Disposals and Discontinued Operations

In April 2014, the FASB issued Accounting Standards Update 2014-08, Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity, or ASU 2014-08. ASU 2014-08 revised the definition of, and the requirements for reporting, a "discontinued operation." Specifically, ASU 2014-08 revised the reporting requirements to only allow a component of an entity, or group of components of an entity, to be reported in discontinued operations if their disposal represents a “strategic shift that has (or will have) a major effect on an entity’s operations and financial results.”

For public companies, ASU 2014-08 is generally required to be applied prospectively to disposals of components of an entity or classifications as held for sale of components of an entity that occur in annual periods commencing after December 15, 2014; however, we elected to adopt ASU 2014-08 effective January 1, 2014, as permitted by the transition provisions, but only for disposals (or classifications as held for sale) that have not been reported in financial statements previously issued.

Under ASU 2014-08, we believe routine sales of apartment communities and certain groups of apartment communities generally do not meet the requirements for reporting within discontinued operations. During the three and nine months ended September 30, 2014, we sold 15 and 26 consolidated apartment communities with an aggregate of 4,635 and 8,368 apartment homes, respectively. Based on our prospective application of the revised discontinued operation definition, the results of operations for the three and nine months ended September 30, 2014 and 2013, for these apartment communities are reflected within income from continuing operations in our condensed consolidated statements of operations. These apartment communities generated $2.5 million and $16.0 million of income (before gain on dispositions) prior to their sale during the three and nine months ended September 30, 2014, respectively. The sale of these apartment communities resulted in gains on disposition of real estate of $126.3 million (which is net of $21.1 million of related income taxes) and $262.5 million (which is net of $29.8 million of related income taxes), respectively, for the three and nine months ended September 30, 2014, which are reflected below income from discontinued operations within our condensed consolidated statements of operations. We report gains on disposition net of incremental direct costs incurred in connection with the transactions, including any prepayment penalties incurred upon repayment of property debt collateralized by the apartment communities being sold. Such prepayment penalties totaled $13.6 million and $22.1 million for consolidated dispositions during the three and nine months ended September 30, 2014, respectively. In addition to the sales of consolidated apartment communities, during the nine months ended September 30, 2014, we sold our partnership interests in ten unconsolidated apartment communities with 439 apartment homes, for gross proceeds to us of $0.1 million.

In accordance with GAAP prior to our adoption of ASU 2014-08, we reported as discontinued operations apartment communities that met the definition of a component of an entity and had been sold or met the criteria to be classified as held for sale. For years ended December 31, 2013 or earlier, and interim periods within those years, we included the results of such apartment communities, including any gain or loss on their disposition, less applicable income taxes, in income from discontinued operations within the consolidated statements of operations. During the three and nine months ended September 30, 2013, we sold 8 and 13 consolidated apartment communities with an aggregate of 2,280 and 2,510 apartment homes, respectively, and during the year ended December 31, 2013, we sold 29 consolidated apartment communities with an aggregate of 6,953 apartment homes. The results of operations for the three and nine months ended September 30, 2013, for those apartment communities sold as of December 31, 2013, and gains related to apartment communities sold during the three and nine months ended September 30, 2013, are included in discontinued operations and are summarized below, along with the related amounts of income from discontinued operations attributable to Aimco, the Aimco Operating Partnership and noncontrolling interests (in thousands).



	Three Months Ended September 30, 2013			Nine Months Ended September 30, 2013
Rental and other property revenues	$	17,969		$	55,236
Property operating expenses	(8,843		)	(25,471		)
Depreciation and amortization	(4,741		)	(14,459		)
(Provision for) recovery of real estate impairment losses	(108		)	16
Operating income	4,277			15,322
Interest income	123			316
Interest expense	(3,700		)	(12,074		)
Income before gain on dispositions of real estate and income tax	700			3,564
Gain on dispositions of real estate	74,664			80,656
Income tax expense	(2,929		)	(2,789		)
Income from discontinued operations, net	$	72,435		$	81,431
Income from discontinued operations attributable to noncontrolling interests in consolidated real estate partnerships	(8,079		)	(548		)
Income from discontinued operations attributable to the Aimco Operating Partnership	64,356			80,883
Income from discontinued operations attributable to noncontrolling interests in Aimco Operating Partnership	(3,443		)	(4,309		)
Income from discontinued operations attributable to Aimco	$	60,913		$	76,574

The gain on dispositions for the three and nine months ended September 30, 2013, is net of incremental direct costs incurred in connection with the transactions, including $5.4 million and $6.4 million, respectively, of prepayment penalties incurred upon repayment of property debt collateralized by the apartment communities sold. For periods prior to our adoption of ASU 2014-08, we classified interest expense related to property debt within discontinued operations when the related apartment community was sold or classified as held for sale.

In connection with sales of apartment communities during the nine months ended September 30, 2014, the purchasers assumed approximately $56.9 million of non-recourse property debt. In connection with sales of apartment communities during the nine months ended September 30, 2013, the purchasers assumed approximately $48.3 million of non-recourse property debt.

We are currently marketing for sale certain apartment communities that are inconsistent with our long-term investment strategy. At the end of each reporting period, we evaluate whether such apartment communities meet the criteria to be classified as held for sale. As of September 30, 2014, we had five apartment communities with a total of 667 apartment homes classified as held for sale. During the three and nine months ended September 30, 2014, we recognized a $1.4 million provision for real estate impairment loss related to an asset classified as held for sale as of September 30, 2014. The impairment loss related to estimated costs to sell, inclusive of a debt prepayment penalty.