APARTMENT INVESTMENT & MANAGEMENT CO - Quarter Report: 2011 September (Form 10-Q)

 

 

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

Commission File Number 1-13232

 

Apartment Investment and Management Company

(Exact name of registrant as specified in its charter)

Maryland (State or other jurisdiction of incorporation or organization)		84-1259577 (I.R.S. Employer 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 has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). 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 (Do not check if a smaller reporting company)		Smaller reporting company o

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 26, 2011: 120,916,144

 

 

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, 2011 and December 31, 2010 (Unaudited)			2
Condensed Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2011 and 2010 (Unaudited)			3
Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2011 and 2010 (Unaudited)			4
Notes to the Condensed Consolidated Financial Statements (Unaudited)			5
ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			20
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk			37
ITEM 4. Controls and Procedures			37
PART II. OTHER INFORMATION
ITEM 1A. Risk Factors			37
ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds			37
ITEM 6. Exhibits			38
Signatures			39
Exhibit 3.1
Exhibit 31.1
Exhibit 31.2
Exhibit 32.1
Exhibit 32.2
Exhibit 99.1
EX-101 INSTANCE DOCUMENT
EX-101 SCHEMA DOCUMENT
EX-101 CALCULATION LINKBASE DOCUMENT
EX-101 LABELS LINKBASE DOCUMENT
EX-101 PRESENTATION LINKBASE DOCUMENT
EX-101 DEFINITION LINKBASE DOCUMENT

PART I. FINANCIAL INFORMATION

ITEM 1.		Financial Statements

APARTMENT INVESTMENT AND MANAGEMENT COMPANY

		September 30,				December 31,
		2011				2010
ASSETS
Buildings and improvements		$	6,959,172			$	6,979,467
Land			2,097,137				2,084,987
Total real estate			9,056,309				9,064,454
Less accumulated depreciation			(2,876,894	)			(2,766,897	)
Net real estate ($805,411 and $846,081 related to VIEs)			6,179,415				6,297,557
Cash and cash equivalents ($42,644 and $34,808 related to VIEs)			75,831				111,325
Restricted cash ($51,694 and $55,076 related to VIEs)			209,481				200,025
Accounts receivable, net			40,848				49,855
Deferred financing costs, net			46,670				46,454
Notes receivable, net			114,630				116,726
Investment in unconsolidated real estate partnerships ($39,043 and $54,374 related to VIEs)			63,942				59,282
Other assets			250,296				199,886
Deferred income tax assets, net			61,589				58,736
Assets held for sale			—				238,720
Total assets		$	7,042,702			$	7,378,566
LIABILITIES AND EQUITY
Non-recourse property debt ($641,847 and $637,967 related to VIEs)		$	5,233,525			$	5,291,612
Revolving credit facility borrowings			26,200				—
Total indebtedness			5,259,725				5,291,612
Accounts payable			24,999				27,322
Accrued liabilities and other ($81,901 and $94,656 related to VIEs)			278,606				297,121
Deferred income			150,357				150,453
Security deposits			34,516				33,829
Liabilities related to assets held for sale			—				168,029
Total liabilities			5,748,203				5,968,366
Preferred noncontrolling interests in Aimco Operating Partnership			83,385				83,428
Preferred stock subject to repurchase agreement			10,000				20,000
Commitments and contingencies (Note 8)			—				—
Equity:
Perpetual Preferred Stock			656,015				657,601
Class A Common Stock, $0.01 par value, 480,887,260 and 422,157,736 shares authorized, 120,916,144 and 117,642,872 shares issued and outstanding at September 30, 2011 and December 31, 2010, respectively			1,209				1,176
Additional paid-in capital			3,106,079				3,070,296
Accumulated other comprehensive loss			(8,312	)			(2,076	)
Distributions in excess of earnings			(2,803,679	)			(2,680,955	)
Total Aimco equity			951,312				1,046,042
Noncontrolling interests in consolidated real estate partnerships			279,997				291,458
Common noncontrolling interests in Aimco Operating Partnership			(30,195	)			(30,728	)
Total equity			1,201,114				1,306,772
Total liabilities and equity		$	7,042,702			$	7,378,566

See notes to condensed consolidated financial statements.

APARTMENT INVESTMENT AND MANAGEMENT COMPANY

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
		2011				2010				2011				2010
REVENUES:
Rental and other property revenues		$	269,525			$	263,481			$	805,749			$	788,057
Asset management and tax credit revenues			11,885				9,711				28,772				24,208
Total revenues			281,410				273,192				834,521				812,265
OPERATING EXPENSES:
Property operating expenses			119,903				116,786				356,634				362,784
Investment management expenses			2,386				2,609				7,604				10,979
Depreciation and amortization			97,321				101,704				287,739				305,066
Provision for operating real estate impairment losses			149				—				149				—
General and administrative expenses			12,664				12,096				36,162				39,015
Other expenses, net			4,870				4,416				13,952				2,173
Total operating expenses			237,293				237,611				702,240				720,017
Operating income			44,117				35,581				132,281				92,248
Interest income			3,273				2,362				7,771				7,437
Recovery of (provision for) losses on notes receivable, net			233				(6	)			180				(284	)
Interest expense			(73,152	)			(74,544	)			(243,169	)			(225,305	)
Equity in losses of unconsolidated real estate partnerships			(4,987	)			(15,653	)			(8,432	)			(11,799	)
Gain on dispositions of unconsolidated real estate and other			3,095				883				5,115				5,368
Loss before income taxes and discontinued operations			(27,421	)			(51,377	)			(106,254	)			(132,335	)
Income tax benefit			1,110				4,385				5,704				11,042
Loss from continuing operations			(26,311	)			(46,992	)			(100,550	)			(121,293	)
Income from discontinued operations, net			30,968				18,510				50,959				65,881
Net income (loss)			4,657				(28,482	)			(49,591	)			(55,412	)
Noncontrolling interests:
Net (income) loss attributable to noncontrolling interests in consolidated real estate partnerships			(5,464	)			11,213				4,612				1,795
Net (income) loss attributable to preferred noncontrolling interests in Aimco Operating Partnership			(1,670	)			84				(5,012	)			(3,292	)
Net loss attributable to common noncontrolling interests in Aimco Operating Partnership			1,035				2,263				5,838				6,644
Total noncontrolling interests			(6,099	)			13,560				5,438				5,147
Net loss attributable to Aimco			(1,442	)			(14,922	)			(44,153	)			(50,265	)
Net income attributable to Aimco preferred stockholders			(13,301	)			(13,576	)			(35,429	)			(36,626	)
Net income attributable to participating securities			(58	)			(2	)			(169	)			—
Net loss attributable to Aimco common stockholders		$	(14,801	)		$	(28,500	)		$	(79,751	)		$	(86,891	)
Earnings (loss) attributable to Aimco per common share — basic and diluted (Note 9):
Loss from continuing operations attributable to Aimco common stockholders		$	(0.26	)		$	(0.35	)		$	(0.92	)		$	(1.10	)
Income from discontinued operations attributable to Aimco common stockholders			0.14				0.10				0.25				0.35
Net loss attributable to Aimco common stockholders		$	(0.12	)		$	(0.25	)		$	(0.67	)		$	(0.75	)
Weighted average common shares outstanding, basic and diluted			120,339				116,434				118,939				116,264
Dividends declared per common share		$	0.12			$	0.10			$	0.36			$	0.20

See notes to condensed consolidated financial statements.

APARTMENT INVESTMENT AND MANAGEMENT COMPANY

		Nine Months Ended
		September 30,
		2011				2010
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss		$	(49,591	)		$	(55,412	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization			287,739				305,066
Equity in losses of unconsolidated real estate partnerships			8,432				11,799
Gain on dispositions of unconsolidated real estate and other			(5,115	)			(5,368	)
Discontinued operations			(45,288	)			(44,957	)
Other adjustments			(2,986	)			(553	)
Net changes in operating assets and operating liabilities			(16,810	)			(20,406	)
Net cash provided by operating activities			176,381				190,169
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of real estate and investments in unconsolidated real estate partnerships			(63,853	)			—
Capital expenditures			(118,430	)			(130,790	)
Proceeds from dispositions of real estate			187,737				143,719
Purchases of corporate assets			(11,891	)			(6,782	)
Purchase of investments in debt securities (Note 4)			(51,534	)			—
Originations of notes receivable from unconsolidated real estate partnerships			(641	)			(968	)
Proceeds from collection of notes receivable			9,995				1,691
Proceeds from sale of interests in and distributions from real estate partnerships			11,342				11,792
Net increase in cash from consolidation and deconsolidation of entities			—				13,118
Other investing activities			19,031				9,745
Net cash (used in) provided by investing activities			(18,244	)			41,525
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from non-recourse property debt			767,523				167,367
Principal repayments on non-recourse property debt			(905,791	)			(213,295	)
Payments on term loans			—				(90,000	)
Net borrowings on revolving credit facility			26,200				—
Proceeds from issuance of preferred stock			19,028				96,110
Redemptions and repurchases of preferred stock			(28,567	)			(7,000	)
Proceeds from issuance of Common Stock			72,012				—
Proceeds from Class A Common Stock option exercises			1,806				1,806
Payment of dividends to holders of preferred stock			(37,390	)			(38,760	)
Payment of dividends to holders of Class A Common Stock			(43,075	)			(35,027	)
Payment of distributions to noncontrolling interests			(41,009	)			(45,201	)
Other financing activities			(24,368	)			(3,892	)
Net cash used in financing activities			(193,631	)			(167,892	)
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS			(35,494	)			63,802
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD			111,325				81,260
CASH AND CASH EQUIVALENTS AT END OF PERIOD		$	75,831			$	145,062

See notes to condensed consolidated financial statements.

APARTMENT INVESTMENT AND MANAGEMENT COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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. Our principal financial objective is to provide predictable and attractive returns to our stockholders. Our business plan to achieve this objective is to:

•

own and operate a broadly diversified portfolio of primarily class “B/B+” assets (defined below) with properties concentrated in the 20 largest markets in the United States (as measured by total apartment value, which is the estimated total market value of apartment properties in a particular market);

•

improve our portfolio by selling assets with lower projected returns and reinvesting those proceeds through the purchase of new assets or additional investment in existing assets in our portfolio, including increased ownership or redevelopment; and

•

provide financial leverage primarily by the use of non-recourse, long-dated, fixed-rate property debt and perpetual preferred equity.

As of September 30, 2011, we:

•

owned an equity interest in 205 conventional real estate properties with 64,781 units;

•

owned an equity interest in 201 affordable real estate properties with 24,040 units; and

•

provided services for, or managed, 11,233 units in 159 properties, primarily pursuant to long-term asset management agreements. In certain cases, we may indirectly own less than one percent of the operations of such properties through a syndication or other fund.

Of these properties, we consolidated 199 conventional properties with 63,335 units and 160 affordable properties with 19,969 units. These conventional and affordable properties generated 87% and 13%, respectively, of our proportionate property net operating income (as defined in Note 11) during the nine months ended September 30, 2011. During the nine months ended September 30, 2011, as part of our ongoing effort to simplify our business, we resigned from our role providing asset or property management services for approximately 100 properties with approximately 11,400 units.

For conventional assets, we focus on the ownership of primarily B/B+ assets. We measure conventional property asset quality based on average rents of our units compared to local market average rents as reported by a third-party provider of commercial real estate performance and analysis, with A-quality assets earning rents greater than 125% of local market average, B-quality assets earning rents 90% to 125% of local market average and C-quality assets earning rents less than 90% of local market average. We classify as B/B+ those assets earning rents ranging from 100% to 125% of local market average. Although some companies and analysts within the multifamily real estate industry use asset class ratings of A, B and C, some of which are tied to local market rent averages, the metrics used to classify asset quality as well as the timing for which local markets rents are calculated may vary from company to company. Accordingly, our rating system for measuring asset quality is neither broadly nor consistently used in the multifamily real estate industry.

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, 2011, we held an interest of approximately 94% in the common partnership units and high performance units 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 partnership units, high performance partnership units and partnership preferred units, which we refer to as common OP Units, High Performance Units and preferred OP Units, respectively. At September 30, 2011, after elimination of shares held by consolidated subsidiaries, 120,916,144 shares of our Common Stock were outstanding and the Aimco Operating Partnership had 8,289,841 common OP Units and high performance units outstanding for a combined total of 129,205,985 shares of Common Stock, common OP Units and high performance units outstanding.

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

NOTE 2 — Basis of Presentation and Summary of Significant Accounting Policies

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted 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, 2011, are not necessarily indicative of the results that may be expected for the year ending December 31, 2011.

The balance sheet at December 31, 2010, 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 our Annual Report on Form 10-K for the year ended December 31, 2010. Certain 2010 financial statement amounts have been reclassified to conform to the 2011 presentation, including adjustments for discontinued operations.

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 noncontrolling interests 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 noncontrolling interests 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.

Variable Interest Entities

We consolidate all variable interest entities for which we are the primary beneficiary. Generally, a variable interest entity, or VIE, is an entity with one or more of the following characteristics: (a) the total equity investment at risk is not sufficient to permit the entity to finance its activities without additional subordinated financial support; (b) as a group, the holders of the equity investment at risk lack (i) the ability to make decisions about an entity’s activities through voting or similar rights, (ii) the obligation to absorb the expected losses of the entity, or (iii) the right to receive the expected residual returns of the entity; or (c) the equity investors have voting rights that are not proportional to their economic interests and substantially all of the entity’s activities either involve, or are conducted on behalf of, an investor that has disproportionately few voting rights.

In determining whether we are the primary beneficiary of a VIE, we consider qualitative and quantitative factors, including, but not limited to: which activities most significantly impact the VIE’s economic performance and which party controls such activities; the amount and characteristics of our investment; the obligation or likelihood for us or other investors to provide financial support; and the similarity with and significance to the business activities of us and the other investors. Significant judgments related to these determinations include estimates about the current and future fair values and performance of real estate held by these VIEs and general market conditions. Refer to Note 5 for further discussion of our variable interest entities.

Equity (including Noncontrolling Interests)

The following table presents a reconciliation of our consolidated temporary equity accounts from December 31, 2010 to September 30, 2011 (in thousands):

		Preferred
		noncontrolling				Preferred stock
		interests in Aimco				subject to
		Operating				repurchase
		Partnership				agreement
Balance, December 31, 2010		$	83,428			$	20,000
Preferred distributions			(5,012	)			—
Redemption of preferred units			(43	)			—
Repurchase of preferred shares			—				(10,000	)
Net income			5,012				—
Balance, September 30, 2011		$	83,385			$	10,000

The following table presents a reconciliation of our consolidated permanent equity accounts from December 31, 2010 to September 30, 2011 (in thousands):

						Noncontrolling				Common
						interests in				noncontrolling
						consolidated real				interests in
		Aimco				estate				Aimco Operating				Total
		Equity				partnerships				Partnership				Equity
Balance, December 31, 2010		$	1,046,042			$	291,458			$	(30,728	)		$	1,306,772
Contributions			—				12,358				—				12,358
Issuance of common stock			72,012				—				—				72,012
Issuance of preferred stock			19,028				—				—				19,028
Redemptions and repurchases of preferred stock			(18,567	)			—				—				(18,567	)
Preferred stock dividends			(37,390	)			—				—				(37,390	)
Common dividends and distributions			(43,075	)			(32,974	)			(3,021	)			(79,070	)
Repurchases of common units			—				—				(4,831	)			(4,831	)
Amortization of stock based compensation cost			4,725				—				—				4,725
Stock option exercises			1,806				—				—				1,806
Effect of changes in ownership for consolidated entities (Note 4)			(43,085	)			14,124				14,827				(14,134	)
Change in accumulated other comprehensive loss			(6,236	)			(402	)			(604	)			(7,242	)
Other			205				45				—				250
Net loss			(44,153	)			(4,612	)			(5,838	)			(54,603	)
Balance, September 30, 2011		$	951,312			$	279,997			$	(30,195	)		$	1,201,114

Comprehensive Income or Loss

As discussed in Note 4, we have investments classified as available for sale which are measured at fair value with unrealized gains or losses recognized as an adjustment of accumulated other comprehensive loss within equity. Additionally, as discussed in Note 6, we recognize changes in the fair value of our cash flow hedges as changes in accumulated other comprehensive loss within equity. Our consolidated comprehensive loss for the three months ended September 30, 2011 and 2010, totaled $3.3 million and $30.3 million, respectively, and for the nine months ended September 30, 2011 and 2010, totaled $56.8 million and $59.2 million, respectively, before the effects of noncontrolling interests.

In June 2011, the FASB issued Accounting Standards Update 2011-05, Presentation of Comprehensive Income, or ASU 2011-05, which revises the manner in which companies present comprehensive income. Under ASU 2011-05, companies may present comprehensive income, which is net income adjusted for the components of other comprehensive income, either in a single, continuous statement of comprehensive income or by using two separate but consecutive statements. Regardless of the alternative chosen, companies must display adjustments for items reclassified from other comprehensive income into net income within the presentation of both net income and other comprehensive income. ASU 2011-05 is effective for interim and annual periods beginning after December 15, 2011. We are currently evaluating the effect ASU 2011-05 will have on our consolidated financial statements and have not yet determined which method of presentation we will elect.

Concentration of Credit Risk

At September 30, 2011, we had total rate of return swap positions with two financial institutions totaling $144.7 million. We periodically evaluate counterparty credit risk associated with these arrangements. In the event either counterparty were to default under these arrangements, loss of the net interest benefit we generally receive under these arrangements, which is equal to the difference between the fixed rate we receive and the variable rate we pay, may adversely impact our results of operations and operating cash flows. However, at the current time, we have concluded we do not have material exposure.

Income Taxes

In March 2008, we were notified by the Internal Revenue Service, or the IRS, 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 partner and tax matters partner of the Aimco Operating Partnership, a summary report including the IRS’s proposed adjustments to the Aimco Operating Partnership’s 2006 Federal tax return. In addition, in May 2009, we were notified by the IRS that it intended to examine the 2007 Federal tax return for the Aimco Operating Partnership. During November 2009, the IRS issued AIMCO-GP, Inc. a summary report including the IRS’s proposed adjustments to the Aimco Operating Partnership’s 2007 Federal tax return. These matters are currently pending administratively before IRS Appeals and the IRS has made no determination. We do not expect the 2006 or 2007 proposed adjustments to have any material effect on our unrecognized tax benefits, financial condition or results of operations.

In October 2011, we were notified by the IRS that it intends to examine refund claims related to the carry back of our taxable REIT subsidiary’s 2009 net operating loss. We do not anticipate that this examination will result in any material effect on our unrecognized tax benefits, financial condition or results of operations.

Use of Estimates

The preparation of our condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts included in the financial statements and accompanying notes thereto. Actual results could differ from those estimates.

NOTE 3 — Real Estate Dispositions

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 12 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 in the subsequent 12 months; thus, the number of properties that may be sold during the subsequent 12 months could exceed the number classified as held for sale at the particular balance sheet date. At September 30, 2011 we had no properties classified as held for sale. At December 31, 2010, we had 39 properties with an aggregate of 6,701 units classified as held for sale. Amounts classified as held for sale in the accompanying condensed consolidated balance sheets are as follows (in thousands):

		December 31,
		2010
Real estate, net		$	235,674
Other assets			3,046
Assets held for sale		$	238,720
Property debt		$	166,171
Other liabilities			1,858
Liabilities related to assets held for sale		$	168,029

During the nine months ended September 30, 2011 and 2010, we sold or disposed of 39 properties and 31 properties with an aggregate of 6,701 units and 5,048 units, respectively. During the year ended December 31, 2010, we disposed of 51 consolidated properties with an aggregate of 8,189 units. Discontinued operations for all periods presented includes the results of operations for the periods prior to the date of disposition for all properties disposed on or before September 30, 2011.

The following is a summary of the components of income from discontinued operations and the related amounts of income from discontinued operations attributable to Aimco and to noncontrolling interests for the three and nine months ended September 30, 2011 and 2010 (in thousands):

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
		2011				2010				2011				2010
Rental and other property revenues		$	3,428			$	21,202			$	23,917			$	77,596
Property operating expenses			(2,816	)			(12,489	)			(13,355	)			(42,761	)
Depreciation and amortization			(931	)			(6,340	)			(7,695	)			(21,909	)
Provision for operating real estate impairment losses			(5,522	)			(1,429	)			(11,829	)			(9,550	)
Operating (loss) income			(5,841	)			944				(8,962	)			3,376
Interest income			44				111				361				298
Interest expense			(862	)			(4,082	)			(5,252	)			(14,209	)
Loss before gain on dispositions of real estate and income tax			(6,659	)			(3,027	)			(13,853	)			(10,535	)
Gain on dispositions of real estate			37,467				21,084				64,901				74,406
Income tax benefit (expense)			160				453				(89	)			2,010
Income from discontinued operations, net		$	30,968			$	18,510			$	50,959			$	65,881
Income from discontinued operations attributable to:
Noncontrolling interests in consolidated real estate partnerships		$	(12,734	)		$	(5,205	)		$	(18,689	)		$	(21,372	)
Noncontrolling interests in Aimco Operating Partnership			(1,274	)			(890	)			(2,211	)			(2,983	)
Total noncontrolling interests			(14,008	)			(6,095	)			(20,900	)			(24,355	)
Income from discontinued operations attributable to Aimco		$	16,960			$	12,415			$	30,059			$	41,526

Gain on dispositions of real estate is reported net of incremental direct costs incurred in connection with the transactions, including any prepayment penalties incurred upon repayment of property loans collateralized by the properties being sold. Such prepayment penalties totaled $2.6 million and $7.6 million for the three and nine months ended September 30, 2011, respectively, and $0.6 million and $3.8 million for the three and nine months ended September 30, 2010, respectively. We classify interest expense related to property debt within discontinued operations when the related real estate asset is sold or classified as held for sale.

In connection with properties sold or classified as held for sale during the three and nine months ended September 30, 2011, we allocated $1.0 million and $2.7 million, respectively, of goodwill related to our conventional and affordable segments to the carrying amounts of the properties sold or classified as held for sale. Of these amounts, $0.9 million and $2.2 million, respectively, were recognized as a reduction of gain on dispositions of real estate and $0.1 million and $0.5 million, respectively, were recognized as an adjustment of impairment losses during the three and nine months ended September 30, 2011. In connection with properties sold or classified as held for sale during the three and nine months ended September 30, 2010, we allocated $0.5 million and $3.3 million, respectively, of goodwill related to our conventional and affordable segments to the carrying amounts of the properties sold or classified as held for sale. Of these amounts, $0.3 million and $2.9 million, respectively, were treated as a reduction of gain on dispositions of real estate and $0.2 million and $0.4 million, respectively, were treated as an adjustment of impairment losses during the three and nine months ended September 30, 2010. The amounts of goodwill allocated to these properties were based on the relative fair values of the properties sold or classified as held for sale and the retained portions of the reporting units to which the goodwill was allocated.

In connection with our real estate dispositions during the nine months ended September 30, 2011 and 2010, the purchasers assumed approximately $95.4 million and $120.9 million, respectively, of non-recourse property debt.

NOTE 4 — Other Significant Transactions

Investments in Real Estate Properties

During the three months ended September 30, 2011, we acquired a vacant, 126-unit property located in San Francisco’s Marin County submarket. We intend to redevelop the property, increasing our total investment in the property to approximately $65.0 million upon completion. Additionally, during the nine months ended September 30, 2011, we acquired noncontrolling interests (approximately 50%) in entities that own four contiguous properties with 142 units located in La Jolla, California (near San Diego).

Property Loan Securitization Transactions

During the nine months ended September 30, 2011, we completed a series of related financing transactions that repaid $625.7 million of non-recourse property loans that were scheduled to mature between the years 2012 and 2016 with proceeds from new long-term, fixed-rate, non-recourse property loans, or the New Loans. The New Loans, which total $673.8 million, were closed in three parts; $218.6 million closed during the three months ended December 31, 2010, $120.6 million closed during the three months ended March 31, 2011, and $334.6 million closed during the three months ended June 30, 2011. All of the New Loans have ten year terms, with principal scheduled to amortize over 30 years. Subsequent to origination, the New Loans were sold to Federal Home Loan Mortgage Corp, or Freddie Mac, which then securitized the New Loans. The securitization trust holds only the New Loans referenced above and the trust securities trade under the label FREMF 2011K-AIV. In connection with the refinancings, during the nine months ended September 30, 2011, we recognized a loss on debt extinguishment of $23.0 million in interest expense, consisting of $20.7 million in prepayment penalties and a $2.3 million write off of previous deferred loan costs.

During the nine months ended September 30, 2011, as part of the securitization transaction, we purchased for $51.5 million the first loss and mezzanine positions in the securitization trust, which have a face value of $100.9 million and stated maturity dates corresponding to the terms of the loans held by the trust. We designated these investments as available for sale securities and they are included in other assets in our condensed consolidated balance sheet at September 30, 2011. These investments were initially recognized at their purchase price and the discount to the face value will be accreted into interest income over the expected term of the securities. Based on their classification as available for sale securities, we measure these investments at fair value with changes in their fair value, other than the changes attributed to the accretion described above, recognized as an adjustment of accumulated other comprehensive income or loss within equity.

Aimco Equity Transactions

During the three months ended September 30, 2011, we issued approximately 823,800 shares of 7.00% Class Z Cumulative Preferred Stock, par value $0.01 per share, in an underwritten public offering and subsequent offerings through an at-the-market, or ATM, offering program, for net proceeds per share of $23.11 (reflecting an average price to the public of $24.21 per share, less an underwriting discount, commissions and transaction costs of approximately $1.10 per share). The offerings generated net proceeds of $19.0 million.

Also during the three months ended September 30, 2011, primarily using the proceeds from our Class Z Cumulative Preferred Stock issuances, we redeemed 862,500 shares (25% of the amount outstanding) of our Class V Cumulative Preferred Stock. This redemption was for cash at a price equal to $25.00 per share, or $21.6 million in aggregate, plus accumulated and unpaid dividends of approximately $0.2 million. In connection with the redemption, $0.8 million of issuance costs previously recorded as a reduction of additional paid-in capital were reflected as an increase in net income attributable to preferred stockholders for purposes of calculating earnings per share for the three and nine months ended September 30, 2011.

During the three and nine months ended September 30, 2011, we sold 0.1 million and 2.9 million shares of Common Stock under our common stock ATM offering program, generating $3.0 million and $73.6 million of gross proceeds, or $2.8 million and $72.0 million, respectively, net of commissions. We used the net proceeds primarily to fund the prepayment penalties and investments discussed above.

Acquisitions of Noncontrolling Partnership Interests

During the nine months ended September 30, 2011, we acquired the remaining noncontrolling limited partnership interests in six consolidated real estate partnerships that own nine properties and in which our affiliates serve as general partner, for a total cost of $13.6 million. We recognized the excess of the cost over the carrying amount of the noncontrolling interests acquired as an adjustment of additional paid-in capital within Aimco equity, net of the amount of such adjustment allocated to common noncontrolling interests in Aimco Operating Partnership. During the nine months ended September 30, 2010, there were no comparable acquisitions of noncontrolling limited partnership interests.

NOTE 5 — Variable Interest Entities

As of September 30, 2011, we were the primary beneficiary of, and therefore consolidated, approximately 124 VIEs, which owned 84 apartment properties with 12,982 units. Real estate with a carrying value of $805.4 million collateralized $641.8 million of debt of those VIEs. Any significant amounts of assets and liabilities related to our consolidated VIEs are identified parenthetically on our accompanying condensed consolidated balance sheets. The creditors of the consolidated VIEs do not have recourse to our general credit.

As of September 30, 2011, we also held variable interests in 215 VIEs for which we were not the primary beneficiary. Those VIEs consist primarily of partnerships that are engaged, directly or indirectly, in the ownership and management of 268 apartment properties with 15,818 units. We are involved with those VIEs as an equity holder, lender, management agent, or through other contractual relationships. The majority of our investments in unconsolidated VIEs, or approximately $33.4 million at September 30, 2011, are held through consolidated investment partnerships that are VIEs and in which we generally hold a 1% or less general partner or equivalent interest. Accordingly, substantially all of the investment balances related to these unconsolidated VIEs are attributed to the noncontrolling interests in the consolidated investment partnerships that hold the investments in these unconsolidated VIEs. Our maximum risk of loss related to our investment in these VIEs is generally limited to our equity interest in the consolidated investment partnerships, which is insignificant. The remainder of our investment in unconsolidated VIEs, or approximately $5.6 million at September 30, 2011, is held through consolidated tax credit funds that are VIEs and in which we hold substantially all of the economic interests. Our maximum risk of loss related to our investment in these VIEs is limited to our $5.6 million recorded investment in such entities.

In addition to our investments in unconsolidated VIEs discussed above, at September 30, 2011, we had in aggregate $99.7 million of receivables from these unconsolidated VIEs and we had a contractual obligation to advance funds to certain unconsolidated VIEs totaling $3.2 million. Our maximum risk of loss associated with our lending and management activities related to these unconsolidated VIEs is limited to these amounts. We may be subject to additional losses to the extent of any receivables relating to future provision of services to these entities or financial support that we voluntarily provide.

As discussed in Note 8, noncompliance with applicable requirements related to our consolidated and unconsolidated tax credit partnerships, substantially all of which are VIEs, could result in projected tax credits not being realized and require a refund of investor contributions already received or a reduction of future investor contributions. We have not historically had, nor do we anticipate, any material refunds or reductions of investor capital contributions in connection with these arrangements.

NOTE 6 — Derivative Financial Instruments

We have limited exposure to derivative financial instruments. We primarily use long-term, fixed-rate and self-amortizing non-recourse debt to avoid, among other things, risk related to fluctuating interest rates. For our variable rate debt, we are sometimes required by our lenders to limit our exposure to interest rate fluctuations by entering into interest rate swap agreements, which moderate our exposure to interest rate risk by effectively converting the interest on variable rate debt to a fixed rate. The fair values of the interest rate swaps are reflected as assets or liabilities in the balance sheet, and periodic changes in fair value are included in interest expense or equity, as appropriate.

At September 30, 2011 and December 31, 2010, we had interest rate swaps with aggregate notional amounts of $52.3 million, and recorded fair values of $6.6 million and $2.7 million, respectively, reflected in accrued liabilities and other in our condensed consolidated balance sheets. At September 30, 2011, these interest rate swaps had a weighted average term of 9.4 years. We have designated these interest rate swaps as cash flow hedges and recognize any changes in their fair value as an adjustment of accumulated other comprehensive loss within equity to the extent of their effectiveness. Changes in the fair value of these instruments and the related amounts of such changes that were reflected as an adjustment of accumulated other comprehensive loss within equity and as an adjustment of earnings (ineffectiveness) are identified in the recurring fair value measurements table in Note 7.

If the forward rates at September 30, 2011 remain constant, we estimate that during the next twelve months, we would reclassify into earnings approximately $1.6 million of the unrealized losses in accumulated other comprehensive loss. If market interest rates increase above the 3.43% weighted average fixed rate under these interest rate swaps we will benefit from a lower effective rate than the underlying variable rates on this debt.

We have entered into total rate of return swaps on various fixed-rate property debt to convert these borrowings from a fixed rate to a variable rate and provide an efficient financing product to lower our cost of borrowing. In exchange for our receipt of a fixed rate generally equal to the underlying borrowing’s interest rate, the total rate of return swaps require that we pay a variable rate, equivalent to one of several indices, plus a risk spread. The underlying borrowings are generally callable at our option, with no prepayment penalty, with 30 days advance notice, and the swaps mature in 2012. We designate total rate of return swaps as hedges of the risk of overall changes in the fair value of the underlying borrowings. At each reporting period, we estimate the fair value of these borrowings and the total rate of return swaps and recognize any changes therein as an adjustment of interest expense.

As of September 30, 2011 and December 31, 2010, we had borrowings payable subject to total rate of return swaps with aggregate outstanding principal balances of $144.3 million and $276.9 million, respectively. We reduced by $132.0 million the amount of debt subject to certain total rate of return swaps and terminated the associated swaps during the nine months ended September 30, 2011, in connection with our refinancing of the underlying debt. We repaid this debt at par and, accordingly, no payments were required upon termination of the swaps. The remaining reduction in the outstanding principal balance during the nine months ended September 30, 2011 was due to other principal amortization. At September 30, 2011, the weighted average fixed receive rate under the total return swaps was 6.3% and the weighted average variable pay rate was 1.8%, based on the applicable index rates effective as of that date. Information regarding the fair value of these instruments at September 30, 2011 and December 31, 2010, is included in the recurring fair value measurements table in Note 7.

NOTE 7 — Fair Value Measurements

We measure certain assets and liabilities in our consolidated financial statements at fair value, both on a recurring and nonrecurring basis. Certain of these fair value measurements are based on significant unobservable inputs classified within Level 3 of the valuation hierarchy defined in FASB ASC Topic 820. 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 also include 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.

The table below presents information regarding significant items measured in our condensed consolidated financial statements at fair value on a recurring basis, consisting of investments in securities classified as available for sale (AFS), interest rate swaps (IR swaps), total rate of return swaps (TRR swaps) and debt subject to TRR swaps (TRR debt) (in thousands):

		Level 2								Level 3
						IR				TRR				TRR
		AFS (1)				swaps (2)				swaps (3)				debt (4)				Total
Fair value at December 31, 2009		$	—			$	(1,596	)		$	(24,307	)		$	24,307			$	(1,596	)
Unrealized gains (losses) included in earnings (5)			—				(35	)			5,771				(5,771	)			(35	)
Realized gains (losses) included in earnings			—				—				—				—				—
Unrealized gains (losses) included in equity			—				(3,806	)			—				—				(3,806	)
Fair value at September 30, 2010		$	—			$	(5,437	)		$	(18,536	)		$	18,536			$	(5,437	)
Fair value at December 31, 2010		$	—			$	(2,746	)		$	(19,542	)		$	19,542			$	(2,746	)
Purchases			51,534				—				—				—				51,534
Investment accretion (see Note 4)			939				—				—				—				939
Unrealized gains (losses) included in earnings (5)			—				(36	)			11,772				(11,772	)			(36	)
Realized gains (losses) included in earnings			—				—				—				—				—
Unrealized gains (losses) included in equity			(3,428	)			(3,814	)			—				—				(7,242	)
Fair value at September 30, 2011		$	49,045			$	(6,596	)		$	(7,770	)		$	7,770			$	42,449

The table below presents information regarding amounts measured at fair value in our condensed consolidated financial statements on a nonrecurring basis during the nine months ended September 30, 2011 and 2010, all of which were based, in part, on significant unobservable inputs classified within Level 3 of the valuation hierarchy (in thousands):

		Nine Months Ended								Nine Months Ended
		September 30, 2011								September 30, 2010
		Fair value				Total				Fair value				Total
		measurement				gain (loss)				measurement				gain (loss)
Real estate (impairment losses) (1)(3)		$	59,547			$	(10,522	)		$	43,961			$	(8,341	)
Real estate (newly consolidated) (2)(3)			—				—				117,083				1,104
Property debt (newly consolidated) (2)(4)			—				—				83,890				—

We believe that the aggregate fair value of our cash and cash equivalents, receivables, payables and short-term debt approximates their aggregate carrying amounts at September 30, 2011 and December 31, 2010, due to their relatively short-term nature and high probability of realization. We estimate fair value for our notes receivable and long-term debt instruments using present value techniques that include income and market valuation approaches using observable inputs such as market rates for debt with the same or similar terms and unobservable inputs such as collateral quality and loan-to-value ratios on similarly encumbered assets. Because of the significance of unobservable inputs to these fair value measurements, we classify them within Level 3 of the fair value hierarchy. Present value calculations vary depending on the assumptions used, including the discount rate and estimates of future cash flows. In many cases, the fair value estimates may not be realizable in immediate settlement of the instruments. The estimated aggregate fair value of our notes receivable (including notes receivable from unconsolidated real estate partnerships, which we classify within other assets in our condensed consolidated balance sheets) was approximately $112.3 million and $116.0 million at September 30, 2011 and December 31, 2010, respectively, as compared to their carrying amounts of $124.2 million and $127.6 million, respectively. The estimated aggregate fair value of our consolidated debt (including amounts reported in liabilities related to assets held for sale) was approximately $5.8 billion and $5.5 billion at September 30, 2011 and December 31, 2010, respectively, as compared to aggregate carrying amounts of $5.3 billion and $5.5 billion, respectively. The fair values of our derivative instruments at September 30, 2011 and December 31, 2010, are included in the recurring fair value measurements table above.

In May 2011, the FASB issued Accounting Standards Update 2011-04, Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs, or ASU 2011-04. ASU 2011-04 amended ASC 820, Fair Value Measurements and Disclosures, to converge the fair value measurement guidance in GAAP and International Financial Reporting Standards. The amendments, which primarily require additional fair value disclosures, are to be applied prospectively for annual periods beginning after December 15, 2011. We are currently evaluating the effect ASU 2011-04 will have on our consolidated financial statements.

NOTE 8 — Commitments and Contingencies

Commitments

In connection with our redevelopment and capital improvement activities, we have commitments of approximately $19.3 million related to construction projects, most of which we expect to incur during the remainder of 2011 and during 2012. 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 $3.2 million in loans on certain unconsolidated properties in West Harlem in New York City. Additionally, in certain circumstances, the obligor under these notes has the ability to put the properties to us, which would result in a cash payment of approximately $31.2 million and the assumption of $118.0 million in property debt. The obligor’s right to exercise the put depends upon the achievement of specified operating performance thresholds.

We have an agreement that allows the holder of some of our Series A Community Reinvestment Act Preferred Stock, or the CRA Preferred Stock, to require us to repurchase $10.0 million in liquidation preference of the CRA Preferred Stock at a 30% discount, during the three months ending June 30, 2012. Based on the holder’s ability to require us to repurchase this amount, the $10.0 million in liquidation preference of CRA Preferred Stock, or the maximum redemption value of such preferred stock, is classified within temporary equity in our condensed consolidated balance sheet at September 30, 2011.

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. 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.

During the three months ended June 30, 2011, we mediated the previously disclosed dispute with respect to mergers completed earlier in 2011 in which we acquired the remaining noncontrolling interests in six consolidated real estate partnerships. As a result of the mediation we agreed to pay the limited partners additional consideration of $7.5 million for their partnership units. During the three months ended September 30, 2011, claims and stipulations of settlement were filed in Colorado State Court, District of Denver and with the American Arbitration Association. The parties are currently seeking approval of the settlements in the respective venues.

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 potentially hazardous materials present on a property, including lead-based paint, asbestos, polychlorinated biphenyls, petroleum-based fuels, and other miscellaneous materials. Such laws often impose liability without regard to whether the owner or operator knew of, or was responsible for, the release or presence of such materials. The presence of, or the failure to manage or remedy properly, these materials 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 improper management of these materials 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 these materials through a licensed disposal or treatment facility. Anyone who arranges for the disposal or treatment of these materials 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 responsible 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 certain potentially hazardous materials may be conditional asset retirement obligations, as defined in GAAP. 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, 2011, are immaterial to our consolidated financial condition, results of operations and cash flows.

NOTE 9 — Earnings (Loss) per Share

We calculate earnings (loss) per share based on the weighted average number of shares of Common Stock, participating securities, common stock equivalents and dilutive convertible securities outstanding during the period. The following table illustrates the calculation of basic and diluted earnings (loss) per share for the three and nine months ended September 30, 2011 and 2010 (in thousands, except per share data):

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
		2011				2010				2011				2010
Numerator:
Loss from continuing operations		$	(26,311	)		$	(46,992	)		$	(100,550	)		$	(121,293	)
Loss from continuing operations attributable to noncontrolling interests			7,909				19,655				26,338				29,502
Income attributable to preferred stockholders			(13,301	)			(13,576	)			(35,429	)			(36,626	)
Income attributable to participating securities			(58	)			(2	)			(169	)			—
Loss from continuing operations attributable to Aimco common stockholders		$	(31,761	)		$	(40,915	)		$	(109,810	)		$	(128,417	)
Income from discontinued operations		$	30,968			$	18,510			$	50,959			$	65,881
Income from discontinued operations attributable to noncontrolling interests			(14,008	)			(6,095	)			(20,900	)			(24,355	)
Income from discontinued operations attributable to Aimco common stockholders		$	16,960			$	12,415			$	30,059			$	41,526
Net income (loss)		$	4,657			$	(28,482	)		$	(49,591	)		$	(55,412	)
(Income) loss attributable to noncontrolling interests			(6,099	)			13,560				5,438				5,147
Income attributable to preferred stockholders			(13,301	)			(13,576	)			(35,429	)			(36,626	)
Income attributable to participating securities			(58	)			(2	)			(169	)			—
Net loss attributable to Aimco common stockholders		$	(14,801	)		$	(28,500	)		$	(79,751	)		$	(86,891	)
Denominator:
Denominator for basic earnings per share — weighted average number of shares of Common Stock outstanding			120,339				116,434				118,939				116,264
Effect of dilutive securities:
Dilutive potential common shares			—				—				—				—
Denominator for diluted earnings per share			120,339				116,434				118,939				116,264
Earnings (loss) per common share:
Basic and diluted earnings (loss) per common share:
Loss from continuing operations attributable to Aimco common stockholders		$	(0.26	)		$	(0.35	)		$	(0.92	)		$	(1.10	)
Income from discontinued operations attributable to Aimco common stockholders			0.14				0.10				0.25				0.35
Net loss attributable to Aimco common stockholders		$	(0.12	)		$	(0.25	)		$	(0.67	)		$	(0.75	)

As of September 30, 2011 and 2010, the common share equivalents that could potentially dilute basic earnings per share in future periods totaled 6.3 million and 7.2 million, respectively. These securities, representing stock options, have been excluded from the earnings (loss) per share computations for the three and nine months ended September 30, 2011 and 2010, because their effect would have been anti-dilutive. Participating securities, consisting of unvested restricted stock and shares purchased pursuant to officer loans, receive dividends similar to shares of Common Stock and totaled 0.5 million and 0.6 million at September 30, 2011 and 2010, respectively. The effect of participating securities is included in basic and diluted earnings (loss) per share computations for the periods presented above using the two-class method of allocating distributed and undistributed earnings.

Various classes of preferred OP Units of the Aimco Operating Partnership are outstanding. Depending on the terms of each class, these preferred OP Units are convertible into common OP Units or redeemable for cash or, at the Aimco Operating Partnership’s option, Common Stock, and are paid distributions varying from 1.8% to 8.8% per annum per unit, or equal to the dividends paid on Common Stock based on the conversion terms. As of September 30, 2011, a total of 3.1 million preferred OP Units were outstanding with redemption values of $82.5 million and were potentially redeemable for approximately 3.7 million shares of Common Stock (based on the period end market price), or cash at the Aimco Operating Partnership’s option. The Aimco Operating Partnership has a redemption policy that requires cash settlement of redemption requests for the preferred OP Units, subject to limited exceptions. The potential dilutive effect of these securities would have been antidilutive in the periods presented. Additionally, based on the Aimco Operating Partnership’s cash redemption policy, they may also be excluded from future earnings (loss) per share computations in periods during which their effect is dilutive.

NOTE 10 — Notes Receivable

Our notes receivable have stated maturity dates and may require current payments of principal and interest. Repayment of our notes is subject to a number of variables, including the performance and value of the underlying real estate properties and the claims of unaffiliated mortgage lenders, which are generally senior to our claims. Our notes receivable consist of two classes: loans extended by us that we carry at the face amount plus accrued interest, which we refer to as “par value notes” and “discounted notes,” which includes loans extended by predecessors whose positions we generally acquired at a discount and loans extended by us that were discounted at origination.

We record interest income on par value notes as earned in accordance with the terms of the related loan agreements. We discontinue the accrual of interest on such notes when the notes are impaired, as discussed below, or when there is otherwise significant uncertainty as to the collection of interest. We record income on such nonaccrual loans using the cost recovery method, under which we apply cash receipts first to the recorded amount of the loan; thereafter, any additional receipts are recognized as income.

We recognize interest income on discounted notes receivable based upon whether the amount and timing of collections are both probable and reasonably estimable. We consider collections to be probable and reasonably estimable when the borrower has closed or entered into certain pending transactions (which include real estate sales, refinancings, foreclosures and rights offerings) that provide a reliable source of repayment. In such instances, we recognize accretion income, on a prospective basis using the effective interest method over the estimated remaining term of the notes, equal to the difference between the carrying amount of the discounted notes and the estimated collectible value. We record income on all other discounted notes using the cost recovery method.

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 update our cash flow projections of the borrowers annually, and more frequently for certain loans depending on facts and circumstances. We recognize provisions for losses on notes receivable when it is probable that principal and interest will not be received in accordance with the contractual terms of the loan. Factors that affect this assessment include the fair value of the partnership’s real estate, pending transactions to refinance the partnership’s senior obligations or sell the partnership’s real estate, and market conditions (current and forecasted) related to a particular asset. The amount of the provision to be recognized generally is based on the fair value of the partnership’s real estate that represents the primary source of loan repayment. In certain instances where other sources of cash flow are available to repay the loan, the provision is measured by discounting the estimated cash flows at the loan’s original effective interest rate.

The following table summarizes our notes receivable as of September 30, 2011 and December 31, 2010 (in thousands):

		September 30,				December 31,
		2011				2010
Par value notes		$	19,657			$	17,899
Discounted notes			94,973				98,827
Allowance for loan losses			—				—
Total notes receivable		$	114,630			$	116,726
Face value of discounted notes		$	103,291			$	108,621

Notes receivable have various annual interest rates ranging between 2.1% and 8.8% and averaging 4.1%. Included in the notes receivable at September 30, 2011 and December 31, 2010 are $97.5 million and $103.9 million, respectively, in notes that were secured by interests in real estate or interests in real estate partnerships.

During the nine months ended September 30, 2011, there have been no significant changes in the carrying amounts, our average recorded investment in or unpaid principal balances for impaired loans. During the three and nine months ended September 30, 2011 and 2010, we did not recognize any significant amounts of interest income related to impaired or non-impaired notes receivable.

We recognize interest income as earned on the $19.7 million of our par value notes receivable at September 30, 2011 that are estimated to be collectible and have not been impaired. Of our total par value notes outstanding at September 30, 2011, notes with balances of $19.0 million have stated maturity dates and the remainder have no stated maturity dates and are governed by the terms of the partnership agreements pursuant to which the loans were extended. At September 30, 2011, none of the par value notes with stated maturity dates were past due.

NOTE 11 — Business Segments

We have two reportable segments: conventional real estate operations and affordable real estate operations. Our conventional real estate operations consist of market-rate apartments with rents paid by the resident and included 205 properties with 64,781 units at September 30, 2011. Our affordable real estate operations consisted of 201 properties with 24,040 units at September 30, 2011, with rents that are generally paid, in whole or part, by a government agency.

Our chief executive officer, who is our chief operating decision maker, uses various generally accepted industry financial measures to assess the performance and financial condition of the business, including: Net Asset Value, which is the estimated fair value of our assets, net of liabilities and preferred equity; Pro forma Funds From Operations, which is Funds From Operations excluding operating real estate impairment losses and preferred equity redemption related amounts; Adjusted Funds From Operations, which is Pro forma Funds From Operations less spending for Capital Replacements; property net operating income, which is rental and other property revenues less direct property operating expenses, including real estate taxes; proportionate property net operating income, which reflects our share of property net operating income of our consolidated and unconsolidated properties; same store property operating results; Free Cash Flow, which is net operating income less spending for Capital Replacements; Free Cash Flow internal rate of return; financial coverage ratios; and leverage as shown on our balance sheet. Our chief operating decision maker emphasizes proportionate property net operating income as a key measurement of segment profit or loss.

The following tables present the revenues, net operating income (loss) and income (loss) from continuing operations of our conventional and affordable real estate operations segments on a proportionate basis for the three and nine months ended September 30, 2011 and 2010 (in thousands):

														Corporate and
		Conventional				Affordable								Amounts Not
		Real Estate				Real Estate				Proportionate				Allocated to
		Operations				Operations				Adjustments (1)				Segments				Consolidated
Three Months Ended September 30, 2011:
Rental and other property revenues (2)		$	206,115			$	32,715			$	30,501			$	194			$	269,525
Asset management and tax credit revenues			—				—				—				11,885				11,885
Total revenues			206,115				32,715				30,501				12,079				281,410
Property operating expenses (2)			79,514				13,373				13,495				13,521				119,903
Investment management expenses			—				—				—				2,386				2,386
Depreciation and amortization (2)			—				—				—				97,321				97,321
Provision for operating real estate impairment losses (2)			—				—				—				149				149
General and administrative expenses			—				—				—				12,664				12,664
Other expenses, net			—				—				—				4,870				4,870
Total operating expenses			79,514				13,373				13,495				130,911				237,293
Net operating income (loss)			126,601				19,342				17,006				(118,832	)			44,117
Other items included in continuing operations			—				—				—				(70,428	)			(70,428	)
Income (loss) from continuing operations		$	126,601			$	19,342			$	17,006			$	(189,260	)		$	(26,311	)
Three Months Ended September 30, 2010:
Rental and other property revenues (2)		$	200,667			$	31,573			$	30,591			$	650			$	263,481
Asset management and tax credit revenues			—				—				—				9,711				9,711
Total revenues			200,667				31,573				30,591				10,361				273,192
Property operating expenses (2)			76,467				13,765				13,562				12,992				116,786
Investment management expenses			—				—				—				2,609				2,609
Depreciation and amortization (2)			—				—				—				101,704				101,704
General and administrative expenses			—				—				—				12,096				12,096
Other expenses, net			—				—				—				4,416				4,416
Total operating expenses			76,467				13,765				13,562				133,817				237,611
Net operating income (loss)			124,200				17,808				17,029				(123,456	)			35,581
Other items included in continuing operations			—				—				—				(82,573	)			(82,573	)
Income (loss) from continuing operations		$	124,200			$	17,808			$	17,029			$	(206,029	)		$	(46,992	)
Nine Months Ended September 30, 2011:
Rental and other property revenues (2)		$	613,688			$	97,947			$	93,065			$	1,049			$	805,749
Asset management and tax credit revenues			—				—				—				28,772				28,772
Total revenues			613,688				97,947				93,065				29,821				834,521
Property operating expenses (2)			233,126				40,488				41,075				41,945				356,634
Investment management expenses			—				—				—				7,604				7,604
Depreciation and amortization (2)			—				—				—				287,739				287,739
Provision for operating real estate impairment losses (2)			—				—				—				149				149
General and administrative expenses			—				—				—				36,162				36,162
Other expenses, net			—				—				—				13,952				13,952
Total operating expenses			233,126				40,488				41,075				387,551				702,240
Net operating income (loss)			380,562				57,459				51,990				(357,730	)			132,281
Other items included in continuing operations			—				—				—				(232,831	)			(232,831	)
Income (loss) from continuing operations		$	380,562			$	57,459			$	51,990			$	(590,561	)		$	(100,550	)

														Corporate and
		Conventional				Affordable								Amounts Not
		Real Estate				Real Estate				Proportionate				Allocated to
		Operations				Operations				Adjustments (1)				Segments				Consolidated
Nine Months Ended September 30, 2010:
Rental and other property revenues (2)		$	600,640			$	93,847			$	91,530			$	2,040			$	788,057
Asset management and tax credit revenues			—				—				—				24,208				24,208
Total revenues			600,640				93,847				91,530				26,248				812,265
Property operating expenses (2)			235,612				42,331				41,820				43,021				362,784
Investment management expenses			—				—				—				10,979				10,979
Depreciation and amortization (2)			—				—				—				305,066				305,066
General and administrative expenses			—				—				—				39,015				39,015
Other expenses, net			—				—				—				2,173				2,173
Total operating expenses			235,612				42,331				41,820				400,254				720,017
Net operating income (loss)			365,028				51,516				49,710				(374,006	)			92,248
Other items included in continuing operations			—				—				—				(213,541	)			(213,541	)
Income (loss) from continuing operations		$	365,028			$	51,516			$	49,710			$	(587,547	)		$	(121,293	)

For the nine months ended September 30, 2011 and 2010, capital additions related to our conventional segment totaled $111.2 million and $104.9 million, respectively, and capital additions related to our affordable segment totaled $12.2 million and $24.0 million, respectively.

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, within the meaning of the federal securities laws, including, without limitation, statements regarding our ability to maintain current or meet projected occupancy, rental rates and property operating results and the effect of acquisitions and redevelopments. Actual results may differ materially from those described in these forward-looking statements and, in addition, will be affected by a variety of risks and factors, some of which are beyond our control, including, without limitation: financing risks, including the availability and cost of financing and the risk that our cash flows from operations may be insufficient to meet required payments of principal and interest; earnings may not be sufficient to maintain compliance with debt covenants; real estate risks, including fluctuations in real estate values and the general economic climate in the markets in which we operate and competition for residents in such markets; national and local economic conditions, including the pace of job growth and the level of unemployment; the terms of governmental regulations that affect us and interpretations of those regulations; the competitive environment in which we operate; the timing of acquisitions and dispositions; insurance risk, including the cost of insurance; natural disasters and severe weather such as hurricanes; litigation, including costs associated with prosecuting or defending claims and any adverse outcomes; energy costs; 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, 2010, 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 Apartment Investment and Management Company (which we refer to as 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. Our principal financial objective is to provide predictable and attractive returns to our stockholders. Our business plan to achieve this objective is to:

•

own and operate a broadly diversified portfolio of primarily class “B/B+” assets (as defined in Note 1 to the condensed consolidated financial statements in Item 1) with properties concentrated in the 20 largest markets in the United States (as measured by total apartment value, which is the estimated total market value of apartment properties in a particular market);

•

improve our portfolio by selling assets with lower projected returns and reinvesting those proceeds through the purchase of new assets or additional investment in existing assets in our portfolio, including increased ownership or redevelopment; and

•

provide financial leverage primarily by the use of non-recourse, long-dated, fixed-rate property debt and perpetual preferred equity.

Our owned real estate portfolio includes 205 conventional properties with 64,781 units and 201 affordable properties with 24,040 units. These conventional and affordable properties generated 87% and 13%, respectively, of our proportionate property net operating income (as defined in Note 11 to the condensed consolidated financial statements in Item 1) during the nine months ended September 30, 2011. For the three months ended September 30, 2011, our conventional portfolio monthly rents averaged $1,112 and provided 61% operating margins. These average rents increased from $1,079 for the three months ended June 30, 2011. During the three months ended September 30, 2011, on average, conventional new lease rates were 6.1% higher than expiring lease rates, compared to rates that were 5.1% higher than expiring lease rates in the three months ended June 30, 2011. During the three months ended September 30, 2011, conventional renewal rates were 5.6% higher than expiring lease rates, compared to rates that were 3.6% higher than expiring lease rates in the three months ended June 30, 2011.

Our geographic allocation strategy focuses on the 20 largest markets in the United States to reduce volatility in and our dependence on particular areas of the country. We believe these markets are deep, relatively liquid and possess desirable long-term growth characteristics. They are primarily coastal markets, and also include a number of Sun Belt cities and Chicago, Illinois. We may also invest in other markets on an opportunistic basis.

Our portfolio strategy also focuses on asset type and quality. Our target allocation of capital to conventional and affordable properties is 90% and 10%, respectively, of our total property net asset value, which is the estimated fair value of our properties and related assets, net of liabilities. Our conventional and affordable properties comprised approximately 88% and 12%, respectively, of our total property net asset value, at September 30, 2011.

For conventional assets, we focus on the ownership of primarily B/B+ assets. Refer to Note 1 to the condensed consolidated financial statements in Item 1 for an explanation of our rating system for measuring asset quality. We upgrade the quality of our portfolio through the sale of assets with lower projected returns, which are often in markets less desirable than our target markets, and reinvest these proceeds through the purchase of new assets or additional investment in existing assets in our portfolio, through increased ownership or redevelopment. We prefer the redevelopment of select properties in our existing portfolio to ground-up development, as we believe it provides superior risk adjusted returns with lower volatility. During the nine months ended September 30, 2011, we increased our allocation of capital to our target markets by:

•

disposing of seven conventional properties located outside of our target markets for $61.5 million;

•

investing $63.9 million to purchase interests in conventional properties located within our target markets;

•

investing $35.5 million in redevelopment of conventional properties included in continuing operations; and

•

increasing to 100% our ownership in nine conventional properties owned through consolidated real estate partnerships for a total cost of $13.6 million. The gross estimated fair value of the real estate corresponding to the interests we acquired totaled $84.9 million.

During the nine months ended September 30, 2011, we also disposed of eleven conventional properties located in less desirable locations within our target markets and 15 affordable properties.

Our leverage strategy focuses on increasing financial returns while minimizing risk. On a consolidated basis, at September 30, 2011, approximately 87% of our leverage consisted of property-level, non-recourse, long-dated, fixed-rate, amortizing debt and 13% consisted of perpetual preferred equity, a combination which helps to limit our refunding and re-pricing risk. At September 30, 2011, we had $26.2 million of corporate level debt, consisting of borrowings on our revolving credit facility. Our leverage strategy limits refunding risk on our property-level debt. During the nine months ended September 30, 2011, exclusive of property debt reductions related to discontinued operations, we reduced our net leverage by approximately $130.4 million, inclusive of refinancing activity, regularly scheduled property debt amortization, loan pay-downs and our $51.5 million investment in the first loss and mezzanine positions in the securitization trust discussed in Note 4 to the condensed consolidated financial statements in Item 1. At September 30, 2011, the weighted average maturity of our property-level debt was 8.2 years, with 0.1% of our debt maturing during the remainder of 2011 and on average approximately 5.0% maturing in each of 2012, 2013, 2014 and 2015. Long duration, fixed-rate liabilities provide a hedge against increases in interest rates and inflation. Approximately 94% of our property-level debt is fixed-rate. We continue to focus on refinancing our property debt maturing during the period from 2012 through 2015, to extend maturities and lock in current low interest rates.

As of September 30, 2011, we had the capacity to borrow $247.8 million pursuant to our $300.0 million credit facility (after giving effect to $26.2 million of outstanding borrowings and $26.0 million outstanding for undrawn letters of credit issued under the revolving credit facility). The revolving credit facility matures May 1, 2013, and may be extended for an additional year, subject to certain conditions.

The key financial indicators that we use in managing our business and in evaluating our financial condition and operating performance are: Net Asset Value; Pro forma Funds From Operations, which is Funds From Operations excluding operating real estate impairment losses and preferred equity redemption related amounts; Adjusted Funds From Operations, which is Pro forma Funds From Operations less spending for Capital Replacements; property net operating income, which is rental and other property revenues less direct property operating expenses, including real estate taxes; proportionate property net operating income, which reflects our share of property net operating income of our consolidated and unconsolidated properties; same store property operating results; Free Cash Flow, which is net operating income less spending for Capital Replacements; Free Cash Flow internal rate of return; financial coverage ratios; and leverage as shown on our balance sheet. Funds From Operations is defined and further described in the section captioned “Funds From Operations.” The key macro-economic factors and non-financial indicators that affect our financial condition and operating performance are: household formations; rates of job growth; single-family and multifamily housing starts; interest rates; and availability and cost 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 and the pace and price at which we redevelop, acquire and dispose of our apartment properties 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.

Highlights of our results of operations for the three months ended September 30, 2011, are summarized below:

•

Total Same Store revenues and expenses for the three months ended September 30, 2011, increased by 3.5% and 3.1%, respectively, as compared to the three months ended September 30, 2010, resulting in a 3.8% increase in net operating income;

•

Average daily occupancy for our Conventional Same Store properties remained high at 95.2% for the three months ended September 30, 2011; and

•

Conventional Same Store revenues and expenses for the three months ended September 30, 2011, increased by 3.5% and 4.3%, respectively, as compared to the three months ended September 30, 2010, resulting in a 3.0% increase in net operating income.

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, 2011 compared to September 30, 2010

We reported net loss attributable to Aimco of $1.4 million and net loss attributable to Aimco common stockholders of $14.8 million for the three months ended September 30, 2011, compared to net loss attributable to Aimco of $14.9 million and net loss attributable to Aimco common stockholders of $28.5 million for the three months ended September 30, 2010, decreases in losses of $13.5 million and $13.7 million, respectively.

These decreases in net loss were principally due to the following items, all of which are discussed in further detail below:

•

an increase in net operating income of our properties included in continuing operations, reflecting improved operations;

•

an increase in income from discontinued operations (net of amounts allocated to noncontrolling interests), primarily related to an increase in gains on dispositions of real estate in 2011 as compared to 2010; and

•

a decrease in depreciation and amortization expense, primarily attributable to short-lived real estate assets that became fully depreciated in 2010 and adjustments of depreciation recognized during 2011 related to revisions of the estimated useful lives of certain real estate assets.

Nine months ended September 30, 2011 compared to September 30, 2010

For the nine months ended September 30, 2011, we reported net loss attributable to Aimco of $44.2 million and net loss attributable to Aimco common stockholders of $79.8 million, compared to net loss attributable to Aimco of $50.3 million and net loss attributable to Aimco common stockholders of $86.9 million for the nine months ended September 30, 2010, decreases in losses of $6.1 million and $7.1 million, respectively.

These decreases in net loss were principally due to the following items, all of which are discussed in further detail below:

•

an increase in net operating income of our properties included in continuing operations, reflecting improved operations; and

•

a decrease in depreciation and amortization expense, primarily attributable to short-lived real estate assets that became fully depreciated in 2010 and adjustments of depreciation recognized during 2011 related to revisions of the estimated useful lives of certain real estate assets.