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 0-24497

 

AIMCO Properties, L.P.

(Exact name of registrant as specified in its charter)

Delaware (State or other jurisdiction of incorporation or organization)		84-1275621 (I.R.S. Employer Identification No.)
4582 South Ulster Street Parkway, Suite 1100
Denver, Colorado (Address of principal executive offices)		80237 (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 o 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 o		Accelerated filer þ		Non-accelerated filer o		Smaller reporting company o
				(Do not check if a smaller reporting company)

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

The number of Partnership Common Units outstanding as of October 28, 2010: 122,907,406

 

 

AIMCO PROPERTIES, L.P.

TABLE OF CONTENTS

FORM 10-Q

		Page
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
Condensed Consolidated Balance Sheets as of September 30, 2010 and December 31, 2009 (Unaudited)			2
Condensed Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2010 and 2009 (Unaudited)			3
Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2010 and 2009 (Unaudited)			4
Notes to Condensed Consolidated Financial Statements (Unaudited)			5
ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			21
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk			34
ITEM 4. Controls and Procedures			35
PART II. OTHER INFORMATION
ITEM 1A. Risk Factors			36
ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds			36
ITEM 6. Exhibits			37
Signatures			38
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

PART I. FINANCIAL INFORMATION

ITEM 1.		Financial Statements

AIMCO PROPERTIES, L.P.

		September 30,				December 31,
		2010				2009
ASSETS
Real estate:
Buildings and improvements		$	7,419,643			$	7,242,051
Land			2,166,213				2,148,389
Total real estate			9,585,856				9,390,440
Less accumulated depreciation			(2,899,962	)			(2,594,544	)
Net real estate ($895,736 and $855,170 related to VIEs)			6,685,894				6,795,896
Cash and cash equivalents ($31,444 and $23,366 related to VIEs)			145,062				81,260
Restricted cash ($58,816 and $56,183 related to VIEs)			216,369				218,981
Accounts receivable, net ($18,177 and $20,766 related to VIEs)			48,131				59,822
Accounts receivable from affiliates, net			11,038				23,744
Deferred financing costs, net			49,958				50,807
Notes receivable from unconsolidated real estate partnerships, net			12,427				14,295
Notes receivable from non-affiliates, net			128,381				125,269
Notes receivable from Aimco			17,013				16,371
Investment in unconsolidated real estate partnerships ($74,118 and $99,460 related to VIEs)			78,125				104,193
Other assets			180,518				185,816
Deferred income tax assets, net			55,290				42,015
Assets held for sale			5,179				203,670
Total assets		$	7,633,385			$	7,922,139
LIABILITIES AND PARTNERS’ CAPITAL
Non-recourse property tax-exempt bond financing ($217,555 and $211,691 related to VIEs)		$	548,502			$	574,926
Non-recourse property loans payable ($456,336 and $390,601 related to VIEs)			4,940,829				4,823,165
Term loans			—				90,000
Other borrowings ($18,032 and $15,665 related to VIEs)			53,231				53,057
Total indebtedness			5,542,562				5,541,148
Accounts payable			23,879				29,819
Accrued liabilities and other ($93,880 and $62,503 related to VIEs)			289,429				286,326
Deferred income			152,533				179,433
Security deposits			35,833				34,491
Liabilities related to assets held for sale			6,491				183,892
Total liabilities			6,050,727				6,255,109
Redeemable preferred units			103,537				116,656
Commitments and contingencies (Note 5)			—				—
Partners’ capital:
Preferred units			758,601				660,500
General Partner and Special Limited Partner			339,350				521,692
Limited Partners			126,976				95,990
High Performance Units			(43,421	)			(40,313	)
Investment in Aimco Class A Common Stock			(4,453	)			(4,621	)
Partners’ capital attributable to the Partnership			1,177,053				1,233,248	)
Noncontrolling interests in consolidated real estate partnerships			302,068				317,126
Total partners’ capital			1,479,121				1,550,374
Total liabilities and partners’ capital		$	7,633,385			$	7,922,139

See notes to condensed consolidated financial statements.

AIMCO PROPERTIES, L.P.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
		2010				2009				2010				2009
REVENUES:
Rental and other property revenues		$	282,595			$	275,072			$	845,620			$	827,379
Asset management and tax credit revenues			9,707				10,325				23,560				32,469
Total revenues			292,302				285,397				869,180				859,848
OPERATING EXPENSES:
Property operating expenses			128,174				133,224				395,864				391,021
Investment management expenses			2,609				4,213				10,979				12,719
Depreciation and amortization			107,309				110,290				322,393				321,661
Provision for operating real estate impairment losses			287				66				287				1,635
General and administrative expenses			12,096				12,772				39,015				43,612
Other expenses, net			4,394				7,637				2,097				12,453
Total operating expenses			254,869				268,202				770,635				783,101
Operating income			37,433				17,195				98,545				76,747
Interest income			2,605				2,086				8,185				8,022
(Provision for) recovery of losses on notes receivable, net			(6	)			1,233				(284	)			(452	)
Interest expense			(77,917	)			(76,778	)			(235,376	)			(236,798	)
Equity in losses of unconsolidated real estate partnerships			(15,522	)			(3,658	)			(10,571	)			(7,507	)
Impairment losses related to unconsolidated real estate partnerships			(131	)			(362	)			(1,259	)			(1,273	)
Gain on dispositions of unconsolidated real estate and other			924				2,805				5,440				18,156
Loss before income taxes and discontinued operations			(52,614	)			(57,479	)			(135,320	)			(143,105	)
Income tax benefit			4,649				2,725				12,018				7,674
Loss from continuing operations			(47,965	)			(54,754	)			(123,302	)			(135,431	)
Income from discontinued operations, net			19,699				45,404				68,532				86,289
Net loss			(28,266	)			(9,350	)			(54,770	)			(49,142	)
Net loss (income) attributable to noncontrolling interests in consolidated real estate partnerships			11,213				(19,254	)			1,795				(24,665	)
Net loss attributable to the Partnership			(17,053	)			(28,604	)			(52,975	)			(73,807	)
Net income attributable to the Partnership’s preferred unitholders			(13,492	)			(14,731	)			(39,918	)			(42,189	)
Net income attributable to participating securities			(2	)			—				—				—
Net loss attributable to the Partnership’s common unitholders		$	(30,547	)		$	(43,335	)		$	(92,893	)		$	(115,996	)
Earnings (loss) per common unit — basic and diluted (Note 6):
Loss from continuing operations attributable to the Partnership’s common unitholders		$	(0.36	)		$	(0.45	)		$	(1.12	)		$	(1.17	)
Income from discontinued operations attributable to the Partnership’s common unitholders			0.11				0.10				0.37				0.23
Net loss attributable to the Partnership’s common unitholders		$	(0.25	)		$	(0.35	)		$	(0.75	)		$	(0.94	)
Weighted average common units outstanding, basic and diluted			124,739				124,376				124,601				122,790
Distributions declared per common unit		$	0.10			$	0.10			$	0.20			$	0.20

See notes to condensed consolidated financial statements.

AIMCO PROPERTIES, L.P.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

		Nine Months
		Ended September 30,
		2010				2009
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss		$	(54,770	)		$	(49,142	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization			322,393				321,661
Gain on dispositions of unconsolidated real estate and other			(5,440	)			(18,156	)
Discontinued operations			(61,554	)			(42,677	)
Other adjustments			15,024				16,232
Net changes in operating assets and operating liabilities			(25,484	)			(90,547	)
Net cash provided by operating activities			190,169				137,371
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures			(130,790	)			(217,891	)
Proceeds from dispositions of real estate			143,719				562,743
Proceeds from sales of interests in and distributions from unconsolidated real estate partnerships			11,792				18,241
Purchases of partnership interests and other assets			(6,782	)			(3,954	)
Originations of notes receivable from unconsolidated real estate partnerships			(968	)			(5,386	)
Proceeds from repayment of notes receivable			1,691				4,703
Net increase in cash from consolidation and deconsolidation of entities (Note 2)			13,118				—
Distributions received from Aimco			168				432
Other investing activities			9,745				27,372
Net cash provided by investing activities			41,693				386,260
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from property loans			167,367				616,293
Principal repayments on property loans			(177,452	)			(844,696	)
Principal repayments on tax-exempt bond financing			(35,843	)			(122,128	)
Payments on term loans			(90,000	)			(140,000	)
Net borrowings on revolving credit facility			—				15,070
Proceeds from issuance of preferred units			96,110				—
Repurchases of preferred units			(7,000	)			(4,200	)
Proceeds from Aimco Class A Common Stock option exercises			1,806				—
Payment of distributions to preferred units			(43,816	)			(44,544	)
Payment of distributions to General Partner and Special Limited Partner			(35,195	)			(84,224	)
Payment of distributions to Limited Partners			(1,808	)			(14,808	)
Payment of distributions to High Performance Units			(702	)			(5,346	)
Payment of distributions to noncontrolling interests			(37,635	)			(71,133	)
Other financing activities			(3,892	)			(16,557	)
Net cash used in financing activities			(168,060	)			(716,273	)
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS			63,802				(192,642	)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD			81,260				299,676
CASH AND CASH EQUIVALENTS AT END OF PERIOD		$	145,062			$	107,034

See notes to condensed consolidated financial statements.

AIMCO PROPERTIES, L.P.

NOTE 1 — Organization

AIMCO Properties, L.P., a Delaware limited partnership, or the Partnership, and together with its consolidated subsidiaries was formed on May 16, 1994 to conduct the business of acquiring, redeveloping, leasing, and managing multifamily apartment properties. Our securities include Partnership Common Units, or common OP Units, Partnership Preferred Units, or preferred OP Units, and High Performance Partnership Units, or High Performance Units, which are collectively referred to as “OP Units.” Apartment Investment and Management Company, or Aimco, is the owner of our general partner, AIMCO-GP, Inc., or the General Partner, and special limited partner, AIMCO-LP Trust, or the Special Limited Partner. The General Partner and Special Limited Partner hold common OP Units and are the primary holders of outstanding preferred OP Units. “Limited Partners” refers to individuals or entities that are our limited partners, other than Aimco, the General Partner or the Special Limited Partner, and own common OP Units or preferred OP Units. Generally, after holding the common OP Units for one year, the Limited Partners have the right to redeem their common OP Units for cash, subject to our prior right to cause Aimco to acquire some or all of the common OP Units tendered for redemption in exchange for shares of Aimco Class A Common Stock. Common OP Units redeemed for Aimco Class A Common Stock are generally exchanged on a one-for-one basis (subject to antidilution adjustments). Preferred OP Units and High Performance Units may or may not be redeemable based on their respective terms, as provided for in the Fourth Amended and Restated Agreement of Limited Partnership of AIMCO Properties, L.P., as amended, or the Partnership Agreement.

We, through our operating divisions and subsidiaries, hold substantially all of Aimco’s assets and manage the daily operations of Aimco’s business and assets. Aimco is required to contribute all proceeds from offerings of its securities to us. In addition, substantially all of Aimco’s assets must be owned through the Partnership; therefore, Aimco is generally required to contribute all assets acquired to us. In exchange for the contribution of offering proceeds or assets, Aimco receives additional interests in us with similar terms (e.g., if Aimco contributes proceeds of a preferred stock offering, Aimco (through the General Partner and Special Limited Partner) receives preferred OP Units with terms substantially similar to the preferred securities issued by Aimco).

Aimco frequently consummates transactions for our benefit. For legal, tax or other business reasons, Aimco may hold title or ownership of certain assets until they can be transferred to us. However, we have a controlling financial interest in substantially all of Aimco’s assets in the process of transfer to us. Except as the context otherwise requires, “we,” “our” and “us” refer to the Partnership, and the Partnership’s consolidated entities, collectively. Except as the context otherwise requires, “Aimco” refers to Aimco and Aimco’s consolidated entities, collectively.

Our goal is to provide above average returns with lower volatility. Our business plan to achieve this goal is to:

•

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

•

improve our portfolio through selling assets with lower projected returns and reinvesting those proceeds through the purchase of new assets or redevelopment of assets in our portfolio; and

•

finance our operations using non-recourse, long-dated, fixed-rate property debt and perpetual preferred equity.

As of September 30, 2010, we:

•

owned an equity interest in 227 conventional real estate properties with 70,844 units;

•

owned an equity interest in 251 affordable real estate properties with 29,097 units; and

•

provided services for or managed 27,357 units in 323 properties, primarily pursuant to long-term asset management agreements. In certain cases, we may indirectly own generally less than one percent of the operations of such properties through a syndication or other fund.

Of these properties, we consolidated 225 conventional properties with 69,540 units and 194 affordable properties with 23,468 units. These conventional and affordable properties generated 84% and 16%, respectively, of consolidated property net operating income (as defined in Note 7) during the nine months ended September 30, 2010, or 88% and 12%, respectively, after adjustments for our ownership in these properties.

At September 30, 2010, after elimination of units held by consolidated subsidiaries, we had outstanding 122,972,734 common OP Units, 32,007,462 preferred OP Units and 2,339,950 High Performance Units. At September 30, 2010, Aimco owned 117,033,718 of the common OP Units and 28,940,114 of the preferred OP Units.

NOTE 2 — Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X. Certain information and footnote disclosures normally included in financial statements prepared in accordance with 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, 2010, are not necessarily indicative of the results that may be expected for the year ending December 31, 2010.

The balance sheet at December 31, 2009, 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, 2009. Certain 2009 financial statement amounts have been reclassified to conform to the 2010 presentation, including adjustments for discontinued operations, and certain 2009 unit and per unit information has been revised as compared to the amounts reported in our Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2009, as further discussed in Note 6.

During the three months ended March 31, 2010, we reduced the investment and noncontrolling interest balances for certain of our consolidated partnerships by $38.7 million related to excess amounts allocated to the investments upon our consolidation of such partnerships. Additionally, during the three months ended March 31, 2010, we reversed approximately $11.2 million of excess equity in losses recognized during 2008 and 2009 related to these partnerships, with a corresponding adjustment to net income attributed to noncontrolling interests in consolidated real estate partnerships. These adjustments had no significant effect on partners’ capital attributed to the Partnership or net income or loss attributable to the Partnership during the affected periods.

During the three months ended September 30, 2010, certain of our consolidated tax credit funds reduced by $9.8 million their December 31, 2009 investment balances related to unconsolidated low income housing tax credit partnerships based on changes in the estimated future tax benefits and residual proceeds. We recognized the equity in losses in our consolidated financial statements during the three months ended September 30, 2010. Substantially all of the equity in losses were attributed to noncontrolling interests in the consolidated tax credit funds that hold such investments and, accordingly, had an insignificant effect on net loss attributable to the Partnership during period.

Principles of Consolidation

The accompanying condensed consolidated financial statements include the accounts of the Partnership and its consolidated entities. Pursuant to a Management and Contribution Agreement between the Partnership and Aimco, we have acquired, in exchange for interests in the Partnership, the economic benefits of subsidiaries of Aimco in which we do not have an interest, and Aimco has granted us a right of first refusal to acquire such subsidiaries’ assets for no additional consideration. Pursuant to the agreement, Aimco has also granted us certain rights with respect to assets of such subsidiaries. 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 consolidated real estate partnerships 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 Aimco or us generally are not available to pay creditors of Aimco or the 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.

Effective January 1, 2010, we adopted the provisions of FASB Accounting Standards Update 2009-17, Improvements to Financial Reporting by Enterprises Involved with Variable Interest Entities, or ASU 2009-17, on a prospective basis. ASU 2009-17, which modified the guidance in FASB ASC Topic 810, introduces a more qualitative approach to evaluating VIEs for consolidation and requires a company to perform an analysis to determine whether its variable interests give it a controlling financial interest in a VIE. This analysis identifies the primary beneficiary of a VIE as the entity that has (a) the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance, and (b) the obligation to absorb losses or the right to receive benefits that could potentially be significant to the VIE. In determining whether it has the power to direct the activities of the VIE that most significantly affect the VIE’s performance, ASU 2009-17 requires a company to assess whether it has an implicit financial responsibility to ensure that a VIE operates as designed, requires continuous reassessment of primary beneficiary status rather than periodic, event-driven assessments as previously required, and incorporates expanded disclosure requirements.

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 VIEs 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.

As a result of our adoption of ASU 2009-17, we concluded we are the primary beneficiary of, and therefore consolidated, approximately 49 previously unconsolidated partnerships. Those partnerships own, or control other entities that own, 31 apartment properties. Our direct and indirect interests in the profits and losses of those partnerships range from less than 1% to 35%, and average approximately 7%. We applied the practicability exception for initial measurement of consolidated VIEs to partnerships that own 13 properties and accordingly recognized the consolidated assets, liabilities and noncontrolling interests at fair value effective January 1, 2010 (refer to the Fair Value Measurements section for further information regarding certain of the fair value amounts recognized upon consolidation). We deconsolidated partnerships that own ten apartment properties in which we hold an average interest of approximately 55%. The initial consolidation and deconsolidation of these partnerships resulted in increases (decreases), net of intercompany eliminations, in amounts included in our consolidated balance sheet as of January 1, 2010, as follows (in thousands):

		Consolidation				Deconsolidation
Real estate, net		$	144,292			$	(86,151	)
Cash and cash equivalents and restricted cash			25,047				(7,425	)
Accounts and notes receivable			(13,456	)			6,002
Investment in unconsolidated real estate partnerships			31,434				11,302
Other assets			4,190				(1,084	)
Total assets		$	191,507			$	(77,356	)
Total indebtedness		$	131,710			$	(56,938	)
Accrued and other liabilities			37,504				(15,005	)
Total liabilities			169,214				(71,943	)
Cumulative effect of a change in accounting principle:
Noncontrolling interests			59,511				(8,501	)
The Partnership			(37,218	)			3,088
Total partners’ capital			22,293				(5,413	)
Total liabilities and partners’ capital		$	191,507			$	(77,356	)

During the three months ended September 30, 2010, we reduced by $16.5 million the investments in unconsolidated real estate partnerships and related noncontrolling interests in consolidated real estate partnerships balances related to certain tax credit funds we consolidated in connection with our adoption of AUS 2009-17. These revisions related to the tax credit funds’ reduction of their December 31, 2009 investment balances related to unconsolidated low income housing tax credit partnerships based on changes in the estimated future tax benefits and residual proceeds. These adjustments had no effect on partners’ capital or net income or loss attributable to the Partnership.

In periods prior to 2009, when consolidated real estate partnerships made cash distributions to partners in excess of the carrying amount of the noncontrolling interest, we generally recorded a charge to earnings equal to the amount of such excess distribution, even though there was no economic effect or cost. Also prior to 2009, we allocated the noncontrolling partners’ share of partnership losses to noncontrolling partners to the extent of the carrying amount of the noncontrolling interest. Consolidation of a partnership does not ordinarily result in a change to the net amount of partnership income or loss that is recognized using the equity method. However, prior to 2009, when a partnership had a deficit in equity, GAAP may have required the controlling partner that consolidates the partnership to recognize any losses that would otherwise be allocated to noncontrolling partners, in addition to the controlling partner’s share of losses. Certain of the partnerships that we consolidated in accordance with ASU 2009-17 had deficits in equity that resulted from losses or deficit distributions during prior periods when we accounted for our investment using the equity method. We would have been required to recognize the noncontrolling partners’ share of those losses had we consolidated those partnerships in those periods prior to 2009. In accordance with our prospective transition method for the adoption of ASU 2009-17 related to our consolidation of previously unconsolidated partnerships, we recorded a $37.2 million charge to our partners’ capital, the majority of which was attributed to the cumulative amount of additional losses that we would have recognized had we applied ASU 2009-17 in periods prior to 2009. Substantially all of those losses were attributable to real estate depreciation expense.

Our consolidated statements of operations for the three and nine months ended September 30, 2010, include the following amounts for the entities and related real estate properties consolidated as of January 1, 2010, in accordance with ASU 2009-17 (in thousands):

		Three Months				Nine Months
		Ended				Ended
		September 30,				September 30,
		2010				2010
Rental and other property revenues		$	8,097			$	24,369
Operating expenses			(4,795	)			(13,998	)
Depreciation and amortization			(2,750	)			(7,435	)
Other expenses			(888	)			(1,257	)
Operating income			(336	)			1,679
Interest income			6				22
Interest expense			(2,299	)			(6,723	)
Equity in losses of unconsolidated real estate partnerships			(4,279	)			(8,855	)
Gain on disposition of unconsolidated real estate and other			97				2,835
Net loss			(6,811	)			(11,042	)
Net loss attributable to noncontrolling interests in consolidated real estate partnerships			6,883				11,754
Net income attributable to the Partnership		$	72			$	712

Our equity in the results of operations of the partnerships and related properties we deconsolidated in connection with our adoption of ASU 2009-17 is included in equity in earnings or losses of unconsolidated real estate partnerships in our consolidated statements of operations for the three and nine months ended September 30, 2010. Based on our effective ownership in these entities, these amounts are not significant.

As of September 30, 2010, we were the primary beneficiary of, and therefore consolidated, approximately 142 VIEs, which owned 101 apartment properties with 14,652 units. Real estate with a carrying value of $895.7 million collateralized $673.9 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, 2010, we also held variable interests in 284 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 337 apartment properties with 21,215 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 $61.9 million at September 30, 2010, are held through consolidated tax credit funds 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 tax credit funds 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 tax credit funds, which is insignificant. The remainder of our investment in unconsolidated VIEs, or approximately $12.2 million at September 30, 2010, 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 $12.2 million recorded investment in such entities.

In addition to our investments in these unconsolidated VIEs discussed above, at September 30, 2010, we had in aggregate $101.4 million of receivables from these VIEs and we had a contractual obligation to advance funds to certain VIEs totaling $4.0 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.

Partners’ Capital (including Noncontrolling Interests)

The following table presents a reconciliation of our December 31, 2009 and September 30, 2010 consolidated partners’ capital accounts:

		Temporary
		capital				Partners’ Capital
										Noncontrolling
						Partners’ capital				interests in
		Redeemable				attributable to the				consolidated real				Total partners’
		preferred units				Partnership				estate partnerships				capital
Balance, December 31, 2009		$	116,656			$	1,233,248			$	317,126			$	1,550,374
Contributions			—				—				7,422				7,422
Issuance of preferred units			—				94,775				—				94,775
Distributions			(5,057	)			(65,292	)			(37,635	)			(102,927	)
Repurchases of common units			—				(1,805	)			—				(1,805	)
Stock option exercises			—				1,806				—				1,806
Repurchases of preferred units			(11,354	)			3,000				—				3,000
Stock based compensation cost			—				5,411				—				5,411
Effect of entities newly consolidated			—				—				6,324				6,324
Effect of changes in ownership for consolidated subsidiaries (1)			—				(1,116	)			(724	)			(1,840	)
Adjustment of noncontrolling interests related to revision of investment balances			—				—				(38,718	)			(38,718	)
Cumulative effect of a change in accounting principle			—				(34,130	)			51,010				16,880
Change in accumulated other comprehensive loss			—				(3,317	)			(489	)			(3,806	)
Other			—				740				(453	)			287
Net income (loss)			3,292				(56,267	)			(1,795	)			(58,062	)
Balance, September 30, 2010		$	103,537			$	1,177,053			$	302,068			$	1,479,121

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 or cap agreements. The interest rate swap agreements moderate our exposure to interest rate risk by effectively converting the interest on variable rate debt to a fixed rate. The interest rate cap agreements effectively limit our exposure to interest rate risk by providing a ceiling on the underlying variable interest 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 partners’ capital, as appropriate. The interest rate caps are not material to our financial position or results of operations.

At September 30, 2010 and December 31, 2009, we had interest rate swaps with aggregate notional amounts of $52.3 million, and recorded fair values of $5.4 million and $1.6 million, respectively, reflected in accrued liabilities and other in our condensed consolidated balance sheets. At September 30, 2010, these interest rate swaps had a weighted average term of 10.4 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 income within partners’ capital to the extent of their effectiveness. For the nine months ended September 30, 2010 and 2009, we recognized changes in fair value of $3.8 million and $0.1 million, respectively, of which $3.8 million and $0.6 million, respectively, resulted in an adjustment to consolidated partners’ capital. We recognized less than $0.1 million and $0.5 million of ineffectiveness as an adjustment of interest expense during the nine months ended September 30, 2010 and 2009, respectively. Our consolidated comprehensive loss for the three and nine months ended September 30, 2010, totaled $30.1 million and $58.6 million, respectively, and consolidated comprehensive loss for the three and nine months ended September 30, 2009, totaled $10.9 million and $48.5 million, respectively, before the effects of noncontrolling interests. If the forward rates at September 30, 2010 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 income. 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 secured tax-exempt bonds payable and fixed-rate notes payable 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 the Securities Industry and Financial Markets Association Municipal Swap Index, or SIFMA, rate for tax-exempt bonds payable and the 30-day LIBOR rate for notes payable, plus a risk spread. These swaps generally have a second or third lien on the property collateralized by the related borrowings and the obligations under certain of these swaps are cross-collateralized with certain of the other swaps with a particular counterparty. The underlying borrowings are generally callable at our option, with no prepayment penalty, with 30 days advance notice, and the swaps generally have a term of less than five years. The total rate of return swaps have a contractually defined termination value generally equal to the difference between the fair value and the counterparty’s purchased value of the underlying borrowings, which may require payment by us or to us for such difference. Accordingly, we believe fluctuations in the fair value of the borrowings from the inception of the hedging relationship generally will be offset by a corresponding fluctuation in the fair value of the total rate of return swaps.

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, 2010 and December 31, 2009, we had borrowings payable subject to total rate of return swaps with aggregate outstanding principal balances of $307.2 million and $352.7 million. At September 30, 2010, the weighted average fixed receive rate under the total return swaps was 6.8% and the weighted average variable pay rate was 0.9%, based on the applicable SIFMA and LIBOR rates effective as of that date. Information related to the fair value of these instruments at September 30, 2010 and December 31, 2009, is discussed further below.

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 include, in addition to the unobservable or Level 3 components, observable components that can be validated to observable external sources; accordingly, the changes in fair value in the table below are due in part to observable factors that are part of the valuation methodology.

The table below presents information regarding significant items measured in our consolidated financial statements at fair value on a recurring basis (in thousands):

		Level 2				Level 3
		Interest rate				Total rate of				Changes in fair
		swaps (1)				return swaps (2)				value of debt (3)				Total
Fair value at December 31, 2008		$	(2,557	)		$	(29,495	)		$	29,495			$	(2,557	)
Unrealized gains (losses) included in earnings (4)(5)			(478	)			3,395				(3,395	)			(478	)
Realized gains (losses) included in earnings			—				—				—				—
Unrealized gains (losses) included in partners’ capital			607				—				—				607
Fair value at September 30, 2009		$	(2,428	)		$	(26,100	)		$	26,100			$	(2,428	)
Fair value at December 31, 2009		$	(1,596	)		$	(24,307	)		$	24,307			$	(1,596	)
Unrealized gains (losses) included in earnings (4)(5)			(35	)			5,771				(5,771	)			(35	)
Realized gains (losses) included in earnings			—				—				—				—
Unrealized gains (losses) included in partners’ capital			(3,806	)			—				—				(3,806	)
Fair value at September 30, 2010		$	(5,437	)		$	(18,536	)		$	18,536			$	(5,437	)

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

		Fair value				Total
		measurement				gain (loss)
Real estate (impairments losses) (1)		$	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 secured debt approximates their aggregate carrying amounts at September 30, 2010 and December 31, 2009, due to their relatively short-term nature and high probability of realization. We estimate fair value for our notes receivable and 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 was approximately $128.3 million and $126.1 million at September 30, 2010 and December 31, 2009, respectively, as compared to their carrying amounts of $140.8 million and $139.6 million. The estimated aggregate fair value of our consolidated debt (including amounts reported in liabilities related to assets held for sale) was approximately $6.0 billion and $5.7 billion at September 30, 2010 and December 31, 2009, respectively, as compared to aggregate carrying amounts of $5.5 billion and $5.6 billion, respectively. The fair values of our derivative instruments at September 30, 2010 and December 31, 2009, are included in the table presented above.

Concentration of Credit Risk

Financial instruments that potentially could subject us to significant concentrations of credit risk consist principally of notes receivable and total rate of return swaps. Approximately $88.4 million of our notes receivable, or 1.2% of our total assets, at September 30, 2010, are collateralized by 84 buildings with 1,596 residential units in the West Harlem area of New York City. There are no other significant concentrations of credit risk with respect to our notes receivable due to the large number of partnerships that are borrowers under the notes and the geographic diversification of the properties that serve as the primary source of repayment of the notes.

At September 30, 2010, we had total rate of return swap positions with two financial institutions totaling $307.5 million. We periodically evaluate counterparty credit risk associated with these arrangements. At the current time, we have concluded we do not have material exposure. 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. Additionally, the swap agreements with a specific counterparty provide for collateral calls to maintain specified loan-to-value ratios. As of September 30, 2010, we were not required to provide cash collateral pursuant to the total rate of return swaps. In the event the values of the real estate properties serving as collateral under these agreements decline, we may be required to provide additional collateral pursuant to the swap agreements, which may adversely affect our cash flows.

In July 2010, the FASB issued Accounting Standards Update 2010-20, Disclosures Regarding Credit Quality and the Allowance for Credit Losses, or ASU 2010-20, to address concerns regarding the sufficiency of disclosures regarding credit risk for finance receivables and the related allowance for credit losses. ASU 2010-20 defines finance receivables and requires disclosure of disaggregated information regarding receivables by portfolio segment and class. New disclosures include a detailed description of and changes to the allowance policy, a rollforward of the allowance for credit losses, and information about credit quality indicators we evaluate in assessing receivables, impaired receivables and past-due or nonaccrual financing receivables, including the aging of such receivables. The Partnership’s notes receivable and certain other receivables with contractual maturities in excess of one year will be subject to the revised disclosure guidance. The new disclosures will be phased in for our financial statements for the year ending December 31, 2010 and the quarter ending March 31, 2011. We have not yet determined the effect ASU 2010-20 will have on the disclosures included in our annual and quarterly financial statements.

Income Taxes

In March 2008, we were notified by the Internal Revenue Service, or the IRS, that it intended to examine our 2006 Federal tax return. During June 2008, the IRS issued AIMCO-GP, Inc., our general partner and tax matters partner, a summary report including the IRS’s proposed adjustments to our 2006 Federal tax return. In addition, in May 2009, we were notified by the IRS that it intended to examine our 2007 Federal tax return. During November 2009, the IRS issued AIMCO-GP, Inc. a summary report including the IRS’s proposed adjustments to our 2007 Federal tax return. 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.

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 and included in discontinued operations 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 September 30, 2010 and December 31, 2009, we had one and 32 properties, with an aggregate of 164 and 5,212 units, respectively, classified as held for sale. Amounts classified as held for sale in the accompanying condensed consolidated balance sheets are as follows (in thousands):

		September 30,				December 31,
		2010				2009
Real estate, net		$	4,963			$	199,743
Other assets			216				3,927
Assets held for sale		$	5,179			$	203,670
Property debt		$	6,447			$	178,339
Other liabilities			44				5,553
Liabilities related to assets held for sale		$	6,491			$	183,892

During the nine months ended September 30, 2010 and 2009, we sold 31 properties and 57 properties with an aggregate of 5,048 units and 13,405 units, respectively. During the year ended December 31, 2009, we sold 89 consolidated properties with an aggregate of 22,503 units. For the three and nine months ended September 30, 2010 and 2009, discontinued operations includes the results of operations for the periods prior to the date of sale for all properties sold and for properties classified as held for sale as of September 30, 2010.

The following is a summary of the components of income from discontinued operations and the related amounts of income from discontinued operations attributable to the Partnership and to noncontrolling interests for the three and nine months ended September 30, 2010 and 2009 (in thousands):

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
		2010				2009				2010				2009
Rental and other property revenues		$	2,081			$	45,126			$	20,654			$	170,309
Property operating expenses			(392	)			(22,619	)			(9,255	)			(85,233	)
Depreciation and amortization			(734	)			(14,521	)			(4,581	)			(52,718	)
Provision for operating real estate impairment losses			(1,142	)			(26,298	)			(9,263	)			(40,712	)
Other expenses, net			(720	)			(2,266	)			(470	)			(7,859	)
Operating loss			(907	)			(20,578	)			(2,915	)			(16,213	)
Interest income			83				85				186				278
Interest expense			(709	)			(8,751	)			(4,137	)			(34,142	)
Loss before gain on dispositions of real estate and income tax			(1,533	)			(29,244	)			(6,866	)			(50,077	)
Gain on extinguishment of debt			—				259				—				259
Gain on dispositions of real estate			21,043				70,889				74,364				133,428
Income tax benefit			189				3,500				1,034				2,679
Income from discontinued operations, net		$	19,699			$	45,404			$	68,532			$	86,289
Income from discontinued operations attributable to:
Noncontrolling interests in consolidated real estate partnerships		$	(5,298	)		$	(32,349	)		$	(21,900	)		$	(58,077	)
The Partnership		$	14,401			$	13,055			$	46,632			$	28,212

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 $0.6 million and $3.8 million for the three and nine months ended September 30, 2010, respectively, and $7.6 million and $19.4 million for the three and nine months ended September 30, 2009, 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, 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. In connection with properties sold or classified as held for sale during the three and nine months ended September 30, 2009, we allocated $3.5 million and $6.5 million of goodwill related to our conventional and affordable segments to the carrying amounts of the properties sold or classified as held for sale. 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.

Gain on Dispositions of Unconsolidated Real Estate and Other

During the three months ended September 30, 2010, we recognized $0.9 million of gains on the disposition of interests in unconsolidated real estate partnerships and other, primarily due to our consolidation during 2010 of several previously unconsolidated real estate partnerships. We consolidated these partnerships at fair value upon our removal of the previous general partner and at the time of consolidation we recognized a gain equal to the difference between the fair value of the net assets and liabilities consolidated and the carrying amount of our investment in these entities.

During the nine months ended September 30, 2010, we recognized $5.4 million of gains on the disposition of interests in unconsolidated real estate partnerships and other. These gains were primarily related to sales of investments held by partnerships we consolidated in accordance with our adoption of ASU 2009-17 (see Note 2) and in which we generally hold a nominal general partner interest. Accordingly, these gains were primarily attributed to noncontrolling interests in consolidated real estate partnerships.

During the three months ended September 30, 2009, we recognized $2.8 million of gains on the disposition of unconsolidated real estate and other, which consisted of a $3.9 million gain from the disposition of our interest in a group purchasing organization, partially offset by losses related to unconsolidated real estate partnerships.

During the nine months ended September 30, 2009, we recognized $18.2 million of gains on the disposition of unconsolidated real estate and other. These gains consisted of $8.6 million resulting from our receipt in 2009 of additional proceeds related to our disposition during 2008 of an interest in an unconsolidated real estate partnership, a $3.9 million gain from the disposition of our interest in a group purchasing organization and approximately $5.7 million of gains related to dispositions of interests in unconsolidated real estate partnerships.

NOTE 4 — Other Significant Transactions

Restructuring Costs

During 2009, in connection with the repositioning of our portfolio, we completed organizational restructuring activities that included reductions in workforce and related costs and the abandonment of additional leased corporate facilities and redevelopment projects. During the nine months ended September 30, 2010, we reduced our restructuring accruals by $1.7 million and $4.7 million related to payments on unrecoverable lease obligations and severance and personnel related costs, respectively. As of September 30, 2010, the remaining accruals associated with our restructuring activity are $5.2 million for estimated unrecoverable lease obligations, which will be paid over the remaining terms of the affected leases.

Preferred Unit Transactions

On September 7, 2010, Aimco issued 4,000,000 shares of its 7.75% Class U Cumulative Preferred Stock, par value $.01 per share, or the Class U Preferred Stock, in an underwritten public offering for a price per share of $24.09 (reflecting a price to the public of $24.86 per share, less an underwriting discount and commissions of $0.77 per share). The offering generated net proceeds of $96.1 million (after deducting underwriting discounts and commissions and estimated transaction expenses). Aimco contributed the net proceeds to us in exchange for 4,000,000 units of our 7.75% Class U Cumulative Preferred Units. We recorded issuance costs of $3.3 million, consisting primarily of underwriting commissions, as an adjustment of partners’ capital attributable to the Partnership within our condensed consolidated balance sheet.

On October 7, 2010, using the net proceeds from the issuance of Class U Preferred Stock supplemented by corporate funds, Aimco redeemed all of the 4,050,000 outstanding shares of its 9.375% Class G Cumulative Preferred Stock, inclusive of 10,000 shares held by a consolidated subsidiary that are eliminated in consolidation. This redemption was for cash at a price equal to $25.00 per share, or $101.3 million in aggregate, plus accumulated and unpaid dividends of $2.2 million. Concurrent with this redemption, we redeemed all of our outstanding Class G Cumulative Preferred Units, 4,040,000 of which were held by Aimco and 10,000 of which were held by a consolidated subsidiary. In connection with the redemption, $4.3 million of issuance costs previously recorded as a reduction of partners’ capital attributable to the Partnership will be reflected as an increase in net income attributable to preferred unitholders for purposes of calculating earnings per unit for the three months and year ending December 31, 2010.

NOTE 5 — Commitments and Contingencies

Commitments

In connection with our redevelopment activities, we have commitments of approximately $0.3 million related to construction projects that are expected to be completed during 2010. 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 $4.0 million in loans on certain properties in West Harlem in New York City. In certain circumstances, the obligor under these notes has the ability to put properties to us, which would result in a cash payment between $30.6 million and $97.7 million and the assumption of $118.6 million in property debt. The ability to exercise the put and the amount of cash payment required upon exercise is dependent upon the achievement of specified thresholds by the current owner of the properties.

In June 2009, Aimco entered into an agreement that allows the holder of some of its Series A Community Reinvestment Act Preferred Stock, or CRA Preferred Stock, to require Aimco to repurchase a portion of the CRA Preferred Stock at a 30% discount to the liquidation preference. In accordance with this repurchase agreement, in May 2010, Aimco repurchased 20 shares, or $10.0 million in liquidation preference, of CRA Preferred Stock for $7.0 million. Concurrent with this redemption, we repurchased from Aimco an equivalent number of our Series A Community Reinvestment Act Perpetual Preferred Units, or CRA Preferred Units. We reflected the $3.0 million excess of the carrying value over the repurchase price, offset by $0.2 million of issuance costs previously recorded as a reduction of partners’ capital, as a reduction of net income attributable to preferred unitholders for the nine months ended September 30, 2010.

As of September 30, 2010, Aimco had a remaining potential obligation under this agreement to repurchase up to $20.0 million in liquidation preference of its CRA Preferred Stock. If required, these additional repurchases will be for up to $10.0 million in liquidation preference in May 2011 and 2012. Upon any repurchases required of Aimco under this agreement, we will repurchase from Aimco an equivalent number of our CRA Preferred Units. Based on the holder’s ability to require Aimco to repurchase these amounts and our obligation to purchase from Aimco a corresponding number of our CRA Preferred Units, the $20.0 million in liquidation preference of CRA Preferred Units, or the maximum redemption value of such preferred units, is classified within temporary capital in our consolidated balance sheet at September 30, 2010.

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.

Environmental

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

We have determined that our legal obligations to remove or remediate hazardous substances may be conditional asset retirement obligations, as defined in 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, 2010, are immaterial to our consolidated financial condition, results of operations and cash flows.

NOTE 6 — Earnings (Loss) per Unit

We calculate earnings (loss) per unit based on the weighted average number of common OP Units, participating securities, common OP unit equivalents and dilutive convertible securities outstanding during the period. We consider both common OP Units and High Performance Units, which have identical rights to distributions and undistributed earnings, to be common units for purposes of the earnings (loss) per unit data presented below. The following table illustrates the calculation of basic and diluted earnings (loss) per unit for the three and nine months ended September 30, 2010 and 2009 (in thousands, except per unit):

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
		2010				2009				2010				2009
Numerator:
Loss from continuing operations		$	(47,965	)		$	(54,754	)		$	(123,302	)		$	(135,431	)
Loss from continuing operations attributable to noncontrolling interests			16,511				13,095				23,695				33,412
Income attributable to the Partnership’s preferred unitholders			(13,492	)			(14,731	)			(39,918	)			(42,189	)
Income attributable to participating securities			(2	)			—				—				—
Loss from continuing operations attributable to the Partnership’s common unitholders		$	(44,948	)		$	(56,390	)		$	(139,525	)		$	(144,208	)
Income from discontinued operations		$	19,699			$	45,404			$	68,532			$	86,289
Income from discontinued operations attributable to noncontrolling interests			(5,298	)			(32,349	)			(21,900	)			(58,077	)
Income from discontinued operations attributable to the Partnership’s common unitholders		$	14,401			$	13,055			$	46,632			$	28,212
Net loss		$	(28,266	)		$	(9,350	)		$	(54,770	)		$	(49,142	)
Loss (income) attributable to noncontrolling interests			11,213				(19,254	)			1,795				(24,665	)
Income attributable to the Partnership’s preferred unitholders			(13,492	)			(14,731	)			(39,918	)			(42,189	)
Income attributable to participating securities			(2	)			—				—				—
Net loss attributable to the Partnership’s common unitholders		$	(30,547	)		$	(43,335	)		$	(92,893	)		$	(115,996	)
Denominator:
Denominator for basic earnings per unit — weighted average number of common units outstanding			124,739				124,376				124,601				122,790
Effect of dilutive securities:
Dilutive potential common units			—				—				—				—
Denominator for diluted earnings per unit			124,739				124,376				124,601				122,790
Earnings (loss) per common unit:
Basic and diluted earnings (loss) per common unit:
Loss from continuing operations attributable to the Partnership’s common unitholders		$	(0.36	)		$	(0.45	)		$	(1.12	)		$	(1.17	)
Income from discontinued operations attributable to the Partnership’s common unitholders			0.11				0.10				0.37				0.23
Net loss attributable to the Partnership’s common unitholders		$	(0.25	)		$	(0.35	)		$	(0.75	)		$	(0.94	)

As of September 30, 2010 and 2009, the common unit equivalents that could potentially dilute basic earnings per unit in future periods totaled 7.2 million and 9.9 million, respectively. These securities, representing options to purchase shares of Aimco Class A Common Stock, have been excluded from the earnings (loss) per unit computations for the three and nine months ended September 30, 2010 and 2009, because their effect would have been anti-dilutive. Participating securities, consisting of unvested restricted shares of Aimco Class A Common Stock and shares of Aimco Class A Common Stock purchased pursuant to officer loans, receive dividends similar to shares of Aimco Class A Common Stock and common OP Units and totaled 0.6 million and 0.9 million at September 30, 2010 and 2009, respectively. The effect of participating securities is reflected in basic and diluted earnings (loss) per unit computations for the periods presented above using the two-class method of allocating distributed and undistributed earnings.

Various classes of redeemable preferred OP Units 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 our option, shares of Aimco Class A Common Stock, and are paid distributions varying from 1.84% to 9.5% per annum per unit, or equal to the dividends paid on Aimco Class A Common Stock based on the conversion terms. As of September 30, 2010, a total of 3.1 million preferred OP Units were outstanding with redemption values of $82.7 million and were potentially redeemable for approximately 3.9 million shares of Aimco Class A Common Stock (based on the period end market price), or cash at our option. We have 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; however, based on our cash redemption policy, they may also be excluded from future earnings (loss) per unit computations in periods during which their effect is dilutive.

In December 2009, we adopted the provisions of FASB Accounting Standards Update 2010-01, Accounting for Distributions to Shareholders with Components of Stock and Cash, or ASU 2010-01, which are codified in FASB ASC Topic 505. ASU 2010-01 requires that for distributions with components of cash and stock, the portion distributed in stock should be accounted for prospectively as a stock issuance with no retroactive adjustment to basic and diluted earnings per share. In accordance with ASU 2010-01, we retrospectively revised the accounting treatment of our special distribution paid in January 2009, resulting in a 1.6 million reduction in the number of weighted average units outstanding and a $0.01 increase in the loss per unit attributed to the Partnership’s common unitholders for the nine months ended September 30, 2009, as compared to the amounts reported in our Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2009.

NOTE 7— Business Segments

Based on a planned reduction in our transactional activities, during the three months ended March 31, 2010, we reevaluated our reportable segments and determined our investment management reporting unit no longer meets the requirements for a reportable segment. Additionally, to provide more meaningful information regarding our real estate operations, we elected to disaggregate information for the prior real estate segment. Following these changes, 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 include 227 properties with 70,844 units. Our affordable real estate operations consist of 251 properties with 29,097 units, with rents that are generally paid, in whole or part, by a government agency.

Our chief operating decision maker uses various generally accepted industry financial measures to assess the performance of the business, including: property net operating income, which is rental and other property revenues less direct property operating expenses, including real estate taxes; Net Asset Value, which is the estimated fair value of our assets, net of debt; Pro forma Funds From Operations, which is Funds From Operations excluding operating real estate impairment losses and preferred unit redemption related gains or losses; Adjusted Funds From Operations, which is Pro forma Funds From Operations less spending for Capital Replacements; 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. The chief operating decision maker emphasizes net operating income as a key measurement of segment profit or loss. Segment net operating income is generally defined as segment revenues less direct segment operating expenses.

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 for the three and nine months ended September 30, 2010 and 2009 (in thousands):

										Corporate and
		Conventional				Affordable				Amounts Not
		Real Estate				Real Estate				Allocated to
		Operations				Operations (1)				Segments				Total
Three Months Ended September 30, 2010:
Rental and other property revenues (2)		$	228,327			$	53,612			$	656			$	282,595
Asset management and tax credit revenues			—				—				9,707				9,707
Total revenues			228,327				53,612				10,363				292,302
Property operating expenses (2)			88,782				25,479				13,913				128,174
Asset management and tax credit expenses			—				—				2,609				2,609
Depreciation and amortization (2)			—				—				107,309				107,309
Provision for operating real estate impairment losses (2)			—				—				287				287
General and administrative expenses			—				—				12,096				12,096
Other expenses, net			—				—				4,394				4,394
Total operating expenses			88,782				25,479				140,608				254,869
Net operating income (loss)			139,545				28,133				(130,245	)			37,433
Other items included in continuing operations			—				—				(85,398	)			(85,398	)
Income (loss) from continuing operations		$	139,545			$	28,133			$	(215,643	)		$	(47,965	)
Three Months Ended September 30, 2009:
Rental and other property revenues (2)		$	227,917			$	46,040			$	1,115			$	275,072
Asset management and tax credit revenues			—				—				10,325				10,325
Total revenues			227,917				46,040				11,440				285,397
Property operating expenses (2)			92,969				23,112				17,143				133,224
Asset management and tax credit expenses			—				—				4,213				4,213
Depreciation and amortization (2)			—				—				110,290				110,290
Provision for operating real estate impairment losses (2)			—				—				66				66
General and administrative expenses			—				—				12,772				12,772
Other expenses, net			—				—				7,637				7,637
Total operating expenses			92,969				23,112				152,121				268,202
Net operating income (loss)			134,948				22,928				(140,681	)			17,195
Other items included in continuing operations			—				—				(71,949	)			(71,949	)
Income (loss) from continuing operations		$	134,948			$	22,928			$	(212,630	)		$	(54,754	)

										Corporate and
		Conventional				Affordable				Amounts Not
		Real Estate				Real Estate				Allocated to
		Operations				Operations (1)				Segments				Total
Nine Months Ended September 30, 2010:
Rental and other property revenues (2)		$	683,257			$	159,668			$	2,695			$	845,620
Asset management and tax credit revenues			—				—				23,560				23,560
Total revenues			683,257				159,668				26,255				869,180
Property operating expenses (2)			272,135				78,649				45,080				395,864
Asset management and tax credit expenses			—				—				10,979				10,979
Depreciation and amortization (2)			—				—				322,393				322,393
Provision for operating real estate impairment losses (2)			—				—				287				287
General and administrative expenses			—				—				39,015				39,015
Other expenses, net			—				—				2,097				2,097
Total operating expenses			272,135				78,649				419,851				770,635
Net operating income (loss)			411,122				81,019				(393,596	)			98,545
Other items included in continuing operations			—				—				(221,847	)			(221,847	)
Income (loss) from continuing operations		$	411,122			$	81,019			$	(615,443	)		$	(123,302	)
Nine Months Ended September 30, 2009:
Rental and other property revenues (2)		$	682,488			$	140,793			$	4,098			$	827,379
Asset management and tax credit revenues			—				—				32,469				32,469
Total revenues			682,488				140,793				36,567				859,848
Property operating expenses (2)			273,841				68,676				48,504				391,021
Asset management and tax credit expenses			—				—				12,719				12,719
Depreciation and amortization (2)			—				—				321,661				321,661
Provision for operating real estate impairment losses (2)			—				—				1,635				1,635
General and administrative expenses			—				—				43,612				43,612
Other expenses, net			—				—				12,453				12,453
Total operating expenses			273,841				68,676				440,584				783,101
Net operating income (loss)			408,647				72,117				(404,017	)			76,747
Other items included in continuing operations			—				—				(212,178	)			(212,178	)
Income (loss) from continuing operations		$	408,647			$	72,117			$	(616,195	)		$	(135,431	)

The assets of our reportable segments are as follows (in thousands):

		September 30,				December 31,
		2010				2009
Conventional		$	5,898,194			$	6,032,988
Affordable			1,188,134				1,130,089
Corporate and other assets			547,057				759,062
Total consolidated assets		$	7,633,385			$	7,922,139

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. 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 capital markets 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, Aimco’s 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 its 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, 2009, and the other documents we file from time to time with the Securities and Exchange Commission. As used herein and except as the context otherwise requires, “we,” “our,” “us” and the “Company” refer to AIMCO Properties, L.P. (which we refer to as the Partnership) and the Partnership’s consolidated corporate subsidiaries and consolidated real estate partnerships, collectively.

Executive Overview

We are the operating partnership for Aimco, which is a self-administered and self-managed real estate investment trust, or REIT. Our goal is to provide above average returns with lower volatility. Our business plan to achieve this goal is to:

•

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

•

improve our portfolio through selling assets with lower projected returns and reinvesting those proceeds through the purchase of new assets or redevelopment of assets in our portfolio; and

•

finance our operations using non-recourse, long-dated, fixed rate property debt and perpetual preferred equity.

Our owned real estate portfolio includes 227 conventional properties with 70,844 units and 251 affordable properties with 29,097 units. Our conventional and affordable portfolios comprise 88% and 12% of our total property net asset value. For the three months ended September 30, 2010, our conventional portfolio monthly rents averaged $1,044 and provided 62% operating margins. These average rents increased from $1,042 for the three months ended June 30, 2010, which were approximately 101% of local market averages (based on June 30, 2010 market data, the most recent period for which third party data is available). Our diversified portfolio resulted in improved property operating results from 2008 to 2010. After adjustments for discontinued operations, the increase or decrease in net operating income of our total real estate operations, total same store portfolio and conventional same store portfolio during 2008, 2009 and year-to-date September 30, 2010 was as follows:

		Real Estate				Total Same				Conventional
		Operations				Store				Same Store
2008 as compared to 2007			3.9	%			3.7	%			3.5	%
2009 as compared to 2008			-0.5	%			-3.3	%			-4.2	%
Nine months ended September 30, 2010 as compared to nine months ended September 30, 2009			0.9	%			-1.0	%			-1.4	%
Three months ended September 30, 2010 as compared to three months ended September 30, 2009			3.2	%			3.0	%			2.6	%