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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

or

IRVINE APARTMENT COMMUNITIES, L.P.

(Exact Name of Registrant as Specified in Its Charters)

550 Newport Center Drive, Suite 300, Newport Beach, California 92660

(Address of principal executive offices)

(949) 720-5500

(Registrants’ 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  x     No  ¨

Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12 b-2).

Yes  ¨     No  x

Irvine Apartment Communities, L.P.

Index

Irvine Apartment Communities, L.P.

Consolidated Balance Sheets

See accompanying notes.

Page 1

Irvine Apartment Communities, L.P.

Consolidated Statements of Operations

See accompanying notes.

Page 2

Irvine Apartment Communities, L.P.

Consolidated Statements of Changes in Partners’ Capital

See accompanying notes.

Page 3

Irvine Apartment Communities, L.P.

Consolidated Statements of Cash Flows

See accompanying notes.

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Irvine Apartment Communities, L.P.

Notes to Consolidated Financial Statements

(unaudited)

Note 1 – Organization

Irvine Apartment Communities, L.P. (the “Partnership”), a Delaware limited partnership, was formed on November 15, 1993. In connection with an initial public offering of common shares on December 8, 1993, Irvine Apartment Communities, Inc. (“IAC, Inc.”) obtained a general partnership interest in and became the sole managing general partner of the Partnership. The Irvine Company transferred 42 apartment communities and a 99% interest in a limited partnership which owns one apartment community to the Partnership. On June 7, 1999, IAC, Inc. was merged with and into TIC Acquisition LLC (the “Acquiror”), a Delaware limited liability company indirectly wholly owned by The Irvine Company (the “Merger”), with the Acquiror remaining as the surviving entity and renamed Irvine Apartment Communities LLC (“IACLLC”). As a result of the Merger and a related transaction, The Irvine Company beneficially owns and controls all of the outstanding common partnership units in the Partnership and IACLLC has become the sole general partner of the Partnership. The Partnership’s management and operating decisions are under the unilateral control of IACLLC. All management powers over the business and affairs of the Partnership are vested exclusively in IACLLC. At March 31, 2003, IACLLC had a 48.0% general partnership interest in the Partnership and The Irvine Company had a 52.0% common limited partnership interest in the Partnership.

The Partnership owns, operates and develops apartment communities in Orange County, California and, since 1997, other locations in California. As of March 31, 2003, the Partnership owned 61 apartment communities representing 19,162 operating apartment units and 319 units under construction or development. All property management responsibilities for the Partnership’s entire portfolio are conducted by Irvine Apartment Management Company (“IAMC”). At March 31, 2003, IAMC is owned 75% by the Partnership and 25% by The Irvine Company.

Note 2 – Basis of Presentation

The accompanying financial statements include the consolidated accounts of the Partnership and its financially controlled subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation.

The Partnership operates and develops apartment communities in California which generate rental and other income through the leasing of apartment units to a diverse base of renters. The Partnership separately evaluates the performance of each of its apartment communities. However, because each of the apartment communities have similar economic characteristics, facilities, services and tenants, the apartment communities have been aggregated into a single apartment communities segment.

The Partnership evaluates performance and allocates resources primarily based on the net operating income (“NOI”) of individual apartment communities. NOI is defined by the Partnership as rental and other income less property expenses and real estate taxes. Accordingly, NOI excludes certain expenses included in the determination of net income. NOI from apartment communities totaled $53,381,000 and $51,481,000 for the three months ended March 31, 2003 and 2002, respectively. All other segment measurements are included in the Partnership’s Annual Report on Form 10-K for the year ended December 31, 2002.

Profits and losses of the Partnership are generally allocated to the general partner and to the limited partner based on their respective ownership interests in the Partnership. The former holders of the redeemable preferred limited

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partner units and redeemable preferred securities (described below in Note 5) were entitled to distributions/dividends at an annual rate of 8¼% of the stated value per unit/security. The stated value of each unit/security was $25. These securities were redeemed on December 31, 2002.

The preparation of the financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities as of March 31, 2003 and December 31, 2002, and the revenues and expenses for the three months ended March 31, 2003 and 2002. Actual results could differ from those estimates.

The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation have been included. All such adjustments are of a normal, recurring nature. Operating results for the three months ended March 31, 2003 are not necessarily indicative of the results that may be expected for the year ending December 31, 2003. These financial statements should be read in conjunction with the Consolidated Financial Statements and Notes thereto included in the Partnership’s Annual Report on Form 10-K for the year ended December 31, 2002.

Certain amounts in the 2002 financial statements have been reclassified to conform with financial statement presentation in 2003.

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Note 3 – Mortgages and Notes Payable

Unsecured Line of Credit:  The Partnership had a $125 million unsecured revolving credit facility. The credit facility was terminated as of December 27, 2000. The Partnership had entered into letters of credit under the credit facility. In conjunction with the termination of the credit facility, the letters of credit under the credit facility were transferred to the credit facility of The Irvine Company. The Partnership continues to pay all fees related to the letters of credit transferred to The Irvine Company, as such letters of credit remain outstanding to secure obligations of the Partnership.

Tax-Exempt Mortgage Bond Financings:  On August 1, 2001, the Partnership completed a $69.2 million offering of tax-exempt mortgage bonds. The offering included $19.2 million of new tax-exempt mortgage bonds (the “2001 Bonds”) for the construction of a 104-unit apartment building (the “Project”) at the Partnership’s Villa Siena property. Additionally, the offering included the refinancing of the Partnership’s existing $32 million tax-exempt mortgage bonds and $18 million tax-exempt mortgage bonds (the “Refinanced Bonds” and collectively with the 2001 Bonds, the “Bonds”). Payment of principal and interest on the Bonds is secured by an irrevocable direct-pay letter of credit issued by Bank of America, N.A. Monthly interest payments are made to a trustee, which in turn pays the bondholders when interest is due. The Bonds had an average floating interest rate inclusive of fees of 2.05% as of March 31, 2003. The 2001 Bonds represent loans payable that are collateralized by a deed of trust granting a security interest in the Project and are recourse to the Partnership. The 2001 Bonds bear interest at a weekly-remarketed tax-exempt rate and are due August 2034. As of December 31, 2002, the Partnership had received the entire proceeds of $19.2 million representing land acquisition, transaction and development costs related to the Project. Proceeds from the Refinanced Bonds were used to repay the Partnership’s existing tax-exempt mortgage bonds. All terms of the Refinanced Bonds remain unchanged; however, the Refinanced Bonds are now unsecured and no longer collateralized by a deed of trust.

Note 4 – Partners’ Capital

Reconciliation of Common Partnership Units Outstanding

Note 5 – Minority Redeemable Preferred Interests

IAC Capital Trust (the “Trust”), a Delaware business trust, was formed on October 31, 1997. The Trust was a limited purpose financing vehicle established by the Partnership. The Trust existed for the sole purpose of issuing redeemable preferred securities and investing the proceeds thereof in preferred limited partner units of the Partnership.

In January 1998, the Trust issued 6.0 million of 8¼% Series A Preferred Securities. The proceeds of $150 million were used to purchase an equivalent amount of 8¼% Series A Preferred Limited Partner Units in the Partnership. The Partnership used the $150 million of proceeds, net of costs and offering expenses, all of which were paid by the Partnership, to repay the outstanding balance on the Partnership’s credit facility and to fund development.

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On December 31, 2002, the Trust redeemed all 6.0 million of its 8¼% Series A Preferred Securities. The redemption was funded by a corresponding redemption by the Partnership of all 6.0 million of its preferred limited partnership units, all of which were held by the Trust. The Partnership funded the redemption of its preferred limited partnership units through a capital contribution by its general partner. In return for its contribution, the general partner received 2,968,662 partnership units. Immediately after the redemption of its outstanding preferred securities, the Trust was liquidated.

Note 6 – Certain Transactions With Related Parties

Included in general and administrative expenses are charges from The Irvine Company pursuant to an administrative services agreement covering services for information technology and other services totaling $243,000 and $210,000 for the three months ended March 31, 2003 and 2002, respectively. The Irvine Company and the Partnership jointly purchase employee health care insurance and property and casualty insurance. The Partnership incurred rent totaling $204,000 and $178,000 for the three months ended March 31, 2003 and 2002, respectively, related to leases with The Irvine Company that expire at the end of 2003. IAMC incurred rent totaling $95,000 and $88,000 for the three months ended March 31, 2003 and 2002, respectively, related to a lease with The Irvine Company.

The Partnership reimburses IACLLC for substantially all of its costs incurred in operating the Partnership, including the compensation of each of the employees of IACLLC who perform services for the Partnership. The aggregate amount paid by the Partnership to IACLLC for such costs was $1.6 million and $2.1 million for the three months ended March 31, 2003 and 2002, respectively. The aggregate amount incurred by the Partnership for such costs was $2.5 million for each of the three month periods ended March 31, 2003 and 2002.

Included in other assets at March 31, 2003 is approximately $439,000 due from The Irvine Company. The amount represents a receivable of the Partnership for general and administrative costs and development costs incurred by the Partnership on behalf of The Irvine Company.

Included in accounts payable and accrued liabilities at March 31, 2003 is approximately $263,000 due to The Irvine Company. The amount represents a payable to The Irvine Company for information technology and other services incurred by The Irvine Company on behalf of the Partnership.

During the three months ended March 31, 2003, the Partnership recorded interest expense of approximately $39,000 relating to advances from The Irvine Company, with interest accruing at 2.03% at March 31, 2003. During the three months ended March 31, 2002, the Partnership recorded interest expense of approximately $343,000 relating to advances from The Irvine Company.

In October 2000, the Partnership and The Irvine Company entered into a Loan Agreement. Borrowings under the Loan Agreement bear interest at a variable or fixed rate to be quoted by the Partnership however the rate shall not be lower than the rate at which interest is paid to the Partnership on its overnight cash investments. The Irvine Company shall make monthly interest payments on each borrowing until the principal is repaid. The Loan Agreement expires in June 2003. The outstanding balance under this Loan Agreement totaled $23.5 million at March 31, 2003. During the three months ended March 31, 2003, the Partnership recorded interest income of approximately $145,000 relating to advances to The Irvine Company, with interest accruing at 2.03% at March 31, 2003. During the three months ended March 31, 2002, the Partnership recorded interest income of approximately $11,000 relating to advances to The Irvine Company.

The Partnership receives reimbursement from The Irvine Company for ground rent payments relating to the retail portion of the Partnership’s Cherry Orchard Apartments property. The reimbursement totaled $142,000 for each of the three month periods ended March 31, 2003 and 2002.

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

The following discussion compares the activities of the Partnership for the three month period ended March 31, 2003 (unaudited) with the activities of the Partnership for the three month period ended March 31, 2002 (unaudited).

The following discussion should be read in conjunction with all the financial statements appearing elsewhere in this report, as well as the information presented in the Partnership’s Annual Report on Form 10-K for the year ended December 31, 2002.

Certain information set forth below is forward looking and involves various risks and uncertainties. Such information is based upon a number of estimates and assumptions that inherently are subject to business, economic and competitive uncertainties and contingencies, many of which are beyond the Partnership’s control.

Results of Operations

Three Months Ended March 31, 2003 Compared to Three Months Ended March 31, 2002.

The Partnership’s net income was $20.1 million for the three months ended March 31, 2003, up from $13.8 million for the same period of 2002. The Partnership’s net income increased in 2003 due primarily to revenue contributions from newly delivered rental units from the Partnership’s development program and properties that stabilized during 2002, as well as an increase in physical occupancy and average rental rates. The increase was also due to a decrease in redeemable preferred interest payments as a result of the redemption of the Series A Preferred Limited Partner Units on December 31, 2002.

Revenue and Expense Data

Operating revenues (rental and other income) increased by 3.7% to $82.0 million in the first quarter of 2003, up from $79.0 million in the same period of 2002. Operating revenues rose in 2003 because of higher physical occupancy and average rental rates, as well as a greater average number of rental units in service as a result of new development.

Interest income totaled $162,000 in the first quarter of 2003 and $94,000 in the same period of 2002. The change in interest income reflects the change in the Partnership’s average cash balance.

Property expenses increased by 3.4% to $21.8 million in the first quarter of 2003, up from $21.0 million in the same period of 2002. Property expenses increased in the first quarter of 2003 mostly due to an increase in property insurance expense.

Real estate taxes totaled $6.8 million in the first quarter of 2003 and $6.5 million in the same period of 2002. Real estate taxes increased in the first quarter of 2003 due primarily to the addition of new rental units through development.

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Net interest expense decreased to $16.8 million in the first quarter of 2003 compared to $17.0 million in the same period of 2002. Total interest incurred was $17.1 million in the first quarter of 2003 and $17.7 million in the same period of 2002. The decrease in interest incurred in the first quarter of 2003 was primarily due to the repayment of $50 million in advances from The Irvine Company by the Partnership in January 2003. Capitalized interest totaled $251,000 in the first quarter of 2003 and $733,000 in the same period of 2002. The Partnership capitalizes interest on projects actively under development using qualifying asset balances and applicable weighted average interest rates.

Depreciation and amortization expense decreased to $15.3 million in the first quarter of 2003, down from $16.2 million in the same period of 2002. The decrease in 2003 was mostly due to certain abandoned project costs in the first quarter of 2002.

General and administrative expense decreased to $1.4 million in the first quarter of 2003, down slightly from $1.5 million in the same period of 2002.

Liquidity and Capital Resources

The Partnership believes that cash provided by operations will be adequate to meet ongoing operating requirements, debt service payments and payment of distributions by the Partnership to its partners in both the short and long term.

Liquidity: The Partnership expects to meet its short-term and long-term liquidity requirements, such as construction costs and scheduled debt maturities, through the refinancing of long-term debt, borrowings from financial institutions or advances from its general and/or limited partner.

Debt Structure at March 31, 2003

Operating Activities: Cash provided by operating activities was $57.7 million and $55.8 million in the first three months of 2003 and 2002, respectively. Cash provided by operating activities increased in the first three months of 2003 compared to the same period in 2002 primarily due to an increase in the Partnership’s net income, offset by the change in accounts payable and accrued liabilities and the elimination of the redeemable preferred interest.

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Investing Activities: Cash used in investing activities was $8.6 million and $17.4 million in the first three months of 2003 and 2002, respectively. The decrease reflects decreased development activity in the first three months of 2003 as compared to 2002.

Financing Activities: Cash used in financing activities was $54.9 million and $36.2 million in the first three months of 2003 and 2002, respectively. Cash used in financing activities increased primarily due to an increase in total advances and payments to affiliate in excess of total payments from affiliate during the first three months of 2003 in comparison to the first three months of 2002. These increases were partially offset by a decrease in redeemable preferred interest payments as a result of the redemption of the Series A Preferred Limited Partner Units.

Capital Expenditures

Capital expenditures consist of capital improvements and investments in real estate assets. Capital improvements to operating real estate assets totaled $516,000 and $289,000 in the first three months of 2003 and 2002, respectively. Capital investments in real estate assets totaled $8.1 million and $17.1 million in the first three months of 2003 and 2002, respectively. These investments consisted of capital replacements and new development.

Capital Improvements: The Partnership has a policy of capitalizing expenditures related to new assets, the material enhancement of the value of an existing asset, or the substantial extension of an existing asset’s useful life.

Capital Replacements: Capital replacements consist of special programs to upgrade and enhance a community to achieve higher rental rates. Expenditures for capital replacements totaled $633,000 in the first three months of 2003.

Capital Investments in New Development: Currently, the Partnership has one apartment community under construction that is expected to require total expenditures of approximately $297 million, of which $245 million had been incurred as of March 31, 2003. Funding for this development is expected to come from a combination of fixed mortgage financing and advances from its general and/or limited partner.

Construction Information

The estimated cost of the partnership’s apartment community under development is only an estimate. Actual results will depend on numerous factors, many of which are beyond the control of the Partnership. These include the extent and timing of economic growth in the Partnership’s rental markets; future trends in the pricing of construction materials and labor; product design changes; entitlement decisions by local government authorities; weather patterns; changes in interest rate levels; and other changes in capital markets. No assurance can be given that the estimate set forth in the foregoing table will not vary substantially from actual results.

Impact of Inflation

The Partnership’s business is affected by general economic conditions, including the impact of inflation and interest rates. Substantially all of the Partnership’s leases allow, at time of renewal, for adjustments in the rent payable thereunder, and thus may enable the Partnership to seek increases in rents. Substantially all leases are for a period of one year or less. The short-term nature of these leases generally serves to minimize the risk to the Partnership of the adverse effects of inflation.

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Critical Accounting Policies and Estimates

Management’s Discussion and Analysis of Financial Condition and Results of Operations discusses the Partnership’s consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. On an on-going basis, management evaluates its estimates and judgments, including those related to bad debts, value of real estate investments, intangible assets, financing operations and contingencies and litigation. Management bases its estimates and judgments on historical experience and on various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

Management believes the following critical accounting policies, among others, affect its more significant judgments and estimates used in the preparation of its consolidated financial statements.

Real Estate Assets and Depreciation:  Real estate assets, which are held as long-term investments, are stated at cost less accumulated depreciation. Impairment losses on long-lived assets used in operations are recorded when events and circumstances indicate that the assets, on a property-by-property basis, are impaired and the undiscounted cash flows estimated to be generated by those assets are less than the carrying amounts. Land and infrastructure costs are allocated to properties based on relative fair value. Costs related to the development and construction of properties are capitalized as incurred. Interest and property taxes are capitalized to apartment communities which are under active development. When a building within a community under construction is completed and held available for occupancy, the related costs are expensed.

Repair and maintenance expenditures are expensed as incurred. Major replacements and betterments are capitalized and depreciated over their useful lives. Depreciation is computed on a straight-line basis over the useful lives of the properties (principally forty years for buildings; twenty years for siding, roofs and balconies; fifteen years for plumbing and air conditioning equipment; ten years for pools, tennis courts, parking lots and driveways; and five to ten years for furniture and fixtures).

Revenue Recognition:  The Partnership leases apartment units to a diverse resident base for terms of one year or less. Credit investigations are performed for all prospective residents and security deposits are also obtained. Resident receivables are evaluated for collectibility each month. Rental revenue is recognized on an accrual basis as it is earned over the life of the lease. Interest income is recorded as earned.

The Partnership’s critical accounting policies are more fully described in Note 2 of the Notes to Consolidated Financial Statements included in the Annual Report on Form 10-K of the Partnership for the year ended December 31, 2002 (the “2002 Form 10-K”).

Off-Balance Sheet Transactions

As of March 31, 2003, the Partnership had $34.9 million of assessment district debt, of which $19.0 million was reflected on the balance sheet and $15.9 million was off-balance sheet. See Notes 3 and 9 of the Notes to Consolidated Financial Statements included in the 2002 Form 10-K.

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Contractual Obligations and Commercial Commitments

The Partnership’s only material contractual obligations and commercial commitments are its mortgages and notes payable. See Note 3 of the Notes to Consolidated Financial Statements included in the 2002 Form 10-K for a discussion of the mortgages and notes payable and their related maturities.

Related Party Transactions

See Note 6 of the Notes to Unaudited Consolidated Financial Statements (included herein) for a description of the Partnership’s transactions with related parties.

Commitments and Contingencies

There have been recent reports of lawsuits against owners and managers of multifamily properties asserting claims of personal injury and property damage cause by the presence of mold in residential units. The Partnership believes it has implemented protocols and procedures that lessen the incidence of mold at its properties, and addresses remediation in a timely and responsible fashion. The Partnership has been named as a defendant in suits that have alleged the presence of mold. Although there can be no assurance, management believes that these actions will not have a material adverse effect on the Partnership’s consolidated financial statements.

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Item 3.  Quantitative and Qualitative Disclosures About Market Risk.

Refer to the Partnership’s Annual Report on Form 10-K for the year ended December 31, 2002 for detailed disclosure about quantitative and qualitative disclosures about market risk. Quantitative and qualitative disclosures about market risk have not materially changed since December 31, 2002.

Item 4.  Controls and Procedures.

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PART II - OTHER INFORMATION

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.

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CERTIFICATIONS

I, Max L. Gardner, certify that:

1.    I have reviewed this quarterly report on Form 10-Q of Irvine Apartment Communities, L.P.;

2.    Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

3.    Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

4.    The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

a)    designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

b)    evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and

c)    presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5.    The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

a)    all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and

b)    any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and

6.    The registrant’s other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Date: May 14, 2003

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CERTIFICATIONS

I, Marc D. Ley, certify that:

Date:  May 14, 2003

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