UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

Form 10-Q

(Mark One)

þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Apartment Investment and Management Company

(Exact name of registrant as specified in its charter)

Maryland		84-1259577
(State or other jurisdiction of		(I.R.S. Employer
incorporation or organization)		Identification No.)
4582 South Ulster Street Parkway, Suite 1100
Denver, Colorado		80237
(Address of principal executive offices)		(Zip Code)

(303) 757-8101
(Registrant’s telephone number, including area code)

Not Applicable
(Former name, former address, and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer þ		Accelerated filer o		Non-accelerated filer o		Smaller reporting company o
				(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ

The number of shares of Class A Common Stock outstanding as of October 27, 2008: 88,650,980

 

 

APARTMENT INVESTMENT AND MANAGEMENT COMPANY

TABLE OF CONTENTS

FORM 10-Q

		Page
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
Condensed Consolidated Balance Sheets as of September 30, 2008 and December 31, 2007 (Unaudited)			2
Condensed Consolidated Statements of Income for the Three and Nine Months Ended September 30, 2008 and 2007 (Unaudited)			3
Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2008 and 2007 (Unaudited)			4
Notes to Condensed Consolidated Financial Statements (Unaudited)			5
ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			21
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk			38
ITEM 4. Controls and Procedures			38
PART II. OTHER INFORMATION
ITEM 1A. Risk Factors			39
ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds			39
ITEM 6. Exhibits			40
Signatures			41
Exhibit 31.1
Exhibit 31.2
Exhibit 32.1
Exhibit 32.2
Exhibit 99.1

PART I. FINANCIAL INFORMATION

ITEM 1. Financial Statements

APARTMENT INVESTMENT AND MANAGEMENT COMPANY

CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
(Unaudited)

		September 30,				December 31,
		2008				2007
ASSETS
Real estate:
Buildings and improvements		$	8,752,890			$	8,302,059
Land			2,440,154				2,397,070
Total real estate			11,193,044				10,699,129
Less accumulated depreciation			(2,822,045	)			(2,527,393	)
Net real estate			8,370,999				8,171,736
Cash and cash equivalents			219,047				210,461
Restricted cash			306,999				314,890
Accounts receivable, net			91,703				71,463
Accounts receivable from affiliates, net			32,842				34,958
Deferred financing costs, net			61,782				68,548
Notes receivable from unconsolidated real estate partnerships, net			30,326				35,186
Notes receivable from non-affiliates, net			150,460				143,054
Investment in unconsolidated real estate partnerships			114,493				117,217
Other assets			202,029				207,857
Deferred income tax assets, net			12,706				14,426
Assets held for sale			303,829				1,216,736
Total assets		$	9,897,215			$	10,606,532
LIABILITIES AND STOCKHOLDERS’ EQUITY
Property tax-exempt bond financing		$	792,280			$	779,737
Property loans payable			5,511,840				5,271,044
Term loans			475,000				475,000
Credit facility			5,100				—
Other borrowings			81,511				75,057
Total indebtedness			6,865,731				6,600,838
Accounts payable			36,477				56,792
Accrued liabilities and other			395,110				449,485
Deferred income			190,617				200,714
Security deposits			45,840				42,912
Liabilities related to assets held for sale			267,890				951,046
Total liabilities			7,801,665				8,301,787
Minority interest in consolidated real estate partnerships			401,351				441,778
Minority interest in Aimco Operating Partnership			109,533				113,263
Commitments and contingencies (Note 5)
Stockholders’ equity:
Perpetual Preferred Stock			696,500				723,500
Class A Common Stock, $0.01 par value, 426,157,736 shares authorized, 90,230,957 and 102,571,335 shares issued and outstanding, at September 30, 2008 and December 31, 2007, respectively			902				961
Additional paid-in capital			2,850,649				3,049,417
Notes due on common stock purchases			(4,016	)			(5,441	)
Distributions in excess of earnings			(1,959,369	)			(2,018,733	)
Total stockholders’ equity			1,584,666				1,749,704
Total liabilities and stockholders’ equity		$	9,897,215			$	10,606,532

See notes to condensed consolidated financial statements.

APARTMENT INVESTMENT AND MANAGEMENT COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
(Unaudited)

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
		2008				2007				2008				2007
REVENUES:
Rental and other property revenues		$	361,996			$	345,197			$	1,070,604			$	1,023,390
Property management revenues, primarily from affiliates			1,227				1,824				4,746				5,192
Asset management and tax credit revenues			32,755				12,747				83,782				39,554
Total revenues			395,978				359,768				1,159,132				1,068,136
OPERATING EXPENSES:
Property operating expenses			172,705				162,829				506,546				473,446
Property management expenses			1,560				1,333				4,018				5,268
Investment management expenses			5,842				5,812				15,859				15,799
Depreciation and amortization			120,771				110,946				343,636				318,691
General and administrative expenses			27,332				20,663				75,820				66,763
Other (income) expenses, net			(3,944	)			(4,953	)			7,316				(5,776	)
Total operating expenses			324,266				296,630				953,195				874,191
Operating income			71,712				63,138				205,937				193,945
Interest income			5,349				10,765				14,248				30,551
(Provision for) recoveries of losses on notes receivable, net			(2,093	)			153				(3,786	)			(2,124	)
Interest expense			(94,611	)			(92,699	)			(285,723	)			(271,461	)
Deficit distributions to minority partners, net			(17,798	)			(11,640	)			(22,981	)			(13,998	)
Equity in (losses) earnings of unconsolidated real estate partnerships			(1,559	)			348				(3,431	)			(1,710	)
Provision for real estate impairment losses			(2,319	)			—				(2,319	)			—
Gain on dispositions of unconsolidated real estate and other			100,359				5,841				100,345				26,919
Income (loss) before minority interests and discontinued operations			59,040				(24,094	)			2,290				(37,878	)
Minority interests:
Minority interest in consolidated real estate partnerships			11,355				381				15,563				(1,923	)
Minority interest in Aimco Operating Partnership, preferred			(1,962	)			(1,782	)			(5,669	)			(5,346	)
Minority interest in Aimco Operating Partnership, common			(4,438	)			4,080				2,376				8,996
Total minority interests			4,955				2,679				12,270				1,727
Income (loss) from continuing operations			63,995				(21,415	)			14,560				(36,151	)
Income from discontinued operations, net			111,804				19,074				392,732				78,343
Net income (loss)			175,799				(2,341	)			407,292				42,192
Net income attributable to preferred stockholders			12,224				19,020				40,102				51,715
Net income (loss) attributable to common stockholders		$	163,575			$	(21,361	)		$	367,190			$	(9,523	)
Earnings (loss) per common share — basic:
Income (loss) from continuing operations (net of preferred dividends)		$	0.58			$	(0.38	)		$	(0.27	)		$	(0.82	)
Income from discontinued operations			1.24				0.18				4.20				0.73
Net income (loss) attributable to common stockholders		$	1.82			$	(0.20	)		$	3.93			$	(0.09	)
Earnings (loss) per common share — diluted:
Income (loss) from continuing operations (net of preferred dividends)		$	0.57			$	(0.38	)		$	(0.27	)		$	(0.82	)
Income from discontinued operations			1.24				0.18				4.20				0.73
Net income (loss) attributable to common stockholders		$	1.81			$	(0.20	)		$	3.93			$	(0.09	)
Weighted average common shares outstanding			89,650				106,208				93,463				106,888
Weighted average common shares and equivalents outstanding			90,266				106,208				93,463				106,888
Dividends declared per common share		$	2.81			$	0.54			$	3.37			$	1.07

See notes to condensed consolidated financial statements.

APARTMENT INVESTMENT AND MANAGEMENT COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)

		Nine Months
		Ended September 30,
		2008				2007
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income		$	407,292			$	42,192
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization			343,636				318,691
Gain on dispositions of unconsolidated real estate			(98,875	)			(169	)
Discontinued operations			(365,049	)			(9,252	)
Other adjustments			36,439				(37,705	)
Net changes in operating assets and operating liabilities			11,784				3,677
Net cash provided by operating activities			335,227				317,434
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of real estate			(75,907	)			(198,998	)
Capital expenditures			(476,030	)			(456,377	)
Proceeds from dispositions of real estate			1,419,909				356,943
Change in funds held in escrow from tax-free exchanges			(3,791	)			25,957
Purchases of partnership interests and other assets			(22,940	)			(41,819	)
Originations of notes receivable from unconsolidated real estate partnerships			(5,887	)			(9,774	)
Proceeds from repayment of notes receivable			7,037				14,418
Distributions from investments in unconsolidated real estate partnerships			85,520				1,814
Other investing activities			8,749				18,694
Net cash provided by (used in) investing activities			936,660				(289,142	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from property loans			522,564				1,315,111
Principal repayments on property loans			(853,435	)			(823,639	)
Proceeds from tax exempt bond financing			21,988				82,350
Principal repayments on tax-exempt bond financing			(89,287	)			(68,443	)
Net borrowings on revolving credit facility			5,100				10,000
Repurchase of preferred stock			(24,840	)			—
Repurchases of Class A Common Stock			(452,297	)			(185,708	)
Proceeds from Class A Common Stock option exercises			706				53,717
Payment of Class A Common Stock dividends			(158,830	)			(173,603	)
Payment of preferred stock dividends			(41,609	)			(49,109	)
Payment of distributions to minority interest			(201,492	)			(72,468	)
Other financing activities			8,131				(8,830	)
Net cash (used in) provided by financing activities			(1,263,301	)			79,378
NET INCREASE IN CASH AND CASH EQUIVALENTS			8,586				107,670
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD			210,461				229,824
CASH AND CASH EQUIVALENTS AT END OF PERIOD		$	219,047			$	337,494

See notes to condensed consolidated financial statements.

APARTMENT INVESTMENT AND MANAGEMENT COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2008
(Unaudited)

Note 1 — Organization

Apartment Investment and Management Company, or Aimco, is a Maryland corporation incorporated on January 10, 1994. We are a self-administered and self-managed real estate investment trust, or REIT, engaged in the acquisition, ownership, management and redevelopment of apartment properties. As of September 30, 2008, we owned or managed a real estate portfolio of 1,067 apartment properties containing 178,083 apartment units located in 46 states, the District of Columbia and Puerto Rico. We are one of the largest owners and operators of apartment properties in the United States.

As of September 30, 2008, we:

	•		owned an equity interest in and consolidated 130,913 units in 573 properties (which we refer to as “consolidated”), of which 129,422 units were also managed by us;
	•		owned an equity interest in and did not consolidate 10,172 units in 90 properties (which we refer to as “unconsolidated”), of which 5,009 units were also managed by us; and
	•		provided services for or managed 36,998 units in 404 properties, primarily pursuant to long-term agreements (including 33,839 units in 370 properties for which we provide asset management services only, and not also property management services). In certain cases we may indirectly own generally less than one percent of the operations of such properties through a partnership syndication or other fund.

Through our wholly-owned subsidiaries, AIMCO-GP, Inc. and AIMCO-LP Trust, we own a majority of the ownership interests in AIMCO Properties, L.P., which we refer to as the Aimco Operating Partnership. As of September 30, 2008, we held an interest of approximately 90% in the common partnership units and equivalents of the Aimco Operating Partnership. We conduct substantially all of our business and own substantially all of our assets through the Aimco Operating Partnership. Interests in the Aimco Operating Partnership that are held by limited partners other than Aimco are referred to as “OP Units.” OP Units include common OP Units, partnership preferred units, or preferred OP Units, and high performance partnership units, or High Performance Units. The Aimco Operating Partnership’s income is allocated to holders of common OP Units based on the weighted average number of common OP Units outstanding during the period. The Aimco Operating Partnership records the issuance of common OP Units and the assets acquired in purchase transactions based on the market price of Aimco Class A Common Stock (which we refer to as Common Stock) at the date of closing of the transaction. The holders of the common OP Units and Class I High Performance Units receive distributions, prorated from the date of issuance, in an amount equivalent to the dividends paid to holders of Common Stock. Holders of common OP Units may redeem such units for cash or, at the Aimco Operating Partnership’s option, Common Stock. Preferred OP Units entitle the holders thereof to a preference with respect to distributions or upon liquidation. At September 30, 2008, after elimination of certain shares of Common Stock held by consolidated subsidiaries, 90,230,957 shares of our Common Stock were outstanding and the Aimco Operating Partnership had 9,489,334 common OP Units and equivalents outstanding for a combined total of 99,720,291 shares of Common Stock and OP Units outstanding (excluding preferred OP Units).

Except as the context otherwise requires, “we,” “our,” “us” and the “Company” refer to Aimco, the Aimco Operating Partnership and their consolidated entities, collectively.

In December 2007 and July 2008, the Aimco Operating Partnership declared special distributions payable on January 30, 2008 and August 29, 2008, respectively, to holders of record of common OP Units and High Performance Units on December 31, 2007 and July 28, 2008, respectively. The special distributions were paid on common OP Units and High Performance Units in the amounts listed below. The Aimco Operating Partnership distributed to us common OP Units equal to the number of shares we issued pursuant to our corresponding special dividends (discussed below) in addition to approximately $0.60 per unit in cash. Holders of common OP Units other than us and holders of High Performance Units received the distributions entirely in cash, in the amounts noted below.

		January 2008				August 2008
		Special				Special
Aimco Operating Partnership Special Distributions		Distribution				Distribution
Distribution per unit		$	2.51			$	3.00
Total distribution		$	257.2 million			$	285.5 million
Common OP Units and High Performance Units outstanding on record date			102,478,510				95,151,333
Common OP Units held by Aimco			92,795,891				85,619,144
Total distribution on Aimco common OP Units		$	232.9 million			$	256.9 million
Cash distribution to Aimco		$	55.0 million			$	51.4 million
Portion of distribution paid to Aimco through issuance of common OP Units		$	177.9 million			$	205.5 million
Common OP Units issued to Aimco pursuant to distribution			4,594,074				5,731,310
Cash distributed to holders of common OP Units and High Performance Units other than Aimco		$	24.3 million			$	28.6 million

Also in December 2007 and July 2008, our Board of Directors declared corresponding special dividends payable on January 30, 2008 and August 29, 2008, respectively, to holders of record of our Common Stock on December 31, 2007 and July 28, 2008, respectively. A portion of the special dividends in the amounts of $0.60 per share represented payment of the regular dividend for the quarters ended December 31, 2007 and June 30, 2008, and the remaining amount per share represented additional dividends associated with taxable gains from property dispositions. The special dividends were paid in the amounts listed in the table below. Portions of the special dividends were paid through the issuance of shares of Common Stock, determined based on the average closing price of our Common Stock as previously disclosed.

		January 2008				August 2008
		Special				Special
Aimco Special Dividends		Dividend				Dividend
Dividend per share		$	2.51			$	3.00
Outstanding shares of Common Stock on the record date			92,795,891				85,619,144
Total dividend		$	232.9 million			$	256.9 million
Portion of dividend paid in cash		$	55.0 million			$	51.4 million
Portion of dividend paid through issuance of shares		$	177.9 million			$	205.5 million
Shares issued pursuant to dividend			4,594,074				5,731,310
Effective increase in outstanding shares on record date			4.95	%			6.70	%
Average share price on determination date		$	38.71				35.84
Amounts after elimination of the effects of shares of Common Stock held by consolidated subsidiaries:
Outstanding shares of Common Stock on the record date			92,379,751				85,182,665
Total dividend		$	231.9 million			$	255.5 million
Portion of dividend paid in cash		$	54.8 million			$	51.1 million
Portion of dividend paid through issuance of shares		$	177.1 million			$	204.4 million
Shares issued pursuant to dividend			4,573,735				5,703,265

The effect of the issuance of additional shares of Common Stock pursuant to the special dividends has been retroactively reflected in each of the historical periods presented as if those shares were issued and outstanding at the beginning of the earliest period presented; accordingly, all activity prior to the ex-dividend date of the special dividends, including share issuances, repurchases and forfeitures, have been adjusted to reflect the effective increases in the number of shares, except in limited instances where noted otherwise.

Note 2 — 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 United States of America, or 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, 2008, are not necessarily indicative of the results that may be expected for the year ending December 31, 2008.

The balance sheet at December 31, 2007, has been derived from the audited financial statements at that date, but does 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 Annual Report on Form 10-K for the year ended December 31, 2007. Certain 2007 financial statement amounts have been reclassified to conform to the 2008 presentation.

Principles of Consolidation

The accompanying condensed consolidated financial statements include the accounts of Aimco, the Aimco Operating Partnership, and their consolidated entities. We consolidate all variable interest entities for which we are the primary beneficiary. Generally, we consolidate real estate partnerships and other entities that are not variable interest entities when we own, directly or indirectly, a majority voting interest in the entity or are otherwise able to control the entity. 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 the accompanying balance sheets as minority interest in Aimco Operating Partnership. Interests in partnerships consolidated into the Aimco Operating Partnership that are held by third parties are reflected in the accompanying balance sheets as minority interest in consolidated real estate partnerships. The assets of consolidated real estate partnerships owned or controlled by us generally are not available to pay creditors of Aimco or the Aimco Operating Partnership.

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 in a limited liability company.

Use of Estimates

The preparation of our 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.

We test for the recoverability of real estate assets that do not currently meet all conditions to be classified as held for sale, but are expected to be disposed of prior to the end of their estimated useful lives. If events or circumstances indicate that the carrying amount of a property may not be recoverable, we make an assessment of its recoverability by comparing the carrying amount to our estimate of the undiscounted future cash flows of the property, excluding interest charges. 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 property. During the three and nine months ended September 30, 2008, based on the shortened anticipated holding period for certain properties classified as held for use, we recognized impairment losses of $2.3 million. We recognized no such impairment losses during the three and nine months ended September 30, 2007.

If an impairment loss is not required to be recorded under the provisions of Statement of Financial Accounting Standards No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, or SFAS 144, the recognition of depreciation is adjusted prospectively, as necessary, to reduce the carrying amount of the real estate to its estimated disposition value over the remaining period that the real estate is expected to be held and used. We also may adjust depreciation prospectively to reduce to zero the carrying amount of buildings that we plan to demolish in connection with a redevelopment project. These depreciation adjustments, after adjustments for minority interest in the Aimco Operating Partnership, decreased net income by $2.8 million and $10.3 million, and resulted in a decrease in basic and diluted earnings per share of $0.03 and $0.10, for the three months ended September 30, 2008 and 2007, respectively. For the nine months ended September 30, 2008 and 2007, these depreciation adjustments decreased net income by $8.7 million and $31.2 million, and resulted in a decrease in basic and diluted earnings per share of $0.09 and $0.29, respectively.

During the nine months ended September 30, 2007, we evaluated the recoverability of our $6.3 million equity investment in a group purchasing organization and a related $3.4 million note receivable. We initiated our evaluation as a result of information concerning its relationships with significant vendors. Based on our evaluation, we recorded impairments of $2.5 million in equity in earnings (losses) of unconsolidated real estate partnerships and $1.4 million in (provision for) recoveries of losses on notes receivable to adjust the carrying amounts of our equity investment and note receivable, respectively, to their estimated fair values. We did not recognize any such impairments during the nine months ended September 30, 2008.

During the nine months ended September 30, 2008, we reassessed our approach to communication technology needs at our properties, which resulted in the discontinuation of an infrastructure project and a $4.8 million write-off of related hardware and capitalized internal and consulting costs included in other assets. The write-off, which is net of estimated sales proceeds totaling $2.1 million, is included in other (income) expenses, net. During the nine months ended September 30, 2008, we additionally recorded a $1.0 million write-off of certain software and hardware assets that are no longer consistent with our information technology strategy. This write-off is included in depreciation and amortization. During the nine months ended September 30, 2007, we abandoned certain internal-use software development projects and recorded a $1.8 million write-off of the capitalized costs of such projects in depreciation and amortization.

Income Taxes

In March 2008, we were notified by the Internal Revenue Service that it intended to examine the 2006 Federal tax return for the Aimco Operating Partnership. During June 2008, the IRS issued AIMCO-GP, Inc., the general and tax matters partner of the Aimco Operating Partnership, a summary report including the government’s proposed adjustments to the Aimco Operating Partnership’s 2006 Federal tax return. We do not expect the proposed adjustments to have any material effect on our unrecognized tax benefits, financial condition or results of operations.

Adoption of SFAS 157

In September 2006, the Financial Accounting Standards Board, or FASB, issued Statement of Financial Accounting Standards No. 157, Fair Value Measurements, or SFAS 157. SFAS 157 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. SFAS 157 applies whenever other standards require assets or liabilities to be measured at fair value and does not expand the use of fair value in any new circumstances. SFAS 157 establishes a hierarchy that prioritizes the information used in developing fair value estimates and requires disclosure of fair value measurements by level within the fair value hierarchy. The hierarchy gives the highest priority to quoted prices in active markets (Level 1 measurements) and the lowest priority to unobservable data (Level 3 measurements), such as the reporting entity’s own data. In February 2008, the FASB issued FASB Staff Position No. FAS 157-2, Effective Date of FASB Statement No. 157, which deferred the effective date of SFAS 157 for all nonrecurring fair value measurements of non-financial assets and non-financial liabilities until fiscal years beginning after November 15, 2008, including interim periods within those fiscal years. The provisions of SFAS 157 are applicable to recurring and nonrecurring fair value measurements of financial assets and liabilities for fiscal years beginning after November 15, 2007, including interim periods within those fiscal years. We adopted the provisions of SFAS 157 effective January 1, 2008, and at that time determined no transition adjustment was required.

Basis of Fair Value Measurement (Valuation Hierarchy)

SFAS 157 establishes a three-level valuation hierarchy for disclosure of fair value measurements. The valuation hierarchy is based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date. The three levels are defined as follows:

		Level 1 —		Unadjusted quoted prices for identical and unrestricted assets or liabilities in active markets
		Level 2 —		Quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument
		Level 3 —		Unobservable inputs that are significant to the fair value measurement

A financial instrument’s categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement.

Following is a description of the valuation methodologies used for our significant financial instruments measured at fair value on a recurring or nonrecurring basis. Although some of the valuation methodologies use observable market inputs in limited instances, the majority of inputs we use are unobservable and are therefore classified within Level 3 of the valuation hierarchy.

Fair Value
Measurement		Valuation Methodologies
Notes receivable		We assess the collectibility of notes receivable on a periodic basis, which assessment consists primarily of an evaluation of cash flow projections of the borrower to determine whether estimated cash flows are sufficient to repay principal and interest in accordance with the contractual terms of the note. We recognize impairments on notes receivable when it is probable that principal and interest will not be received in accordance with the contractual terms of the loan. The amount of the impairment to be recognized generally is based on the fair value of the real estate, the collateral for the loan, which represents the primary source of loan repayment. The fair value of the collateral, such as real estate or interests in real estate partnerships, is estimated through income and market valuation approaches using information such as broker estimates, purchase prices for recent transactions on comparable assets and net operating income capitalization analyses using observable and unobservable inputs such as capitalization rates, asset quality grading, geographic location analysis, and local supply and demand observations.
Total rate of return swaps		Our total rate of return swaps have contractually-defined termination values generally equal to the difference between the fair value and the counterparty’s purchased value of the underlying borrowings. Upon termination, we are required to pay the counterparty the difference if the fair value is less than the purchased value, and the counterparty is required to pay us the difference if the fair value is greater than the purchased value. The underlying borrowings are generally callable, at our option, at face value prior to maturity and with no prepayment penalty. Due to our control of the call features in the underlying borrowings, we believe the inherent value of any differential between the fixed and variable cash payments due under the swaps would be significantly discounted by a market participant willing to purchase or assume any rights and obligations under these contracts.
		The swaps are generally cross-collateralized with other swap contracts with the same counterparty and do not allow transfer or assignment, thus there is no alternate or secondary market for these instruments. Accordingly, our assumptions of the fair value that a willing market participant would assign in valuing these instruments are based on a hypothetical market in which the highest and best use of these contracts is in-use in combination with the related borrowings, similar to how we utilize the contracts. Based on these assumptions, we believe the termination value, or exit value, of the swaps approximates the fair value that would be assigned by a willing market participant. We calculate the termination value using a market approach by reference to estimates of the fair value of the underlying borrowings, which are discussed below, and an evaluation of potential changes in the credit quality of the counterparties to these arrangements. We compare our estimates of fair value of the swaps and related borrowings to valuations provided by the counterparties on a quarterly basis.
		Our method for calculating fair value of the swaps generally results in changes in fair value equal to the changes in fair value of the related borrowings. We believe these instruments are highly effective in offsetting the changes in fair value of the borrowings during the hedging period.

Changes in fair value of borrowings subject to total rate of return swaps		We recognize changes in the fair value of certain borrowings subject to total rate of return swaps, which we have designated as fair value hedges in accordance with Statement of Financial Accounting Standards No. 133, Accounting for Derivative Instruments and Hedging Activities, or SFAS 133.
		We estimate the fair value of debt instruments using an income and market approach, including comparison of the contractual terms to observable and unobservable inputs such as market interest rate risk spreads, collateral quality and loan-to-value ratios on similarly encumbered assets within our portfolio. These borrowings are collateralized and non-recourse to us; therefore, we believe changes in our credit rating will not materially affect a market participant’s estimate of the borrowings’ fair value.

The methods described above may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. Furthermore, although we believe our valuation methods are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different estimate of fair value at the reporting date.

Amounts reported at fair value in our condensed consolidated balance sheet at September 30, 2008, all of which are based on significant unobservable inputs classified within Level 3 of the fair value hierarchy, are summarized below (in thousands):

		Assets (Liabilities)
Total rate of return swaps		$	(22,836	)
Cumulative reduction of carrying amount of debt instruments subject to total rate of return swaps		$	22,836

Changes in Level 3 Fair Value Measurements

The table below presents the balance sheet amounts at December 31, 2007, and September 30, 2008 (and the changes in fair value between such dates) for fair value measurements classified within Level 3 of the valuation hierarchy (in thousands). When a determination is made to classify a fair value measurement within Level 3 of the valuation hierarchy, the determination is based upon the significance of the unobservable factors to the overall fair value measurement. However, Level 3 fair value measurements typically include, in addition to the unobservable or Level 3 components, observable components that can be validated to observable external sources; accordingly, the changes in fair value in the table below are due in part to observable factors that are part of the valuation methodology.

						Unrealized				Realized
		Fair value at				Gains (Losses)				gains (losses)				Fair value at
		December 31,				included in				included in				September 30,
		2007				earnings (1)				earnings (2)				2008
Total rate of return swaps		$	(9,420	)		$	(13,416	)(3)		$	—			$	(22,836	)
Changes in fair value of debt instruments subject to total rate of return swaps			9,420				13,416	(3)			—				22,836
Total		$	—			$	—			$	—			$	—

Adoption of SFAS 159

In February 2007, the FASB issued Statement of Financial Accounting Standards No. 159, The Fair Value Option for Financial Asset and Financial Liabilities, or SFAS 159. SFAS 159 permits entities to choose to measure many financial instruments and certain other items at fair value that are not currently required to be measured at fair value. The objective is to improve financial reporting by providing entities with the opportunity to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without having to apply complex hedge accounting provisions. SFAS 159 also establishes presentation and disclosure requirements designed to facilitate comparisons between entities that choose different measurement attributes for similar types of assets and liabilities. SFAS 159 is effective for fiscal years beginning after November 15, 2007. We implemented SFAS 159 on January 1, 2008, and at that time did not elect the fair value option for any of our financial instruments or other items within the scope of SFAS 159.

Note 3 — Real Estate Acquisitions and Dispositions

Real Estate Acquisitions

During the nine months ended September 30, 2008, we acquired two conventional properties with a total of 328 units, located in San Jose, California and Brighton, Massachusetts. The aggregate purchase price of $75.0 million, excluding transaction costs, was funded using $35.0 million in proceeds from mortgage loans, $27.9 million in tax-free exchange proceeds (provided by 2008 real estate dispositions) and the remainder in cash. During the nine months ended September 30, 2007, we acquired 15 conventional properties with 1,305 units for an aggregate purchase price of $206.8 million, including transaction costs. Of the 15 properties acquired, nine are located in New York City; two in Daytona Beach, Florida; one in Park Forest, Illinois; one in Poughkeepsie, New York; one in Redwood City, California and one property in North San Diego, California. The purchase included the assumption of $16.0 million of mortgage debt, and the remainder of the purchase price was funded using $46.1 million in proceeds from mortgage loans, cash of $57.5 million and tax free exchange proceeds of $87.2 million.

Real Estate Dispositions (Discontinued Operations)

We are currently marketing for sale certain real estate 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, including whether such properties are expected to be sold within twelve months. Additionally, certain properties that do not meet all of the criteria to be classified as held for sale at the balance sheet date may nevertheless be sold and included in discontinued operations in the subsequent twelve months; thus the number of properties that may be sold during the subsequent twelve months could exceed the number classified as held for sale. At September 30, 2008, we had 25 properties, with an aggregate of 6,039 units, classified as held for sale. Amounts classified as held for sale in the accompanying condensed consolidated balance sheets were as follows (in thousands):

		September 30,				December 31,
		2008				2007
Real estate, net		$	299,653			$	1,200,748
Other assets			4,176				15,988
Assets held for sale		$	303,829			$	1,216,736
Property debt		$	240,837			$	942,560
Other liabilities			27,053				8,486
Liabilities related to assets held for sale		$	267,890			$	951,046

During the nine months ended September 30, 2008, we sold 88 properties with an aggregate of 23,551 units. During the year ended December 31, 2007, we sold 73 properties with an aggregate of 11,588 units. For the three and nine months ended September 30, 2008 and 2007, discontinued operations includes the results of operations for the periods prior to the date of sale for all properties sold or classified as held for sale as of September 30, 2008.

The following is a summary of the components of income from discontinued operations for the three and nine months ended September 30, 2008 and 2007 (in thousands):

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
		2008				2007				2008				2007
Rental and other property revenues		$	31,044			$	76,902			$	167,450			$	246,806
Property operating expenses			(13,882	)			(41,210	)			(81,695	)			(124,201	)
Depreciation and amortization			(7,238	)			(18,773	)			(39,397	)			(59,936	)
Other expenses, net			(4,967	)			(1,771	)			(6,502	)			(4,099	)
Operating income			4,957				15,148				39,856				58,570
Interest income			420				517				974				1,662
Interest expense			(6,194	)			(15,038	)			(31,453	)			(49,467	)
Gain on extinguishment of debt			—				—				—				22,852
Minority interest in consolidated real estate partnerships			298				2,126				855				(1,427	)
Income (loss) before gain on dispositions of real estate, impairment losses, deficit distributions to minority partners, income tax and minority interest in Aimco Operating Partnership			(519	)			2,753				10,232				32,190
Gain on dispositions of real estate, net of minority partners’ interest			128,301				17,406				443,795				57,296
Real estate impairment losses, net			(1,798	)			—				(8,334	)			(783	)
Recovery of deficit distributions (deficit distributions) to minority partners			909				(282	)			8,325				(726	)
Income tax arising from dispositions			(4,027	)			1,151				(21,091	)			(1,610	)
Minority interest in Aimco Operating Partnership			(11,062	)			(1,954	)			(40,195	)			(8,024	)
Income from discontinued operations, net		$	111,804			$	19,074			$	392,732			$	78,343

Gain on dispositions of real estate is reported net of incremental direct costs incurred in connection with the transaction, including any prepayment penalties incurred upon repayment of mortgage loans collateralized by the property being sold. Such prepayment penalties totaled $20.8 million and $45.9 million for the three and nine months ended September 30, 2008, respectively, and $5.1 million and $10.4 million for the three and nine months ended September 30, 2007, respectively. During the three and nine months ended September 30, 2008, we recorded impairment losses totaling $1.8 million and $8.3 million on assets held for sale to reduce the carrying amounts for those properties to their estimated fair value, less estimated costs to sell. During the nine months ended September 30, 2007, we recorded impairment losses totaling $0.8 million. We classify interest expense related to property level debt within discontinued operations when the related real estate asset is sold or classified as held for sale.

Dispositions of Unconsolidated Real Estate

During the three months ended September 30, 2008, unconsolidated real estate partnerships disposed of two properties with 671 units. Our interest in the net gain on dispositions totaled $98.4 million and is included in gain on dispositions of unconsolidated real estate and other in the accompanying statements of income for the three and nine months ended September 30, 2008.

Note 4 — Other Significant Transactions

Common Stock Repurchases

Our Board of Directors has, from time to time, authorized us to repurchase shares of our outstanding capital stock. During the nine months ended September 30, 2008 and 2007, we repurchased 12,654,526 and 3,830,740 shares of Common Stock for cash totaling $423.5 million and $175.4 million, respectively. We also paid cash totaling $28.7 million and $10.3 million in January 2008 and 2007, respectively, to settle repurchases of Common Stock in December 2007 and 2006. As of September 30, 2008, we were authorized to repurchase approximately 21.3 million additional shares.

Partial Repurchase of Series A Community Reinvestment Act Perpetual Preferred Stock

During September 2008, we repurchased 54 shares, or $27.0 million in liquidation preference, of our Series A Community Reinvestment Act Perpetual Preferred Stock, $0.01 par value per share, for cash totaling $24.8 million. In accordance with Emerging Issues Task Force Topic D-42, The Effect on the Calculation of Earnings Per Share for the Redemption or Induced Conversion of Preferred Stock, or EITF Topic D-42, the $2.2 million excess of the carrying value over the redemption price, offset by $0.7 million of issuance costs previously recorded as a reduction of additional paid-in capital, is reflected as a reduction of net income attributable to preferred stockholders for purposes of calculating earnings per share for the three and nine months ended September 30, 2008.

Redemption of Convertible Preferred Stock

On September 30, 2007, we redeemed all 1,904,762 outstanding shares of our privately held 8.1% Class W Cumulative Convertible Preferred Stock (the “Class W”). The redemption price per share was approximately $54.61, (which includes a redemption price per share of $53.55 (which is 102% of the $52.50 per share liquidation preference) plus approximately $1.06, (which is the per share amount of accumulated, accrued and unpaid dividends on the Class W through the redemption date), or an aggregate redemption price of approximately $104.0 million. In accordance with EITF Topic D-42, the $2.0 million excess of the redemption price over the carrying value (the 2% redemption premium) and $0.6 million of issuance costs previously recorded as a reduction of additional paid-in capital are reflected as an increase of net income attributable to preferred stockholders for purposes of calculating earnings per share for the three and nine months ended September 30, 2007.

Casualty Loss Related to Tropical Storm Fay and Hurricane Ike

During the three months ended September 30, 2008, Tropical Storm Fay and Hurricane Ike caused severe damage to certain of our properties located primarily in Florida and Texas, respectively. We estimated total losses of approximately $29.6 million, including property damage replacement cost and clean-up cost. After consideration of estimated third party insurance proceeds and the minority interest partners’ share of losses for consolidated real estate partnerships, the net effect of these casualties on net income, after the effect of minority interest in Aimco Operating Partnership, was a loss of approximately $5.0 million.

Transactions Involving VMS National Properties Joint Venture

In January 2007, VMS National Properties Joint Venture, or VMS, a consolidated real estate partnership in which we held a 22% equity interest, refinanced mortgage loans secured by its 15 apartment properties. The existing loans had an aggregate carrying amount of $110.0 million and an aggregate face amount of $152.2 million. The $42.2 million difference between the face amount and carrying amount resulted from a 1997 bankruptcy settlement in which the lender agreed to reduce the principal amount of the loans subject to VMS’s compliance with the terms of the restructured loans. Because the reduction in the loan amount was contingent on future compliance, recognition of the inherent debt extinguishment gain was deferred. Upon refinancing of the loans in January 2007, the existing lender accepted the reduced principal amount in full satisfaction of the loans, and VMS recognized the $42.2 million debt extinguishment gain in earnings.

During 2007, VMS sold eight properties to third parties and we acquired its seven remaining properties. Approximately $22.8 million of the $42.2 million debt extinguishment gain relates to the mortgage loans that were secured by the eight properties sold to third parties and is reported in discontinued operations for the nine months ended September 30, 2007. The remaining $19.4 million portion of the debt extinguishment gain relates to the mortgage loans that were secured by the seven VMS properties we purchased and is reported in our continuing operations as gain on dispositions of unconsolidated real estate and other. The eight properties sold to third parties were sold during the nine months ended September 30, 2007, at an aggregate gain of $22.8 million. Although 78% of the equity interests in VMS were held by unrelated minority partners, no minority interest share of the gains on debt extinguishment and sale of the properties was recognized in our earnings. As required by GAAP, we had in prior years recognized the minority partners’ share of VMS losses in excess of the minority partners’ capital contributions. The amounts of those previously recognized losses exceeded the minority partners’ share of the gains on debt extinguishment and sale of the properties; accordingly, the minority interest in such gains recognized in our earnings was limited to the minority interest in the Aimco Operating Partnership. For the nine months ended September 30, 2007, the aggregate effect of the gains on extinguishment of VMS debt and sale of VMS properties was to decrease loss from continuing operations by $17.6 million ($0.16 per diluted share) and increase net income by $59.0 million ($0.55 per diluted share).

Flamingo South Beach Property

The Flamingo South Beach property consists of three towers. In connection with sale of the South Tower in 2006, the buyer paid to us a $5.0 million non-refundable fee for the option to purchase the 614-unit North Tower between September 1, 2006 and February 28, 2007 and the 513-unit Central Tower between December 1, 2007 and May 31, 2008. Pursuant to the purchase and sale agreement, the buyer paid to us an additional $1.0 million non-refundable fee to extend the option period for the buyer’s purchase of the North Tower from February 28, 2007 to October 31, 2007. In accordance with Statement of Financial Accounting Standards No. 66, Accounting for Sales of Real Estate, we deferred the recognition of the non-refundable fees. In September 2007, the buyer terminated its rights under the option agreement and we recognized income of $6.0 million, or $5.5 million, net of tax, during the three months ended September 30, 2007, which is presented in gain on dispositions of unconsolidated real estate and other in the accompanying statements of income.

Note 5 — Commitments and Contingencies

Commitments

In connection with our redevelopment and capital improvement activities, we have commitments of approximately $104.6 million related to construction projects, most of which we expect to incur within one year. Additionally, we enter into certain commitments for future purchases of goods and services in connection with the operations of our properties. Those commitments generally have terms of one year or less and reflect expenditure levels comparable to our historical expenditures.

We have committed to fund an additional $5.5 million in second mortgage loans on certain properties in West Harlem, in New York City. In certain circumstances, we also could be required to acquire the properties for cash and/or assumption of first mortgage debt totaling approximately $149.0 million to $216.0 million, in addition to amounts funded and committed under the related loan agreement.

Tax Credit Arrangements

We are required to manage certain consolidated real estate partnerships in compliance with various laws, regulations and contractual provisions that apply to our historic and low-income housing tax credit syndication arrangements. In some instances, noncompliance with applicable requirements could result in projected tax benefits not being realized and require a refund or reduction of investor capital contributions, which are reported as deferred income in our consolidated balance sheet, until such time as our obligation to deliver tax benefits is relieved. The remaining compliance periods for our tax credit syndication arrangements range from less than one year to 15 years. At September 30, 2008, we do not anticipate that any material refunds or reductions of investor capital contributions will be required in connection with these arrangements.

Legal Matters

In addition to the matters described below, we are a party to various legal actions and administrative proceedings arising in the ordinary course of business, some of which are covered by our general liability insurance program, and none of which we expect to have a material adverse effect on our consolidated financial condition, results of operations or cash flows.

Limited Partnerships

In connection with our acquisitions of interests in real estate partnerships, we are sometimes subject to legal actions, including allegations that such activities may involve breaches of fiduciary duties to the partners of such real estate partnerships or violations of the relevant partnership agreements. We may incur costs in connection with the defense or settlement of such litigation. We believe that we comply with our fiduciary obligations and relevant partnership agreements. Although the outcome of any litigation is uncertain, we do not expect any such legal actions to have a material adverse effect on our consolidated financial condition, results of operations or cash flows.

Environmental

Various Federal, state and local laws subject property owners or operators to liability for management, and the costs of removal or remediation, of certain hazardous substances present on a property. Such laws often impose liability without regard to whether the owner or operator knew of, or was responsible for, the release or presence of the hazardous substances. The presence of, or the failure to manage or remedy properly, hazardous substances may adversely affect occupancy at affected apartment communities and the ability to sell or finance affected properties. In addition to the costs associated with investigation and remediation actions brought by government agencies, and potential fines or penalties imposed by such agencies in connection therewith, the presence of hazardous substances on a property could result in claims by private plaintiffs for personal injury, disease, disability or other infirmities. Various laws also impose liability for the cost of removal, remediation or disposal of hazardous substances through a licensed disposal or treatment facility. Anyone who arranges for the disposal or treatment of hazardous substances is potentially liable under such laws. These laws often impose liability whether or not the person arranging for the disposal ever owned or operated the disposal facility. In connection with the ownership, operation and management of properties, we could potentially be liable for environmental liabilities or costs associated with our properties or properties we acquire or manage in the future.

We have determined that our legal obligations to remove or remediate hazardous substances may be conditional asset retirement obligations, as defined in FASB Interpretation No. 47, Conditional Asset Retirement Obligations. Except in limited circumstances where the asset retirement activities are expected to be performed in connection with a planned construction project or property casualty, we believe that the fair value of our asset retirement obligations cannot be reasonably estimated due to significant uncertainties in the timing and manner of settlement of those obligations. Asset retirement obligations that are reasonably estimable as of September 30, 2008, are immaterial to our consolidated financial condition, results of operations and cash flows.

Mold

We have been named as a defendant in lawsuits that have alleged personal injury and property damage as a result of the presence of mold. In addition, we are aware of lawsuits against owners and managers of multifamily properties asserting claims of personal injury and property damage caused by the presence of mold, some of which have resulted in substantial monetary judgments or settlements. We have only limited insurance coverage for property damage loss claims arising from the presence of mold and for personal injury claims related to mold exposure. We have implemented policies, procedures, third-party audits and training, and include a detailed moisture intrusion and mold assessment during acquisition due diligence. We believe these measures will prevent or eliminate mold exposure from our properties and will minimize the effects that mold may have on our residents. To date, we have not incurred any material costs or liabilities relating to claims of mold exposure or to abate mold conditions. Because the law regarding mold is unsettled and subject to change, we can make no assurance that liabilities resulting from the presence of or exposure to mold will not have a material adverse effect on our consolidated financial condition, results of operations or cash flows.

FLSA Litigation

As previously disclosed, the Aimco Operating Partnership and NHP Management Company (“NHPMN”), our subsidiary, were defendants in a lawsuit, filed as a collective action in August 2003 in the United States District Court for the District of Columbia, alleging that they willfully violated the Fair Labor Standards Act (“FLSA”) by failing to pay maintenance workers overtime for time worked in excess of 40 hours per week (“overtime claims”). The plaintiffs also contended that the Aimco Operating Partnership and NHPMN failed to compensate maintenance workers for time that they were required to be “on-call” (“on-call claims”). In March 2007, the court in the District of Columbia decertified the collective action. In July 2007, plaintiffs’ counsel filed individual cases in Federal court in 22 different jurisdictions. In the second quarter 2008, we settled the overtime cases involving 652 plaintiffs and established a framework for resolving the 88 remaining “on-call” claims and the attorneys’ fees claimed by plaintiffs’ counsel. As a result, the lawsuits asserted in the 22 Federal courts will be dismissed.

Note 6 — Earnings per Share

We calculate earnings per share based on the weighted average number of shares of Common Stock, common stock equivalents and dilutive convertible securities outstanding during the period. The following table illustrates the calculation of basic and diluted earnings per share for the three and nine months ended September 30, 2008 and 2007 (in thousands, except per share data):

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
		2008				2007				2008				2007
Numerator:
Income (loss) from continuing operations		$	63,995			$	(21,415	)		$	14,560			$	(36,151	)
Less net income attributable to preferred stockholders			(12,224	)			(19,020	)			(40,102	)			(51,715	)
Numerator for basic and diluted earnings per share — Income (loss) from continuing operations (net of income attributable to preferred stockholders)		$	51,771			$	(40,435	)		$	(25,542	)		$	(87,866	)
Income from discontinued operations		$	111,804			$	19,074			$	392,732			$	78,343
Net income (loss)		$	175,799			$	(2,341	)		$	407,292			$	42,192
Less net income attributable to preferred stockholders			(12,224	)			(19,020	)			(40,102	)			(51,715	)
Numerator for basic and diluted earnings per share — Net income (loss) attributable to common stockholders		$	163,575			$	(21,361	)		$	367,190			$	(9,523	)
Denominator:
Denominator for basic earnings per share — weighted average number of shares of Common Stock outstanding			89,650				106,208				93,463				106,888
Effect of dilutive securities:
Dilutive potential common shares			616				—				—				—
Denominator for diluted earnings per share			90,266				106,208				93,463				106,888
Earnings (loss) per common share:
Basic earnings (loss) per common share:
Income (loss) from continuing operations (net of income attributable to preferred stockholders)		$	0.58			$	(0.38	)		$	(0.27	)		$	(0.82	)
Income from discontinued operations			1.24				0.18				4.20				0.73
Net income (loss) attributable to common stockholders		$	1.82			$	(0.20	)		$	3.93			$	(0.09	)
Diluted earnings (loss) per common share:
Income (loss) from continuing operations (net of income attributable to preferred stockholders)		$	0.57			$	(0.38	)		$	(0.27	)		$	(0.82	)
Income from discontinued operations			1.24				0.18				4.20				0.73
Net income (loss) attributable to common stockholders		$	1.81			$	(0.20	)		$	3.93			$	(0.09	)

Weighted average shares of Common Stock outstanding, dilutive potential common shares and earnings (loss) per common share for each of the periods presented have been retroactively adjusted for the effect of the special dividends discussed in Note 1.

Prior to its redemption on September 30, 2007, our Class W Preferred Stock that was convertible into Common Stock was anti-dilutive on an “if converted” basis. Therefore, we deducted all of the dividends payable on the convertible preferred stock to arrive at the numerator and no additional shares were included in the denominator when calculating basic and diluted earnings per common share for the three and nine months ended September 30, 2007. As of September 30, 2008 and 2007, the common share equivalents that could potentially dilute basic earnings per share in future periods totaled 9.7 million and 10.1 million, respectively. These securities, including stock options, restricted stock awards and officer loan shares, have been excluded from the earnings per share computations for the three and nine months ended September 30, 2007, and for the nine months ended September 30, 2008, because their effect would have been anti-dilutive. For the three months ended September 30, 2008, dilutive potential common shares of 616 related to these securities have been included in earnings per share computations.

We consider the Aimco Operating Partnership’s High Performance Units for which the applicable measurement period has not ended to be potential share equivalents. As of September 30, 2008, the related performance benchmarks for the Class IX High Performance Units would not have been achieved if the related measurement period had ended on that date. As of September 30, 2007, the related performance benchmarks for the Class VIII and Class IX High Performance Units would not have been achieved if the related measurement period had ended on that date.

Note 7 — Recent Accounting Developments

In December 2007, the FASB issued Statement of Financial Accounting Standards No. 141(R), Business Combinations — a replacement of FASB Statement No. 141, or SFAS 141(R). SFAS 141(R) applies to all transactions or events in which an entity obtains control of one or more businesses, including those effected without the transfer of consideration, for example, by contract or through a lapse of minority veto rights. SFAS 141(R) requires the acquiring entity in a business combination to recognize the full fair value of assets acquired and liabilities assumed in the transaction (whether a full or partial acquisition); establishes the acquisition-date fair value as the measurement objective for all assets acquired and liabilities assumed; requires expensing of most transaction and restructuring costs; and requires the acquirer to disclose to investors and other users all of the information needed to evaluate and understand the nature and financial effect of the business combination. SFAS 141(R) is effective for fiscal years beginning after December 15, 2008, and early adoption is not permitted. We have not yet determined the effect that SFAS 141(R) will have on our financial statements.

In December 2007, the FASB issued Statement of Financial Accounting Standards No. 160, Noncontrolling Interests in Consolidated Financial Statements — an amendment of ARB No. 51, or SFAS 160. SFAS 160 clarifies that a noncontrolling interest in a subsidiary is an ownership interest in a consolidated entity which should be reported as equity in the parent’s consolidated financial statements. SFAS 160 requires a reconciliation of the beginning and ending balances of equity attributable to noncontrolling interests and disclosure, on the face of the consolidated income statements, of those amounts of consolidated net income attributable to the noncontrolling interests, eliminating the past practice of reporting these amounts as an adjustment in arriving at consolidated net income. SFAS 160 requires a parent to recognize a gain or loss in net income when a subsidiary is deconsolidated and requires the parent to attribute to noncontrolling interests their share of losses even if such attribution results in a deficit noncontrolling interests balance within the parent’s equity accounts. SFAS 160 is effective for fiscal years beginning after December 15, 2008 and requires retroactive application of the presentation and disclosure requirements for all periods presented. Early adoption is not permitted. We have not yet determined the effect that SFAS 160 will have on our financial statements.

In March 2008, the FASB issued Statement of Financial Accounting Standards No. 161, Disclosures about Derivative Instruments and Hedging Activities — an amendment of FASB Statement No. 133, or SFAS 161. SFAS 161 expands the disclosure requirements of SFAS 133 to require qualitative disclosures about the objectives and strategies for using derivatives, quantitative disclosures about the fair value of gains and losses on derivative instruments and disclosures on credit-risk-related contingent features in derivative contracts. SFAS 161 is effective for fiscal years beginning after November 15, 2008, with early adoption encouraged. At initial adoption, SFAS 161 also encourages, but does not require, comparative disclosures for earlier periods. We do not anticipate SFAS 161 will have a material effect on our financial statements.

In June 2008, the FASB issued FSP EITF 03-6-1, Determining Whether Instruments Granted in Share-Based Payment Transactions are Participating Securities, or the FSP. The FSP clarifies that unvested share-based payment awards that participate in dividends similar to shares of common stock or common partnership units should be treated as participating securities. The FSP may affect the computation of basic earnings per share for unvested restricted stock awards and shares purchased pursuant to officer stock loans, which serve as collateral for such loans, both of which entitle the holders to dividends. The FSP is effective for fiscal years beginning after December 15, 2008, and quarters within those years. We do not anticipate the FSP will have a material effect on our financial statements.

Note 8 — Business Segments

Statement of Financial Accounting Standards No. 131, Disclosures about Segments of an Enterprise and Related Information, or SFAS 131, requires that segment disclosures present the measure(s) used by the chief operating decision maker for purposes of assessing such segments’ performance. Our chief operating decision maker is comprised of several members of our executive management team who use several generally accepted industry financial measures to assess the performance of the business, including net asset value, which is the estimated fair value of our assets, net of debt, or NAV; funds from operations, or FFO; adjusted funds from operations, which is FFO less spending for capital replacements; same store property operating results; net operating income; free cash flow, which is net operating income less spending for capital replacements; economic income, which represents changes in NAV plus cash dividends; financial coverage ratios; and leverage as shown on our balance sheet. The chief operating decision maker emphasizes net operating income as a key measurement of segment profit or loss. Net operating income is generally defined as segment revenues less direct segment operating expenses.

We have two reportable segments: real estate and investment management.

Real Estate Segment

Our real estate segment owns and operates properties that generate rental and other property-related income through the leasing of apartment units to a diverse base of residents. Our real estate segment’s net operating income also includes income from property management services performed for unconsolidated partnerships and unrelated parties.

Investment Management Segment

Our investment management segment includes portfolio strategy, capital allocation, joint ventures, tax credit syndication, acquisitions, dispositions and other transaction activities. Within our owned portfolio, we refer to these activities as “Portfolio Management,” and their benefit is seen in property operating results and in investment gains. For affiliated partnerships, we refer to these activities as “Asset Management,” for which we are separately compensated through fees paid by third party investors. The expenses of this segment consist primarily of the costs of departments that perform these activities. These activities are conducted in part by our taxable subsidiaries, and the related net operating income may be subject to income taxes. Our investment management segment’s operating results also include gains on dispositions of non-depreciable assets, accretion of loan discounts resulting from transactional activities and certain other income in arriving at income (loss) from continuing operations for the segment.

The following tables present the revenues, net operating income (loss) and income (loss) from continuing operations of our real estate and investment management segments for the three and nine months ended September 30, 2008 and 2007 (in thousands):

						Investment				Corporate
		Real Estate				Management				(Not Allocated
		Segment				Segment				to Segments)				Total
Three Months Ended September 30, 2008:
Rental and other property revenues		$	361,996			$	—			$	—			$	361,996
Property management revenues, primarily from affiliates			1,227				—				—				1,227
Asset management and tax credit revenues			—				32,755				—				32,755
Total revenues			363,223				32,755				—				395,978
Property operating expenses			172,705				—				—				172,705
Property management expenses			1,560				—				—				1,560
Investment management expenses			—				5,842				—				5,842
Depreciation and amortization (1)			—				—				120,771				120,771
General and administrative expenses			—				—				27,332				27,332
Other income, net			—				—				(3,944	)			(3,944	)
Total operating expenses			174,265				5,842				144,159				324,266
Net operating income (loss)			188,958				26,913				(144,159	)			71,712
Other items included in continuing operations (2)			—				4,418				(12,135	)			(7,717	)
Income (loss) from continuing operations		$	188,958			$	31,331			$	(156,294	)		$	63,995

						Investment				Corporate
		Real Estate				Management				(Not Allocated
		Segment				Segment				to Segments)				Total
Three Months Ended September 30, 2007:
Rental and other property revenues		$	345,197			$	—			$	—			$	345,197
Property management revenues, primarily from affiliates			1,824				—				—				1,824
Asset management and tax credit revenues			—				12,747				—				12,747
Total revenues			347,021				12,747				—				359,768
Property operating expenses			162,829				—				—				162,829
Property management expenses			1,333				—				—				1,333
Investment management expenses			—				5,812				—				5,812
Depreciation and amortization (1)			—				—				110,946				110,946
General and administrative expenses			—				—				20,663				20,663
Other income, net			—				—				(4,953	)			(4,953	)
Total operating expenses			164,162				5,812				126,656				296,630
Net operating income (loss)			182,859				6,935				(126,656	)			63,138
Other items included in continuing operations (2)			—				9,812				(94,365	)			(84,553	)
Income (loss) from continuing operations		$	182,859			$	16,747			$	(221,021	)		$	(21,415	)

						Investment				Corporate
		Real Estate				Management				(Not Allocated
		Segment				Segment				to Segments)				Total
Nine Months Ended September 30, 2008:
Rental and other property revenues		$	1,070,604			$	—			$	—			$	1,070,604
Property management revenues, primarily from affiliates			4,746				—				—				4,746
Asset management and tax credit revenues			—				83,782				—				83,782
Total revenues			1,075,350				83,782				—				1,159,132
Property operating expenses			506,546				—				—				506,546
Property management expenses			4,018				—				—				4,018
Investment management expenses			—				15,859				—				15,859
Depreciation and amortization (1)			—				—				343,636				343,636
General and administrative expenses			—				—				75,820				75,820
Other expenses, net			—				—				7,316				7,316
Total operating expenses			510,564				15,859				426,772				953,195
Net operating income (loss)			564,786				67,923				(426,772	)			205,937
Other items included in continuing operations (2)			—				6,231				(197,608	)			(191,377	)
Income (loss) from continuing operations		$	564,786			$	74,154			$	(624,380	)		$	14,560

						Investment				Corporate
		Real Estate				Management				(Not Allocated
		Segment				Segment				to Segments)				Total
Nine Months Ended September 30, 2007:
Rental and other property revenues		$	1,023,390			$	—			$	—			$	1,023,390
Property management revenues, primarily from affiliates			5,192				—				—				5,192
Asset management and tax credit revenues			—				39,554				—				39,554
Total revenues			1,028,582				39,554				—				1,068,136
Property operating expenses			473,446				—				—				473,446
Property management expenses			5,268				—				—				5,268
Investment management expenses			—				15,799				—				15,799
Depreciation and amortization (1)			—				—				318,691				318,691
General and administrative expenses			—				—				66,763				66,763
Other income, net			—				—				(5,776	)			(5,776	)
Total operating expenses			478,714				15,799				379,678				874,191
Net operating income (loss)			549,868				23,755				(379,678	)			193,945
Other items included in continuing operations (2)			—				14,611				(244,707	)			(230,096	)
Income (loss) from continuing operations		$	549,868			$	38,366			$	(624,385	)		$	(36,151	)

Note 9 — Subsequent Events

Between October 1, 2008 and October 30, 2008, we repurchased 2,018,471 shares of Common Stock for cash totaling $50.0 million, or an average price of $24.77 per share (including commissions).

On October 16, 2008, the Aimco Operating Partnership declared a special distribution of $1.80 per unit payable on December 1, 2008, to holders of record of common OP Units and High Performance Units on October 27, 2008. The special distribution, totaling approximately $176.7 million will be paid on 98,136,520 common OP Units and High Performance Units, including 88,650,980 common OP Units held by us. The Aimco Operating Partnership plans to distribute to us common OP Units equal to the number of shares we issue pursuant to our corresponding $159.6 million special dividend (discussed below), in addition to approximately $53.2 million in cash. Holders of common OP Units other than us and holders of High Performance Units will receive the distribution entirely in cash, which totals $17.1 million.

Also on October 16, 2008, our Board of Directors declared a corresponding special dividend of $1.80 per share payable on December 1, 2008, to holders of record of our Common Stock on October 27, 2008. A portion of the special dividend in the amount of $0.60 per share represents payment of the regular dividend for the quarter ended September 30, 2008, and a portion in the amount of $1.20 per share represents an additional dividend associated with taxable gains from property dispositions in 2008. Stockholders may elect to receive payment of the special dividend in cash or shares, except that the aggregate amount of cash payable to all stockholders in the special dividend is limited to approximately $53.2 million plus cash paid in lieu of fractional shares. The special dividend, totaling approximately $159.6 million, will be paid on 88,650,980 shares issued and outstanding on the record date, which included 464,524 shares held by certain of our consolidated subsidiaries. We expect to pay approximately $106.4 million of the special dividend through the issuance of shares of Common Stock, which will be determined based on the average closing price of our Common Stock on November 20 and 21, 2008. Share and per share amounts disclosed in the accompanying condensed consolidated financial statements and notes thereto have not been retroactively adjusted for the effect of shares to be issued pursuant to this special dividend as the number of shares is not presently determinable. Such retroactive adjustments will be reflected in consolidated financial statements prepared subsequent to the payment date.

ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Forward Looking Statements

The Private Securities Litigation Reform Act of 1995 provides a “safe harbor” for forward-looking statements in certain circumstances. Certain information included in this Report contains or may contain information that is forward-looking, including, without limitation, statements regarding the effect of acquisitions and redevelopments, our future financial performance, including our ability to maintain current or meet projected occupancy, rent levels and same store results, and the effect of government regulations. Actual results may differ materially from those described in the forward-looking statements and, in addition, will be affected by a variety of risks and factors that are beyond our control including, without limitation: natural disasters and severe weather such as hurricanes; national and local economic conditions; the general level of interest rates; energy costs; the terms of governmental regulations that affect us and interpretations of those regulations; the competitive environment in which we operate; financing risks, including the risk that our cash flows from operations may be insufficient to meet required payments of principal and interest; real estate risks, including fluctuations in real estate values and the general economic climate in local markets and competition for residents in such markets; insurance risks; acquisition and development risks, including failure of such acquisitions to perform in accordance with projections; the timing of acquisitions and dispositions; litigation, including costs associated with prosecuting or defending claims and any adverse outcomes; and possible environmental liabilities, including costs, fines or penalties that may be incurred due to necessary remediation of contamination of properties presently owned or previously owned by us. In addition, our current and continuing qualification as a real estate investment trust involves the application of highly technical and complex provisions of the Internal Revenue Code and depends on our ability to meet the various requirements imposed by the Internal Revenue Code, through actual operating results, distribution levels and diversity of stock ownership. Readers should carefully review our financial statements and the notes thereto, as well as the section entitled “Risk Factors” described in Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2007, and the other documents we file from time to time with the Securities and Exchange Commission. As used herein and except as the context otherwise requires, “we,” “our,” “us” and the “Company” refer to Aimco, AIMCO Properties, L.P. (which we refer to as the Aimco Operating Partnership) and Aimco’s consolidated corporate subsidiaries and consolidated real estate partnerships, collectively.

Executive Overview

We are a self-administered and self-managed real estate investment trust, or REIT, engaged in the acquisition, ownership, management and redevelopment of apartment properties. Our property operations are characterized by diversification of product, location and price point. As of September 30, 2008, we owned or managed 1,067 apartment properties containing 178,083 apartment units located in 46 states, the District of Columbia and Puerto Rico. Our primary sources of income and cash are rents associated with apartment leases.

The key financial indicators that we use in managing our business and in evaluating our financial condition and operating performance are: Net Asset Value, which is the estimated fair value of our assets, net of debt, or NAV; Funds From Operations, or FFO; FFO less spending for Capital Replacements, or AFFO; same store property operating results; net operating income; net operating income less spending for Capital Replacements, or Free Cash Flow; Economic Income, which represents changes in NAV plus cash dividends, financial coverage ratios; and leverage as shown on our balance sheet. FFO and Capital Replacements are defined and further described in the sections captioned “Funds From Operations” and “Capital Expenditures” below. The key macro-economic factors and non-financial indicators that affect our financial condition and operating performance are: rates of job growth; single-family and multifamily housing starts; interest rates; and availability of financing.

Because our operating results depend primarily on income from our properties, the supply and demand for apartments influences our operating results. Additionally, the level of expenses required to operate and maintain our properties, the pace and price at which we redevelop, acquire and dispose of our apartment properties, and the volume and timing of fee transactions affect our operating results. Our cost of capital is affected by the conditions in the capital and credit markets and the terms that we negotiate for our equity and debt financings.

For the remainder of 2008, we recognize that the environment has become more challenging. Accordingly, we are focused on: serving and retaining residents; controlling costs and increasing efficiency through improved business processes and automation; controlling capital spending; minimizing our cost of capital, building cash and reducing leverage; and upgrading the quality of our portfolio through portfolio management.

Our portfolio management strategy includes property acquisitions and dispositions to concentrate our portfolio in the 20 largest U.S. markets as measured by total market capitalization. Over time and subject to market conditions, we expect to sell properties representing approximately 20% of our current asset value, which properties are primarily located outside the 20 largest U.S. markets.

The following discussion and analysis of the results of our operations and financial condition should be read in conjunction with the accompanying condensed consolidated financial statements in Item 1.

Results of Operations

Overview

Three months ended September 30, 2008 compared to three months ended September 30, 2007

We reported net income of $175.8 million and net income attributable to common stockholders of $163.6 million for the three months ended September 30, 2008, compared to net loss of $2.3 million and net loss attributable to common stockholders of $21.4 million for the three months ended September 30, 2007, which were increases of $178.1 million and $184.9 million, respectively. These increases were principally due to the following items, all of which are discussed in further detail below:

	•		an increase in income from discontinued operations, primarily related to higher net gains on sales of real estate;
	•		an increase in gain on dispositions of unconsolidated real estate and other, primarily related to higher net gains on disposition of real estate by our unconsolidated real estate partnerships; and
	•		an increase in asset management and tax credit revenues, including increases in promote income resulting from asset disposition activities.

The effects of these items on our operating results were partially offset by an increase in depreciation and amortization expense, primarily related to completed redevelopments.

Nine months ended September 30, 2008 compared to nine months ended September 30, 2007

We reported net income of $407.3 million and net income attributable to common stockholders of $367.2 million for the nine months ended September 30, 2008, compared to net income of $42.2 million and net loss attributable to common stockholders of $9.5 million for the nine months ended September 30, 2007, which were increases of $365.1 million and $376.7 million, respectively. These increases were principally due to the following items, all of which are discussed in further detail below:

	•		an increase in income from discontinued operations, primarily related to higher net gains on sales of real estate;
	•		an increase in gain on dispositions of unconsolidated real estate and other, primarily related to higher net gains on disposition of real estate by our unconsolidated real estate partnerships; and
	•		an increase in asset management and tax credit revenues, which is primarily attributed to increases in promote income resulting from asset disposition activities.

The effects of these items on our operating results were partially offset by:

	•		an increase in interest expense, reflecting higher loan principal balances resulting from refinancings;
	•		a decrease in interest income, primarily related to an adjustment of accretion of discounted notes receivable, and lower cash balances and interest rates;
	•		an increase in depreciation and amortization expense, primarily related to completed redevelopments; and
	•		the recognition in 2007 of deferred debt extinguishment gains in connection with the refinancing of certain mortgage loans that had been restructured in a 1997 bankruptcy settlement.

The following paragraphs discuss these and other items affecting the results of our operations in more detail.

Business Segment Operating Results

We have two reportable segments: real estate (owning, operating and redeveloping apartments) and investment management (portfolio strategy, capital allocation, joint ventures, tax credit syndication, acquisitions, dispositions and other transaction activities). Our chief operating decision maker is comprised of several members of our executive management team who use several generally accepted industry financial measures to assess the performance of the business, including NAV, Economic Income, Free Cash Flow, net operating income, FFO, and AFFO. The chief operating decision maker emphasizes net operating income as a key measurement of segment profit or loss. Segment net operating income is generally defined as segment revenues less direct segment operating expenses.

Real Estate Segment

Our real estate segment involves the ownership and operation of properties that generate rental and other property-related income through the leasing of apartment units. Our real estate segment’s net operating income also includes income from property management services performed for unconsolidated partnerships and unrelated parties.

The following table summarizes our real estate segment’s net operating income for the three and nine months ended September 30, 2008 and 2007 (in thousands):

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
		2008				2007				2008				2007
Real estate segment revenues:
Rental and other property revenues		$	361,996			$	345,197			$	1,070,604			$	1,023,390
Property management revenues, primarily from affiliates			1,227				1,824				4,746				5,192
			363,223				347,021				1,075,350				1,028,582
Real estate segment expenses:
Property operating expenses			172,705				162,829				506,546				473,446
Property management expenses			1,560				1,333				4,018				5,268
			174,265				164,162				510,564				478,714
Real estate segment net operating income		$	188,958			$	182,859			$	564,786			$	549,868

Consolidated Conventional Same Store Property Operating Results

Same store operating results is a key indicator we use to assess the performance of our property operations and to understand the period over period operations of a consistent portfolio of properties. We define “consolidated same store” properties as our conventional properties (i) that we manage, (ii) in which our ownership interest exceeds 10%, (iii) the operations of which have been stabilized, and (iv) that have not been sold or classified as held for sale, in each case, throughout all periods presented. The following tables summarize the operations of our consolidated conventional rental property operations:

		Three Months Ended September 30,
		2008				2007				Change
Consolidated same store revenues		$	228,582			$	223,137				2.4	%
Consolidated same store expenses			90,861				93,730				-3.1	%
Same store net operating income			137,721				129,407				6.4	%
Reconciling items (1)			51,237				53,452				-4.1	%
Real estate segment net operating income		$	188,958			$	182,859				3.3	%
Same store operating statistics:
Properties			254				254
Apartment units			78,142				78,142
Average physical occupancy			95.1	%			94.7	%			0.4	%
Average rent/unit/month		$	939			$	926				1.4	%