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 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 these forward-looking statements and, in addition, will be affected by a variety of risks and factors, some of which are beyond our control, including, without limitation: financing risks, including the availability and cost of capital markets financing and the risk that our cash flows from operations may be insufficient to meet required payments of principal and interest; earnings may not be sufficient to maintain compliance with debt covenants; real estate risks, including fluctuations in real estate values and the general economic climate in the markets in which we operate and competition for tenants in such markets; national and local economic conditions; the terms of governmental regulations that affect us and interpretations of those regulations; the competitive environment in which we operate; redevelopment risks, including failure of such redevelopments to perform in accordance with projections; the timing of acquisitions and dispositions; insurance risk; natural disasters and severe weather such as hurricanes; litigation, including costs associated with prosecuting or defending claims and any adverse outcomes; energy costs; and possible environmental liabilities, including costs, fines or penalties that may be incurred due to necessary remediation of contamination of properties presently owned or previously owned by us. In addition, 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, 2008, 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 Apartment Investment and Management Company (which we refer to as 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, 2009, we owned or managed 916 apartment properties containing 146,581 units located in 44 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; Funds From Operations; Adjusted Funds From Operations, which is Funds From Operations less spending for Capital Replacements; same store property operating results; net operating income; Free Cash Flow, which is net operating income less spending for Capital Replacements; Economic Income, which is changes in Net Asset Value plus cash dividends; financial coverage ratios; and leverage as shown on our balance sheet. Funds From Operations 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 and cost 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 debt financings.
During 2009, we are focused on serving customers effectively and efficiently; owning a continually improving portfolio diversified by geography and by activity; reducing leverage and financial risk; and simplifying the business model.
During the three and nine months ended September 30, 2009 and 2008, as compared to the three and nine months ended September 30, 2008, property operating income decreased by 1.3% and increased by 2.1%, respectively. Declines in conventional same store property operating income of 5.5% and 2.7% for the three and nine months ended September 30, 2009, were partially offset by increases in property operating income related to our conventional redevelopment properties and affordable properties. In addition to focusing on property operating expense control, we have also been successful at reducing corporate general and administrative expenses. During the three and nine months ended September 30, 2009, general and administrative expenses have been reduced by 43% and 29%, respectively, from the 2008 comparative periods.

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During 2009, we have focused on reducing refunding risk by accelerating refinancing of property loans maturing prior to 2012. At the beginning of the third quarter 2009, property debt maturing during 2009 through 2011 was $309.0 million. During the third quarter, through refinancing, repayment and property sales, we reduced these maturities by $43.6 million. As of September 30, 2009, the balance of property debt maturing through 2011 totaled $265.4 million and was related to nine loans. Of these loans, refunding risk has since been eliminated on all but four loans totaling $234.5 million, which are expected to be refinanced at maturity in 2011.
At the beginning of the third quarter 2009, we had $350.0 million of term debt outstanding which is due the first quarter 2011. During the third quarter 2009, we repaid $90.0 million of the term debt with proceeds from property sales and we made an additional $50.0 million payment during October 2009, leaving a remaining outstanding balance of $210.0 million at October 30, 2009. Our portfolio management strategy includes property dispositions and acquisitions aimed at concentrating our portfolio in our target markets, which are the largest 20 U.S. markets as measured by the total market value of institutional-grade apartment properties in a particular market (total market capitalization). During the nine months ended September 30, 2009, we sold 58 properties (including one unconsolidated property), primarily outside these target markets, for gross proceeds of $741.0 million; proceeds net of transaction related costs and debt repayments were $263.0 million. We continue to increase our allocation of capital to well located properties within our target markets. We intend to sell approximately $450 million of conventional and affordable assets located primarily outside these target markets by year end to fund the repayment of our term debt. Once our term debt has been repaid, we intend to use future asset sales to increase the allocation of capital to well located properties within our target markets.
We expect the financial and economic conditions for the remainder of 2009 and into 2010 to continue to be very difficult and we will continue to evaluate our activities and organizational structure.
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 and nine months ended September 30, 2009 compared to September 30, 2008 We reported net loss attributable to Aimco of $27.5 million and net loss attributable to Aimco common stockholders of $40.5 million for the three months ended September 30, 2009, compared to net income attributable to Aimco of $173.7 million and net income attributable to Aimco common stockholders of $159.5 million for the three months ended September 30, 2008, decreases of $201.2 million and $200.0 million, respectively.
For the nine months ended September 30, 2009, we reported net loss attributable to Aimco of $70.5 million and net loss attributable to Aimco common stockholders of $108.1 million, compared to net income attributable to Aimco of $405.0 million and net income attributable to Aimco common stockholders of $360.5 million for the nine months ended September 30, 2008, decreases of $475.5 million and $468.6 million, respectively.
These decreases were principally due to the following items, all of which are discussed in further detail below:
• a decrease in income from discontinued operations, primarily related to the volume of sales in 2008 and the related number of properties included in discontinued operations in 2008 as compared to 2009;

• a decrease in gain on dispositions of unconsolidated real estate and other, primarily due to a large gain on the sale of an interest in an unconsolidated partnership in 2008;

• a decrease in asset management and tax credit revenues, primarily due to a reduction in promote income, which is income earned in connection with the disposition of properties owned by our consolidated joint ventures;

• an increase in operating real estate impairment losses; and

• an increase in depreciation and amortization expense, primarily related to completed redevelopments and capital expenditures.

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The effects of these items on our operating results were partially offset by:
• a decrease in earnings allocable to noncontrolling interests, primarily due to a decrease in gains on sales in 2009 as compared to 2008; and

• a decrease in general and administrative expenses, primarily related to reductions in personnel and related expenses from our organizational restructuring initiated during the fourth quarter 2008.

The decreases for the nine months ended September 30, 2009, as compared to the nine months ended September 30, 2008, were additionally affected by an increase in net operating income associated with property operations, primarily related to affordable properties and completed redevelopments.
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 uses various generally accepted industry financial measures to assess the performance and financial condition of the business, including: Net Asset Value; Funds From Operations; Adjusted Funds From Operations; same store property operating results; net operating income; Free Cash Flow; Economic Income; financial coverage ratios; and leverage as shown on our balance sheet. Our 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, 2009 and 2008 (in thousands):

                                          Three Months Ended            Nine Months Ended
                                            September 30,                 September 30,
                                         2009           2008           2009           2008
Real estate segment revenues:
Rental and other property revenues     $ 307,907      $ 310,563      $ 925,363      $ 918,772
Property management revenues,
primarily from affiliates                  1,114          1,227          4,098          4,746

                                         309,021        311,790        929,461        923,518
Real estate segment expenses:
Property operating expenses              146,608        147,165        426,258        430,166
Property management expenses                 510          1,603          2,415          4,192

                                         147,118        148,768        428,673        434,358


Real estate segment net operating
income                                 $ 161,903      $ 163,022      $ 500,788      $ 489,160

For the three months ended September 30, 2009, compared to the three months ended September 30, 2008, real estate segment net operating income decreased $1.1 million, or 0.7%. This decrease was due to a decrease in real estate segment revenues of $2.8 million, or 0.9%, offset by a decrease in real estate segment expenses of $1.7 million, or 1.1%.
The decrease in revenues from our real estate segment during the three months ended September 30, 2009, was primarily attributed to a $6.2 million, or 3.1%, decrease in revenues from our conventional same store properties, due to a decrease of 20 basis points in average physical occupancy and lower average rent ($36 per unit). This decrease was partially offset by increases of $2.6 million in revenues related to our conventional redevelopment properties based on more units in service at these properties in 2009 and $0.9 million in revenues related to our affordable properties, primarily due to higher average physical occupancy and rents during 2009.

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For the three months ended September 30, 2009, compared to the three months ended September 30, 2008, expenses related to our conventional same store properties increased by $0.6 million due primarily to increases in personnel and related costs and real estate taxes, expenses of our affordable properties increased by $0.5 million due to properties newly consolidated during the three months ended December 31, 2008 and expenses increased by $0.4 million related to properties acquired during the latter half of 2008. These increases were offset by decreases in property management expenses related to consolidated and unconsolidated properties of $3.7 million and $1.1 million, respectively, both due primarily to reductions in personnel and related costs resulting from our organization restructuring (see Note 4 in our condensed consolidated financial statements in Item 1). In addition, expenses related to our conventional redevelopment properties decreased by $0.9 million primarily due reductions in marketing and administrative costs. Casualty losses incurred by our consolidated properties increased by $2.2 million during the three months ended September 30, 2009, as compared to the three months ended September 30, 2008.
For the nine months ended September 30, 2009, compared to the nine months ended September 30, 2008, real estate segment net operating income increased $11.6 million, or 2.4%. This increase was due to an increase in real estate segment revenues of $5.9 million, or 0.6%, and a decrease in real estate segment expenses of $5.7 million, or 1.3%.
Revenues from our conventional same store properties decreased by $11.1 million, or 1.8%, due to a decrease of 120 basis points in average physical occupancy and lower average rent ($17 per unit). The decrease in revenues from our conventional same store properties was more than offset by increases in revenues from our conventional redevelopment and affordable properties. Revenues related to our conventional redevelopment properties increased by $9.5 million based on more units in service at these properties in 2009, and revenues related to our affordable properties increased $6.6 million, primarily due to higher average physical occupancy and rents during 2009. Revenues related to properties acquired subsequent to September 30, 2008 also resulted in a $3.4 million increase in revenues during 2009.
For the nine months ended September 30, 2009, compared to the nine months ended September 30, 2008, expenses related to our conventional same store properties decreased by $1.0 million, primarily due to decreases in administrative, marketing and contract services expenses. Property management expenses related to consolidated and unconsolidated properties decreased by $5.9 million and $1.8 million, respectively, both due primarily to reductions in personnel and related costs resulting from our organization restructuring (see Note 4 in our condensed consolidated financial statements in Item 1). These decreases were partially offset by increases of $1.0 million related to our conventional redevelopment properties, primarily due to more units placed in service, $0.9 million related to our affordable properties, primarily due to properties that were newly consolidated in 2009, and $1.2 million related to properties acquired during the latter half of 2008.
Investment Management Segment
Our investment management segment includes activities and services related to our owned portfolio of properties as well as services provided to affiliated partnerships. Activities and services that fall within investment management include 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.
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 12 months, or improvement in operations that generates sufficient cash to pay the fees.

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The following table summarizes the net operating income from our investment management segment for the three and nine months ended September 30, 2009 and 2008 (in thousands):

                                          Three Months Ended,              Nine Months Ended
                                             September 30,                   September 30,
                                          2009            2008            2009           2008
Asset management and tax credit
revenues                               $    10,750      $  32,755      $   33,779      $  83,782
Investment management expenses               4,213          7,850          12,719         18,044

Investment management segment net
operating income                       $     6,537      $  24,905      $   21,060      $  65,738

For the three months ended September 30, 2009, compared to the three months ended September 30, 2008, net operating income from investment management decreased $18.4 million. This decrease is primarily attributable to a $16.9 million decrease in promote income, which is income earned in connection with the disposition of properties owned by our consolidated joint ventures, and a $4.7 million decrease in other general partner transactional fees, partially offset by a $3.6 million decrease in investment management expenses. For the nine months ended September 30, 2009, compared to the nine months ended September 30, 2008, net operating income from investment management decreased $44.7 million. This decrease is primarily attributable to a $47.0 million decrease in promote income, and a $3.2 million decrease in other general partner transactional fees, partially offset by a $5.3 million decrease in investment management expenses.
Other Operating Expenses (Income)
Depreciation and Amortization
For the three months ended September 30, 2009, compared to the three months ended September 30, 2008, depreciation and amortization increased $15.0 million, or 14.0%. This increase primarily relates to depreciation for properties acquired subsequent to September 30, 2008, completed redevelopments and other capital projects recently placed in service.
For the nine months ended September 30, 2009, compared to the nine months ended September 30, 2008, depreciation and amortization increased $51.0 million, or 16.7%. This increase primarily relates to depreciation for properties acquired subsequent to September 30, 2008, completed redevelopments and other capital projects recently placed in service.
Provision for Operating Real Estate Impairment Losses 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 estimated aggregate undiscounted future cash flows, we recognize an impairment loss to the extent the carrying amount exceeds the estimated fair value of the property.
During the three and nine months ended September 30, 2009, we recognized impairment losses of $21.7 million and $24.7 million respectively, related to properties classified as held for use as of September 30, 2009. We recognized no such impairment losses during the three and nine months ended September 30, 2008.
General and Administrative Expenses
For the three months ended September 30, 2009, compared to the three months ended September 30, 2008, general and administrative expenses decreased $11.7 million, or 42.8%. This decrease is primarily attributable to reductions in personnel and related expenses associated with our organizational restructurings (see Note 4 of the condensed consolidated financial statements in Item 1 for additional information) and reduced incentive compensation costs. For the nine months ended September 30, 2009, compared to the nine months ended September 30, 2008, general and administrative expenses decreased $22.2 million, or 29.2%. This decrease is primarily attributable to reductions in personnel and related expenses.
For the year ending December 31, 2009, we estimate the reductions in personnel and related expenses associated with our organizational restructurings will reduce our consolidated general and administrative expenses by $22.0 million to $25.0 million as compared to the year ended December 31, 2008.

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Other Expenses, Net
Other expenses, net includes franchise taxes, risk management activities, partnership administration expenses and certain non-recurring items. For the three months ended September 30, 2009, compared to the three months ended September 30, 2008, other expenses, net increased by $7.2 million. The increase is primarily attributable to $2.8 million of restructuring costs incurred during the three months ended September 30, 2009 (see Note 4 of the condensed consolidated financial statements in Item 1 for additional information) and a net increase of $2.8 million in costs related to certain litigation matters.
For the nine months ended September 30, 2009, compared to the nine months ended September 30, 2008, other expenses, net decreased by $4.4 million. The decrease is primarily attributable to a $4.8 million write-off of certain communications hardware and capitalized costs (see Note 4 to the condensed consolidated financial statements in Item 1) in 2008, and a $5.3 million reduction in expenses of our self insurance activities, including a decrease in casualty losses on less than wholly owned properties from 2008 to 2009. These decreases are partially offset by increases of $2.8 million in restructuring costs incurred during the three months ended September 30, 2009 (see Note 4 of the condensed consolidated financial statements in Item 1 for additional information) and $0.8 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, 2009, compared to the three months ended September 30, 2008, interest income decreased $3.9 million. The decrease is primarily attributable to a $1.5 million decrease in accretion income related to a note receivable for which we ceased accretion following impairment of the note in 2008, and a decrease of $2.3 million due to lower interest rates on notes receivable, cash and restricted cash balances and lower average balances during 2009.
For the nine months ended September 30, 2009, compared to the nine months ended September 30, 2008, interest income decreased $9.5 million. The decrease is primarily attributable to a decrease of $7.4 million due to lower interest rates on notes receivable, cash and restricted cash balances and lower average balances, and a $4.1 million decrease in accretion income related to a note receivable for which we ceased accretion following impairment of the note in 2008. These decreases were partially offset by a $2.2 million net adjustment to accretion on certain discounted notes during the nine months ended September 30, 2008, resulting from a change in the timing and amount of collection. Recovery of (Provision for) Losses on Notes Receivable During the three months ended September 30, 2009, we recognized a $1.2 million net recovery of previously recognized provision for losses on notes receivable, . . .