Q3 2012 10-Q
Table of Contents

 
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_______________________________________
Form 10-Q
(Mark One)
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2012
OR
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
 
For the transition period from          to
Commission File Number 1-13232 (Apartment Investment and Management Company)
Commission File Number 0-24497 (AIMCO Properties, L.P.)
 
Apartment Investment and Management Company
AIMCO Properties, L.P.
(Exact name of registrant as specified in its charter)
 
Maryland (Apartment Investment and Management Company)
 
84-1259577
 
Delaware (AIMCO Properties, L.P.)
 
84-1275621
 
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
 
 
 
 
 
4582 South Ulster Street, Suite 1100
 
 
 
Denver, Colorado
 
80237
 
(Address of principal executive offices)
 
(Zip Code)
 
(303) 757-8101
(Registrant’s telephone number, including area code)
 
Not Applicable
(Former name, former address, and former fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Apartment Investment and Management Company: Yes x    No o
AIMCO Properties, L.P.: Yes x    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).
Apartment Investment and Management Company: Yes x    No o
AIMCO Properties, L.P.: Yes x    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):
Apartment Investment and Management Company:
Large accelerated filer
x
 
Accelerated filer
o
Non-accelerated filer
o
(Do not check if a smaller reporting company)
Smaller reporting company
o
AIMCO Properties, L.P.:
Large accelerated filer
o
 
Accelerated filer
x
Non-accelerated filer
o
(Do not check if a smaller reporting company)
Smaller reporting company
o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Apartment Investment and Management Company: Yes
o
No
x
AIMCO Properties, L.P.: Yes
o
No
x
 
_______________________________________________________
The number of shares of Apartment Investment and Management Company
Class A Common Stock outstanding as of October 31, 2012:   145,544,888
 


Table of Contents

EXPLANATORY NOTE
This filing combines the reports on Form 10-Q for the quarterly period ended September 30, 2012, of Apartment Investment and Management Company, or Aimco, and AIMCO Properties, L.P., or the Aimco Operating Partnership. Where it is important to distinguish between the two entities, we refer to them specifically. Otherwise, references to “we,” “us” or “our” mean collectively Aimco, the Aimco Operating Partnership and their consolidated entities.
Aimco, a Maryland corporation, is a self-administered and self-managed real estate investment trust, or REIT. Aimco, through wholly-owned subsidiaries, is the general and special limited partner of and, as of September 30, 2012, owned an approximate 94.8% ownership interest in the common partnership units of, the Aimco Operating Partnership. The remaining 5.2% interest is owned by limited partners. As the sole general partner of the Aimco Operating Partnership, Aimco has exclusive control of the Aimco Operating Partnership’s day-to-day management.
The Aimco Operating Partnership holds all of Aimco’s assets and manages the daily operations of Aimco’s business and assets. Aimco is required to contribute all proceeds from offerings of its securities to the Aimco Operating Partnership. In addition, substantially all of Aimco’s assets must be owned through the Aimco Operating Partnership; therefore, Aimco is generally required to contribute all assets acquired to the Aimco Operating Partnership. In exchange for the contribution of offering proceeds or assets, Aimco receives additional interests in the Aimco Operating Partnership with similar terms (e.g., if Aimco contributes proceeds of a stock offering, Aimco receives partnership units with terms substantially similar to the stock issued by Aimco).
We believe combining the periodic reports of Aimco and Aimco Operating Partnership into this single report provides the following benefits:
presents our business as a whole, in the same manner our management views and operates the business;
eliminates duplicative disclosure and provides a more streamlined and readable presentation since a substantial portion of the disclosures apply to both Aimco and the Aimco Operating Partnership; and
saves time and cost through the preparation of a single combined report rather than two separate reports.
We operate Aimco and the Aimco Operating Partnership as one enterprise and the management of Aimco directs the management and operations of the Aimco Operating Partnership.
We believe it is important to understand the few differences between Aimco and the Aimco Operating Partnership in the context of how Aimco and the Aimco Operating Partnership operate as a consolidated company. Aimco has no assets or liabilities other than its investment in the Aimco Operating Partnership. Also, Aimco is a corporation that issues publicly traded equity from time to time, whereas the Aimco Operating Partnership is a partnership that has no publicly traded equity. Except for the net proceeds from stock offerings by Aimco, which are contributed to the Aimco Operating Partnership in exchange for additional limited partnership interests (of a similar type and in an amount equal to the shares of stock sold in the offering), the Aimco Operating Partnership generates all remaining capital required by its business. These sources include the Aimco Operating Partnership’s working capital, net cash provided by operating activities, borrowings under its revolving credit facility, the issuance of secured and unsecured debt and equity securities, including additional partnership units, and proceeds received from the disposition of certain properties and investments in real estate.
Shareholders’ equity, partners’ capital and noncontrolling interests are the main areas of difference between the consolidated financial statements of Aimco and those of the Aimco Operating Partnership. Interests in the Aimco Operating Partnership held by entities other than Aimco are classified within partners’ capital in the Aimco Operating Partnership’s financial statements and as noncontrolling interests in Aimco’s financial statements.
To help investors understand the differences between Aimco and the Aimco Operating Partnership, this report provides separate consolidated financial statements for Aimco and the Aimco Operating Partnership; a single set of consolidated notes to such financial statements that includes separate discussions of each entity’s shareholders’ equity or partners’ capital, as applicable; and a combined Management’s Discussion and Analysis of Financial Condition and Results of Operations section that includes discrete information related to each entity.
This report also includes separate Part I, Item 4. Controls and Procedures sections and separate Exhibits 31 and 32 certifications for Aimco and the Aimco Operating Partnership in order to establish that the requisite certifications have been made and that Aimco and the Aimco Operating Partnership are both compliant with Rule 13a-15 or Rule 15d-15 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and 18 U.S.C. §1350.

1

Table of Contents

APARTMENT INVESTMENT AND MANAGEMENT COMPANY
AIMCO PROPERTIES, L.P.

TABLE OF CONTENTS

FORM 10-Q

 
 
Page
 
 
ITEM 1.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
ITEM 2.
ITEM 3.
ITEM 4.
 
 
ITEM 1A.
ITEM 2.
ITEM 5.
ITEM 6.
 


2

Table of Contents

PART I. FINANCIAL INFORMATION

ITEM 1.
Financial Statements


APARTMENT INVESTMENT AND MANAGEMENT COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
(Unaudited)

 
September 30,
2012
 
December 31,
2011
ASSETS
 
 
 
Buildings and improvements
$
6,593,894

 
$
6,372,683

Land
2,006,360

 
1,968,433

Total real estate
8,600,254

 
8,341,116

Less accumulated depreciation
(2,849,046
)
 
(2,633,242
)
Net real estate ($741,662 and $775,668 related to VIEs)
5,751,208

 
5,707,874

Cash and cash equivalents ($44,043 and $43,286 related to VIEs)
102,515

 
91,066

Restricted cash ($45,975 and $43,913 related to VIEs)
158,649

 
184,626

Accounts receivable, net ($10,022 and $8,434 related to VIEs)
36,540

 
41,796

Notes receivable
103,288

 
111,205

Investment in unconsolidated real estate partnerships ($22,504 and $29,301 related to VIEs)
38,249

 
47,790

Other assets
328,464

 
339,403

Assets held for sale
46,475

 
348,102

Total assets
$
6,565,388

 
$
6,871,862

LIABILITIES AND EQUITY
 
 
 
Non-recourse property debt ($617,717 and $621,203 related to VIEs)
$
4,871,981

 
$
4,870,426

Revolving credit facility borrowings
66,200

 

Total indebtedness
4,938,181

 
4,870,426

Accounts payable
28,488

 
32,607

Accrued liabilities and other ($59,000 and $79,573 related to VIEs)
235,881

 
283,247

Deferred income
133,054

 
139,606

Liabilities related to assets held for sale
46,729

 
317,918

Total liabilities
5,382,333

 
5,643,804

Preferred noncontrolling interests in Aimco Operating Partnership
80,077

 
83,384

Commitments and contingencies (Note 8)

 

Equity:
 
 
 
Perpetual Preferred Stock
68,114

 
657,114

Common Stock, $0.01 par value, 480,887,260 shares authorized, 145,554,888 and 120,916,294 shares issued/outstanding at September 30, 2012 and December 31, 2011, respectively
1,456

 
1,209

Additional paid-in capital
3,714,674

 
3,098,333

Accumulated other comprehensive loss
(6,397
)
 
(6,860
)
Distributions in excess of earnings
(2,902,175
)
 
(2,841,467
)
Total Aimco equity
875,672

 
908,329

Noncontrolling interests in consolidated real estate partnerships
264,286

 
270,666

Common noncontrolling interests in Aimco Operating Partnership
(36,980
)
 
(34,321
)
Total equity
1,102,978

 
1,144,674

Total liabilities and equity
$
6,565,388

 
$
6,871,862


See notes to condensed consolidated financial statements.


3

Table of Contents

APARTMENT INVESTMENT AND MANAGEMENT COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
 
2012
 
2011
 
2012
 
2011
REVENUES:
 
 
 
 
 
 
 
Rental and other property revenues
$
256,752

 
$
242,574

 
$
760,155

 
$
725,090

Asset management and tax credit revenues
10,696

 
11,885

 
27,681

 
28,772

Total revenues
267,448

 
254,459

 
787,836

 
753,862

OPERATING EXPENSES:
 
 
 
 
 
 
 
Property operating expenses
106,462

 
106,458

 
309,515

 
316,943

Investment management expenses
2,817

 
2,311

 
9,445

 
7,397

Depreciation and amortization
87,444

 
87,687

 
264,978

 
259,069

Provision for real estate impairment losses
2,453

 

 
10,801

 

General and administrative expenses
12,311

 
12,741

 
37,491

 
36,370

Other expenses, net
5,230

 
3,838

 
11,514

 
12,328

Total operating expenses
216,717

 
213,035

 
643,744

 
632,107

Operating income
50,731

 
41,424

 
144,092

 
121,755

Interest income, net
2,079

 
3,372

 
7,088

 
7,295

Interest expense
(64,585
)
 
(68,068
)
 
(193,370
)
 
(228,251
)
Equity in income (losses) of unconsolidated real estate partnerships
206

 
(4,987
)
 
(2,800
)
 
(8,432
)
Gain on dispositions of interests in unconsolidated real estate and other
16,024

 
3,095

 
20,635

 
5,115

Income (loss) before income taxes and discontinued operations
4,455

 
(25,164
)
 
(24,355
)
 
(102,518
)
Income tax benefit
114

 
893

 
586

 
4,913

Income (loss) from continuing operations
4,569

 
(24,271
)
 
(23,769
)
 
(97,605
)
Income from discontinued operations, net
48,766

 
28,928

 
121,882

 
48,014

Net income (loss)
53,335

 
4,657

 
98,113

 
(49,591
)
Noncontrolling interests:
 
 
 
 
 
 
 
Net (income) loss attributable to noncontrolling interests in consolidated real estate partnerships
(11,334
)
 
(5,464
)
 
(28,764
)
 
4,612

Net income attributable to preferred noncontrolling interests in Aimco Operating Partnership
(1,609
)
 
(1,670
)
 
(4,890
)
 
(5,012
)
Net (income) loss attributable to common noncontrolling interests in Aimco Operating Partnership
(1,611
)
 
1,035

 
(929
)
 
5,838

Total noncontrolling interests
(14,554
)
 
(6,099
)
 
(34,583
)
 
5,438

Net income (loss) attributable to Aimco
38,781

 
(1,442
)
 
63,530

 
(44,153
)
Net income attributable to Aimco preferred stockholders
(14,515
)
 
(13,301
)
 
(49,136
)
 
(35,429
)
Net income attributable to participating securities
(103
)
 
(58
)
 
(317
)
 
(169
)
Net income (loss) attributable to Aimco common stockholders
$
24,163

 
$
(14,801
)
 
$
14,077

 
$
(79,751
)
Earnings (loss) attributable to Aimco per common share – basic and diluted (Note 9):
 
 
 
 
 
 
 
Loss from continuing operations attributable to Aimco common stockholders
$
(0.07
)
 
$
(0.26
)
 
$
(0.60
)
 
$
(0.91
)
Income from discontinued operations attributable to Aimco common stockholders
0.24

 
0.14

 
0.71

 
0.24

Net income (loss) attributable to Aimco common stockholders
$
0.17

 
$
(0.12
)
 
$
0.11

 
$
(0.67
)
Weighted average common shares outstanding – basic and diluted
144,959

 
120,339

 
130,960

 
118,939

Dividends declared per common share
$
0.20

 
$
0.12

 
$
0.56

 
$
0.36


See notes to condensed consolidated financial statements.

4

Table of Contents

APARTMENT INVESTMENT AND MANAGEMENT COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(In thousands)
(Unaudited)

 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
 
2012
 
2011
 
2012
 
2011
Net income (loss)
$
53,335

 
$
4,657

 
$
98,113

 
$
(49,591
)
Other comprehensive income (loss):
 
 
 
 
 
 
 
Unrealized losses on interest rate swaps
(768
)
 
(3,411
)
 
(2,544
)
 
(5,056
)
Losses on interest rate swaps reclassified into earnings from accumulated other comprehensive loss
417

 
424

 
1,259

 
1,242

Unrealized gains (losses) on debt securities classified as available-for-sale
196

 
(5,001
)
 
1,655

 
(3,428
)
Other comprehensive (loss) income
(155
)
 
(7,988
)
 
370

 
(7,242
)
Comprehensive income (loss)
53,180

 
(3,331
)
 
98,483

 
(56,833
)
Comprehensive (income) loss attributable to noncontrolling interests
(14,504
)
 
(5,276
)
 
(34,490
)
 
6,444

Comprehensive income (loss) attributable to Aimco
$
38,676

 
$
(8,607
)
 
$
63,993

 
$
(50,389
)

See notes to condensed consolidated financial statements.



5

Table of Contents

APARTMENT INVESTMENT AND MANAGEMENT COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)

 
Nine Months Ended September 30,
 
2012
 
2011
CASH FLOWS FROM OPERATING ACTIVITIES:
 
 
 
Net income (loss)
$
98,113

 
$
(49,591
)
Adjustments to reconcile net loss to net cash provided by operating activities:
 
 
 
Depreciation and amortization
264,978

 
259,069

Provision for real estate impairment losses
10,801

 

Equity in losses of unconsolidated real estate partnerships
2,800

 
8,432

Gain on dispositions of interests in unconsolidated real estate and other
(20,635
)
 
(5,115
)
Discontinued operations
(108,028
)
 
(17,258
)
Other adjustments
(8,030
)
 
(2,346
)
Net changes in operating assets and operating liabilities
2,298

 
(16,810
)
Net cash provided by operating activities
242,297

 
176,381

CASH FLOWS FROM INVESTING ACTIVITIES:
 
 
 
Purchases of real estate and investments in unconsolidated real estate partnerships
(89,727
)
 
(63,853
)
Capital expenditures
(188,371
)
 
(118,430
)
Proceeds from dispositions of real estate
285,215

 
187,737

Purchases of corporate assets
(6,721
)
 
(11,891
)
Purchase of investment in debt securities

 
(51,534
)
Proceeds from sale of interests in and distributions from unconsolidated real estate partnerships
28,549

 
11,342

Other investing activities
7,277

 
28,385

Net cash provided by (used in) investing activities
36,222

 
(18,244
)
CASH FLOWS FROM FINANCING ACTIVITIES:
 
 
 
Proceeds from non-recourse property debt
134,294

 
767,523

Principal repayments on non-recourse property debt
(292,899
)
 
(905,791
)
Net borrowings on revolving credit facility
66,200

 
26,200

Proceeds from issuance of Preferred Stock
9,818

 
19,028

Proceeds from issuance of Common Stock
594,437

 
72,012

Redemptions and repurchases of Preferred Stock
(600,956
)
 
(28,567
)
Proceeds from Common Stock option exercises
48,906

 
1,806

Payment of dividends to holders of Preferred Stock
(36,147
)
 
(37,390
)
Payment of dividends to holders of Common Stock
(74,882
)
 
(43,075
)
Payment of distributions to noncontrolling interests
(37,885
)
 
(41,009
)
Purchases of noncontrolling interests in consolidated real estate partnerships
(68,074
)
 
(11,506
)
Other financing activities
(9,882
)
 
(12,862
)
Net cash used in financing activities
(267,070
)
 
(193,631
)
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
11,449

 
(35,494
)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD
91,066

 
111,325

CASH AND CASH EQUIVALENTS AT END OF PERIOD
$
102,515

 
$
75,831


See notes to condensed consolidated financial statements.



6

Table of Contents


AIMCO PROPERTIES, L.P.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited)

 
September 30,
2012
 
December 31,
2011
ASSETS
 
 
 
Buildings and improvements
$
6,593,894

 
$
6,372,683

Land
2,006,360

 
1,968,433

Total real estate
8,600,254

 
8,341,116

Less accumulated depreciation
(2,849,046
)
 
(2,633,242
)
Net real estate ($741,662 and $775,668 related to VIEs)
5,751,208

 
5,707,874

Cash and cash equivalents ($44,043 and $43,286 related to VIEs)
102,515

 
91,066

Restricted cash ($45,975 and $43,913 related to VIEs)
158,649

 
184,626

Accounts receivable, net ($10,022 and $8,434 related to VIEs)
36,540

 
41,796

Notes receivable
103,288

 
111,205

Investment in unconsolidated real estate partnerships ($22,504 and $29,301 related to VIEs)
38,249

 
47,790

Other assets
328,464

 
339,403

Assets held for sale
46,475

 
348,102

Total assets
$
6,565,388

 
$
6,871,862

LIABILITIES AND PARTNERS’ CAPITAL
 
 
 
Non-recourse property debt ($617,717 and $621,203 related to VIEs)
$
4,871,981

 
$
4,870,426

Revolving credit facility borrowings
66,200

 

Total indebtedness
4,938,181

 
4,870,426

Accounts payable
28,488

 
32,607

Accrued liabilities and other ($59,000 and $79,573 related to VIEs)
235,881

 
283,247

Deferred income
133,054

 
139,606

Liabilities related to assets held for sale
46,729

 
317,918

Total liabilities
5,382,333

 
5,643,804

Redeemable preferred units
80,077

 
83,384

Commitments and contingencies (Note 8)

 

Partners’ Capital:
 
 
 
Preferred units
68,114

 
657,114

General Partner and Special Limited Partner
807,558

 
251,215

Limited Partners
(36,980
)
 
(34,321
)
Partners’ capital attributable to the Aimco Operating Partnership
838,692

 
874,008

Noncontrolling interests in consolidated real estate partnerships
264,286

 
270,666

Total partners’ capital
1,102,978

 
1,144,674

Total liabilities and partners’ capital
$
6,565,388

 
$
6,871,862


See notes to condensed consolidated financial statements.


7

Table of Contents

AIMCO PROPERTIES, L.P.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per unit data)
(Unaudited)
 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
 
2012
 
2011
 
2012
 
2011
REVENUES:
 
 
 
 
 
 
 
Rental and other property revenues
$
256,752

 
$
242,574

 
$
760,155

 
$
725,090

Asset management and tax credit revenues
10,696

 
11,885

 
27,681

 
28,772

Total revenues
267,448

 
254,459

 
787,836

 
753,862

OPERATING EXPENSES:
 
 
 
 
 
 
 
Property operating expenses
106,462

 
106,458

 
309,515

 
316,943

Investment management expenses
2,817

 
2,311

 
9,445

 
7,397

Depreciation and amortization
87,444

 
87,687

 
264,978

 
259,069

Provision for real estate impairment losses
2,453

 

 
10,801

 

General and administrative expenses
12,311

 
12,741

 
37,491

 
36,370

Other expenses, net
5,230

 
3,838

 
11,514

 
12,328

Total operating expenses
216,717

 
213,035

 
643,744

 
632,107

Operating income
50,731

 
41,424

 
144,092

 
121,755

Interest income, net
2,079

 
4,196

 
7,088

 
8,555

Interest expense
(64,585
)
 
(68,068
)
 
(193,370
)
 
(228,251
)
Equity in income (losses) of unconsolidated real estate partnerships
206

 
(4,987
)
 
(2,800
)
 
(8,432
)
Gain on dispositions of interests in unconsolidated real estate and other
16,024

 
3,095

 
20,635

 
5,115

Income (loss) before income taxes and discontinued operations
4,455

 
(24,340
)
 
(24,355
)
 
(101,258
)
Income tax benefit
114

 
893

 
586

 
4,913

Income (loss) from continuing operations
4,569

 
(23,447
)
 
(23,769
)
 
(96,345
)
Income from discontinued operations, net
48,766

 
28,928

 
121,882

 
48,014

Net income (loss)
53,335

 
5,481

 
98,113

 
(48,331
)
Net (income) loss attributable to noncontrolling interests in consolidated real estate partnerships
(11,334
)
 
(5,464
)
 
(28,764
)
 
4,612

Net income (loss) attributable to the Aimco Operating Partnership
42,001

 
17

 
69,349

 
(43,719
)
Net income attributable to the Aimco Operating Partnership’s preferred unitholders
(16,124
)
 
(14,971
)
 
(54,026
)
 
(40,441
)
Net income attributable to participating securities
(103
)
 
(58
)
 
(317
)
 
(169
)
Net income (loss) attributable to the Aimco Operating Partnership's common unitholders
$
25,774

 
$
(15,012
)
 
$
15,006

 
$
(84,329
)
Earnings (loss) attributable to the Aimco Operating Partnership per common unit – basic and diluted (Note 9):


 


 
 
 
 
Loss from continuing operations attributable to the Aimco Operating Partnership’s common unitholders
$
(0.07
)
 
$
(0.25
)
 
$
(0.60
)
 
$
(0.90
)
Income from discontinued operations attributable to the Aimco Operating Partnership’s common unitholders
0.24

 
0.13

 
0.71

 
0.24

Net income (loss) attributable to the Aimco Operating Partnership’s common unitholders
$
0.17

 
$
(0.12
)
 
$
0.11

 
$
(0.66
)
Weighted average common units outstanding – basic and diluted
152,997

 
128,656

 
139,116

 
127,336

Distributions declared per common unit
$
0.20

 
$
0.12

 
$
0.56

 
$
0.36


See notes to condensed consolidated financial statements.


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AIMCO PROPERTIES, L.P.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(In thousands)
(Unaudited)

 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
 
2012
 
2011
 
2012
 
2011
Net income (loss)
$
53,335

 
$
5,481

 
$
98,113

 
$
(48,331
)
Other comprehensive income (loss):
 
 
 
 
 
 
 
Unrealized losses on interest rate swaps
(768
)
 
(3,411
)
 
(2,544
)
 
(5,056
)
Losses on interest rate swaps reclassified into earnings from accumulated other comprehensive loss
417

 
424

 
1,259

 
1,242

Unrealized gains (losses) on debt securities classified as available-for-sale
196

 
(5,001
)
 
1,655

 
(3,428
)
Other comprehensive (loss) income
(155
)
 
(7,988
)
 
370

 
(7,242
)
Comprehensive income (loss)
53,180

 
(2,507
)
 
98,483

 
(55,573
)
Comprehensive (income) loss attributable to noncontrolling interests
(11,290
)
 
(5,165
)
 
(28,631
)
 
5,014

Comprehensive income (loss) attributable to the Aimco Operating Partnership
$
41,890

 
$
(7,672
)
 
$
69,852

 
$
(50,559
)

See notes to condensed consolidated financial statements.


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AIMCO PROPERTIES, L.P.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)

 
Nine Months Ended September 30,
 
2012
 
2011
CASH FLOWS FROM OPERATING ACTIVITIES:
 
 
 
Net income (loss)
$
98,113

 
$
(48,331
)
Adjustments to reconcile net loss to net cash provided by operating activities:
 
 
 
Depreciation and amortization
264,978

 
259,069

Provision for real estate impairment losses
10,801

 

Equity in losses of unconsolidated real estate partnerships
2,800

 
8,432

Gain on dispositions of interests in unconsolidated real estate and other
(20,635
)
 
(5,115
)
Discontinued operations
(108,028
)
 
(17,258
)
Other adjustments
(8,030
)
 
(2,346
)
Net changes in operating assets and operating liabilities
2,298

 
(18,070
)
Net cash provided by operating activities
242,297

 
176,381

CASH FLOWS FROM INVESTING ACTIVITIES:
 
 
 
Purchases of real estate and investments in unconsolidated real estate partnerships
(89,727
)
 
(63,853
)
Capital expenditures
(188,371
)
 
(118,430
)
Proceeds from dispositions of real estate
285,215

 
187,737

Purchases of corporate assets
(6,721
)
 
(11,891
)
Purchase of investment in debt securities

 
(51,534
)
Proceeds from sale of interests in and distributions from unconsolidated real estate partnerships
28,549

 
11,342

Dividends received from Aimco

 
202

Other investing activities
7,277

 
28,385

Net cash provided by (used in) investing activities
36,222

 
(18,042
)
CASH FLOWS FROM FINANCING ACTIVITIES:
 
 
 
Proceeds from non-recourse property debt
134,294

 
767,523

Principal repayments on non-recourse property debt
(292,899
)
 
(905,791
)
Net borrowings on revolving credit facility
66,200

 
26,200

Proceeds from issuance of Preferred Units to Aimco
9,818

 
19,028

Proceeds from issuance of common partnership units to Aimco
594,437

 
72,012

Redemption and repurchase of Preferred Units from Aimco
(600,956
)
 
(28,567
)
Proceeds from Aimco Common Stock option exercises
48,906

 
1,806

Payment of distributions to Preferred Units
(41,037
)
 
(42,402
)
Payment of distributions to General Partner and Special Limited Partner
(74,882
)
 
(43,277
)
Payment of distributions to Limited Partners
(3,305
)
 
(2,181
)
Payment of distributions to High Performance Units
(1,310
)
 
(842
)
Payment of distributions to noncontrolling interests
(28,380
)
 
(32,974
)
Purchases of noncontrolling interests in consolidated real estate partnerships
(68,074
)
 
(11,506
)
Other financing activities
(9,882
)
 
(12,862
)
Net cash used in financing activities
(267,070
)
 
(193,833
)
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
11,449

 
(35,494
)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD
91,066

 
111,325

CASH AND CASH EQUIVALENTS AT END OF PERIOD
$
102,515

 
$
75,831


See notes to condensed consolidated financial statements.


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APARTMENT INVESTMENT AND MANAGEMENT COMPANY
AIMCO PROPERTIES, L.P.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2012
(Unaudited)

NOTE 1 — Organization
Apartment Investment and Management Company, or Aimco, is a Maryland corporation incorporated on January 10, 1994. Aimco is a self-administered and self-managed real estate investment trust, or REIT, engaged in the ownership and operation of a diversified portfolio of apartment properties. AIMCO Properties, L.P., or the Aimco Operating Partnership, is a Delaware limited partnership formed on May 16, 1994, to conduct our business, which is focused on the ownership, management and redevelopment of quality apartment communities located in the largest markets of the United States.
Aimco, and through its wholly-owned subsidiaries, AIMCO-GP, Inc. and AIMCO-LP Trust, owns a majority of the ownership interests in the Aimco Operating Partnership. Aimco conducts all of its business and owns all of its assets through the Aimco Operating Partnership. Interests in the Aimco Operating Partnership that are held by limited partners other than Aimco are referred to as “OP Units.” OP Units include common partnership units, high performance partnership units and partnership preferred units, which we refer to as common OP Units, HPUs and preferred OP Units, respectively. We also refer to HPUs as common OP Unit equivalents. At September 30, 2012, after eliminations for units held by consolidated entities, the Aimco Operating Partnership had 153,568,093 common partnership units and equivalents outstanding. At September 30, 2012, Aimco owned 145,554,888 of the common partnership units (94.8% of the common partnership units and equivalents of the Aimco Operating Partnership) and Aimco had outstanding an equal number of shares of its Class A Common Stock, which we refer to as Common Stock.
Except as the context otherwise requires, “we,” “our” and “us” refer to Aimco, the Aimco Operating Partnership and their consolidated entities, collectively.
As of September 30, 2012, we owned an equity interest in 183 conventional real estate properties with 57,744 units and 136 affordable real estate properties with 17,097 units. Of these properties, we consolidated 179 conventional properties with 57,602 units and 105 affordable properties with 14,268 units. These conventional and affordable properties generated 88% and 12%, respectively, of our proportionate property net operating income (as defined in Note 11) during the nine months ended September 30, 2012.
As of September 30, 2012, we also provided services for or managed 7,265 units in 108 properties, primarily pursuant to long-term asset management agreements. In certain cases, we may indirectly own generally less than 1.0% of the operations of such properties through a syndication or other fund. In February 2012, we entered into an agreement to transfer asset management of a portfolio comprised of substantially all of these managed properties, and to sell our interests in this portfolio to the new asset manager upon satisfaction of certain conditions and regulatory approvals.
NOTE 2 — Basis of Presentation and Summary of Significant Accounting Policies
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America, or GAAP, have been condensed or omitted in accordance with such rules and regulations, although management believes the disclosures are adequate to prevent the information presented from being misleading. In the opinion of management, all adjustments (consisting of normal recurring items) considered necessary for a fair presentation have been included. Operating results for the three and nine months ended September 30, 2012, are not necessarily indicative of the results that may be expected for the year ending December 31, 2012.
The balance sheets of Aimco and the Aimco Operating Partnership at December 31, 2011, have been derived from their audited financial statements at that date, but do not include all of the information and disclosures required by GAAP for complete financial statements. For further information, refer to the financial statements and notes thereto included in Aimco’s and the Aimco Operating Partnership’s Annual Reports on Form 10-K for the year ended December 31, 2011. Certain 2011 financial statement amounts have been reclassified to conform to the 2012 presentation, including adjustments for discontinued operations. Except where indicated, the footnotes refer to both Aimco and the Aimco Operating Partnership.

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Principles of Consolidation
Aimco’s accompanying condensed consolidated financial statements include the accounts of Aimco, the Aimco Operating Partnership, and their consolidated entities. The Aimco Operating Partnership’s condensed consolidated financial statements include the accounts of the Aimco Operating Partnership and its consolidated 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 the Aimco Operating Partnership that are held by limited partners other than Aimco are reflected in Aimco’s accompanying balance sheets as noncontrolling interests in Aimco Operating Partnership. Interests in partnerships consolidated into the Aimco Operating Partnership that are held by third parties are reflected in our accompanying balance sheets as noncontrolling interests in consolidated real estate partnerships. The assets of consolidated real estate partnerships owned or controlled by the Aimco Operating Partnership generally are not available to pay creditors of Aimco or the Aimco Operating Partnership.
As used herein, and except where the context otherwise requires, “partnership” refers to a limited partnership or a limited liability company and “partner” refers to a partner in a limited partnership or a member in a limited liability company.
Variable Interest Entities
We consolidate all variable interest entities for which we are the primary beneficiary. Generally, a variable interest entity, or VIE, is an entity with one or more of the following characteristics: (a) the total equity investment at risk is not sufficient to permit the entity to finance its activities without additional subordinated financial support; (b) as a group, the holders of the equity investment at risk lack (i) the ability to make decisions about an entity’s activities through voting or similar rights, (ii) the obligation to absorb the expected losses of the entity, or (iii) the right to receive the expected residual returns of the entity; or (c) the equity investors have voting rights that are not proportional to their economic interests and substantially all of the entity’s activities either involve, or are conducted on behalf of, an investor that has disproportionately few voting rights.
In determining whether we are the primary beneficiary of a VIE, we consider qualitative and quantitative factors, including, but not limited to: which activities most significantly impact the VIE’s economic performance and which party controls such activities; the amount and characteristics of our investment; the obligation or likelihood for us or other investors to provide financial support; and the similarity with and significance to the business activities of us and the other investors. Significant judgments related to these determinations include estimates about the current and future fair values and performance of real estate held by these VIEs and general market conditions. Refer to Note 5 for further discussion of our variable interest entities.
Temporary Equity and Partners’ Capital
The following table presents a reconciliation of the Aimco Operating Partnership’s Preferred OP Units from December 31, 2011 to September 30, 2012 (in thousands). These amounts are presented within temporary equity in Aimco’s condensed consolidated balance sheets as preferred noncontrolling interests in the Aimco Operating Partnership, and within temporary capital in the Aimco Operating Partnership’s condensed consolidated balance sheets as redeemable preferred units.
Balance, December 31, 2011
$
83,384

Preferred distributions
(4,890
)
Redemption of Preferred Units
(3,307
)
Net income
4,890

Balance, September 30, 2012
$
80,077


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Aimco Equity (including Noncontrolling Interests)
The following table presents a reconciliation of Aimco’s consolidated permanent equity accounts from December 31, 2011 to September 30, 2012 (in thousands):
 
Aimco
Equity
 
Noncontrolling
interests in
consolidated real estate
partnerships
 
Common
noncontrolling
interests in
Aimco Operating
Partnership
 
Total
Equity
Balance, December 31, 2011
$
908,329

 
$
270,666

 
$
(34,321
)
 
$
1,144,674

Contributions

 
1,784

 

 
1,784

Issuance of Common Stock
594,437

 

 

 
594,437

Issuance of preferred stock
9,818

 

 

 
9,818

Redemptions of preferred stock
(600,956
)
 

 

 
(600,956
)
Preferred stock dividends
(26,774
)
 

 

 
(26,774
)
Common dividends and distributions
(74,882
)
 
(28,377
)
 
(4,615
)
 
(107,874
)
Redemptions of common OP Units

 

 
(8,372
)
 
(8,372
)
Amortization of stock-based compensation cost
4,130

 

 

 
4,130

Stock option exercises
48,906

 

 

 
48,906

Effect of changes in ownership for consolidated entities (Note 4)
(51,532
)
 
(8,408
)
 
7,169

 
(52,771
)
Change in accumulated other comprehensive loss
463

 
(133
)
 
40

 
370

Other
203

 
(10
)
 
2,190

 
2,383

Net income (loss)
63,530

 
28,764

 
929

 
93,223

Balance, September 30, 2012
$
875,672

 
$
264,286

 
$
(36,980
)
 
$
1,102,978

Partners’ Capital attributable to the Aimco Operating Partnership
The following table presents a reconciliation of the consolidated partners’ capital balances in permanent capital that are attributable to the Aimco Operating Partnership from December 31, 2011 to September 30, 2012 (in thousands):
 
Partners’ capital
 attributable to
the Partnership
Balance, December 31, 2011
$
874,008

Issuance of common partnership units to Aimco
594,437

Issuance of Preferred Units to Aimco
9,818

Redemption of Preferred Units from Aimco
(600,956
)
Preferred unit distributions to Aimco
(26,774
)
Common distributions
(79,497
)
Redemption of common OP Units
(8,372
)
Amortization of Aimco stock-based compensation cost
4,130

Common OP Units issued to Aimco in connection with Aimco stock option exercises
48,906

Effect of changes in ownership for consolidated entities (Note 4)
(44,363
)
Change in accumulated other comprehensive loss
503

Other
2,393

Net income
64,459

Balance, September 30, 2012
$
838,692

A separate reconciliation of noncontrolling interests in consolidated real estate partnerships and total partners’ capital for the Aimco Operating Partnership is not presented as these amounts are identical to the corresponding noncontrolling interests in consolidated real estate partnerships and total equity for Aimco, which are presented above.

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Table of Contents

Income Taxes
In March 2008, we were notified by the Internal Revenue Service, or the IRS, that it intended to examine the 2006 Federal tax return for the Aimco Operating Partnership. During June 2008, the IRS issued AIMCO-GP, Inc., the general partner and tax matters partner of the Aimco Operating Partnership, a summary report including the IRS’s proposed adjustments to the Aimco Operating Partnership’s 2006 Federal tax return. In addition, in May 2009, we were notified by the IRS that it intended to examine the 2007 Federal tax return for the Aimco Operating Partnership. During November 2009, the IRS issued AIMCO-GP, Inc. a summary report including the IRS’s proposed adjustments to the Aimco Operating Partnership’s 2007 Federal tax return. The IRS has now concluded its examination and by Notice dated October 25, 2012, issued a Final Partnership Administrative Adjustment to AIMCO-GP, Inc. in its capacity as tax matters partner. We do not expect the 2006 or 2007 proposed adjustments to have any material effect on our unrecognized tax benefits, financial condition or results of operations.
In October 2011, we were notified by the IRS that it intends to examine refund claims related to the carry back of our taxable REIT subsidiary’s 2009 net operating loss. We do not anticipate that this examination will result in any material effect on our unrecognized tax benefits, financial condition or results of operations.
Use of Estimates
The preparation of our condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts included in the financial statements and accompanying notes thereto. Actual results could differ from those estimates.
NOTE 3 — Assets Held for Sale and Discontinued Operations
We report as discontinued operations real estate properties that meet the definition of a component of an entity and have been sold or meet the criteria to be classified as held for sale. We include all results of these discontinued operations, less applicable income taxes, in a separate component of income on the consolidated statements of operations under the heading “income from discontinued operations, net.” This treatment resulted in the retrospective adjustment of the statements of operations for the three and nine months ended September 30, 2011 and the balance sheet as of December 31, 2011.
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, 2012 and December 31, 2011, after adjustments to classify as held for sale properties that were sold or classified as held for sale during the nine months ended September 30, 2012, we had five and 55 properties with an aggregate of 625 and 8,470 units, respectively, classified as held for sale. Amounts classified as held for sale in the accompanying consolidated balance sheets as of September 30, 2012 and December 31, 2011 are as follows (in thousands):
 
September 30,
2012
 
December 31,
2011
Real estate, net
$
45,210

 
$
337,074

Other assets
1,265

 
11,028

Assets held for sale
$
46,475

 
$
348,102

Property debt
$
46,418

 
$
314,906

Other liabilities
311

 
3,012

Liabilities related to assets held for sale
$
46,729

 
$
317,918

During the nine months ended September 30, 2012 and 2011, we sold or disposed of our interest in 50 properties and 39 properties with an aggregate of 7,845 units and 6,701 units, respectively. During the year ended December 31, 2011, we sold or disposed of our interest in 67 consolidated properties with an aggregate of 10,912 units. For the three and nine months ended September 30, 2012 and 2011, discontinued operations includes the results of operations for the periods prior to the date of disposition for all properties disposed of and for properties classified as held for sale as of September 30, 2012.

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Table of Contents

The following is a summary of the components of income from discontinued operations and the related amounts of income from discontinued operations attributable to Aimco, the Aimco Operating Partnership and noncontrolling interests for the three and nine months ended September 30, 2012 and 2011 (in thousands):
 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
 
2012
 
2011
 
2012
 
2011
Rental and other property revenues
$
7,297

 
$
30,365

 
$
37,244

 
$
104,551

Property operating expenses
(5,020
)
 
(17,279
)
 
(16,970
)
 
(54,643
)
Depreciation and amortization
(2,549
)
 
(10,565
)
 
(15,013
)
 
(36,365
)
Provision for real estate impairment losses
(2,453
)
 
(5,671
)
 
(8,837
)
 
(11,979
)
Operating (loss) income
(2,725
)
 
(3,150
)
 
(3,576
)
 
1,564

Interest income
55

 
180

 
185

 
1,019

Interest expense
(1,872
)
 
(5,946
)
 
(6,605
)
 
(20,171
)
Loss before gain on dispositions of real estate and income tax
(4,542
)
 
(8,916
)
 
(9,996
)
 
(17,588
)
Gain on dispositions of real estate
55,721

 
37,467

 
139,925

 
64,901

Income tax (expense) benefit
(2,413
)
 
377

 
(8,047
)
 
701

Income from discontinued operations, net
$
48,766

 
$
28,928

 
$
121,882

 
$
48,014

Income from discontinued operations attributable to noncontrolling interests in consolidated real estate partnerships
(11,683
)
 
(11,838
)
 
(22,902
)
 
(16,924
)
Income from discontinued operations attributable to the Aimco Operating Partnership
$
37,083

 
$
17,090

 
98,980

 
31,090

Income from discontinued operations attributable to noncontrolling interests in Aimco Operating Partnership
(2,141
)
 
(1,127
)
 
(6,012
)
 
(2,063
)
Income from discontinued operations attributable to Aimco
$
34,942

 
$
15,963

 
$
92,968

 
$
29,027

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 $6.4 million and $8.9 million for the three and nine months ended September 30, 2012, respectively, and $2.6 million and $7.6 million for the three and nine months ended September 30, 2011, 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, 2012, we allocated $2.9 million and $5.0 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. In connection with properties sold or classified as held for sale during the three and nine months ended September 30, 2011, we allocated $1.0 million and $2.7 million, respectively, of goodwill related to our conventional and affordable segments to the carrying amounts of the properties sold or classified as held for sale. The amounts of goodwill allocated to these properties were based on the relative fair values of the properties sold or classified as held for sale and the retained portions of the reporting units to which the goodwill was allocated.
In connection with our real estate dispositions during the three and nine months ended September 30, 2012, the purchasers assumed approximately $92.3 million and $148.6 million, respectively, of non-recourse property debt, and during the three and nine months ended September 30, 2011 the purchasers assumed $95.4 million and $120.9 million, respectively, of non-recourse property debt.


15

Table of Contents

NOTE 4 — Other Significant Transactions
Investments in Real Estate Properties
During the periods presented, we acquired conventional properties as set forth in the table below (dollars in thousands):
 
Three Months Ended
 
September 30, 2012
 
June 30, 2012
 
March 31, 2012
Property location
San Diego, CA
 
Manhattan, NY
 
Phoenix, AZ
Number of residential units
84

 
42

 
488

Acquisition price
$
19,814

 
$
38,245

 
$
72,310

Non-recourse property debt assumed (outstanding principal balance)
$
9,695

 
$

 
$
29,124

Non-recourse property debt assumed (fair value)
$
10,684

 
$

 
$
33,254

 
 
 
 
 
 
Equity and Partners’ Capital Transactions
During the nine months ended September 30, 2012, Aimco completed two public offerings resulting in the sale of an aggregate 22,144,200 shares of its Common Stock, generating net proceeds of $594.4 million, or net proceeds per share of $26.84. In addition, during the nine months ended September 30, 2012, the holders of near-term expiring stock options exercised 2,041,934 stock options with a weighted average exercise price of $23.01 per option for proceeds to Aimco of $47.0 million. The shares received upon exercise of the options were then sold by the stockholders as part of one of the public offerings discussed above. Aimco contributed the net proceeds from the sale of shares of Common Stock and exercise of the stock options to the Aimco Operating Partnership in exchange for a number of common partnership units equal to the number of shares issued and sold.
During the nine months ended September 30, 2012, using primarily the proceeds from these Common Stock issuances, Aimco redeemed all of its outstanding shares of Class T, Class U, Class V and Class Y Cumulative Preferred Stock. The following table summarizes these preferred stock redemptions (in thousands, except share amounts):
 
Nine Months Ended September 30, 2012
Class of preferred stock redeemed
Class T
 
Class U
 
Class V
 
Class Y
Shares of preferred stock redeemed
6,000,000

 
12,000,000

 
2,587,500

 
3,450,000

Redemption value of preferred stock redeemed
$
150,000

 
$
300,000

 
$
64,688

 
$
86,250

Accrued and unpaid dividends paid at redemption
$
2,067

 
$
775

 
$
891

 
$
1,166

Previously deferred issuance costs recognized as an adjustment of net income attributable to Aimco preferred stockholders
$
5,193

 
$
10,137

 
$
2,350

 
$
2,987

In connection with these redemptions by Aimco, the Aimco Operating Partnership redeemed from Aimco all of the outstanding units of its Class T, Class U, Class V and Class Y Partnership Preferred Units.
During the nine months ended September 30, 2012, Aimco issued 405,090 shares of its 7.00% Class Z Cumulative Preferred Stock, par value $0.01 per share, through its preferred stock at-the-market, or ATM, offering program, for net proceeds per share of $24.27 (reflecting an average price to the public of $24.78 per share, less commissions and transaction costs of $0.51 per share). The offerings generated net proceeds of $9.8 million. Aimco contributed the net proceeds from the sale of such shares of preferred stock to the Aimco Operating Partnership in exchange for an equal number of the Aimco Operating Partnership’s 7.00% Class Z Cumulative Preferred Partnership Units.
Acquisitions of Noncontrolling Partnership Interests
During the nine months ended September 30, 2012, we acquired the remaining noncontrolling limited partnership interests in 11 consolidated real estate partnerships that own 17 properties and for which our affiliates serve as general partner, for a total cost of $50.6 million. The Aimco Operating Partnership recognized the $44.4 million excess of the consideration paid over the carrying amount of the noncontrolling interests acquired as an adjustment of additional paid-in capital within partners’ capital (which is included in effects of changes in ownership for consolidated entities in the reconciliation of partners' capital included in Note 2). This amount is allocated between Aimco and noncontrolling interests in the Aimco Operating Partnership within Aimco's consolidated financial statements.

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Table of Contents

NOTE 5 — Variable Interest Entities
As of September 30, 2012, we were the primary beneficiary of, and therefore consolidated, 107 VIEs, which owned 73 apartment properties with 12,273 units. Real estate with a carrying value of $741.7 million collateralized $617.7 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, 2012, we also held variable interests in 158 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 211 apartment properties with 10,943 units. We are involved with those VIEs as an equity holder, lender, management agent, or through other contractual relationships. Approximately $17.8 million of our investment in unconsolidated VIEs at September 30, 2012, are held through consolidated partnerships that are VIEs and in which we generally hold a 1% or less general partner or equivalent interest. Accordingly, substantially all of the investment balances related to these unconsolidated VIEs are attributed to the noncontrolling interests in the consolidated investment partnerships that hold the investments in these unconsolidated VIEs. Our maximum risk of loss related to our investment in these VIEs is generally limited to our equity interest in the consolidated investment partnerships, which is insignificant. The remainder of our investment in unconsolidated VIEs, or approximately $4.7 million at September 30, 2012, is held through consolidated investment partnerships 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 $4.7 million recorded investment in such entities.
As discussed in Note 1, we have entered into an agreement to sell our interests in a portfolio of properties upon satisfaction of certain conditions and regulatory approvals. As of September 30, 2012, this portfolio included 36 consolidated VIEs that owned 16 properties and 111 unconsolidated VIEs that owned 111 properties.
In addition to our investments in unconsolidated VIEs discussed above, at September 30, 2012, we had in aggregate $97.3 million of receivables from unconsolidated VIEs (primarily notes receivable collateralized by second mortgages on real estate properties as further discussed in Note 10) and we had a contractual obligation to advance funds to certain unconsolidated VIEs totaling $2.5 million. Our maximum risk of loss associated with our lending and management activities related to these unconsolidated VIEs is limited to these amounts. We may be subject to additional losses to the extent of any receivables relating to future provision of services to these entities or financial support that we voluntarily provide.
As discussed in Note 8, noncompliance with applicable requirements related to our consolidated and unconsolidated tax credit partnerships, substantially all of which are VIEs, could result in projected tax credits not being realized and require a refund of investor contributions already received or a reduction of future investor contributions. We have not historically had, nor do we anticipate, any material refunds or reductions of investor capital contributions in connection with these arrangements.
NOTE 6 — Derivative Financial Instruments
We have limited exposure to derivative financial instruments. We primarily use long-term, fixed-rate and self-amortizing non-recourse debt to avoid, among other things, risk related to fluctuating interest rates. For our variable rate debt, we are sometimes required by our lenders to limit our exposure to interest rate fluctuations by entering into interest rate swap agreements, which moderate our exposure to interest rate risk by effectively converting the interest on variable rate debt to a fixed rate. The fair values of the interest rate swaps are reflected as assets or liabilities in the balance sheet, and periodic changes in fair value are included in interest expense or equity and partners’ capital, as appropriate.
As of September 30, 2012 and December 31, 2011, we had interest rate swaps with aggregate notional amounts of $52.3 million, and recorded fair values of $8.3 million and $7.0 million, respectively, reflected in accrued liabilities and other in our condensed consolidated balance sheets. At September 30, 2012, these interest rate swaps had a weighted average term of 8.4 years. We have designated these interest rate swaps as cash flow hedges and recognize any changes in their fair value as an adjustment of accumulated other comprehensive loss within equity to the extent of their effectiveness. Changes in the fair value of these instruments and the related amounts of such changes that were reflected as an adjustment of accumulated other comprehensive loss within equity and as an adjustment of earnings (ineffectiveness) are discussed in Note 7.
If the forward rates at September 30, 2012 remain constant, we estimate that during the next 12 months, we would reclassify into earnings approximately $1.7 million of the unrealized losses in accumulated other comprehensive loss. If market interest rates increase above the 3.43% weighted average fixed rate under these interest rate swaps we will benefit from net cash payments due to us from our counterparty to the interest rate swaps.

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At September 30, 2012 and December 31, 2011, we had borrowings payable subject to total rate of return swaps with aggregate outstanding principal balances of $74.5 million and $75.0 million, respectively, that were collateralized by four properties. We use total rate of return swaps to convert fixed-rate property debt obligations to a variable rate to lower our cost of borrowing. In exchange for our receipt of a fixed rate equal to the underlying borrowing’s interest rate, the total rate of return swaps require that we pay a variable rate plus a risk spread. The underlying borrowings are callable at our option, with no prepayment penalty. We have designated the 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. During the periods presented, we determined these hedges were fully effective and accordingly we made no adjustments to interest expense for ineffectiveness.
At September 30, 2012, the weighted average fixed receive rate under the total return swaps was 5.8% and the weighted average variable pay rate was 2.2%, based on the applicable index rate effective as of that date. The debt subject to these total rate of return swaps matures in 2036 whereas the corresponding swaps mature in May 2014.
The total rate of return swaps require specified loan-to-value ratios which may require us to pay down the debt or provide additional collateral. At September 30, 2012 and December 31, 2011, we had provided $20.0 million of cash collateral pursuant to the swap agreements, which is included in restricted cash in our condensed consolidated balance sheets.
NOTE 7 — Fair Value Measurements
In accordance with GAAP, we are required to measure certain assets and liabilities in our consolidated financial statements at fair value. Certain assets, such as our investment in the first loss and mezzanine positions in a securitization trust that holds certain of our property debt, our interest rate swaps (IR swaps), total rate of return swaps (TRR swaps), and the debt subject to TRR swaps (TRR debt) are required to be measured at fair value on a quarterly basis. Other assets, such as real estate, are required to be measured at fair value when we determine that that a held for use asset’s carrying amount is no longer recoverable, or to be measured at fair value less estimated costs to sell when we determine that the carrying amount of an asset classified as held for sale is no longer recoverable.
We are required to classify these fair value measurements into one of three categories, based on the nature of the inputs used in the fair value measurement. Level 1 of the hierarchy includes fair value measurements based on unadjusted quoted prices in active markets for identical assets or liabilities we can access at the measurement date. Level 2 includes fair value measurements based on inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. Level 3 includes fair value measurements based on unobservable inputs. The classification of fair value measurements is subjective and GAAP requires us to disclose more detailed information regarding those fair value measurements classified within the lower levels of the hierarchy.
Recurring Fair Value Measurements
The table below presents information regarding significant items measured in our condensed consolidated financial statements at fair value on a recurring basis, consisting of investments in the securitization trust discussed above, which we classify as available for sale (AFS), IR swaps, TRR swaps and TRR debt (in thousands):

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Level 2
 
Level 3
 
 
 
AFS (1)
 
IR swaps (2)
 
TRR swaps (3)
 
TRR debt (4)
 
Total
Fair value at December 31, 2010
$

 
$
(2,746
)
 
$
(19,542
)
 
$
19,542

 
$
(2,746
)
Purchases
51,534

 

 

 

 
51,534

Investment accretion
939

 

 

 

 
939

Unrealized gains (losses) included in earnings (5)

 
(36
)
 
11,772

 
(11,772
)
 
(36
)
Realized gains (losses) included in earnings

 

 

 

 

Unrealized gains (losses) included in equity and partners’ capital
(3,428
)
 
(3,814
)
 

 

 
(7,242
)
Fair value at September 30, 2011
$
49,045

 
$
(6,596
)
 
$
(7,770
)
 
$
7,770

 
$
42,449

Fair value at December 31, 2011
$
51,693

 
$
(7,012
)
 
$
(5,841
)
 
$
5,841

 
$
44,681

Investment accretion
2,303

 

 

 

 
2,303

Unrealized gains (losses) included in earnings (5)

 
(36
)
 
4,259

 
(4,259
)
 
(36
)
Realized gains (losses) included in earnings

 

 

 

 

Unrealized gains (losses) included in equity and partners’ capital
1,655

 
(1,285
)
 

 

 
370

Fair value at September 30, 2012
$
55,651

 
$
(8,333
)
 
$
(1,582
)
 
$
1,582

 
$
47,318

(1)
Our investments classified as AFS are presented within other assets in the accompanying condensed consolidated balance sheets. We estimate the fair value of these investments using an income and market approach with primarily observable inputs, including yields and other information regarding similar types of investments, and adjusted for certain unobservable inputs specific to these investments. We are accreting the discount to the $100.9 million face value of the investments into interest income using the effective interest method over the remaining expected term of the investments, which, as of September 30, 2012, was approximately 8.8 years. Our amortized cost basis for these investments, which represents the original cost adjusted for interest accretion less interest payments received, was $55.5 million and $53.2 million at September 30, 2012 and December 31, 2011, respectively.
(2)
The fair value of IR swaps is estimated using an income approach with primarily observable inputs including information regarding the hedged variable cash flows and forward yield curves relating to the variable interest rates on which the hedged cash flows are based.
(3)
TRR swaps have contractually-defined termination values generally equal to the difference between the fair value and the counterparty’s purchased value of the underlying borrowings. We calculate the termination value, which we believe is representative of the fair value, of total rate of return swaps using a market approach by reference to estimates of the fair value of the underlying borrowings, which are discussed below, and an evaluation of potential changes in the credit quality of the counterparties to these arrangements.
(4)
This represents changes in fair value of debt subject to TRR swaps. We estimate the fair value of debt instruments using an income and market approach, including comparison of the contractual terms to observable and unobservable inputs such as market interest rate risk spreads, contractual interest rates, remaining periods to maturity, collateral quality and loan-to-value ratios on similarly encumbered assets within our portfolio. We handle a large volume of financing transactions annually and use pricing information obtained during the financing process to evaluate market pricing information for reasonableness.
(5)
Unrealized gains (losses) for the TRR swaps and TRR debt relate to periodic revaluations of fair value, including revaluations resulting from repayment of the debt at par, and have not resulted from the settlement of a swap position as we have not historically incurred any termination payments upon settlement. These unrealized gains (losses) are included in interest expense in the accompanying condensed consolidated statements of operations.
Due to their subjectivity, GAAP requires us to disclose additional quantitative and qualitative information about the unobservable inputs significant to our Level 3 fair value measurements. The unobservable inputs significant to our estimation of the fair value of TRR debt classified within Level 3 includes information about the property debt, such as the payment schedule, contractual interest rate and loan-to-value ratio (computed using real estate values estimated as described below). Based on the impracticality of providing payment schedules for our nonrecourse property debt measured at fair value, we believe the disclosure of the weighted average maturity date is meaningful in the context of the related valuation input. Information regarding the weighted average unobservable inputs for TRR debt measured at fair value during the nine months ended September 30, 2012 and 2011 is as follows:

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2012
 
2011
Number of properties encumbered by nonrecourse property debt measured at fair value during period
4

 
7

Weighted average interest rate
5.8
%
 
6.3
%
Weighted average maturity in years
24.2

 
22.9

Weighted average loan-to-value ratio
76.7
%
 
71.8
%
Of these unobservable inputs significant to the TRR debt fair value measurement, the loan-to-value ratio is the only input to which the fair value measurement is sensitive to changes, as the property debt interest rates and maturities are not subject to adjustment. Holding constant the other observable inputs which may also be significant to the fair value measurement, such as market interest rates for similar types of debt, we believe any increase in the loan-to-value ratios for the TRR debt would result in a decrease in the fair value of the TRR debt and any decrease in the loan-to-value ratios would result in an increase in the fair value of the TRR debt. Based on the relationship of the fair value of the TRR debt to that of the TRR swaps, we believe any increase or decrease in the fair value of the TRR debt would have an equal and offsetting decrease or increase in the fair value of the TRR swaps, and therefore would have no effect on our financial position, results of operations or liquidity.
Nonrecurring Fair Value Measurements
During the nine months ended September 30, 2012, we reduced the aggregate carrying amounts of 11 assets classified as held for use or held for sale from $85.7 million to their estimated fair values of $69.2 million, resulting in an impairment loss of $16.5 million. During the nine months ended September 30, 2011, we reduced the aggregate carrying amounts of nine assets classified as held for sale from $70.1 million to their estimated fair values of $59.5 million, resulting in an impairment loss of $10.6 million.
The fair values for the properties we impaired during these periods were based primarily on contract prices for pending sales or expected sales values of the properties. The contract prices were based in part on unobservable inputs classified within Level 3 of the fair value hierarchy, but were also based on observable inputs that can be validated to observable external sources, such as pricing information about widely marketed real estate properties for sale.
The unobservable inputs significant to our estimation of the fair value of real estate impaired during the periods include, among other things, information such as the properties’ net operating income, or NOI, free cash flow, or FCF, which represents the property's NOI less capital spending required to maintain the condition of the property, and assumptions about NOI and FCF growth rates and exit values. A FCF internal rate of return, which represents the rate of return generated by discounting the expected FCF from the property and the proceeds from its eventual sale, is a common benchmark used in the real estate industry for relative comparison of real estate valuations. The projected cash flows, including the expected sales prices, on which the impairment losses were based translated to weighted average implied FCF internal rates of return of 7.36% and 6.56% for the properties impaired during the nine months ended September 30, 2012 and 2011, respectively.
Fair Value Disclosures
We believe that the aggregate fair value of our cash and cash equivalents, receivables and payables approximates their aggregate carrying amounts at September 30, 2012 and December 31, 2011, due to their relatively short-term nature and high probability of realization. The estimated aggregate fair value of our notes receivable (including notes receivable from unconsolidated real estate partnerships, which we classify within other assets in our consolidated balance sheets) was approximately $99.9 million and $107.9 million at September 30, 2012 and December 31, 2011, respectively, as compared to their carrying amounts of $108.5 million and $117.9 million, respectively. The estimated aggregate fair value of our consolidated debt (including amounts reported in liabilities related to assets held for sale) was approximately $5.4 billion at both September 30, 2012 and December 31, 2011, as compared to aggregate carrying amounts of $5.0 billion and $5.2 billion, respectively. We classify within Level 3 of the valuation hierarchy the fair values of our notes receivable and consolidated debt disclosed above, based on the significance of certain of the unobservable inputs used to estimate their fair values. The fair value of our notes receivable and consolidated debt is estimated using a methodology consistent with that described above for the property debt we measure at fair value on a recurring and nonrecurring basis.



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Table of Contents

NOTE 8 — Commitments and Contingencies
Commitments
In connection with our redevelopment and capital improvement activities, we have commitments of approximately $61.3 million related to construction projects, most of which we expect to incur during the next 12 months. Pursuant to financing arrangements on our Lincoln Place, Pacific Bay Vistas, The Preserve at Marin and Elm Creek conventional redevelopment properties, we are contractually obligated to complete the planned projects. 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.
As discussed in Note 5, we have committed to fund an additional $2.5 million to increase loans secured by certain properties in West Harlem in New York City. In certain circumstances, the obligor on these notes has the right to put these properties to us, which would result in a cash payment by us of approximately $31.0 million and our assumption of approximately $118.2 million in property debt. The exercise of the put is conditioned on the achievement of specified rent levels at the properties.
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 14 years. We do not anticipate that any material refunds or reductions of investor capital contributions will be required in connection with these arrangements.
Legal Matters
In addition to the matters described below, we are a party to various legal actions and administrative proceedings arising in the ordinary course of business, some of which are covered by our general liability insurance program, and none of which we expect to have a material adverse effect on our consolidated financial condition, results of operations or cash flows.
Limited Partnerships
In connection with our acquisitions of interests in real estate partnerships, we are sometimes subject to legal actions, including allegations that such activities may involve breaches of fiduciary duties to the partners of such real estate partnerships or violations of the relevant partnership agreements. We may incur costs in connection with the defense or settlement of such litigation. We believe that we comply with our fiduciary obligations and relevant partnership agreements. Although the outcome of any litigation is uncertain, we do not expect any such legal actions to have a material adverse effect on our consolidated financial condition, results of operations or cash flows.
During 2011, we mediated a previously disclosed dispute with respect to mergers completed early in 2011 in which we acquired the remaining noncontrolling interests in six consolidated real estate partnerships.  As a result of the mediation we agreed to pay the limited partners additional consideration of $7.5 million for their partnership units, which we included in the total consideration paid for the noncontrolling interests we acquired.  Final approvals of the settlement were granted and we paid the additional consideration resulting from the settlement during the nine months ended September 30, 2012.

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Table of Contents

Environmental
Various Federal, state and local laws subject property owners or operators to liability for management, and the costs of removal or remediation, of certain potentially hazardous materials present on a property, including lead-based paint, asbestos, polychlorinated biphenyls, petroleum-based fuels, and other miscellaneous materials. Such laws often impose liability without regard to whether the owner or operator knew of, or was responsible for, the release or presence of such materials. The presence of, or the failure to manage or remedy properly, these materials may adversely affect occupancy at affected apartment communities and the ability to sell or finance affected properties. In addition to the costs associated with investigation and remediation actions brought by government agencies, and potential fines or penalties imposed by such agencies in connection therewith, the improper management of these materials on a property could result in claims by private plaintiffs for personal injury, disease, disability or other infirmities. Various laws also impose liability for the cost of removal, remediation or disposal of these materials through a licensed disposal or treatment facility. Anyone who arranges for the disposal or treatment of these materials is potentially liable under such laws for the proper operation of the disposal facility. These laws often impose liability whether or not the person arranging for the disposal ever owned or operated the disposal facility. In connection with the ownership, operation and management of properties, we could potentially be responsible for environmental liabilities or costs associated with our properties or properties we acquire or manage in the future.
We have determined that our legal obligations to remove or remediate certain potentially hazardous materials may be conditional asset retirement obligations, as defined in GAAP. Except in limited circumstances where the asset retirement activities are expected to be performed in connection with a planned construction project or property casualty, we believe that the fair value of our asset retirement obligations cannot be reasonably estimated due to significant uncertainties in the timing and manner of settlement of those obligations. Asset retirement obligations that are reasonably estimable as of September 30, 2012, are immaterial to our consolidated financial condition, results of operations and cash flows.
NOTE 9 — Earnings (Loss) per Share/Unit
Aimco
Aimco calculates earnings (loss) per share based on the weighted average number of shares of Common Stock, participating securities, common stock equivalents and dilutive convertible securities outstanding during the period. The following table illustrates Aimco’s calculation of basic and diluted earnings (loss) per share for the three and nine months ended September 30, 2012 and 2011 (in thousands, except per share data):

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Table of Contents

 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
 
2012
 
2011
 
2012
 
2011
Numerator:
 
 
 
 
 
 
 
Income (loss) from continuing operations
$
4,569

 
$
(24,271
)
 
$
(23,769
)
 
$
(97,605
)
(Income) loss from continuing operations attributable to noncontrolling interests
(730
)
 
6,866

 
(5,669
)
 
24,425

Income attributable to preferred stockholders
(14,515
)
 
(13,301
)
 
(49,136
)
 
(35,429
)
Income attributable to participating securities
(103
)
 
(58
)
 
(317
)
 
(169
)
Loss from continuing operations attributable to Aimco common stockholders
$
(10,779
)
 
$
(30,764
)
 
$
(78,891
)
 
$
(108,778
)

Income from discontinued operations    
$
48,766

 
$
28,928

 
$
121,882

 
$
48,014

Income from discontinued operations attributable to noncontrolling interests
(13,824
)
 
(12,965
)
 
(28,914
)
 
(18,987
)
Income from discontinued operations attributable to Aimco common stockholders
$
34,942

 
$
15,963

 
$
92,968

 
$
29,027


Net income (loss)    
$
53,335

 
$
4,657

 
$
98,113

 
$
(49,591
)
Net (income) loss attributable to noncontrolling interests
(14,554
)
 
(6,099
)
 
(34,583
)
 
5,438

Income attributable to preferred stockholders
(14,515
)
 
(13,301
)
 
(49,136
)
 
(35,429
)
Income attributable to participating securities
(103
)
 
(58
)
 
(317
)
 
(169
)
Net income (loss) attributable to Aimco common stockholders
$
24,163

 
$
(14,801
)
 
$
14,077

 
$
(79,751
)
Denominator:
 
 
 
 
 
 
 
Denominator for basic earnings per share — weighted average number of shares of Common Stock outstanding
144,959

 
120,339

 
130,960

 
118,939

Effect of dilutive securities:
 
 
 
 
 
 
 
Dilutive potential common shares

 

 

 

Denominator for diluted earnings per share
144,959

 
120,339

 
130,960

 
118,939

Earnings (loss) per common share – basic and diluted:
 
 
 
 
 
 
 
Loss from continuing operations attributable to Aimco common stockholders
$
(0.07
)
 
$
(0.26
)
 
$
(0.60
)
 
$
(0.91
)
Income from discontinued operations attributable to Aimco common stockholders
0.24

 
0.14

 
0.71

 
0.24

Net income (loss) attributable to Aimco common stockholders
$
0.17

 
$
(0.12
)
 
$
0.11

 
$
(0.67
)
The Aimco Operating Partnership
The Aimco Operating Partnership calculates earnings (loss) per unit based on the weighted average number of common partnership units and equivalents, participating securities and dilutive convertible securities outstanding during the period. The Aimco Operating Partnership considers both common OP Units and HPUs, which have identical rights to distributions and undistributed earnings, to be common units for purposes of the earnings per unit data presented below. The following table illustrates the Aimco Operating Partnership’s calculation of basic and diluted earnings (loss) per unit for the three and nine months ended September 30, 2012 and 2011 (in thousands, except per unit data):

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Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
 
2012
 
2011
 
2012
 
2011
Numerator:
 
 
 
 
 
 
 
Income (loss) from continuing operations
$
4,569

 
$
(23,447
)
 
$
(23,769
)
 
$
(96,345
)
Loss (income) from continuing operations attributable to noncontrolling interests
349

 
6,374

 
(5,862
)
 
21,536

Income attributable to the Partnership’s preferred unitholders
(16,124
)
 
(14,971
)
 
(54,026
)
 
(40,441
)
Income attributable to participating securities
(103
)
 
(58
)
 
(317
)
 
(169
)
Loss from continuing operations attributable to the Partnership’s common unitholders
$
(11,309
)
 
$
(32,102
)
 
$
(83,974
)
 
$
(115,419
)

Income from discontinued operations    
$
48,766

 
$
28,928

 
$
121,882

 
$
48,014

Income from discontinued operations attributable to noncontrolling interests
(11,683
)
 
(11,838
)
 
(22,902
)
 
(16,924
)
Income from discontinued operations attributable to the Partnership’s common unitholders
$
37,083

 
$
17,090

 
$
98,980

 
$
31,090

Net income (loss)
$
53,335

 
$
5,481

 
$
98,113

 
$
(48,331
)
(Income) loss attributable to noncontrolling interests
(11,334
)
 
(5,464
)
 
(28,764
)
 
4,612

Income attributable to the Partnership’s preferred unitholders
(16,124
)
 
(14,971
)
 
(54,026
)
 
(40,441
)
Income attributable to participating securities
(103
)
 
(58
)
 
(317
)
 
(169
)
Net income (loss) attributable to the Partnership’s common unitholders
$
25,774

 
$
(15,012
)
 
$
15,006

 
$
(84,329
)
Denominator:
 
 
 
 
 
 
 
Denominator for basic earnings per unit — weighted average number of common units outstanding
152,997

 
128,656

 
139,116

 
127,336

Effect of dilutive securities:
 
 
 
 
 
 
 
Dilutive potential common units

 

 

 

Denominator for diluted earnings per unit
152,997

 
128,656

 
139,116

 
127,336

Earnings (loss) per common unit – basic and diluted:
 
 
 
 
 
 
 
Loss from continuing operations attributable to the Partnership’s common unitholders
$
(0.07
)
 
$
(0.25
)
 
$
(0.60
)
 
$
(0.90
)
Income from discontinued operations attributable to the Partnership’s common unitholders
0.24

 
0.13

 
0.71

 
0.24

Net income (loss) attributable to the Partnership’s common unitholders
$
0.17

 
$
(0.12
)
 
$
0.11

 
$
(0.66
)
Aimco and the Aimco Operating Partnership
As of September 30, 2012 and 2011, the common share equivalents or common partnership unit equivalents that could potentially dilute basic earnings per share or unit in future periods totaled 3.1 million and 6.8 million, respectively. These securities represent options to purchase shares of Common Stock, which, if exercised, would result in Aimco’s issuance of additional shares and the Aimco Operating Partnership’s issuance to Aimco of additional common partnership units equal to the number of shares purchased under the options. These securities have been excluded from the earnings (loss) per share or unit computations for the three and nine months ended September 30, 2012 and 2011, because their effect would have been anti-dilutive. Participating securities, consisting primarily of unvested restricted shares of Common Stock, receive dividends similar to shares of Common Stock and common partnership units and totaled 0.5 million at both September 30, 2012 and 2011, respectively. The effect of participating securities is included in basic and diluted earnings (loss) per share and unit computations for the periods presented above using the two-class method of allocating distributed and undistributed earnings.
Various classes of preferred OP Units of the Aimco Operating Partnership are outstanding. Depending on the terms of each class, these preferred OP Units are convertible into common OP Units or redeemable for cash or, at the Aimco Operating Partnership’s option, Common Stock, and are paid distributions varying from 1.8% to 8.8% per annum per unit, or equal to the dividends paid on Common Stock based on the conversion terms. As of September 30, 2012, a total of 2.9 million preferred OP Units were outstanding with an aggregate redemption value of $79.3 million and were potentially redeemable for approximately 3.0 million shares of Common Stock (based on the period end market price), or cash at the Aimco Operating Partnership’s