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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549
   Form 10-Q (Mark One) þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the quarterly period ended March 31, 2005ORo
    
    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 0-24497   AIMCO Properties, L.P.  Delaware
    
    84-1275621(State or other jurisdiction of
    
    (I.R.S. Employerincorporation or organization)
    
    Identification No.)4582 South Ulster Street Parkway, Suite 1100Denver, Colorado
    
    80237(Address of principal executive offices)
    
    (Zip Code)
 (303) 757-8101
(Registrants telephone number, including area code) Not Applicable
(Former name, former address, and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes
þ No o Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule
12b-2 of the Exchange Act). Yes þ No o   As of April 29, 2005, there were 103,663,048 Partnership Common Units outstanding.




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AIMCO PROPERTIES, L.P. TABLE OF CONTENTS FORM 10-Q PagePART I. FINANCIAL INFORMATIONITEM 1.
    
    
    
    Financial StatementsConsolidated Balance Sheets as of March 31, 2005 (unaudited) and December 31, 2004.
    
    
    2Consolidated Statements of Income for the Three Months Ended March 31, 2005 and 2004
(unaudited).
    
    
    3Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2005 and
2004 (unaudited).
    
    
    4Notes to Consolidated Financial Statements (unaudited).
    
    
    5ITEM 2.
    
    
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    15ITEM 3.
    
    
    
    Quantitative and Qualitative Disclosures about Market Risk.
    
    
    27ITEM 4.
    
    
    
    Controls and Procedures.
    
    
    27PART II. OTHER INFORMATIONITEM 1.
    
    
    
    Legal Proceedings.
    
    
    28ITEM 2.
    
    
    
    Unregistered Sales of Equity Securities and Use of Proceeds.
    
    
    28ITEM 6.
    
    
    
    Exhibits.
    
    
    29Signatures
    
    
    
    
    30Certification of CEO Pursuant to Section 302Certification of CFO Pursuant to Section 302Certification of CEO Pursuant to Section 906Certification of CFO Pursuant to Section 906Agreement Re: Disclosure of Long-Term Debt Instruments
 1




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AIMCO PROPERTIES, L.P. CONSOLIDATED BALANCE SHEETS
(In Thousands, Except Unit Data) March 31, 2005
    
    
    December 31, 2004(Unaudited)ASSETSReal estate:Land
    
    $
    2,321,226
    
    
    $
    2,210,550Buildings and improvements
    
    
    8,852,661
    
    
    
    8,579,573Total real estate
    
    
    11,173,887
    
    
    
    10,790,123Less accumulated depreciation
    
    
    (2,112,386
    )
    
    
    (2,010,267
    )Net real estate
    
    
    9,061,501
    
    
    
    8,779,856Cash and cash equivalents
    
    
    119,629
    
    
    
    105,343Restricted cash
    
    
    270,012
    
    
    
    269,258Accounts receivable
    
    
    73,060
    
    
    
    75,044Accounts receivable from affiliates
    
    
    53,107
    
    
    
    39,216Deferred financing costs
    
    
    71,416
    
    
    
    72,351Notes receivable from unconsolidated real estate partnerships
    
    
    170,352
    
    
    
    165,289Notes receivable from non-affiliates
    
    
    29,987
    
    
    
    31,716Notes receivable from Aimco
    
    
    12,783
    
    
    
    12,613Investment in unconsolidated real estate partnerships
    
    
    173,329
    
    
    
    207,527Other assets
    
    
    263,838
    
    
    
    267,027Assets held for sale
    
    
    43,563
    
    
    
    58,914Total assets
    
    $
    10,342,577
    
    
    $
    10,084,154LIABILITIES AND PARTNERS CAPITALSecured tax-exempt bond financing
    
    $
    1,110,270
    
    
    $
    1,133,794Secured notes payable
    
    
    4,672,936
    
    
    
    4,466,964Mandatorily redeemable preferred securities
    
    
    
    
    
    
    15,019Term loan
    
    
    300,000
    
    
    
    300,000Credit facility
    
    
    276,000
    
    
    
    68,700Total indebtedness
    
    
    6,359,206
    
    
    
    5,984,477Accounts payable
    
    
    40,663
    
    
    
    34,663Accrued liabilities and other
    
    
    403,324
    
    
    
    400,971Deferred income
    
    
    47,563
    
    
    
    47,064Security deposits
    
    
    39,375
    
    
    
    37,953Deferred income taxes payable, net
    
    
    20,770
    
    
    
    20,139Liabilities related to assets held for sale
    
    
    44,224
    
    
    
    54,973Total liabilities
    
    
    6,955,125
    
    
    
    6,580,240Minority interest in consolidated real estate partnerships
    
    
    206,955
    
    
    
    212,827Partners capital:Preferred units
    
    
    1,186,766
    
    
    
    1,131,041General Partner and Special Limited Partner
    
    
    1,785,925
    
    
    
    1,851,733Limited Partners
    
    
    313,139
    
    
    
    326,113High performance units
    
    
    (10,839
    )
    
    
    (8,880
    )Investment in Aimco Class A Common Stock
    
    
    (8,689
    )
    
    
    (8,920
    )Note receivable from Aimco
    
    
    (85,805
    )
    
    
    Total partners capital
    
    
    3,180,497
    
    
    
    3,291,087Total liabilities and partners capital
    
    $
    10,342,577
    
    
    $
    10,084,154
 See notes to consolidated financial statements. 2




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AIMCO PROPERTIES,
L.P.
CONSOLIDATED STATEMENTS OF INCOME
(In Thousands, Except Per Unit Data)
(Unaudited) For the Three Months EndedMarch 31,2005
    
    
    2004REVENUES:Rental and other property revenues
    
    $
    376,334
    
    
    $
    338,532Property management revenues, primarily from affiliates
    
    
    6,664
    
    
    
    8,256Activity fees and asset management revenues, primarily from affiliates
    
    
    8,017
    
    
    
    8,268Total revenues
    
    
    391,015
    
    
    
    355,056EXPENSES:Property operating expenses
    
    
    182,481
    
    
    
    160,569Property management expenses
    
    
    2,521
    
    
    
    2,342Activity and asset management expenses
    
    
    2,608
    
    
    
    2,311Depreciation and amortization
    
    
    104,541
    
    
    
    86,216General and administrative expenses
    
    
    20,873
    
    
    
    18,262Other expenses (income), net
    
    
    (717
    )
    
    
    (1,023
    )Total expenses
    
    
    312,307
    
    
    
    268,677Operating income
    
    
    78,708
    
    
    
    86,379Interest income
    
    
    8,080
    
    
    
    7,850Recovery of (provision for) losses on notes receivable
    
    
    1,592
    
    
    
    79Interest expense
    
    
    (94,211
    )
    
    
    (88,135
    )Deficit distributions to minority partners, net
    
    
    (1,472
    )
    
    
    (4,447
    )Equity in losses of unconsolidated real estate partnerships
    
    
    (902
    )
    
    
    (1,434
    )(Impairment losses) recoveries related to unconsolidated real estate partnerships
    
    
    (256
    )
    
    
    148Gain on dispositions of real estate related to unconsolidated entities and other
    
    
    1,858
    
    
    
    Income (loss) before minority interest, discontinued operations and
cumulative effect of change in accounting principle
    
    
    (6,603
    )
    
    
    440Minority interest in consolidated real estate partnerships
    
    
    3,487
    
    
    
    1,499Income (loss) from continuing operations
    
    
    (3,116
    )
    
    
    1,939Income from discontinued operations, net
    
    
    5,103
    
    
    
    17,671Income before cumulative effect of change in accounting principle
    
    
    1,987
    
    
    
    19,610Cumulative effect of change in accounting principle
    
    
    
    
    
    
    (3,957
    )Net income
    
    
    1,987
    
    
    
    15,653Net income attributable to preferred unitholders
    
    
    25,074
    
    
    
    22,097Net loss attributable to common unitholders
    
    $
    (23,087
    )
    
    $
    (6,444
    )Earnings (loss) per common unit  basic:Income (loss) from continuing operations (net of preferred distributions)
    
    $
    (0.27
    )
    
    $
    (0.19
    )Income from discontinued operations
    
    
    0.05
    
    
    
    0.17Cumulative effect of change in accounting principle
    
    
    
    
    
    
    (0.04
    )Net loss attributable to common unitholders
    
    $
    (0.22
    )
    
    $
    (0.06
    )Earnings (loss) per common unit  diluted:Income (loss) from continuing operations (net of preferred distributions)
    
    $
    (0.27
    )
    
    $
    (0.19
    )Income from discontinued operations
    
    
    0.05
    
    
    
    0.17Cumulative effect of change in accounting principle
    
    
    
    
    
    
    (0.04
    )Net loss attributable to common unitholders
    
    $
    (0.22
    )
    
    $
    (0.06
    )Weighted average common units outstanding
    
    
    104,273
    
    
    
    104,346Weighted average common units and equivalents outstanding
    
    
    104,273
    
    
    
    104,346Distributions declared per common unit
    
    $
    0.60
    
    
    $
    0.60
 See notes to consolidated financial statements. 3




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AIMCO PROPERTIES, L.P. CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands, Unaudited) For the Three MonthsEnded March 31,2005
    
    
    2004CASH FLOWS FROM OPERATING ACTIVITIES:Net income
    
    $
    1,987
    
    
    $
    15,653Adjustments to reconcile net income to net cash provided by operating activities:Depreciation and amortization
    
    
    104,541
    
    
    
    86,216Discontinued operations
    
    
    (4,636
    )
    
    
    (9,312
    )Other adjustments
    
    
    30
    
    
    
    8,598Net changes in operating assets and operating liabilities
    
    
    139
    
    
    
    (38,991
    )Net cash provided by operating activities
    
    
    102,061
    
    
    
    62,164CASH FLOWS FROM INVESTING ACTIVITIES:Purchases of real estate
    
    
    (143,363
    )
    
    
    (105,843
    )Capital expenditures
    
    
    (90,779
    )
    
    
    (38,036
    )Proceeds from dispositions of real estate
    
    
    20,889
    
    
    
    83,354Change in funds held in escrow from tax-free exchanges
    
    
    40
    
    
    
    (20,564
    )Purchases of non-real estate related corporate assets
    
    
    (1,705
    )
    
    
    (16,659
    )Purchases of general and limited partnership interests and other assets
    
    
    (33,500
    )
    
    
    (26,750
    )Originations of notes receivable from unconsolidated real estate partnerships
    
    
    (5,810
    )
    
    
    (11,935
    )Originations
of notes receivable from Aimco
    
    
    (85,412
    )
    
    
    (69,678
    )Proceeds
from repayment of notes receivable from Aimco
    
    
    
    
    
    
    69,678Distributions received from investments in unconsolidated real estate partnerships
    
    
    24,811
    
    
    
    25,153Other investing activities
    
    
    8,112
    
    
    
    12,354Net cash used in investing activities
    
    
    (306,717
    )
    
    
    (98,926
    )CASH FLOWS FROM FINANCING ACTIVITIES:Proceeds from secured notes payable borrowings
    
    
    227,200
    
    
    
    126,882Principal repayments on secured notes payable
    
    
    (60,491
    )
    
    
    (95,178
    )Proceeds from tax-exempt bond financing
    
    
    
    
    
    
    50,772Principal repayments on tax-exempt bond financing
    
    
    (23,531
    )
    
    
    (23,697
    )Net borrowings on term loans and revolving credit facility
    
    
    207,300
    
    
    
    35,113Redemption of mandatorily redeemable preferred securities
    
    
    (15,019
    )
    
    
    (98,875
    )Proceeds from issuance of preferred units, net
    
    
    
    
    
    
    124,022Redemption of preferred units
    
    
    (31,250
    )
    
    
    Repurchase and redemption of common units and warrant purchase
    
    
    (1,584
    )
    
    
    (12,889
    )Contributions from minority interest
    
    
    5,859
    
    
    
    12,930Payment of distributions to minority interest
    
    
    (3,994
    )
    
    
    (16,482
    )Payment of distributions to General Partner and Special Limited Partner
    
    
    (56,749
    )
    
    
    (56,295
    )Payment of distributions to Limited Partners
    
    
    (5,723
    )
    
    
    (5,153
    )Payment of distributions to High Performance Units
    
    
    (1,427
    )
    
    
    (1,427
    )Payment of distributions to preferred units
    
    
    (23,116
    )
    
    
    (21,766
    )Other financing activities
    
    
    1,467
    
    
    
    (2,971
    )Net cash provided by financing activities
    
    
    218,942
    
    
    
    14,986NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
    
    
    14,286
    
    
    
    (21,776
    )CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD
    
    
    105,343
    
    
    
    114,432CASH AND CASH EQUIVALENTS AT END OF PERIOD
    
    $
    119,629
    
    
    $
    92,656Significant non-cash transactions:Issuance of preferred units associated with the purchase of real estate
    
    $
    85,412
    
    
    $
    69,678
 See notes to consolidated financial statements. 4




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AIMCO PROPERTIES, L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2005
(Unaudited) Note 1  Organization AIMCO Properties, L.P., a Delaware limited partnership, or the Partnership, and together with
its consolidated subsidiaries and other controlled entities, the Company, was formed on May 16,
1994 to conduct the business of acquiring, redeveloping, leasing, and managing multifamily
apartment properties. Our securities include Partnership Common Units, or common OP Units,
Partnership Preferred Units, or preferred OP Units, and High Performance Partnership Units, or High
Performance Units, which are collectively referred to as OP Units. Apartment Investment and
Management Company, or Aimco, is the owner of our general partner, AIMCO-GP, Inc., or the General
Partner, and special limited partner, AIMCO-LP, Inc., or the Special Limited Partner. The General
Partner and Special Limited Partner hold common OP Units and are the primary holders of outstanding
preferred OP Units. Limited Partners refers to individuals or entities that are our limited
partners, other than Aimco, the General Partner or the Special Limited Partner, and own common OP
Units or preferred OP Units. Generally, after holding the common OP Units for one year, the
Limited Partners have the right to redeem their common OP Units for cash, subject to our prior
right to acquire some or all of the common OP Units tendered for redemption in exchange for shares
of Aimco Class A Common Stock. Common OP Units redeemed for Aimco Class A Common Stock are
generally on a one-for-one basis (subject to antidilution adjustments). Preferred OP Units and
High Performance Units may or may not be redeemable based on their respective terms, as provided
for in the Third Amended and Restated Agreement of Limited Partnership of AIMCO Properties, L.P. as
amended, or the Partnership Agreement. We, through our operating divisions and subsidiaries, hold substantially all of Aimcos assets
and manage the daily operations of Aimcos business and assets. Aimco is required to contribute
all proceeds from offerings of its securities to us. In addition, substantially all of Aimcos
assets must be owned through the Partnership; therefore, Aimco is generally required to contribute
all assets acquired to us. In exchange for the contribution of offering proceeds or assets, Aimco
receives additional interests in us with similar terms (e.g., if Aimco contributes proceeds of a
preferred stock offering, Aimco (through the General Partner and Special Limited Partner) receives
preferred OP Units with terms substantially similar to the preferred securities issued by Aimco). Aimco frequently consummates transactions for our benefit. For legal, tax or other business
reasons, Aimco may hold title or ownership of certain assets until they can be transferred to us.
However, we have a controlling financial interest in substantially all of Aimcos assets in the
process of transfer to us. Except as the context otherwise requires, we, our, us and the
Company refer to the Partnership, and the Partnerships consolidated corporate subsidiaries and
consolidated real estate partnerships, collectively. Except as the context otherwise requires,
Aimco refers to Aimco and Aimcos consolidated corporate subsidiaries and consolidated real
estate partnerships, collectively. As of March 31, 2005, we:  
    owned an equity interest in and consolidated 171,707 units in 680 properties (which we
refer to as consolidated), of which 170,915 units were also managed by us;
    owned an equity interest in and did not consolidate 41,940 units in 313 properties
(which we refer to as unconsolidated), of which 35,438 units were also managed by us; and
    provided services or managed, for third-party owners, 47,711 units in 484 properties,
primarily pursuant to long-term agreements (including 41,239 units in 418 properties that
are asset managed only, and not also property managed), 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. At March 31, 2005, we had outstanding 103,668,033 common OP Units, 45,051,536 preferred OP
Units and 2,379,084 High Performance Units (includes only those units that have met the required
measurement benchmarks and are dilutive  see Note 6). 5




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Note 2  Basis of Presentation The accompanying unaudited consolidated financial statements have been prepared in accordance
with generally accepted accounting principles for interim financial information and with the
instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all
of the information and disclosures required by generally accepted accounting principles for
complete financial statements. In the opinion of management, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation have been included. Operating
results for the three months ended March 31, 2005 are not necessarily indicative of the results
that may be expected for the year ending December 31, 2005. The balance sheet at December 31, 2004 has been derived from the audited financial statements
at that date but does not include all of the information and disclosures required by generally
accepted accounting principles for complete financial statements. For further information, refer
to the financial statements and notes thereto included in AIMCO Properties, L.P.s Annual Report on
Form 10-K for the year ended December 31, 2004. Certain 2004 financial statement amounts have been
reclassified to conform to the 2005 presentation. Principles of Consolidation The accompanying consolidated financial statements include the accounts of the Partnership,
its majority owned subsidiaries and consolidated real estate partnerships. Pursuant to a
Management and Contribution Agreement between the Partnership and Aimco, we have acquired, in
exchange for interests in the Partnership, the economic benefits of subsidiaries of Aimco in which
we do not have an interest, and Aimco has granted us a right of first refusal to acquire such
subsidiaries assets for no additional consideration. Pursuant to the agreement, Aimco has also
granted us certain rights with respect to assets of such subsidiaries. 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 us generally are
not available to pay creditors of Aimco or the Partnership. As a result of the adoption of FASB Interpretation No. 46 (revised December 2003),
Consolidation of Variable Interest Entities, or FIN 46, as of March 31, 2004, we consolidate all
variable interest entities for which we are the primary beneficiary. Minority Interest in Consolidated Real Estate Partnerships We reflect 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 partnership losses to minority partners to the
extent of the carrying amount of the minority interest. We generally record a charge when
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
three months ended March 31, 2005 and 2004, we recorded charges for partnership losses resulting
from depreciation of approximately $2.3 million and $1.3 million, respectively, which were not
allocated to minority partners because the losses exceeded the carrying amount of the minority
interest. Use of Estimates The preparation of our consolidated financial statements in conformity with accounting
principles generally accepted in the United States requires management to make estimates and
assumptions that affect the reported amounts included in the financial statements and accompanying
notes thereto. Actual results could differ from those estimates. 6




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Stock-Based Compensation Aimco, from time to time, issues stock options. Upon exercise of the stock options, Aimco
must contribute to us the proceeds received in exchange for the same number of common OP Units as
shares of Aimco Class A Common Stock issued in connection with the exercised stock options.
Therefore, the following disclosures are made pertaining to Aimcos stock options. Effective January 1, 2003, Aimco adopted the accounting provisions of Statement of Financial
Accounting Standards No. 123, Accounting for Stock-Based Compensation,or SFAS 123, as amended by
Statement of Financial Accounting Standards No. 148, Accounting for Stock-Based
CompensationTransition and Disclosurean amendment of FASB Statement No. 123,or SFAS 148, and
applied the prospective method set forth in SFAS 148 with respect to the transition. Under this
method, Aimco applies the fair value recognition provisions of SFAS 123 to all employee awards
granted, modified, or settled on or after January 1, 2003, which has resulted in recognition of
compensation expense related to stock options based on the fair value of the stock options. For
stock options granted prior to January 1, 2003, we apply Accounting Principles Board Opinion No.
25, Accounting for Stock Issued to Employees, or APB 25, and related interpretations. Under APB
25, because the exercise price of our employee stock options equaled the market price of the
underlying stock on the date of grant, no compensation expense related to such options has been
recognized. Aimco recognizes compensation expense for stock options accounted for under SFAS 123
and restricted stock awards ratably over the period the awards vest. Compensation expense is
reversed as forfeitures occur. For purposes of the pro forma disclosures below, the estimated fair values for all awards made
prior to January 1, 2003 are amortized over the respective vesting period for each such option and
are shown as expense as if SFAS 123 had been applied to all such awards. Pro forma information
regarding net income and earnings per unit is required by SFAS 123, which also requires that the
information be determined as if Aimco had accounted for our employee stock options granted
subsequent to December 31, 1994 under the fair value method. The following table illustrates the effect on net income and earnings per unit if the fair
value based method had been applied to all outstanding and unvested awards in each period
presented. Our pro forma information for the three months ended March 31, 2005 and 2004 is as
follows (in thousands, except per unit data): Three Months EndedMarch 31,2005
    
    
    2004Net loss attributable to common unitholders, as reported
    
    $
    (23,087
    )
    
    $
    (6,444
    )Add: Stock-based employee compensation expense included
in reported net income:Restricted stock awards
    
    
    1,855
    
    
    
    415Stock options
    
    
    453
    
    
    
    364Deduct: Total stock-based employee compensation expense
determined under fair value based method for all awards:Restricted stock awards
    
    
    (1,855
    )
    
    
    (415
    )Stock options
    
    
    (872
    )
    
    
    (1,056
    )Pro forma net loss attributable to common unitholders
    
    $
    (23,506
    )
    
    $
    (7,136
    )Basic loss per common unit:Reported
    
    $
    (0.22
    )
    
    $
    (0.06
    )Pro forma
    
    $
    (0.23
    )
    
    $
    (0.07
    )Diluted loss per common unit:Reported
    
    $
    (0.22
    )
    
    $
    (0.06
    )Pro forma
    
    $
    (0.23
    )
    
    $
    (0.07
    )
 The effects of applying SFAS 123 in calculating pro forma income attributable to common
unitholders and pro forma basic and diluted earnings per unit may not necessarily be indicative of
the effects of applying SFAS 123 to future years earnings. As discussed in Note 10, Aimco is
required to change its method of accounting for stock based compensation in 2006. 7




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Note 3  Acquisitions Real Estate Acquisitions On February 28, 2005, Aimco completed the acquisition of Palazzo East at Park La Brea, a
mid-rise apartment community with 610 units, for approximately $199.3 million. Palazzo East at
Park La Brea is the third of three phases to be completed as part of the Park La Brea development.
In connection with the March 2002 acquisition of Casden Properties, Inc. (which we refer to as the
Casden Transactions), Aimco agreed to purchase all three phases of the Park La Brea development
upon completion and attainment of 60% occupancy. The purchase of Palazzo East at Park La Brea, was
funded with cash of approximately $86.8 million and a variable rate secured property note of $112.5
million. In order to fund the acquisition of Palazzo East at Park La Brea, we loaned $85.4 million
to Aimco in exchange for a note receivable (see Note 11). Additionally during the three months ended March 31, 2005, we completed the acquisition of
four properties in New York City containing approximately 129 residential units and six retail
spaces for an aggregate purchase price of approximately $29.4 million, including transaction costs.
The purchases were primarily funded with new debt of $17.8 million and the remainder in cash. Acquisitions of Partnership Interests During the three months ended March 31, 2005, we acquired limited partnership interests in 42
partnerships in which our affiliates served as general partner. In connection with such
acquisitions in both consolidated and unconsolidated real estate partnerships, we paid
approximately $24.1 million, including transaction costs, primarily in cash. This amount was
approximately $31.6 million in excess of the minority interests book value in such limited
partnerships, which excess we generally identified to real estate. Note 4  Mandatorily Redeemable Preferred Securities In connection with the Insignia merger in 1998, we assumed the obligations under Trust Based
Convertible Preferred Securities, which we refer to as TOPRS, with an aggregate liquidation amount
of $149.5 million. Since 1998, approximately $134.5 million of the securities have been converted,
resulting in $15.0 million that remained as of December 31, 2004, which also represented the
redemption value. On January 11, 2005, we redeemed for cash all outstanding TOPRS for a total
redemption price of $50 per security, or $15.0 million, plus any accrued and unpaid distributions
through the redemption date. Note 5  Commitments and Contingencies Commitments In connection with the Casden Transactions, we and Aimco made commitments to:  
    invest up to $50 million for a 20% limited liability company interest in Casden
Properties LLC. As of March 31, 2005, we had invested $39.2 million. Casden Properties
LLC intends to pursue new development opportunities in Southern California and other
markets. We have an option, but not an obligation, to purchase at completion all
multifamily rental projects developed by Casden Properties LLC; and
    pay $2.5 million per quarter for five years (for an aggregate amount of $50 million) to
Casden Properties LLC as a retainer on account for redevelopment services on our assets (as
of March 31, 2005, $30.0 million has been paid). Guarantees We provide certain guarantees in connection with our syndication of historic and affordable
housing tax credits. We may be required to perform under these guarantees in certain instances
where projected tax benefits are not realized by the investor. These guarantees have varying
expiration dates ranging from less than one year and up to fifteen years. 8




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Legal Matters In addition to the matters described below, we are a party to various legal actions and
administrative proceedings arising in the ordinary course of business, some of which are covered by
liability insurance, and none of which we expect to have a material adverse effect on our
consolidated financial condition or results of operations. Limited Partnerships In connection with our acquisitions of interests in real estate partnerships, we are sometimes
subject to legal actions, including allegations that such activities may involve breaches of
fiduciary duties to the partners of such real estate partnerships or violations of the relevant
partnership agreements. We may incur costs in connection with the defense or settlement of such
litigation. We believe that we comply with our fiduciary obligations and relevant partnership
agreements. Although the outcome of any litigation is uncertain, we do not expect any such legal
actions to have a material adverse affect on our consolidated financial condition or results of
operations. 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. 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. Mold Aimco has been named as a defendant in lawsuits that have alleged personal injury 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 a national
policy and procedures to prevent or eliminate mold from our properties and believe that our
measures will minimize the effects that mold could 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. Unclaimed Property and Use Taxes Based on inquiries from several states, we are reviewing our historic forfeiture of unclaimed
property pursuant to applicable state and local laws. We are also reviewing our historic filing of
use tax returns in certain state and local jurisdictions that impose such taxes. At this time, we
do not have sufficient information available to determine the extent or potential effect of any
non-compliance on our consolidated financial condition or results of operations. National Union Litigation National Program Services, Inc. and Vito Gruppuso (collectively NPS) were insurance agents
who sold to Aimco property insurance issued by National Union Fire Insurance Company of Pittsburgh,
Pennsylvania (National Union). The financial failure of NPS resulted in defaults under two
agreements by which NPS indemnified Aimco from losses relating to the matters described below. As
a result of such defaults Aimco had a $16.7 million insurance-related 9




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##### Table of Contents



receivable that was subsequently reduced to $6.7 million following Aimcos settlement with
Lumbermens Mutual Casualty Company (Lumbermens) and an insurance agency. In addition, Aimco has
pending litigation against National Union, First Capital Group, a New York based insurance
wholesaler, NPS and other agents of National Union, for a refund of at least $10 million of the
prepaid premium plus other damages. The contingent liabilities arising from the NPS defaults also
resulted in litigation against Aimco by Cananwill, Inc. (Cananwill), a premium funding company,
regarding an alleged balance due of $5.7 million on a premium finance agreement that funded premium
payments made to National Union. Aimco is also a plaintiff in litigation against Cananwill and
Combined Specialty Insurance Company, formerly known as Virginia Surety Company, Inc., alleging
Cananwills conversion of $1.6 million of unearned premium belonging to Aimco and misapplication of
such funds to the alleged debt asserted in the lawsuit initiated by Cananwill. The matter in which
Aimco is a plaintiff has been stayed by the court pending resolution of the action filed by
Cananwill against them. The previously disclosed litigation brought by WestRM  West Risk Markets,
Ltd. (WestRM) against XL Reinsurance America, Inc. (XL), Greenwich Insurance Company
(Greenwich) and Lumbermens in which Aimco had been made a third party defendant continues.
Summary judgment has been entered against defendants XL and Greenwich. Similarly, the previously
disclosed litigation brought by Highlands Insurance Company (Highlands) against Cananwill, XL,
Greenwich and Aimco also continues. In those cases in which Aimco is a defendant, Aimco believes
that it has meritorious defenses to assert, and will vigorously defend itself against claims
brought against it. In addition, Aimco will vigorously prosecute its own claims. Although the
outcome of any claim or matter in litigation is uncertain, we do not believe that we will incur any
material loss in connection with the insurance-related receivable or that the ultimate outcome of
these separate but related matters will have a material adverse effect on our consolidated
financial condition or results of operations. FLSA Litigation We and NHP Management Company (NHPMN), an affiliate of ours, are defendants in a lawsuit
alleging that we and NHPMN willfully violated the Fair Labor Standards Act (FLSA) by failing to
pay maintenance workers overtime for all hours worked in excess of forty per week. The complaint
attempts to bring a collective action under the FLSA and seeks to certify state subclasses in
California, Maryland, and the District of Columbia. Specifically, the plaintiffs contend that we
and NHPMN failed to compensate maintenance workers for time that they were required to be
on-call. Additionally, the complaint alleges we and NHPMN failed to comply with the FLSA in
compensating maintenance workers for time that they worked in responding to a call while on-call.
We have filed an answer to the amended complaint denying the substantive allegations. Oral
argument relating to the certification of the collective action is scheduled for May 12, 2005.
Although the outcome of any litigation is uncertain, we do not believe that the ultimate outcome
will have a material adverse effect on our consolidated financial condition or results of
operations. SEC Investigation The Central Regional Office of the United States Securities and Exchange Commission (the
SEC) continues its formal investigation relating to certain matters. Although the staff of the
SEC is not limited in the areas that it may investigate, we believe the areas of investigation have
included Aimcos miscalculated monthly net rental income figures in third quarter 2003, forecasted
guidance, accounts payable, rent concessions, vendor rebates, capitalization of payroll and certain
other costs, and tax credit transactions. At the end of the first quarter 2005, the SEC added
certain tender offers for limited partnership interests as an area of investigation. Aimco is
cooperating fully. We are not able to predict when the investigation will be resolved. We do not
believe that the ultimate outcome will have a material adverse effect on our consolidated financial
condition or results of operations. Note 6  Partners Capital Preferred OP Units On January 21, 2005, Aimco redeemed for cash the remaining 1.25 million shares outstanding of
the Class D Cumulative Preferred Stock for a total redemption price of $25.0425 per share, which
included a redemption price of $25 per share, and $0.0425 per share of accumulated and unpaid
dividends through January 21, 2005. Concurrently with this redemption, we redeemed for cash the
remaining Class D Partnership Preferred Units. This redemption resulted in $1.1 million of
redemption related preferred OP Unit issuance costs being deducted from net income to arrive at net
loss attributable to common unitholders and thereby increased by $0.01 our loss per basic and
diluted common unit for the three months ended March 31, 2005. 10




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Common OP Units During the three months ended March 31, 2005 and 2004, approximately 13,000 and 3,000 common
OP Units, respectively, were redeemed in exchange for cash and approximately 33,000 and 359,000
common OP Units, respectively, were redeemed in exchange for shares of Aimco Class A Common Stock.
In addition, during the three months ended March 31, 2005 and 2004, we issued approximately 347,000
and 51,000 common OP Units, respectively, to Aimco and Aimco issued approximately 347,000 and
51,000 restricted shares of Aimco Class A Common Stock, respectively, to certain officers and
employees. The restricted stock was recorded at the fair market value of the Aimco Class A Common
Stock on the date of issuance. These shares of restricted Aimco Class A Common Stock may not be
sold, assigned, transferred, pledged, hypothecated or otherwise disposed of and are subject to a
risk of forfeiture prior to the expiration of the applicable vesting period (typically ratably over
a period of three or five years). Certain shares of restricted stock
issued during the three months ended March 31, 2005 are subject
to accelerated vesting upon the achievement of a specified calendar
year performance measure target. On December 2, 1997, Aimco issued warrants, which we refer to as the Oxford Warrants,
exercisable through December 31, 2006 to purchase up to an aggregate of 500,000 shares of Aimco
Class A Common Stock at an exercise price of $41 per share. The Oxford Warrants were issued to
affiliates of Oxford Realty Financial Group, Inc., a Maryland corporation, in connection with the
amendment of certain agreements pursuant to which we manage properties formerly controlled by
Oxford Realty Financial Group, Inc. or its affiliates. During the three months ended March 31,
2005, Aimco purchased from the holders thereof all outstanding Oxford Warrants for an aggregate
purchase price of $1.05 million. High Performance Units At March 31, 2005, in addition to the 2,379,084 Class I High Performance Partnership Units, we
had outstanding 5,000 Class VI High Performance Partnership Units, or the Class VI Units, for which
the valuation period began on January 1, 2003 and will end on December 31, 2005 and 4,109 Class VII
High Performance Partnership Units, or the Class VII Units, for which the valuation period began on
January 1, 2004 and will end on December 31, 2006. At March 31, 2005, we did not meet the required
measurement benchmarks for the Class VI Units or Class VII Units. Therefore, as of March 31, 2005
such High Performance Units have no dilutive effect. Note 7  Discontinued Operations and Assets Held for Sale At March 31, 2005, we had ten properties with an aggregate of 1,971 units classified as held
for sale. During the three months ended March 31, 2005, we sold six properties with an aggregate
of 491 units and during the year ended December 31, 2004, we sold 54 properties with an aggregate
of 12,248 units. For the three months ended March 31, 2005 and 2004, discontinued operations
included the results of operations of all of the above properties prior to the date of sale. The following is a summary of the components of income from discontinued operations for the
three months ended March 31, 2005 and 2004 (in thousands): For the Three Months EndedMarch 31,2005
    
    
    2004Rental and other property revenues
    
    $
    3,837
    
    
    $
    29,798Property operating expense
    
    
    (1,886
    )
    
    
    (12,912
    )Depreciation and amortization
    
    
    (95
    )
    
    
    (5,062
    )Other (expenses) income, net
    
    
    (584
    )
    
    
    (273
    )Operating income
    
    
    1,272
    
    
    
    11,551Interest income
    
    
    37
    
    
    
    46Interest expense
    
    
    (924
    )
    
    
    (7,603
    )Minority interest in consolidated real estate partnerships
    
    
    54
    
    
    
    (261
    )Income before gain on dispositions of real estate, impairment losses,
deficit
distributions to minority partners, and income tax
    
    
    439
    
    
    
    3,733Gain on dispositions of real estate, net of minority partners interest
    
    
    7,098
    
    
    
    11,327Impairment losses on real estate assets sold or held for sale
    
    
    (1,956
    )
    
    
    (14
    )Recovery of deficit distributions (deficit distributions) to minority
partners, net
    
    
    (465
    )
    
    
    3,322Income tax arising from disposals
    
    
    (13
    )
    
    
    (697
    )Income from discontinued operations
    
    $
    5,103
    
    
    $
    17,671
 11




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We are currently marketing for sale certain real estate properties that are inconsistent with
our long-term investment strategy. We expect that all properties classified as held for sale will
sell within one year from the date classified as held for sale. At March 31, 2005, assets
classified as held for sale of $43.6 million included real estate net book value of $43.1 million
and liabilities related to assets classified as held for sale of $44.2 million include mortgage
debt of $43.4 million. At December 31, 2004, assets classified as held for sale of $58.9 million
include real estate net book value of $57.6 million and liabilities related to assets classified as
held for sale of $55.0 million include mortgage debt of $54.1 million, represented by 16 properties
with 2,462 units that were classified as held for sale during 2004 and 2005. The estimated
proceeds, less anticipated costs to sell, for certain of these assets were less than the related
net book value, and therefore we recorded impairment losses of $2.0 million for the three months
ended March 31, 2005. We are also marketing for sale certain other properties that do not meet all
of the criteria to be classified as held for sale. Note 8  Earnings per Unit We calculate earnings per unit based on the weighted average number of common OP Units, common
OP Unit equivalents and dilutive convertible securities outstanding during the period. The
following table illustrates the calculation of basic and diluted earnings per unit for the three
months ended March 31, 2005, and 2004 (in thousands, except per unit data): For the Three Months EndedMarch 31,2005
    
    
    2004Numerator:Income (loss) from continuing operations
    
    $
    (3,116
    )
    
    $
    1,939Less net income attributable to preferred unitholders
    
    
    (25,074
    )
    
    
    (22,097
    )Numerator for basic and diluted earnings per unit
 Loss from continuing operations
    
    $
    (28,190
    )
    
    $
    (20,158
    )Income from discontinued operations
    
    $
    5,103
    
    
    $
    17,671Cumulative effect of change in accounting principle
    
    $
    
    
    
    $
    (3,957
    )Net income
    
    $
    1,987
    
    
    $
    15,653Less net income attributable to preferred unitholders
    
    
    (25,074
    )
    
    
    (22,097
    )Numerator for basic and diluted earnings per unit
 Net loss attributable to common unitholders
    
    $
    (23,087
    )
    
    $
    (6,444
    )Denominator:Denominator for basic earnings per unit  weighted
average number of common units outstanding
    
    
    104,273
    
    
    
    104,346Effect of dilutive securities:Dilutive potential common units
    
    
    
    
    
    
    Denominator for diluted earnings per unit
    
    
    104,273
    
    
    
    104,346Earnings (loss) per common unit:Basic earnings (loss) per common unit:Income (loss) from continuing operations (net of
preferred distributions)
    
    $
    (0.27
    )
    
    $
    (0.19
    )Income from discontinued operations
    
    
    0.05
    
    
    
    0.17Cumulative effect of change in accounting principle
    
    
    
    
    
    
    (0.04
    )Net loss attributable to common unitholders
    
    $
    (0.22
    )
    
    $
    (0.06
    )Diluted earnings (loss) per common unit:Income (loss) from continuing operations (net of
preferred distributions)
    
    $
    (0.27
    )
    
    $
    (0.19
    )Income from discontinued operations
    
    
    0.05
    
    
    
    0.17Cumulative effect of change in accounting principle
    
    
    
    
    
    
    (0.04
    )Net loss attributable to common unitholders
    
    $
    (0.22
    )
    
    $
    (0.06
    )
 All of our convertible preferred OP Units are anti-dilutive on an as converted basis,
therefore, we deduct all of the distributions payable on the convertible preferred OP Units to
arrive at the numerator and no additional units are included in the denominator when calculating
basic and diluted earnings per common unit. We have excluded from diluted earnings per unit the
common OP Unit equivalents related to approximately 12.5 million and 11.7 million of vested and
unvested stock options, units issued for the portions of notes receivable that are non-recourse,
and restricted 12




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stock awards for the three months ended March 31, 2005 and 2004, respectively, because their
effect would be anti-dilutive. For purposes of calculating diluted earnings per unit, we treat the
dilutive impact of the unvested portion of restricted shares as common OP Unit equivalents. Note 9  Business Segments We have two reportable segments: real estate (owning and operating apartments) and investment
management business (providing property management and other services relating to the apartment
business to third parties and affiliates). We own and operate properties throughout the United
States and Puerto Rico that generate rental and other property related income through the leasing
of apartment units to a diverse base of residents. We separately evaluate the performance of each
of our properties. However, because each of our properties has similar economic characteristics,
the properties have been aggregated into a single apartment communities, or real estate, segment.
All real estate revenues are from external customers and no real estate revenues are generated from
transactions with other segments. No single resident or related group of residents contributed 10%
or more of total revenues during the three months ended March 31, 2005 or 2004. Portions of the
gross revenues earned in the investment management business are from transactions with affiliates
in the real estate segment. Statement of Financial Accounting Standards No. 131, Disclosures about Segments of an
Enterprise and Related Information, or SFAS 131, requires that segment disclosures present the
measure(s) used by the chief operating decision maker for purposes of assessing such segments
performance. 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 net operating income, free cash flow, funds from operations,
and adjusted funds from operations. During the first quarter of 2005 and for all of 2004, the
chief operating decision maker emphasized net operating income as a key measurement of segment
profit or loss. Accordingly, below we disclose net operating income for each of our segments. Net
operating income is defined as segment revenues (after the elimination of intersegment revenues)
less direct segment operating expenses. The following table presents revenues and net operating income for the three months ended
March 31, 2005 and 2004, from these segments, and reconciles net operating income of reportable
segments to operating income as reported in the Consolidated Statements of Income (in thousands): For the Three MonthsEnded March 31,2005
    
    
    2004Revenues:Real estate segment
    
    $
    376,334
    
    
    $
    338,532Investment management segment:Gross revenues
    
    
    34,514
    
    
    
    35,977Elimination of intersegment revenues
    
    
    (19,833
    )
    
    
    (19,453
    )Net revenues after elimination
    
    
    14,681
    
    
    
    16,524Total revenues of reportable segments
    
    $
    391,015
    
    
    $
    355,056Net operating income:Real estate segment
    
    $
    193,853
    
    
    $
    177,963Investment management segment
    
    
    9,552
    
    
    
    11,871Total net operating income of reportable segments
    
    
    203,405
    
    
    
    189,834Reconciliation of net operating income of
reportable segments to operating income:Depreciation and amortization
    
    
    (104,541
    )
    
    
    (86,216
    )General and administrative expenses
    
    
    (20,873
    )
    
    
    (18,262
    )Other (expenses) income, net
    
    
    717
    
    
    
    1,023Operating income
    
    $
    78,708
    
    
    $
    86,379
 13




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##### Table of Contents



ASSETS (in thousands): March 31, 2005
    
    
    December 31, 2004Total assets for reportable segments (1)
    
    $
    9,978,548
    
    
    $
    9,706,305Corporate and other assets
    
    
    364,029
    
    
    
    377,849Total consolidated assets
    
    $
    10,342,577
    
    
    $
    10,084,154
  (1)
    Total assets for reportable segments include assets associated with both the real
estate and investment management business segments. Note 10  Recent Accounting Developments Statement of Financial Accounting Standards No. 123 (revised 2004) In December 2004, the Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 123 (revised 2004), Accounting for Stock-Based Compensation, or SFAS 123R,
which supersedes the existing SFAS 123, which we adopted in 2003 using the prospective method of
transition as described therein. SFAS 123R requires all share-based employee compensation,
including grants of employee stock options, to be recognized in the financial statements based on
fair value and requires, at a minimum, a modified prospective application method of adoption.
Under this method, the provisions of SFAS 123R will be applied prospectively to new and modified
awards granted on or after the required effective date. In addition, compensation expense is
required to be recognized over the remaining vesting period for the unvested portion of outstanding
awards granted prior to the effective date. The measurement and recognition provisions of SFAS
123R that apply to our stock option plans are similar to those currently being followed by us for
awards granted on or after January 1, 2003. The primary change in expense recognition
requirements, which also applies to our unvested restricted stock awards, relates to the treatment
of forfeitures. Under SFAS 123R, expected forfeitures are required to be estimated in determining
periodic compensation expense, whereas we currently recognize forfeitures as they occur. Upon
adoption of SFAS 123R, we will estimate forfeitures of unvested awards of stock options and
restricted stock and record a cumulative effect of a change in accounting principle to reflect the
compensation expense that would not have been recognized in prior periods had forfeitures been
estimated prior to the date of adoption. Aimco is required to adopt SFAS 123R as of January 1,
2006, although early adoption is permitted. Upon adoption, our periodic compensation expense will
increase over the remaining vesting period for stock options granted prior to January 1, 2003, for
which no expense is currently being recognized. Based on preliminary estimates of such additional
compensation expense, we do not anticipate that the adoption of SFAS 123R will have a material
impact on our financial condition or results of operations. Note 11  Notes Receivable from Aimco In exchange for the sale of certain real estate assets to Aimco in December 2000, we received
notes receivable, which we refer to as the Notes, totaling $10.1 million. The Notes bear interest
at the rate of 5.7% per annum. Of the $10.1 million total, $7.6 million is due upon demand, and
the remainder is due in scheduled semi-annual payments with all unpaid principal and interest due
on December 31, 2010. In order to fund the additional consideration with respect to the Palazzo East at Park La Brea
acquisition on February 28, 2005, the Partnership loaned $85.4 million to Aimco in exchange for a
note receivable, or The Palazzo East at Park La Brea Note, which is presented as a deduction from
partners capital. The note bears interest at the rate of 5.25% per annum, with interest payments
due on December 31 of each year. Upon completion of the purchase, Aimco contributed the assets and
liabilities of Palazzo East at Park La Brea to us in exchange for 3,416,478 Class Thirteen
Partnership Preferred Units, or the Class Thirteen Preferred Units. The Class Thirteen Preferred
Units pay distributions of $1.3125 per unit on December 31 of each year,with the first
distribution prorated from the date of issuance. 14




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##### Table of Contents



ITEM 2. Managements Discussion and Analysis of Financial Condition and Results of Operations Forward Looking Statements The Private Securities Litigation Reform Act of 1995 provides a safe harbor for forward-looking
statements in certain circumstances. Certain information included in this Report contains or may
contain information that is forward-looking, including, without limitation, statements regarding
the effect of acquisitions, our future financial performance and the effect of government
regulations. Actual results may differ materially from those described in the forward-looking
statements and will be affected by a variety of risks and factors that are beyond our control
including, without limitation: national and local economic conditions; the general level of
interest rates; 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 variations of real estate values and the general economic
climate in local markets and competition for tenants in such markets; 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, Aimcos current and continuing
qualification as a real estate investment trust involves the application of highly technical and
complex provisions of the Internal Revenue Code and depends on its ability to meet the various
requirements imposed by the Internal Revenue Code, through actual operating results, distribution
levels and diversity of stock ownership. Readers should carefully review our financial statements
and the notes thereto, as well as the risk factors described in our Annual Report on Form 10-K for
the year ended December 31, 2004 and the other documents we file from time to time with the
Securities and Exchange Commission. As used herein and except as the context otherwise requires,
we, our, us and the Company refer to the Partnership and the Partnerships consolidated
corporate subsidiaries and consolidated real estate partnerships, collectively. Executive Overview We are 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 March 31, 2005, we owned or managed 1,477 apartment properties containing
261,358 units located in 47 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: 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; financial coverage ratios; and leverage as
shown on our balance sheet. These terms are defined and 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; unemployment rates; 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 affects 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. During 2004 we focused on a number of areas related to improving operations, including
customer service, resident selection and retention, marketing, pricing, and operating cost
management. Our focus in the first quarter has been, and for the remainder of 2005 will continue to be, to
increase revenue and implement cost management and productivity initiatives, which includes
centralizing purchasing, restructuring business processes, using technology to increase efficiency
and implementing structured monthly reporting to identify issues and improve effectiveness of
spending. We believe that our efforts are having their intended effect, are resulting in a
positive trend in certain operating results and are 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. 15




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The following discussion and analysis of the results of our operations and financial condition
should be read in conjunction with the financial statements. Results of Operations Overview Three months ended March 31, 2005 compared to March 31, 2004 We recognized net income of $2.0 million and net loss attributable to common unitholders of
$23.1 million for the three months ended March 31, 2005, compared to net income of $15.7 million
and net loss attributable to common unitholders of $6.4 million for the three months ended March
31, 2004, which were decreases of $13.7 million and $16.7 million, respectively. These decreases
were principally due to the following items:  
    an increase in depreciation and amortization expense;
    a decrease in income from discontinued operations, primarily related to lower net
gains on dispositions of real estate and higher impairments; and
    an increase in interest expense. These decreases were partially offset by:  
    an increase in net operating income associated with property operations, which
included increases related to acquisition, newly consolidated and same store properties. The following paragraphs discuss these and other items affecting our results of operations in
more detail. Rental Property Operations Our operating income is primarily generated from the operations of our consolidated
properties. The principal components within our total consolidated property operations are:
consolidated same store properties, which consist of all conventional properties that were owned,
stabilized and consolidated for all comparable periods presented; and other consolidated entities,
which include acquisition, newly consolidated, affordable and redevelopment properties. The following table summarizes the overall performance of our consolidated properties for the
three months ended March 31, 2005 and 2004 (in thousands): Three Months Ended March 31,2005
    
    
    2004Rental and other property revenues
    
    $
    376,334
    
    
    $
    338,532Property operating expenses
    
    
    182,481
    
    
    
    160,569Net operating income
    
    $
    193,853
    
    
    $
    177,963
 For the three months ended March 31, 2005, compared to the three months ended March 31,
2004, net operating income for our consolidated property operations increased by $15.9 million, or
8.9%. This increase was principally due to an $8.5 million increase related to operations of newly
consolidated properties, which are properties that had been previously unconsolidated and accounted
for by the equity method (five properties first consolidated in 2005 and 42 properties first
consolidated in 2004, which includes 24 properties that were consolidated due to the adoption of
Financial Accounting Standards Board Interpretation No. 46, Consolidation of Variable Interest
Entities,or FIN 46) and a $4.2 million increase related to operations of acquisition properties,
which were principally comprised of Palazzo East at Park La Brea and four other properties
purchased in 2005, and The Palazzo at Park La Brea and 10 other properties purchased in 2004.
Additionally, there was a $4.7 million increase in consolidated same store net operating income
(see further discussion of same store results under the heading Conventional Same Store Property
Operating Results) and a $2.0 million increase related to the completion of certain redevelopment
properties. These increases were offset by $2.8 million in higher losses related to casualties due
to the three months ended March 31, 2004 including a net gain on 16




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##### Table of Contents



casualties of $1.4 million as compared to a $1.4 million net loss on casualties in the three
months ended March 31, 2005. 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 same store properties as conventional properties in which our ownership
interest exceeds 10% and the operations of which are stabilized for all periods presented. To
ensure comparability, the information for all periods shown is based on current period ownership.
The following table summarizes the conventional rental property operations on a same store basis
(which is not in accordance with generally accepted accounting principles, or GAAP) and reconciles
them to consolidated rental property operations (which is in accordance with GAAP) described in the
above comparative discussions (dollars in thousands): Three Months EndedMarch 31,2005
    
    
    2004Our share of same store revenues
    
    $
    264,073
    
    
    $
    253,104Our share of same store expenses
    
    
    117,680
    
    
    
    111,173Our share of same store net operating income
    
    
    146,393
    
    
    
    141,931Adjustments to reconcile same store net operating
income to real estate segment net operating
income (1)
    
    
    47,460
    
    
    
    36,032Real estate segment net operating income
    
    $
    193,853
    
    
    $
    177,963Same Store Statistics:Properties
    
    
    531
    
    
    
    531Apartment units
    
    
    147,839
    
    
    
    147,839Average physical occupancy
    
    
    90.2
    %
    
    
    88.6
    %Average rent /unit/month
    
    $
    740
    
    
    $
    728
  (1)
    Includes: (i) minority partners share of consolidated, less our share of
unconsolidated, property revenues and property operating expenses (at current period
ownership); (ii) property revenues and property operating expenses related to consolidated
properties other than same store properties (e.g., affordable, acquisition and
redevelopment properties); and (iii) eliminations and other adjustments made in accordance
with GAAP. For the three months ended March 31, 2005, compared to the three months ended March 31, 2004,
our share of same store net operating income increased $4.5 million, or 3.1%. Revenues increased
$11.0 million, or 4.3%, primarily due to higher occupancy (up 1.6%), higher average rent (up $12
per unit) and lower bad debt expense. Expenses increased by $6.5 million, or 5.9%, primarily due
to: an increase of $2.8 million in compensation expense related to increased staffing levels to
support our initiatives to improve customer service and asset appearance; an increase of $1.7
million related to repairs and maintenance; an increase of $1.5 million in utilities due primarily
to higher natural gas rates; and $0.5 million of increases primarily related to marketing and
turnover expenses associated with our efforts to increase occupancy. Property Management We earn income from property management primarily from unconsolidated real estate partnerships
for which we are the general partner. The income is primarily in the form of fees generated
through property management and other associated activities. Our revenue from property management
decreases as we consolidate real estate partnerships and the income generated is therefore
eliminated in consolidation. We expect this trend to continue as we increase our ownership in more
of these partnerships or otherwise determine that consolidation is required by GAAP. Additionally,
our revenue decreases as properties within our unconsolidated real estate partnerships are sold.
Offsetting the revenue earned in property management are the direct expenses associated with
property management. 17




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The following table summarizes the overall performance of our property management business for
the three months ended March 31, 2005 and 2004 (in thousands): Three Months Ended March 31,2005
    
    
    2004Property management revenues, primarily from affiliates
    
    $
    6,664
    
    
    $
    8,256Property management expenses
    
    
    2,521
    
    
    
    2,342Net operating income from property management
    
    $
    4,143
    
    
    $
    5,914
 For the three months ended March 31, 2005, compared to the three months ended March 31, 2004,
net operating income from property management decreased by $1.8 million, or 29.9%. This decrease
was principally due to an increase in consolidated real estate partnerships, which required
elimination of fee income and associated property operating expense related to such partnerships
and the sales of properties within our unconsolidated partnerships (eight properties in 2005 and 53
properties in 2004) that had previously generated property management revenues. Activity Fees and Asset Management Activity fees are generated from transactional activity including dispositions, syndications,
tax credit redevelopments and refinancings. These transactions occur on varying timetables, thus
the income generated may vary from period to period. The majority of these fees are generated by
transactions related to affordable properties within the Aimco Capital portfolio. Asset management
revenue is from the financial management of properties, rather than management of day-to-day
property operations. Asset management revenue includes deferred asset management fees that are
recognized once a transaction or improvement in operations has occurred to generate available cash.
Offsetting the revenue earned in activity fees and asset management are the direct expenses
associated with these activities. The following table summarizes the overall performance of our activity fees and asset
management for the three months ended March 31, 2005 and 2004 (in thousands): Three Months Ended March 31,2005
    
    
    2004Activity fees and asset management revenues, primarily
from affiliates
    
    $
    8,017
    
    
    $
    8,268Activity and asset management expenses
    
    
    2,608
    
    
    
    2,311Net operating income from activity fees and asset
management
    
    $
    5,409
    
    
    $
    5,957
 Included in the activity fees and asset management revenues, primarily from affiliates for the
three months ended March 31, 2005 and 2004, were $7.9 million and $8.3 million, respectively, of
fees related to affordable properties within the Aimco Capital portfolio. For the three months ended March 31, 2005, compared to the three months ended March 31, 2004,
net operating income from activity fees and asset management decreased by $0.5 million, or 9.2%.
This decrease was principally a result of decreased activity fees related to refinancing activities
of $1.5 million due to one large refinancing transaction that occurred in 2004 as compared to a
number of small transactions in 2005 and a decrease of $1.1 million related to the recognition of
deferred asset management fees resulting from a greater number of closed transactions in 2004 as
compared to 2005. Additionally, there was $0.3 million in higher expenses associated with these
activities. These decreases were partially offset by increases of $1.8 million in disposition fees
and $0.8 million in syndication fees resulting from a greater number of transactions. Depreciation and Amortization For the three months ended March 31, 2005, compared to the three months ended March 31, 2004,
depreciation and amortization increased $18.3 million, or 21.3%. This increase was principally due
to: $8.7 million of depreciation on certain assets where, based on a periodic review, the estimated
useful lives were reduced; $3.7 million and $1.2 million of additional depreciation related to the
newly consolidated and acquisition properties, respectively; and $1.7 million from the completion
of certain redevelopment properties. Additionally, approximately $3.0 million of the increase
related to depreciation of new capital spending on same store properties. 18




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##### Table of Contents



General and Administrative Expenses For the three months ended March 31, 2005, compared to the three months ended March 31, 2004,
general and administrative expenses increased $2.6 million, or 14.3%. This increase was
principally due to $4.3 million in higher compensation related to increased staffing levels and
increased health care costs, partially offset by a reduction in consulting and legal fees. Interest Expense For the three months ended March 31, 2005, compared to the three months ended March 31, 2004,
interest expense, which includes the amortization of deferred financing costs, increased $6.1
million, or 6.9%. This increase was principally due to: $3.2 million resulting from interest on
the additional debt related to acquisition properties and $2.9 million resulting from interest on
the additional debt related to the newly consolidated properties; $1.3 million due to increased
corporate borrowings and increased interest rates on corporate and other variable rate debt; and a
$1.4 million increase related to higher loan costs, primarily due to a one-time benefit of $1.0
million in the first quarter of 2004. These increases were partially offset by $1.6 million in
higher capitalized interest and a $1.4 million decrease related to the redemption of mandatorily
redeemable preferred securities in late March of 2004 (Class S Partnership Preferred Units) and
early January of 2005 (Trust Based Convertible Preferred Securities). Income from Discontinued Operations, Net For properties accounted for as held for sale, the results of operations for properties sold
during the period or designated as held for sale at the end of the period are required to be
classified as discontinued operations. The property-specific 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 to the extent there is secured debt on the property and the associated minority
interest. In addition, any impairment losses on assets held for sale, and the net gain on the
eventual disposal of properties held for sale are reported as discontinued operations. For the three months ended March 31, 2005 and 2004, income from discontinued operations, net
totaled $5.1 million and $17.7 million, respectively, which included income from operations of $0.4
million and $3.7 million, respectively. For the three months ended March 31, 2005, the income from
operations included 16 properties that were sold or classified as held for sale during 2005. For
the three months ended March 31, 2004, the income from operations included 70 properties that were
sold or classified as held for sale during 2004 and 2005. During the three months ended March 31, 2005, we sold six properties, resulting in a net gain
on sale of approximately $7.1 million. Additionally, we recognized $2.0 million in impairment
losses on assets sold or held for sale in 2005. During the three months ended March 31, 2004, we
sold ten properties, resulting in a net gain on sale of approximately $10.6 million (which is net
of $0.7 million of related taxes). Gains on properties sold are determined on a property-by-property basis and are not comparable
period to period. See Note 7 of the consolidated financial statements for more details on
discontinued operations. Cumulative Effect of Change in Accounting Principle On March 31, 2004, we recorded a $4.0 million cumulative effect of change in accounting
principle related to the adoption of FIN 46. This charge is attributable to our recognition of
cumulative losses allocable to minority interest that would otherwise have resulted in minority
interest deficits. 19




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##### Table of Contents



Critical Accounting Policies and Estimates We prepare our consolidated financial statements in accordance with GAAP, which requires us to
make estimates and assumptions. We believe that the 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. 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 an increase in unemployment 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 factors could cause an impairment in our long-lived assets,
including real estate, goodwill and investments in unconsolidated real estate partnerships. Based
on periodic tests of recoverability of long-lived assets, we have determined that the carrying
amount for our properties to be held and used is recoverable and, therefore, we did not record any
impairment losses related to such properties during the three months ended March 31, 2005 or 2004. Notes Receivable and Interest Income Recognition Notes receivable from unconsolidated real estate partnerships consist primarily of
subordinated notes receivable from partnerships in which we are the general partner. The ultimate
repayment of these notes 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 20




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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. For the three months ended March 31, 2005, if we had not been able to complete
certain transactions, our accretion income would have decreased by $1.4 million ($0.01 per basic
and diluted unit). 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 three months ended March 31, 2005 and 2004, we recorded $1.6 million and $0.08
million, respectively, in net recovery of impairment losses on notes receivable. We will continue
to evaluate the collectibility of these notes, and we may 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. We depreciate capitalized costs over the estimated useful life of the related component or
improvement, which is generally five to fifteen years. With respect to the capitalized payroll
component of capital expenditure activities, whether site payroll or indirect costs, we use a
depreciation period of five years. 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 expense 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 three months ended March 31, 2005 and 2004, we capitalized $2.6 million and $1.0
million of interest expense, respectively, and $11.0 million and $9.8 million of site payroll and
indirect costs, respectively. See further discussion under the heading Capital Expenditures. 21




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Funds From Operations Funds From Operations, or FFO, is a non-GAAP financial measure that we believe, when
considered with the financial data 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 OP Unit issuance costs and distributions on preferred OP Units and adding back
distributions on dilutive preferred OP Units. FFO should not be considered an alternative to net
income or net cash flows from operating activities, as calculated 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 three months ended March 31, 2005 and 2004, our FFO is calculated as follows (in
thousands): Three Months EndedMarch 31,2005
    
    
    2004Net loss attributable to common unitholders (1)
    
    $
    (23,087
    )
    
    $
    (6,444
    )Adjustments:Depreciation and amortization (2)
    
    
    104,541
    
    
    
    86,216Depreciation and amortization related to non-real estate assets
    
    
    (3,791
    )
    
    
    (4,920
    )Depreciation on rental property related to minority partners interest (3)
    
    
    (10,866
    )
    
    
    (10,336
    )Depreciation on rental property related to unconsolidated entities
    
    
    5,958
    
    
    
    6,070Gain on dispositions of real estate related to unconsolidated entities other
    
    
    (1,858
    )
    
    
    Gain on dispositions of non-depreciable assets
    
    
    675
    
    
    
    Deficit distributions to minority partners, net (4)
    
    
    1,472
    
    
    
    4,447Cumulative effect of change in accounting principle
    
    
    
    
    
    
    3,957Discontinued operations:Depreciation on rental property, net of minority partners interest (3)
    
    
    61
    
    
    
    4,698Gain on dispositions of real estate, net of minority partners interest (3)
    
    
    (7,098
    )
    
    
    (11,327
    )Deficit distributions (recovery of deficit distributions) to minority partners (4)
    
    
    465
    
    
    
    (3,322
    )Income tax arising from disposals
    
    
    13
    
    
    
    697Preferred OP Unit distributions
    
    
    23,951
    
    
    
    22,097Redemption related preferred OP Unit issuance costs
    
    
    1,123
    
    
    
    Funds From Operations
    
    $
    91,559
    
    
    $
    91,833Preferred OP Unit distributions
    
    
    (23,951
    )
    
    
    (22,097
    )Redemption related preferred OP Unit issuance costs
    
    
    (1,123
    )
    
    
    Distributions on dilutive preferred OP Units
    
    
    434
    
    
    
    890Funds From Operations attributable to common unitholders  diluted
    
    $
    66,919
    
    
    $
    70,626Weighted average number of common OP Units, common OP Unit equivalents
and dilutive preferred OP Units outstanding:Common OP Units and equivalents (5)
    
    
    104,607
    
    
    
    104,391Dilutive preferred OP Units
    
    
    1,276
    
    
    
    1,773Total
    
    
    105,883
    
    
    
    106,164
 Notes:  (1)
    Represents the numerator for earnings per common unit, 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 22




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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.(3)
    Minority partners interest, means minority interest in our consolidated real estate
partnerships.(4)
    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.(5)
    Represents the denominator for earnings per common unit  diluted, calculated in
accordance with GAAP, plus additional common OP Unit equivalents that are dilutive for FFO. 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, distributions paid to unitholders and
partners, and acquisitions of, and investments in, properties. We use our cash provided by
operating activities to meet short-term liquidity needs. In the event that the 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 March 31, 2005, we had $119.6 million in cash and cash equivalents, an increase of $14.3
million from December 31, 2004, which cash is principally from sales and refinancing transactions
that has yet to be distributed or applied to the outstanding balance of the revolving credit
facility. At March 31, 2005, we had $270.0 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 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. Operating Activities For the three month ended March 31, 2005, our net cash provided by operating activities of
$102.1 million was primarily from operating income from our consolidated properties, which is
determined by rental rates, occupancy levels and operating expenses related to our portfolio of
properties. This increased $40.0 million compared with the three months ended March 31, 2004,
driven by changes in operating assets and liabilities and slightly better property operating
results. The changes in operating assets and liabilities were primarily due to an increase in
restricted cash related to certain operating escrows and a reduction in accrued liabilities related
to timing of certain payments of accrued property taxes, payroll taxes and interest that occurred
during the three months ended March 31, 2004. Investing Activities For the three months ended March 31, 2005, our net cash used in investing activities of $306.7
million primarily resulted from the acquisition of Palazzo East at Park La Brea and four other
properties (see Note 3 for further information on acquisitions), as well as investments in our
existing real estate assets through capital spending, offset by proceeds received from sales of
properties. 23




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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. In the three months ended March 31,
2005, we sold six consolidated properties and eight unconsolidated properties. These properties
were sold for an aggregate sales price of $52.3 million, of which $22.7 million related to the
consolidated properties. The sale of the consolidated properties generated proceeds totaling $20.9
million, after the payment of transaction costs. Our share of the total net proceeds from the sale
of the 14 properties, after repayment of existing debt, payment of transaction costs and
distributions to limited partners, was $11.8 million, of which $1.4 million related to the
unconsolidated properties and was included in our distributions received from investments in
unconsolidated real estate partnerships. Sales proceeds were used to repay a portion of our
outstanding short-term indebtedness 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, such as
sales to buyers who intend to convert the properties to condominiums. Gross sales proceeds from
2005 dispositions are expected to be $500 million to $550 million, and 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, 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 or redevelopment. Non-redevelopment and
non-casualty capitalizable 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 (i.e., the
portion that was consumed during our ownership of the item represents CR; the portion of the item
that was consumed prior to our ownership represents CI). For the three months ended March 31, 2005, we spent a total of $16.4 million on CR. These are
expenditures that represent the share of expenditures that are deemed to replace the consumed
portion of acquired capital assets. For the three months ended March 31, 2005, we spent a total of
$23.6 million, $8.5 million and $21.5 million, respectively, on CI, casualties and redevelopment.
CI expenditures represent all non-redevelopment and non-casualty capital expenditures that are made
to enhance the value, profitability or useful life of an asset from its original purchase
condition. 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 is
reimbursed by insurance carriers based on deductibles associated with each loss. Redevelopment
expenditures represent expenditures that substantially upgrade the property. 24




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The table below details our share of actual spending, on both consolidated and unconsolidated real
estate partnerships, for CR, CI, casualties and redevelopment for the three months ended March 31,
2005 on a per unit and total dollar basis (based on approximately 152,600 ownership equivalent
units (excluding non-managed units) weighted for the period), and reconciles it to our Consolidated
Statement of Cash Flows for the same period (in thousands, except per unit amounts). Actual Cost
    
    
    Cost Per UnitCapital Replacements Detail:Building interiors
    
    $
    2,228
    
    
    $
    15Includes: hot water heaters, kitchen/bathBuilding exteriors
    
    
    2,380
    
    
    
    16Includes: roofs, exterior painting, electrical, plumbingLandscaping and grounds
    
    
    1,396
    
    
    
    9Includes: parking lot improvements, pool improvementsTurnover related
    
    
    7,199
    
    
    
    47Includes: carpet, vinyl, tile, appliance, and fixture replacementsCapitalized site payroll and indirect costs
    
    
    3,166
    
    
    
    21Total our share of Capital Replacements
    
    $
    16,369
    
    
    $
    108Capital Replacements:Conventional
    
    $
    15,152Affordable
    
    
    1,217Total our share of Capital Replacements
    
    
    16,369Capital Improvements:Conventional
    
    
    19,371Affordable
    
    
    4,271Total our share of Capital Improvements
    
    
    23,642Casualties:Conventional
    
    
    8,200Affordable
    
    
    288Total our share of casualties
    
    
    8,488Redevelopment:Conventional
    
    
    20,680Affordable
    
    
    861Total our share of redevelopment
    
    
    21,541Total our share of capital expenditures
    
    
    70,040Plus minority partners share of consolidated spending
    
    
    23,086Less our share of unconsolidated spending
    
    
    (2,347
    )Total
capital expenditures per Consolidated Statement of Cash Flows
    
    $
    90,779
 Included in the above spending for CI, casualties and redevelopment, was approximately $7.0
million of our share of capitalized site payroll and indirect costs related to these activities for
the three months ended March 31, 2005. We funded all of the above capital expenditures with cash provided by operating activities,
working capital, and borrowings under the revolving credit facility. Financing Activities For the three months ended March 31, 2005, net cash provided by financing activities of $218.9
million primarily related to proceeds from borrowings offset by payments on our secured notes
payable, payment of our distributions, and redemptions of the Class D Partnership Preferred Units
and Trust Based Convertible Preferred Securities, which we refer to as TOPRS. 25




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Mortgage Debt At March 31, 2005, we had $5.8 billion in consolidated mortgage debt outstanding as compared
to $5.6 billion outstanding at December 31, 2004. During the three months ended March 31, 2005, we
refinanced or closed mortgage loans on 13 consolidated properties generating $96.9 million of
proceeds from borrowings with a weighted average interest rate of 4.23%. Our share of the net
proceeds after repayment of existing debt, payment of transaction costs and distributions to
limited partners, was $78.9 million. In addition, we closed mortgage loans on four unconsolidated
properties, with a weighted average interest rate of 4.85%. Our share of the net proceeds from
these four mortgage loans totaled $6.4 million, which we received after March 31, 2005. We used
our total net proceeds from all loans closed of $85.3 million for corporate purposes. In 2005, we
intend to continue to refinance mortgage debt to generate proceeds in amounts exceeding our
scheduled amortizations and maturities. During the three months ended March 31, 2005, we closed five mortgage loans totaling $130.3
million, with a weighted average interest rate of 3.27%, to finance our acquisitions. Revolving Credit Facility and Term Loans We entered into an Amended and Restated Senior Secured Credit Agreement with a syndicate of
financial institutions, which we refer to as the Credit Agreement, on November 2, 2004. The
aggregate commitment under the Credit Agreement is $750 million, comprised of $450 million of
revolving loan commitments and a $300 million term loan tranche. The term loan matures on November
2, 2009 and the revolving loans mature on November 2, 2007. At March 31, 2005, the outstanding
principal balance of the term loan was $300.0 million at an interest rate of 4.75% (based on LIBOR
plus 2.00%). The proceeds of future term loans are generally permitted to be used to fund general
working capital and other corporate purposes. At March 31, 2005, the outstanding principal balance
of the revolving loans was $276.0 million at an interest rate of 4.66% (based on various weighted
average LIBOR and base rate borrowings outstanding with various maturities). The amount available
under the revolving credit facility at March 31, 2005 was $152.9 million (after giving effect to
$21.1 million outstanding for undrawn letters of credit issued under the revolving credit
facility). The proceeds of future revolving loans are generally permitted to be used to fund
working capital and for other corporate purposes. Partners Capital Transactions During the three months ended March 31, 2005, we redeemed all outstanding Class D Partnership
Preferred Units for $31.3 million. Additionally, we redeemed all outstanding shares of TOPRS for
$15.0 million. Under our shelf registration statement, which was declared effective in April 2004, as of
March 31, 2005, Aimco had available for issuance approximately $877 million of debt and equity
securities and the Partnership had available for issuance $500 million of debt securities. We
intend to continue to issue preferred securities in both public offerings and private placements to
generate proceeds that we will use to redeem higher cost preferred securities, to finance
acquisitions of real estate interests and for other corporate purposes. Aimcos board of directors has, from time to time authorized Aimco to repurchase shares of its
outstanding capital stock. At March 31, 2005, Aimco was authorized to repurchase up to a total of
approximately 1.5 million shares of either Aimco Class A Common Stock or preferred stock. In April
2005, Aimcos board of directors replaced the existing authorization with a new authorization to
repurchase up to a total of eight million shares of Aimco Class A Common Stock. These repurchases
may be made from time to time in the open market or in privately negotiated transactions, subject
to applicable law. Future Capital Needs 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 financings and operating cash flows. 26




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ITEM 3.Quantitative and Qualitative Disclosures About Market Risk Our primary market risk exposure relates to changes in interest rates. We are not subject to
any material foreign currency exchange rate risk or any other material market rate or price risks. Our capital structure includes the use of fixed-rate and variable rate indebtedness. As such,
we are exposed to the impact of changes in interest rates. We use predominantly long-term,
fixed-rate and self-amortizing non-recourse mortgage debt in order to avoid the refunding and
repricing risks of short-term borrowings. We use short-term debt financing 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 make
limited use of derivative financial instruments and we do not use them for trading or other
speculative purposes. In some situations, we may use interest rate caps or swaps to limit our
exposure to interest rate risk. See our Annual Report on Form 10-K for the year ended December 31, 2004 Item 7A.Quantitative
and Qualitative Disclosures About Market Risk for a more detailed discussion on interest rate
sensitivity. As of March 31, 2005, our market risk has not changed materially from the amounts
reported in our Annual Report on Form 10-K for the year ended December 31, 2004. 
 ITEM 4.Controls and Procedures Disclosure Controls and Procedures The Partnerships management, with the participation of the chief executive officer and chief
financial officer of the General Partner, who are the equivalent of the Partnerships chief
executive officer and the chief financial officer, respectively, has evaluated the effectiveness of
the Partnerships 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, the chief executive officer and the chief
financial officer of the General Partner, who are the equivalent of the Partnerships chief
executive officer and the chief financial officer, respectively, have concluded that, as of the end
of such period, the Partnerships disclosure controls and procedures are adequate. 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 first quarter 2005 that
have materially affected, or are reasonably likely to materially affect, our internal control over
financial reporting. 27




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PART II. OTHER INFORMATION 
 ITEM 1.Legal Proceedings See the information under the heading Legal Matters in Note 5 in the consolidated financial
statements in this Form 10-Q for information regarding legal proceedings, which information is
incorporated by reference in this Item 1. 
 ITEM 2.Unregistered Sales of Equity Securities and Use of Proceeds (c) Repurchases
of Equity Securities. Our Partnership Agreement generally provides that after holding the common OP Units for
one year, our Limited Partners have the right to redeem their common OP Units for cash, subject to
our prior right to cause Aimco to acquire some or all of the common OP Units tendered for
redemption in exchange for shares of Aimco Class A Common Stock. Common OP Units redeemed for
Aimco Class A Common Stock are generally on a one-for-one basis (subject to antidilution
adjustments). The following table summarizes repurchases of our equity securities for cash for the
three months ended March 31, 2005. In addition, during the three months ended March 31, 2005,
Aimco purchased approximately 33,000 common OP Units in exchange for approximately 33,000 shares of
Aimco Class A Common Stock. Maximum NumberTotal Number of
    
    
    of Units thatAverage
    
    
    Units Purchased as
    
    
    May Yet BeTotal Number
    
    
    Price
    
    
    Part of Publicly
    
    
    Purchased Under theof Units
    
    
    Paid
    
    
    Announced Plans or
    
    
    Plans or ProgramsFiscal period
    
    Purchased
    
    
    per Unit
    
    
    Programs (1)
    
    
    (1) (in millions)January 1  January 31, 2005
    
    
    3,584
    
    
    $
    37.64
    
    
    
    n/a
    
    
    
    n/aFebruary 1  February 28, 2005
    
    
    1,680
    
    
    
    36.06
    
    
    
    n/a
    
    
    
    n/aMarch 1  March 31, 2005
    
    
    7,370
    
    
    
    37.45
    
    
    
    n/a
    
    
    
    n/aTotal
    
    
    12,634
    
    
    $
    37.32
    
    
    
    n/a
  (1)
    The terms of our Partnership Agreement do not provide for a maximum number of Units that
may be repurchased, and other than the express terms of our Partnership Agreement we have no
publicly announced plans or programs of repurchase. Distribution
Payments. Our Credit Agreement includes customary covenants,
including a restriction on distributions and other restricted
payments, but permits distributions during any 12-month period in an
aggregate amount of up to 95% of funds from operations for such
period or such amount as may be necessary for Aimco to maintain its
REIT status. 28




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ITEM 6. Exhibits The following exhibits are filed with this report: EXHIBIT NO. 31.1
    
    Certification of the equivalent of the 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 200231.2
    
    Certification of the equivalent of the 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 200232.1
    
    Certification of the equivalent of the chief executive officer
Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section
906 of the Sarbanes-Oxley Act of 200232.2
    
    Certification of the equivalent of the chief financial officer
Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section
906 of the Sarbanes-Oxley Act of 200299.1
    
    Agreement re: disclosure of long-term debt instruments
 29




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##### Table of Contents



AIMCO PROPERTIES, L.P. 
 SIGNATURES Pursuant to the requirements 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. AIMCO PROPERTIES, L.P.By AIMCO-GP, Inc. its general partnerBy:
    /s/ PAUL J. McAULIFFEPaul J. McAuliffeExecutive Vice President and
Chief Financial Officer
(duly authorized officer and
principal financial officer) By:
    /s/ THOMAS M. HERZOGThomas M. HerzogSenior Vice President and
Chief Accounting Officer Date: May 6, 2005 30




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INDEX TO EXHIBITS
 31.1
    
    Certification of the equivalent of the 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 200231.2
    
    Certification of the equivalent of the 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 200232.1
    
    Certification of the equivalent of the chief executive officer
Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section
906 of the Sarbanes-Oxley Act of 200232.2
    
    Certification of the equivalent of the chief financial officer
Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section
906 of the Sarbanes-Oxley Act of 200299.1
    
    Agreement re: disclosure of long-term debt instruments