Back to GetFilings.com

Use these links to rapidly review the document
APARTMENT INVESTMENT AND MANAGEMENT COMPANY FORM 10-Q INDEX

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

Form 10-Q

Commission File Number 1-13232

Apartment Investment and Management Company
(Exact name of registrant as specified in its charter)

        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 ý    No o

        Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). Yes ý    No o

        The number of shares of Class A Common Stock outstanding as of October 31, 2003: 94,210,113

APARTMENT INVESTMENT AND MANAGEMENT COMPANY

FORM 10-Q

INDEX

1

APARTMENT INVESTMENT AND MANAGEMENT COMPANY

CONSOLIDATED BALANCE SHEETS

(In Thousands, Except Share Data)

See notes to consolidated financial statements.

2

APARTMENT INVESTMENT AND MANAGEMENT COMPANY

CONSOLIDATED STATEMENTS OF INCOME

(In Thousands, Except Per Share Data)

(Unaudited)

See notes to consolidated financial statements.

3

APARTMENT INVESTMENT AND MANAGEMENT COMPANY

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In Thousands)

(Unaudited)

See notes to consolidated financial statements.

4

APARTMENT INVESTMENT AND MANAGEMENT COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2003

(Unaudited)

NOTE 1—Organization

        Apartment Investment and Management Company ("Aimco"), a Maryland corporation incorporated on January 10, 1994, owns a majority of the ownership interests in AIMCO Properties, L.P. (the "Aimco Operating Partnership") through its wholly owned subsidiaries, AIMCO-GP, Inc. and AIMCO-LP, Inc. Aimco held approximately an 89% interest in the common partnership units and equivalents of the Aimco Operating Partnership as of September 30, 2003. AIMCO-GP, Inc. is the sole general partner of the Aimco Operating Partnership. Except where the context otherwise requires, "Company" refers to Aimco, the Aimco Operating Partnership and Aimco's consolidated corporate subsidiaries and consolidated real estate partnerships.

        As of September 30, 2003, the Company:

•

owned a controlling equity interest in 178,913 units in 697 properties (which the Company refers to as "consolidated");



•

owned a non-controlling equity interest in 67,157 units in 467 properties (which the Company refers to as "unconsolidated"), of which 58,634 units were also managed by the Company; and



•

provided services or managed, for third party owners, 51,847 units in 520 properties, primarily pursuant to long-term agreements (including 40,126 units in 418 properties that are asset managed only, and not property managed).

        At September 30, 2003, 94,097,550 shares of Aimco's Class A Common Stock ("Common Stock") were outstanding. Interests in the Aimco Operating Partnership that are held by limited partners other than the Company are referred to as "OP Units." Holders of common OP Units may redeem such units for cash or, at the Company's option, Common Stock. At September 30, 2003, the Aimco Operating Partnership had 11,791,486 common OP Units and equivalents outstanding. At September 30, 2003, a combined total of 105,889,036 shares of Common Stock and common OP Units and equivalents were outstanding.

NOTE 2—Basis of Presentation

        The accompanying unaudited consolidated financial statements of the Company have been prepared in accordance with generally accepted accounting principles 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 generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three and nine months ended September 30, 2003 are not necessarily indicative of the results that may be expected for the year ending December 31, 2003.

        The balance sheet at December 31, 2002 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements.

        For further information, refer to the statements and notes thereto included in Aimco's Annual Report on Form 10-K for the year ended December 31, 2002. Certain 2002 financial statement amounts have been reclassified to conform to the 2003 presentation, including certain intercompany eliminations and the treatment of discontinued operations.

5

        The accompanying consolidated financial statements include the accounts of Aimco, the Aimco Operating Partnership, consolidated corporate subsidiaries and consolidated real estate partnerships. 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 limited partner in a limited partnership or a member in a limited liability company. All significant intercompany balances and transactions have been eliminated in consolidation. The assets of partnerships and subsidiaries owned or controlled by Aimco or the Aimco Operating Partnership generally are not available to pay creditors of Aimco or the Aimco Operating Partnership. In certain instances, including the revolving credit facility and term loans, Aimco has pledged as collateral, equity interests in certain consolidated real estate partnerships.

        Interests in consolidated real estate partnerships held by partners other than the Company are reflected as minority interest in consolidated real estate partnerships. Minority interest in consolidated real estate partnerships represents the minority partners' share of the underlying net assets of the Company's consolidated real estate partnerships. When these consolidated real estate partnerships make cash distributions in excess of net income, the Company, as the majority partner, records a charge equal to the minority partners' excess of distributions over net income, even though the Company does not suffer any economic effect, cost or risk. This charge is classified in the consolidated statements of income as distributions to minority partners in excess of income. For the three and nine months ended September 30, 2003, such charges were $11.9 million and $21.5 million, respectively, compared to charges of $4.3 million and $15.3 million for the three and nine months ended September 30, 2002, respectively. Losses are allocated to minority partners until such time as such losses exceed the minority partners' basis, in which case, the Company recognizes 100% of the losses in operating earnings when the partnership is in a deficit equity position, even though the Company does not suffer any economic effect, cost or risk. With regard to such consolidated real estate partnerships, approximately $0.4 million in depreciation related net recoveries and $1.3 million in depreciation related net losses were charged to minority interest in consolidated real estate partnerships for the three and nine months ended September 30, 2003, respectively, and $0.8 million and $1.5 million in depreciation related net losses were charged to minority interest in consolidated real estate partnerships for the three and nine months ended September 30, 2002, respectively.

NOTE 3—Notes Receivable Primarily From Unconsolidated Real Estate Partnerships

        The following table summarizes the Company's notes receivable primarily from unconsolidated real estate partnerships at September 30, 2003 and 2002 (in thousands):

        The Company recognizes interest income earned from its investments in notes receivable when the collectibility of such amounts is both probable and estimable. The notes receivable were either extended by the Company and are carried at the face amount plus accrued interest ("par value notes") or were made by predecessors whose positions have been acquired at a discount ("discounted notes").

        As of September 30, 2003 and 2002, the Company held, primarily through its consolidated corporate subsidiaries, $105.4 million and $115.7 million, respectively, of par value notes receivable from unconsolidated real estate partnerships, including accrued interest, for which the Company believes the collectibility of such amounts is both probable and estimable. As such, interest income from par value notes for the three and nine months ended September 30, 2003 totaled $3.5 million and $11.0 million, respectively, and for the three and nine months ended September 30, 2002 totaled $7.3 million and $24.2 million, respectively.

        As of September 30, 2003 and 2002, the Company held discounted notes, including accrued interest, with a carrying value of $83.9 million and $133.4 million, respectively. The total face value plus accrued interest of these notes was $147.6 million and $221.7 million at September 30, 2003 and 2002, respectively.

6

        The discounted notes are accounted for under the cost recovery method, which results in the discounted notes being carried at the acquisition amount, less subsequent cash collections, until such time as collectibility of principal and interest is probable and the timing and amounts are estimable. Based upon closed or pending transactions (which include sales, refinancings, foreclosures and rights offerings), the Company has determined that certain notes are collectible for amounts greater than their carrying value. Accordingly, the Company recognizes accretion income, on a prospective basis over the estimated remaining life of the loans, equal to the difference between the carrying value of the discounted notes and the estimated collectible value. For the three and nine months ended September 30, 2003, the Company recognized accretion income of approximately $0.05 million ($0.00 per basic and diluted share) and $2.6 million ($0.02 per basic share and diluted share), respectively, and for the three and nine months ended September 30, 2002, the Company recognized accretion income of approximately $3.8 million ($0.04 per basic and diluted share) and $19.3 million ($0.20 per basic and diluted share), respectively. The Company generally realizes the notes receivable through collection of cash or increasing ownership of the property or of an additional equity interest in the partnership owning the property that serves as collateral for the loan.

        Included in the above total notes receivable balances, as of September 30, 2003 and 2002, are $57.2 million and $67.2 million, respectively, in notes that were secured by interests in real estate or interests in real estate partnerships. The Company earns interest on these notes receivable at various annual interest rates ranging between 5.5% and 12.0% and averaging 8.4%.

        The activity in the allowance for loan losses in total for both par value and discounted notes for the nine months ended September 30, 2003, is as follows (in thousands):

        The Company will continue to monitor the collectibility or impairment of each note on a periodic basis, and changes in the allowance may occur due to changes in the market environment that affect operating cash flows.

NOTE 4—Commitments and Contingencies

Commitments

        In connection with the March 2002 acquisition of Casden Properties Inc. ("Casden"), which included the merger of Casden into Aimco, and the merger of a subsidiary of Aimco into another real estate investment trust ("REIT") affiliated with Casden (collectively, the "Casden Merger") the Company has the following commitments to:

•

purchase two properties currently under development, upon satisfactory completion and attainment of 60% occupancy, as follows:

•

Park La Brea

•

Phase 2—comprised of a total of 521 units for a minimum consideration of approximately $163 million, expected to close in late 2003 or early 2004;



•

Phase 3—comprised of a total of 610 units for a minimum consideration of approximately $199 million, expected to close in late 2004 or early 2005; and

•

Westwood—comprised of a total of 350 units for a minimum consideration of approximately $201 million, for which construction has not yet commenced.



•

provide a stand-by facility of $70 million in debt financing associated with the development of Park La Brea and Westwood (as of September 30, 2003, no funds have been drawn on this stand-by facility);



•

invest up to $50 million for a 20% limited liability company interest in Casden Properties, LLC. As of September 30, 2003, the Company had invested $20.9 million. Casden Properties, LLC acts as general contractor for the entity that is developing Park La Brea and Westwood. In addition, Casden Properties, LLC intends to pursue new development opportunities in Southern California and other markets. Aimco

7

will have an option, but not an obligation, to purchase at completion all multifamily rental projects developed by Casden Properties, LLC; and

•

pay $2.5 million per quarter for five years (up to an aggregate amount of $50 million) to Casden Development Company, LLC as a retainer on account for redevelopment services on the Company's assets (as of September 30, 2003, $15.0 million has been paid).

Legal

        In addition to the matters described below, the Company is a party to various legal actions and administrative proceedings arising in the ordinary course of business, some of which are covered by liability insurance, and none of which are expected to have a material adverse effect on the Company's consolidated financial condition or results of operations taken as a whole.

Limited Partnerships

        In connection with the Company's acquisitions of interests in real estate partnerships, it is 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.

        The Company may incur costs in connection with the defense or settlement of such litigation. The Company believes it complies with its fiduciary obligations and relevant partnership agreements. Although the outcome of any litigation is uncertain, the Company does not expect any such legal actions to have a material adverse affect on the Company's consolidated financial condition or results of operations taken as a whole.

        Environmental

        Various Federal, state and local laws subject property owners or operators to liability for the costs of removal or remediation of certain hazardous substances present on a property. Such laws often impose liability without regard to whether the owner or operator knew of, or was responsible for, the release of the hazardous substances. The presence of, or the failure to properly remedy, hazardous substances may adversely affect occupancy at affected apartment communities and the ability to sell or finance affected properties. In addition to the costs associated with investigation and remediation actions brought by governmental agencies, the presence of hazardous wastes 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 or remediation of hazardous substances at the disposal or treatment facility. Anyone who arranges for the disposal or treatment of hazardous or toxic substances is potentially liable under such laws. These laws often impose liability whether or not the person arranging for the disposal ever owned or operated the disposal facility. In connection with the ownership, operation and management of properties, the Company could potentially be liable for environmental liabilities or costs associated with its properties or properties it acquires or manages in the future.

        As previously disclosed, the Company has been named as a defendant in lawsuits that have alleged personal injury as a result of the presence of mold. In addition, the Company is aware of lawsuits against owners and managers of multifamily properties asserting claims of personal injury and property damage caused by the presence of mold, some of which have resulted in substantial monetary judgments or settlements. The Company has only limited insurance coverage for property damage loss claims arising from the presence of mold and for personal injury claims related to mold exposure.

        The Company has implemented protocols and procedures to prevent or eliminate mold from its properties and believes that its measures will eliminate, or at least minimize, the effects that mold could have on its residents. To date, the Company has not incurred any material costs or liabilities relating to claims of mold exposure or to abate mold conditions. Because the law regarding mold is unsettled and subject to change, however, the Company can make no assurance that liabilities resulting from the presence of or exposure to mold will not have a material adverse effect on the Company's consolidated financial condition or results of operations taken as a whole.

8

        Other Legal Matters

        As previously disclosed, Aimco and four of its affiliated partnerships are defendants in a lawsuit brought by the City Attorney for the City and County of San Francisco ("CCSF") alleging violations of residential housing codes, unlawful business practices and unfair competition. The City Attorney asserts civil penalties from $500 to $1,000 per day for each affected unit, as well as other statutory and equitable relief. The Company has filed a cross-complaint against CCSF, its Department of Building Inspections and certain of its employees, alleging constitutional violations arising out of its arbitrary and discriminatory application of its codes, and other tortious conduct. The matter is not presently set for trial. The Company has engaged in preliminary discussions with the City Attorney to resolve the lawsuit. In the event it is unable to resolve the lawsuit, the Company believes it has meritorious defenses to assert, will vigorously defend itself against CCSF's claims, and vigorously prosecute its own claims. Although the outcome of any litigation is uncertain, the Company does not believe that the ultimate outcome will have a material adverse effect on the Company's consolidated financial condition or results of operations taken as a whole.

        As previously disclosed, National Program Services, Inc. and Vito Gruppuso (collectively "NPS") are insurance agents who in 2000 sold to the Company property insurance issued by National Union Fire Insurance Company of Pittsburgh, Pennsylvania ("National Union"). The financial failure of NPS resulted in defaults in June 2002 under two agreements by which NPS indemnified the Company from losses relating to the matters described below. As a result of such defaults, the Company faced the risk of impairment of a $16.7 million insurance-related receivable as well as certain contingent liabilities as more fully described below. The Company has settled its litigation with Lumbermens Mutual Casualty Company ("Lumbermens") and potential claims against an insurance agency with the result that it has received $10 million and reduced its insurance related receivable to $6.7 million. In addition, the Company has pending litigation against National Union, First Capital Group, a New York based insurance wholesaler, NPS and other agents of National Union, for a refund of at least $10 million of the prepaid premium plus other damages resulting from the cancellation of the coverage.

        As previously disclosed, with respect to the contingent liabilities arising from the NPS defaults, in November 2002, Cananwill, Inc., a premium funding company, commenced litigation against the Company and others, alleging a balance due of $5.7 million, plus interest and attorney's fees, on a premium finance agreement that funded premium payments made to National Union. The Company denies liability to Cananwill, believes it has meritorious defenses to assert, and it will vigorously defend itself. In the event of an adverse determination, the Company will seek reimbursement of any loss from all third parties responsible for any such liability. In April 2003, the Company filed suit against Cananwill and Combined Specialty Insurance Company, formerly known as Virginia Surety Company, Inc., in the United States District Court for the District of Colorado alleging Cananwill's conversion of $1.6 million of unearned premium belonging to the Company and misapplication of such funds to the alleged debt asserted in the first Cananwill lawsuit. In addition, WestRM—West Risk Markets, Ltd. ("WestRM") has sued XL Reinsurance America, Inc. ("XL"), Greenwich Insurance Company ("Greenwich") and Lumbermens to collect on surety bonds issued by the three allegedly to secure payment obligations due on a premium funding made by WestRM. XL and Greenwich have made the Company a third party defendant in this action, asserting that if they have any liability to WestRM, then the Company is liable to XL and Greenwich pursuant to an alleged indemnification agreement. Finally, on July 11, 2003, Highlands Insurance Company ("Highlands") filed suit in a New Jersey state court against Cananwill, the Company, XL and Greenwich asserting the liability of the Company as a principal on surety bonds issued by Highlands in the event Highlands has any liability to Cananwill on the aforementioned Cananwill claim. The Company believes it has meritorious defenses to assert, will vigorously defend itself against claims brought against it, and will vigorously prosecute its own claims. Although the outcome of any claim or matter in litigation is uncertain, the Company does not believe that it will incur any material loss in connection with the insurance-related receivable or that the ultimate outcome of these separate but related matters will have a material adverse effect on the Company's consolidated financial condition or results of operations taken as a whole.

        As previously disclosed, in 1998 and 1999, prior to the March 2002 Casden Merger in which Aimco acquired National Partnership Investments Corp. ("NAPICO"), investors holding limited partnership units in various limited partnerships of which NAPICO is the corporate general partner commenced an action against NAPICO and certain other defendants. The claims related to activities that pre-dated the Casden Merger and included, but were not limited to, claims for breaches of fiduciary duty to the limited partners of certain NAPICO-managed partnerships and violations of securities laws by making materially false and misleading statements in the consent solicitation

9

statements sent to the limited partners of such partnerships. On April 29, 2003, the court entered judgment against NAPICO and certain other defendants in the amount of approximately $25.2 million for violations of securities laws and against NAPICO for approximately $67.3 million for breaches of fiduciary duty, both amounts plus interest of approximately $25.6 million, and for punitive damages against NAPICO in the amount of $2.6 million.

        On August 11, 2003, Aimco and NAPICO entered into a Stipulation of Settlement (the "Stipulation of Settlement") with the plaintiff class (the "Plaintiffs") and their counsel relating to the settlement of the litigation. On August 25, 2003, the court granted preliminary approval of the Stipulation of Settlement. The Stipulation of Settlement remains subject to the final approval of the court, as well as the approval of the Plaintiffs, which hearing is currently scheduled for November 24, 2003. The principal terms of the Stipulation of Settlement include, among other things (1) payments in both cash ($29 million) and stock ($19 million) by Alan I. Casden, on behalf of himself, NAPICO and other defendants, to the Plaintiffs, (2) guaranteed payments in an aggregate amount of $35 million ($7 million per year for 5 years), plus interest, by NAPICO to the Plaintiffs, (3) a release of claims of all parties associated with the litigation and (4) joint agreement by the parties to request that a new judgment be entered in the litigation to, among other things, expunge the judgment originally entered against NAPICO and the other defendants. On September 24, 2003, BattleFowler, LLP filed a request to intervene to challenge the portion of the Stipulation of Settlement that would lead to expungement of the judgment originally entered on April 29, 2003 against NAPICO and the other defendants. All parties to the Stipulation of Settlement have opposed this request to intervene. A hearing regarding the request occurred November 10, 2003; however the court has not yet ruled on the matter.

        On August 12, 2003, in connection with the Stipulation of Settlement, NAPICO and Aimco executed a Settlement Agreement (the "Settlement Agreement") with the prior shareholders of Casden Properties Inc. The principal terms of the Settlement Agreement include, among other things, that (1) NAPICO will voluntarily discontinue the action it commenced on May 13, 2003 against the former shareholders of Casden Properties Inc. and other indemnitors in the Casden Merger, (2) Alan I. Casden and certain related entities will resolve certain pending claims for indemnification made by NAPICO, Aimco and their affiliates, (3) Aimco or an affiliate will provide $25 million of the $29 million in cash that Alan I. Casden is obligated to provide under the Stipulation of Settlement in exchange for 531,915 shares of Common Stock owned by The Casden Company, and (4) The Casden Company will promise to pay to NAPICO an aggregate amount of $35 million ($7 million per year for 5 years), plus interest, on a secured, nonrecourse basis. The Casden Company can prepay its obligation set forth in Item (4) in shares of Common Stock having a value based on the greater of $47 per share or the market value of such shares at the time of payment.

        The Company does not believe that the ultimate outcome of the litigation involving NAPICO and certain other defendants will have a material adverse effect on the Company's consolidated financial condition or results of operations taken as a whole.

        On August 8, 2003 the Aimco Operating Partnership was served with a complaint in the United States District Court, District of Columbia alleging that it willfully violated the Fair Labor Standards Act ("FLSA") by failing to pay maintenance workers overtime for all hours worked in excess of forty hours per week. The complaint attempts to bring a collective action under the FLSA and seeks to certify state subclasses in California, Maryland, and the District of Columbia. Specifically, the plaintiffs contend that the Aimco Operating Partnership failed to compensate maintenance workers for time that they were required to be "on-call." Additionally, the complaint alleges that the Aimco Operating Partnership failed to comply with the FLSA in compensating maintenance workers for time that they worked in responding to a call while "on-call." The complaint also attempts to certify a subclass for salaried service directors who are challenging their classification as exempt from the overtime provisions of the FLSA. The Aimco Operating Partnership has filed an answer to the complaint denying the substantive allegations. Although the outcome of any litigation is uncertain, the Company does not believe that the ultimate outcome will have a material adverse effect on the Company's consolidated financial condition or results of operations taken as a whole.

NOTE 5—Mandatorily Redeemable Preferred Securities

        Effective July 1, 2003, the Company, as a result of Statement of Financial Accounting Standard No. 150, Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity ("SFAS 150") was required to reclassify the Class S Cumulative Redeemable Preferred Stock (the "Class S Preferred Stock") and Trust Based Convertible Preferred Securities ("TOPRS") from between the liabilities and equity section of the consolidated balance sheet to liabilities (see Note 16 for further details on SFAS 150).

        On April 30, 2003, the Company sold 4,000,000 shares ($100 million) of Class S Preferred Stock, par value $0.01 per share through a private placement to an institutional investor. The Company used the net proceeds of approximately $97 million to redeem $60 million of Class C Cumulative Preferred Stock (the "Class C Preferred Stock") (see Note 6) and to pay

10

down borrowings on the Company's revolving credit facility. The initial dividend rate on the Class S Preferred Stock is based on three-month LIBOR plus 2.75%. These dividends are cumulative from the date of original issuance and are payable quarterly. From the first anniversary of the date of original issuance through October 31, 2004, the dividend rate on the Class S Preferred Stock increases to the three-month LIBOR plus 6.0% with additional increases thereafter. Under SFAS 150, the dividends paid on the Class S Preferred Stock are recorded to interest expense in the amount of $1.0 million for the three months ended September 30, 2003. Class S Preferred Stock is senior to Common Stock as to dividends and liquidation. Upon any liquidation, dissolution or winding up of Aimco, before payments of distributions by Aimco are made to any holders of Common Stock, the holders of Class S Preferred Stock are entitled to receive a liquidation preference of $25 per share, plus accumulated, accrued and unpaid dividends. Each share of Class S Preferred Stock is redeemable for a maximum amount of $25 per share, plus all accrued and unpaid dividends, if any, to the date fixed for redemption, as follows: (i) at the option of the holder, upon the occurrence of certain events or (ii) at the option of the Company, at any time, with a mandatory redemption date of April 30, 2043. Depending on the date fixed for redemption, the Class S Preferred Stock is redeemable at varying per share amounts as follows: (i) on or before October 31, 2003, $24.50; (ii) on or before January 31, 2004, $24.63; (iii) on or before April 30, 2004, $24.75; or (iv) any time after April 30, 2004, $25.00. The Company intends to redeem the Class S Preferred Stock within one year of its issuance with proceeds from property sales. The redemption value of the Class S Preferred Stock at the date of adoption of SFAS 150 was $97.75 million. As a result, the Company reclassified this amount as a liability as of July 1, 2003. Based on the redemption terms of the Class S Preferred Stock, as described above, the redemption price at September 30, 2003 was $98.0 million. Therefore, in accordance with SFAS 150, the Company recognized an additional liability and incurred interest expense in the amount of $0.25 million in the three months ended September 30, 2003.

        The Company also includes TOPRS, which it assumed in connection with the Insignia merger in 1998, in mandatorily redeemable preferred securities. As of September 30, 2003, $15.2 million was outstanding of the $149.5 million that was originally assumed. The redemption value of the TOPRS at the date of adoption of SFAS 150 was $15.2 million and therefore the Company reclassified this amount as a liability as of July 1, 2003. As of September 30, 2003, the redemption value of the TOPRS remains $15.2 million.

NOTE 6—Stockholders' Equity

Preferred Stock

        On June 30, 2003, using proceeds from the issuance of the Class S Preferred Stock, the Company redeemed for cash all 2,400,000 outstanding shares of its Class C Preferred Stock at a redemption price per share of $25.00 plus an amount equal to accumulated and unpaid dividends through June 30, 2003, for a total of $25.475 per share.

        On July 31, 2003, the Company sold 6,000,000 shares ($150 million) of Class T Cumulative Preferred Stock, par value $0.01 per share (the "Class T Preferred Stock") in a registered public offering. The Company used the net proceeds of approximately $145 million to redeem other preferred securities as described below. Holders of the Class T Preferred Stock are entitled to receive quarterly dividend payments of $0.50 per share, equivalent to $2.00 per share on an annual basis, or 8% of the $25 per share liquidation preference, beginning on October 15, 2003. Class T Preferred Stock is senior to Common Stock as to dividends and liquidation. Upon any liquidation, dissolution or winding up of Aimco, before payments of distributions by Aimco are made to any holders of Common Stock, the holders of Class T Preferred Stock are entitled to receive a liquidation preference of $25 per share, plus accumulated, accrued and unpaid dividends. Each share of Class T Preferred Stock is redeemable at the option of the Company beginning July 31, 2008 for cash in the amount of $25 per share, plus all accrued and unpaid dividends, if any, to the date fixed for redemption.

        On August 18, 2003, the Company redeemed 1,500,000 shares of its Class D Cumulative Preferred Stock, par value $0.01 per share (the "Class D Preferred Stock") at a redemption price of $25 per share plus an amount equal to accumulated and unpaid dividends through August 18, 2003, for a total of $25.2066 per share. Following this redemption, as of September 30, 2003, 2,700,000 shares of Class D Preferred Stock remained outstanding.

11

        On August 18, 2003, the Company redeemed all 2,000,000 outstanding shares of its Class H Cumulative Preferred Stock, par value $0.01 per share (the "Class H Preferred Stock") at a redemption price of $25 per share plus an amount equal to accumulated and unpaid dividends through August 18, 2003, for a total of $25.2243 per share.

        On August 18, 2003, the Company redeemed for cash all 2,500,000 outstanding shares of its Class L Convertible Cumulative Preferred Stock, par value $0.01 per share (the "Class L Preferred Stock") at a redemption price of $25 per share. Accumulated and unpaid dividends of $0.5625 per share were paid on August 28, 2003, the scheduled dividend payment date.

        On August 18, 2003, the Company redeemed for cash all 1,200,000 outstanding shares of its Class M Convertible Cumulative Preferred Stock, par value $0.01 per share (the "Class M Preferred Stock") for a total redemption price of $25.7313 per share, which included $0.2313 of accumulated and unpaid dividends through August 18, 2003 and a 2%, or $0.50 per share, redemption premium. The redemption premium was included in preferred dividends for the three and nine months ended September 30, 2003.

        On July 31, 2003, the Securities and Exchange Commission ("SEC") clarified Emerging Issues Task Force, Topic No. D-42, The Effect on the Calculation of Earnings Per Share for the Redemption or Induced Conversion of Preferred Stock ("Topic D-42"). See Note 16 for further information on Topic D-42. The redemption of the Class C Preferred Stock in second quarter 2003 resulted in $2.2 million of redemption related preferred stock issuance costs retroactively deducted from net income to arrive at net income attributable to common stockholders and thereby reduced by $0.02 the Company's previously reported earnings per basic and diluted common share for the three months ended June 30, 2003. Additionally, the redemptions in third quarter 2003 of the Class H Preferred Stock, the Class L Preferred Stock, and the Class M Preferred Stock and the partial redemption in third quarter 2003 of the Class D Preferred Stock resulted in $5.5 million of redemption related preferred stock issuance costs being deducted from net income to arrive at net income attributable to common stockholders and thereby reduced by $0.06 the Company's earnings per basic and diluted common share for the three months ended September 30, 2003. All of these redemption related preferred stock issuance costs have thereby reduced earnings per basic and diluted common share for the nine months ended September 30, 2003.

Common Stock

        During the three and nine months ended September 30, 2003, approximately 35,000 and 119,000 shares of Common Stock, respectively, were issued in exchange for common OP Units tendered for redemption. During the three months ended September 30, 2003, approximately 8,000 shares of Common Stock were issued in exchange for preferred OP Units tendered for redemption.

NOTE 7—Stock-Based Compensation

        Effective January 1, 2003, the Company adopted the accounting provisions of Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123"), as amended by Statement of Financial Accounting Standards No. 148, "Accounting for Stock-Based Compensation—Transition and Disclosure—an amendment of FASB Statement No. 123" ("SFAS 148"), and applied the prospective method set forth in SFAS 148 with respect to the transition. Under this method, the Company now applies the fair value recognition provisions of SFAS 123 to all employee awards granted, modified, or settled on or after January 1, 2003, which has resulted in compensation expense being recorded based on the fair value of the stock options. For purposes of the pro forma disclosures below, the estimated fair values for all awards made prior to January 1, 2003 are amortized over the respective vesting period for each such option and are shown as expense as if SFAS 123 had been applied to all such awards.

12

        The following table illustrates the effect on net income and earnings per share if the fair value based method had been applied to all outstanding and unvested awards in each period presented (in thousands, except per share data):

13

NOTE 8—Earnings Per Share

        Earnings per share is calculated based on the weighted average number of shares of Common Stock, common stock equivalents and dilutive convertible securities outstanding during the period. The following table illustrates the calculation of basic and diluted earnings per share for the three and nine months ended September 30, 2003 and 2002 (in thousands, except per share data):

        All of the Company's convertible preferred stock is anti-dilutive on an "as converted" basis, therefore, all of the dividends payable on the convertible preferred stock are deducted to arrive at the numerator and no additional shares are included in the denominator. The common share equivalents related to approximately 5.6 million and 9.0 million of vested and unvested stock options, shares issued for non-recourse notes receivable, and restricted stock awards for the three and nine months ended September 30, 2003, respectively, have been excluded from diluted earnings per share as their effect would be anti-dilutive. Similarly, the common share equivalents related to approximately 3.5 million and 1.6 million of vested and unvested stock options, shares issued for non-recourse notes receivable, and restricted stock awards have been excluded for the three and nine months ended September 30, 2002, respectively.

14

NOTE 9—Business Segments

        The Company has two reportable segments: real estate (owning and operating apartments) and investment management business (providing property management and other services relating to the apartment business to third parties and affiliates). The Company owns and operates properties throughout the United States and Puerto Rico that generate rental and other property related income through the leasing of apartment units to a diverse base of residents. The Company separately evaluates the performance of each of its properties. However, because each of its properties has similar economic characteristics, the properties have been aggregated into a single apartment communities, or real estate, segment. The Company considers disclosure of different components of the multifamily housing business to be useful.

        All real estate revenues are from external customers and no revenues are generated from transactions with other segments. A significant portion of the revenues earned in the investment management business are from transactions with affiliates in the real estate segment. No single resident or related group of residents contributed 10% or more of total revenues during the three and nine months ended September 30, 2003 or 2002.

        Statement of Financial Accounting Standard No. 131, Disclosures about Segments of an Enterprise and Related Information ("SFAS 131") requires that segment disclosures present the measure(s) used by the chief operating decision maker for purposes of assessing such segments' performance. The Company's chief operating decision maker is comprised of several members of its executive management team who use several generally accepted industry financial measures to assess the performance of the business. Specifically, the Company's chief operating decision makers use free cash flow, funds from operations and adjusted funds from operations to assess the financial performance of its business. See note (3) below for an explanation of these measures.

        Certain reclassifications have been made to 2002 amounts to conform to the 2003 presentation. These reclassifications primarily represent presentation changes related to discontinued operations resulting from the requirements of Statement of Financial Accounting Standard No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets ("SFAS 144") and intercompany eliminations. In addition, on October 1, 2003, the National Association of Real Estate Investment Trusts ("NAREIT") clarified its definition of funds from operations to include impairment losses, which previously had been added back to calculate funds from operations. In the three months ended September 30, 2003, and effective for all prior periods presented, in accordance with this clarification the Company no longer adds back impairment losses when computing funds from operations. As a result, funds from operations for the three months ended September 30, 2003 includes impairment losses of $0.6 million, and for the nine months ended September 30, 2003, includes an adjustment of $7.9 million to reflect this change. Funds from operations for the three and nine months ended September 30, 2002 includes an adjustment of $3.6 million and $4.0 million, respectively, to reflect this change. Finally, as a result of the SEC's interpretation of Topic D-42, the Company included in funds from operations redemption related preferred stock issuance costs in the three months ended September 30, 2003, and effective for all prior periods. Therefore, funds from operations for the three months ended September 30, 2003 includes issuance costs of $5.5 million and funds from operations for the nine months ended September 30, 2003 includes an adjustment of $2.2 million to reflect this change.

        The following tables present the contribution (separated between consolidated and unconsolidated activity) to the Company's free cash flow for the three and nine months ended September 30, 2003 and 2002, from these segments, and a reconciliation of free cash flow, funds from operations, and adjusted funds from operations, to net income (in thousands, except ownership equivalent units and monthly rents):

15

FREE CASH FLOW FROM BUSINESS SEGMENTS

For the Three Months Ended September 30, 2003 and 2002

(in thousands, except unit and monthly rents data)