Basis of Presentation 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 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, 2018, are not necessarily indicative of the results that may be expected for the year ending December 31, 2018.

The balance sheets of Aimco and the Aimco Operating Partnership at December 31, 2017, 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 the Aimco Operating Partnership’s combined Annual Report on Form 10-K for the year ended December 31, 2017. Except where indicated, the footnotes refer to both Aimco and the Aimco Operating Partnership.

Principles of Consolidation

Aimco’s accompanying condensed consolidated financial statements include the accounts of Aimco, the Aimco Operating Partnership, and their consolidated subsidiaries. The Aimco Operating Partnership’s condensed consolidated financial statements include the accounts of the Aimco Operating Partnership and its consolidated subsidiaries, including partnerships served by our Asset Management business (see Note 8). All significant intercompany balances and transactions have been eliminated in consolidation.

Interests in the Aimco Operating Partnership that are held by limited partners other than Aimco are reflected in Aimco’s accompanying condensed consolidated balance sheets as noncontrolling interests in the Aimco Operating Partnership. Interests in partnerships consolidated by the Aimco Operating Partnership that are held by third parties are reflected in our accompanying condensed consolidated balance sheets as noncontrolling interests in consolidated real estate partnerships.

Temporary Equity and Partners’ Capital

The following table presents a reconciliation of the Aimco Operating Partnership’s preferred OP Units from December 31, 2017 to March 31, 2018. The preferred OP Units may be redeemed at the holders’ option (as further discussed in Note 5), and are therefore presented within temporary equity in Aimco’s condensed consolidated balance sheets and within temporary capital in the Aimco Operating Partnership’s condensed consolidated balance sheets (in thousands).



Balance, December 31, 2017	$	101,537
Distributions to holders of preferred OP Units	(1,937		)
Redemption of preferred OP Units and other	(159		)
Net income attributable to preferred OP Units	1,937
Balance, March 31, 2018	$	101,378

Aimco Equity (including Noncontrolling Interests)

The following table presents a reconciliation of Aimco’s consolidated permanent equity accounts from December 31, 2017 to March 31, 2018 (in thousands):



	Aimco Equity			Noncontrolling interests in consolidated real estate partnerships			Common noncontrolling interests in Aimco Operating Partnership			Total Equity
Balance, December 31, 2017	$	1,663,144		$	(1,716	)	$	(5,675	)	$	1,655,753
Contributions	—			(20		)	—			(20		)
Dividends on Preferred Stock	(2,148		)	—			—			(2,148		)
Dividends and distributions on Common Stock and common OP Units	(59,777		)	(7,225		)	(2,838		)	(69,840		)
Redemptions of common OP Units	—			—			(6,963		)	(6,963		)
Amortization of stock-based compensation cost	2,631			—			357			2,988
Effect of changes in ownership for consolidated entities	(17,486		)	—			6,579			(10,907		)
Change in accumulated other comprehensive loss	(59		)	—			(3		)	(62		)
Other	93			—			—			93
Net income	83,792			6,206			3,755			93,753
Balance, March 31, 2018	$	1,670,190		$	(2,755	)	$	(4,788	)	$	1,662,647

Partners’ Capital attributable to the Aimco Operating Partnership

The following table presents a reconciliation of the consolidated partners’ capital balances in permanent capital that are attributable to the Aimco Operating Partnership from December 31, 2017 to March 31, 2018 (in thousands):



	Partners’ capital attributable to the Aimco Operating Partnership
Balance, December 31, 2017	$	1,657,469
Distributions to preferred units held by Aimco	(2,148		)
Distributions to common units held by Aimco	(59,777		)
Distributions to common units held by Limited Partners	(2,838		)
Redemption of common OP Units	(6,963		)
Amortization of Aimco stock-based compensation cost	2,988
Effect of changes in ownership for consolidated entities	(10,907		)
Change in accumulated other comprehensive loss	(62		)
Other	93
Net income	87,547
Balance, March 31, 2018	$	1,665,402

A separate reconciliation of noncontrolling interests in consolidated real estate partnerships and total partners’ capital for the Aimco Operating Partnership is not presented as these amounts are identical to the corresponding noncontrolling interests in consolidated real estate partnerships and total equity for Aimco, which are presented above.

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.

Income Taxes

As discussed in Note 9 to the consolidated financial statements in Item 8 of our Form 10-K for the year ended December 31, 2017, we have not completed our accounting for the tax effects of the enactment of the Tax Cuts and Jobs Act in late December 2017. During the three months ended March 31, 2018, we recognized a measurement period adjustment to reduce by $11.3 million an estimated valuation allowance recognized as of December 31, 2017. During the three months ended March 31, 2018, we also recognized an offsetting valuation allowance resulting from an intercompany transfer of assets related to the Asset Management business. These adjustments had no net effect on our results of operations or effective tax rate.

Accounting Pronouncements Adopted in the Current Year

Effective January 1, 2018, we adopted a new standard issued by the Financial Accounting Standards Board, or FASB, that affects accounting for revenue. Under this new standard, revenue is generally recognized when an entity has transferred control of goods or services to a customer for an amount reflecting the consideration to which the entity expects to be entitled for such exchange. In evaluating the contracts we enter into in the ordinary course of business, substantially all of our revenue is generated by lease agreements, which will continue to be subject to existing GAAP until 2019, when we will adopt the new lease accounting standard.

The new revenue standard also introduced new guidance for accounting for other income, including how we measure gains or losses on the sale of real estate. We adopted the new standard using the modified retrospective transition method effective January 1, 2018, with no effect on our results of operations or financial position.

Effective January 1, 2018, we also adopted new standards issued by the FASB that affect the presentation and disclosure of the statements of cash flows. We are now required to present combined inflows and outflows of cash, cash equivalents, and restricted cash in the consolidated statement of cash flows. Previously our consolidated statements of cash flows presented transfers between restricted and unrestricted cash accounts as operating, financing, and investing cash activities depending upon the required or intended purpose for the restricted funds. The new guidance also requires debt prepayment and other extinguishment related payments to be classified as financing activities. We previously classified such payments as operating activities. We have revised our condensed consolidated statements of cash flows for the three months ended March 31, 2017 to conform to this presentation, and the effect of the revisions to net cash flows from operating and investing activities as previously reported for three months ended March 31, 2017 are summarized in the following table (in thousands):



	As Previously Reported			Adjustments			As Revised
Net cash flows from operating activities	$	68,516		$	5,088		$	73,604
Net cash flows from investing activities	(86,238		)	(1,445		)	(87,683		)