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Basis of Presentation and Summary of Significant Accounting Policies (Policies)

3 Months Ended

Mar. 31, 2021

Organization Consolidation And Presentation Of Financial Statements [Abstract]

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 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 months ended March 31, 2021, are not necessarily indicative of the results that may be expected for the year ending December 31, 2021.

The condensed consolidated balance sheets of Aimco and Aimco Operating Partnership as of December 31, 2020, 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, 2020. Except where indicated, the footnotes refer to both Aimco and Aimco Operating Partnership.

Consolidation

Aimco’s 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.

Consolidation, Variable Interest Entity

We consolidate a variable interest entity, or 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.

Allocations

The 2020 condensed consolidated statements of operations include allocations of general and administrative expenses from Aimco Predecessor. We consider the basis on which expenses have been allocated to be a reasonable reflection of the utilization of services provided to or the benefit received by us during the periods presented. However, the allocations may not include all of the actual expenses that we would have incurred and may not reflect our consolidated results of operations, financial position, and cash flows had it been a stand-alone company during the periods presented. Actual costs that might have been incurred had we been a stand-alone company would depend on a number of factors, including the chosen organizational structure, what functions we might have performed ourselves or outsourced, and strategic decisions we might have made in areas such as information technology and infrastructure. Following the Separation, AIR, through its subsidiaries, provides Aimco with certain property management and other services, and we perform certain functions using our own resources or purchase services from third parties.

Common Noncontrolling Interest in Aimco Operating Partnership

Common Noncontrolling Interests in Aimco Operating Partnership

Common noncontrolling interests in Aimco Operating Partnership consist of common OP Units 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 common OP Units, other than Aimco, based on the weighted-average number of common OP Units (including Aimco) outstanding during the period. For the three months ended March 31, 2021 and 2020, the holders of common OP Units had a weighted-average economic ownership interest in Aimco Operating Partnership of 5.1%. Substantially all of the assets and liabilities of Aimco are held by Aimco Operating Partnership.

Redeemable Noncontrolling Interest in Consolidated Real Estate Partnership

Redeemable noncontrolling interest consists of equity interests held by a limited partner in a consolidated real estate partnership that has a finite life. We generally attribute to noncontrolling interests their share of income or loss of consolidated partnerships based on their proportionate interest in the results of operations of the partnerships, including their share of losses even if such attribution results in a deficit noncontrolling interest balance within our equity accounts.

If a real estate partnership includes redemption rights that are not within our control, the noncontrolling interest is included as temporary equity. If the redemption right is not currently redeemable but probable of being redeemable in the future, changes in redemption value are recognized each quarter with the change in value being reflected in additional paid-in-capital.

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 partnerships’ creditors do not have recourse to the general credit of Aimco Operating Partnership.

The following table presents a reconciliation of our redeemable noncontrolling interest in consolidated real estate partnership from December 31, 2020, to March 31, 2021 (in thousands):

Balance at December 31, 2020	$	4,263
Net loss		(152	)
Balance at March 31, 2021	$	4,111

Revenue from Leases

The majority of lease payments we receive from our residents and tenants are fixed. We receive variable payments from our residents and commercial tenants primarily for utility reimbursements and other services. For the three months ended March 31, 2021 and 2020, our total lease income was comprised of the following amounts for all operating leases (in thousands):

	Three Months Ended March 31,
	2021		2020
Fixed lease income	$	36,789	$	35,388
Variable lease income		2,954		2,859
Total lease income	$	39,743	$	38,247

Lessee Arrangements

During the three months ended March 31, 2021, we, as lessee, and AIR, as lessor, entered into finance leases on four properties currently under construction or in lease-up. The life of three of the leases is 25 years and one lease is for 10 years. Each lease commenced January 1, 2021 and two of the leases have rent escalations which start at the point the property reaches stabilization. We have provided AIR with residual value guarantees aggregating to $244.7 which provide that if the residual value of the leased assets are less than the specified residual value guarantees at the earlier of lease expiration or termination, we are required to pay the difference. See Note 3 for further details.

As of March 31, 2021, operating and financing right-of-use lease assets of $5.4 million and $437.7 million, respectively, are included in the condensed consolidated balance sheets. For the three months ended March 31, 2021, amortization expense and interest expense related to our finance leases was $1.3 million and $1.7 million, respectively, net of capitalized costs.

As of March 31, 2021, Aimco’s operating leases and financing leases have weighted-average remaining terms of 8.2 years, and 38.7 years, respectively, and weighted-average discount rates of 3.2% and 5.4%, respectively.

Combined minimum annual lease payments, under operating and financing leases, reconciled to the lease liabilities in our condensed consolidated balance sheets, are as follows (in thousands):

	Sublease Income		Operating Lease Future Minimum Rent			Financing Leases Future Minimum Payments
Remainder of 2021	$	1,038	$	1,083		$	19,747
2022		1,393		1,841			26,862
2023		1,403		1,871			27,262
2024		1,413		1,900			28,262
2025		1,423		1,930			28,873
Thereafter		4,959		6,806			1,637,303
Total	$	11,629	$	15,431		$	1,768,309
Less: Discount				(2,006	)		(1,334,772	)
Total lease liabilities			$	13,425		$	433,537

For the three months ended March 31, 2021, we capitalized $6.9 million of lease costs associated with active development and redevelopment projects on certain of the underlying property and ground lease assets. No lease costs were capitalized on leased assets for the three months ended March 31, 2020.

Mezzanine Investment

On November 26, 2019, Aimco Predecessor made a five-year, $275.0 million mezzanine loan to Maximus PM Mezzanine A LLC, 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.

The Separation Agreement provides for AIR to transfer ownership of the subsidiaries that originated and hold the mezzanine loan, 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 through 2024 to Aimco. At the time of the Separation and as of May 17, 2021, legal title of these subsidiaries had not yet transferred to Aimco. Until legal title of the subsidiaries is transferred, AIR is obligated to pass payments on such loan 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.

We recognize as income the net amounts recognized by AIR on its equity investment that are due to be paid to us when collected, which primarily represent the interest accrued under the terms of the underlying mezzanine loan. As of March 31, 2021, the Mezzanine Investment in our condensed consolidated balance sheets represents the assets associated with our indirect interest in the subsidiary that owns Parkmerced Apartments, which we do not consolidate.

The loan is subject to certain risks, including, but not limited to, those resulting from the severe downturn in San Francisco rents, the ongoing disruption due to the COVID-19 pandemic and associated governmental response, and the current economic situation, which may result in all or a portion of the loan not being repaid. In the event we determine that a portion of the Mezzanine Investment is not recoverable, we will recognize an impairment, if appropriate.

Income Tax Benefit

For the three months ended March 31, 2021, $2.7 million of the income tax benefit is related to internal restructuring completed in the first quarter and changes to our effective state rate expected to apply to the reversal of our existing deferred items.

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 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, net

Other assets were comprised of the following amounts (in thousands):

	March 31, 2021		December 31, 2020
Notes receivable	$	37,424	$	37,045
Deferred costs, deposits, and other		17,284		17,557
Interest rate options		44,241		13,315
Corporate fixed assets		11,986		12,860
Unconsolidated real estate partnerships		12,927		12,829
Investment in IQHQ		12,500		12,500
Prepaid expenses and other		9,331		10,493
Intangible lease assets, net		5,745		7,264
Due from affiliates		23,959		4,333
Accounts receivable, net of allowances of $1,693 and $1,467 as of March 31, 2021 and December 31, 2020, respectively		3,078		2,660
Total other assets, net	$	178,475	$	130,856