 2023. The increase is due primarily to the tax effect of fewer gains, increased depreciation, and interest expense associated with properties owned by, and activities of, our TRS entities. For the six months ended June 30, 2024, we recognized an income tax benefit of $4.9 million, compared to income tax benefit of $4.6 million during the same period in 2023. The increase is due primarily to the tax effect of fewer gains, increased depreciation, and interest expense associated with properties owned by, and activities of, our TRS entities. This increase was partially offset by a reduction to the effective state tax rate expected to apply to the reversal of our existing deferred items recognized during the three months ended March 31, 2023. 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 We classify highly liquid investments with an original maturity of three months or less as cash equivalents. We maintain cash and 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 consists of tenant security deposits, capital replacement reserves, insurance reserves, and cash restricted as required by our debt agreements. Other Assets, net Other assets were comprised of the following amounts as of June 30, 2024 and December 31, 2023 (in thousands):
| June 30, 2024 |  |  | December 31, 2023 |
Other investments | $ | 17,824 |  |  | $ | 65,066 |
Deferred costs, deposits, and other |  | 11,692 |  |  |  | 9,374 |
Prepaid expenses and real estate taxes |  | 12,847 |  |  |  | 14,855 |
Interest rate contracts (1) |  | 3,699 |  |  |  | 5,255 |
Unconsolidated real estate partnerships |  | 23,532 |  |  |  | 23,125 |
Intangible assets, net |  | 13,400 |  |  |  | 13,494 |
Corporate fixed assets |  | 11,364 |  |  |  | 10,669 |
Accounts receivable, net of allowances of $215 and $373 as of June 30, 2024 and December 31, 2023, respectively |  | 7,750 |  |  |  | 5,178 |
Deferred tax assets |  | 4,102 |  |  |  | 2,391 |
Due from affiliates |  | 364 |  |  |  | 434 |
Total other assets, net | $ | 106,574 |  |  | $ | 149,841 |
(1) We account for our Interest rate contracts as non-designated hedges. Revenue from contracts with customers We apply ASC 606, Revenue from Contracts with Customers, in recognizing revenue from our operations at The Benson Hotel. The Benso n Hotel revenues consist of amounts derived from hotel operations, including room sales, food and beverage sales, and other ancillary hotel service revenues. We recognize revenue from the rental of the hotel rooms and guest services when we satisfy performance obligations as evidenced by the transfer of control when rooms are occupied, and services have been provided. Food and beverage sales are recognized when the customer has been serviced or at the time the transaction occurs. Recent Accounting Pronouncements In November 2023, the FASB issued Accounting Standards Update ("ASU") No. 2023-07, "Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures", which requires disclosure of incremental segment information, including segment expense categories, on an annual and interim basis. The new guidance is effective for the annual period ended December 31, 2024 and interim periods beginning in 2025. The amendments in ASU 2023-07 apply retrospectively to all periods presented in the financial statements. The segment expense categories and amounts disclosed in prior periods are based on the significant expense categories identified and disclosed in the period of adoption. We are currently evaluating the potential impact of adopting this new guidance on our condensed consolidated financial statements and related disclosures. In December 2023, the FASB issued ASU 2023-09, “Income Taxes (Topic 740): Improvements to Income Tax Disclosures” (“ASU 2023-09”), which is intended to enhance the transparency and decision usefulness of income tax disclosures. This amendment modifies the rules on income tax disclosures to require entities to disclose (1) specific categories in the rate reconciliation and additional information for reconciling items that meet a quantitative threshold, (2) the amount of income taxes paid (net of refunds received) (disaggregated by federal, state, and foreign taxes) as well as individual jurisdictions in which income taxes paid is equal to or greater than 5 percent of total income taxes paid net of refunds. (3) the income or loss from continuing operations before income tax expense or benefit (disaggregated between domestic and foreign) and (4) income tax expense or benefit from continuing operations (disaggregated by federal, state and foreign). The guidance is effective for annual periods beginning after December 15, 2024, with early adoption permitted for annual financial statements that have not yet been issued or made available for issuance. ASU 2023-09 should be applied on a prospective basis, while retrospective application is permitted. We are currently evaluating the potential impact of adopting this new guidance on our condensed consolidated financial statements and related disclosures.

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