Item 7. Management’s Discussion and Analysis
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of financial condition and results of operations for the year ended December 31, 2023, compared to 2022, should be read in conjunction with the accompanying consolidated financial statements in Part II, Item 8. For discussion of the year ended December 31, 2022, compared to 2021, please refer to Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 on our Annual Report on Form 10-K for the year ended December 31, 2022.
Executive Overview
Our mission is to make real estate investments, primarily focused on the multifamily sector within targeted U.S. markets, where outcomes are enhanced through our human capital and substantial value is created for investors, teammates, and the communities in which we operate.
Please refer to “Item 1. Business” for additional discussion of our business organization and strategy and “Item 2. Properties” and “Schedule III – Real Estate and Accumulated Depreciation” for details regarding the size, location, and key characteristics of our various properties.
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Results for the Twelve Months Ended December 31, 2023
The results from the execution of our business plan during the twelve months ended December 31, 2023, are described below.
Financial Results and 2023 Highlights
• For the year ended December 31, 2023, net loss attributable to common stockholders per share, on a fully dilutive basis, was a net loss per share of $1.16, compared to net income per share of $0.49 for the same period in 2022, due primarily to lower transaction-related income in 2023.
• For the year ended December 31, 2023, NOI from our Stabilized Operating Properties was $105.7 million, up 9.3% year-over-year, with average monthly revenue per apartment home increasing by $194 to $2,305.
• For the year ended December 31, 2023, we delivered over 350 apartment homes at The Hamilton in Miami, Florida, Upton Place in Washington, D.C., and Oak Shore in Corte Madera, California; and we opened the 106-key Benson Hotel and Faculty Club in Aurora, Colorado.
• For the year ended December 31, 2023, we monetized $122.7 million of assets, including the sale of a development land parcel in Fort Lauderdale, Florida, the sale of a 20% stake of our Parkmerced mezzanine investment, and the associated swaption. In the fourth quarter of 2023, the purchaser of that position forfeited their option to acquire the remaining 80% of the Parkmerced mezzanine investment when they failed to make a required interest payment, resulting in the subordination of their earlier investment.
Operating Property Results
We own a diversified portfolio of stabilized apartment communities located in eight major U.S. markets with average rents in line with local market averages (generally defined as B class). We also own a commercial office building that is part of an assemblage with an adjacent apartment building.
Highlights for the year ended December 31, 2023 include:
• Revenue for our Operating segment was $149.8 million, up 8.4% year over year, resulting from a $194 increase in average monthly revenue per apartment home to $2,305, partially offset by a 70-basis point decrease in Average Daily Occupancy to 96.7%.
• Expenses for our Operating segment were $44.1 million, up 6.4% year over year, due primarily to higher insurance costs.
• Net operating income for our Operating segment was $105.7 million, up 9.3% year over year.
Value Add, Opportunistic and Alternative Investments
Development and Redevelopment
We generally seek development and redevelopment opportunities where barriers to entry are high, target customers can be clearly defined, and where we have a comparative advantage over others in the market. We will focus our new investment activity in Southeast Florida, the Washington, D.C. Metro Area and Colorado's Front Range. Our Value Add and Opportunistic investments may also target portfolio acquisitions, operational turnarounds, and re-entitlements.
We currently have four active development and redevelopment projects, located in three U.S. markets, in varying phases of construction and lease-up. These projects remain on track, as measured by budget, lease-up metrics, and current market valuations. Additionally, we have a pipeline of future value-add opportunities totaling approximately 13 million gross square feet of development in our target markets of Southeast Florida, the Washington, D.C. Metro Area, and Colorado's Front Range. During the year ended December 31, 2023, we invested $274.9 million in development and redevelopment activities compared to $279.4 million in the year ended December 31, 2022.
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Highlights for the year ended December 31, 2023 include:
• In Bethesda, Maryland, construction continued on plan at the first phase of Strathmore Square, which will contain 220 highly tailored apartment homes with initial delivery on track for the second half of 2024. This suburban infill project is located adjacent to the Grosvenor-Strathmore Metro station and the Strathmore Performing Arts Campus, and is 1.5 miles from The National Institutes of Health main campus. Funding for the project is fully secured with Aimco having already funded 100% of its equity commitment.
• In Upper Northwest Washington, D.C., construction at Upton Place is nearing completion and remains on schedule and on budget. As of December 31, 2023, we have delivered 234 apartment homes, with the first residents at Upton Place having moved into their new homes during the fourth quarter of 2023.
• In Corte Madera, California, construction is ongoing at Oak Shore where 16 luxury single-family rental homes and eight accessory dwelling units are being developed. As of December 31, 2023, initial homes had been delivered and we welcomed our first residents into their new home.
• In Miami, Florida, construction was completed on The Hamilton, a 276-unit waterfront apartment community redevelopment and the property finished the initial lease-up of apartment homes in the third quarter 2023 at rates well ahead of underwritten rents.
• In Aurora, Colorado, The Benson Hotel and Faculty Club, a 106-key boutique hotel and event center with 18 thousand square feet of event space, was completed in the second quarter 2023 and is open to guests.
Alternative Investments
Our current alternative investments are primarily those investments originated by Aimco Predecessor and include a mezzanine loan secured by a stabilized multifamily property with an option to participate in future multifamily development, as well as three passive equity investments. Over time, we plan to significantly reduce capital allocated to these investments.
Updates for our alternative investments include:
• In 2023, we monetized $91.5 million of our Parkmerced mezzanine investments through the sale of a 20% interest in the loan, pre-paid interest, and the monetization of the associated interest rate swaption. The buyer of the partial interest in the loan received an option to purchase our remaining 80%, however, the option expired when the buyer did not make its contractual payment in the fourth quarter 2023 required to maintain its purchase option.
• In accordance with GAAP and because we receive first priority and a higher annualized return than the buyer of the partial interest in the loan, we were required to record the $33.5 million of cash received from the buyer as a balance sheet liability. No amount is due to repay the liability until after we receive cash payments in a subsequent transaction or recapitalization that total $134 million (Aimco's 80% remaining ownership of the loan) plus its annualized return.
• Additionally, considering various quantitative and qualitative factors including the buyer’s option expiration, the loan's maturity date, which is concurrent with the property's senior mortgage, and the financial condition of the borrower, we recorded a $158.0 million non-cash impairment to fully write off the remaining investment.
• We continue to monitor the mezzanine investment and seek to recover value but expects to do so without a significant investment or allocation of resources.
Investment and Disposition Activity
We are focused on prudently allocating capital and delivering strong investment returns. Consistent with our capital allocation philosophy, we monetize the value within our assets when accretive uses of the proceeds are identified and invests when the risk adjusted returns are superior to other uses of capital.
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Highlights for the year ended December 31, 2023 include:
• The monetization of the Parkmerced mezzanine investments as described above.
• In the fourth quarter 2023, our joint venture in Fort Lauderdale, Florida monetized an additional portion of its investment by closing on the sale of the second of three land parcels along Broward Avenue.
Balance Sheet and Financing Activities
We are highly focused on maintaining a strong balance sheet, including having at all times ample liquidity. As of December 31, 2023, we had access to $289.3 million in liquidity, including $122.6 million of cash on hand, $16.7 million of restricted cash, and the capacity to borrow up to $150.0 million on our revolving credit facility. Refer to the Liquidity and Capital Resources section for additional information regarding our leverage.
Financial Results of Operations
We have three segments: (i) Development and Redevelopment; (ii) Operating; and (iii) Other.
Our Development and Redevelopment segment includes properties that are under construction or have not achieved and maintained stabilization throughout the current year and comparable period, as well as land assemblages that are being held for future development. Our Operating segment includes 21 residential apartment communities that have achieved stabilized levels of operations as of January 1, 2022, and maintained it throughout the current year and comparable period. Our Other segment consists of properties that are not included in our Development and Redevelopment or Operating segments.
The following discussion and analysis of the results of our operations and financial condition should be read in conjunction with the accompanying consolidated financial statements in Item 8.
Results of Operations for the Year Ended December 31, 2023, Compared to the same period in 2022
Net income attributable to Aimco common stockholders decreased by $241.9 million for the year ended December 31, 2023 compared to the same period in 2022, as described more fully below.
Property Results
As of December 31, 2023, our Development and Redevelopment segment included 11 properties, three of which were under construction. Our Operating segment included 21 communities with approximately 5,600 apartment homes, and our Other segment included 1001 Brickell Bay Drive, our only office building and St. George Villas.
During the first quarter of 2023, we reclassified one residential apartment community from the Other segment to the Operating segment because it reached stabilization. During the fourth quarter of 2023, we sold one land parcel from the Development and Redevelopment segment, which resulted in its removal from the segment. Prior period segment information has been recast based upon our current segment population, and is consistent with how our chief operating decision maker ("CODM") evaluates the business. The recast conforms with our reportable segment classification as of December 31, 2023.
We use proportionate property net operating income to assess the operating performance of our segments. Proportionate property net operating income is defined as our share of rental and other property revenues, excluding utility reimbursements, less direct property operating expenses, including utility reimbursements, for the consolidated communities; but:
• excluding the results of four apartment communities with an aggregate 142 apartment homes that we neither manage nor consolidate, our investment in IQHQ, the Mezzanine Investment, and investments in real estate technology funds; and
• excluding property management costs and casualty gains or losses, reported in consolidated amounts, in our assessment of segment performance.
Please refer to Note 14 to the consolidated financial statements in Item 8 for further discussion regarding our segments, including a reconciliation of these proportionate amounts to consolidated rental and other property revenues and property operating expenses.
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Proportionate Property Net Operating Income
The results of our segments for the years ended December 31, 2023 and 2022, as presented below, are based on segment classifications as of December 31, 2023.
Year Ended December 31,
(in thousands)
2023
2022
$ Change
% Change
Rental and other property revenues, before utility reimbursements:
Development and Redevelopment
$
15,744
$
919
$
14,825
nm
Operating
149,768
138,137
11,631
8.4
%
Other
14,482
15,116
(634
)
(4.2
%)
Total
179,994
154,172
25,822
16.7
%
Property operating expenses, net of utility reimbursements:
Development and Redevelopment
10,271
2,194
8,077
nm
Operating
44,054
41,410
2,644
6.4
%
Other
5,726
4,993
733
14.7
%
Total
60,051
48,597
11,454
23.6
%
Proportionate property net operating income:
Development and Redevelopment
5,473
(1,275
)
6,748
nm
Operating
105,714
96,727
8,987
9.3
%
Other
8,756
10,123
(1,367
)
(13.5
%)
Total
$
119,943
$
105,575
$
14,368
13.6
%
For the year ended December 31, 2023, compared to the same period in 2022:
• Development and Redevelopment proportionate net operating income increased by $6.7 million primarily due to the lease up of apartment homes at The Hamilton.
• Operating proportionate property net operating income increased by $9.0 million, or 9.3%. The increase was attributable primarily to a $11.6 million, or 8.4% increase in rental and other property revenues due to higher average revenues of $194 per apartment home, partially offset by a 70-basis point decrease in occupancy.
• Other proportionate property net operating income decreased by $1.4 million, or 13.5%. The decrease was attributable primarily to a lease termination fee recognized in 2022 and decreases in occupancy following lease expirations earlier in 2023 at our commercial office building in Miami, Florida.
The results of our segments for the years ended December 31, 2022 and 2021, as presented below, are based on segment classifications as of December 31, 2023.
Year Ended December 31,
(in thousands)
2022
2021
$ Change
% Change
Rental and other property revenues, before utility reimbursements:
Development and Redevelopment
$919
$2,036
$(1,117)
nm
Operating
138,137
123,257
14,880
12.1%
Other
15,116
13,605
1,511
11.1%
Total
154,172
138,898
15,274
11.0%
Property operating expenses, net of utility reimbursements:
Development and Redevelopment
2,194
1,446
748
nm
Operating
41,410
39,694
1,716
4.3%
Other
4,993
4,336
657
15.2%
Total
48,597
45,476
3,121
6.9%
Proportionate property net operating income:
Development and Redevelopment
(1,275)
590
(1,865)
nm
Operating
96,727
83,563
13,164
15.8%
Other
10,123
9,269
854
9.2%
Total
$105,575
$93,422
$12,153
13.0%
For the year ended December 31, 2022, compared to the same period in 2021:
• Development and redevelopment proportionate net operating income decreased by $1.9 million.
• Operating proportionate property net operating income increased by $13.2 million, or 15.8% for the year ended December 31, 2022, compared to 2021. The increase was attributable to a $14.9 million, or 12.1% increase in rental and other property revenues, offset partially by a $1.7 million, or 4.3% increase in property operating expenses due primarily to higher real estate taxes and insurance.
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• Other proportionate property net operating income increased by $0.9 million, or 9.2% for the year ended December 31, 2022, compared to 2021, due primarily to the increase in rental and other revenues at 1001 Brickell, offset primarily by the increase in property insurance.
Non-Segment Real Estate Operations
Operating income amounts not attributed to our segments include property management costs, casualty losses, and, if applicable, the results of apartment communities sold or held for sale, reported in consolidated amounts, which we do not allocate to our segments for purposes of evaluating segment performance.
Depreciation and Amortization
For the year ended December 31, 2023, compared to the same period in 2022, Depreciation and amortization expense decreased by $90.1 million, or 56.7%, due primarily to $85.7 million of accelerated depreciation recognized relating to the 2022 lease termination as described in Note 4 to the consolidated financial statements.
General and Administrative Expenses
For the year ended December 31, 2023, compared to the same period in 2022, General and administrative expenses decreased by $6.8 million, or 17.2%, primarily due to a decrease in expenses for consulting services per the Separation Agreement with AIR, which concluded at December 31, 2022.
Interest Income
For the year ended December 31, 2023, compared to the same period in 2022, Interest income increased by $5.7 million, or more than 100%. The increase is due primarily to higher rates of interest earned on excess cash invested in treasury bill investments and money market funds in 2023.
Interest Expense
For the year ended December 31, 2023, compared to the same period in 2022, Interest expense decreased by $36.1 million, or 48.9% due primarily to the prepayment of the notes payable due to AIR and other property debt, as well as the 2022 lease termination described in Note 4 to the consolidated financial statements.
Mezzanine Investment Income (Loss), Net
For the years ended December 31, 2023 and 2022, we recorded Mezzanine Investment (Loss), Net of $155.8 million and $179.2 million, respectively. This is due primarily to non-cash impairment charges of $158.0 million and $212.8 million for the years ended December 31, 2023 and 2022, respectively. The prior year non-cash impairment charge was partially offset by interest income, which we ceased to recognize in 2023 following the impairment.
Realized and Unrealized Gains (Losses) on Interest Rate Options
We are required to adjust our interest rate options to fair value on a quarterly basis. As a result of the mark-to-market adjustments, we recorded unrealized losses of $3.8 million and unrealized gains of $36.9 million during the years ended December 31, 2023, and 2022, respectively. In addition, we realized gains of $4.9 million and $11.3 million during the years ended December 31, 2023, and 2022, respectively.
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Realized and Unrealized Gains (Losses) on Equity Investments
We measure our investments in stock based on its market price at period end and our investments in property technology funds at NAV as a practical expedient. As a result of changes in the values of these investments, we recorded unrealized gains of $0.7 million during the year ended December 31, 2023, compared to unrealized losses of $5.9 million for the same period in 2022.
We measure our investment in IQHQ at cost, less impairment if needed, with subsequent adjustments for observable price changes of identical or similar investments of the same issuer since it does not have a readily determinable fair value. During the year ended December 31, 2022, we recognized realized and unrealized gains on our investment in IQHQ totaling $26.2 million resulting from a partial redemption of our investment during June 2022. There were no observable price changes in 2023.
Gain on Dispositions of Real Estate
During the year ended December 31, 2023, we recognized gains on the disposition of real estate of $8.0 million comprised of $1.9 million from the contribution of real estate to an unconsolidated joint venture and a $6.1 million gain that resulted from the sale of one land parcel, compared to gains of $175.9 million recognized for the same period in 2022, that resulted from the sale of three apartment communities and one land parcel.
Lease Modification Income
No lease modifications occurred during the year ended December 31, 2023. For the year ended December 31, 2022, we recognized $207.0 million of lease modification income related to the agreement entered into with AIR for the termination of the leases of four properties.
Other Income (Expense), Net
Other income (expense), net , includes costs associated with our risk management activities, partnership administration expenses, fee income, and certain non-recurring items. For the year ended December 31, 2023, compared to the same period in 2022, Other income (expense), net decreased by $4.8 million, or 36.2%, due primarily to advisory expenses related to a strategic business review and the annual stockholder meeting incurred in 2022.
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 (expense) 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 C onsolidated Statements of Operations.
Consolidated GAAP income or loss subject to tax consists of pretax income or loss of our taxable entities and income and gains retained by the REIT. For the year ended December 31, 2023, we had consolidated net losses subject to tax of $15.2 million, compared to consolidated net income subject to tax of $88.8 million for the same period in 2022.
For the year ended December 31, 2023, we recognized income tax benefit of 12.8 million, compared to income tax expense of $17.3 million for the same period in 2022. The year-to-year change is due primarily to GAAP income taxes associated with the net lease modification income recognized in 2022.
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Liquidity and Capital Resources
Liquidity
Liquidity is the ability to meet present and future financial obligations. Our primary sources of liquidity are cash flows from operations and borrowing capacity under our loan agreements.
As of December 31, 2023, our available liquidity was $289.3 million, which consisted of:
• $122.6 million in cash and cash equivalents;
• $16.7 million of restricted cash, including amounts related to tenant security deposits and escrows held by lenders for capital additions, property taxes, and insurance; and
• $150.0 million of available capacity to borrow under our revolving secured credit facility.
As of December 31, 2023, we had sufficient capacity on our construction loans to cover our remaining commitments on development and redevelopment projects of approximately $63.8 million. The initial allocations to our joint ventures have remaining unfunded commitments of $3.0 million. We also have unfunded commitments in the amount of $2.0 million related to four investments in entities that develop technology related to the real estate industry. Our principal uses for liquidity include normal operating activities, payments of principal and interest on outstanding debt, capital expenditures, and future investments. Additionally, our third-party property managers may enter into commitments on our behalf to purchase goods and services in connection with the operation of our apartment communities and our office building. Those commitments generally have terms of one year or less and reflect expenditure levels comparable to historical levels.
We believe, based on the information available at this time, that we have sufficient cash on hand and access to additional sources of liquidity to meet our operational needs for the next twelve months.
In the event that our cash and cash equivalents, revolving secured credit facility, and cash provided by operating activities are not sufficient to cover our liquidity needs, we have the means to generate additional liquidity, such as from additional property financing activity and proceeds from apartment community sales. We expect to meet our long-term liquidity requirements, including debt maturities, development and redevelopment spending, and future investment activity, primarily through property financing activity, cash generated from operations, and the recycling of our equity. Our revolving secured credit facility matures in December 2024, prior to consideration of its one-year extension option.
Leverage and Capital Resources
The availability and cost of credit and its related effect on the overall economy may affect our liquidity and future financing activities, both through changes in interest rates and access to financing. Any adverse changes in the lending environment could negatively affect our liquidity. We have taken steps to mitigate a portion of our short-term refunding risk. However, if property or development financing options become unavailable, we may consider alternative sources of liquidity, such as reductions in capital spending or apartment community dispositions.
As of December 31, 2023, approximately 90% of our outstanding non-recourse property debt had a fixed interest rate and approximately 10% had a variable interest rate, all of which was hedged. In addition, the weighted-average contractual rate on our non-recourse debt was 4.8% and 4.6% inclusive of interest rate caps, and the average remaining term to maturity was 6.7 years. Our use of interest rate caps may vary from quarter to quarter depending on lender requirements, recycling of interest rate caps between projects, and our view on forecasted interest rates.
While our primary sources of leverage are property-level debt and construction loans, we also have a secured $150.0 million credit facility with a syndicate of financial institutions. As of December 31, 2023, we had no outstanding borrowings under our revolving secured credit facility, which requires that we maintain a fixed charge coverage ratio of 1.25x, minimum tangible net worth of $625.0 million, and maximum leverage of 60% as defined in the credit agreement. We are currently in compliance and expect to remain in compliance with these covenants during the next twelve months.
Changes in Cash, Cash Equivalents, and Restricted Cash
The following discussion relates to changes in consolidated cash, cash equivalents, and restricted cash due to operating, investing, and financing activities, which are presented in our Consolidated Statements of Cash Flows in Item 8 of this report.
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Operating Activities
For the year ended December 31, 2023, net cash provided by operating activities was $50.5 million. Our operating cash flow is primarily affected by rental rates, occupancy levels, operating expenses related to our portfolio of apartment communities and general and administrative costs. Cash provided by operating activities for the year ended December 31, 2023, decreased by $153.8 million compared to the same period in 2022, due primarily to cash received from development and redevelopment property lease terminations in 2022, lower net operating income associated with apartment communities sold in the latter part of 2022, and timing of balance sheet position changes, partially offset by decreased interest payments.
Investing Activities
For the year ended December 31, 2023, net cash used in investing activities of $260.4 million consisted primarily of capital expenditures of $272.5 million, offset by $9.3 million of proceeds received from the disposition of real estate. Net cash used in investing activities for the year ended December 31, 2023, increased by $139.6 million compared to the same period in 2022, due primarily to increased capital expenditures and lower proceeds from dispositions of real estate, offset by decreased funding for net real estate and investment transactions.
Financing Activities
For the year ended December 31, 2023, net cash provided by financing activities of $119.4 million consisted primarily of proceeds from construction loans, the sale of a participation in the Mezzanine Investment, and the monetization of interest rate options, partially offset by repayments on non-recourse property debt and common stock repurchases. Net cash provided by financing activities for the year ended December 31, 2023, increased by $217.7 million compared to the same period ended in 2022, due primarily to prior year repayment and borrowing activity, offset by current year activity, including increased proceeds from construction loans, the sale of a participation in the Mezzanine Investment and the monetization of interest rate options.
Non-GAAP Measures
We use EBITDAre and Adjusted EBITDAre in managing our business and in evaluating our financial condition and operating performance. These key financial indicators are non-GAAP measures and are defined and described below. We provide reconciliations of the non-GAAP financial measures to the most comparable financial measure computed in accordance with GAAP.
Earnings Before Interest Expense, Income Taxes, Depreciation and Amortization for Real Estate ( “ EBITDAre ” )
EBITDAre and Adjusted EBITDAre are non-GAAP measures, which we believe are useful to investors, creditors, and rating agencies as a supplemental measure of our ability to incur and service debt because they are recognized measures of performance by the real estate industry and allow for comparison of our credit strength to different companies. EBITDAre and Adjusted EBITDAre should not be considered alternatives to net income (loss) as determined in accordance with GAAP as indicators of liquidity. There can be no assurance that our method of calculating EBITDAre and Adjusted EBITDAre is comparable with that of other real estate investment trusts. Nareit defines EBITDAre as net income computed in accordance with GAAP, before interest expense, income taxes, depreciation, and amortization expense, further adjusted for:
• gains and losses on the dispositions of depreciated property;
• impairment write-downs of depreciated property;
• impairment write-downs of investments in unconsolidated partnerships caused by a decrease in the value of the depreciated property in such partnerships; and
• adjustments to reflect our share of EBITDAre of investments in unconsolidated entities.
EBITDAre is defined by Nareit and provides for an additional performance measure independent of capital structure for greater comparability between real estate investment trusts. We define Adjusted EBITDAre as EBITDAre adjusted to exclude the effect of net (income) loss attributable to noncontrolling interests in consolidated real estate partnerships and EBITDAre adjustments attributable to noncontrolling interests, and realized and unrealized (gains) losses on interest rate options, which we believe allow investors to compare a measure of our earnings before the effects of our capital structure and indebtedness with that of other companies in the real estate industry. Additionally, we exclude the (income) loss recognized on our Mezzanine Investment.
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The reconciliation of net income (loss) to EBITDAre and Adjusted EBITDAre for the years ended December 31, 2023 and 2022 is as follows (in thousands):
Year Ended December 31,
2023
2022
Net income (loss)
$
(157,319
)
$
92,158
Adjustments:
Interest expense
37,718
73,842
Income tax (benefit) expense
(12,752
)
17,264
Gain on dispositions of real estate
(7,984
)
(175,863
)
Lease modification income
—
(206,963
)
Depreciation and amortization
68,834
158,967
Adjustment related to EBITDAre of unconsolidated partnerships
806
1,004
EBITDAre
$
(70,697
)
$
(39,591
)
Net (income) loss attributable to redeemable noncontrolling
interests in consolidated real estate partnerships
(13,924
)
(8,829
)
Net (income) loss attributable to noncontrolling interests
in consolidated real estate partnerships
(3,991
)
(3,672
)
EBITDAre adjustments attributable to noncontrolling interests
(272
)
(491
)
Mezzanine investment (income) loss, net
155,814
179,239
Realized and unrealized (gains) losses on interest rate options
(1,119
)
(48,205
)
Unrealized (gains) losses on IQHQ investment
—
(20,501
)
Adjusted EBITDAre
$
65,811
$
57,950
Critical Accounting Estimates
We prepare our consolidated financial statements in accordance with GAAP, which requires us to make estimates and assumptions. We believe that the following critical accounting policies involve our more significant judgments and estimates used in the preparation of our consolidated financial statements.
Impairment of Real Estate and Other Long-Lived Assets
Quarterly, or when changes in circumstances warrant, we will assess our real estate properties and other long-lived assets for indicators of impairment. The judgments regarding the existence of impairment indicators are based on certain factors. Such factors include, among other things, operational performance, market conditions, our intent and ability to hold the related asset, as well as any significant cost overruns on development projects.
If a real estate property or other long-lived asset has an indicator of impairment, we assess its recoverability by comparing the carrying amount to our estimate of the undiscounted future cash flows, excluding interest charges, of the asset. If the carrying amount exceeds the estimated aggregate undiscounted future cash flows, we recognize an impairment loss to the extent the carrying amount exceeds the estimated fair value of the asset. There were no such impairments for the years ended December 31, 2023, 2022, and 2021.
Mezzanine Investment
On a periodic basis, we assess the Mezzanine Investment for impairment. An investment is considered impaired if we determine that its fair value is less than the net carrying value of the investment on an other-than-temporary basis. We determined our Mezzanine Investment was impaired on an other-than-temporary basis after considering various factors, including the purchaser's option expiration, the loan’s maturity date, and the decline in value of the real estate collateral due to an increased capitalization rate. As a result, we have recognized a $158.0 million non-cash impairment to reduce the carrying value of the Mezzanine Investment to zero as of December 31, 2023. This non-cash impairment is inclusive of the 20% non-controlling participation sold in June 2023. Although we do not expect proceeds from the Mezzanine Investment to exceed our first priority return requiring repayment of the $33.5 million received, we are unable to derecognize the Mezzanine investment - participation sold in accordance with GAAP.
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