Summary of APARTMENT INVESTMENT & MANAGEMENT CO

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 and redevelopments, our future financial performance, including our ability to maintain current or meet projected occupancy, rent levels and same store results, and the effect of government regulations. Actual results may differ materially from those described in the forward-looking statements and, in addition, will be affected by a variety of risks and factors that are beyond our control including, without limitation: natural disasters and severe weather such as hurricanes; national and local economic conditions; the general level of interest rates; energy costs; the terms of governmental regulations that affect us and interpretations of those regulations; the competitive environment in which we operate; financing risks, including the risk that our cash flows from operations may be insufficient to meet required payments of principal and interest; real estate risks, including fluctuations in real estate values and the general economic climate in local markets and competition for residents in such markets; insurance risks; acquisition and development risks, including failure of such acquisitions to perform in accordance with projections; the timing of acquisitions and dispositions; litigation, including costs associated with prosecuting or defending claims and any adverse outcomes; and possible environmental liabilities, including costs, fines or penalties that may be incurred due to necessary remediation of contamination of properties presently owned or previously owned by us. In addition, our current and continuing qualification as a real estate investment trust involves the application of highly technical and complex provisions of the Internal Revenue Code and depends on our ability to meet the various requirements imposed by the Internal Revenue Code, through actual operating results, distribution levels and diversity of stock ownership. Readers should carefully review our financial statements and the notes thereto, as well as the section entitled "Risk Factors" described in Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2007, and the other documents we file from time to time with the Securities and Exchange Commission. As used herein and except as the context otherwise requires, "we," "our," "us" and the "Company" refer to Aimco, AIMCO Properties, L.P. (which we refer to as the Aimco Operating Partnership) and Aimco's consolidated corporate subsidiaries and consolidated real estate partnerships, collectively.
Executive Overview
We are a self-administered and self-managed real estate investment trust, or REIT, engaged in the acquisition, ownership, management and redevelopment of apartment properties. Our property operations are characterized by diversification of product, location and price point. As of September 30, 2008, we owned or managed 1,067 apartment properties containing 178,083 apartment units located in 46 states, the District of Columbia and Puerto Rico. Our primary sources of income and cash are rents associated with apartment leases. The key financial indicators that we use in managing our business and in evaluating our financial condition and operating performance are: Net Asset Value, which is the estimated fair value of our assets, net of debt, or NAV; Funds From Operations, or FFO; FFO less spending for Capital Replacements, or AFFO; same store property operating results; net operating income; net operating income less spending for Capital Replacements, or Free Cash Flow; Economic Income, which represents changes in NAV plus cash dividends, financial coverage ratios; and leverage as shown on our balance sheet. FFO and Capital Replacements are defined and further described in the sections captioned "Funds From Operations" and "Capital Expenditures" below. The key macro-economic factors and non-financial indicators that affect our financial condition and operating performance are: rates of job growth; single-family and multifamily housing starts; interest rates; and availability of financing.
Because our operating results depend primarily on income from our properties, the supply and demand for apartments influences our operating results. Additionally, the level of expenses required to operate and maintain our properties, the pace and price at which we redevelop, acquire and dispose of our apartment properties, and the volume and timing of fee transactions affect our operating results. Our cost of capital is affected by the conditions in the capital and credit markets and the terms that we negotiate for our equity and debt financings.
For the remainder of 2008, we recognize that the environment has become more challenging. Accordingly, we are focused on: serving and retaining residents; controlling costs and increasing efficiency through improved business processes and automation; controlling capital spending; minimizing our cost of capital, building cash and reducing leverage; and upgrading the quality of our portfolio through portfolio management.

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Our portfolio management strategy includes property acquisitions and dispositions to concentrate our portfolio in the 20 largest U.S. markets as measured by total market capitalization. Over time and subject to market conditions, we expect to sell properties representing approximately 20% of our current asset value, which properties are primarily located outside the 20 largest U.S. markets.
The following discussion and analysis of the results of our operations and financial condition should be read in conjunction with the accompanying condensed consolidated financial statements in Item 1. Results of Operations
Overview
Three months ended September 30, 2008 compared to three months ended September 30, 2007
We reported net income of $175.8 million and net income attributable to common stockholders of $163.6 million for the three months ended September 30, 2008, compared to net loss of $2.3 million and net loss attributable to common stockholders of $21.4 million for the three months ended September 30, 2007, which were increases of $178.1 million and $184.9 million, respectively. These increases were principally due to the following items, all of which are discussed in further detail below:
• an increase in income from discontinued operations, primarily related to higher net gains on sales of real estate;

• an increase in gain on dispositions of unconsolidated real estate and other, primarily related to higher net gains on disposition of real estate by our unconsolidated real estate partnerships; and

• an increase in asset management and tax credit revenues, including increases in promote income resulting from asset disposition activities.

The effects of these items on our operating results were partially offset by an increase in depreciation and amortization expense, primarily related to completed redevelopments.
Nine months ended September 30, 2008 compared to nine months ended September 30, 2007
We reported net income of $407.3 million and net income attributable to common stockholders of $367.2 million for the nine months ended September 30, 2008, compared to net income of $42.2 million and net loss attributable to common stockholders of $9.5 million for the nine months ended September 30, 2007, which were increases of $365.1 million and $376.7 million, respectively. These increases were principally due to the following items, all of which are discussed in further detail below:
• an increase in income from discontinued operations, primarily related to higher net gains on sales of real estate;

• an increase in asset management and tax credit revenues, which is primarily attributed to increases in promote income resulting from asset disposition activities.

The effects of these items on our operating results were partially offset by:
• an increase in interest expense, reflecting higher loan principal balances resulting from refinancings;

• a decrease in interest income, primarily related to an adjustment of accretion of discounted notes receivable, and lower cash balances and interest rates;

• an increase in depreciation and amortization expense, primarily related to completed redevelopments; and

• the recognition in 2007 of deferred debt extinguishment gains in connection with the refinancing of certain mortgage loans that had been restructured in a 1997 bankruptcy settlement.

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The following paragraphs discuss these and other items affecting the results of our operations in more detail.
Business Segment Operating Results
We have two reportable segments: real estate (owning, operating and redeveloping apartments) and investment management (portfolio strategy, capital allocation, joint ventures, tax credit syndication, acquisitions, dispositions and other transaction activities). Our chief operating decision maker is comprised of several members of our executive management team who use several generally accepted industry financial measures to assess the performance of the business, including NAV, Economic Income, Free Cash Flow, net operating income, FFO, and AFFO. The chief operating decision maker emphasizes net operating income as a key measurement of segment profit or loss. Segment net operating income is generally defined as segment revenues less direct segment operating expenses. Real Estate Segment
Our real estate segment involves the ownership and operation of properties that generate rental and other property-related income through the leasing of apartment units. Our real estate segment's net operating income also includes income from property management services performed for unconsolidated partnerships and unrelated parties.
The following table summarizes our real estate segment's net operating income for the three and nine months ended September 30, 2008 and 2007 (in thousands):

                                          Three Months Ended              Nine Months Ended
                                            September 30,                   September 30,
                                         2008           2007            2008             2007
Real estate segment revenues:
Rental and other property revenues     $ 361,996      $ 345,197      $ 1,070,604      $ 1,023,390
Property management revenues,
primarily from affiliates                  1,227          1,824            4,746            5,192

                                         363,223        347,021        1,075,350        1,028,582

Real estate segment expenses:
Property operating expenses              172,705        162,829          506,546          473,446
Property management expenses               1,560          1,333            4,018            5,268

                                         174,265        164,162          510,564          478,714

Real estate segment net operating
income                                 $ 188,958      $ 182,859      $   564,786      $   549,868

Consolidated Conventional Same Store Property Operating Results Same store operating results is a key indicator we use to assess the performance of our property operations and to understand the period over period operations of a consistent portfolio of properties. We define "consolidated same store" properties as our conventional properties (i) that we manage, (ii) in which our ownership interest exceeds 10%, (iii) the operations of which have been stabilized, and (iv) that have not been sold or classified as held for sale, in each case, throughout all periods presented. The following tables summarize the operations of our consolidated conventional rental property operations:

                                                     Three Months Ended September 30,
                                                        2008                   2007              Change
Consolidated same store revenues                  $        228,582       $        223,137             2.4 %
Consolidated same store expenses                            90,861                 93,730            -3.1 %

Same store net operating income                            137,721                129,407             6.4 %
Reconciling items (1)                                       51,237                 53,452            -4.1 %

Real estate segment net operating income          $        188,958       $        182,859             3.3 %


Same store operating statistics:
Properties                                                     254                    254
Apartment units                                             78,142                 78,142
Average physical occupancy                                    95.1 %                 94.7 %           0.4 %
Average rent/unit/month                           $            939       $            926             1.4 %

(1) Reflects property revenues and property operating expenses related to consolidated properties other than same store properties (e.g., affordable, acquisition, redevelopment and newly consolidated properties) and casualty gains and losses.

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For the three months ended September 30, 2008, compared to the three months ended September 30, 2007, consolidated same store net operating income increased by $8.3 million, or 6.4%. Revenues increased by $5.4 million, or 2.4%, primarily due to higher average rent (up $13 per unit). Property operating expenses decreased by $2.9 million, or 3.1%, primarily due to decreases in personnel, repairs and maintenance, marketing, and administrative expenses. For the three months ended September 30, 2008, compared to the three months ended September 30, 2007, consolidated real estate segment net operating income related to consolidated properties other than same store properties decreased by $2.2 million, or 4.1%. Increases in casualty losses, including $3.9 million related to Tropical Storm Fay and Hurricane Ike during the three months ended September 30, 2008, contributed to the decrease, and were partially offset by increases in net operating income attributable to affordable and redevelopment properties.

                                                      Nine Months Ended September 30,
                                                        2008                   2007              Change
Consolidated same store revenues                  $        672,179       $        656,005             2.5 %
Consolidated same store expenses                           268,001                268,725            -0.3 %

Same store net operating income                            404,178                387,280             4.4 %
Reconciling items (1)                                      160,608                162,588            -1.2 %

Real estate segment net operating income          $        564,786       $        549,868             2.7 %


Same store operating statistics:
Properties                                                     250                    250
Apartment units                                             77,153                 77,153
Average physical occupancy                                    94.9 %                 94.7 %           0.2 %
Average rent/unit/month                           $            935       $            916             2.1 %

For the nine months ended September 30, 2008, compared to the nine months ended September 30, 2007, consolidated same store net operating income increased by $16.9 million, or 4.4%. Revenues increased by $16.2 million, or 2.5%, primarily due to higher average rent (up $19 per unit). Property operating expenses decreased by $0.7 million, or 0.3%, primarily due to decreases in personnel and repairs and maintenance expenses, offset by increases in utility and property tax expenses.
For the nine months ended September 30, 2008, compared to the nine months ended September 30, 2007, consolidated real estate segment net operating income related to consolidated properties other than same store properties decreased by $2.0 million, or 1.2%. Increases in casualty losses of $9.4 million, including $3.9 million related to Tropical Storm Fay and Hurricane Ike during the three months ended September 30, 2008, contributed to the decrease, and were partially offset by increases in net operating income attributable to affordable, acquisition and redevelopment properties. Investment Management Segment
Our investment management segment includes portfolio strategy, capital allocation, joint ventures, tax credit syndication, acquisitions, dispositions and other transaction activities. Within our owned portfolio, we refer to these activities as "Portfolio Management," and their benefit is seen in property operating results and in investment gains. For affiliated partnerships, we refer to these activities as "Asset Management," for which we are separately compensated through fees paid by third party investors. The expenses of this segment consist primarily of the costs of departments that perform these activities. These activities are conducted in part by our taxable subsidiaries, and the related net operating income may be subject to income taxes.

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Transactions occur on varying timetables; thus, the income varies from period to period. We have affiliated real estate partnerships for which we have identified a pipeline of transactional opportunities. As a result, we view asset management fees as a predictable part of our core business strategy. Asset management revenue includes certain fees that were earned in a prior period, but not recognized at that time because collectibility was not reasonably assured. Those fees may be recognized in a subsequent period upon occurrence of a transaction or a high level of the probability of occurrence of a transaction within twelve months, or improvement in operations that generates sufficient cash to pay the fees.
The following table summarizes the net operating income from our investment management segment for the three and nine months ended September 30, 2008 and 2007 (in thousands):

                                          Three Months Ended              Nine Months Ended
                                             September 30,                  September 30,
                                          2008           2007            2008           2007
Asset management and tax credit
revenues                               $   32,755      $  12,747      $   83,782      $  39,554
Investment management expenses              5,842          5,812          15,859         15,799

Investment segment net operating
income (1)                             $   26,913      $   6,935      $   67,923      $  23,755

(1) Excludes certain items of income and expense, which are included in other (income) expenses, net, interest expense, interest income and gain on dispositions of unconsolidated real estate and other in our consolidated statements of income.

For the three months ended September 30, 2008, compared to the three months ended September 30, 2007, net operating income from investment management increased by $20.0 million. This increase is primarily attributable to increases in promote income of $11.1 million, which is related to increases in joint venture asset dispositions, other general partner transactional fees of $6.2 million, and income from tax credit arrangements of $2.1 million. For the nine months ended September 30, 2008, compared to the nine months ended September 30, 2007, net operating income from investment management increased by $44.2 million. This increase is attributable to increases in promote income of $38.6 million, which is related to increases in joint venture asset dispositions, other general partner transactional fees of $5.1 million, and income from tax credit arrangements of $1.6 million, offset by a decrease of $1.1 million in asset management fees.
Other Operating Expenses (Income)
Depreciation and Amortization
For the three months ended September 30, 2008, compared to the three months ended September 30, 2007, depreciation and amortization increased $9.8 million, or 8.9%. This increase reflects depreciation of $17.3 million for newly acquired properties, completed redevelopments, and other capital projects recently placed in service. This increase was partially offset by a decrease of $8.4 million in depreciation adjustments necessary to reduce the carrying amount of buildings and improvements to their estimated disposition value or zero in the case of a planned demolition (see Use of Estimates in Note 2 to the condensed consolidated financial statements in Item 1).
For the nine months ended September 30, 2008, compared to the nine months ended September 30, 2007, depreciation and amortization increased $24.9 million, or 7.8%. This increase reflects depreciation of $51.5 million for newly acquired properties, completed redevelopments, and other capital projects recently placed in service. This increase was offset by a decrease of $24.2 million in depreciation adjustments necessary to reduce the carrying amount of buildings and improvements to their estimated disposition value or zero in the case of a planned demolition (see Use of Estimates in Note 2 to the condensed consolidated financial statements in Item 1) as well as a $2.4 million decrease in depreciation related to corporate assets, primarily related to internal use software becoming fully depreciated in 2007. General and Administrative Expenses
For the three months ended September 30, 2008, compared to the three months ended September 30, 2007, general and administrative expenses increased $6.7 million. This increase is primarily attributable to higher personnel and related expenses.
For the nine months ended September 30, 2008, compared to the nine months ended September 30, 2007, general and administrative expenses increased $9.1 million. This increase is primarily attributable to higher personnel and related expenses and increases in information technology communications costs.

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Other (Income) Expenses, Net
Other (income) expenses, net includes income tax provision/benefit, franchise taxes, risk management activities, partnership administration expenses and certain non-recurring items.
For the three months ended September 30, 2008, compared to the three months ended September 30, 2007, other (income) expenses, net changed unfavorably by $1.0 million. The net unfavorable change includes a $1.1 million decrease in income tax benefit during 2008 due to improved results of our taxable subsidiaries and a $0.8 million increase in expenses of our self insurance activities (including $2.2 million of costs in 2008 related to Tropical Storm Fay and Hurricane Ike). The net unfavorable change also reflects $1.3 million of income recognized in the three months ended September 30, 2007, related to the transfer of certain property rights to an unrelated party. These unfavorable changes were partially offset by a favorable change of $2.4 million related to the settlement of certain litigation matters.
For the nine months ended September 30, 2008, compared to the nine months ended September 30, 2007, other (income) expenses, net changed unfavorably by $13.1 million. The net unfavorable change includes a $4.8 million write-off of certain communications hardware and capitalized costs during 2008 (see Use of Estimates in Note 2 to the condensed consolidated financial statements in Item 1) and a $1.2 million write-off of redevelopment costs associated with a change in the planned use of a property during 2008. The net unfavorable change also reflects $3.6 million of income recognized in 2007 related to the transfer of certain property rights to an unrelated party and a $7.9 million decrease in income tax benefit during 2008 due to improved results of our taxable subsidiaries. These unfavorable changes were partially offset by a $2.0 million reduction in expenses of our self insurance activities (net of $2.2 million of costs in 2008 related to Tropical Storm Fay and Hurricane Ike) and a net decrease of $2.0 million in costs related to certain litigation matters. Interest Income
Interest income consists primarily of interest on notes receivable from non-affiliates and unconsolidated real estate partnerships, interest on cash and restricted cash accounts, and accretion of discounts on certain notes receivable from unconsolidated real estate partnerships. Transactions that result in accretion occur infrequently and thus accretion income may vary from period to period.
For the three months ended September 30, 2008, compared to the three months ended September 30, 2007, interest income decreased $5.4 million. The decrease is primarily attributable to a decrease of $4.6 million due to lower interest rates on notes receivable and cash and restricted cash balances and lower average balances, and a $0.7 decrease in accretion on discounted notes receivable.
For the nine months ended September 30, 2008, compared to the nine months ended September 30, 2007, interest income decreased $16.3 million. The decrease is primarily attributable to a decrease of $9.9 million due to lower interest rates on notes receivable and cash and restricted cash balances and lower average balances. The decrease also includes the effect of a $4.4 million net adjustment to accretion on certain discounted notes during the nine months ended September 30, 2008, resulting from a change in the estimated timing and amount of collection, and $1.5 million of accretion income recognized during the nine months ended September 30, 2007, related to the prepayment of principal on certain discounted loans collateralized by properties in West Harlem in New York City, which were funded in November 2006. Interest Expense
For the three months ended September 30, 2008, compared to the three months ended September 30, 2007, interest expense, which includes the amortization of deferred financing costs, increased $1.9 million, or 2.1%. Interest on property loans payable increased $3.1 million due to higher balances resulting primarily from refinancing activities offset by lower average interest rates. Interest expense also increased by $2.7 million due to decreases in capitalized interest related to redevelopment activities. These increases were partially offset by a $3.9 million decrease in corporate interest expense primarily due to lower average interest rates.
For the nine months ended September 30, 2008, compared to the nine months ended September 30, 2007, interest expense, which includes the amortization of deferred financing costs, increased $14.3 million, or 5.3%. Interest on property loans payable increased $17.4 million due to higher balances resulting primarily from refinancing activities, offset by lower average interest rates. Interest expense also increased by $2.5 million due to decreases in capitalized interest . . .