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Fair Value Measurements

12 Months Ended

Dec. 31, 2022

Note 12 — Fair Value Measurements

Recurring Fair Value Measurements

During 2022, we entered into floating to fixed interest rate swaps for $830 million notional principal value of debt. These swaps have been designated as cash flow hedges of expected future variable interest payments. Changes in the fair value are recognized as unrealized gains (losses) on derivative instruments in comprehensive income (loss). Amounts reported in accumulated comprehensive income will be reclassified into interest expense as interest payments are made on our variable-rate debt. We estimate that during the next twelve months, we will reclassify into earnings approximately $16.7 million of the unrealized gains in accumulated other comprehensive income.

In connection with our issuance of senior unsecured notes during 2022, we entered into a $400.0 million treasury hedge, locking the interest rate of the ten-year treasury at 2.43%. During the second quarter of 2022, we received $15.9 million for the settlement of this hedge, which was designated as a cash flow hedge. The settlement value of the treasury hedge is included in

unrealized gains (losses) on derivative instruments in comprehensive income (loss) and will be reclassified into earnings as a decrease to interest expense over the term of the senior unsecured notes issued.

In connection with our anticipated issuance of secured debt in 2023, we entered into a $100 million treasury hedge on November 15, 2022, locking the interest rate of the ten-year treasury at 3.83% through February 15, 2023. The fair value of the treasury hedge is included in unrealized gains (losses) on derivative instruments in comprehensive income (loss) and will be reclassified into interest expense over the term of anticipated secured debt. Amounts reported in accumulated other comprehensive income will be reclassified into interest expense as interest payments are made on our variable-rate debt.

Prior to the Separation, Aimco paid an upfront premium of $12.1 million for the option to enter into an interest rate swap at a future date. In connection with the Separation, all of the risks and rewards of ownership related to this swap were assigned to post-Separation Aimco, with an offsetting and equal asset and liability recognized for the amount of gain or loss. We estimate its fair value using pricing models that rely on observable market information, including contractual terms, market prices, and interest rate yield curves. These investments are measured at fair value on a recurring basis and presented in other assets, net, and accrued liabilities and other in our consolidated balance sheets.

The following table summarizes fair value for our interest rate option and swaps (in thousands):


	As of December 31, 2022								As of December 31, 2021
	Total Fair Value		Level 1		Level 2		Level 3		Total Fair Value		Level 1		Level 2		Level 3
Interest rate option	$	53,481	$	—	$	53,481	$	—	$	21,699	$	—	$	21,699	$	—
Interest rate swap asset	$	32,222	$	—	$	32,222	$	—	$	—	$	—	$	—	$	—
Treasury rate lock	$	319	$	—	$	319	$	—	$	—	$	—	$	—	$	—

Financial Assets and Liabilities Not Measured at Fair Value

We believe that the carrying value of the consolidated amounts of cash and cash equivalents, restricted cash, accounts receivable, and accounts payable approximated their estimated fair value as of December 31, 2022 and 2021, due to their relatively short-term nature and high probability of realization. The carrying value of our revolving credit facility and term loans, which we classify as Level 2 in the GAAP fair value hierarchy, approximated their estimated fair value as of December 31, 2022, and 2021, as they bear interest at floating rates which approximate market rates.

We classify the fair value of our non-recourse property debt, unsecured notes payable, and seller financing notes receivable within Level 2 of the GAAP fair value hierarchy. The following table summarizes carrying value and fair value of our non-recourse property debt excluding debt issuance costs, seller financing note, net and unsecured notes payable excluding debt issuance costs (in thousands):


	As of December 31, 2022				As of December 31, 2021
	Carrying Value		Fair Value		Carrying Value		Fair Value
Non-recourse property debt	$	1,994,651	$	1,753,222	$	2,305,756	$	2,367,713
Seller financing note, net (1)	$	31,611	$	32,286	$	—	$	—
Unsecured notes payable	$	400,000	$	371,368	$	—	$	—

(1)

During the year ended December 31, 2022, we provided $40.0 million of seller financing as partial consideration for the sale of our New England portfolio. The contractual interest rate on the note is 4.5%. The difference between the stated rate and the effective interest rate as of the date of sale resulted in a discount recorded of $8.5 million. The seller financing note and related discount are included in other assets, net in our consolidated balance sheets.

- Definition

The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.

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