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 nine months ended September 30, 2022, are not necessarily indicative of the results that may be expected for the year ending December 31, 2022.

The Condensed Consolidated Balance Sheets of Aimco and Aimco Operating Partnership as of December 31, 2021 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, 2021. Except where indicated, the footnotes refer to both Aimco and Aimco Operating Partnership.

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 consist of common Aimco Operating Partnership Units (“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 all periods presented, the holders of common OP Units had a weighted-average economic ownership interest in Aimco Operating Partnership of approximately 5.0%. Substantially all of the assets and liabilities of Aimco are held by Aimco 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.

The assets of these 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.

In July 2022, we closed a $102.0 million preferred equity financing with an institutional investor, providing for a fixed 8% annual rate of return payable monthly.

In February 2022, we acquired all of the outstanding redeemable noncontrolling interests in two consolidated properties for $5.1 million. At the time of redemption, the carrying amount of the redeemable non-controlling interests was $4.9 million.

Redeemable noncontrolling interests in consolidated real estate partnerships as of September 30, 2022 consists of the $102.0 million preferred equity noted above and our partner's equity interest in the Upton Joint Venture, which provides for an accruing 9.7% rate of return on their investment. These investment interests are presented as Redeemable noncontrolling interests in consolidated real estate partnerships in our Condensed Consolidated Balance Sheet as of September 30, 2022.

The following table shows changes in our redeemable noncontrolling interests in consolidated real estate partnerships from December 31, 2021 to September 30, 2022 (in thousands):


Balance at December 31, 2021	$	33,794
Capital contributions		124,723
Distributions		(917	)
Redemptions		(4,911	)
Net income		5,446
Balance at September 30, 2022	$	158,135

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 loan was retained by AIR following the Separation.

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 to Aimco through 2024 once required third-party consents are received. At the time of the Separation and as of the date of this filing, 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 received 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 to the extent the income is supported by the change in AIR's claim to the net assets of the underlying borrower. The income recognized primarily represents the interest accrued under the terms of the underlying mezzanine loan.

The loan and the underlying real estate are subject to certain risks, including, but not limited to, those resulting from the lingering disruption due to the COVID-19 pandemic and associated response, and any similar events that might occur in the future, which may result in all or a portion of the loan not being repaid. In the event we conclude that a portion of the Mezzanine Investment is not recoverable, we will recognize an impairment.

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 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 nine months ended September 30, 2022, we had consolidated net loss and income subject to tax of $75.6 million and $91.0 million, respectively. For the three and nine months ended September 30, 2021, we had consolidated net losses subject to tax of $7.9 million and $26.4 million, respectively.

For the three months ended September 30, 2022, we recognized income tax benefit of $17.6 million compared to a $2.0 million benefit during the same period in 2021. The change is primarily due to the GAAP income taxes associated with the lease modification depreciation expense recognized in the third quarter of 2022.

For the nine months ended September 30, 2022, we recognized income tax expense of $24.3 million compared to a $9.9 million benefit during the same period in 2021. The change is primarily due to the GAAP income taxes associated with the net lease modification income recognized in 2022.

Other Assets, net

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


	September 30, 2022		December 31, 2021
Other investments	$	63,594	$	45,386
Notes receivable		38,759		38,029
Unconsolidated real estate partnerships		28,958		13,025
Assets held for sale (1)		11,735		—
Deferred costs, deposits, and other		11,667		22,136
Prepaid expenses and real estate taxes		10,489		20,516
Corporate fixed assets		8,484		9,855
Accounts receivable, net of allowances of $1,406 and $1,285 as of September 30, 2022 and December 31, 2021, respectively		2,544		2,469
Deferred tax assets		1,999		6,388
Intangible assets, net		1,176		3,269
Due from affiliates		1,236		4,840
Total other assets, net	$	180,641	$	165,913

(1) In addition to the properties we sold during the period, from time to time we may market to sell certain properties that are inconsistent with our long-term investment strategy. At the end of each reporting period, we evaluate whether such properties meet the criteria to be classified as held for sale. As of September 30, 2022, assets held for sale include one land parcel in Fort Lauderdale, Florida, which is expected to be sold during the fourth quarter of 2022.