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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
 
     
(Mark One)    
þ
  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
    For the fiscal year ended December 31, 2007
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
(Exact name of registrant as specified in its charter)
 
     
Maryland
  84-1259577
(State or other jurisdiction of
incorporation or organization)
  (I.R.S. Employer
Identification No.)
4582 South Ulster Street Parkway, Suite 1100
Denver, Colorado
(Address of principal executive offices)
  80237
(Zip Code)
 
Registrant’s telephone number, including area code: (303) 757-8101
 
Securities Registered Pursuant to Section 12(b) of the Act:
 
     
Title of Each Class
 
Name of Each Exchange on Which Registered
 
Class A Common Stock
  New York Stock Exchange
Class G Cumulative Preferred Stock
  New York Stock Exchange
Class T Cumulative Preferred Stock
  New York Stock Exchange
Class U Cumulative Preferred Stock
  New York Stock Exchange
Class V Cumulative Preferred Stock
  New York Stock Exchange
Class Y Cumulative Preferred Stock
  New York Stock Exchange
 
Securities Registered Pursuant to Section 12(g) of the Act: none
 
 
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined by Rule 405 of the Securities Act.  Yes þ     No o
 
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.  Yes o     No þ
 
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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  þ
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
 
             
Large accelerated filer þ
  Accelerated filer o   Non-accelerated filer o
(Do not check if a smaller reporting company)
  Smaller reporting company o
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).  Yes o     No þ
 
The aggregate market value of the voting and non-voting common stock held by non-affiliates of the registrant was approximately $4.7 billion as of June 30, 2007. As of February 25, 2008, there were 91,736,837 shares of Class A Common Stock outstanding.          
 
 
 
 
DOCUMENTS INCORPORATED BY REFERENCE
 
Portions of the registrant’s definitive proxy statement to be issued in conjunction with the registrant’s annual meeting of stockholders to be held April 28, 2008 are incorporated by reference into Part III of this Annual Report.
 


 

 
APARTMENT INVESTMENT AND MANAGEMENT COMPANY
 
TABLE OF CONTENTS
 
ANNUAL REPORT ON FORM 10-K
For the Fiscal Year Ended December 31, 2007
 
                 
Item
      Page
 
  1.     Business     2  
  1A.     Risk Factors     9  
  1B.     Unresolved Staff Comments     15  
  2.     Properties     16  
  3.     Legal Proceedings     17  
  4.     Submission of Matters to a Vote of Security Holders     17  
 
  5.     Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities     18  
  6.     Selected Financial Data     21  
  7.     Management’s Discussion and Analysis of Financial Condition and Results of Operations     22  
  7A.     Quantitative and Qualitative Disclosures About Market Risk     38  
  8.     Financial Statements and Supplementary Data     39  
  9.     Changes in and Disagreements With Accountants on Accounting and Financial Disclosure     39  
  9A.     Controls and Procedures     40  
  9B.     Other Information     42  
 
  10.     Directors, Executive Officers and Corporate Governance     42  
  11.     Executive Compensation     42  
  12.     Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters     42  
  13.     Certain Relationships and Related Transactions, and Director Independence     42  
  14.     Principal Accountant Fees and Services     42  
 
  15.     Exhibits and Financial Statement Schedules     43  
 List of Subsidiaries
 Consent of Independent Registered Public Accounting Firm
 Certification of CEO Pursuant to Section 302
 Certification of CFO Pursuant to Section 302
 Certification of CEO Pursuant to Section 906
 Certification of CFO Pursuant to Section 906
 Agreement re: Disclosure of Long-Term Debt Investments


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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, including, without limitation, statements regarding the effect of acquisitions and redevelopments, our future financial performance, including our ability to maintain current or meet projected occupancy, rent levels and same store results, and the effect of government regulations. Actual results may differ materially from those described in the forward-looking statements and, in addition, will be affected by a variety of risks and factors that are beyond our control including, without limitation: natural disasters such as hurricanes; national and local economic conditions; the general level of interest rates; energy costs; the terms of governmental regulations that affect us and interpretations of those regulations; the competitive environment in which we operate; financing risks, including the risk that our cash flows from operations may be insufficient to meet required payments of principal and interest; real estate risks, including fluctuations in real estate values and the general economic climate in local markets and competition for residents in such markets; insurance risks; acquisition and development risks, including failure of such acquisitions to perform in accordance with projections; the timing of acquisitions and dispositions; litigation, including costs associated with prosecuting or defending claims and any adverse outcomes; and possible environmental liabilities, including costs, fines or penalties that may be incurred due to necessary remediation of contamination of properties presently owned or previously owned by us. In addition, our current and continuing qualification as a real estate investment trust involves the application of highly technical and complex provisions of the Internal Revenue Code and depends on our ability to meet the various requirements imposed by the Internal Revenue Code, through actual operating results, distribution levels and diversity of stock ownership. Readers should carefully review our financial statements and the notes thereto, as well as the section entitled “Risk Factors” described in Item 1A of this Annual Report and the other documents we file from time to time with the Securities and Exchange Commission.
 
PART I
 
Item 1.   Business
 
The Company
 
Apartment Investment and Management Company, or Aimco, is a Maryland corporation incorporated on January 10, 1994. We are a self-administered and self-managed real estate investment trust, or REIT, engaged in the acquisition, ownership, management and redevelopment of apartment properties. As of December 31, 2007, we owned or managed a real estate portfolio of 1,169 apartment properties containing 203,040 apartment units located in 46 states, the District of Columbia and Puerto Rico. Based on apartment unit data compiled by the National Multi Housing Council, as of January 1, 2007, we were the largest owner and operator of apartment properties in the United States. Our portfolio includes garden style, mid-rise and high-rise properties.
 
We own an equity interest in, and consolidate the majority of, the properties in our owned real estate portfolio. These properties represent the consolidated real estate holdings in our financial statements, which we refer to as consolidated properties. In addition, we have an equity interest in, but do not consolidate for financial statement purposes, certain properties that are accounted for under the equity or cost methods. These properties represent our investment in unconsolidated real estate partnerships in our financial statements, which we refer to as unconsolidated properties. Additionally, we provide property management and asset management services to certain properties, and in certain cases we may indirectly own generally less than one percent of the operations of such


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properties through a partnership syndication or other fund. Our equity holdings and managed properties are as follows as of December 31, 2007:
 
                 
    Total Portfolio  
    Properties     Units  
 
Consolidated properties
    657       153,758  
Unconsolidated properties
    94       10,878  
Property management
    36       3,228  
Asset management
    382       35,176  
                 
Total
    1,169       203,040  
                 
 
Through our wholly-owned subsidiaries, AIMCO-GP, Inc. and AIMCO-LP, Inc., we own a majority of the ownership interests in AIMCO Properties, L.P., which we refer to as the Aimco Operating Partnership. As of December 31, 2007, we held an interest of approximately 91% in the common partnership units and equivalents of the Aimco Operating Partnership. We conduct substantially all of our business and own substantially all of our assets through the Aimco Operating Partnership. Interests in the Aimco Operating Partnership that are held by limited partners other than Aimco are referred to as “OP Units.” OP Units include common OP Units, partnership preferred units, or preferred OP Units, and high performance partnership units, or High Performance Units. Generally after a holding period of twelve months, holders of common OP Units may redeem such units for cash or, at the Aimco Operating Partnership’s option, Aimco Class A Common Stock, which we refer to as Common Stock. At December 31, 2007, we had 92,795,891 shares of our Common Stock outstanding and the Aimco Operating Partnership had 9,682,619 common OP Units and equivalents outstanding for a combined total of 102,478,510 shares of Common Stock and OP Units outstanding (excluding preferred OP Units).
 
Since our initial public offering in July 1994, we have completed numerous transactions, including purchases of properties and interests in entities that own or manage properties, expanding our portfolio of owned or managed properties from 132 properties with 29,343 apartment units to a peak of over 2,100 properties with 379,000 apartment units. As of December 31, 2007, our portfolio of owned and/or managed properties consists of 1,169 properties with 203,040 apartment units.
 
Except as the context otherwise requires, “we,” “our,” “us” and the “Company” refer to Aimco, the Aimco Operating Partnership and their consolidated entities, collectively. As used herein, and except where the context otherwise requires, “partnership” refers to a limited partnership or a limited liability company and “partner” refers to a limited partner in a limited partnership or a member in a limited liability company.
 
Available Information
 
Our Annual Report on Form 10-K, our Quarterly Reports on Form 10-Q, our Current Reports on Form 8-K and any amendments to any of those reports that we file with the Securities and Exchange Commission are available free of charge as soon as reasonably practicable through our website at www.aimco.com. The information contained on our website is not incorporated into this Annual Report. Our Common Stock is listed on the New York Stock Exchange under the symbol “AIV.” In 2007, our chief executive officer submitted his annual corporate governance listing standards certification to the New York Stock Exchange, which certification was unqualified.
 
Financial Information About Industry Segments
 
We operate in two reportable segments: real estate (owning, operating and redeveloping apartments) and asset management (providing asset management and investment services). For further information on these segments, see Note 16 of the consolidated financial statements in Item 8, and Management’s Discussion and Analysis in Item 7.
 
Business Overview
 
Our principal financial objective is to increase long-term stockholder value per share, as measured by Economic Income, which consists of cash dividends and changes in Net Asset Value, or NAV, which is the estimated fair value of our assets, net of debt.


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We strive to meet our objectives through:
 
  •  property operations — using scale and technology to increase the effectiveness and efficiency of attracting and retaining apartment residents;
 
  •  redevelopment of properties — making substantial upgrades to the physical plant and, sometimes, to the services offered to residents;
 
  •  portfolio management — allocating capital among geographic markets and apartment property types such as Class A, Class B, Class C with redevelopment potential, and affordable;
 
  •  earning fee income from providing asset management services such as property management, financial management, accounting, investor reporting, property debt financing, tax credit syndication, redevelopment and construction management;
 
  •  managing our cost of capital by using leverage that is largely long-term, laddered in maturity, non-recourse and property specific; and
 
  •  managing our general and administrative costs through increasing productivity.
 
Our business is organized around three core activities: Property Operations, Redevelopment, and Asset Management. These three core activities, along with our financial strategy, are described in more detail below.
 
Property Operations
 
Our portfolio is comprised of two business components: conventional and affordable. Our conventional operations, which are market-rate apartments with rents paid by the resident, include 439 properties with 127,532 units. Our affordable operations consist of 312 properties with 37,104 units, with rents that are generally paid, in whole or part by a government agency.
 
We operate a broad range of property types, from suburban garden-style to urban high-rise properties in 46 states, the District of Columbia and Puerto Rico at a broad range of average monthly rental rates, with most between $700 and $1,000 per month, and reaching as high as $6,750 per month at some of our premier properties. This diversification insulates us, to some degree, from inevitable downturns in any one market.
 
Conventional
 
Our conventional operations currently are organized into four divisions and are further divided into 17 regional operating centers, or ROCs. A Regional Vice President, or RVP, supervises each ROC. To manage our nationwide portfolio more efficiently and to increase the benefits from our local management expertise, we have given direct responsibility for operations to the RVP with regular reviews with senior management. To enable the RVPs to focus on sales and service, as well as to improve financial control and budgeting, we have dedicated a regional financial officer to support each RVP. In addition, with the exception of routine maintenance, our specialized Construction Services group manages all on-site improvements, thus reducing the need for RVPs to spend time on oversight of construction projects. We seek to improve our corporate-level oversight of conventional property operations by developing better systems, standardizing business goals, operational measurements and internal reporting, and enhancing financial controls over field operations. Our objectives are to focus on the areas discussed below:
 
  •  Customer Service.  Our operating culture is focused on our residents. Our goal is to provide our residents with consistent service in clean, safe and attractive communities. We evaluate our performance through a customer satisfaction tracking system. In addition, we emphasize the quality of our on-site employees through recruiting, training and retention programs, which we believe contributes to improved customer service and leads to increased occupancy rates and enhanced operational performance.
 
  •  Resident Selection and Retention.  In apartment properties, neighbors are a meaningful part of the product, together with the location of the property and the physical quality of the apartment units. Part of our conventional operations strategy is to focus on resident acquisition and retention — attracting and retaining credit-worthy residents who are good neighbors. We have structured goals and coaching for all of our sales personnel, a tracking system for inquiries and a standardized renewal communication program. We have


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  standardized residential financial stability requirements and have policies and monitoring practices to maintain our resident quality.
 
  •  Revenue Increases.  We seek to increase revenue by optimizing the balance between rental and occupancy rates. We are also focused on the automation of on-site operations, as we believe that timely and accurate collection of property performance and resident profile data will enable us to maximize revenue through better property management and leasing decisions. We have standardized policies for new and renewal pricing with timely data and analyses by floor-plan, thereby enabling us to maximize our ability to modify pricing, even in challenging sub-markets.
 
  •  Controlling Expenses.  Cost controls are accomplished by local focus at the ROC level and by taking advantage of economies of scale at the corporate level. As a result of the size of our portfolio and our regional concentrations of properties, we have the ability to spread over a large property base fixed costs for general and administrative expenditures and certain operating functions, such as purchasing, insurance and information technology.
 
  •  Ancillary Services.  We believe that our ownership and management of properties provide us with unique access to a customer base that allows us to provide additional services and thereby increase occupancy and rents, while also generating incremental revenue. We currently provide cable television, telephone services, appliance rental, and carport, garage and storage space rental at certain properties.
 
Affordable
 
We are among the largest owners and operators of affordable properties in the United States. Affordable housing properties are generally those properties for which all or a portion of the rent is paid by the United States Department of Housing and Urban Development, or HUD, and sometimes by state housing agencies. Affordable properties tend to have stable rents and occupancy due to government subsidies of rent payments and thus are much less affected by market fluctuations.
 
Capital Replacements and Capital Improvements
 
We believe that the physical condition and amenities of our apartment properties are important factors in our ability to maintain and increase rental rates. In 2007, we spent $102.6 million, or $772 per owned apartment unit, for Capital Replacements, which represent the share of expenditures that are deemed to replace the consumed portion of acquired capital assets. Additionally, we spent $123.7 million for Capital Improvements, which are non-redevelopment capital expenditures that are made to enhance the value, profitability or useful life of an asset from its original purchase condition.
 
Redevelopment
 
In addition to maintenance and improvements of our properties, we focus on the redevelopment of certain properties each year. We believe redevelopment of certain properties in superior locations provides advantages over ground-up development, enabling us to generate rents comparable to new properties with lower financial risk, in less time and with reduced delays associated with governmental permits and authorizations. Redevelopment work also includes seeking entitlements from local governments, which enhance the value of our existing portfolio by increasing density, that is, the right to add residential units to a site. We undertake a range of redevelopment projects: from those in which a substantial number of all available units are vacated for significant renovations to the property to those in which there is significant renovation, such as exteriors, common areas or unit improvements, typically done upon lease expirations without the need to vacate units on any wholesale or substantial basis. We have specialized Redevelopment and Construction Services groups, which include engineers, architects and construction managers, to oversee these projects.
 
Our share of 2007 redevelopment expenditures on active and completed projects totaled $290.9 million and $61.9 million in conventional and affordable redevelopment projects, respectively. During 2007, we completed redevelopment projects at 16 conventional properties and one affordable property. We also delivered approximately 4,900 conventional and 1,200 affordable redeveloped units, respectively, some of which are part of redevelopment


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projects completed in 2007 and some of which are part of ongoing projects. As of December 31, 2007, we had 48 conventional and 11 affordable redevelopment projects at various stages of completion as follows:
 
                 
          Remaining
 
          Estimated
 
          Expenditures
 
    Properties     (millions)  
 
Conventional redevelopment projects
    48     $ 357.5  
Affordable redevelopment projects
    11       64.9  
                 
Total active redevelopment projects
    59     $ 422.4  
                 
 
In 2008, we expect to invest between $250.0 and $300.0 million in conventional redevelopment projects and we expect to invest approximately $72.0 million in affordable redevelopment projects, predominantly funded by third-party tax credit equity.
 
Asset Management
 
Asset management includes activities related to our owned portfolio of properties as well as services provided to affiliated partnerships. Within our owned portfolio, these activities include strategic capital allocation decisions and portfolio management activities, that is, transactions to buy, sell or modify our ownership interest in properties, including through the use of partnerships and joint ventures. The purpose of these transactions is to re-adjust Aimco investments to reflect our decisions regarding target allocations to geographic markets and to investment types. We provide similar services to affiliated partnerships, together with such other services as property management, financial management, accounting, investor reporting, property debt financings, tax credit syndication, redevelopment and construction management. When we provide these services with respect to our own investments, there is no separate compensation and their benefit is seen in property operating results and in investment gains. When we provide these services to affiliated third parties, they are separately compensated by agreed fees. While many teams at Aimco are involved in the delivery of these services, the negotiation of transactions for Aimco’s account and the oversight of services provided to others is primarily the responsibility of our Aimco Capital team.
 
Conventional Portfolio Management
 
Portfolio management involves the ongoing allocation of investment capital to meet our geographic and product type goals. We target geographic balance in Aimco’s diversified portfolio in order to optimize risk-adjusted returns and to avoid the risk of undue concentration in any particular market. We also seek to balance the portfolio by product type, with both high quality properties in excellent locations and also high land value properties that support redevelopment activities.
 
During 2007, we refined our geographic allocation strategy to focus on the top 20 U.S. markets as measured by total market capitalization. We believe these markets to be deep, relatively liquid and possessing desirable long-term growth characteristics. They are primarily coastal markets, and also include a number of Sun Belt cities and Chicago, Illinois. We may also invest in other markets on an opportunistic basis. As we implement this strategy, we expect to reduce our investment in markets outside the top 20 markets and to increase our investment in the top 20 markets both by making acquisitions and by redevelopment spending. We expect too that increased geographic focus will add to our investment knowledge and increase operating efficiencies based on local economies of scale.
 
During 2007, the top 20 U.S. markets contributed 70.8% of our net operating income, or NOI, from conventional property operations. Our top five markets by NOI contribution include the metropolitan areas of Washington, D.C., Los Angeles, California, Philadelphia, Pennsylvania, and Miami, Florida as well as the New England region. In 2007, we exited 11 markets and as of December 31, 2007, our conventional portfolio included 439 properties with 127,532 units in 42 markets.
 
During 2007, we invested in our conventional portfolio both by funding redevelopment and by making acquisitions. At different times, we have made acquisitions through:
 
  •  the direct acquisition of a property or portfolio of properties, or of ownership interests in such properties;


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  •  a merger or business combination with an entity that owns or controls a property, portfolio or other ownership interests in properties being acquired; and
 
  •  the purchase from third parties of additional interests in partnerships in which we own a general partnership interest.
 
In 2007, we invested $290.9 million in redevelopment of properties in our conventional portfolio. We also completed acquisitions of 16 conventional properties, containing approximately 1,300 residential units for an aggregate purchase price of approximately $217.0 million (including transaction costs). These properties are located in New York, California, Florida and Illinois. We also acquired additional interests in 48 partnerships (including VMS National Properties Joint Venture) for an aggregate purchase price of $219.8 million (including transaction costs, assumption of debt and other consideration).
 
Portfolio management also includes dispositions of properties located within markets we intend to exit, properties in less favored locations within our target markets, and properties that do not meet our long-term investment criteria. Property sales proceeds are used to fund redevelopment spending, acquisitions, and such other corporate purposes as debt reduction, preferred stock redemption and, in January 2008, a special dividend. In 2007, we sold 46 conventional properties generating net cash proceeds to us, after repayment of existing debt, payment of transaction costs and distributions to limited partners, of $125.5 million.
 
Portfolio management can include the use of partnerships and joint ventures to allow us to attract and serve high quality investment partners, and to rebalance efficiently our geographic market allocation of capital while maintaining our local operating platform and its operational scale. For example, during 2007, we entered into a joint venture agreement that provides for the co-ownership of three multi-family properties with 1,382 units located in west Los Angeles. We retained a 53% ownership interest in the properties and sold a 47% interest generating net cash proceeds of approximately $202.0 million. We will provide a variety of asset management services to our investment partner, including continuing property management, in return for asset management and other fees. During 2008, we plan to pursue similar joint ventures.
 
During 2007, we earned $15.6 million in asset management fees from 14 affiliated partnerships owning conventional properties.
 
Affordable Portfolio Management
 
The portfolio management strategy for our affordable portfolio is similar to that for our conventional portfolio. During 2007, we invested $61.9 million in redevelopment of affordable properties, funded primarily by proceeds from the sale of tax credits to institutional partners. We made no acquisitions of affordable properties and we made $7.0 million of acquisitions of partnership interests in partnerships owning affordable properties. As with conventional properties, we also seek to dispose of properties that are inconsistent with our long-term investment and operating strategies. During 2007, we sold 30 properties from our affordable portfolio, generating net cash proceeds to us, after repayment of existing debt, payment of transaction costs and distributions to limited partners, of $15.4 million. As of December 31, 2007, our affordable portfolio included 312 properties with 37,104 units.
 
During 2007, we earned $58.2 million in asset management fees from 78 affiliated partnerships owning affordable properties.
 
Financial Strategy
 
We are focused on minimizing our cost of capital on a risk-adjusted basis. We primarily use non-recourse property debt with laddered maturities and minimize reliance on corporate debt. The lower risk inherent in non-recourse property debt permits us to operate with higher debt leverage and a lower weighted average cost of capital. During 2007, we closed property loans totaling $1,816.6 million at an average interest rate of 6.10%, which included the refinancing of property loans totaling $772.8 million with prior interest rates averaging 7.05%. In addition to the refinancing activity, the property loans included placing loans on newly acquired properties, new financings on existing properties, redevelopment loans and the modification of terms on existing property debt. We use floating rate property and corporate debt to provide lower interest costs over time at a level that considers


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acceptable earnings volatility. We are also focused on maintaining liquidity, and as of December 31, 2007, had available resources totaling $675 million.
 
Competition
 
In attracting and retaining residents to occupy our properties we compete with numerous other housing alternatives. Our properties compete directly with other rental apartments, as well as with condominiums and single-family homes that are available for rent or purchase in the markets in which our properties are located. Principal factors of competition include rent or price charged, attractiveness of the location and property and quality and breadth of services. The number of competitive properties relative to demand in a particular area has a material effect on our ability to lease apartment units at our properties and on the rents we charge. In certain markets there exists oversupply of single family homes and condominiums that affects the pricing and occupancy of our rental apartments. Additionally, we compete with other real estate investors, including other apartment REITs, pension and investment funds, partnerships and investment companies in acquiring, redeveloping and managing apartment properties. This competition affects our ability to acquire properties we want to add to our portfolio and the price that we pay in such acquisitions.
 
Taxation
 
We have elected to be taxed as a REIT under the Internal Revenue Code of 1986, as amended, which we refer to as the Code, commencing with our taxable year ended December 31, 1994, and intend to continue to operate in such a manner. Our current and continuing qualification as a REIT depends on our ability to meet the various requirements imposed by the Code, which are related to organizational structure, distribution levels, diversity of stock ownership and certain restrictions with regard to owned assets and categories of income. If we qualify for taxation as a REIT, we will generally not be subject to United States Federal corporate income tax on our taxable income that is currently distributed to stockholders. This treatment substantially eliminates the “double taxation” (at the corporate and stockholder levels) that generally results from investment in a corporation.
 
Even if we qualify as a REIT, we may be subject to United States Federal income and excise taxes in various situations, such as on our undistributed income. We also will be required to pay a 100% tax on any net income on non-arm’s length transactions between us and a TRS (described below) and on any net income from sales of property that was property held for sale to customers in the ordinary course. We and our stockholders may be subject to state or local taxation in various state or local jurisdictions, including those in which we transact business or our stockholders reside. In addition, we could also be subject to the alternative minimum tax, or AMT, on our items of tax preference. The state and local tax laws may not conform to the United States Federal income tax treatment. Any taxes imposed on us reduce our operating cash flow and net income.
 
Certain of our operations (property management, asset management, risk, etc.) are conducted through taxable REIT subsidiaries, each of which we refer to as a TRS. A TRS is a C-corporation that has not elected REIT status and as such is subject to United States Federal corporate income tax. We use TRS entities to facilitate our ability to offer certain services and activities to our residents and investment partners, as these services and activities generally cannot be offered directly by the REIT.
 
Regulation
 
General
 
Apartment properties and their owners are subject to various laws, ordinances and regulations, including those related to real estate broker licensing and regulations relating to recreational facilities such as swimming pools, activity centers and other common areas. Changes in laws increasing the potential liability for environmental conditions existing on properties or increasing the restrictions on discharges or other conditions, as well as changes in laws affecting development, construction and safety requirements, may result in significant unanticipated expenditures, which would adversely affect our net income and cash flows from operating activities. In addition, future enactment of rent control or rent stabilization laws or other laws regulating multifamily housing may reduce rental revenue or increase operating costs in particular markets.


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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. 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. 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. These and other risks related to environmental matters are described in more detail in Item 1A, “Risk Factors.”
 
Insurance
 
Our primary lines of insurance coverage are property, general liability, and workers’ compensation. We believe that our insurance coverages adequately insure our properties against the risk of loss attributable to fire, earthquake, hurricane, tornado, flood, terrorism and other perils and adequately insure us against other risk. Our coverage includes deductibles, retentions and limits that are customary in the industry. We have established loss prevention, loss mitigation, claims handling, litigation management and loss reserving procedures to manage our exposure.
 
Employees
 
We currently have approximately 5,900 employees, of which approximately 4,400 are at the property level, performing various on-site functions, with the balance managing corporate and regional operations, including investment and debt transactions, legal, financial reporting, accounting, information systems, human resources and other support functions. Unions represent approximately 150 of our employees. We have never experienced a work stoppage and believe we maintain satisfactory relations with our employees.
 
Item 1A.   Risk Factors
 
The risk factors noted in this section and other factors noted throughout this Annual Report, describe certain risks and uncertainties that could cause our actual results to differ materially from those contained in any forward-looking statement.
 
Failure to generate sufficient net operating income may limit our ability to pay dividends.
 
Our ability to make payments to our investors depends on our ability to generate net operating income in excess of required debt payments and capital expenditure requirements. Net operating income may be adversely affected by events or conditions beyond our control, including:
 
  •  the general economic climate;
 
  •  competition from other apartment communities and other housing options;
 
  •  local conditions, such as loss of jobs or an increase in the supply of apartments, that might adversely affect apartment occupancy or rental rates;
 
  •  changes in governmental regulations and the related cost of compliance;
 
  •  increases in operating costs (including real estate taxes) due to inflation and other factors, which may not be offset by increased rents;
 
  •  changes in tax laws and housing laws, including the enactment of rent control laws or other laws regulating multifamily housing; and
 
  •  changes in interest rates and the availability of financing.


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Redevelopment and construction risks could affect our profitability.
 
We intend to continue to redevelop certain of our properties. These activities are subject to the following risks:
 
  •  we may be unable to obtain, or experience delays in obtaining, necessary zoning, occupancy, or other required governmental or third party permits and authorizations, which could result in increased costs or the delay or abandonment of opportunities;
 
  •  we may incur costs that exceed our original estimates due to increased material, labor or other costs;
 
  •  we may be unable to complete construction and lease up of a property on schedule, resulting in increased construction and financing costs and a decrease in expected rental revenues;
 
  •  occupancy rates and rents at a property may fail to meet our expectations for a number of reasons, including changes in market and economic conditions beyond our control and the development by competitors of competing communities;
 
  •  we may be unable to obtain financing with favorable terms, or at all, for the proposed development of a property, which may cause us to delay or abandon an opportunity;
 
  •  we may abandon opportunities that we have already begun to explore for a number of reasons, including changes in local market conditions or increases in construction or financing costs, and, as a result, we may fail to recover expenses already incurred in exploring those opportunities;
 
  •  we may incur liabilities to third parties during the redevelopment process, for example, in connection with resident lease terminations, or managing existing improvements on the site prior to resident lease terminations; and
 
  •  loss of a key member of project team could adversely affect our ability to deliver redevelopment projects on time and within our budget.
 
If we are not successful in our acquisition of properties, our results of operations could be adversely affected.
 
The selective acquisition of properties is a component of our strategy. However, we may not be able to complete transactions successfully in the future. Although we seek to acquire properties when such acquisitions increase our net income, Funds From Operations or net asset value, such transactions may fail to perform in accordance with our expectations. In particular, following acquisition, the value and operational performance of a property may be diminished if obsolescence or neighborhood changes occur before we are able to redevelop or sell the property.
 
Our existing and future debt financing could render us unable to operate, result in foreclosure on our properties or prevent us from making distributions on our equity.
 
Our strategy is generally to incur debt to increase the return on our equity while maintaining acceptable interest coverage ratios. For the year ended December 31, 2007, we had a ratio of free cash flow (net operating income less spending for capital replacements) to combined interest expense and preferred stock dividends of 1.6:1. Our organizational documents do not limit the amount of debt that we may incur, and we have significant amounts of debt outstanding. Payments of principal and interest may leave us with insufficient cash resources to operate our properties or pay distributions required to be paid in order to maintain our qualification as a REIT. We are also subject to the risk that our cash flow from operations will be insufficient to make required payments of principal and interest, and the risk that existing indebtedness may not be refinanced or that the terms of any refinancing will not be as favorable as the terms of existing indebtedness. If we fail to make required payments of principal and interest on secured debt, our lenders could foreclose on the properties securing such debt, which would result in loss of income and asset value to us. As of December 31, 2007, substantially all of the properties that we owned or controlled were encumbered by debt.


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Increases in interest rates would increase our interest expense.
 
As of December 31, 2007, we had approximately $1,754.4 million of variable-rate indebtedness outstanding. Of the total debt subject to variable interest rates, floating rate tax-exempt bond financing was $698.4 million. Floating rate tax-exempt bond financing is benchmarked against the Securities Industry and Financial Markets Association Municipal Swap Index, or SIFMA, rate (previously the Bond Market Association index), which since 1981 has averaged 68% of the 30-day LIBOR rate. If this relationship continues, an increase in 30-day LIBOR of 1.0% (0.68% in tax-exempt interest rates) would result in our income before minority interests and cash flows being reduced by $15.3 million on an annual basis. This would be offset by variable rate interest income earned on certain assets, including cash and cash equivalents and notes receivable, as well as interest that is capitalized on a portion of this variable rate debt incurred in connection with our redevelopment activities. Considering these offsets, the same increase in 30-day LIBOR would result in our income before minority interests being reduced by $6.5 million on an annual basis.
 
Covenant restrictions may limit our ability to make payments to our investors.
 
Some of our debt and other securities contain covenants that restrict our ability to make distributions or other payments to our investors unless certain financial tests or other criteria are satisfied. Our credit facility provides, among other things, that we may make distributions to our investors during any four consecutive fiscal quarters in an aggregate amount that does not exceed the greater of 95% of our Funds From Operations for such period or such amount as may be necessary to maintain our REIT status. Our outstanding classes of preferred stock prohibit the payment of dividends on our Common Stock if we fail to pay the dividends to which the holders of the preferred stock are entitled.
 
Competition could limit our ability to lease apartments or increase or maintain rents.
 
Our apartment properties compete for residents with other housing alternatives, including other rental apartments, condominiums and single-family homes that are available for rent, as well as new and existing condominiums and single-family homes for sale. Competitive residential housing in a particular area could adversely affect our ability to lease apartments and to increase or maintain rental rates. The current challenges in the credit and housing markets have increased housing inventory that competes with our apartment properties.
 
We depend on distributions and other payments from our subsidiaries that they may be prohibited from making to us.
 
All of our properties are owned, and all of our operations are conducted, by the Aimco Operating Partnership and our other subsidiaries. As a result, we depend on distributions and other payments from our subsidiaries in order to satisfy our financial obligations and make payments to our investors. The ability of our subsidiaries to make such distributions and other payments depends on their earnings and may be subject to statutory or contractual limitations. As an equity investor in our subsidiaries, our right to receive assets upon their liquidation or reorganization will be effectively subordinated to the claims of their creditors. To the extent that we are recognized as a creditor of such subsidiaries, our claims may still be subordinate to any security interest in or other lien on their assets and to any of their debt or other obligations that are senior to our claims.
 
Because real estate investments are relatively illiquid, we may not be able to sell properties when appropriate.
 
Real estate investments are relatively illiquid and cannot always be sold quickly. Our freedom to sell properties is also restricted by REIT tax rules. Thus, we may not be able to change our portfolio promptly in response to changes in economic or other market conditions. Our ability to dispose of assets in the future will depend on prevailing economic and market conditions. This could have a material adverse effect on our financial condition or results of operations.
 
We may be subject to litigation associated with partnership acquisitions that could increase our expenses and prevent completion of beneficial transactions.
 
We have engaged in, and intend to continue to engage in, the selective acquisition of interests in partnerships controlled by us that own apartment properties. In some cases, we have acquired the general partner of a partnership


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and then made an offer to acquire the limited partners’ interests in the partnership. In these transactions, we may be subject to litigation based on claims that we, as the general partner, have breached our fiduciary duty to our limited partners or that the transaction violates the relevant partnership agreement or state law. Although we intend to comply with our fiduciary obligations and the relevant partnership agreements, we may incur additional costs in connection with the defense or settlement of this type of litigation. In some cases, this type of litigation may adversely affect our desire to proceed with, or our ability to complete, a particular transaction. Any litigation of this type could also have a material adverse effect on our financial condition or results of operations.
 
We are self-insured for certain risks and the cost of insurance, increased claims activity or losses resulting from catastrophic events may affect our operating results and financial condition.
 
We are self-insured for a portion of our consolidated properties’ exposure to casualty losses resulting from fire, earthquake, hurricane, tornado, flood and other perils. We recognize casualty losses or gains based on the net book value of the affected property and any related insurance proceeds. In many instances, the actual cost to repair or replace the property may exceed its net book value and any insurance proceeds. We also insure certain unconsolidated properties for a portion of their exposure to such losses. In addition, we are self-insured for a portion of our exposure to third-party claims related to our employee health insurance plans, workers’ compensation coverage, and general liability exposure. With respect to our insurance obligations to unconsolidated properties and our exposure to claims of third parties, we establish reserves at levels that reflect our known and estimated losses. The ultimate cost of losses and the impact of unforeseen events may vary materially from recorded reserves, and variances may adversely affect our operating results and financial condition. We purchase insurance (or reinsurance where we insure unconsolidated properties) to reduce our exposure to losses and limit our financial losses on large individual risks. The availability and cost of insurance are determined by market conditions outside our control. No assurance can be made that we will be able to obtain and maintain insurance at the same levels and on the same terms as we do today. If we are not able to obtain or maintain insurance in amounts we consider appropriate for our business, or if the cost of obtaining such insurance increases materially, we may have to retain a larger portion of the potential loss associated with our exposures to risks. The extent of our losses in connection with catastrophic events is a function of the severity of the event and the total amount of exposure in the affected area. When we have geographic concentration of exposures, a single catastrophe (such as an earthquake) or destructive weather trend affecting a region may have a significant impact on our financial condition and results of operations. We cannot accurately predict catastrophes, or the number and type of catastrophic events that will affect us. As a result, our operating and financial results may vary significantly from one period to the next. While we anticipate and plan for losses, there can be no assurance that our financial results will not be adversely affected by our exposure to losses arising from catastrophic events in the future that exceed our previous experience and assumptions.
 
We depend on our senior management.
 
Our success depends upon the retention of our senior management, including Terry Considine, our chief executive officer and president. There are no assurances that we would be able to find qualified replacements for the individuals who make up our senior management if their services were no longer available. The loss of services of one or more members of our senior management team could have a material adverse effect on our business, financial condition and results of operations. We do not currently maintain key-man life insurance for any of our employees. The loss of any member of senior management could adversely affect our ability to pursue effectively our business strategy.
 
Government housing regulations may limit the opportunities at some of our properties and failure to comply with resident qualification requirements may result in financial penalties and/or loss of benefits.
 
We own consolidated and unconsolidated equity interests in certain properties and manage other properties that benefit from governmental programs intended to provide housing to people with low or moderate incomes. These programs, which are usually administered by HUD or state housing finance agencies, typically provide mortgage insurance, favorable financing terms, tax-credit equity, or rental assistance payments to the property owners. As a condition of the receipt of assistance under these programs, the properties must comply with various requirements, which typically limit rents to pre-approved amounts and impose restrictions on resident incomes.


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Failure to comply with these requirements and restrictions may result in financial penalties or loss of benefits. We usually need to obtain the approval of HUD in order to manage, or acquire a significant interest in, a HUD-assisted property. We may not always receive such approval.
 
Laws benefiting disabled persons may result in our incurrence of unanticipated expenses.
 
Under the Americans with Disabilities Act of 1990, or ADA, all places intended to be used by the public are required to meet certain Federal requirements related to access and use by disabled persons. Likewise, the Fair Housing Amendments Act of 1988, or FHAA, requires apartment properties first occupied after March 13, 1990, to be accessible to the handicapped. These and other Federal, state and local laws may require modifications to our properties, or affect renovations of the properties. Noncompliance with these laws could result in the imposition of fines or an award of damages to private litigants and also could result in an order to correct any non-complying feature, which could result in substantial capital expenditures. Although we believe that our properties are substantially in compliance with present requirements, we may incur unanticipated expenses to comply with the ADA and the FHAA in connection with the ongoing operation or redevelopment of our properties.
 
Potential liability or other expenditures associated with potential environmental contamination may be costly.
 
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. 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 disposal 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.
 
Moisture infiltration and resulting mold remediation may be costly.
 
We have been named as a defendant in lawsuits that have alleged personal injury and property damage as a result of the presence of mold. In addition, we are aware of lawsuits against owners and managers of multifamily properties asserting claims of personal injury and property damage caused by the presence of mold, some of which have resulted in substantial monetary judgments or settlements. We have only limited insurance coverage for property damage loss claims arising from the presence of mold and for personal injury claims related to mold exposure. We have implemented policies, procedures, third-party audits and training, and include a detailed moisture intrusion and mold assessment during acquisition due diligence. We believe these measures will prevent or eliminate mold exposure from our properties and will minimize the effects that mold may have on our residents. To date, we have not incurred any material costs or liabilities relating to claims of mold exposure or to abate mold conditions. Because the law regarding mold is unsettled and subject to change we can make no assurance that liabilities resulting from the presence of or exposure to mold will not have a material adverse effect on our consolidated financial condition or results of operations.
 
We may fail to qualify as a REIT.
 
If we fail to qualify as a REIT, we will not be allowed a deduction for dividends paid to our stockholders in computing our taxable income, and we will be subject to Federal income tax at regular corporate rates, including any applicable alternative minimum tax. This would substantially reduce our funds available for payment to our investors. Unless entitled to relief under certain provisions of the Code, we also would be disqualified from taxation


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as a REIT for the four taxable years following the year during which we ceased to qualify as a REIT. In addition, our failure to qualify as a REIT would place us in default under our primary credit facilities.
 
We believe that we operate, and have always operated, in a manner that enables us to meet the requirements for qualification as a REIT for Federal income tax purposes. Our continued qualification as a REIT will depend on our satisfaction of certain asset, income, investment, organizational, distribution, stockholder ownership and other requirements on a continuing basis. Our ability to satisfy the asset tests depends upon our analysis of the fair market values of our assets, some of which are not susceptible to a precise determination, and for which we will not obtain independent appraisals. Our compliance with the REIT income and quarterly asset requirements also depends upon our ability to manage successfully the composition of our income and assets on an ongoing basis. Moreover, the proper classification of an instrument as debt or equity for Federal income tax purposes may be uncertain in some circumstances, which could affect the application of the REIT qualification requirements. Accordingly, there can be no assurance that the Internal Revenue Service, or the IRS, will not contend that our interests in subsidiaries or other issuers constitutes a violation of the REIT requirements. Moreover, future economic, market, legal, tax or other considerations may cause us to fail to qualify as a REIT, or our Board of Directors may determine to revoke our REIT status.
 
REIT distribution requirements limit our available cash.
 
As a REIT, we are subject to annual distribution requirements, which limit the amount of cash we retain for other business purposes, including amounts to fund our growth. We generally must distribute annually at least 90% of our net REIT taxable income, excluding any net capital gain, in order for our distributed earnings not to be subject to corporate income tax. We intend to make distributions to our stockholders to comply with the requirements of the Code. However, differences in timing between the recognition of taxable income and the actual receipt of cash could require us to sell assets or borrow funds on a short-term or long-term basis to meet the 90% distribution requirement of the Code.
 
Limits on ownership of shares in our charter may result in the loss of economic and voting rights by purchasers that violate those limits.
 
Our charter limits ownership of our Common Stock by any single stockholder (applying certain “beneficial ownership” rules under the Federal securities laws) to 8.7% of our outstanding shares of Common Stock, or 15% in the case of certain pension trusts, registered investment companies and Mr. Considine. Our charter also limits ownership of our Common Stock and preferred stock by any single stockholder to 8.7% of the value of the outstanding Common Stock and preferred stock, or 15% in the case of certain pension trusts, registered investment companies and Mr. Considine. The charter also prohibits anyone from buying shares of our capital stock if the purchase would result in us losing our REIT status. This could happen if a transaction results in fewer than 100 persons owning all of our shares of capital stock or results in five or fewer persons (applying certain attribution rules of the Code) owning 50% or more of the value of all of our shares of capital stock. If anyone acquires shares in excess of the ownership limit or in violation of the ownership requirements of the Code for REITs:
 
  •  the transfer will be considered null and void;
 
  •  we will not reflect the transaction on our books;
 
  •  we may institute legal action to enjoin the transaction;
 
  •  we may demand repayment of any dividends received by the affected person on those shares;
 
  •  we may redeem the shares;
 
  •  the affected person will not have any voting rights for those shares; and
 
  •  the shares (and all voting and dividend rights of the shares) will be held in trust for the benefit of one or more charitable organizations designated by us.
 
We may purchase the shares of capital stock held in trust at a price equal to the lesser of the price paid by the transferee of the shares or the then current market price. If the trust transfers any of the shares of capital stock, the affected person will receive the lesser of the price paid for the shares or the then current market price. An individual who acquires shares of capital stock that violate the above rules bears the risk that the individual:
 
  •  may lose control over the power to dispose of such shares;


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  •  may not recognize profit from the sale of such shares if the market price of the shares increases;
 
  •  may be required to recognize a loss from the sale of such shares if the market price decreases; and
 
  •  may be required to repay to us any distributions received from us as a result of his or her ownership of the shares.
 
Our charter may limit the ability of a third party to acquire control of us.
 
The 8.7% ownership limit discussed above may have the effect of precluding acquisition of control of us by a third party without the consent of our Board of Directors. Our charter authorizes our Board of Directors to issue up to 510,587,500 shares of capital stock. As of December 31, 2007, 426,157,736 shares were classified as Common Stock, of which 92,795,891 were outstanding, and 84,429,764 shares were classified as preferred stock, of which 24,950,200 were outstanding. Under our charter, our Board of Directors has the authority to classify and reclassify any of our unissued shares of capital stock into shares of capital stock with such preferences, rights, powers and restrictions as our Board of Directors may determine. The authorization and issuance of a new class of capital stock could have the effect of delaying or preventing someone from taking control of us, even if a change in control were in our stockholders’ best interests.
 
Maryland business statutes may limit the ability of a third party to acquire control of us.
 
As a Maryland corporation, we are subject to various Maryland laws that may have the effect of discouraging offers to acquire us and increasing the difficulty of consummating any such offers, even if an acquisition would be in our stockholders’ best interests. The Maryland General Corporation Law restricts mergers and other business combination transactions between us and any person who acquires beneficial ownership of shares of our stock representing 10% or more of the voting power without our Board of Directors’ prior approval. Any such business combination transaction could not be completed until five years after the person acquired such voting power, and generally only with the approval of stockholders representing 80% of all votes entitled to be cast and 662/3% of the votes entitled to be cast, excluding the interested stockholder, or upon payment of a fair price. Maryland law also provides generally that a person who acquires shares of our capital stock that represent 10% or more of the voting power in electing directors will have no voting rights unless approved by a vote of two-thirds of the shares eligible to vote. Additionally, Maryland law provides, among other things, that the board of directors has broad discretion in adopting stockholders’ rights plans and has the sole power to fix the record date, time and place for special meetings of the stockholders. In addition, Maryland law provides that corporations that:
 
  •  have at least three directors who are not employees of the entity or related to an acquiring person; and
 
  •  are subject to the reporting requirements of the Securities Exchange Act of 1934,
 
may elect in their charter or bylaws or by resolution of the board of directors to be subject to all or part of a special subtitle that provides that:
 
  •  the corporation will have a staggered board of directors;
 
  •  any director may be removed only for cause and by the vote of two-thirds of the votes entitled to be cast in the election of directors generally, even if a lesser proportion is provided in the charter or bylaws;
 
  •  the number of directors may only be set by the board of directors, even if the procedure is contrary to the charter or bylaws;
 
  •  vacancies may only be filled by the remaining directors, even if the procedure is contrary to the charter or bylaws; and
 
  •  the secretary of the corporation may call a special meeting of stockholders at the request of stockholders only on the written request of the stockholders entitled to cast at least a majority of all the votes entitled to be cast at the meeting, even if the procedure is contrary to the charter or bylaws.
 
To date, we have not made any of the elections described above.
 
Item 1B.   Unresolved Staff Comments
 
None.


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Item 2.   Properties
 
Our properties are located in 46 states, the District of Columbia and Puerto Rico. As of December 31, 2007, our conventional properties are operated through 17 regional operating centers and our affordable properties are operated through three regional operating centers. The following table sets forth information on all of our property operations as of December 31, 2007 and 2006:
 
                                 
    2007     2006  
    Number of
    Number
    Number of
    Number
 
Regional Operating Center(1)
  Properties     of Units     Properties     of Units  
 
Conventional:
                               
Atlanta, GA
    (2)     (2)     32       8,286  
Boston, MA
    16       5,745       16       5,745  
Chicago, IL
    27       7,835       30       8,339  
Columbus, OH
    28       9,185       34       9,664  
Dallas, TX
    31       6,934       36       8,026  
Denver, CO
    30       7,616       33       7,487  
Houston, TX
    30       8,008       37       9,776  
Indianapolis, IN
    28       11,107       33       12,318  
Los Angeles, CA
    43       11,370       39       10,867  
Mid-Atlantic
    43       12,203              
New York, NY
    22       957       12       589  
Orlando, FL
    31       8,187       29       8,041  
Philadelphia, PA
    14       5,216       16       7,493  
Phoenix, AZ
    23       6,051       28       7,544  
Rockville, MD
    27       10,758       29       12,157  
South Florida
    16       5,857       15       5,300  
Tampa, FL
    20       5,231       21       5,787  
Tidewater, VA
    (2)     (2)     28       7,618  
East Redevelopment (3)
    9       5,020              
                                 
Total conventional owned and managed
    438       127,280       468       135,037  
                                 
Affordable:
                               
Central
    98       9,834       121       12,726  
Northeast
    64       9,348       87       12,551  
West
    83       11,022       63       6,908  
                                 
Total affordable owned and managed
    245       30,204       271       32,185  
                                 
Owned but not managed
    68       7,152       66       7,001  
Property management
    36       3,228       41       3,573  
Asset management
    382       35,176       410       38,617  
                                 
Total
    1,169       203,040       1,256       216,413  
                                 
 
(1) As our portfolio changes due to property acquisitions and dispositions, we periodically evaluate the organization of our regional operating centers, or ROCs. During 2006, we combined the Austin, TX and Dallas, TX ROCs and added a ROC in New York, NY.
 
(2) During 2007, we combined the Atlanta, GA and Tidewater, VA ROCs to form the Mid-Atlantic ROC.
 
(3) This management team is dedicated to the operations of certain properties being redeveloped.
 
At December 31, 2007, we owned an equity interest in and consolidated 657 properties containing 153,758 apartment units, which we refer to as “consolidated.” These consolidated properties contain, on average, 234 apartment units, with the largest property containing 2,877 apartment units. These properties offer residents a range of amenities, including swimming pools, clubhouses, spas, fitness centers and tennis courts. Many of the apartment units offer features such as vaulted ceilings, fireplaces, washer and dryer hook-ups, cable television, balconies and patios. Additional information on our consolidated properties is contained in “Schedule III — Real Estate and


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Accumulated Depreciation” in this Annual Report. At December 31, 2007, we held an equity interest in and did not consolidate 94 properties containing 10,878 apartment units, which we refer to as “unconsolidated.” In addition, we provided property management services for 36 properties containing 3,228 apartment units, and asset management services for 382 properties containing 35,176 apartment units. In certain cases we may indirectly own generally less than one percent of the operations of such properties through a partnership syndication or other fund.
 
Substantially all of our consolidated properties are encumbered by mortgage indebtedness. At December 31, 2007, our consolidated properties were encumbered by aggregate mortgage indebtedness totaling $6,981.7 million having an aggregate weighted average interest rate of 5.86%. Such mortgage indebtedness was secured by 634 properties with a combined net book value of $9,203.7 million. Included in the 634 properties, we had a total of 53 mortgage loans on 47 properties, with an aggregate principal balance outstanding of $763.5 million, that were each secured by property and cross-collateralized with certain (but not all) other mortgage loans within this group of mortgage loans (see Note 6 of the consolidated financial statements in Item 8 for additional information about our indebtedness).
 
Item 3.   Legal Proceedings
 
See the information under the caption “Legal Matters” in Note 8 of the consolidated financial statements in Item 8 for information regarding legal proceedings, which information is incorporated by reference in this Item 3.
 
Item 4.   Submission of Matters to a Vote of Security Holders
 
No matters were submitted to a vote of security holders during the fourth quarter of 2007.


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PART II
 
Item 5.   Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
 
Our Common Stock has been listed and traded on the NYSE under the symbol “AIV” since July 22, 1994. The following table sets forth the quarterly high and low sales prices of our Common Stock, as reported on the NYSE, and the dividends declared in the periods indicated:
 
                                 
                      Dividends
 
                Dividends
    Declared
 
                Declared
    (per share,
 
Quarter Ended
  High(2)     Low(2)     (per share)     adjusted)(3)  
 
2007
                               
December 31, 2007(1)
  $ 49.15     $ 33.97     $ 3.11     $ 2.97  
September 30, 2007
    51.62       38.65       0.60       0.57  
June 30, 2007
    58.98       47.10       0.60       0.57  
March 31, 2007
    65.79       54.08       0.00       0.00  
2006
                               
December 31, 2006(4)
  $ 59.17     $ 52.63     $ 1.20     $ 1.15  
September 30, 2006
    54.96       43.67       0.60       0.57  
June 30, 2006
    47.23       41.41       0.60       0.57  
March 31, 2006
    48.38       37.76       0.00       0.00  
 
 
(1) On December 21, 2007, our Board of Directors declared a special dividend of $2.51 per common share that was paid on January 30, 2008, to stockholders of record on December 31, 2007. This special dividend totaling approximately $232.9 million was paid part in cash (approximately $55.0 million) and part in shares of Common Stock (approximately $177.9 million, or 4,594,074 shares). Our Board of Directors declared the dividend during 2007 as a result of taxable gains from 2007 joint venture and property sales. Our Board of Directors anticipates that quarterly dividend declarations for the remainder of 2008 will occur on a schedule and in amounts consistent with 2007 (other than the special dividend). 2008 cash dividends at a $2.40 rate would be an effective 4.95% increase from 2007 cash dividends due to additional shares issued to holders pursuant to the special dividend.
 
(2) High and low sales prices of our Common Stock have not been retroactively adjusted for the effect of additional shares of Common Stock issued pursuant to the special dividend discussed in Note (1) above.
 
(3) Dividends declared per share have been retroactively adjusted for the effect of additional shares of Common Stock issued pursuant to the special dividend discussed in Note (1) above, which amounted to an approximate 4.95% stock dividend based on the outstanding shares of Common Stock as of the record date.
 
(4) On December 19, 2006, our Board of Directors declared a quarterly cash dividend of $0.60 per common share for the quarter ended December 31, 2006, that was paid on January 31, 2007, to stockholders of record on December 31, 2006. Our Board of Directors declared the dividend during 2006 as a result of taxable gains from 2006 property sales.
 
On February 25, 2008, the closing price of our Common Stock was $37.32 per share, as reported on the NYSE, and there were 91,736,837 shares of Common Stock outstanding, held by 3,728 stockholders of record. The number of holders does not include individuals or entities who beneficially own shares but whose shares are held of record by a broker or clearing agency, but does include each such broker or clearing agency as one recordholder.
 
As a REIT, we are required to distribute annually to holders of common stock at least 90% of our “real estate investment trust taxable income,” which, as defined by the Code and United States Department of Treasury regulations, is generally equivalent to net taxable ordinary income. We measure our profitability through Economic Income, which consists of cash dividends and changes in NAV. Future payment of dividends are at the discretion of our Board of Directors and will depend on numerous factors including our financial condition, capital requirements,


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the annual distribution requirements under the provisions of the Code applicable to REITs and such other factors as our Board of Directors deems relevant.
 
From time to time, we issue shares of Common Stock in exchange for common and preferred OP Units tendered to the Aimco Operating Partnership for redemption in accordance with the terms and provisions of the agreement of limited partnership of the Aimco Operating Partnership. Such shares are issued based on an exchange ratio of one share for each common OP Unit or the applicable conversion ratio for preferred OP Units. The shares are generally issued in exchange for OP Units in private transactions exempt from registration under the Securities Act of 1933, as amended, pursuant to Section 4(2) thereof. During the three and twelve months ended December 31, 2007, approximately 1,000 and 493,000 shares of Common Stock were issued in exchange for common OP Units. During the three and twelve months ended December 31, 2007, zero and 900 shares of Common Stock were issued in exchange for preferred OP Units, respectively.
 
The following table summarizes repurchases of our equity securities in the quarter ended December 31, 2007(1):
 
                                                 
                            Total Number
       
                Total
          Of Shares
    Maximum Number
 
    Total
          Number
          Purchased
    of Shares that
 
    Number
    Average
    of Shares
    Average
    As Part of Publicly
    May Yet Be
 
    of Shares
    Price Paid
    Purchased
    Price Paid
    Announced Plans or
    Purchased Under
 
Fiscal period(2)
  Purchased     per Share     (adjusted)     per Share (adjusted)     Programs     Plans or Programs (3)  
 
October 1 — October 31, 2007
    0       N/A       0       N/A       0       12,278,216  
November 1 — November 30, 2007
    2,083,400     $ 37.86       2,186,528     $ 36.07       2,083,400       10,194,816  
December 1 — December 31, 2007
    1,951,400       36.67       2,047,994       34.94       1,951,400       8,243,416  
                                                 
Total
    4,034,800     $ 37.28       4,234,522     $ 35.52       4,034,800          
                                                 
 
 
(1) Our Board of Directors has, from time to time, authorized us to repurchase shares of our outstanding capital stock. As of December 31, 2007, we were authorized to repurchase approximately 8.2 million additional shares. On January 29, 2008, our Board of Directors increased the number of shares authorized for repurchase by 25.0 million shares. This authorization has no expiration date. These repurchases may be made from time to time in the open market or in privately negotiated transactions. Between January 1, 2008 and February 15, 2008, we repurchased approximately 5.1 million shares of Common Stock for approximately $170.6 million, or $33.67 per share.
 
(2) During the year ended December 31, 2007, we repurchased approximately 7.5 million shares of Common Stock for approximately $325.8 million, or $43.70 per share, or 7.8 million shares for $41.86 per share, as adjusted for the special dividend.
 
(3) The number of shares authorized for repurchase was not affected by the special dividend.
 
(4) Since we began repurchasing shares in the third quarter of 2006, we have repurchased approximately 14.8 million shares, or approximately 15.2% of the shares outstanding on July 31, 2006, at an average price of $41.60, or 15.3 million shares for $40.40 per share, as adjusted for the special dividend.
 
Dividend Payments
 
Our Credit Agreement includes customary covenants, including a restriction on dividends and other restricted payments, but permits dividends during any four consecutive fiscal quarters in an aggregate amount of up to 95% of our Funds From Operations for such period or such amount as may be necessary to maintain our REIT status.
 
Performance Graph
 
The following graph compares cumulative total returns for our Common Stock, the Standard & Poor’s 500 Total Return Index (the “S&P 500”), the NASDAQ Composite, the SNL REIT Residential Index and the MSCI US REIT Index. The SNL REIT Residential Index was prepared by SNL Securities, an independent research and publishing firm specializing in the collection and dissemination of data on the banking, thrift and financial services industries. The MSCI US REIT Index is published by Morgan Stanley Capital International Inc., a provider of equity indices. The indices are weighted for all companies that fit the definitional criteria of the particular index and are calculated to exclude companies as they are acquired and add them to the index calculation as they become


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publicly traded companies. All companies of the definitional criteria in existence at the point in time presented are included in the index calculations. The graph assumes the investment of $100 in our Common Stock and in each index on December 31, 2002, and that all dividends paid have been reinvested. The historical information set forth below is not necessarily indicative of future performance.
 
Total Return Performance
 
 
                                                 
    For the Years Ended December 31,  
Index   2002     2003     2004     2005     2006     2007  
 
Aimco
    100.00       100.18       120.53       128.00       198.63       137.52  
NASDAQ Composite
    100.00       150.01       162.89       165.13       180.85       198.60  
SNL REIT Residential Index
    100.00       125.91       167.00       189.72       265.40       199.09  
MSCI US REIT
    100.00       136.74       179.80       201.61       274.03       227.95  
S&P 500
    100.00       128.68       142.69       149.70       173.34       182.86  
 
Source: (other than with respect to S&P 500) SNL Financial LC, Charlottesville, VA ©2008.
 
The Performance Graph will not be deemed to be incorporated by reference into any filing by the Company under the Securities Act of 1933 or the Securities Exchange Act of 1934, except to the extent that the Company specifically incorporates the same by reference.


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Item 6.   Selected Financial Data
 
The following selected financial data is based on our audited historical financial statements. This information should be read in conjunction with such financial statements, including the notes thereto, and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included herein or in previous filings with the Securities and Exchange Commission.
 
                                         
    For the Years Ended December 31,  
    2007     2006(1)     2005(1)     2004(1)     2003(1)  
    (Dollar amounts in thousands, except per share data)  
 
OPERATING DATA:
                                       
Total revenues
  $ 1,721,184     $ 1,601,705     $ 1,345,692     $ 1,218,067     $ 1,149,762  
Total operating expenses
    (1,373,926 )     (1,282,440 )     (1,078,550 )     (946,796 )     (808,200 )
Operating income
    347,258       319,265       267,142       271,271       341,562  
Income (loss) from continuing operations
    (48,054 )     (42,475 )     (24,095 )     57,505       54,732  
Income from discontinued operations, net
    77,965       219,262       95,077       209,949       104,125  
Cumulative effect of change in accounting principle
                      (3,957 )      
Net income
    29,911       176,787       70,982       263,497       158,857  
Net income attributable to preferred stockholders
    66,016       81,132       87,948       88,804       93,565  
Net income (loss) attributable to common stockholders
    (36,105 )     95,655       (16,966 )     174,693       65,292  
OTHER INFORMATION:
                                       
Total consolidated properties (end of period)
    657       703       619       676       679  
Total consolidated apartment units (end of period)
    153,758       162,432       158,548       169,932       174,172  
Total unconsolidated properties (end of period)
    94       102       264       330       441  
Total unconsolidated apartment units (end of period)
    10,878       11,791       35,269       44,728       62,823  
Units managed (end of period)(2)
    38,404       42,190       46,667       49,074       50,565  
Earnings (loss) per common share — basic(3):
                                       
Income (loss) from continuing operations (net of income attributable to preferred stockholders)
  $ (1.14 )   $ (1.23 )   $ (1.14 )   $ (0.32 )   $ (0.40 )
Net income (loss) attributable to common stockholders
  $ (0.36 )   $ 0.95     $ (0.17 )   $ 1.79     $ 0.67  
Earnings (loss) per common share — diluted(3):
                                       
Income (loss) from continuing operations (net of income attributable to preferred stockholders)
  $ (1.14 )   $ (1.23 )   $ (1.14 )   $ (0.32 )   $ (0.40 )
Net income (loss) attributable to common stockholders
  $ (0.36 )   $ 0.95     $ (0.17 )   $ 1.79     $ 0.67  
Dividends declared per common share(3)
  $ 4.11     $ 2.29     $ 2.86     $ 2.29     $ 2.71  
BALANCE SHEET INFORMATION:
                                       
Real estate, net of accumulated depreciation
  $ 9,348,692     $ 8,758,689     $ 7,916,808     $ 7,391,386     $ 6,803,957  
Total assets
    10,606,532       10,289,775       10,019,160       10,074,316       10,087,394  
Total indebtedness
    7,531,782       6,633,528       5,829,625       5,170,676       4,851,112  
Stockholders’ equity
    1,749,704       2,339,892       2,716,103       3,008,160       2,860,657  
 
(1) Certain reclassifications have been made to conform to the 2007 presentation. These reclassifications primarily represent presentation changes related to discontinued operations in accordance with Statement of Financial Accounting Standards No. 144.
 
(2) The years ended 2007, 2006, 2005, 2004 and 2003 include 35,176, 38,617, 41,421, 41,233 and 39,428 units, respectively, for which we provide asset management services only, although in certain cases we may indirectly own generally less than one percent of the operations of such properties through a partnership syndication or other fund.
 
(3) Per share amounts for each of the periods presented have been retroactively adjusted for the effect of 4,573,735 shares of Common Stock issued on January 30, 2008, pursuant to the special dividend declared by our Board of Directors on December 21, 2007 and paid to holders of record as of December 31, 2007 (see Note 1 to the consolidated financial statements in Item 8 for further discussion of the special dividend).


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Item 7.  Management’s Discussion and Analysis of Financial Condition and Results of Operations
 
Executive Overview
 
We are a self-administered and self-managed real estate investment trust, or REIT, engaged in the ownership, acquisition, management and redevelopment of apartment properties. Our property operations are characterized by diversification of product, location and price point. As of December 31, 2007, we owned or managed 1,169 apartment properties containing 203,040 units located in 46 states, the District of Columbia and Puerto Rico. Our primary sources of income and cash are rents associated with apartment leases.
 
The key financial indicators that we use in managing our business and in evaluating our financial condition and operating performance are: NAV; Funds From Operations, or FFO; FFO less spending for Capital Replacements, or AFFO; same store property operating results; net operating income; net operating income less spending for Capital Replacements, or Free Cash Flow; financial coverage ratios; and leverage as shown on our balance sheet. FFO and Capital Replacement are defined and further described in the sections captioned “Funds From Operations” and “Capital Expenditures” below. The key macro-economic factors and non-financial indicators that affect our financial condition and operating performance are: rates of job growth; single-family and multifamily housing starts; and interest rates.
 
Because our operating results depend primarily on income from our properties, the supply and demand for apartments influences our operating results. Additionally, the level of expenses required to operate and maintain our properties, the pace and price at which we redevelop, acquire and dispose of our apartment properties, and the volume and timing of fee transactions affect our operating results. Our cost of capital is affected by the conditions in the capital and credit markets and the terms that we negotiate for our equity and debt financings.
 
Our focus in 2007 has been to enhance operations to improve and sustain resident satisfaction; obtain rate and occupancy increases to improve profitability; upgrade the quality of our portfolio through portfolio management, capital replacement, capital improvement and redevelopment; increase efficiency through improved business processes and automation; improve liquidity through balance sheet management; expand our asset management business and transactions activity; and minimize our cost of capital. We believe that our efforts are having their intended effect, and have resulted in positive operating results and built the foundation for improved long-term operating results. These initiatives and others have also resulted in improved asset quality, and we will continue to seek opportunities to reinvest in our properties through capital expenditures and to manage our portfolio through property sales and acquisitions.
 
For 2008, our focus will continue to include the following: enhance operations to improve and sustain resident satisfaction; obtain rate and occupancy increases to improve profitability; upgrade the quality of our portfolio through portfolio management, capital replacement, capital improvement and redevelopment; increase efficiency through improved business processes and automation; improve balance sheet flexibility; expand the use of tax credit equity to generate fees and finance redevelopment of affordable properties; and minimize our cost of capital.
 
The following discussion and analysis of the results of our operations and financial condition should be read in conjunction with the accompanying financial statements in Item 8.
 
Results of Operations
 
Overview
 
2007 compared to 2006
 
We reported net income of $29.9 million and net loss attributable to common stockholders of $36.1 million for the year ended December 31, 2007, compared to net income of $176.8 million and net income attributable to common stockholders of $95.7 million for the year ended December 31, 2006, decreases of $146.9 million and $131.8 million, respectively. These decreases were principally due to the following items, all of which are discussed in further detail below:
 
  •  a decrease in income from discontinued operations, due primarily to decreases in net gains on dispositions of real estate;


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  •  an increase in interest expense, reflecting higher loan principal balances resulting from refinancings, share repurchases and acquisitions; and
 
  •  an increase in depreciation and amortization expense.
 
The effects of these items on our operating results were partially offset by an increase in net operating income associated with property operations, reflecting improved operations of our same store properties and other properties.
 
2006 compared to 2005
 
We reported net income of $176.8 million and net income attributable to common stockholders of $95.7 million for the year ended December 31, 2006, compared to net income of $71.0 million and net loss attributable to common stockholders of $17.0 million for the year ended December 31, 2005, increases of $105.8 million and $112.7 million, respectively. These increases were principally due to the following items, all of which are discussed in further detail within this section:
 
  •  an increase in net operating income associated with property operations, reflecting improved operations of our same store properties and other properties, and a large number of newly consolidated properties;
 
  •  an increase in income from discontinued operations, primarily related to higher net gains on dispositions of real estate; and
 
  •  an increase in gain on disposition of unconsolidated real estate and other, including higher gains on sale of land parcels.
 
These increases were partially offset by:
 
  •  an increase in depreciation and amortization expense;
 
  •  an increase in interest expense; and
 
  •  unfavorable changes in the effects of minority interests in our consolidated real estate partnerships.
 
Our reported operating results for 2006 were affected significantly by our adoption of EITF 04-5, as discussed in Adoption of EITF 04-5 in Note 2 to the consolidated financial statements in Item 8. In accordance with the requirements of EITF 04-5, we consolidated 156 previously unconsolidated entities as of January 1, 2006. The consolidation of these entities contributed to increases in the reported amounts of certain revenue and expenses.
 
The following paragraphs discuss these and other items affecting the results of our operations in more detail.
 
Business Segment Operating Results
 
We have two reportable segments: real estate (owning, operating and redeveloping apartments) and asset management (providing asset management and investment services). Our reportable segments changed in 2007 as a result of the reorganization of certain departments and functions. These changes include a realignment of certain of our property management services from the asset management segment to the real estate segment. In addition, the asset management segment was expanded to include certain departments involved in asset acquisitions, dispositions, and other transactional activities. Prior to the reorganization, those departments were considered to be general and administrative functions and were not associated with any operating segment.
 
Our chief operating decision maker is comprised of several members of our executive management team who use several generally accepted industry financial measures to assess the performance of the business, including NAV, Free Cash Flow, net operating income, FFO, and AFFO. 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.
 
Real Estate Segment
 
Our real estate segment involves the ownership and operation of properties that generate rental and other property-related income through the leasing of apartment units. Our real estate segment’s net operating income also


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includes income from property management services performed for unconsolidated partnerships and unrelated parties.
 
The following table summarizes our real estate segment’s net operating income for the years ended December 31, 2007, 2006 and 2005 (in thousands):
 
                         
    Year Ended December 31,  
    2007     2006     2005  
 
Real estate segment revenues:
                       
Rental and other property revenues
  $ 1,640,506     $ 1,540,500     $ 1,283,815  
Property management revenues, primarily from affiliates
    6,923       12,312       24,528  
                         
      1,647,429       1,552,812       1,308,343  
Real estate segment expenses:
                       
Property operating expenses
    768,457       709,694       599,208  
Property management expenses
    5,506       5,111       7,499  
                         
      773,963       714,805       606,707  
                         
Real estate segment net operating income
  $ 873,466     $ 838,007     $ 701,636  
                         
 
Conventional Same Store Property Operating Results
 
Same store operating results is a key indicator we use to assess the performance of our property operations and to understand the period over period operations of a consistent portfolio of properties. We define “consolidated same store” properties as our conventional properties (i) that we manage, (ii) in which our ownership interest exceeds 10%, (iii) the operations of which have been stabilized, and (iv) that have not been sold or classified as held for sale, in each case, throughout all periods presented. The following tables summarize the operations of our consolidated conventional rental property operations:
 
                         
    Year Ended December 31,        
    2007     2006     Change  
 
Consolidated same store revenues
  $ 1,110,079     $ 1,060,897       4.6 %
Consolidated same store expenses
    467,373       447,803       4.4 %
                         
Same store net operating income
    642,706       613,094       4.8 %
Reconciling items(1)
    230,760       224,913       2.6 %
                         
Real estate segment net operating income
  $ 873,466     $ 838,007       4.2 %
                         
Same store operating statistics:
                       
Properties
    347       347          
Apartment units
    103,629       103,629          
Average physical occupancy
    94.7 %     94.5 %     0.2 %
Average rent/unit/month
  $ 863     $ 833       3.6 %
 
 
(1) Reflects property revenues and property operating expenses related to consolidated properties other than same store properties (e.g., affordable, acquisition, redevelopment and newly consolidated properties) and casualty gains and losses.
 
For the year ended December 31, 2007, compared to the year ended December 31, 2006, consolidated same store net operating income increased $29.6 million, or 4.8%. Revenues increased $49.2 million, or 4.6%, primarily due to higher average rent (up $30 per unit) and a $9.0 million increase in utility reimbursements. Expenses increased by $19.6 million, or 4.4%, primarily due to an $8.5 million increase in employee compensation and related expenses, $3.0 million increases in each of marketing expense and contract service expense, a $2.5 million increase in utilities and a $2.4 million increase in property insurance expense.
 


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    Year Ended December 31,        
    2006     2005     Change  
 
Consolidated same store revenues
  $ 960,887     $ 901,121       6.6 %
Consolidated same store expenses
    407,248       387,635       5.1 %
                         
Same store net operating income
    553,639       513,486       7.8 %
Reconciling items(1)
    284,368       188,150       51.1 %
                         
Real estate segment net operating income
  $ 838,007     $ 701,636       19.4 %
                         
Same store operating statistics:
                       
Properties
    315       315          
Apartment units
    95,227       95,227          
Average physical occupancy
    94.5 %     92.5 %     2.0 %
Average rent/unit/month
  $ 820     $ 790       3.8 %
 
 
(1) Reflects property revenues and property operating expenses related to consolidated properties other than same store properties (e.g., affordable, acquisition, redevelopment and newly consolidated properties, including those properties consolidated as a result of the adoption of EITF 04-5) and casualty gains and losses.
 
For the year ended December 31, 2006, compared to the year ended December 31, 2005, consolidated same store net operating income increased $40.2 million, or 7.8%. Revenues increased $59.8 million, or 6.6%, primarily due to higher occupancy (up 2.0%), higher average rent (up $30 per unit), and a $6.9 million increase in utility reimbursements. Expenses increased by $19.6 million, or 5.1%, primarily due to a $5.9 million increase in administrative expenses, a $5.8 million increase in real estate taxes, a $5.4 million increase in utilities and a $3.8 million increase in insurance.
 
Asset Management Segment
 
Our asset management segment includes activities related to our owned portfolio of properties as well as services provided to affiliated partnerships. Within our owned portfolio, these activities include strategic capital allocation decisions and portfolio management activities. We provide similar services to affiliated partnerships, together with such other services as property management, asset management, financial management, accounting, investor reporting, property debt financings, tax credit syndication, redevelopment and construction management. The expenses of this segment consist primarily of the costs of departments that perform transactional activities and asset management services. These activities are conducted in part by our taxable subsidiaries, and the related net operating income may be subject to income taxes.
 
Transactions occur on varying timetables; thus, the income varies from period to period. We have affiliated real estate partnerships for which we have identified a pipeline of transactional opportunities. As a result, we view activity fees as a predictable part of our core business strategy. Asset management revenue is from the financial management of partnerships, rather than management of day-to-day property operations. Asset management revenue includes certain fees that were earned in a prior period, but not recognized at that time because collectibility was not reasonably assured. Those fees may be recognized in a subsequent period upon occurrence of a transaction or a high level of the probability of occurrence of a transaction within twelve months, or improvement in operations that generates sufficient cash to pay the fees.
 
The following table summarizes the net operating income from our asset management segment for the years ended December 31, 2007, 2006 and 2005 (in thousands):
 
                         
    Year Ended December 31,  
    2007     2006     2005  
 
Activity fees and asset management revenues
  $ 73,755     $ 48,893     $ 37,349  
Activity and asset management expenses
    23,102       17,342       19,316  
                         
Asset management segment net operating income
  $ 50,653     $ 31,551     $ 18,033  
                         

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For the year ended December 31, 2007, compared to the year ended December 31, 2006, net operating income from activity fees and asset management increased $19.1 million, or 60.5%. This increase is primarily attributable to a $9.6 million increase in promote income, an $8.6 million increase in asset management fees and an increase of $9.1 million in revenues associated with our affordable housing tax credit syndication business, including syndication fees and other revenue earned in connection with these arrangements. These increases were partially offset by an increase in expenses and a decrease in other transaction fees.
 
For the year ended December 31, 2006, compared to the year ended December 31, 2005, net operating income from activity fees and asset management increased $13.5 million, or 75.0%. This increase is primarily attributable to growth in our affordable housing tax credit syndication business, including a $4.3 million increase in syndication fees and a $4.6 million increase in other revenue earned in connection with these arrangements. The increase also reflects a $2.4 million increase in promote distributions from partnerships.
 
Other Operating Expenses (Income)
 
Depreciation and Amortization
 
For the year ended December 31, 2007, compared to the year ended December 31, 2006, depreciation and amortization increased $35.1 million, or 7.7%. This increase reflects depreciation of $23.7 million for newly acquired properties, completed redevelopments and other capital projects recently placed in service. Depreciation also increased by approximately $8.6 million as a result of depreciation adjustments necessary to reduce the carrying amount of buildings and improvements to their estimated disposition value or to zero in connection with a planned demolition (see Capital Expenditures and Related Depreciation in Note 2 to the consolidated financial statements in Item 8).
 
For the year ended December 31, 2006, compared to the year ended December 31, 2005, depreciation and amortization increased $80.2 million, or 21.5%. This increase was principally due to $31.0 million of depreciation for newly consolidated properties, particularly properties that were consolidated in 2006 in connection with the adoption of EITF 04-5 (see Adoption of EITF 04-5 in Note 2 to the consolidated financial statements in Item 8) and $44.4 million of depreciation related to assets recently placed in service, including acquired properties, redevelopment projects and other capital expenditures. Additionally, a $4.8 million increase resulted from a change effective July 1, 2005 in estimated useful lives that apply to capitalized payroll and certain indirect costs (see Capital Expenditures and Related Depreciation in Note 2 of the consolidated financial statements in Item 8).
 
General and Administrative Expenses
 
For the year ended December 31, 2007, compared to the year ended December 31, 2006, general and administrative expenses decreased $0.9 million, or 1.0%. This decrease is primarily due to a reduction in variable compensation, partially offset by an increase in salaries and benefits (net of capitalization) related to additional redevelopment personnel and an increase in director compensation resulting from the addition of two new board members.
 
For the year ended December 31, 2006, compared to the year ended December 31, 2005, general and administrative expenses increased $7.1 million, or 8.6%. This increase reflects a $9.6 million increase in employee compensation and related costs, including higher stock-based compensation and variable compensation based on achievement of established performance targets. The increase was partially offset by a $3.9 million decrease in legal, audit and consulting expenses.
 
Other Expenses (Income), Net
 
Other expenses (income), net includes the income tax provision/benefit, franchise taxes, risk management activities, partnership administration expenses and certain non-recurring items.
 
For the year ended December 31, 2007, compared to the year ended December 31, 2006, other expenses (income), net changed favorably by $7.6 million. The net favorable change reflects an $8.7 million increase in income tax benefits related to losses of our taxable subsidiaries, a $2.9 million charge recorded in 2006 related to the valuation of the High Performance Units (see Note 10 to the consolidated financial statements in Item 8) and a


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$1.7 million charge for one-time benefits to certain employees terminated in 2006 that did not recur in 2007. Other expenses (income), net for the year ended December 31, 2007, also includes $3.6 million related to the transfer of certain property rights to an unrelated party. These favorable changes were partially offset by unfavorable changes related our self insurance activities, including a $7.9 million increase in claims on our consolidated properties in excess of reimbursements from third parties, and the settlement of certain litigation matters which resulted in a $2.5 million unfavorable change during the year ended December 31, 2007.
 
For the year ended December 31, 2006, compared to the year ended December 31, 2005, other expenses (income), net changed unfavorably by $10.4 million. This decrease was primarily attributable to a $4.2 million decrease in the income tax benefit for our continuing operations, reflecting smaller losses of our taxable subsidiaries, an increase of $3.3 million in partnership expenses resulting from properties newly consolidated in 2006, and a $2.9 million charge recorded in 2006 related to the valuation of the High Performance Units (see Note 10 to the consolidated financial statements in Item 8).
 
Interest Income
 
Interest income consists primarily of interest on notes receivable from non-affiliates and unconsolidated real estate partnerships, interest on cash and restricted cash accounts, and accretion of discounts on certain notes receivable from unconsolidated real estate partnerships. Transactions that result in accretion occur infrequently and thus accretion income may vary from period to period.
 
For the year ended December 31, 2007, compared to the year ended December 31, 2006, interest income increased $8.5 million, or 25.0%. This increase is primarily due to $5.9 million of interest income earned during 2007 on loans collateralized by properties in West Harlem in New York City, which were funded in November 2006, and an increase in interest income earned on escrowed funds related to a tax exempt bond financing transaction and certain property sales during 2007.
 
For the year ended December 31, 2006, as compared to the year ended December 31, 2005, interest income increased $2.6 million, or 8.1%. This increase reflects $8.0 million in interest income on cash and restricted cash balances of newly consolidated properties, particularly properties consolidated as a result of adopting EITF 04-5 in 2006 (see Adoption of EITF 04-5 in Note 2 the consolidated financial statements in Item 8). The increase also reflects a $4.6 million increase in interest income related to increased balances of notes receivable from non-affiliates (see Note 5 to the consolidated financial statements in Item 8) and $4.2 million of accretion income in connection with two property sales in 2006. These increases were largely offset by the elimination of $14.0 million in interest income on notes receivable from real estate partnerships that were consolidated in 2006 in connection with the adoption of EITF 04-5.
 
Interest Expense
 
For the year ended December 31, 2007, compared to the year ended December 31, 2006, interest expense, which includes the amortization of deferred financing costs, increased $30.7 million, or 7.8%. Interest on property debt increased $33.8 million primarily due to higher balances resulting from refinancing activities and mortgage loans on newly acquired properties, offset by lower weighted average rates. Corporate interest increased by $3.1 million as a result of higher weighted average rates and a higher average balance during the year ended December 31, 2007. These increases were partially offset by a $6.2 million increase in capitalized interest related to increased levels of redevelopment and entitlement activities.
 
For the year ended December 31, 2006, compared to the year ended December 31, 2005, interest expense, which includes the amortization of deferred financing costs, increased $60.7 million, or 18.4%. This increase reflects $28.4 million in interest expense of newly consolidated properties, particularly those consolidated as a result of adopting EITF 04-5 in 2006 (see Adoption of EITF 04-5 in Note 2 the consolidated financial statements in Item 8). Additionally, interest expense on property debt increased by $33.9 million due to higher interest rates on variable rate loans, higher average balances related to refinancings and acquisitions. Corporate interest increased by $1.8 million as a result of higher weighted average rates and a higher average balance during the year ended December 31, 2006. These increases were partially offset by a $6.8 million increase in capitalized interest, related to increased levels of redevelopment and entitlement activities.


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Deficit Distributions to Minority Partners
 
When real estate partnerships that are consolidated in our financial statements disburse cash to partners in excess of the carrying amount of the minority interest, we record a charge equal to the excess amount, even though there is no economic effect or cost.
 
For the year ended December 31, 2007, compared to the year ended December 31, 2006, deficit distributions to minority partners increased $18.3 million, or 88.2%. This increase reflects higher levels of distributions to minority interests in 2007, including several large distributions in connection with debt refinancing transactions.
 
For the year ended December 31, 2006, compared to the year ended December 31, 2005, deficit distributions to minority partners increased $9.3 million, or 80.8%. This increase reflects higher levels of distributions to minority interests in 2006, including several large distributions in connection with debt refinancing transactions.
 
Gain on Dispositions of Unconsolidated Real Estate and Other
 
Gain on dispositions of unconsolidated real estate and other includes our share of gains related to dispositions of real estate by unconsolidated real estate partnerships, gains on dispositions of land and other non-depreciable assets and costs related to asset disposal activities. For the year ended December 31, 2007, gain on dispositions of unconsolidated real estate and other also includes a gain on extinguishment of debt. Changes in the level of gains recognized from period to period reflect the changing level of disposition activity from period to period. Additionally, gains on properties sold are determined on an individual property basis or in the aggregate for a group of properties that are sold in a single transaction, and are not comparable period to period.
 
For the year ended December 31, 2007, compared to the year ended December 31, 2006, gain on dispositions of unconsolidated real estate and other increased $4.9 million, or 18.4%. This increase is primarily related to a $19.4 million gain on debt extinguishment related to seven properties in the VMS partnership (see Note 3 to the consolidated financial statements in Item 8) and the recognition of $7.2 million of non-refundable fees and deposits related to certain property transactions (see Note 3 to the consolidated financial statements in Item 8) in 2007 relative to net gains of $26.8 million during the year ended December 31, 2006, on the sale of parcels of land, interests in unconsolidated real estate properties and an interest in an unconsolidated joint venture that owned and operated several student housing properties.
 
For the year ended December 31, 2006, as compared to the year ended December 31, 2005, gain on dispositions of unconsolidated real estate and other increased $9.7 million. This increase is primarily attributable to an $11.0 million gain on the disposition of our interest in an unconsolidated joint venture that owned and operated several student housing properties.
 
Minority Interest in Consolidated Real Estate Partnerships
 
Minority interest in consolidated real estate partnerships reflects minority partners’ share of operating results of consolidated real estate partnerships. This generally includes the minority partners’ share of property management fees, interest on notes and other amounts eliminated in consolidation that we charge to such partnerships. However, we generally do not recognize a benefit for the minority interest share of partnership losses for partnerships that have deficits in partners’ equity.
 
For the year ended December 31, 2007, compared to the year ended December 31, 2006, minority interest in consolidated real estate partnerships changed favorably by $10.3 million. This change is primarily attributable to our revised accounting treatment for tax credit arrangements (see Tax Credit Arrangements in Note 2 to the consolidated financial statements in Item 8) which resulted in the reversal in 2006 of a previously recognized benefit of $9.0 million for losses of tax credit partnerships that were allocated to minority interests in prior years, but which are absorbed by us under our revised accounting treatment. This favorable change was in addition to a net decrease in the minority interest share of other real estate partnership losses.
 
For the year ended December 31, 2006, compared to the year ended December 31, 2005, minority interest in consolidated real estate partnerships changed unfavorably by $17.2 million. This change is primarily attributable to our recognition of $24.6 million for minority partners’ share of losses of partnerships with deficits in equity as a


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result of adopting EITF 04-5 in 2006 (see Adoption of EITF 04-5 in Note 2 to the consolidated financial statements in Item 8). The change also reflects differences related to our revised accounting treatment for tax credit arrangements (see Tax Credit Arrangements in Note 2 to the consolidated financial statements in Item 8), including (i) the reversal in 2006 of a previously recognized benefit of $9.0 million for losses of tax credit partnerships that were allocated to minority interests in prior years, but which are absorbed by us under our revised accounting treatment and (ii) a $6.7 million benefit recognized in 2005 for losses allocated to minority interests in tax credit partnerships, while no comparable amount was recognized in 2006 under our revised accounting treatment. These unfavorable changes were partially offset by a $23.1 million net increase in the minority interest share of other real estate partnership losses.
 
Income from Discontinued Operations, Net
 
The results of operations for properties sold during the period or designated as held for sale at the end of the period are generally required to be classified as discontinued operations for all periods presented. The components of net earnings that are classified as discontinued operations include all property-related revenues and operating expenses, depreciation expense recognized prior to the classification as held for sale, property-specific interest expense and debt extinguishment gains and losses to the extent there is secured debt on the property, and any related minority interest. In addition, any impairment losses on assets held for sale and the net gain or loss on the eventual disposal of properties held for sale are reported in discontinued operations.
 
For the years ended December 31, 2007, 2006 and 2005, income from discontinued operations, net totaled $78.0 million, $219.3 million and $95.1 million, respectively. The $141.3 million decrease in income from discontinued operations from 2006 to 2007 was principally due to a $194.5 million decrease in gain on dispositions of real estate, net of minority partners’ interests and a $19.5 million decrease in operating income, offset by a $22.9 million decrease in interest expense, a $30.8 million favorable change in income tax arising from disposals and a $22.9 million gain on extinguishment of debt related to mortgage loans secured by the eight VMS properties sold to third parties during 2007 (see Note 3 to the consolidated financial statements in Item 8). The $124.2 million increase in income from discontinued operations from 2005 to 2006 was principally due to a $155.0 million increase in gain on dispositions of real estate, net of minority partners’ interests, a $26.4 million decrease in interest expense and an impairment recovery of $0.4 million in 2006 versus an impairment charge of $3.8 million in 2005, offset by a $23.7 million decrease in operating income, a $28.4 million increase in income tax arising from disposals and a $12.6 million increase in minority interest in the Aimco Operating Partnership.
 
During 2007, we sold 73 consolidated properties, resulting in a net gain on sale of approximately $63.2 million (which is net of $2.1 million of related income taxes). Additionally, we recognized $0.1 million in impairment recoveries on assets sold in 2007 and $0.4 million of net recoveries of deficit distributions to minority partners. During 2006, we sold 77 consolidated properties and the South Tower of the Flamingo South Beach property, resulting in a net gain on sale of approximately $226.9 million (which is net of $32.9 million of related income taxes). Additionally, we recognized $0.4 million in impairment recoveries on assets sold in 2006 and $15.7 million of net recoveries of deficit distributions to minority partners. During 2005, we sold 83 consolidated properties, resulting in a net gain on sale of approximately $100.3 million (which is net of $4.5 million of related income taxes). Additionally, we recognized $3.8 million in impairment losses on assets sold or held for sale in 2005 and $14.5 million of net recoveries of deficit distributions to minority partners. For the years ended December 31, 2007, 2006 and 2005, income from discontinued operations includes the operating results of the properties sold during these years as well the operating results of three properties classified as held for sale at December 31, 2007.
 
Changes in the level of gains recognized from period to period reflect the changing level of our disposition activity from period to period. Additionally, gains on properties sold are determined on an individual property basis or in the aggregate for a group of properties that are sold in a single transaction, and are not comparable period to period (see Note 13 of the consolidated financial statements in Item 8 for additional information on discontinued operations).
 
Critical Accounting Policies and Estimates
 
We prepare our consolidated financial statements in accordance with accounting principles generally accepted in the United States of America, or GAAP, which requires us to make estimates and assumptions. We believe that the


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following critical accounting policies involve our more significant judgments and estimates used in the preparation of our consolidated financial statements.
 
Impairment of Long-Lived Assets
 
Real estate and other long-lived assets to be held and used are stated at cost, less accumulated depreciation and amortization, unless the carrying amount of the asset is not recoverable. If events or circumstances indicate that the carrying amount of a property may not be recoverable, we make an assessment of its recoverability by comparing the carrying amount to our estimate of the undiscounted future cash flows, excluding interest charges, of the property. If the carrying amount exceeds the aggregate undiscounted future cash flows, we recognize an impairment loss to the extent the carrying amount exceeds the estimated fair value of the property.
 
From time to time, we have non-revenue producing properties that we hold for future redevelopment. We assess the recoverability of the carrying amount of these redevelopment properties by comparing our estimate of undiscounted future cash flows based on the expected service potential of the redevelopment property upon completion to the carrying amount. In certain instances, we use a probability-weighted approach to determine our estimate of undiscounted future cash flows when alternative courses of action are under consideration.
 
At December 31, 2007, we evaluated our Lincoln Place property in Venice, CA and determined that the carrying amount of $189.3 million was recoverable based on our probability-weighted assessment of undiscounted cash flows. Plans to develop Lincoln Place have been the subject of controversy and litigation, which reduces its market value and may result in a future impairment.
 
Real estate investments are subject to varying degrees of risk. Several factors may adversely affect the economic performance and value of our real estate investments. These factors include:
 
  •  the general economic climate;
 
  •  competition from other apartment communities and other housing options;
 
  •  local conditions, such as loss of jobs or an increase in the supply of apartments, that might adversely affect apartment occupancy or rental rates;
 
  •  changes in governmental regulations and the related cost of compliance;
 
  •  increases in operating costs (including real estate taxes) due to inflation and other factors, which may not be offset by increased rents;
 
  •  changes in tax laws and housing laws, including the enactment of rent control laws or other laws regulating multifamily housing;
 
  •  changes in market capitalization rates; and
 
  •  the relative illiquidity of such investments.
 
Any adverse changes in these and other factors could cause an impairment in our long-lived assets, including real estate and investments in unconsolidated real estate partnerships. Based on periodic tests of recoverability of long-lived assets, for the years ended December 31, 2007 and 2005, we recorded net impairment losses of $6.6 million and $6.1 million, respectively, related to properties to be held and used. For the year ended December 31, 2006, we recorded net recoveries of previously recorded impairment losses of $0.8 million.
 
Notes Receivable and Interest Income Recognition
 
Notes receivable from unconsolidated real estate partnerships consist primarily of notes receivable from partnerships in which we are the general partner. Notes receivable from non-affiliates consists of notes receivable from unrelated third parties. The ultimate repayment of these notes is subject to a number of variables, including the performance and value of the underlying real estate and the claims of unaffiliated mortgage lenders. Our notes receivable include loans extended by us that we carry at the face amount plus accrued interest, which we refer to as “par value notes,” and loans extended by predecessors, some of whose positions we generally acquired at a discount, which we refer to as “discounted notes.”


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We record interest income on par value notes as earned in accordance with the terms of the related loan agreements. We discontinue the accrual of interest on such notes when the notes are impaired, as discussed below, or when there is otherwise significant uncertainty as to the collection of interest. We record income on such nonaccrual loans using the cost recovery method, under which we apply cash receipts first to the recorded amount of the loan; thereafter, any additional receipts are recognized as income.
 
We recognize interest income on discounted notes receivable based upon whether the amount and timing of collections are both probable and reasonably estimable. We consider collections to be probable and reasonably estimable when the borrower has entered into certain closed or pending transactions (which include real estate sales, refinancings, foreclosures and rights offerings) that provide a reliable source of repayment. In such instances, we recognize accretion income, on a prospective basis using the effective interest method over the estimated remaining term of the loans, equal to the difference between the carrying amount of the discounted notes and the estimated collectible value. We record income on all other discounted notes using the cost recovery method. Accretion income recognized in any given period is based on our ability to complete transactions to monetize the notes receivable and the difference between the carrying value and the estimated collectible value of the notes; therefore, accretion income varies on a period by period basis and could be lower or higher than in prior periods.
 
Allowance for Losses on Notes Receivable
 
We assess the collectibility of notes receivable on a periodic basis, which assessment consists primarily of an evaluation of cash flow projections of the borrower to determine whether estimated cash flows are sufficient to repay principal and interest in accordance with the contractual terms of the note. We recognize impairments on notes receivable when it is probable that principal and interest will not be received in accordance with the contractual terms of the loan. The amount of the impairment to be recognized generally is based on the fair value of the partnership’s real estate that represents the primary source of loan repayment. In certain instances where other sources of cash flow are available to repay the loan, the impairment is measured by discounting the estimated cash flows at the loan’s original effective interest rate.
 
During the years ended December 31, 2007 and 2006, we recorded net provisions for losses on notes receivable of $4.0 million and $2.8 million, respectively, and during the year ended December 31, 2005, we recorded net recoveries of previously recorded provisions for losses on notes receivable of $1.4 million. We will continue to evaluate the collectibility of these notes, and we will adjust related allowances in the future due to changes in market conditions and other factors.
 
Capitalized Costs
 
We capitalize costs, including certain indirect costs, incurred in connection with our capital expenditure activities, including redevelopment and construction projects, other tangible property improvements, and replacements of existing property components. Included in these capitalized costs are payroll costs associated with time spent by site employees in connection with the planning, execution and control of all capital expenditure activities at the property level. We characterize as “indirect costs” an allocation of certain department costs, including payroll, at the regional operating center and corporate levels that clearly relate to capital expenditure activities. We capitalize interest, property taxes and insurance during periods in which redevelopment and construction projects are in progress. Costs incurred in connection with capital expenditure activities are capitalized where the costs of the improvements or replacements exceed $250. We charge to expense as incurred costs that do not relate to capital expenditure activities, including ordinary repairs, maintenance, resident turnover costs and general and administrative expenses (see Capital Expenditures and Related Depreciation in Note 2 to the consolidated financial statements in Item 8).
 
For the years ended December 31, 2007, 2006 and 2005, for continuing and discontinued operations, we capitalized $30.8 million, $24.7 million and $18.1 million, respectively, of interest costs, and $78.1 million, $66.2 million and $53.3 million, respectively, of site payroll and indirect costs, respectively.


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Funds From Operations
 
FFO is a non-GAAP financial measure that we believe, when considered with the financial statements determined in accordance with GAAP, is helpful to investors in understanding our performance because it captures features particular to real estate performance by recognizing that real estate generally appreciates over time or maintains residual value to a much greater extent than do other depreciable assets such as machinery, computers or other personal property. The Board of Governors of the National Association of Real Estate Investment Trusts, or NAREIT, defines FFO as net income (loss), computed in accordance with GAAP, excluding gains from sales of depreciable property, plus depreciation and amortization, and after adjustments for unconsolidated partnerships and joint ventures. Adjustments for unconsolidated partnerships and joint ventures are calculated to reflect FFO on the same basis. We compute FFO for all periods presented in accordance with the guidance set forth by NAREIT’s April 1, 2002, White Paper, which we refer to as the White Paper. We calculate FFO (diluted) by subtracting redemption related preferred stock issuance costs and dividends on preferred stock and adding back dividends/distributions on dilutive preferred securities and interest expense on dilutive mandatorily redeemable convertible preferred securities. FFO should not be considered an alternative to net income or net cash flows from operating activities, as determined in accordance with GAAP, as an indication of our performance or as a measure of liquidity. FFO is not necessarily indicative of cash available to fund future cash needs. In addition, although FFO is a measure used for comparability in assessing the performance of real estate investment trusts, there can be no assurance that our basis for computing FFO is comparable with that of other real estate investment trusts.
 
For the years ended December 31, 2007, 2006 and 2005, our FFO is calculated as follows (in thousands):
 
                         
    2007     2006     2005  
 
Net income (loss) attributable to common stockholders(1)
  $ (36,105 )   $ 95,655     $ (16,966 )
Adjustments:
                       
Depreciation and amortization(2)
    487,822       452,741       372,526  
Depreciation and amortization related to non-real estate assets
    (21,258 )     (25,511 )     (29,496 )
Depreciation of rental property related to minority partners and unconsolidated entities(3)(4)
    (32,150 )     (7,314 )     (8,131 )
Depreciation of rental property related to minority partners’ interest — adjustment(5)
          7,377        
Gain on dispositions of unconsolidated real estate and other
    (31,777 )     (26,845 )     (17,152 )
Gain on dispositions of non-depreciable assets and debt extinguishment gain
    26,702       11,526       2,480  
Deficit distributions to minority partners(6)
    39,150       20,802       11,505  
Discontinued operations:
                       
Gain on dispositions of real estate, net of minority partners’ interest(3)
    (65,378 )     (259,855 )     (104,807 )
Depreciation of rental property, net of minority partners’ interest(3)(4)
    (8,385 )     35,487       63,083  
Recovery of deficit distributions to minority partners, net(6)
    (390 )     (15,724 )     (14,493 )
Income tax arising from disposals
    2,135       32,918       4,481  
Minority interest in Aimco Operating Partnership’s share of above adjustments
    (36,830 )     (21,721 )     (28,382 )
Preferred stock dividends
    63,381       74,284       86,825  
Preferred stock redemption related costs
    2,635       6,848       1,123  
                         
Funds From Operations
  $ 389,552     $ 380,668     $ 322,596  
Preferred stock dividends
    (63,381 )     (74,284 )     (86,825 )
Preferred stock redemption related costs
    (2,635 )     (6,848 )     (1,123 )
Dividends/distributions on dilutive preferred securities
    1,875       202       168  
                         
Funds From Operations attributable to common stockholders — diluted
  $ 325,411     $ 299,738     $ 234,816  
                         
Weighted average number of common shares, common share equivalents and dilutive preferred securities outstanding(8):
                       
Common shares and equivalents(7)
    102,017       103,161       98,996  
Dilutive preferred securities
    609       75       78  
                         
Total
    102,626       103,236       99,074  
                         
 
 
Notes:
 
(1) Represents the numerator for earnings per common share, calculated in accordance with GAAP.
 
(2) Includes amortization of management contracts where we are the general partner. Such management contracts were established in certain instances where we acquired a general partner interest in either a consolidated or an unconsolidated partnership. Because the recoverability of these management contracts depends primarily on the operations of the real estate owned by the limited partnerships, we believe it is consistent with the White Paper to add back such amortization, as the White Paper directs the add-back of amortization of assets uniquely significant to the real estate industry.


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(3) “Minority partners’ interest,” means minority interest in our consolidated real estate partnerships.
 
(4) Adjustments related to minority partners’ share of depreciation of rental property for the year ended December 31, 2007, include the subtraction of $15.1 million and $17.8 million for continuing operations and discontinued operations, respectively, related to the VMS debt extinguishment gains (see Note 3 to the consolidated financial statements in Item 8). These subtractions are required because we added back the minority partners’ share of depreciation related to rental property in determining FFO in prior periods. Accordingly, the net effect of the VMS debt extinguishment gains on our FFO for the year ended December 31, 2007, was an increase of $9.3 million ($8.4 million after Minority Interest in Aimco Operating Partnership).
 
(5) Represents prior period depreciation of certain tax credit redevelopment properties that Aimco included in an adjustment to minority interest in real estate partnerships for the year ended December 31, 2006 (see Tax Credit Arrangements in Note 2 to the consolidated financial statements in Item 8). This prior period depreciation is added back to determine FFO in accordance with the NAREIT White Paper.
 
(6) In accordance with GAAP, deficit distributions to minority partners are charges recognized in our income statement when cash is distributed to a non-controlling partner in a consolidated real estate partnership in excess of the positive balance in such partner’s capital account, which is classified as minority interest on our balance sheet. We record these charges for GAAP purposes even though there is no economic effect or cost. Deficit distributions to minority partners occur when the fair value of the underlying real estate exceeds its depreciated net book value because the underlying real estate has appreciated or maintained its value. As a result, the recognition of expense for deficit distributions to minority partners represents, in substance, either (a) our recognition of depreciation previously allocated to the non-controlling partner or (b) a payment related to the non-controlling partner’s share of real estate appreciation. Based on White Paper guidance that requires real estate depreciation and gains to be excluded from FFO, we add back deficit distributions and subtract related recoveries in our reconciliation of net income to FFO.
 
(7) Represents the denominator for earnings per common share — diluted, calculated in accordance with GAAP, plus additional common share equivalents that are dilutive for FFO.
 
(8) Weighted average common shares, common share equivalents and dilutive preferred securities amounts for the periods presented have been retroactively adjusted for the effect of 4,573,735 shares of Common Stock issued pursuant to the special dividend discussed in Note 1 to the consolidated financial statements in Item 8.
 
Liquidity and Capital Resources
 
Liquidity is the ability to meet present and future financial obligations either through the sale or maturity of existing assets or by the acquisition of additional funds through working capital management. Both the coordination of asset and liability maturities and effective working capital management are important to the maintenance of liquidity. Our primary source of liquidity is cash flow from our operations. Additional sources are proceeds from property sales and proceeds from refinancings of existing mortgage loans and borrowings under new mortgage loans.
 
Our principal uses for liquidity include normal operating activities, payments of principal and interest on outstanding debt, capital expenditures, dividends paid to stockholders and distributions paid to partners, repurchases of shares of our Common Stock, and acquisitions of, and investments in, properties. We use our cash and cash equivalents and our cash provided by operating activities to meet short-term liquidity needs. In the event that our cash and cash equivalents and our cash provided by operating activities is not sufficient to cover our short-term liquidity demands, we have additional means, such as short-term borrowing availability and proceeds from property sales and refinancings, to help us meet our short-term liquidity demands. We use our revolving credit facility for general corporate purposes and to fund investments on an interim basis. We expect to meet our long-term liquidity requirements, such as debt maturities and property acquisitions, through long-term borrowings, both secured and unsecured, the issuance of debt or equity securities (including OP Units), the sale of properties and cash generated from operations.
 
At December 31, 2007, we had $210.5 million in cash and cash equivalents, a decrease of $19.4 million from December 31, 2006. At December 31, 2007, we had $319.0 million of restricted cash, primarily consisting of reserves and escrows held by lenders for bond sinking funds, capital expenditures, property taxes and insurance. In addition, cash, cash equivalents and restricted cash are held by partnerships that are not presented on a consolidated


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basis. The following discussion relates to changes in cash due to operating, investing and financing activities, which are presented in our consolidated statements of cash flows in Item 8.
 
Operating Activities
 
For the year ended December 31, 2007, our net cash provided by operating activities of $465.5 million was primarily from operating income from our consolidated properties, which is affected primarily by rental rates, occupancy levels and operating expenses related to our portfolio of properties. Cash provided by operating activities decreased $53.4 million compared with the year ended December 31, 2006, driven by cash from changes in operating assets and liabilities of $12.6 million in 2007 compared to $65.7 million in 2006.
 
Investing Activities
 
For the year ended December 31, 2007, our net cash used in investing activities of $271.6 million primarily resulted from investments in our existing real estate assets through capital spending as well as the acquisition of 16 properties and purchases of interests in real estate partnerships (see Note 3 to the consolidated financial statements in Item 8 for further information on acquisitions), partially offset by proceeds received from the sales of properties and the sales of partnership interests.
 
Although we hold all of our properties for investment, we sell properties when they do not meet our investment criteria or are located in areas that we believe do not justify our continued investment when compared to alternative uses for our capital. During the year ended December 31, 2007, we sold 73 consolidated properties for an aggregate sales price of $493.5 million, generating proceeds totaling $431.9 million after the payment of transaction costs and the buyers’ assumption of debt. Sales proceeds were used to repay property level debt, repay borrowings under our revolving credit facility, repurchase shares of our Common Stock and for other corporate purposes.
 
We are currently marketing for sale certain properties that are inconsistent with our long-term investment strategy. Additionally, from time to time, we may market certain properties that are consistent with our long-term investment strategy but offer attractive returns. We plan to use our share of the net proceeds from such dispositions to reduce debt, fund capital expenditures on existing assets, fund property and partnership acquisitions, repurchase shares of our Common Stock, and for other operating needs and corporate purposes.
 
Capital Expenditures
 
We classify all capital spending as Capital Replacements (which we refer to as CR), Capital Improvements (which we refer to as CI), casualties, redevelopment or entitlement. Expenditures other than casualty, redevelopment and entitlement capital expenditures are apportioned between CR and CI based on the useful life of the capital item under consideration and the period we have owned the property.
 
CR represents the share of capital expenditures that are deemed to replace the portion of acquired capital assets that was consumed during the period we have owned the asset. CI represents the share of expenditures that are made to enhance the value, profitability or useful life of an asset as compared to its original purchase condition. CR and CI excludes capital expenditures for casualties, redevelopment and entitlements. Casualty expenditures represent capitalized costs incurred in connection with casualty losses and are associated with the restoration of the asset. A portion of the restoration costs may be reimbursed by insurance carriers subject to deductibles associated with each loss. Redevelopment expenditures represent expenditures that substantially upgrade the property. Entitlement expenditures represent costs incurred in connection with obtaining local governmental approvals to increase density and add residential units to a site. For the year ended December 31, 2007, we spent a total of $102.6 million, $123.7 million, $12.7 million, $352.8 million and $26.3 million on CR, CI, casualties, redevelopment and entitlement, respectively.
 
The table below details our share of actual spending, on both consolidated and unconsolidated real estate partnerships, for CR, CI, casualties, redevelopment and entitlements for the year ended December 31, 2007, on a total dollar basis. Per unit numbers for CR and CI are based on approximately 132,862 average units for the year including 115,046 conventional units and 17,817 affordable units. Average units are weighted for the portion of the period that we owned an interest in the property, represent ownership-adjusted effective units, and exclude non-


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managed units. Total capital expenditures are reconciled to our consolidated statement of cash flows for the same period (in thousands, except per unit amounts).
 
                 
    Aimco’s Share of
       
    Expenditures     Per Effective Unit  
 
Capital Replacements Detail:
               
Building and grounds
  $ 43,579     $ 328  
Turnover related
    45,635       343  
Capitalized site payroll and indirect costs
    13,398       101  
                 
Our share of Capital Replacements
  $ 102,612     $ 772  
                 
Capital Replacements:
               
Conventional
  $ 95,329     $ 829  
Affordable
    7,283     $ 409  
                 
Our share of Capital Replacements
    102,612     $ 772  
                 
Capital Improvements:
               
Conventional
    113,977     $ 991  
Affordable
    9,684     $ 544  
                 
Our share of Capital Improvements
    123,661     $ 931  
                 
Casualties:
               
Conventional
    11,404          
Affordable
    1,313          
                 
Our share of casualties
    12,717          
                 
Redevelopment:
               
Conventional projects
    290,898          
Tax credit projects
    61,919          
                 
Our share of redevelopment
    352,817          
                 
Entitlement
    26,304          
                 
Our share of capital expenditures
    618,111          
Plus minority partners’ share of consolidated spending
    72,358          
Less our share of unconsolidated spending
    (750 )        
                 
Total capital expenditures per consolidated statement of cash flows
  $ 689,719          
                 
 
Included in the above spending for CI, casualties, redevelopment and entitlement, was approximately $68.1 million of our share of capitalized site payroll and indirect costs related to these activities for the year ended December 31, 2007.
 
We funded all of the above capital expenditures with cash provided by operating activities, working capital, property sales and borrowings under our Credit Facility, as discussed below.
 
Financing Activities
 
For the year ended December 31, 2007, net cash used in financing activities of $213.3 million primarily related to repayments of property loans, distributions to minority interests, payment of common and preferred dividends, repurchases of Common Stock and redemption of the Class W Cumulative Convertible Preferred Stock. Proceeds from property loans and stock option exercises partially offset the cash outflow.
 
Mortgage Debt
 
At December 31, 2007 and 2006, we had $7.0 billion and $6.3 billion, respectively, in consolidated mortgage debt outstanding, which included $11.6 million and $239.2 million, respectively, of mortgage debt classified within liabilities related to assets held for sale. During the year ended December 31, 2007, we refinanced or closed mortgage loans on 144 consolidated properties generating $1,795.5 million of proceeds from borrowings with a


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weighted average interest rate of 6.09%. Our share of the net proceeds after repayment of existing debt, payment of transaction costs and distributions to limited partners, was $864.2 million. We used these total net proceeds for capital expenditures and other corporate purposes. We intend to continue to refinance mortgage debt to generate proceeds in amounts exceeding our scheduled amortizations and maturities, generally not to increase loan-to-value, but as a means to monetize asset appreciation.
 
Credit Facility
 
We have an Amended and Restated Senior Secured Credit Agreement with a syndicate of financial institutions, which we refer to as the Credit Agreement.
 
During the year ended December 31, 2007, we amended various terms in our Credit Agreement which included (i) an increase in aggregate commitments; (ii) a modification of the capitalization rate used in the calculation of certain financial covenants; (iii) a modification to permit proceeds of loans under the Credit Agreement to be used to repurchase equity interests of the borrowers, including our Common Stock, and provide that the purchase of such equity interests is not restricted as long as no default or event of default under the Credit Agreement exists; and (iv) elimination of the limitation on incurrence of indebtedness that is pari passu with the Credit Agreement.
 
The Credit Agreement was expanded from total commitments of $850.0 million to $1.125 billion. Prior to the amendments, the Credit Agreement was comprised of $400.0 million in term loans and $450.0 million of revolving loan commitments. In connection with the amendments, we obtained an additional term loan of $75.0 million with a one year term and pricing equal to LIBOR plus 1.375%, or a base rate at our option, and additional revolving loan commitments totaling $200.0 million with the same maturity and pricing as the existing revolving loan commitments. We may extend the $75.0 million term loan for one year, subject to the satisfaction of certain conditions including the payment of a 12.5 basis point fee on the amount of the term loan then outstanding. We are also permitted to increase the aggregate commitments (which may be revolving or term loan commitments) by an amount not to exceed $175.0 million, subject to receipt of commitments from lenders and other customary conditions.
 
At December 31, 2007, the term loans had an outstanding principal balance of $475.0 million and a weighted average interest rate of 6.38%. At December 31, 2007, the revolving loan commitments were $650.0 million and had no outstanding principal balance. The amount available under the revolving loan commitments at December 31, 2007, was $606.5 million (after giving effect to $43.5 million outstanding for undrawn letters of credit issued under the revolving loan commitments).
 
Equity Transactions
 
On December 21, 2007, our Board of Directors declared a special dividend of $2.51 per share payable on January 30, 2008 to holders of record of our Common Stock on December 31, 2007. Stockholders had the option to elect to receive payment of the special dividend in cash, shares or a combination of cash and shares, except that the aggregate amount of cash payable to all stockholders in the special dividend was limited to $55.0 million plus cash paid in lieu of fractional shares. The special dividend, totaling $232.9 million, was paid on 92,795,891 shares issued and outstanding on the record date, which included 416,140 shares held by certain of our consolidated subsidiaries. Approximately $177.9 million of the special dividend was paid through the issuance of 4,594,074 shares of Common Stock (including 20,339 shares issued to consolidated subsidiaries holding our shares), which was determined based on the average closing price of our Common Stock on January 23-24, 2008, or $38.71 per share.
 
After elimination of the effect of shares held by consolidated subsidiaries, the special dividend totaled $231.9 million. Approximately $177.1 million of the special dividend was paid through the issuance of 4,573,735 shares of Common Stock (excluding 20,339 shares issued to our consolidated subsidiaries) to holders of 92,379,751 shares of our Common Stock on the record date (excluding 416,140 shares held by certain of our consolidated subsidiaries), representing an increase of approximately 4.95% to the then outstanding shares. The effect of the issuance of additional shares of Common Stock pursuant to the special dividend has been retroactively reflected in each of the historical periods presented as if those shares were issued and outstanding at the beginning of


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the earliest period presented; accordingly all activity including share issuances, repurchases and forfeitures have been adjusted to reflect the 4.95% increase in the number of shares, except in limited instances where noted.
 
During the year ended December 31, 2007, we redeemed all outstanding shares of our privately held 8.1% Class W Cumulative Convertible Preferred Stock for an aggregate redemption price of approximately $102.0 million, excluding accrued and unpaid dividends through the date of redemption (see Preferred Stock in Note 11 to the consolidated financial statements in Item 8 for additional information about our preferred stock transactions during 2007).
 
Under our shelf registration statement, as of December 31, 2007, we had available for issuance approximately $877.0 million of debt and equity securities and the Aimco Operating Partnership had available for issuance $500.0 million of debt securities. At January 30, 2008, following the issuance of additional shares of Common Stock pursuant to the special dividend discussed above, we had available for issuance approximately $699.1 million of debt and equity securities.
 
Our Board of Directors has, from time to time, authorized us to repurchase shares of our outstanding capital stock. During the year ended December 31, 2007, we repurchased approximately 7.5 million shares of Common Stock (7.8 million shares after the effect of the special dividend) for approximately $325.8 million. As of December 31, 2007, we were authorized to repurchase approximately 8.2 million additional shares of our Common Stock under an authorization that has no expiration date. On January 29, 2008, our Board of Directors increased the number of shares authorized for repurchase by 25.0 million shares. Between January 1, 2008 and February 15, 2008, we repurchased approximately 5.1 million shares of Common Stock for approximately $170.6 million, or $33.67 per share. Future repurchases may be made from time to time in the open market or in privately negotiated transactions.
 
Contractual Obligations
 
This table summarizes information contained elsewhere in this Annual Report regarding payments due under contractual obligations and commitments as of December 31, 2007 (amounts in thousands):
 
                                         
          Less than
    1-3 
    3-5 
    More than
 
    Total     One Year     Years     Years     5 Years  
 
Scheduled long-term debt maturities
  $ 7,056,782     $ 455,776     $ 1,170,581     $ 983,860     $ 4,446,565  
Term loans
    475,000             75,000       400,000        
Redevelopment and other construction commitments
    151,953       145,552       6,401              
Leases for space occupied
    39,668       9,001       13,766       10,214       6,687  
Other obligations(1)
    6,200       6,200                    
                                         
Total
  $ 7,729,603     $ 616,529     $ 1,265,748     $ 1,394,074     $ 4,453,252  
                                         
 
 
(1) Represents a commitment to fund $6.2 million in second mortgage loans on certain properties in West Harlem, New York City.
 
In addition, we may enter into commitments to purchase 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.
 
Future Capital Needs
 
In addition to the items set forth in “Contractual Obligations” above, we expect to fund any future acquisitions, additional redevelopment projects and capital improvements principally with proceeds from property sales (including tax-free exchange proceeds), short-term borrowings, debt and equity financing (including tax credit equity) and operating cash flows.


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In 2008, we expect to invest between $250.0 and $300.0 million in conventional redevelopment projects and we expect to invest approximately $72.0 million in affordable redevelopment projects, predominantly funded by third-party tax credit equity.
 
Off-Balance Sheet Arrangements
 
We own general and limited partner interests in unconsolidated real estate partnerships, in which our total ownership interests range typically from less than 1% up to 50%. However, based on the provisions of the relevant partnership agreements, we are not deemed to be the primary beneficiary or to have control of these partnerships sufficient to require or permit consolidation for accounting purposes (see Note 2 of the consolidated financial statements in Item 8). There are no lines of credit, side agreements, or any other derivative financial instruments related to or between our unconsolidated real estate partnerships and us and no material exposure to financial guarantees. Accordingly, our maximum risk of loss related to these unconsolidated real estate partnerships is limited to the aggregate carrying amount of our investment in the unconsolidated real estate partnerships and any outstanding notes receivable as reported in our consolidated financial statements (see Note 4 of the consolidated financial statements in Item 8 for additional information about our investments in unconsolidated real estate partnerships).
 
Item 7A.   Quantitative and Qualitative Disclosures About Market Risk
 
Our primary market risk exposure relates to changes in interest rates. We are not subject to any foreign currency exchange rate risk or commodity price risk, or any other material market rate or price risks. We use predominantly long-term, fixed-rate non-recourse mortgage debt in order to avoid the refunding and repricing risks of short-term borrowings. We use short-term debt financing and working capital primarily to fund short-term uses and acquisitions and generally expect to refinance such borrowings with cash from operating activities, property sales proceeds, long-term debt or equity financings.
 
We had $1,754.4 million of floating rate debt outstanding at December 31, 2007. Of the total floating rate debt, the major components were floating rate tax-exempt bond financing ($698.4 million), floating rate secured notes ($572.5 million), and term loans ($475.0 million). Historically, changes in tax-exempt interest rates have been at a ratio of less than 1:1 with changes in taxable interest rates. Floating rate tax-exempt bond financing is benchmarked against the SIFMA rate (previously the Bond Market Association index), which since 1981 has averaged 68% of the 30-day LIBOR rate. If this relationship continues, an increase in 30-day LIBOR of 1.0% (0.68% in tax-exempt interest rates) would result in our income before minority interests and cash flows being reduced by $15.3 million on an annual basis. This would be offset by variable rate interest income earned on certain assets, including cash and cash equivalents and notes receivable, as well as interest that is capitalized on a portion of this variable rate debt incurred in connection with our redevelopment activities. Considering these offsets, the same increase in 30-day LIBOR would result in our income before minority interests and cash flows being reduced by $6.5 million on an annual basis. Comparatively, if 30-day LIBOR had increased by 1% in 2006, our income before minority interests and cash flows, after considering such offsets would have been reduced by $8.5 million on an annual basis. The potential reduction of income before minority interests was higher in 2007 as compared to 2006 primarily due to higher floating rate balances resulting from refinancing of certain fixed rate mortgages and increases in our use of total rate of return swaps to effectively convert higher fixed rate debt to lower variable rates benchmarked against the BMA index (see Note 2 to the consolidated financial statements in Item 8 for further discussion of total rate of return swaps).
 
We believe that the fair values of our floating rate secured tax-exempt bond debt and floating rate secured long-term debt as of December 31, 2007, approximate their carrying values. The fair value for our fixed-rate debt agreements was estimated based on the market rate for debt with the same or similar terms. The combined carrying amount of our fixed-rate secured tax-exempt bonds and fixed-rate secured notes payable at December 31, 2007 was $5.7 billion compared to the estimated fair value of $5.8 billion (see Note 2 to the consolidated financial statements in Item 8). If market rates for our fixed-rate debt were higher by 1%, the estimated fair value of our fixed-rate debt would have decreased from $5.8 billion to $5.5 billion. If market rates for our fixed-rate debt were lower by 1%, the estimated fair value of our fixed-rate debt would have increased from $5.8 billion to $6.1 billion.


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Item 8.   Financial Statements and Supplementary Data
 
The independent registered public accounting firm’s report, consolidated financial statements and schedule listed in the accompanying index are filed as part of this report and incorporated herein by this reference. See “Index to Financial Statements” on page F-1 of this Annual Report.
 
Item 9.   Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
 
None.


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Item 9A.   Controls and Procedures
 
Disclosure Controls and Procedures
 
Our management, with the participation of our chief executive officer and chief financial officer, has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the period covered by this report. Based on such evaluation, our chief executive officer and chief financial officer have concluded that, as of the end of such period, our disclosure controls and procedures are effective.
 
Management’s Report on Internal Control Over Financial Reporting
 
Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is defined in Rule 13a-15(f) and 15d-15(f) under the Exchange Act as a process designed by, or under the supervision of, our principal executive and principal financial officers and effected by our Board of Directors, management and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that:
 
  •  pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of assets;
 
  •  provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures are being made only in accordance with authorizations of our management and directors; and
 
  •  provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of assets that could have a material effect on the financial statements.
 
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risks that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
 
Management assessed the effectiveness of our internal control over financial reporting as of December 31, 2007. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework.
 
Based on their assessment, management concluded that, as of December 31, 2007, our internal control over financial reporting is effective.
 
Our independent registered public accounting firm has issued an attestation report on our internal control over financial reporting.
 
Changes in Internal Control over Financial Reporting
 
There have been no significant changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f)) under the Exchange Act) during fourth quarter 2007 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.


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Report of Independent Registered Public Accounting Firm
 
Stockholders and Board of Directors Apartment Investment and Management Company
 
We have audited Apartment Investment and Management Company’s (the “Company”) internal control over financial reporting as of December 31, 2007, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria). The Company’s management is responsible for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.
 
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
 
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
 
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
 
In our opinion, Apartment Investment and Management Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2007, based on the COSO criteria.
 
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Apartment Investment and Management Company as of December 31, 2007 and December 31, 2006, and the related consolidated statements of income, stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2007, and our report dated February 29, 2008 expressed an unqualified opinion thereon.
 
/s/  Ernst & Young LLP
 
Denver, Colorado
February 29, 2008


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Item 9B.   Other Information
 
None.
 
PART III
 
Item 10.   Directors, Executive Officers and Corporate Governance
 
The information required by this item is presented under the captions “Board of Directors and Officers,” “Corporate Governance Matters — Code of Ethics,” “Other Matters — Section 16(a) Beneficial Ownership Reporting Compliance,” “Corporate Governance Matters — Nominating and Corporate Governance Committee,” “Corporate Governance Matters — Audit Committee,” and “Corporate Governance Matters — Audit Committee Financial Expert” in the proxy statement for our 2008 annual meeting of stockholders and is incorporated herein by reference.
 
Item 11.   Executive Compensation
 
The information required by this item is presented under the captions “Compensation Discussion and Analysis,” “Compensation and Human Resources Committee Report to Stockholders,” “Summary Compensation Table,” “Grants of Plan-Based Awards in 2007,” “Outstanding Equity Awards at Fiscal Year End 2007,” “Option Exercises and Stock Vested,” “Potential Payments Upon Termination or Change in Control,” and “Corporate Governance Matters — Director Compensation” in the proxy statement for our 2008 annual meeting of stockholders and is incorporated herein by reference.
 
Item 12.   Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
 
The information required by this item is presented under the captions “Security Ownership of Certain Beneficial Owners and Management” and “Securities Authorized for Issuance Under Equity Compensation Plans” in the proxy statement for our 2008 annual meeting of stockholders and is incorporated herein by reference.
 
Item 13.   Certain Relationships and Related Transactions, and Director Independence
 
The information required by this item is presented under the caption “Certain Relationships and Related Transactions” and “Corporate Governance Matters — Independence of Directors” in the proxy statement for our 2008 annual meeting of stockholders and is incorporated herein by reference.
 
Item 14.   Principal Accountant Fees and Services
 
The information required by this item is presented under the caption “Principal Accountant Fees and Services” in the proxy statement for our 2008 annual meeting of stockholders and is incorporated herein by reference.


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PART IV
 
Item 15.   Exhibits and Financial Statement Schedules
 
(a)(1) The financial statements listed in the Index to Financial Statements on Page F-1 of this report are filed as part of this report and incorporated herein by reference.
 
(a)(2) The financial statement schedule listed in the Index to Financial Statements on Page F-1 of this report is filed as part of this report and incorporated herein by reference.
 
(a)(3) The Exhibit Index is incorporated herein by reference.
 
INDEX TO EXHIBITS(1)(2)
 
         
Exhibit No.
 
Description
 
  3 .1   Charter (Exhibit 3.1 to Aimco’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2006, is incorporated herein by this reference)
  3 .2   Bylaws (Exhibit 3.2 to Aimco’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2007, is incorporated herein by this reference)
  10 .1   Fourth Amended and Restated Agreement of Limited Partnership of AIMCO Properties, L.P., dated as of July 29, 1994, as amended and restated as of February 28, 2007 (Exhibit 10.1 to Aimco’s Annual Report on Form 10-K for the year ended December 31, 2006, is incorporated herein by this reference)
  10 .2   First Amendment to Fourth Amended and Restated Agreement of Limited Partnership of AIMCO Properties, L.P., dated as of December 31, 2007 (Exhibit 10.1 to Aimco’s Current Report on Form 8-K, dated December 31, 2007, is incorporated herein by this reference)
  10 .3   Amended and Restated Secured Credit Agreement, dated as of November 2, 2004, by and among Aimco, AIMCO Properties, L.P., AIMCO/Bethesda Holdings, Inc., and NHP Management Company as the borrowers and Bank of America, N.A., Keybank National Association, and the Lenders listed therein (Exhibit 4.1 to Aimco’s Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2004, is incorporated herein by this reference)
  10 .4   First Amendment to Amended and Restated Secured Credit Agreement, dated as of June 16, 2005, by and among Aimco, AIMCO Properties, L.P., AIMCO/Bethesda Holdings, Inc., and NHP Management Company as the borrowers and Bank of America, N.A., Keybank National Association, and the Lenders listed therein (Exhibit 10.1 to Aimco’s Current Report on Form 8-K, dated June 16, 2005, is incorporated herein by this reference)
  10 .5   Second Amendment to Amended and Restated Senior Secured Credit Agreement, dated as of March 22, 2006, by and among Aimco, AIMCO Properties, L.P., and AIMCO/Bethesda Holdings, Inc., as the borrowers, and Bank of America, N.A., Keybank National Association, and the lenders listed therein (Exhibit 10.1 to Aimco’s Current Report on Form 10-K, dated March 22, 2006, is incorporated herein by this reference)
  10 .6   Third Amendment to Senior Secured Credit Agreement, dated as of August 31, 2007, by and among Apartment Investment and Management Company, AIMCO Properties, L.P., and AIMCO/Bethesda Holdings, Inc., as the Borrowers, the pledgors and guarantors named therein, Bank of America, N.A., as administrative agent and Bank of America, N.A., Keybank National Association and the other lenders listed therein (Exhibit 10.1 to Aimco’s Current Report on Form 8-K, dated August 31, 2007, is incorporated herein by this reference)
  10 .7   Fourth Amendment to Senior Secured Credit Agreement, dated as of September 14, 2007, by and among Apartment Investment and Management Company, AIMCO Properties, L.P., and AIMCO/Bethesda Holdings, Inc., as the Borrowers, the pledgors and guarantors named therein, Bank of America, N.A., as administrative agent and Bank of America, N.A., Keybank National Association and the other lenders listed therein (Exhibit 10.1 to Aimco’s Current Report on Form 8-K, dated September 14, 2007, is incorporated herein by this reference)


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Exhibit No.
 
Description
 
  10 .8   Master Indemnification Agreement, dated December 3, 2001, by and among Apartment Investment and Management Company, AIMCO Properties, L.P., XYZ Holdings LLC, and the other parties signatory thereto (Exhibit 2.3 to Aimco’s Current Report on Form 8-K, filed December 6, 2001, is incorporated herein by this reference)
  10 .9   Tax Indemnification and Contest Agreement, dated December 3, 2001, by and among Apartment Investment and Management Company, National Partnership Investments, Corp., and XYZ Holdings LLC and the other parties signatory thereto (Exhibit 2.4 to Aimco’s Current Report on Form 8-K, filed December 6, 2001, is incorporated herein by this reference)
  10 .10   Limited Liability Company Agreement of AIMCO JV Portfolio #1, LLC dated as of December 30, 2003 by and among AIMCO BRE I, LLC, AIMCO BRE II, LLC and SRV-AJVP#1, LLC (Exhibit 10.54 to Aimco’s Annual Report on Form 10-K for the year ended December 31, 2003, is incorporated herein by this reference)
  10 .11   Employment Contract executed on July 29, 1994 by and between AIMCO Properties, L.P. and Terry Considine (Exhibit 10.44C to Aimco’s Annual Report on Form 10-K for the year ended December 31, 1994, is incorporated herein by this reference)*
  10 .12   Apartment Investment and Management Company 1997 Stock Award and Incentive Plan (October 1999) (Exhibit 10.26 to Aimco’s Annual Report on Form 10-K for the year ended December 31, 1999, is incorporated herein by this reference)*
  10 .13   Form of Restricted Stock Agreement (1997 Stock Award and Incentive Plan) (Exhibit 10.11 to Aimco’s Quarterly Report on Form 10-Q for the quarterly period ended September 30, 1997, is incorporated herein by this reference)*
  10 .14   Form of Incentive Stock Option Agreement (1997 Stock Award and Incentive Plan) (Exhibit 10.42 to Aimco’s Annual Report on Form 10-K for the year ended December 31, 1998, is incorporated herein by this reference)*
  10 .15   2007 Stock Award and Incentive Plan (incorporated by reference to Appendix A to Aimco’s Proxy Statement on Schedule 14A filed with the Securities and Exchange Commission on March 20, 2007)*
  10 .16   Form of Restricted Stock Agreement (Exhibit 10.2 to Aimco’s Current Report on Form 8-K, dated April 30, 2007, is incorporated herein by this reference)*
  10 .17   Form of Non-Qualified Stock Option Agreement (Exhibit 10.3 to Aimco’s Current Report on Form 8-K, dated April 30, 2007, is incorporated herein by this reference)*
  10 .18   2007 Employee Stock Purchase Plan (incorporated by reference to Appendix B to Aimco’s Proxy Statement on Schedule 14A filed with the Securities and Exchange Commission on March 20, 2007)*
  21 .1   List of Subsidiaries
  23 .1   Consent of Independent Registered Public Accounting Firm
  31 .1   Certification of Chief Executive Officer pursuant to Securities Exchange Act Rules 13a-14(a)/15d-14(a), as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
  31 .2   Certification of Chief Financial Officer pursuant to Securities Exchange Act Rules 13a-14(a)/15d-14(a), as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
  32 .1   Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
  32 .2   Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
  99 .1   Agreement re: disclosure of long-term debt instruments
 
 
(1) Schedule and supplemental materials to the exhibits have been omitted but will be provided to the Securities and Exchange Commission upon request.


44


Table of Contents

 
(2) The file reference number for all exhibits is 001-13232, and all such exhibits remain available pursuant to the Records Control Schedule of the Securities and Exchange Commission.
 
Management contract or compensatory plan or arrangement


45


Table of Contents

SIGNATURES
 
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
 
Apartment Investment and
Management Company
 
   
/s/  Terry Considine
Terry Considine
Chairman of the Board,
Chief Executive Officer and President
 
Date: February 29, 2008
 
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
 
             
Signature
 
Title
 
Date
 
/s/  Terry Considine

Terry Considine
  Chairman of the Board, Chief Executive
Officer and President
(principal executive officer)
  February 29, 2008
         
/s/  Thomas M. Herzog

Thomas M. Herzog
  Executive Vice President and Chief
Financial Officer
(principal financial officer)
  February 29, 2008
         
/s/  Scott W. Fordham

Scott W. Fordham
  Senior Vice President and Chief
Accounting Officer
(principal accounting officer)
  February 29, 2008
         
/s/  James N. Bailey

James N. Bailey
  Director   February 29, 2008
         
/s/  Richard S. Ellwood

Richard S. Ellwood
  Director   February 29, 2008
         
/s/  Thomas L. Keltner

Thomas L. Keltner
  Director   February 29, 2008
         
/s/  J. Landis Martin

J. Landis Martin
  Director   February 29, 2008
         
/s/  Robert A. Miller

Robert A. Miller
  Director   February 29, 2008
         
/s/  Thomas L. Rhodes

Thomas L. Rhodes
  Director   February 29, 2008
         
/s/  Michael A. Stein

Michael A. Stein
  Director   February 29, 2008


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Table of Contents

APARTMENT INVESTMENT AND MANAGEMENT COMPANY
 
INDEX TO FINANCIAL STATEMENTS
 
         
    Page  
 
Financial Statements:
       
    F-2  
    F-3  
    F-4  
    F-5  
    F-6  
    F-8  
Financial Statement Schedule:
       
    F-49  
All other schedules are omitted because they are not applicable or the required information is shown in the financial statements or notes thereto.
       


F-1


Table of Contents

 
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
Stockholders and Board of Directors Apartment Investment and Management Company
 
We have audited the accompanying consolidated balance sheets of Apartment Investment and Management Company (the “Company”) as of December 31, 2007 and 2006, and the related consolidated statements of income, stockholders’ equity and cash flows for each of the three years in the period ended December 31, 2007. Our audits also included the financial statement schedule listed in the accompanying Index to Financial Statements. These financial statements and schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits.
 
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
 
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Apartment Investment and Management Company at December 31, 2007 and 2006, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2007, in conformity with United States generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly, in all material respects the information set forth therein.
 
As discussed in Note 2 to the consolidated financial statements, in 2006 the Company adopted the provisions of Emerging Issues Task Force Issue 04-5, Determining Whether a General Partner, or the General Partners as a Group, Controls a Limited Partnership or Similar Entity When the Limited Partners Have Certain Rights.
 
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Apartment Investment and Management Company’s internal control over financial reporting as of December 31, 2007, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 29, 2008 expressed an unqualified opinion thereon.
 
/s/  ERNST & YOUNG LLP
 
Denver, Colorado
February 29, 2008


F-2


Table of Contents

APARTMENT INVESTMENT AND MANAGEMENT COMPANY
 
CONSOLIDATED BALANCE SHEETS
As of December 31, 2007 and 2006
(In thousands, except share data)
 
                 
    2007     2006  
 
ASSETS
Real estate:
               
Buildings and improvements
  $ 9,724,669     $ 9,105,284  
Land
    2,659,265       2,355,497  
                 
Total real estate
    12,383,934       11,460,781  
Less accumulated depreciation
    (3,035,242 )     (2,702,092 )
                 
Net real estate
    9,348,692       8,758,689  
Cash and cash equivalents
    210,461       229,824  
Restricted cash
    318,959       346,029  
Accounts receivable, net
    71,463       87,166  
Accounts receivable from affiliates, net
    34,958       19,370  
Deferred financing costs
    79,923       70,418  
Notes receivable from unconsolidated real estate partnerships, net
    35,186       40,641  
Notes receivable from non-affiliates, net
    143,054       139,352  
Investment in unconsolidated real estate partnerships
    117,217       39,000  
Other assets
    207,857       202,759  
Deferred income tax assets, net
    14,426        
Assets held for sale
    24,336       356,527  
                 
Total assets
  $ 10,606,532     $ 10,289,775  
                 
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Property tax-exempt bond financing
  $ 941,555     $ 926,952  
Property loans payable
    6,040,170       5,098,916  
Term loans
    475,000       400,000  
Credit facility
          140,000  
Other borrowings
    75,057       67,660  
                 
Total indebtedness
    7,531,782       6,633,528  
                 
Accounts payable
    56,792       54,972  
Accrued liabilities and other
    449,485       409,990  
Deferred income
    202,392       142,260  
Security deposits
    49,469       42,401  
Deferred income tax liabilities, net
          4,379  
Liabilities related to assets held for sale
    11,867       264,757  
                 
Total liabilities
    8,301,787       7,552,287  
                 
Minority interest in consolidated real estate partnerships
    441,778       212,149  
Minority interest in Aimco Operating Partnership
    113,263       185,447  
Commitments and contingencies (Note 8)
               
Stockholders’ equity:
               
Preferred Stock, perpetual
    723,500       723,500  
Preferred Stock, convertible
          100,000  
Class A Common Stock, $.01 par value, 426,157,736 shares authorized, 96,130,586 and 101,614,954 shares issued and outstanding, at December 31, 2007 and 2006, respectively
    961       1,016  
Additional paid-in capital
    3,049,417       3,272,496  
Notes due on common stock purchases
    (5,441 )     (4,714 )
Distributions in excess of earnings
    (2,018,733 )     (1,752,406 )
                 
Total stockholders’ equity
    1,749,704       2,339,892  
                 
Total liabilities and stockholders’ equity
  $ 10,606,532     $ 10,289,775  
                 
 
See notes to consolidated financial statements.


F-3


Table of Contents

 
APARTMENT INVESTMENT AND MANAGEMENT COMPANY
 
CONSOLIDATED STATEMENTS OF INCOME
For the Years Ended December 31, 2007, 2006 and 2005
(In thousands, except per share data)
 
                         
    2007     2006     2005  
 
REVENUES:
                       
Rental and other property revenues
  $ 1,640,506     $ 1,540,500     $ 1,283,815  
Property management revenues, primarily from affiliates
    6,923       12,312       24,528  
Activity fees and asset management revenues
    73,755       48,893       37,349  
                         
Total revenues
    1,721,184       1,601,705       1,345,692  
                         
OPERATING EXPENSES:
                       
Property operating expenses
    768,457       709,694       599,208  
Property management expenses
    5,506       5,111       7,499  
Activity and asset management expenses
    23,102       17,342       19,316  
Depreciation and amortization
    487,822       452,741       372,526  
General and administrative expenses
    89,251       90,149       83,012  
Other expenses (income), net
    (212 )     7,403       (3,011 )
                         
Total operating expenses
    1,373,926       1,282,440       1,078,550  
                         
Operating income
    347,258       319,265       267,142  
Interest income
    42,539       34,043       31,489  
Recovery of (provision for) losses on notes receivable, net
    (3,951 )     (2,785 )     1,365  
Interest expense
    (422,130 )     (391,465 )     (330,717 )
Deficit distributions to minority partners
    (39,150 )     (20,802 )     (11,505 )
Equity in losses of unconsolidated real estate partnerships
    (277 )     (2,070 )     (3,139 )
Real estate impairment (losses) recoveries, net
    (6,638 )     813       (6,120 )
Gain on dispositions of unconsolidated real estate and other
    31,777       26,845       17,152  
                         
Loss before minority interests and discontinued operations
    (50,572 )     (36,156 )     (34,333 )
Minority interests:
                       
Minority interest in consolidated real estate partnerships
    (2,036 )     (12,338 )     4,820  
Minority interest in Aimco Operating Partnership, preferred
    (7,128 )     (7,153 )     (7,226 )
Minority interest in Aimco Operating Partnership, common
    11,682       13,172       12,644  
                         
Total minority interests
    2,518       (6,319 )     10,238  
                         
Loss from continuing operations
    (48,054 )     (42,475 )     (24,095 )
Income from discontinued operations, net
    77,965       219,262       95,077  
                         
Net income
    29,911       176,787       70,982  
Net income attributable to preferred stockholders
    66,016       81,132       87,948  
                         
Net income (loss) attributable to common stockholders
  $ (36,105 )   $ 95,655     $ (16,966 )
                         
Earnings (loss) per common share — basic:
                       
Loss from continuing operations (net of preferred dividends)
  $ (1.14 )   $ (1.23 )   $ (1.14 )
Income from discontinued operations
    0.78       2.18       0.97  
                         
Net income (loss) attributable to common stockholders
  $ (0.36 )   $ 0.95     $ (0.17 )
                         
Earnings (loss) per common share — diluted:
                       
Loss from continuing operations (net of preferred dividends)
  $ (1.14 )   $ (1.23 )   $ (1.14 )
Income from discontinued operations
    0.78       2.18       0.97  
                         
Net income (loss) attributable to common stockholders
  $ (0.36 )   $ 0.95     $ (0.17 )
                         
Weighted average common shares outstanding
    99,629       100,280       98,397  
                         
Weighted average common shares and equivalents outstanding
    99,629       100,280       98,397  
                         
Dividends declared per common share
  $ 4.11     $ 2.29     $ 2.86  
                         
 
See notes to consolidated financial statements.


F-4


Table of Contents

 
APARTMENT INVESTMENT AND MANAGEMENT COMPANY

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
For the Years Ended December 31, 2007, 2006 and 2005
(In thousands)
 
                                                                 
                                  Notes
             
                Class A
          Due on
             
    Preferred Stock     Common Stock     Additional
    Common
    Distributions
       
    Shares
          Shares
          Paid-in
    Stock
    in Excess of
       
    Issued     Amount     Issued     Amount     Capital     Purchases     Earnings     Total  
 
Balances at December 31, 2004 (before special dividend)
    39,575     $ 1,041,500       94,854     $ 949     $ 3,050,333     $ (36,725 )   $ (1,047,897 )   $ 3,008,160  
Common Stock issued pursuant to special dividend (Note 1)
                4,698       47       177,067             (177,114 )      
                                                                 
Balances at December 31, 2004 (after special dividend)
    39,575       1,041,500       99,552       996       3,227,400       (36,725 )     (1,225,011 )     3,008,160  
Redemption of Preferred Stock
    (1,250 )     (31,250 )                 1,123             (1,123 )     (31,250 )
Redemption of Aimco Operating Partnership units for Common Stock
                447       4       16,890                   16,894  
Preferred Stock issuance costs
                            (409 )                 (409 )
Repayment of notes receivable from officers
                                  12,255             12,255  
Officer and employee stock awards and purchases, net
                398       4       2,219       (1,441 )           782  
Stock options exercised
                68             2,315                   2,315  
Purchase of Oxford warrants
                            (1,050 )                 (1,050 )
Common Stock issued as consideration for acquisition of interest in real estate
                8             310                   310  
Amortization of stock option and restricted stock compensation cost
                            9,975                   9,975  
Net income
                                        70,982       70,982  
Common Stock dividends
                                        (284,254 )     (284,254 )
Preferred Stock dividends
                                        (88,607 )     (88,607 )
                                                                 
Balances at December 31, 2005
    38,325       1,010,250       100,473       1,004       3,258,773       (25,911 )     (1,528,013 )     2,716,103  
Cumulative effect of change in accounting principle — adoption of EITF 04-5
                                        (75,012 )     (75,012 )
Issuance of 200 shares of CRA Preferred Stock
          100,000                   (2,509 )                 97,491  
Redemption of Preferred Stock
    (11,470 )     (286,750 )                 6,848             (6,848 )     (286,750 )
Redemption of Aimco Operating Partnership units for Common Stock
                104       1       4,560                   4,561  
Repurchases of Common Stock
                (2,415 )     (24 )     (120,235 )                 (120,259 )
Repayment of notes receivable from officers
                                  21,844             21,844  
Officer and employee stock awards and purchases, net
                479       5       678       (647 )           36  
Stock options exercised
                2,966       30       107,574                   107,604  
Excess income tax benefits related to stock-based compensation and other
                            454                   454  
Common Stock issued as consideration for acquisition of interest in real estate
                8             479                   479  
Amortization of stock option and restricted stock compensation cost
                            15,874                   15,874  
Net income
                                        176,787       176,787  
Common Stock dividends
                                        (232,185 )     (232,185 )
Preferred Stock dividends
                                        (87,135 )     (87,135 )
                                                                 
Balances at December 31, 2006
    26,855       823,500       101,615       1,016       3,272,496       (4,714 )     (1,752,406 )     2,339,892  
Redemption of Preferred Stock
    (1,905 )     (100,000 )                 635             (2,635 )     (102,000 )
Cumulative effect of change in accounting principle — adoption of FIN 48
                                        (764 )     (764 )
Redemption of Aimco Operating Partnership units for Common Stock
                494       5       27,848                   27,853  
Repayment of notes receivable from officers
                                  1,659             1,659  
Officer and employee stock awards and purchases, net
                330       3       2,555       (2,386 )           172  
Stock options exercised
                1,473       15       53,704                   53,719  
Repurchases of Common Stock
                (7,781 )     (78 )     (325,744 )                 (325,822 )
Amortization of stock option and restricted stock compensation cost
                            19,224                   19,224  
Reversal of excess income tax benefits related to stock-based compensation and other
                            (1,301 )                 (1,301 )
Net income
                                        29,911       29,911  
Common Stock dividends
                                        (228,022 )     (228,022 )
Preferred Stock dividends
                                        (64,817 )     (64,817 )
                                                                 
Balances at December 31, 2007
    24,950     $ 723,500       96,131     $ 961     $ 3,049,417     $ (5,441 )   $ (2,018,733 )   $ 1,749,704  
                                                                 
 
See notes to consolidated financial statements.


F-5


Table of Contents

 
APARTMENT INVESTMENT AND MANAGEMENT COMPANY

CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 2007, 2006 and 2005
(In thousands)
 
                         
    2007     2006     2005  
 
CASH FLOWS FROM OPERATING ACTIVITIES:
                       
Net income
  $ 29,911     $ 176,787     $ 70,982  
                         
Adjustments to reconcile net income to net cash provided by operating activities:
                       
Depreciation and amortization
    487,822       452,741       372,526  
Deficit distributions to minority partners
    39,150       20,802       11,505  
Equity in losses of unconsolidated real estate partnerships
    277       2,070       3,139  
Real estate impairment losses (recoveries), net
    6,638       (813 )     6,120  
Gain on dispositions of unconsolidated real estate and other
    (31,777 )     (26,845 )     (17,152 )
Deferred income tax provision (benefit)
    (19,649 )     14,895       (19,146 )
Minority interest in consolidated real estate partnerships
    2,036       12,338       (4,820 )
Minority interest in Aimco Operating Partnership
    (4,554 )     (6,019 )     (5,418 )
Stock-based compensation expense
    14,921       12,314       8,558  
Amortization of deferred loan costs and other
    14,066       18,471       1,700  
Distributions of earnings to minority interest in consolidated real estate partnerships
    (17,406 )     (13,369 )     (7,979 )
Discontinued operations:
                       
Depreciation and amortization
    12,518       46,036       77,972  
Gain on dispositions of real estate, net of minority partners’ interest
    (65,378 )     (259,855 )     (104,807 )
Other adjustments to income from discontinued operations
    (15,667 )     3,641       (2,356 )
Changes in operating assets and operating liabilities:
                       
Accounts receivable
    7,453       (3,178 )     11,450  
Other assets
    (9,751 )     45,332       17,542  
Accounts payable, accrued liabilities and other
    14,926       23,562       (72,246 )
                         
Total adjustments
    435,625       342,123       276,588  
                         
Net cash provided by operating activities
    465,536       518,910       347,570  
                         
CASH FLOWS FROM INVESTING ACTIVITIES:
                       
Purchases of real estate
    (201,434 )     (153,426 )     (243,996 )
Capital expenditures
    (689,719 )     (512,564 )     (443,882 )
Proceeds from dispositions of real estate
    431,863       958,604       718,434  
Change in funds held in escrow from tax-free exchanges
    25,863       (19,021 )     (4,571 )
Cash from newly consolidated properties
    7,549       23,269       4,186  
Proceeds from sale of interests in real estate partnerships
    194,329       45,662       57,706  
Purchases of partnership interests and other assets
    (86,204 )     (37,570 )     (125,777 )
Originations of notes receivable
    (10,812 )     (94,640 )     (38,336 )
Proceeds from repayment of notes receivable
    14,370       9,604       28,556  
Other investing activities
    42,596       13,122       (2,281 )
                         
Net cash (used in) provided by investing activities
    (271,599 )     233,040       (49,961 )
                         
CASH FLOWS FROM FINANCING ACTIVITIES:
                       
Proceeds from property loans
    1,552,048       1,185,670       721,414  
Principal repayments on property loans
    (850,484 )     (1,004,142 )     (735,816 )
Proceeds from tax-exempt bond financing
    82,350       75,568        
Principal repayments on tax-exempt bond financing
    (70,029 )     (229,287 )     (78,648 )
Borrowings under term loans
    75,000             100,000  
Net (repayments) borrowings on revolving credit facility
    (140,000 )     (77,000 )     148,300  
Payments on other borrowings
    (8,468 )     (22,838 )      
Redemption of mandatorily redeemable preferred securities
                (15,019 )
Proceeds from issuance of preferred stock, net
          97,491        
Redemptions of preferred stock
    (102,000 )     (286,750 )     (31,250 )
Repurchase of Class A Common Stock
    (307,382 )     (109,937 )      
Proceeds from Class A Common Stock option exercises
    53,719       107,603       2,315  
Principal repayments received on notes due on Class A Common Stock purchases
    1,659       21,844       12,255  
Payment of Class A Common Stock dividends
    (230,806 )     (231,697 )     (226,815 )
Payment of preferred stock dividends
    (67,100 )     (74,700 )     (86,582 )
Contributions from minority interest
    1,370       458       34,990  
Payment of distributions to minority interest
    (180,684 )     (117,216 )     (70,760 )
Other financing activities
    (22,493 )     (18,923 )     (15,606 )
                         
Net cash used in financing activities
    (213,300 )     (683,856 )     (241,222 )
                         
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS
    (19,363 )     68,094       56,387  
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR
    229,824       161,730       105,343  
                         
CASH AND CASH EQUIVALENTS AT END OF YEAR
  $ 210,461     $ 229,824     $ 161,730  
                         
 
See notes to consolidated financial statements.


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APARTMENT INVESTMENT AND MANAGEMENT COMPANY

CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 2007, 2006 and 2005
(In thousands)
 
                         
    2007     2006     2005  
 
SUPPLEMENTAL CASH FLOW INFORMATION:
                       
Interest paid
  $ 452,288     $ 438,946     $ 399,511  
Cash paid for income taxes
    2,994       9,807       4,785  
Non-cash transactions associated with the acquisition of real estate and interests in unconsolidated real estate partnerships:
                       
Secured debt assumed in connection with purchase of real estate
    16,000       47,112       38,740  
Issuance of OP Units for interests in unconsolidated real estate partnerships and acquisitions of real estate
    2,998       13       125  
Non-cash transactions associated with the disposition of real estate:
                       
Secured debt assumed in connection with the disposition of real estate
    27,929              
Non-cash transactions associated with consolidation of real estate partnerships:
                       
Real estate, net
    56,877       675,621       201,492  
Investments in and notes receivable primarily from affiliated entities
    84,545       (219,691 )     (72,341 )
Restricted cash and other assets
    8,545       94,380       16,942  
Secured debt
    41,296       503,342       112,521  
Accounts payable, accrued and other liabilities
    48,602       41,580       17,326  
Minority interest in consolidated real estate partnerships
    67,618       57,157       6,834  
Other non-cash transactions:
                       
Redemption of common OP Units for Class A Common Stock
    27,810       4,362       16,853  
Conversion of preferred OP Units for Class A Common Stock
    43       199       41  
Origination of notes receivable from officers for Class A Common Stock purchases, net of cancellations
    2,386       647       1,441  
Tenders payable for purchase of limited partner interests
                950  
 
See notes to consolidated financial statements.


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APARTMENT INVESTMENT AND MANAGEMENT COMPANY
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2007
 
Note 1 — Organization
 
Apartment Investment and Management Company, or Aimco, is a Maryland corporation incorporated on January 10, 1994. We are a self-administered and self-managed real estate investment trust, or REIT, engaged in the acquisition, ownership, management and redevelopment of apartment properties. As of December 31, 2007, we owned or managed a real estate portfolio of 1,169 apartment properties containing 203,040 apartment units located in 46 states, the District of Columbia and Puerto Rico.
 
As of December 31, 2007, we:
 
  •  owned an equity interest in and consolidated 153,758 units in 657 properties (which we refer to as “consolidated”), of which 152,475 units were also managed by us;
 
  •  owned an equity interest in and did not consolidate 10,878 units in 94 properties (which we refer to as “unconsolidated”), of which 5,009 units were also managed by us; and
 
  •  provided services for or managed 38,404 units in 418 properties, primarily pursuant to long-term agreements (including 35,176 units in 382 properties for which we provide asset management services only, and not also property management services). In certain cases we may indirectly own generally less than one percent of the operations of such properties through a partnership syndication or other fund.
 
Through our wholly-owned subsidiaries, AIMCO-GP, Inc. and AIMCO-LP, Inc., we own a majority of the ownership interests in AIMCO Properties, L.P., which we refer to as the Aimco Operating Partnership. As of December 31, 2007, we held an interest of approximately 91% in the common partnership units and equivalents of the Aimco Operating Partnership. We conduct substantially all of our business and own substantially all of our assets through the Aimco Operating Partnership. Interests in the Aimco Operating Partnership that are held by limited partners other than Aimco are referred to as “OP Units.” OP Units include common OP Units, partnership preferred units, or preferred OP Units, and high performance partnership units, or High Performance Units. The Aimco Operating Partnership’s income is allocated to holders of common OP Units based on the weighted average number of common OP Units outstanding during the period. The Aimco Operating Partnership records the issuance of common OP Units and the assets acquired in purchase transactions based on the market price of Aimco Class A Common Stock (which we refer to as Common Stock) at the date of closing of the transaction. The holders of the common OP Units receive distributions, prorated from the date of issuance, in an amount equivalent to the dividends paid to holders of Common Stock. Holders of common OP Units may redeem such units for cash or, at the Aimco Operating Partnership’s option, Common Stock. During 2007, 2006 and 2005, the weighted average ownership interest in the Aimco Operating Partnership held by the common OP Unit holders was approximately 9%, 10% and 10%, respectively. Preferred OP Units entitle the holders thereof to a preference with respect to distributions or upon liquidation. At December 31, 2007, after elimination of certain shares of Common Stock held by consolidated subsidiaries, 96,130,586 shares of our Common Stock were outstanding (after giving effect to the special dividend discussed below) and the Aimco Operating Partnership had 9,682,619 common OP Units and equivalents outstanding for a combined total of 105,813,205 shares of Common Stock and OP Units outstanding (excluding preferred OP Units).
 
Except as the context otherwise requires, “we,” “our,” “us” and the “Company” refer to Aimco, the Aimco Operating Partnership and their consolidated entities, collectively.
 
On December 21, 2007, our Board of Directors declared a special dividend of $2.51 per share payable on January 30, 2008, to holders of record of our Common Stock on December 31, 2007. Stockholders had the option to elect to receive payment of the special dividend in cash, shares or a combination of cash and shares, except that the aggregate amount of cash payable to all stockholders in the special dividend was limited to $55.0 million plus cash paid in lieu of fractional shares. The special dividend, totaling $232.9 million, was paid on 92,795,891 shares issued and outstanding on the record date, which included 416,140 shares held by certain of our consolidated subsidiaries.


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Approximately $177.9 million of the special dividend was paid through the issuance of 4,594,074 shares of Common Stock (including 20,339 shares issued to consolidated subsidiaries holding our shares), which was determined based on the average closing price of our Common Stock on January 23-24, 2008, or $38.71 per share.
 
After elimination of the effect of shares held by consolidated subsidiaries, the special dividend totaled $231.9 million. Approximately $177.1 million of the special dividend was paid through the issuance of 4,573,735 shares of Common Stock (excluding 20,339 shares issued to our consolidated subsidiaries) to holders of 92,379,751 shares of our Common Stock on the record date (excluding 416,140 shares held by certain of our consolidated subsidiaries), representing an increase of approximately 4.95% to the then outstanding shares. The effect of the issuance of additional shares of Common Stock pursuant to the special dividend has been retroactively reflected in each of the historical periods presented as if those shares were issued and outstanding at the beginning of the earliest period presented; accordingly all activity including share issuances, repurchases and forfeitures have been adjusted to reflect the 4.95% increase in the number of shares, except in limited instances where noted.
 
During the year ended December 31, 2007, we purchased on the open market 7,780,870 million shares of Common Stock at an average price per share of approximately $41.86. Included in accrued liabilities and other at December 31, 2007 and 2006 are liabilities of $28.7 million and $10.3 million for share purchases that settled subsequent to those dates.
 
The following table summarizes activity in our Common Stock during the year ended December 31, 2007:
 
         
Common shares outstanding, December 31, 2006
    101,614,954  
Purchases of Common Stock
    (7,780,870 )
Stock options exercised
    1,472,503  
Common OP Units redeemed for Common Stock
    494,185  
Restricted stock grants, net of forfeitures
    272,417  
Officer stock loans, net of forfeitures, and other activity
    57,397  
         
Common shares outstanding, December 31, 2007
    96,130,586  
         
 
The following table reconciles our shares issued and outstanding as of the record date to our shares outstanding at December 31, 2007 per the consolidated financial statements:
 
         
Common shares issued and outstanding as of the record date
    92,795,891  
Shares issued January 30, 2008 pursuant to the special dividend
    4,594,074  
Elimination of shares owned by consolidated subsidiaries (prior to special dividend)
    (416,140 )
Elimination of shares issued to consolidated subsidiaries
    (20,339 )
pursuant to the special dividend
       
Shares repurchased in December 2007 settled in January 2008
    (822,900 )
         
Common shares outstanding at December 31, 2007 per consolidated financial statements
    96,130,586  
         
 
Note 2 — Basis of Presentation and Summary of Significant Accounting Policies
 
Principles of Consolidation
 
The accompanying consolidated financial statements include the accounts of Aimco, the Aimco Operating Partnership, and their consolidated entities. As used herein, and except where the context otherwise requires, “partnership” refers to a limited partnership or a limited liability company and “partner” refers to a limited partner in a limited partnership or a member in a limited liability company. Interests held in consolidated real estate partnerships by limited partners other than us are reflected as minority interest in consolidated real estate partnerships. All significant intercompany balances and transactions have been eliminated in consolidation. The assets of consolidated real estate partnerships owned or controlled by Aimco or the Aimco Operating Partnership generally are not available to pay creditors of Aimco or the Aimco Operating Partnership.


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As discussed under Variable Interest Entities below, we consolidate real estate partnerships and other entities that are variable interest entities when 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. As discussed under Adoption of EITF 04-5 below, we have applied new criteria after June 29, 2005, in determining whether we control and consolidate certain partnerships.
 
Variable Interest Entities
 
FASB Interpretation No. 46 (revised December 2003), Consolidation of Variable Interest Entities, or FIN 46, addresses the consolidation by business enterprises of 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. FIN 46 requires a VIE to be consolidated in the financial statements of the entity that is determined to be the primary beneficiary of the VIE. The primary beneficiary generally is the entity that will receive a majority of the VIE’s expected losses, receive a majority of the VIE’s expected residual returns, or both.
 
As of December 31, 2007, we were the primary beneficiary of, and therefore consolidated, 73 VIEs, which owned 59 apartment properties with 8,304 units. Real estate with a carrying value of $568.8 million collateralized the debt of those VIEs. The creditors of the consolidated VIEs do not have recourse to our general credit. As of December 31, 2007, we also held variable interests in 129 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 187 apartment properties with 11,765 units. We are involved with those VIEs as an equity holder, lender, management agent, or through other contractual relationships. At December 31, 2007, our maximum exposure to loss as a result of our involvement with unconsolidated VIEs is limited to our recorded investments in and receivables from those VIEs totaling $117.2 million and our contractual obligation to advance funds to certain VIEs totaling $6.2 million. We may be subject to additional losses to the extent of any financial support that we voluntarily provide in the future.
 
Adoption of EITF 04-5
 
In June 2005, the Financial Accounting Standards Board ratified Emerging Issues Task Force Issue 04-5, Determining Whether a General Partner, or the General Partners as a Group, Controls a Limited Partnership or Similar Entity When the Limited Partners Have Certain Rights, or EITF 04-5. EITF 04-5 provides an accounting model to be used by a general partner, or group of general partners, to determine whether the general partner(s) controls a limited partnership or similar entity in light of substantive kick-out rights and substantive participating rights held by the limited partners, and provides additional guidance on what constitutes those rights. EITF 04-5 was effective after June 29, 2005 for general partners of (a) all newly formed limited partnerships and (b) existing limited partnerships for which the partnership agreements have been modified. We consolidated four partnerships in the fourth quarter of 2005 based on EITF 04-5 requirements. The consolidation of those partnerships had an immaterial effect on our consolidated financial statements. EITF 04-5 was effective on January 1, 2006, for general partners of all limited partnerships and similar entities. We applied EITF 04-5 as of January 1, 2006, using a transition method that does not involve retrospective application to our financial statements for prior periods.
 
We consolidated 156 previously unconsolidated partnerships as a result of the application of EITF 04-5 in 2006. Those partnerships own, or control other entities that own, 149 apartment properties. Our direct and indirect interests in the profits and losses of those partnerships range from less than one percent to 50 percent, and average approximately


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22 percent. The initial consolidation of those partnerships resulted in increases (decreases), net of intercompany eliminations, in amounts reported in our consolidated balance sheet as of January 1, 2006, as follows (in thousands):
 
         
    Increase
 
    (Decrease)  
 
Real estate, net
  $ 664,286  
Accounts and notes receivable from affiliates
    (150,057 )
Investment in unconsolidated real estate partnerships
    (64,419 )
All other assets
    122,545  
         
Total assets
  $ 572,355  
         
Total indebtedness
  $ 521,711  
All other liabilities
    81,950  
Minority interest in consolidated real estate partnerships
    53,258  
Minority interest in Aimco Operating Partnership
    (9,552 )
Stockholders’ equity
    (75,012 )
         
Total liabilities and stockholders’ equity
  $ 572,355  
         
 
Our income from continuing operations for the year ended December 31, 2006, includes the following amounts for the partnerships consolidated as of January 1, 2006, in accordance with EITF 04-5 (in thousands):
 
         
Revenues
  $ 137,475  
Operating expenses
    98,227  
         
Operating income
    39,248  
Interest expense
    (28,410 )
Interest income
    3,709  
         
Income (loss) before minority interests
  $ 14,547  
         
 
In prior periods, we used the equity method to account for our investments in the partnerships that we consolidated in 2006 in accordance with EITF 04-5. Under the equity method, we recognized partnership income or losses based generally on our percentage interest in the partnership. 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, when a partnership has a deficit in equity, GAAP may require 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 EITF 04-5 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 applied EITF 04-5 in those prior periods. In accordance with our transition method for the adoption of EITF 04-5, we recorded a $75.0 million charge to retained earnings as of January 1, 2006, for the cumulative amount of additional losses that we would have recognized had we applied EITF 04-5 in prior periods. Substantially all of those losses were attributable to real estate depreciation expense. As a result of applying EITF 04-5 for the year ended December 31, 2006, our income from continuing operations includes partnership losses in addition to losses that would have resulted from continued application of the equity method of $24.6 million.
 
Tax Credit Arrangements
 
We sponsor certain partnerships that own and operate apartment properties that qualify for tax credits under Section 42 of the Internal Revenue Code and for the U.S. Department of Housing and Urban Development, or HUD, subsidized rents under HUD’s Section 8 program. These partnerships acquire, develop and operate qualifying affordable housing properties and are structured to provide for the pass-through of tax credits and deductions to their partners. The tax credits are generally realized ratably over the first ten years of the tax credit arrangement and are subject to the partnership’s compliance with applicable laws and regulations for a period of 15 years. Typically, we are the general partner with a legal ownership interest of one percent or less. We market limited partner interests of at least 99 percent to unaffiliated institutional investors (which we refer to as tax credit investors or investors) and receive a syndication fee from each investor upon such investor’s admission to the partnership. At inception, each


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investor agrees to fund capital contributions to the partnerships. We agree to perform various services to the partnerships in exchange for fees over the expected duration of the tax credit service period. The related partnership agreements generally require adjustment of each tax credit investor’s required capital contributions if actual tax benefits to such investor differ from projected amounts.
 
In connection with our adoption of FIN 46 as of March 31, 2004, we determined that the partnerships in these arrangements are variable interest entities and, where we are general partner, we are the primary beneficiary that is required to consolidate the partnerships. During the period April 1, 2004, through June 30, 2006, we accounted for these partnerships as consolidated subsidiaries with a noncontrolling interest (minority interest) of at least 99 percent. Accordingly, we allocated to the minority interest substantially all of the income or losses of the partnerships, including the effect of fees that we charged to the partnerships. In 2006, in consultation with our independent registered public accounting firm, we determined that we were required to revise our accounting treatment for tax credit transactions to more fully comply with the requirements of FIN 46. We also determined that our accounting treatment did not fully reflect the economic substance of the arrangements wherein we possess substantially all of the economic interests in the partnerships. Based on the contractual arrangements that obligate us to deliver tax benefits to the investors, and that entitle us through fee arrangements to receive substantially all available cash flow from the partnerships, we concluded that these partnerships are most appropriately accounted for by us as wholly owned subsidiaries. We also concluded that capital contributions received by the partnerships from tax credit investors represent, in substance, consideration that we receive in exchange for our obligation to deliver tax credits and other tax benefits to the investors. We have concluded that these receipts are appropriately recognized as revenue in our consolidated financial statements when our obligation to the investors is relieved upon delivery of the expected tax benefits.
 
In summary, our revised accounting treatment recognizes the income or loss generated by the underlying real estate based on our economic interest in the partnerships. Proceeds received in exchange for the transfer of the tax credits are recognized as revenue proportionately as the tax benefits are delivered to the tax credit investors and our obligation is relieved. Syndication fees and related costs are recognized in income upon completion of the syndication effort. We recognize syndication fees in amounts determined based on a market rate analysis of fees for comparable services, which generally fell within a range of 10% to 15% of investor contributions during the periods presented. Other direct and incremental costs incurred in structuring these arrangements are deferred and amortized over the expected duration of the arrangement in proportion to the recognition of related income. Investor contributions in excess of recognized revenue are reported as deferred income in our consolidated balance sheets.
 
We have applied the revised accounting treatment described above in our 2007 and 2006 financial statements. We recognized the cumulative effect of retroactive application of this revised accounting treatment in our operations for the year ended December 31, 2006. Adjustments related to prior years had the following effects on our net income for the year ended December 31, 2006 (in thousands):
 
         
Revenues
  $ (1,542 )
Operating expenses
    3,054  
Minority interest in consolidated real estate partnerships
    (9,030 )
Minority interest in Aimco Operating Partnership
    734  
         
Net decrease in net income
  $ (6,784 )
         
 
Under the revised accounting treatment described above, during the years ended December 31, 2007 and 2006, we recognized syndication fee income of $13.9 million and $12.7 million, respectively, and revenue associated with the delivery of tax benefits of $23.9 million and $16.0 million, respectively. At December 31, 2007 and 2006, $149.2 million and $73.3 million, respectively, of investor contributions in excess of the recognized revenue were included in deferred income in our consolidated balance sheets.
 
Acquisition of Real Estate Assets and Related Depreciation and Amortization
 
We capitalize the purchase price and incremental direct costs associated with the acquisition of properties as the cost of the assets acquired. In accordance with Statement of Financial Accounting Standards No. 141, Business Combinations, or SFAS 141, we allocate the cost of acquired properties to tangible assets and identified intangible assets based on their fair values. We determine the fair value of tangible assets, such as land, building, furniture,


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fixtures and equipment, on an “as-if vacant” basis, generally using internal valuation techniques that consider comparable market transactions, discounted cash flow techniques, replacement costs and other available information. We determine the fair value of identified intangible assets (or liabilities), which typically relate to in-place leases, using internal valuation techniques that consider the terms of the in-place leases, current market data for comparable leases, and our experience in leasing similar properties. The intangible assets or liabilities related to in-place leases are comprised of:
 
  1.  The value of the above- and below-market leases in-place. An asset or liability is recognized based on the difference between (a) the contractual amounts to be paid pursuant to the in-place leases and (b) our estimate of fair market lease rates for the corresponding in-place leases, measured over the period, including estimated lease renewals for below-market leases, that the leases are expected to remain in effect.
 
  2.  The estimated unamortized portion of avoided leasing commissions and other costs that ordinarily would be incurred to acquire the in-place leases.
 
  3.  The value associated with vacant units during the absorption period (estimates of lost rental revenue during the expected lease-up periods based on current market demand and stabilized occupancy levels).
 
The values of the above- and below-market leases are amortized to rental revenue over the expected remaining terms of the associated leases. Other intangible assets related to in-place leases are amortized to operating expenses over the expected remaining terms of the associated leases. Amortization is adjusted, as necessary, to reflect any early lease terminations that were not anticipated in determining amortization periods.
 
Depreciation for all tangible real estate assets is calculated using the straight-line method over their estimated useful lives. Acquired buildings and improvements are depreciated over a composite life of 14 to 52 years, based on the age, condition and other physical characteristics of the property. As discussed under Impairment of Long Lived Assets below, we may adjust depreciation of properties that are expected to be disposed of or demolished prior to the end of their useful lives. Furniture, fixtures and equipment associated with acquired properties are depreciated over five years.
 
At December 31, 2007 and 2006, deferred income in our consolidated balance sheets includes below-market lease values, net of accumulated amortization, totaling $45.0 million and $30.6 million, respectively. Additions to below-market leases resulting from acquisitions during the years ended December 31, 2007 totaled $18.9 million and there were no such additions in the year ended December 31, 2006. During the years ended December 31, 2007, 2006 and 2005, we included amortization of below-market leases of $4.6 million, $2.8 million and $2.8 million, respectively, in rental and other property revenues in our consolidated statements of income. At December 31, 2007, the estimated aggregate amortization expense related to our below-market leases for each of the five succeeding years was as follows:
 
         
2008
  $ 5.2  
2009
    4.9  
2010
    4.6  
2011
    4.1  
2012
    3.7  
 
Capital Expenditures and Related Depreciation
 
We capitalize costs, including certain indirect costs, incurred in connection with our capital expenditure activities, including redevelopment and construction projects, other tangible property improvements, and replacements of existing property components. Included in these capitalized costs are payroll costs associated with time spent by site employees in connection with the planning, execution and control of all capital expenditure activities at the property level. We characterize as “indirect costs” an allocation of certain department costs, including payroll, at the regional operating center and corporate levels that clearly relate to capital expenditure activities. We capitalize interest, property taxes and insurance during periods in which redevelopment and construction projects are in progress. Costs incurred in connection with capital expenditure activities are capitalized where the costs of the improvements or replacements exceed $250. We charge to expense as incurred costs that do not relate to capital expenditure activities, including ordinary repairs, maintenance, resident turnover costs and general and administrative expenses.


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We depreciate capitalized costs using the straight-line method over the estimated useful life of the related component or improvement, which is five, 15 or 30 years. Prior to July 1, 2005, we recorded capitalized site payroll costs and most capitalized indirect costs separately from other costs of the related capital projects. We depreciated capitalized site payroll costs over five years and capitalized indirect costs associated with capital replacement and improvement projects over five or 15 years. Capitalized indirect costs associated with redevelopment projects, together with other costs of the redevelopment projects, were depreciated over the estimated useful lives of those projects, predominantly 30 years.
 
Effective July 1, 2005, we refined the estimated useful lives for the capitalized site payroll and indirect costs that were recorded separately from other costs of the related capital projects. All capitalized site payroll and indirect costs incurred after June 30, 2005 are allocated proportionately, based on direct costs, among capital projects and depreciated over the estimated useful lives of such projects. This change in estimate is also being applied prospectively to the June 30, 2005 carrying amounts, net of accumulated depreciation, of previously incurred site payroll and indirect costs. Those amounts, based on the periods in which the costs were incurred, were allocated among capital projects that were completed in the corresponding periods in proportion to the original direct costs of such projects and are being depreciated over the remaining useful lives of the projects. We anticipate that these refinements will result in generally higher depreciation expense in foreseeable future accounting periods. For the year ended December 31, 2005, these changes in estimated useful lives resulted in a decrease in net income of approximately $4.6 million, and resulted in a decrease in basic and diluted earnings per share of $0.05.
 
Certain homogeneous items that are purchased in bulk on a recurring basis, such as carpeting and appliances, are depreciated using group methods that reflect the average estimated useful life of the items in each group. Except in the case of property casualties, where the net book value of lost property is written off in the determination of casualty gains or losses, we generally do not recognize any loss in connection with the replacement of an existing property component because normal replacements are considered in determining the estimated useful lives used in connection with our composite and group depreciation methods.
 
For the years ended December 31, 2007, 2006 and 2005, for continuing and discontinued operations, we capitalized $30.8 million, $24.7 million and $18.1 million, respectively, of interest costs, and $78.1 million, $66.2 million and $53.3 million, respectively, of site payroll and indirect costs, respectively.
 
Asset Retirement Obligations
 
In March 2005, the FASB issued FASB Interpretation No. 47, Accounting for Conditional Asset Retirement Obligations, or FIN 47. FIN 47 clarifies the accounting for legal obligations to perform asset retirement activity in which the timing and/or method of settlement are conditional on future events. FIN 47 requires the fair value of such conditional asset retirement obligations to be recorded as incurred, if the fair value of the liability can be reasonably estimated. We have determined that FIN 47 applies to certain obligations that we have based on laws that require property owners to remove or remediate hazardous substances in certain circumstances. We adopted the provisions of FIN 47 as of December 31, 2005 and determined that asset retirement obligations that are required to be recognized under FIN 47 are immaterial to our financial condition and results of operations. See Note 8 for further discussion of asset retirement obligations.
 
Impairment of Long-Lived Assets
 
We apply the provisions of Statement of Financial Accounting Standards No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, or SFAS 144, to determine whether our real estate and other long-lived assets are impaired. Such assets to be held and used are stated at cost, less accumulated depreciation and amortization, unless the carrying amount of the asset is not recoverable. If events or circumstances indicate that the carrying amount of a property may not be recoverable, we make an assessment of its recoverability by comparing the carrying amount to our estimate of the undiscounted future cash flows, excluding interest charges, of the property. If the carrying amount exceeds the aggregate undiscounted future cash flows, we recognize an impairment loss to the extent the carrying amount exceeds the estimated fair value of the property. Based on periodic tests of recoverability of long-lived assets, for the years ended December 31, 2007 and 2005, we recorded net impairment losses of $6.6 million and $6.1 million, respectively, related to properties to be held and used. For the year ended


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December 31, 2006, we recorded net recoveries of previously recorded impairment losses of $0.8 million. The amounts reported in continuing operations for real estate impairment (losses) recoveries, net include impairment losses related to consolidated properties to be held and used, as well as our share of all impairment losses or recoveries related to unconsolidated properties. We report impairment losses or recoveries related to properties sold or classified as held for sale in discontinued operations.
 
Our tests of recoverability address real estate assets that do not currently meet all conditions to be classified as held for sale, but are expected to be disposed of prior to the end of their estimated useful lives. If an impairment loss is not required to be recorded in accordance with SFAS 144, the recognition of depreciation is adjusted prospectively, as necessary, to reduce the carrying amount of the real estate to its estimated disposition value over the remaining period that the real estate is expected to be held and used. We also may adjust depreciation prospectively to reduce to zero the carrying amount of buildings that we plan to demolish in connection with a redevelopment project. These depreciation adjustments, after adjustments for minority interest in the Aimco Operating Partnership, decreased net income by $33.8 million, $31.2 million and $31.9 million, and resulted in decreases in basic and diluted earnings per share of $0.34, $0.31 and $0.32, for the years ended December 31, 2007, 2006 and 2005, respectively.
 
Cash Equivalents
 
In accordance with GAAP, highly liquid investments with an original maturity of three months or less are classified as cash equivalents.
 
Restricted Cash
 
Restricted cash includes capital replacement reserves, tax-free exchange funds, completion repair reserves, bond sinking fund amounts and tax and insurance escrow accounts held by lenders.
 
Accounts Receivable and Allowance for Doubtful Accounts
 
Accounts receivable are generally comprised of amounts receivable from residents, amounts receivable from non-affiliated real estate partnerships for which we provide property management and other services and other miscellaneous receivables from non-affiliated entities. We evaluate collectibility of accounts receivable from residents and establish an allowance, after the application of security deposits and other anticipated recoveries, for accounts greater than 30 days past due for current residents and all receivables due from former residents. Accounts receivable from residents are stated net of allowances for doubtful accounts of approximately $3.1 million and $1.9 million as of December 31, 2007 and 2006, respectively.
 
We evaluate collectibility of accounts receivable from non-affiliated entities and establish an allowance for amounts that are considered to be uncollectible. Accounts receivable relating to non-affiliated entities are stated net of allowances for doubtful accounts of approximately $4.6 million and $4.1 million as of December 31, 2007 and 2006, respectively.
 
Accounts Receivable and Allowance for Doubtful Accounts from Affiliates
 
Accounts receivable from affiliates are generally comprised of receivables related to property management and other services provided to unconsolidated real estate partnerships in which we have an ownership interest. We evaluate collectibility of accounts receivable balances from affiliates on a periodic basis, and establish an allowance for the amounts deemed to be uncollectible. Accounts receivable from affiliates are stated net of allowances for doubtful accounts of approximately $5.3 million and $5.3 million as of December 31, 2007 and 2006, respectively.
 
Deferred Costs
 
We defer lender fees and other direct costs incurred in obtaining new financing and amortize the amounts over the terms of the related loan agreements. Amortization of these costs is included in interest expense.
 
We defer leasing commissions and other direct costs incurred in connection with successful leasing efforts and amortize the costs over the terms of the related leases. Amortization of these costs is included in operating expenses.


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Advertising Costs
 
We generally expense all advertising costs as incurred to property operating expense. For the years ended December 31, 2007, 2006 and 2005, for both continuing and discontinued operations, total advertising expense was $38.0 million, $34.7 million and $36.1 million, respectively.
 
Notes Receivable from Unconsolidated Real Estate Partnerships and Non-Affiliates and Related Interest Income and Provision for Losses
 
Notes receivable from unconsolidated real estate partnerships consist primarily of notes receivable from partnerships in which we are the general partner but do not consolidate the partnership under FIN 46 or EITF 04-5. The ultimate repayment of these notes and those from non-affiliates is subject to a number of variables, including the performance and value of the underlying real estate property and the claims of unaffiliated mortgage lenders. Our notes receivable include loans extended by us that we carry at the face amount plus accrued interest, which we refer to as “par value notes,” and loans extended by predecessors whose positions we generally acquired at a discount, which we refer to as “discounted notes.”
 
We record interest income on par value notes as earned in accordance with the terms of the related loan agreements. We discontinue the accrual of interest on such notes when the notes are impaired, as discussed below, or when there is otherwise significant uncertainty as to the collection of interest. We record income on such nonaccrual loans using the cost recovery method, under which we apply cash receipts first to the recorded amount of the loan; thereafter, any additional receipts are recognized as income.
 
We recognize interest income on discounted notes receivable based upon whether the amount and timing of collections are both probable and reasonably estimable. We consider collections to be probable and reasonably estimable when the borrower has entered into certain closed or pending transactions (which include real estate sales, refinancings, foreclosures and rights offerings) that provide a reliable source of repayment. In such instances, we recognize accretion income, on a prospective basis using the effective interest method over the estimated remaining term of the loans, equal to the difference between the carrying amount of the discounted notes and the estimated collectible value. We record income on all other discounted notes using the cost recovery method.
 
We assess the collectibility of notes receivable on a periodic basis, which assessment consists primarily of an evaluation of cash flow projections of the borrower to determine whether estimated cash flows are sufficient to repay principal and interest in accordance with the contractual terms of the note. We recognize impairments on notes receivable when it is probable that principal and interest will not be received in accordance with the contractual terms of the loan. The amount of the impairment to be recognized generally is based on the fair value of the partnership’s real estate that represents the primary source of loan repayment. In certain instances where other sources of cash flow are available to repay the loan, the impairment is measured by discounting the estimated cash flows at the loan’s original effective interest rate.
 
Investments in Unconsolidated Real Estate Partnerships
 
We own general and limited partner interests in real estate partnerships that own apartment properties. We generally account for investments in real estate partnerships that we do not consolidate under the equity method. Under the equity method, our share of the earnings or losses of the entity for the periods being presented is included in equity in earnings (losses) from unconsolidated real estate partnerships, except for our share of impairments and property disposition gains related to such entities, which we report separately in the consolidated statements of income. Certain investments in real estate partnerships that were acquired in business combinations were determined to have insignificant value at the acquisition date and are accounted for under the cost method. Any distributions received from such partnerships are recognized as income when received.
 
The excess of the cost of the acquired partnership interests over the historical carrying amount of partners’ equity or deficit is ascribed generally to the fair values of land and buildings owned by the partnerships. We amortize the excess cost related to the buildings over the estimated useful lives of the buildings. Such amortization is recorded as a component of equity in earnings (losses) of unconsolidated real estate partnerships.


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Intangible Assets
 
At December 31, 2007 and 2006, other assets included goodwill associated with our real estate segment of $81.9 million. We account for goodwill and other intangible assets in accordance with the requirements of Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets, or SFAS 142. SFAS 142 does not permit amortization of goodwill and other intangible assets with indefinite lives, but requires an annual impairment test of such assets. The impairment test compares the fair value of reporting units with their carrying amounts, including goodwill. Based on the application of the goodwill impairment test set forth in SFAS 142, we determined that our goodwill was not impaired in 2007, 2006 or 2005. During the year ended December 31, 2005, we reduced goodwill by $6.2 million in connection with the recognition of deferred income tax assets that were acquired in connection with business combinations in prior years.
 
Other assets also includes intangible assets for purchased management contracts with finite lives that we amortize on a straight-line basis over terms ranging from five to twenty years and intangible assets for in-place leases as discussed under Acquisition of Real Estate Assets and Related Depreciation and Amortization.
 
Capitalized Software Costs
 
Purchased software and other costs related to software developed for internal use are capitalized during the application development stage and are amortized using the straight-line method over the estimated useful life of the software, generally five years. We write off the costs of software development projects when it is no longer probable that the software will be completed and placed in service. For the years ended December 31, 2007, 2006 and 2005, we capitalized software development costs totaling $8.2 million, $6.3 million and $9.9 million, respectively. At December 31, 2007 and 2006, other assets included $29.0 million and $31.6 million of net capitalized software, respectively. During the years ended December 31, 2007, 2006 and 2005, we recognized amortization of capitalized software of $14.6 million, $15.7 million and $16.2 million, respectively, which is included in depreciation and amortization in our consolidated statements of income.
 
During the year ended December 31, 2007 we abandoned certain internal-use software development projects and recorded a $4.2 million write-off of the capitalized costs of such projects in depreciation and amortization. There were no similar write-offs during the years ended December 31, 2006 and 2005.
 
Minority Interest in Consolidated Real Estate Partnerships
 
We report unaffiliated partners’ interests in consolidated real estate partnerships as minority interest in consolidated real estate partnerships. Minority interest in consolidated real estate partnerships represents the minority partners’ share of the underlying net assets of our consolidated real estate partnerships. When these consolidated real estate partnerships make cash distributions to partners in excess of the carrying amount of the minority interest, we generally record a charge equal to the amount of such excess distribution, even though there is no economic effect or cost. We report this charge in the consolidated statements of income as deficit distributions to minority partners. We allocate the minority partners’ share of partnership losses to minority partners to the extent of the carrying amount of the minority interest. We generally record a charge when the minority partners’ share of partnership losses exceed the carrying amount of the minority interest, even though there is no economic effect or cost. We report this charge in the consolidated statements of income within minority interest in consolidated real estate partnerships. We do not record charges for distributions or losses in certain limited instances where the minority partner has a legal obligation and financial capacity to contribute additional capital to the partnership. For the years ended December 31, 2007, 2006 and 2005, we recorded charges for partnership losses resulting from depreciation of approximately $12.2 million, $31.8 million and $9.5 million, respectively, that were not allocated to minority partners because the losses exceeded the carrying amount of the minority interest.
 
Minority interest in consolidated real estate partnerships consists primarily of equity interests held by limited partners in consolidated real estate partnerships that have finite lives. The terms of the related partnership agreements generally require the partnership to be liquidated following the sale of the partnership’s real estate. As the general partner in these partnerships, we ordinarily control the execution of real estate sales and other events that could lead to the liquidation, redemption or other settlement of minority interests. The aggregate carrying value of minority interests in consolidated real estate partnerships is approximately $441.8 million at December 31, 2007.


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The aggregate fair value of these interests varies based on the fair value of the real estate owned by the partnerships. Based on the number of classes of finite-life minority interests, the number of properties in which there is direct or indirect minority ownership, complexities in determining the allocation of liquidation proceeds among partners and other factors, we believe it is impracticable to determine the total required payments to the minority interests in an assumed liquidation at December 31, 2007. As a result of real estate depreciation that is recognized in our financial statements and appreciation in the fair value of real estate that is not recognized in our financial statements, we believe that the aggregate fair value of our minority interests exceeds their aggregate carrying value. As a result of our ability to control real estate sales and other events that require payment of minority interests and our expectation that proceeds from real estate sales will be sufficient to liquidate related minority interests, we anticipate that the eventual liquidation of these minority interests will not have an adverse impact on our financial condition.
 
Revenue Recognition
 
Our properties have operating leases with apartment residents with terms generally of twelve months or less. We recognize rental revenue related to these leases, net of any concessions, on a straight-line basis over the term of the lease. We recognize revenues from property management, asset management, syndication and other services when the related fees are earned and are realized or realizable.
 
Stock-Based Compensation
 
On January 1, 2006, we adopted Statement of Financial Accounting Standards No. 123 (revised 2004), Share-Based Payment (see Note 12).
 
Discontinued Operations
 
In accordance with SFAS 144, we classify certain properties and related liabilities as held for sale (see Note 13). The operating results of such properties as well as those properties sold during the periods presented are included in discontinued operations in both current periods and all comparable periods presented. Depreciation is not recorded on properties held for sale; however, depreciation expense recorded prior to classification as held for sale is included in discontinued operations. The net gain on sale and any impairment losses are presented in discontinued operations when recognized.
 
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 these instruments are reflected as assets or liabilities in the balance sheet, and periodic changes in fair value are included in interest expense. These instruments are not material to our financial position and results of operations.
 
From time to time, we enter 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 (previously the Bond Market Association index) for 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. The swaps generally have a term of less than five years, which may be extended at no additional cost to us when an additional swap is executed and cross-collateralized with other swaps in a collateral pool. The total rate of return swaps have a contractually defined termination value generally equal to


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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.
 
In accordance with Statement of Financial Accounting Standards No. 133, Accounting for Derivative Instruments and Hedging Activities, or SFAS 133, 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. We evaluate the effectiveness of these fair value hedges at the end of each reporting period and recognize an adjustment of interest expense as a result of any ineffectiveness.
 
Borrowings payable subject to total rate of return swaps with aggregate outstanding principal balances of $487.2 million and $299.3 million at December 31, 2007 and 2006, respectively, are reflected as variable rate borrowings in Note 6. During the year ended December 31, 2007, due to changes in the estimated fair values of certain of these debt instruments and corresponding total rate of return swaps, we reduced property loans payable by $9.4 million and increased accrued liabilities and other by the same amount, with no net impact on net income. During 2006 and 2005, there were no material adjustments for changes in fair value for the hedged debt or total rate of return swaps. During 2007, 2006 and 2005, we determined these hedges were fully effective and accordingly we made no adjustments to interest expense for ineffectiveness.
 
At December 31, 2007, the weighted average fixed receive rate under the total return swaps was 6.5% and the weighted average variable pay rate was 4.1%, based on the applicable SIFMA and 30-day LIBOR rates as of that date. Further information related to our total return swaps as of December 31, 2007 is as follows:
 
                                           
                              Weighted Average Swap
 
              Weighted
    Swap Notional
    Swap
  Variable Pay Rate at
 
Debt Principal
      Year of Debt
    Average Debt
    Amount
    Maturity
  December 31,
 
(millions)
      Maturity     Interest Rate     (millions)     Date   2007  
 
$ 29.1         2009       8.9 %   $ 29.3     2008     4.2 %
  9.4         2011       7.7 %     9.4     2009     3.9 %
  75.0         2012       7.5 %     75.0     2012     5.9 %
  24.0         2015       6.3 %     24.0     2009     3.9 %
  30.5         2016       5.9 %     30.5     2011     4.5 %
  14.4         2018       6.7 %     14.4     2009     3.9 %
  12.3         2021       6.2 %     12.3     2012     3.8 %
  12.0         2024       6.3 %     12.0     2009     3.9 %
  65.6         2025       5.5 %     65.4     2009     3.2 %
  69.2         2026       6.9 %     69.2     2009     3.9 %
  45.0         2031       6.8 %     45.0     2009     3.9 %
  100.7         2036       6.2 %     100.9     2009-2012     3.8 %
                                           
$ 487.2                         487.4              
                                           
 
Insurance
 
We believe that our insurance coverages insure our properties adequately against the risk of loss attributable to fire, earthquake, hurricane, tornado, flood, and other perils. In addition, we have insurance coverage for substantial portions of our property, workers’ compensation, health, and general liability exposures. Losses are accrued based upon our estimates of the aggregate liability for uninsured losses incurred using certain actuarial assumptions followed in the insurance industry and based on our experience.


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Income Taxes
 
We have elected to be taxed as a REIT under the Internal Revenue Code of 1986, as amended, which we refer to as the Code, commencing with our taxable year ended December 31, 1994, and intend to continue to operate in such a manner. Our current and continuing qualification as a REIT depends on our ability to meet the various requirements imposed by the Code, which are related to organizational structure, distribution levels, diversity of stock ownership and certain restrictions with regard to owned assets and categories of income. If we qualify for taxation as a REIT, we will generally not be subject to United States Federal corporate income tax on our taxable income that is currently distributed to stockholders. This treatment substantially eliminates the “double taxation” (at the corporate and stockholder levels) that generally results from investment in a corporation.
 
Even if we qualify as a REIT, we may be subject to United States Federal income and excise taxes in various situations, such as on our undistributed income. We also will be required to pay a 100% tax on any net income on non-arms length transactions between us and a TRS (described below) and on any net income from sales of property that was property held for sale to customers in the ordinary course. We and our stockholders may be subject to state or local taxation in various state or local jurisdictions, including those in which we transact business or our stockholders reside. In addition, we could also be subject to the alternative minimum tax, or AMT, on our items of tax preference. The state and local tax laws may not conform to the United States Federal income tax treatment. Any taxes imposed on us reduce our operating cash flow and net income.
 
Certain of our operations (including property management, asset management and risk) are conducted through taxable REIT subsidiaries, which are subsidiaries of the Aimco Operating Partnership, and each of which we refer to as a TRS. A TRS is a C-corporation that has not elected REIT status and as such is subject to United States Federal corporate income tax. We use TRS entities to facilitate our ability to offer certain services and activities to our residents, as these services and activities generally cannot be offered directly by the REIT.
 
For our taxable REIT subsidiaries, deferred income taxes result from temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for Federal income tax purposes, and are measured using the enacted tax rates and laws that are expected to be in effect when the differences reverse. We reduce deferred tax assets by recording a valuation allowance when we determine based on available evidence that it is more likely than not that the assets will not be realized.
 
Adoption of FIN 48
 
In June 2006, the Financial Accounting Standards Board, or FASB, issued FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes — an Interpretation of FASB Statement No. 109, or FIN 48. FIN 48 prescribes a two-step process for the financial statement recognition and measurement of income tax positions taken or expected to be taken in a tax return. The first step involves evaluation of a tax position to determine whether it is more likely than not that the position will be sustained upon examination, based on the technical merits of the position. The second step involves measuring the benefit to recognize in the financial statements for those tax positions that meet the more-likely-than-not recognition threshold. FIN 48 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition.
 
We adopted FIN 48 as of January 1, 2007. Upon adoption, we recorded a $0.8 million charge to distributions in excess of earnings to reflect our measurement in accordance with FIN 48 of uncertain income tax positions that affect net operating loss carryforwards recognized as deferred tax assets. As of January 1, 2007, our unrecognized tax benefits totaled approximately $3.1 million. To the extent these unrecognized tax benefits are ultimately recognized, they will affect the effective tax rates in future periods. There were no significant changes in unrecognized tax benefits during the year ended December 31, 2007. We do not anticipate any material changes in existing unrecognized tax benefits during the next 12 months. Because the statute of limitations has not yet elapsed, our federal income tax returns for the year ended December 31, 2004, and subsequent years and certain of our state income tax returns for the year ended December 31, 2002, and subsequent years are currently subject to examination by the Internal Revenue Service or other tax authorities. Our policy is to include interest and penalties related to income taxes in other expenses (income), net. See Note 9 for further information related to income taxes and uncertain tax positions.


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Earnings per Share
 
We calculate earnings per share based on the weighted average number of shares of Common Stock, common stock equivalents, and other potentially dilutive securities outstanding during the period (see Note 14). As discussed in Note 1, weighted average shares of Common Stock, common stock equivalents and other potentially dilutive securities outstanding have been retroactively adjusted for the effect of shares of Common Stock issued January 30, 2008, pursuant to the special dividend. Earnings per share amounts for each period presented reflect the retroactively adjusted weighted average share and equivalent counts.
 
Fair Value of Financial Instruments
 
We believe that the aggregate fair value of our cash and cash equivalents, receivables, payables and short-term secured debt approximates their aggregate carrying value at December 31, 2007, due to their relatively short-term nature and high probability of realization. We further believe that the aggregate fair value of our variable rate secured tax-exempt bond financing, variable rate property loans payable, term loans and borrowings under our credit facility also approximate their aggregate carrying value due to terms in the related agreements that require periodic interest adjustments based on market interest rates. For notes receivable, fixed rate secured tax-exempt bond debt and secured long-term debt, we estimate fair values using present value techniques. Present value calculations vary depending on the assumptions used, including the discount rate and estimates of future cash flows. We estimate fair value for our fixed rate debt instruments based on the market rate for debt with the same or similar terms. 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 $191.5 million and $181.5 million at December 31, 2007 and 2006, respectively. See Note 5 for further information on notes receivable. The estimated aggregate fair value of our secured tax-exempt bonds and property loans payable, including amounts reported in liabilities related to assets held for sale was approximately $7.1 billion and $6.4 billion at December 31, 2007 and 2006, respectively. The combined carrying value of our secured tax-exempt bonds and property loans payable, including amounts reported in liabilities related to assets held for sale, was approximately $7.0 billion and $6.3 billion at December 31, 2007 and 2006, respectively. See Note 6 for further details on secured tax-exempt bonds and secured notes payable. Refer to Derivative Financial Instruments for further discussion regarding certain of our fixed rate debt that is subject to total rate of return swap instruments.
 
Concentration of Credit Risk
 
Financial instruments that potentially could subject us to significant concentrations of credit risk consist principally of notes receivable. As discussed in Note 5, a significant portion of our notes receivable at December 31, 2007 and 2006, are collateralized by properties in the West Harlem district 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 diversity of the properties that collateralize the notes.
 
Use of Estimates
 
The preparation of our 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.
 
Reclassifications
 
Certain items included in the 2006 and 2005 financial statements amounts have been reclassified to conform to the 2007 presentation.
 
Note 3 — Real Estate and Partnership Acquisitions and Other Significant Transactions
 
Real Estate Acquisitions
 
During the year ended December 31, 2007, we completed the acquisition of 16 conventional properties with approximately 1,300 units for an aggregate purchase price of approximately $217.0 million, including transaction


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costs. Of the 16 properties acquired, ten are located in New York City, New York; two in Daytona Beach, Florida; one in Park Forest, Illinois; one in Poughkeepsie, New York; one in Redwood City, California; and one in North San Diego, California. The purchases were funded with cash, tax-free exchange proceeds, new debt and the assumption of existing debt.
 
During the year ended December 31, 2006, we completed acquisitions of nine properties (including one property acquired by an unconsolidated joint venture), containing approximately 1,700 residential units for an aggregate purchase price of approximately $177.0 million, including transaction costs. Of the nine properties acquired, three are located in Pacifica, California; one in Chico, California; three in metro Jacksonville, Florida; one in Tampa, Florida; and one in Greenville, North Carolina. The purchases were funded with cash, new debt and the assumption of existing debt.
 
During 2005, we completed acquisitions of six properties (including Palazzo East at Park La Brea), containing approximately 1,006 residential units and six retail spaces for an aggregate purchase price of approximately $283.6 million, including transaction costs. Of the six properties acquired, four are located in the New York City area, one in Los Angeles, and one in New Jersey. The purchases were funded with cash, new debt and the assumption of existing debt.
 
Acquisitions of Partnership Interests
 
During the year ended December 31, 2007, we acquired limited partnership interests in 50 partnerships in which our affiliates served as general partner. In connection with such acquisitions, we paid cash of approximately $47.4 million, including transaction costs. The cost of the acquisitions was approximately $43.6 million in excess of the carrying amount of minority interest in such limited partnerships, which excess we generally assigned to real estate.
 
Transactions Involving VMS National Properties Joint Venture
 
In January 2007, VMS National Properties Joint Venture, or VMS, a consolidated real estate partnership in which we held a 22% equity interest, refinanced mortgage loans secured by its 15 apartment properties. The existing loans had an aggregate carrying amount of $110.0 million and an aggregate face amount of $152.2 million. The $42.2 million difference between the face amount and carrying amount resulted from a 1997 bankruptcy settlement in which the lender agreed to reduce the principal amount of the loans subject to VMS’s compliance with the terms of the restructured loans. Because the reduction in the loan amount was contingent on future compliance, recognition of the inherent debt extinguishment gain was deferred. Upon refinancing of the loans in January 2007, the existing lender accepted the reduced principal amount in full satisfaction of the loans, and VMS recognized the $42.2 million debt extinguishment gain in earnings.
 
During the six months ended June 30, 2007, VMS sold eight properties to third parties for an aggregate gain of $22.7 million. Additionally, VMS contributed its seven remaining properties to wholly-owned subsidiaries of Aimco in exchange for consideration totaling $230.1 million, consisting primarily of cash of $21.3 million, common OP Units with a fair value of $9.8 million, the assumption of $168.0 million in mortgage debt, and the assumption of $30.9 million in mortgage participation liabilities. This total consideration included $50.7 million related to our 22% equity interest in VMS. Exclusive of our share, the consideration paid for the seven properties exceeded the carrying amount of the minority interest in such properties by $44.9 million. This excess consideration is reflected in our consolidated balance sheet as an increase in the carrying amount of the seven properties.
 
Approximately $22.8 million of the $42.2 million debt extinguishment gain related to the mortgage loans that were secured by the eight properties sold to third parties and is reported in discontinued operations for the year ended December 31, 2007. The remaining $19.4 million portion of the debt extinguishment gain related to the mortgage loans that were secured by the seven VMS properties we purchased and is reported in our continuing operations as gain on dispositions of unconsolidated real estate and other. Although 78% of the equity interests in VMS were held by unrelated minority partners, no minority interest share of the gains on debt extinguishment and sale of the properties was recognized in our earnings. As required by GAAP, we had in prior years recognized the minority partners’ share of VMS losses in excess of the minority partners’ capital contributions. The amounts of those previously recognized losses exceeded the minority partners’ share of the gains on debt extinguishment and


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sale of the properties; accordingly, the minority interest in such gains recognized in our earnings was limited to the minority interest in the Aimco Operating Partnership. For the year ended December 31, 2007, the aggregate effect of the gains on extinguishment of VMS debt and sale of VMS properties was to decrease loss from continuing operations by $17.6 million ($0.18 per diluted share) and increase net income by $59.0 million ($0.59 per diluted share).
 
During the three months ended December 31, 2007, VMS distributed its remaining cash, consisting primarily of undistributed proceeds from the sale of its 15 properties (including properties sold to us). Of the $42.4 million of cash distributed to the unrelated limited partners, $21.3 million represents the cash consideration we contributed in exchange for the purchase of seven properties and is presented in purchases of partnership interests and other assets in the consolidated statement of cash flows for the year ended December 31, 2007. The remainder of the cash distributed to the unrelated limited partners is presented in payment of distributions to minority interest in the consolidated statement of cash flows.
 
Flamingo South Beach Property
 
The Flamingo South Beach property consists of three towers. In connection with sale of the South Tower in 2006, the buyer paid to us a $5.0 million non-refundable payment for the option to acquire the 614-unit North Tower between September 1, 2006, and February 28, 2007, and the 513-unit Central Tower between December 1, 2007, and May 31, 2008. Pursuant to the purchase and sale agreement, the buyer paid to us an additional $1.0 million non-refundable payment to extend the option period for the buyer’s purchase of the North Tower from February 28, 2007, to October 31, 2007. In accordance with Statement of Financial Accounting Standards No. 66, Accounting for Sales of Real Estate, or SFAS 66, we deferred the recognition of the non-refundable payments. In September 2007, the buyer terminated its rights under the option agreement. We have no further obligation under the option agreement and, accordingly, recognized income of $6.0 million, or $5.5 million, net of tax, during the year ended December 31, 2007, which is presented in gain on dispositions of unconsolidated real estate and other in the accompanying consolidated statement of income.
 
Palazzo Joint Venture
 
In December 2007, we entered into a joint venture agreement with a third party investor which provides for the co-ownership of three multi-family properties with 1,382 units located in West Los Angeles. Under the agreement, we contributed three wholly-owned properties, The Palazzo at Park La Brea, The Palazzo East at Park La Brea and The Villas at Park La Brea to the partnership, which we refer to as Palazzo, at a value of $726.0 million, or approximately $525,000 per unit. Palazzo has existing property debt of approximately $296.0 million and an implied equity value of approximately $430.0 million. We received $202.0 million from the investor in exchange for an approximate 47% interest in Palazzo, of which approximately $7.9 million was used to fund escrows for capital improvements and various operating requirements. We own the remaining interests in Palazzo, including a managing interest, and will operate the properties in exchange for a property management fee and certain other fees over the term of the partnership.
 
We determined Palazzo is a VIE as defined by FIN 46R and that we are the primary beneficiary who should consolidate this partnership. In accordance with SFAS 66, we deferred recognition of a gain on this transaction and recognized the consideration received as an increase in minority interest in consolidated real estate partnerships.
 
Note 4 — Investments in Unconsolidated Real Estate Partnerships
 
We owned general and limited partner interests in unconsolidated real estate partnerships owning approximately 94, 102 and 264 properties at December 31, 2007, 2006 and 2005, respectively. We acquired these interests through various transactions, including large portfolio acquisitions and offers to individual limited partners. Our total ownership interests in these unconsolidated real estate partnerships ranges typically from less than 1% to 50%.


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The following table provides selected combined financial information for the unconsolidated real estate partnerships in which we had investments accounted for under the equity method as of and for the years ended December 31, 2007, 2006 and 2005 (in thousands):
 
                         
    2007     2006     2005  
 
Real estate, net of accumulated depreciation
  $ 128,950     $ 146,400     $ 763,219  
Total assets
    152,214       166,874       954,970  
Secured and other notes payable
    124,406       140,089       932,454  
Total liabilities
    168,573       199,082       1,248,450  
Partners’ equity (deficit)
    (16,359 )     (32,208 )     (293,480 )
Rental and other property revenues
    40,486       99,708       311,429  
Property operating expenses
    (20,630 )     (49,451 )     (177,970 )
Depreciation expense
    (9,692 )     (18,769 )     (63,056 )
Interest expense
    (9,541 )     (24,146 )     (84,252 )
Gain on sale
          2,980       106,465  
Net income (loss)
    (3,875 )     (1,443 )     82,123  
 
The decreases in the 2007 and 2006 amounts relative to the 2005 amounts in the above table reflect dispositions of real estate owned by the unconsolidated real estate partnerships and the consolidation of certain partnerships previously accounted for under the equity method, including 156 partnerships consolidated in 2006 in connection with the adoption of EITF 04-5.
 
As a result of our acquisition of interests in unconsolidated real estate partnerships at a cost in excess of the historical carrying amount of the partnerships’ net assets, our aggregate investment in these partnerships at December 31, 2007 and 2006 of $117.2 million and $39.0 million, respectively, exceeds our share of the underlying historical partners’ deficit of the partnerships by approximately $120.4 million and $44.8 million, respectively.
 
Note 5 — Notes Receivable
 
The following table summarizes our notes receivable at December 31, 2007 and 2006 (in thousands):
 
                                                 
    2007     2006  
    Unconsolidated
                Unconsolidated
             
    Real Estate
    Non-
          Real Estate
    Non-
       
    Partnerships     Affiliates     Total     Partnerships     Affiliates     Total  
 
Par value notes
  $ 30,155     $ 17,053     $ 47,208     $ 40,055     $ 18,815     $ 58,870  
Discounted notes
    10,045       127,422       137,467       6,064       120,537       126,601  
Allowance for loan losses
    (5,014 )     (1,421 )     (6,435 )     (5,478 )           (5,478 )
                                                 
Total notes receivable
  $ 35,186     $ 143,054     $ 178,240     $ 40,641     $ 139,352     $ 179,993  
                                                 
Face value of discounted notes
  $ 41,668     $ 142,062     $ 183,730     $ 41,781     $ 145,024     $ 186,805  
 
Included in notes receivable from unconsolidated real estate partnerships at December 31, 2007 and 2006, are $4.3 million and $6.0 million, respectively, in notes that were secured by interests in real estate or interests in real estate partnerships. We earn interest on these secured notes receivable at various annual interest rates ranging between 9.0% and 12.0% and averaging 11.2%.
 
Included in the notes receivable from non-affiliates at December 31, 2007 and 2006, are $87.6 million and $87.6 million, respectively, in notes that were secured by interests in real estate or interests in real estate partnerships. We earn interest on these secured notes receivable at various annual interest rates ranging between 4.0% and 7.4% and averaging 7.2%.
 
Notes receivable from non-affiliates at December 31, 2007 and 2006 include notes receivable totaling $84.3 million and $81.6 million, respectively, from 31 entities (the “borrowers”) that are wholly owned by a single individual. We originated these notes in November 2006 pursuant to a loan agreement that provides for total funding of approximately $110 million, including $14.4 million for property improvements and an interest reserve, of which


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$6.2 million had not been funded as of December 31, 2007. The notes mature in November 2016, bear interest at LIBOR plus 2.0%, are partially guaranteed by the owner of the borrowers, and are collateralized by second mortgages on 87 buildings containing 1,597 residential units and 42 commercial spaces in West Harlem, New York City. In conjunction with the loan agreement, we entered into a purchase option and put agreement with the borrowers under which we may purchase some or all of the buildings and, subject to achieving specified increases in rental income, the borrowers may require us to purchase the buildings. Our potential purchase of the buildings pursuant to the purchase option and put agreement may ultimately require cash payments and/or assumption of first mortgage debt totaling approximately $149.0 million to $216.0 million, in addition to amounts funded and committed under the loan agreement, depending on rental income levels and real estate fair values. We determined that the stated interest rate on the notes is a below-market interest rate and recorded a $19.4 million discount to reflect the estimated fair value of the notes based on an estimated market interest rate of LIBOR plus 4.0%. The discount was determined to be attributable to our real estate purchase option, which we recorded separately in other assets. Accretion of this discount totaled $1.5 million in 2007 and is included in interest income. No accretion of this discount was recorded in 2006. The unamortized potion of the purchase option asset will be included in the cost of properties acquired pursuant to the option or otherwise be charged to expense. We determined that the borrowers are VIEs and, based on qualitative and quantitative analysis, determined that the individual who owns the borrowers and partially guarantees the notes is the primary beneficiary.
 
Notes receivable from non-affiliates also includes a note receivable totaling $42.9 million at December 31, 2007, representing a $50.0 million interest in Casden Properties LLC made in connection with the March 2002 acquisition of Casden Properties, Inc. The difference between the carrying amount of the note and the total investment of $50.0 million represents a discount that will be amortized as interest income, using a 13.3% imputed effective interest rate, through the March 2009 maturity of the note.
 
Interest income from total non-impaired par value and certain discounted notes for the years ended December 31, 2007, 2006 and 2005 totaled $11.7 million, $5.8 million and $19.2 million, respectively. For the years ended December 31, 2007, 2006 and 2005 we recognized accretion income on certain discounted notes of approximately $3.4 million, $6.7 million and $2.5 million, respectively.
 
The activity in the allowance for loan losses in total for both par value notes and discounted notes for the years ended December 31, 2007 and 2006, is as follows (in thousands):
 
                 
    2007     2006  
 
Balance at beginning of year
  $ (5,478 )   $ (4,890 )
Provisions for losses on notes receivable
    (6,018 )     (3,105 )
Recoveries of losses on notes receivable
    2,067       320  
Net reductions due to consolidation of real estate partnerships and property dispositions
    2,994       2,197  
                 
Balance at end of year
  $ (6,435 )   $ (5,478 )
                 
 
During the years ended December 31, 2007 and 2006, we determined that an allowance for loan losses of $4.0 million and $3.4 million, respectively, was required on certain of our par value notes that had carrying values of $9.5 million and $9.0 million, respectively. The average recorded investment in the impaired par value notes for the years ended December 31, 2007 and 2006 was $8.3 million and $7.0 million, respectively. The remaining $37.7 million in par value notes receivable at December 31, 2007 is estimated to be collectible and, therefore, interest income on these par value notes is recognized as it is earned.
 
As of December 31, 2007 and 2006, we determined that an allowance for loan losses of $2.4 million and $2.0 million, respectively, was required on certain of our discounted notes that had carrying values of $3.4 million and $4.4 million, respectively. The average recorded investment in the impaired discounted notes for the years ended December 31, 2007 and 2006 was $3.4 million and $4.6 million, respectively.


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Note 6 — Secured Tax-Exempt Bond Financings, Property Loans Payable and Other Borrowings
 
The following table summarizes our secured tax-exempt bond financings at December 31, 2007 and 2006, the majority of which is non-recourse to us (in thousands):
 
                         
    Weighted Average
             
    Interest Rate
    Principal Outstanding  
    2007     2007     2006  
 
Fixed rate secured tax-exempt bonds payable
    5.59 %   $ 243,140     $ 295,532  
Variable rate secured tax-exempt bonds payable
    3.65 %     698,415       631,420  
                         
Total
          $ 941,555     $ 926,952  
                         
 
Fixed rate secured tax-exempt bonds payable mature at various dates through October 2045. Variable rate secured tax-exempt bonds payable mature at various dates through December 2036. Principal and interest on these bonds are generally payable in semi-annual installments or in monthly interest-only payments with balloon payments due at maturity. Certain of our tax-exempt bonds at December 31, 2007, are remarketed periodically by a remarketing agent to maintain a variable yield. If the remarketing agent is unable to remarket the bonds, then the remarketing agent can put the bonds to us. We believe that the likelihood of this occurring is remote. At December 31, 2007, our secured tax-exempt bond financings were secured by 71 properties with a combined net book value of $1,430.2 million. As discussed in Note 2, certain fixed rate secured tax-exempt bonds payable have been converted to variable rates using total rate of return swaps and are presented above as variable rate debt.
 
The following table summarizes our property loans payable at December 31, 2007 and 2006, the majority of which are non-recourse to us (in thousands):
 
                         
    Weighted Average
             
    Interest Rate
    Principal Outstanding  
    2007     2007     2006  
 
Fixed rate secured notes payable
    6.15 %   $ 5,467,650     $ 4,626,975  
Variable rate secured notes payable
    6.45 %     417,740       361,953  
Secured notes credit facility
    5.38 %     154,780       109,988  
                         
Total
          $ 6,040,170     $ 5,098,916  
                         
 
Fixed rate secured notes payable mature at various dates through August 2053. Variable rate secured notes payable mature at various dates through July 2021. Principal and interest are generally payable monthly or in monthly interest-only payments with balloon payments due at maturity. At December 31, 2007, our secured notes payable were secured by 563 properties with a combined net book value of $7,773.5 million. As discussed in Note 2, certain fixed rate secured notes payable have been converted to variable rates using total rate of return swaps and are presented above as variable rate debt.
 
We had a secured revolving credit facility that provided for borrowings of up to $250 million primarily to be used for financing properties that we generally intended to hold for the intermediate term, as well as properties that were designated for redevelopment. The interest rate on the notes provided through this facility was the Fannie Mae Discounted Mortgage-Backed Security index plus 0.85% (for those loans with debt coverage ratios greater than or equal to 1.70x) or 1.05% (for those loans with debt service coverage ratios less than 1.70x), which interest rates reset monthly. Each such loan under this facility was treated as a separate borrowing and was collateralized by a specific property,