Edgar Filing: APARTMENT INVESTMENT & MANAGEMENT CO

Q3 2014 10-Q





UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_______________________________________
Form 10-Q
(Mark One)
x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2014
OR
o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to
Commission File Number 1-13232 (Apartment Investment and Management Company)
Commission File Number 0-24497 (AIMCO Properties, L.P.)

Apartment Investment and Management Company
AIMCO Properties, L.P.
(Exact name of registrant as specified in its charter)



Maryland (Apartment Investment and Management Company)		84-1259577
Delaware (AIMCO Properties, L.P.)		84-1275621
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

4582 South Ulster Street, Suite 1100
Denver, Colorado		80237
(Address of principal executive offices)		(Zip Code)
(303) 757-8101
(Registrant’s telephone number, including area code)

Not Applicable
(Former name, former address, and former fiscal year, if changed since last report)



Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Apartment Investment and Management Company: Yes x No o	AIMCO Properties, L.P.: Yes x No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Apartment Investment and Management Company: Yes x No o	AIMCO Properties, L.P.: Yes x No o



Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Apartment Investment and Management Company:
Large accelerated filer	x		Accelerated filer	o
Non-accelerated filer	o	(Do not check if a smaller reporting company)	Smaller reporting company	o
AIMCO Properties, L.P.:
Large accelerated filer	o		Accelerated filer	x
Non-accelerated filer	o	(Do not check if a smaller reporting company)	Smaller reporting company	o



Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Apartment Investment and Management Company: Yes	o	No	x	AIMCO Properties, L.P.: Yes	o	No	x

_______________________________________________________

The number of shares of Apartment Investment and Management Company

Class A Common Stock outstanding as of October 30, 2014: 146,205,371

The number of Partnership Common Units outstanding as of October 30, 2014: 153,860,959

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EXPLANATORY NOTE

This filing combines the reports on Form 10-Q for the quarterly period ended September 30, 2014, of Apartment Investment and Management Company, or Aimco, and AIMCO Properties, L.P., or the Aimco Operating Partnership. Where it is important to distinguish between the two entities, we refer to them specifically. Otherwise, references to “we,” “us” or “our” mean, collectively, Aimco, the Aimco Operating Partnership and their consolidated entities.

Aimco, a Maryland corporation, is a self-administered and self-managed real estate investment trust, or REIT. Aimco, through wholly-owned subsidiaries, is the general and special limited partner of and, as of September 30, 2014, owned a 95.0% ownership interest in the common partnership units of, the Aimco Operating Partnership. The remaining 5.0% interest is owned by limited partners. As the sole general partner of the Aimco Operating Partnership, Aimco has exclusive control of the Aimco Operating Partnership’s day-to-day management.

The Aimco Operating Partnership holds all of Aimco’s assets and manages the daily operations of Aimco’s business and assets. Aimco is required to contribute all proceeds from offerings of its securities to the Aimco Operating Partnership. In addition, substantially all of Aimco’s assets must be owned through the Aimco Operating Partnership; therefore, Aimco is generally required to contribute all assets acquired to the Aimco Operating Partnership. In exchange for the contribution of offering proceeds or assets, Aimco receives additional interests in the Aimco Operating Partnership with similar terms (e.g., if Aimco contributes proceeds of a stock offering, Aimco receives partnership units with terms substantially similar to the stock issued by Aimco).

We believe combining the periodic reports of Aimco and the Aimco Operating Partnership into this single report provides the following benefits:


•	presents our business as a whole, in the same manner our management views and operates the business;


•	eliminates duplicative disclosure and provides a more streamlined and readable presentation since a substantial portion of the disclosures apply to both Aimco and the Aimco Operating Partnership; and


•	saves time and cost through the preparation of a single combined report rather than two separate reports.

We operate Aimco and the Aimco Operating Partnership as one enterprise and the management of Aimco directs the management and operations of the Aimco Operating Partnership.

We believe it is important to understand the few differences between Aimco and the Aimco Operating Partnership in the context of how Aimco and the Aimco Operating Partnership operate as a consolidated company. Aimco has no assets or liabilities other than its investment in the Aimco Operating Partnership. Also, Aimco is a corporation that issues publicly traded equity from time to time, whereas the Aimco Operating Partnership is a partnership that has no publicly traded equity. Except for the net proceeds from stock offerings by Aimco, which are contributed to the Aimco Operating Partnership in exchange for additional limited partnership interests (of a similar type and in an amount equal to the shares of stock sold in the offering), the Aimco Operating Partnership generates all remaining capital required by its business. These sources include the Aimco Operating Partnership’s working capital, net cash provided by operating activities, borrowings under its revolving credit facility, the issuance of secured debt and equity securities, including additional partnership units, and proceeds received from the sale of apartment communities.

Equity, partners’ capital and noncontrolling interests are the main areas of difference between the consolidated financial statements of Aimco and those of the Aimco Operating Partnership. Interests in the Aimco Operating Partnership held by entities other than Aimco are classified within partners’ capital in the Aimco Operating Partnership’s financial statements and as noncontrolling interests in Aimco’s financial statements.

To help investors understand the differences between Aimco and the Aimco Operating Partnership, this report provides separate consolidated financial statements for Aimco and the Aimco Operating Partnership; a single set of consolidated notes to such financial statements that includes separate discussions of each entity’s stockholders’ equity or partners’ capital, as applicable; and a combined Management’s Discussion and Analysis of Financial Condition and Results of Operations section that includes discrete information related to each entity.

This report also includes separate Part I, Item 4. Controls and Procedures sections and separate Exhibits 31 and 32 certifications for Aimco and the Aimco Operating Partnership in order to establish that the requisite certifications have been made and that Aimco and the Aimco Operating Partnership are both compliant with Rule 13a-15 or Rule 15d-15 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and 18 U.S.C. §1350.

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APARTMENT INVESTMENT AND MANAGEMENT COMPANY

AIMCO PROPERTIES, L.P.

TABLE OF CONTENTS

FORM 10-Q



		Page
	PART I. FINANCIAL INFORMATION
ITEM 1.	Financial Statements
	Apartment Investment and Management Company:
	Condensed Consolidated Balance Sheets as of September 30, 2014 and December 31, 2013 (Unaudited)	3
	Condensed Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2014	4
	Condensed Consolidated Statements of Comprehensive Income for the Three and Nine Months Ended September 30, 2014 and 2013 (Unaudited)	5
	Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2014 and 2013 (Unaudited)	6
	AIMCO Properties, L.P.:
	Condensed Consolidated Balance Sheets as of September 30, 2014 and December 31, 2013 (Unaudited)	7
	Condensed Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2014 and 2013 (Unaudited)	8
	Condensed Consolidated Statements of Comprehensive Income for the Three and Nine Months Ended September 30, 2014 and 2013 (Unaudited)	9
	Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2014 and 2013 (Unaudited)	10
	Notes to the Condensed Consolidated Financial Statements of Apartment Investment and Management Company and AIMCO Properties, L.P. (Unaudited)	11
ITEM 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	26
ITEM 3.	Quantitative and Qualitative Disclosures About Market Risk	44
ITEM 4.	Controls and Procedures	44
	PART II. OTHER INFORMATION
ITEM 1A.	Risk Factors	45
ITEM 2.	Unregistered Sales of Equity Securities and Use of Proceeds	46
ITEM 6.	Exhibits	47
Signatures		48

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PART I. FINANCIAL INFORMATION


ITEM 1.	Financial Statements

APARTMENT INVESTMENT AND MANAGEMENT COMPANY

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share data)

(Unaudited)



	September 30, 2014			December 31, 2013
ASSETS
Buildings and improvements	$	6,069,042		$	6,332,723
Land	1,771,545			1,881,358
Total real estate	7,840,587			8,214,081
Less accumulated depreciation	(2,615,712		)	(2,822,872		)
Net real estate ($373,524 and $392,245 related to VIEs)	5,224,875			5,391,209
Cash and cash equivalents ($14,611 and $24,094 related to VIEs)	29,186			55,751
Restricted cash ($37,832 and $36,369 related to VIEs)	166,024			127,037
Other assets ($212,276 and $211,286 related to VIEs)	470,328			505,416
Assets held for sale	47,050			—
Total assets	$	5,937,463		$	6,079,413

LIABILITIES AND EQUITY
Non-recourse property debt ($350,366 and $355,372 related to VIEs)	$	3,947,786		$	4,337,785
Revolving credit facility borrowings	14,450			50,400
Total indebtedness	3,962,236			4,388,185
Accounts payable	40,166			43,161
Accrued liabilities and other ($129,609 and $140,910 related to VIEs)	288,688			287,595
Deferred income	86,853			107,775
Liabilities related to assets held for sale	37,056			—
Total liabilities	4,414,999			4,826,716
Preferred noncontrolling interests in Aimco Operating Partnership	78,909			79,953
Commitments and contingencies (Note 6)	—			—
Equity:
Perpetual Preferred Stock	186,126			68,114
Common Stock, $0.01 par value, 505,787,260 shares authorized, 146,205,371 and 145,917,387 shares issued/outstanding at September 30, 2014 and December 31, 2013, respectively	1,462			1,459
Additional paid-in capital	3,694,101			3,701,339
Accumulated other comprehensive loss	(5,517		)	(4,602		)
Distributions in excess of earnings	(2,647,921		)	(2,798,853		)
Total Aimco equity	1,228,251			967,457
Noncontrolling interests in consolidated real estate partnerships	234,076			233,008
Common noncontrolling interests in Aimco Operating Partnership	(18,772		)	(27,721		)
Total equity	1,443,555			1,172,744
Total liabilities and equity	$	5,937,463		$	6,079,413

See notes to condensed consolidated financial statements.

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APARTMENT INVESTMENT AND MANAGEMENT COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)

(Unaudited)



	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2014			2013			2014			2013
REVENUES
Rental and other property revenues	$	239,873		$	236,546		$	719,501		$	700,734
Tax credit and asset management revenues	6,970			7,397			22,684			22,458
Total revenues	246,843			243,943			742,185			723,192

OPERATING EXPENSES
Property operating expenses	95,174			93,898			288,816			282,064
Investment management expenses	1,279			373			3,552			3,503
Depreciation and amortization	69,437			72,040			211,143			221,588
Provision for real estate impairment losses	1,413			—			1,413			—
General and administrative expenses	10,665			10,962			31,322			33,894
Other expenses, net	1,408			2,158			7,397			6,281
Total operating expenses	179,376			179,431			543,643			547,330
Operating income	67,467			64,512			198,542			175,862
Interest income	1,787			3,587			5,187			12,652
Interest expense	(57,806		)	(59,648		)	(168,613		)	(175,724		)
Other, net	1,733			(1,563		)	(57		)	(4,812		)
Income before income taxes, discontinued operations and gain on dispositions	13,181			6,888			35,059			7,978
Income tax benefit (expense)	5,005			87			13,110			(187		)
Income from continuing operations	18,186			6,975			48,169			7,791
Income from discontinued operations, net	—			72,435			—			81,431
Gain on dispositions of real estate, net of tax	126,329			—			262,483			—
Net income	144,515			79,410			310,652			89,222
Noncontrolling interests:
Net (income) loss attributable to noncontrolling interests in consolidated real estate partnerships	(8,337		)	(6,776		)	(21,952		)	4,336
Net income attributable to preferred noncontrolling interests in Aimco Operating Partnership	(1,601		)	(1,606		)	(4,808		)	(4,818		)
Net income attributable to common noncontrolling interests in Aimco Operating Partnership	(6,549		)	(3,796		)	(13,895		)	(4,668		)
Net income attributable to noncontrolling interests	(16,487		)	(12,178		)	(40,655		)	(5,150		)
Net income attributable to Aimco	128,028			67,232			269,997			84,072
Net income attributable to Aimco preferred stockholders	(2,875		)	(702		)	(5,087		)	(2,105		)
Net income attributable to participating securities	(447		)	(262		)	(962		)	(418		)
Net income attributable to Aimco common stockholders	$	124,706		$	66,268		$	263,948		$	81,549
Earnings attributable to Aimco per common share – basic (Note 7):
Income from continuing operations	$	0.86		$	0.04		$	1.81		$	0.03
Net income	$	0.86		$	0.46		$	1.81		$	0.56
Earnings attributable to Aimco per common share – diluted (Note 7):
Income from continuing operations	$	0.85		$	0.04		$	1.81		$	0.03
Net income	$	0.85		$	0.46		$	1.81		$	0.56
Dividends declared per common share	$	0.26		$	0.24		$	0.78		$	0.72

See notes to condensed consolidated financial statements.

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APARTMENT INVESTMENT AND MANAGEMENT COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In thousands)

(Unaudited)



	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2014			2013			2014			2013
Net income	$	144,515		$	79,410		$	310,652		$	89,222
Other comprehensive loss:
Unrealized (losses) gains on interest rate swaps	(61		)	(185		)	(1,488		)	1,423
Losses on interest rate swaps reclassified into interest expense from accumulated other comprehensive loss	421			422			1,265			1,258
Unrealized losses on debt securities classified as available-for-sale	(566		)	(1,384		)	(618		)	(4,440		)
Other comprehensive loss	(206		)	(1,147		)	(841		)	(1,759		)
Comprehensive income	144,309			78,263			309,811			87,463
Comprehensive income attributable to noncontrolling interests	(16,555		)	(12,132		)	(40,728		)	(5,316		)
Comprehensive income attributable to Aimco	$	127,754		$	66,131		$	269,083		$	82,147

See notes to condensed consolidated financial statements.

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APARTMENT INVESTMENT AND MANAGEMENT COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)



	Nine Months Ended
	September 30,
	2014			2013
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	310,652		$	89,222
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	211,143			221,588
Gain on dispositions of real estate, net of tax	(262,483		)	—
Provision for real estate impairment losses	1,413			—
Discontinued operations	—			(63,424		)
Other adjustments	(1,209		)	11,443
Net changes in operating assets and operating liabilities	(26,127		)	(10,706		)
Net cash provided by operating activities	233,389			248,123
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of real estate	(132,463		)	(50,727		)
Capital expenditures	(277,214		)	(275,116		)
Proceeds from dispositions of real estate	564,687			120,736
Purchases of corporate assets	(6,405		)	(8,618		)
Purchase of property loans	—			(119,101		)
Change in restricted cash	(33,784		)	17,802
Other investing activities	854			15,865
Net cash provided by (used in) investing activities	115,675			(299,159		)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from non-recourse property debt	83,130			187,642
Principal repayments on non-recourse property debt	(376,713		)	(295,725		)
Net (repayments) borrowings on revolving credit facility	(35,950		)	298,550
Proceeds from issuance of Preferred Stock	123,620			—
Repurchase of Preferred Stock	(9,516		)	—
Proceeds from Common Stock option exercises	587			993
Payment of dividends to holders of Preferred Stock	(3,481		)	(2,104		)
Payment of dividends to holders of Common Stock	(113,988		)	(105,033		)
Payment of distributions to noncontrolling interests	(42,969		)	(33,835		)
Other financing activities	(349		)	(16,243		)
Net cash (used in) provided by financing activities	(375,629		)	34,245
NET DECREASE IN CASH AND CASH EQUIVALENTS	(26,565		)	(16,791		)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD	55,751			84,413
CASH AND CASH EQUIVALENTS AT END OF PERIOD	$	29,186		$	67,622

See notes to condensed consolidated financial statements.

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AIMCO PROPERTIES, L.P.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands)

(Unaudited)



	September 30, 2014			December 31, 2013
ASSETS
Buildings and improvements	$	6,069,042		$	6,332,723
Land	1,771,545			1,881,358
Total real estate	7,840,587			8,214,081
Less accumulated depreciation	(2,615,712		)	(2,822,872		)
Net real estate ($373,524 and $392,245 related to VIEs)	5,224,875			5,391,209
Cash and cash equivalents ($14,611 and $24,094 related to VIEs)	29,186			55,751
Restricted cash ($37,832 and $36,369 related to VIEs)	166,024			127,037
Other assets ($212,276 and $211,286 related to VIEs)	470,328			505,416
Assets held for sale	47,050			—
Total assets	$	5,937,463		$	6,079,413

LIABILITIES AND EQUITY
Non-recourse property debt ($350,366 and $355,372 related to VIEs)	$	3,947,786		$	4,337,785
Revolving credit facility borrowings	14,450			50,400
Total indebtedness	3,962,236			4,388,185
Accounts payable	40,166			43,161
Accrued liabilities and other ($129,609 and $140,910 related to VIEs)	288,688			287,595
Deferred income	86,853			107,775
Liabilities related to assets held for sale	37,056			—
Total liabilities	4,414,999			4,826,716
Redeemable preferred units	78,909			79,953
Commitments and contingencies (Note 6)	—			—
Partners’ Capital:
Preferred units	186,126			68,114
General Partner and Special Limited Partner	1,042,125			899,343
Limited Partners	(18,772		)	(27,721		)
Partners’ capital attributable to the Aimco Operating Partnership	1,209,479			939,736
Noncontrolling interests in consolidated real estate partnerships	234,076			233,008
Total partners’ capital	1,443,555			1,172,744
Total liabilities and partners’ capital	$	5,937,463		$	6,079,413

See notes to condensed consolidated financial statements.

Table of Contents

AIMCO PROPERTIES, L.P.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per unit data)

(Unaudited)



	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2014			2013			2014			2013
REVENUES
Rental and other property revenues	$	239,873		$	236,546		$	719,501		$	700,734
Tax credit and asset management revenues	6,970			7,397			22,684			22,458
Total revenues	246,843			243,943			742,185			723,192

OPERATING EXPENSES
Property operating expenses	95,174			93,898			288,816			282,064
Investment management expenses	1,279			373			3,552			3,503
Depreciation and amortization	69,437			72,040			211,143			221,588
Provision for real estate impairment losses	1,413			—			1,413			—
General and administrative expenses	10,665			10,962			31,322			33,894
Other expenses, net	1,408			2,158			7,397			6,281
Total operating expenses	179,376			179,431			543,643			547,330
Operating income	67,467			64,512			198,542			175,862
Interest income	1,787			3,587			5,187			12,652
Interest expense	(57,806		)	(59,648		)	(168,613		)	(175,724		)
Other, net	1,733			(1,563		)	(57		)	(4,812		)
Income before income taxes, discontinued operations and gain on dispositions	13,181			6,888			35,059			7,978
Income tax benefit (expense)	5,005			87			13,110			(187		)
Income from continuing operations	18,186			6,975			48,169			7,791
Income from discontinued operations, net	—			72,435			—			81,431
Gain on dispositions of real estate, net of tax	126,329			—			262,483			—
Net income	144,515			79,410			310,652			89,222
Net (income) loss attributable to noncontrolling interests in consolidated real estate partnerships	(8,337		)	(6,776		)	(21,952		)	4,336
Net income attributable to the Aimco Operating Partnership	136,178			72,634			288,700			93,558
Net income attributable to the Aimco Operating Partnership’s preferred unitholders	(4,476		)	(2,308		)	(9,895		)	(6,923		)
Net income attributable to participating securities	(447		)	(262		)	(962		)	(418		)
Net income attributable to the Aimco Operating Partnership’s common unitholders	$	131,255		$	70,064		$	277,843		$	86,217
Earnings attributable to the Aimco Operating Partnership per common unit – basic (Note 7):
Income from continuing operations	$	0.86		$	0.04		$	1.81		$	0.03
Net income	$	0.86		$	0.46		$	1.81		$	0.56
Earnings attributable to the Aimco Operating Partnership per common unit – diluted (Note 7):
Income from continuing operations	$	0.85		$	0.04		$	1.81		$	0.03
Net income	$	0.85		$	0.46		$	1.81		$	0.56
Distributions declared per common unit	$	0.26		$	0.24		$	0.78		$	0.72

See notes to condensed consolidated financial statements.

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AIMCO PROPERTIES, L.P.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In thousands)

(Unaudited)



	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2014			2013			2014			2013
Net income	$	144,515		$	79,410		$	310,652		$	89,222
Other comprehensive loss:
Unrealized (losses) gains on interest rate swaps	(61		)	(185		)	(1,488		)	1,423
Losses on interest rate swaps reclassified into interest expense from accumulated other comprehensive loss	421			422			1,265			1,258
Unrealized losses on debt securities classified as available-for-sale	(566		)	(1,384		)	(618		)	(4,440		)
Other comprehensive loss	(206		)	(1,147		)	(841		)	(1,759		)
Comprehensive income	144,309			78,263			309,811			87,463
Comprehensive (income) loss attributable to noncontrolling interests	(8,419		)	(6,790		)	(22,073		)	4,065
Comprehensive income attributable to the Aimco Operating Partnership	$	135,890		$	71,473		$	287,738		$	91,528

See notes to condensed consolidated financial statements.

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AIMCO PROPERTIES, L.P.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)



	Nine Months Ended
	September 30,
	2014			2013
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	310,652		$	89,222
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	211,143			221,588
Gain on dispositions of real estate, net of tax	(262,483		)	—
Provision for real estate impairment losses	1,413			—
Discontinued operations	—			(63,424		)
Other adjustments	(1,209		)	11,443
Net changes in operating assets and operating liabilities	(26,127		)	(10,706		)
Net cash provided by operating activities	233,389			248,123
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of real estate	(132,463		)	(50,727		)
Capital expenditures	(277,214		)	(275,116		)
Proceeds from dispositions of real estate	564,687			120,736
Purchases of corporate assets	(6,405		)	(8,618		)
Purchase of property loans	—			(119,101		)
Change in restricted cash	(33,784		)	17,802
Other investing activities	854			15,865
Net cash provided by (used in) investing activities	115,675			(299,159		)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from non-recourse property debt	83,130			187,642
Principal repayments on non-recourse property debt	(376,713		)	(295,725		)
Net (repayments) borrowings on revolving credit facility	(35,950		)	298,550
Proceeds from issuance of Preferred Units to Aimco	123,620			—
Repurchase of Preferred Units from Aimco	(9,516		)	—
Proceeds from Aimco Common Stock option exercises	587			993
Payment of distributions to holders of Preferred Units	(8,289		)	(6,922		)
Payment of distributions to General Partner and Special Limited Partner	(113,988		)	(105,033		)
Payment of distributions to Limited Partners	(6,020		)	(5,738		)
Payment of distributions to noncontrolling interests	(32,141		)	(23,279		)
Other financing activities	(349		)	(16,243		)
Net cash (used in) provided by financing activities	(375,629		)	34,245
NET DECREASE IN CASH AND CASH EQUIVALENTS	(26,565		)	(16,791		)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD	55,751			84,413
CASH AND CASH EQUIVALENTS AT END OF PERIOD	$	29,186		$	67,622

See notes to condensed consolidated financial statements.

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APARTMENT INVESTMENT AND MANAGEMENT COMPANY

AIMCO PROPERTIES, L.P.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2014

(Unaudited)

Note 1 — Organization

Apartment Investment and Management Company, or Aimco, is a Maryland corporation incorporated on January 10, 1994. Aimco is a self-administered and self-managed real estate investment trust, or REIT. AIMCO Properties, L.P., or the Aimco Operating Partnership, is a Delaware limited partnership formed on May 16, 1994, to conduct our business, which is focused on the ownership and management of quality apartment communities located in the largest coastal and job growth markets in the United States.

Aimco, and through its wholly-owned subsidiaries, AIMCO-GP, Inc. and AIMCO-LP Trust, owns a majority of the ownership interests in the Aimco Operating Partnership. Aimco conducts all of its business and owns all of its assets through the Aimco Operating Partnership. Interests in the Aimco Operating Partnership that are held by limited partners other than Aimco are referred to as “OP Units.” OP Units include common partnership units, high performance partnership units and partnership preferred units, which we refer to as common OP Units, HPUs and preferred OP Units, respectively. We also refer to HPUs as common OP Unit equivalents. At September 30, 2014, after eliminations for units held by consolidated entities, the Aimco Operating Partnership had 153,862,956 common partnership units and equivalents outstanding. At September 30, 2014, Aimco owned 146,205,371 of the common partnership units (95.0% of the common partnership units and equivalents) of the Aimco Operating Partnership and Aimco had outstanding an equal number of shares of its Class A Common Stock, which we refer to as Common Stock.

Except as the context otherwise requires, “we,” “our” and “us” refer to Aimco, the Aimco Operating Partnership and their consolidated subsidiaries, collectively.

As of September 30, 2014, we owned an equity interest in 143 conventional apartment communities with 43,306 apartment homes and 61 affordable apartment communities with 9,142 apartment homes. Of these, we consolidated 139 conventional apartment communities with 43,164 apartment homes and 54 affordable apartment communities with 8,455 apartment homes. Conventional and affordable apartment communities generated 90% and 10%, respectively, of the proportionate property net operating income (as defined in Note 8 and excluding amounts related to apartment communities sold or classified as held for sale) during the nine months ended September 30, 2014.

Note 2 — Basis of Presentation and Summary of Significant Accounting Policies

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America, or GAAP, have been condensed or omitted in accordance with such rules and regulations, although management believes the disclosures are adequate to prevent the information presented from being misleading. In the opinion of management, all adjustments (consisting of normal recurring items) considered necessary for a fair presentation have been included. Operating results for the three and nine months ended September 30, 2014, are not necessarily indicative of the results that may be expected for the year ending December 31, 2014.

The balance sheets of Aimco and the Aimco Operating Partnership at December 31, 2013, have been derived from their respective audited financial statements at that date, but do not include all of the information and disclosures required by GAAP for complete financial statements. For further information, refer to the financial statements and notes thereto included in Aimco’s and the Aimco Operating Partnership’s combined Annual Report on Form 10-K for the year ended December 31, 2013. Certain 2013 financial statement amounts have been reclassified to conform to the 2014 and full year 2013 presentation, including adjustments for discontinued operations reported through December 31, 2013. Except where indicated, the footnotes refer to both Aimco and the Aimco Operating Partnership.

Principles of Consolidation

Aimco’s accompanying condensed consolidated financial statements include the accounts of Aimco, the Aimco Operating Partnership, and their consolidated subsidiaries. The Aimco Operating Partnership’s condensed consolidated financial statements include the accounts of the Aimco Operating Partnership and its consolidated entities.

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We consolidate all variable interest entities for which we are the primary beneficiary. Generally, a variable interest entity, or VIE, is a legal entity in which the equity investors do not have the characteristics of a controlling financial interest or the equity investors lack sufficient equity at risk for the entity to finance its activities without additional subordinated financial support. In determining whether we are the primary beneficiary of a VIE, we consider qualitative and quantitative factors, including, but not limited to: which activities most significantly impact the VIE’s economic performance and which party controls such activities; the amount and characteristics of our investment; the obligation or likelihood for us or other investors to provide financial support; and the similarity with and significance to our business activities and the business activities of the other investors. Significant judgments related to these determinations include estimates about the current and future fair values and performance of real estate held by these VIEs and general market conditions.

As of September 30, 2014, we were the primary beneficiary of, and therefore consolidated, 63 VIEs, which owned 49 apartment communities with 7,656 apartment homes. Substantially all these VIEs are partnerships that are involved in the ownership or operation of qualifying affordable housing apartment communities and which are structured to provide for the pass-through of low-income housing tax credits and deductions to their partners. Real estate with a carrying value of $373.5 million collateralized $350.4 million of debt of those VIEs. Any significant amounts of assets and liabilities related to our consolidated VIEs are identified parenthetically on our accompanying condensed consolidated balance sheets. The creditors of the consolidated VIEs do not have recourse to our general credit.

In addition to the consolidated VIEs discussed above, at September 30, 2014, our consolidated financial statements included certain consolidated and unconsolidated VIEs that are part of the legacy asset management business we sold during 2012, which is discussed in Note 4. The assets and liabilities related to these consolidated and unconsolidated VIEs are each condensed into single line items within other assets and accrued liabilities and other, respectively, in our condensed consolidated balance sheets.

Generally, we consolidate real estate partnerships and other entities that are not variable interest entities when we own, directly or indirectly, a majority voting interest in the entity or are otherwise able to control the entity. All significant intercompany balances and transactions have been eliminated in consolidation.

Interests in the Aimco Operating Partnership that are held by limited partners other than Aimco are reflected in Aimco’s accompanying balance sheets as noncontrolling interests in Aimco Operating Partnership. Interests in partnerships consolidated into the Aimco Operating Partnership that are held by third parties are reflected in our accompanying balance sheets as noncontrolling interests in consolidated real estate partnerships. The assets of consolidated real estate partnerships owned or controlled by the Aimco Operating Partnership generally are not available to pay creditors of Aimco or the Aimco Operating Partnership.

As used herein, and except where the context otherwise requires, “partnership” refers to a limited partnership or a limited liability company and “partner” refers to a partner in a limited partnership or a member of a limited liability company.

Temporary Equity and Partners’ Capital

The following table presents a reconciliation of the Aimco Operating Partnership’s Preferred OP Units from December 31, 2013 to September 30, 2014 (in thousands). These amounts are presented within temporary equity in Aimco’s condensed consolidated balance sheets as preferred noncontrolling interests in the Aimco Operating Partnership, and within temporary capital in the Aimco Operating Partnership’s condensed consolidated balance sheets as redeemable preferred units.



Balance, December 31, 2013	$	79,953
Distributions to preferred unitholders	(4,808		)
Redemption of preferred units and other	(1,044		)
Net income	4,808
Balance, September 30, 2014	$	78,909

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Aimco Equity (including Noncontrolling Interests)

The following table presents a reconciliation of Aimco’s consolidated permanent equity accounts from December 31, 2013 to September 30, 2014 (in thousands):



	Aimco Equity			Noncontrolling interests in consolidated real estate partnerships			Common noncontrolling interests in Aimco Operating Partnership			Total Equity
Balance, December 31, 2013	$	967,457		$	233,008		$	(27,721	)	$	1,172,744
Contributions	—			10,915			—			10,915
Issuance of preferred stock	123,620			—			—			123,620
Repurchase of preferred stock	(9,516		)	—			—			(9,516		)
Preferred stock dividends	(5,314		)	—			—			(5,314		)
Common dividends and distributions	(113,988		)	(31,821		)	(6,020		)	(151,829		)
Redemptions of common OP Units	—			—			(7,581		)	(7,581		)
Amortization of stock-based compensation cost	4,824			—			—			4,824
Stock option exercises	587			—			—			587
Effect of changes in ownership for consolidated entities	(8,690		)	(76		)	8,703			(63		)
Change in accumulated other comprehensive loss	(914		)	121			(48		)	(841		)
Other	188			(23		)	—			165
Net income	269,997			21,952			13,895			305,844
Balance, September 30, 2014	$	1,228,251		$	234,076		$	(18,772	)	$	1,443,555

Partners’ Capital attributable to the Aimco Operating Partnership

The following table presents a reconciliation of the consolidated partners’ capital balances in permanent capital that are attributable to the Aimco Operating Partnership from December 31, 2013 to September 30, 2014 (in thousands):



	Partners’ capital attributable to the Partnership
Balance, December 31, 2013	$	939,736
Issuance of Preferred Units to Aimco	123,620
Repurchase of Preferred Units from Aimco	(9,516		)
Distributions to preferred units held by Aimco	(5,314		)
Distributions to common units held by Aimco	(113,988		)
Distributions to common units held by Limited Partners	(6,020		)
Redemption of common OP Units	(7,581		)
Amortization of Aimco stock-based compensation cost	4,824
Common OP Units issued to Aimco in connection with Aimco stock option exercises	587
Effect of changes in ownership for consolidated entities	13
Change in accumulated other comprehensive loss	(962		)
Other	188
Net income	283,892
Balance, September 30, 2014	$	1,209,479

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

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Use of Estimates

The preparation of our condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts included in the financial statements and accompanying notes thereto. Actual results could differ from those estimates.

Recent Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board, or FASB, and International Accounting Standards Board issued their final standard on revenue from contracts with customers, which was issued by the FASB as Accounting Standards Update 2014-09, Revenue from Contracts with Customers, or ASU 2014-09. ASU 2014-09, which establishes a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers, supersedes most current GAAP applicable to revenue recognition and converges U.S. and international accounting standards in this area. The core principle of the new guidance is that revenue shall only be recognized when an entity has transferred control of goods or services to a customer and for an amount reflecting the consideration to which the entity expects to be entitled for such exchange.

ASU 2014-09 is effective for public entities for annual reporting periods beginning after December 15, 2016, with no early adoption permitted, and allows for full retrospective adoption applied to all periods presented or modified retrospective adoption with the cumulative effect of initially applying the standard recognized at the date of initial application. We have not yet determined the effect ASU 2014-09 will have on our consolidated financial statements.

In August 2014, the FASB issued Accounting Standards Update 2014-15, Presentation of Financial Statements-Going Concern, or ASU 2014-15. ASU 2014-15 requires management to evaluate whether there are conditions and events, considered in the aggregate, that raise substantial doubt about the entity’s ability to continue as a going concern within one year after the date that the financial statements are issued.

This evaluation should include consideration of whether it is probable that the entity will be unable to meet its obligations as they become due within one year after the date that the financial statements are issued, and should initially take into consideration the potential mitigating effect of management’s plans that have not been fully implemented as of the date that the financial statements are issued (e.g. plans to raise capital, borrow money, restructure debt, etc). Entities must disclose the principal conditions or events that raise substantial doubt about the entity’s ability to continue as a going concern, as well as management’s evaluation of those conditions and potential plans for mitigation.

ASU 2014-15 is effective for all entities for annual reporting periods ending after December 15, 2016, and interim periods thereafter, with early adoption permitted. We do not expect ASU 2014-15 to have a material effect on our consolidated financial statements.

Note 3 — Disposals and Discontinued Operations

In April 2014, the FASB issued Accounting Standards Update 2014-08, Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity, or ASU 2014-08. ASU 2014-08 revised the definition of, and the requirements for reporting, a "discontinued operation." Specifically, ASU 2014-08 revised the reporting requirements to only allow a component of an entity, or group of components of an entity, to be reported in discontinued operations if their disposal represents a “strategic shift that has (or will have) a major effect on an entity’s operations and financial results.”

For public companies, ASU 2014-08 is generally required to be applied prospectively to disposals of components of an entity or classifications as held for sale of components of an entity that occur in annual periods commencing after December 15, 2014; however, we elected to adopt ASU 2014-08 effective January 1, 2014, as permitted by the transition provisions, but only for disposals (or classifications as held for sale) that have not been reported in financial statements previously issued.

Under ASU 2014-08, we believe routine sales of apartment communities and certain groups of apartment communities generally do not meet the requirements for reporting within discontinued operations. During the three and nine months ended September 30, 2014, we sold 15 and 26 consolidated apartment communities with an aggregate of 4,635 and 8,368 apartment homes, respectively. Based on our prospective application of the revised discontinued operation definition, the results of operations for the three and nine months ended September 30, 2014 and 2013, for these apartment communities are reflected within income from continuing operations in our condensed consolidated statements of operations. These apartment communities generated $2.5 million and $16.0 million of income (before gain on dispositions) prior to their sale during the three and nine months ended September 30, 2014, respectively. The sale of these apartment communities resulted in gains on disposition of real estate of $126.3 million (which is net of $21.1 million of related income taxes) and $262.5 million (which is net of $29.8 million of related income taxes), respectively, for the three and nine months ended September 30, 2014, which are reflected below income from discontinued

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operations within our condensed consolidated statements of operations. We report gains on disposition net of incremental direct costs incurred in connection with the transactions, including any prepayment penalties incurred upon repayment of property debt collateralized by the apartment communities being sold. Such prepayment penalties totaled $13.6 million and $22.1 million for consolidated dispositions during the three and nine months ended September 30, 2014, respectively. In addition to the sales of consolidated apartment communities, during the nine months ended September 30, 2014, we sold our partnership interests in ten unconsolidated apartment communities with 439 apartment homes, for gross proceeds to us of $0.1 million.

In accordance with GAAP prior to our adoption of ASU 2014-08, we reported as discontinued operations apartment communities that met the definition of a component of an entity and had been sold or met the criteria to be classified as held for sale. For years ended December 31, 2013 or earlier, and interim periods within those years, we included the results of such apartment communities, including any gain or loss on their disposition, less applicable income taxes, in income from discontinued operations within the consolidated statements of operations. During the three and nine months ended September 30, 2013, we sold 8 and 13 consolidated apartment communities with an aggregate of 2,280 and 2,510 apartment homes, respectively, and during the year ended December 31, 2013, we sold 29 consolidated apartment communities with an aggregate of 6,953 apartment homes. The results of operations for the three and nine months ended September 30, 2013, for those apartment communities sold as of December 31, 2013, and gains related to apartment communities sold during the three and nine months ended September 30, 2013, are included in discontinued operations and are summarized below, along with the related amounts of income from discontinued operations attributable to Aimco, the Aimco Operating Partnership and noncontrolling interests (in thousands).



	Three Months Ended September 30, 2013			Nine Months Ended September 30, 2013
Rental and other property revenues	$	17,969		$	55,236
Property operating expenses	(8,843		)	(25,471		)
Depreciation and amortization	(4,741		)	(14,459		)
(Provision for) recovery of real estate impairment losses	(108		)	16
Operating income	4,277			15,322
Interest income	123			316
Interest expense	(3,700		)	(12,074		)
Income before gain on dispositions of real estate and income tax	700			3,564
Gain on dispositions of real estate	74,664			80,656
Income tax expense	(2,929		)	(2,789		)
Income from discontinued operations, net	$	72,435		$	81,431
Income from discontinued operations attributable to noncontrolling interests in consolidated real estate partnerships	(8,079		)	(548		)
Income from discontinued operations attributable to the Aimco Operating Partnership	64,356			80,883
Income from discontinued operations attributable to noncontrolling interests in Aimco Operating Partnership	(3,443		)	(4,309		)
Income from discontinued operations attributable to Aimco	$	60,913		$	76,574

The gain on dispositions for the three and nine months ended September 30, 2013, is net of incremental direct costs incurred in connection with the transactions, including $5.4 million and $6.4 million, respectively, of prepayment penalties incurred upon repayment of property debt collateralized by the apartment communities sold. For periods prior to our adoption of ASU 2014-08, we classified interest expense related to property debt within discontinued operations when the related apartment community was sold or classified as held for sale.

In connection with sales of apartment communities during the nine months ended September 30, 2014, the purchasers assumed approximately $56.9 million of non-recourse property debt. In connection with sales of apartment communities during the nine months ended September 30, 2013, the purchasers assumed approximately $48.3 million of non-recourse property debt.

We are currently marketing for sale certain apartment communities that are inconsistent with our long-term investment strategy. At the end of each reporting period, we evaluate whether such apartment communities meet the criteria to be classified as held for sale. As of September 30, 2014, we had five apartment communities with a total of 667 apartment homes classified as held for sale. During the three and nine months ended September 30, 2014, we recognized a $1.4 million provision for real estate impairment loss related to an asset classified as held for sale as of September 30, 2014. The impairment loss related to estimated costs to sell, inclusive of a debt prepayment penalty.

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Note 4 — Other Significant Transactions

Investment in Apartment Communities

During the three months ended September 30, 2014, we acquired for $118.5 million a 600-apartment home community located in the Denver, Colorado suburb of Aurora. In connection with this acquisition, we preliminarily allocated $1.6 million of the purchase price to in-place lease intangible assets, resulting in a total fair value of $116.9 million allocated to real estate.

Asset Management Business Disposition

In December 2012, we sold the Napico portfolio, our legacy asset management business. The transaction was primarily seller-financed, and the associated notes are scheduled to be repaid over several years. The notes will be repaid from the operation and liquidation of the portfolio and are collateralized by the buyer’s interests in the portfolio.

In accordance with the provisions of GAAP applicable to sales of real estate or interests therein, for accounting purposes, we have not recognized the sale and are accounting for the transaction under the profit sharing method. Until full payment has been received for the seller-financed notes, we will continue to recognize the portfolio’s assets and liabilities, each condensed into single line items within other assets and accrued liabilities and other, respectively, in our consolidated balance sheets, for all dates following the transaction. Similarly, we will continue to recognize the portfolio’s results of operations, also condensed into a single line item within our consolidated statements of operations, for periods subsequent to the transaction. To date we have received all required payments under the seller-financed notes.

At September 30, 2014, the Napico portfolio consisted of 17 partnerships that held investments in 14 apartment communities that were consolidated and 57 apartment communities that were accounted for under the equity or cost methods of accounting. The portfolio’s assets and liabilities included in our condensed consolidated balance sheets are summarized below (in thousands):



	September 30, 2014		December 31, 2013
Real estate, net	$	119,416	$	120,175
Cash and cash equivalents	21,448		22,602
Investment in unconsolidated real estate partnerships	8,065		10,817
Other assets	10,731		10,255
Total assets	$	159,660	$	163,849

Total indebtedness	$	106,642	$	106,032
Accrued and other liabilities	6,135		19,263
Total liabilities	$	112,777	$	125,295

Noncontrolling interests in consolidated real estate partnerships	45,267		35,818
Equity attributable to Aimco and the Aimco Operating Partnership	1,616		2,736
Total liabilities and equity	$	159,660	$	163,849

During the nine months ended September 30, 2014, approximately $9.2 million of non-recourse debt payable to a noncontrolling limited partner was contributed to the partnership's capital, pursuant to the dissolution provisions of the partnership, resulting in an increase in noncontrolling interests.

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Summarized information regarding the Napico portfolio’s results of operations, including any expense we recognize under the profit sharing method, is shown below in thousands. The net loss related to Napico (before noncontrolling interests) is included in other, net in our condensed consolidated statements of operations.



	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2014			2013			2014			2013
Revenues	$	9,884		$	5,676		$	21,234		$	18,036
Expenses	(5,114		)	(5,311		)	(15,992		)	(16,107		)
Equity loss of unconsolidated entities, gains or losses on dispositions and other, net	(3,246		)	(2,188		)	(5,198		)	(7,663		)
Net income (loss) related to legacy asset management business	1,524			(1,823		)	44			(5,734		)
Income tax benefit (expense) associated with legacy asset management business	101			8			411			(27		)
(Income) loss allocated to noncontrolling interests in consolidated real estate partnerships	(1,768		)	1,725			(1,580		)	5,976
Net (losses) income of legacy asset management business attributable to Aimco and the Aimco Operating Partnership	$	(143	)	$	(90	)	$	(1,125	)	$	215

The results of operations for the consolidated apartment communities sold by the owner of this portfolio through December 31, 2013, are presented within income from discontinued operations in our consolidated statement of operations for the three and nine months ended September 30, 2013, and are excluded from the summary above. Revenues increased during the three and nine months ended September 30, 2014, as compared to the three and nine months ended September 30, 2013, due to an adjustment to increase subsidized rents to reflect current market rates for one of the apartment communities in this portfolio.

Based on our limited economic ownership in this portfolio, most of the assets and liabilities are allocated to noncontrolling interests and do not significantly affect our consolidated equity and partners’ capital. Additionally, the operating results of this portfolio generally have an insignificant effect on the amounts of income or loss attributable to us. Income or loss attributable to these noncontrolling interests will continue to be recognized commensurate with the recognition of the results of operations of the portfolio. If full payment is received on the notes and we meet the requirements to recognize the sale for accounting purposes, we expect to recognize a gain attributable to Aimco and the Aimco Operating Partnership.

Equity and Partners’ Capital Transactions

During the nine months ended September 30, 2014, Aimco issued 5,000,000 shares of 6.875% Class A Cumulative Preferred Stock, par value $0.01 per share, in an underwritten public offering, for net proceeds per share of $24.15 (reflecting a public offering price of $25.00 per share, less an underwriting discount and transaction costs of approximately $0.85 per share). The offering generated net proceeds of $120.8 million.

During the nine months ended September 30, 2014, Aimco also issued 117,400 shares of its 7.00% Class Z Cumulative Preferred Stock, par value $0.01 per share, through an at-the-market, or ATM, offering program for net proceeds per share of $25.14 (reflecting an average price to the public of $25.65 per share, less an underwriting discount and transaction costs of approximately $0.51 per share). The ATM offerings generated net proceeds of $3.0 million.

In connection with Aimco's preferred stock issuances, Aimco contributed the net proceeds to the Aimco Operating Partnership in exchange for an equal number of the corresponding class of partnership preferred units.

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Note 5 — Fair Value Measurements

Recurring Fair Value Measurements

We measure at fair value on a recurring basis our investment in the securitization trust that holds certain of our property debt, which we classify as available for sale (AFS) securities, and our interest rate swaps. Information regarding these items measured at fair value, both of which are classified within Level 2 of the GAAP fair value hierarchy, is presented below (in thousands):



	AFS Investments			Interest Rate Swaps			Total
Fair value at December 31, 2012	$	59,145		$	(7,968	)	$	51,177
Investment accretion included in interest income	2,556			—			2,556
Unrealized losses included in interest expense	—			(36		)	(36		)
Losses on interest rate swaps reclassified into interest expense from accumulated other comprehensive loss	—			1,258			1,258
Unrealized (losses) gains included in equity and partners’ capital	(4,440		)	1,423			(3,017		)
Fair value at September 30, 2013	$	57,261		$	(5,323	)	$	51,938

Fair value at December 31, 2013	$	58,408		$	(4,604	)	$	53,804
Investment accretion included in interest income	2,833			—			2,833
Unrealized losses included in interest expense	—			(36		)	(36		)
Losses on interest rate swaps reclassified into interest expense from accumulated other comprehensive loss	—			1,265			1,265
Unrealized losses included in equity and partners’ capital	(618		)	(1,488		)	(2,106		)
Fair value at September 30, 2014	$	60,623		$	(4,863	)	$	55,760

Our investments classified as AFS are presented within other assets in the accompanying consolidated balance sheets. We hold the most subordinate position in the securitization, along with several mezzanine positions. We estimate the fair value of these investments using an income and market approach with primarily observable inputs, including yields and other information regarding similar types of investments, and adjusted for certain unobservable inputs specific to these investments. We are accreting the discount to the $100.9 million face value of the investments into interest income using the effective interest method over the remaining expected term of the investments, which, as of September 30, 2014, was approximately 6.7 years. Our amortized cost basis for these investments, which represents the original cost adjusted for interest accretion less interest payments received, was $62.6 million and $59.8 million at September 30, 2014 and December 31, 2013, respectively. The amortized cost exceeded the fair value of the most subordinate position at September 30, 2014, primarily due to increases in market interest rates and a decrease in demand for similar investments as compared to when we purchased the investments. We currently expect to hold each of the investments to their maturity dates and we believe we will fully recover our basis in the investments. Accordingly, we believe the current impairment in the fair value, as compared to the amortized cost basis, of the most subordinate position is temporary and we have not recognized any of the loss in value in earnings.

For our variable rate debt, we are sometimes required by limited partners in our consolidated real estate partnerships to limit our exposure to interest rate fluctuations by entering into interest rate swap agreements, which moderate our exposure to interest rate risk by effectively converting the interest on variable rate debt to a fixed rate. We estimate the fair value of interest rate swaps using an income approach with primarily observable inputs including information regarding the hedged variable cash flows and forward yield curves relating to the variable interest rates on which the hedged cash flows are based.

As of September 30, 2014 and December 31, 2013, we had interest rate swaps with aggregate notional amounts of $50.4 million and $50.7 million, respectively. As of September 30, 2014, these swaps had a weighted average remaining term of 6.3 years. We have designated these interest rate swaps as cash flow hedges. The fair value of these swaps is presented within accrued liabilities and other in our condensed consolidated balance sheets, and we recognize any changes in the fair value as an adjustment of accumulated other comprehensive loss within equity and partners’ capital to the extent of their effectiveness.

If the forward rates at September 30, 2014, remain constant, we estimate that during the next 12 months, we would reclassify into earnings approximately $1.7 million of the unrealized losses in accumulated other comprehensive loss. If market interest rates increase above the 3.43% weighted average fixed rate under these interest rate swaps we will benefit from net cash payments due to us from our counterparty to the interest rate swaps.

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Fair Value Disclosures

We believe that the aggregate fair value of our cash and cash equivalents, receivables and payables approximates their aggregate carrying amounts at September 30, 2014 and December 31, 2013, due to their relatively short-term nature and high probability of realization. The estimated aggregate fair value of our consolidated total indebtedness was approximately $4.2 billion and $4.5 billion at September 30, 2014 and December 31, 2013, respectively, as compared to aggregate carrying amounts of $4.0 billion and $4.4 billion, respectively. Substantially all of the difference between the fair value and the carrying value relates to apartment communities we wholly own. We estimate the fair value of our consolidated debt using an income and market approach, including comparison of the contractual terms to observable and unobservable inputs such as market interest rate risk spreads, contractual interest rates, remaining periods to maturity, collateral quality and loan to value ratios on similarly encumbered assets within our portfolio. We classify the fair value of our consolidated debt within Level 3 of the GAAP valuation hierarchy based on the significance of certain of the unobservable inputs used to estimate their fair values.

Note 6 — Commitments and Contingencies

Commitments

In connection with our development, redevelopment and capital improvement activities, we have entered into various construction related contracts. Additionally, pursuant to financing and/or other arrangements on our One Canal Street, Lincoln Place, and The Preserve at Marin projects, we are contractually obligated to complete the planned activities. As of September 30, 2014, our commitments related to these capital activities totaled approximately $189.6 million, most of which we expect to incur during the next 12 months. We also enter into certain commitments for future purchases of goods and services in connection with the operations of our apartment communities. Those commitments generally have terms of one year or less and reflect expenditure levels comparable to our historical expenditures.

Tax Credit Arrangements

We are required to manage certain consolidated real estate partnerships in compliance with various laws, regulations and contractual provisions that apply to our historic and low-income housing tax credit syndication arrangements. In some instances, noncompliance with applicable requirements could result in projected tax benefits not being realized and require a refund or reduction of investor capital contributions, which are reported as deferred income in our condensed consolidated balance sheet, until such time as our obligation to deliver tax benefits is relieved. The remaining compliance periods for our tax credit syndication arrangements range from less than one year to 12 years. We do not anticipate that any material refunds or reductions of investor capital contributions will be required in connection with these arrangements.

Income Taxes

On October 25, 2012, the Internal Revenue Service, or IRS, issued Final Partnership Administrative Adjustments with respect to the Aimco Operating Partnership’s 2006 and 2007 tax years. On January 18, 2013, AIMCO-GP, Inc., in its capacity as tax matters partner of the Aimco Operating Partnership, filed a petition challenging those adjustments in the United States Tax Court in Washington, D.C. On December 20, 2013, the parties agreed on the terms of a settlement of that litigation. On July 23, 2014, the United States Tax Court approved the stipulated decision document previously filed by the IRS and the Aimco Operating Partnership. The settlement had no material effect on our unrecognized tax benefits, financial condition or results of operations.

On March 19, 2014, the IRS notified the Aimco Operating Partnership of its intent to audit the 2011 and 2012 tax years. We do not believe the audit will have any material effect on our unrecognized tax benefits, financial condition or results of operations.

Legal Matters

In addition to the matters described below, we are a party to various legal actions and administrative proceedings arising in the ordinary course of business, some of which are covered by our general liability insurance program, and none of which we expect to have a material adverse effect on our consolidated financial condition, results of operations or cash flows.

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Limited Partnerships

In connection with our acquisitions of interests in real estate partnerships, we are sometimes subject to legal actions, including allegations that such activities may involve breaches of fiduciary duties to the partners of such real estate partnerships or violations of the relevant partnership agreements. We may incur costs in connection with the defense or settlement of such litigation. We believe that we comply with our fiduciary obligations and relevant partnership agreements. Although the outcome of any litigation is uncertain, we do not expect any such legal actions to have a material adverse effect on our consolidated financial condition, results of operations or cash flows.

Environmental

Various federal, state and local laws subject apartment community owners or operators to liability for management, and the costs of removal or remediation, of certain potentially hazardous materials that may be present at an apartment community, including lead-based paint, asbestos, polychlorinated biphenyls, petroleum-based fuels, and other miscellaneous materials that may have impacted an apartment community as a result of historical property uses or off-site sources. Such laws often impose liability without regard to fault or whether the owner or operator knew of, or was responsible for, the release or presence of such materials. The presence of, or the failure to manage or remediate properly, these materials may adversely affect occupancy at affected apartment communities and the ability to sell or finance affected apartment communities. In addition, governmental agencies may bring claims for costs associated with investigation and remediation actions, damages to natural resources and for potential fines or penalties in connection therewith or with respect to the improper management of hazardous materials. Moreover, the presence of hazardous materials at an apartment community could result in claims by private plaintiffs for personal injury, disease, disability or other infirmities. Various laws also impose cleanup liability on anyone who arranges for the disposal or treatment of these materials at an off-site facility owned by a third party (such as a landfill) even if the treatment or disposal facility is properly licensed and operated in compliance with applicable law. In connection with the ownership, operation and management of apartment communities, we could potentially be responsible for environmental liabilities or costs associated with our current apartment communities, communities we acquire or manage in the future, or communities we previously owned or operated in the past.

We are engaged in discussions with the Environmental Protection Agency, or EPA, regarding environmental conditions identified in the vicinity of an Indiana apartment community that has not been owned by us since 2008. The EPA alleges that a dry cleaner that operated on our former property, prior to our ownership, discharged hazardous materials into the sanitary sewers and the environment. Based on our review of the scientific data, we believe that the presence of hazardous materials in the area under review by the EPA is attributable to neighboring property owners (including an auto parts manufacturer), and not the dry cleaner. Although the outcome of these discussions is uncertain, we do not expect the resolution to have a material adverse effect on our consolidated financial condition, results of operations or cash flows.

We have determined that our legal obligations to remove or remediate certain potentially hazardous materials may be conditional asset retirement obligations, as defined in GAAP. Except in limited circumstances where the asset retirement activities are expected to be performed in connection with a planned construction project or apartment community casualty, we believe that the fair value of our asset retirement obligations cannot be reasonably estimated due to significant uncertainties in the timing and manner of settlement of those obligations. Asset retirement obligations that are reasonably estimable as of September 30, 2014, are immaterial to our consolidated financial condition, results of operations and cash flows.

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Note 7 — Earnings per Share/Unit

Aimco

Aimco calculates earnings per share based on the weighted average number of shares of Common Stock, participating securities, common stock equivalents and dilutive convertible securities outstanding during the period. The following table illustrates Aimco’s calculation of basic and diluted earnings per share for the three and nine months ended September 30, 2014 and 2013 (in thousands, except per share data):



	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2014			2013			2014			2013
Numerator:
Income from continuing operations	$	18,186		$	6,975		$	48,169		$	7,791
Gain on dispositions of real estate, net of tax	126,329			—			262,483			—
Income from continuing operations and gain on dispositions attributable to noncontrolling interests	(16,487		)	(656		)	(40,655		)	(293		)
Income attributable to preferred stockholders	(2,875		)	(702		)	(5,087		)	(2,105		)
Income attributable to participating securities	(447		)	(262		)	(962		)	(418		)
Income from continuing operations attributable to Aimco common stockholders	$	124,706		$	5,355		$	263,948		$	4,975

Income from discontinued operations	$	—		$	72,435		$	—		$	81,431
Income from discontinued operations attributable to noncontrolling interests	—			(11,522		)	—			(4,857		)
Income from discontinued operations attributable to Aimco common stockholders	$	—		$	60,913		$	—		$	76,574

Net income	$	144,515		$	79,410		$	310,652		$	89,222
Net income attributable to noncontrolling interests	(16,487		)	(12,178		)	(40,655		)	(5,150		)
Net income attributable to preferred stockholders	(2,875		)	(702		)	(5,087		)	(2,105		)
Net income attributable to participating securities	(447		)	(262		)	(962		)	(418		)
Net income attributable to Aimco common stockholders	$	124,706		$	66,268		$	263,948		$	81,549

Denominator:
Weighted average common shares outstanding – basic	145,672			145,334			145,601			145,274
Dilutive potential common shares	432			229			323			268
Weighted average common shares outstanding – diluted	146,104			145,563			145,924			145,542

Earnings attributable to Aimco per common share – basic:
Income from continuing operations	$	0.86		$	0.04		$	1.81		$	0.03
Income from discontinued operations	—			0.42			—			0.53
Net income	$	0.86		$	0.46		$	1.81		$	0.56

Earnings attributable to Aimco per common share – diluted:
Income from continuing operations	$	0.85		$	0.04		$	1.81		$	0.03
Income from discontinued operations	—			0.42			—			0.53
Net income	$	0.85		$	0.46		$	1.81		$	0.56

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The Aimco Operating Partnership

The Aimco Operating Partnership calculates earnings per unit based on the weighted average number of common partnership units and equivalents, participating securities and dilutive convertible securities outstanding during the period. The Aimco Operating Partnership considers both common OP Units and HPUs, which have identical rights to distributions and undistributed earnings, to be common units for purposes of the earnings per unit data presented below. The following table illustrates the Aimco Operating Partnership’s calculation of basic and diluted earnings per unit for the three and nine months ended September 30, 2014 and 2013 (in thousands, except per unit data):



	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2014			2013			2014			2013
Numerator:
Income from continuing operations	$	18,186		$	6,975		$	48,169		$	7,791
Gain on dispositions of real estate, net of tax	126,329			—			262,483			—
(Income) loss from continuing operations and gain on dispositions attributable to noncontrolling interests	(8,337		)	1,303			(21,952		)	4,884
Income attributable to the Aimco Operating Partnership’s preferred unitholders	(4,476		)	(2,308		)	(9,895		)	(6,923		)
Income attributable to participating securities	(447		)	(262		)	(962		)	(418		)
Income from continuing operations attributable to the Aimco Operating Partnership’s common unitholders	$	131,255		$	5,708		$	277,843		$	5,334

Income from discontinued operations	$	—		$	72,435		$	—		$	81,431
Income from discontinued operations attributable to noncontrolling interests	—			(8,079		)	—			(548		)
Income from discontinued operations attributable to the Aimco Operating Partnership’s common unitholders	$	—		$	64,356		$	—		$	80,883

Net income	$	144,515		$	79,410		$	310,652		$	89,222
Net (income) loss attributable to noncontrolling interests	(8,337		)	(6,776		)	(21,952		)	4,336
Net income attributable to the Aimco Operating Partnership’s preferred unitholders	(4,476		)	(2,308		)	(9,895		)	(6,923		)
Net income attributable to participating securities	(447		)	(262		)	(962		)	(418		)
Net income attributable to the Aimco Operating Partnership’s common unitholders	$	131,255		$	70,064		$	277,843		$	86,217

Denominator:
Weighted average common units outstanding – basic	153,337			153,287			153,326			153,242
Dilutive potential common units	432			229			323			268
Weighted average common units outstanding – diluted	153,769			153,516			153,649			153,510

Earnings attributable to the Aimco Operating Partnership per common unit – basic:
Income from continuing operations	$	0.86		$	0.04		$	1.81		$	0.03
Income from discontinued operations	—			0.42			—			0.53
Net income	$	0.86		$	0.46		$	1.81		$	0.56

Earnings attributable to the Aimco Operating Partnership per common unit – diluted:
Income from continuing operations	$	0.85		$	0.04		$	1.81		$	0.03
Income from discontinued operations	—			0.42			—			0.53
Net income	$	0.85		$	0.46		$	1.81		$	0.56

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Aimco and the Aimco Operating Partnership

As of September 30, 2014, the common share equivalents or common partnership unit equivalents that could potentially dilute basic earnings per share or unit in future periods totaled 2.5 million. These securities represent options to purchase shares of Common Stock, which, if exercised, would result in Aimco’s issuance of additional shares and the Aimco Operating Partnership’s issuance to Aimco of additional common partnership units equal to the number of shares purchased under the options. The effect of these securities was dilutive for the three and nine months ended September 30, 2014 and 2013, and accordingly has been included in the denominator for calculating diluted earnings per share and unit during these periods. Participating securities, consisting of unvested restricted shares of Common Stock, receive dividends similar to shares of Common Stock and common partnership units and totaled 0.5 million and 0.6 million at September 30, 2014 and 2013, respectively. The effect of participating securities is included in basic and diluted earnings per share and unit computations for the periods presented above using the two-class method of allocating distributed and undistributed earnings.

Various classes of preferred OP Units of the Aimco Operating Partnership are outstanding. Depending on the terms of each class, these preferred OP Units are convertible into common OP Units or redeemable for cash or, at the Aimco Operating Partnership’s option, Common Stock, and are paid distributions varying from 1.8% to 8.8% per annum per unit. As of September 30, 2014, a total of 2.9 million preferred OP Units were outstanding with an aggregate redemption value of $78.9 million and were potentially redeemable for approximately 2.5 million shares of Common Stock (based on the period end market price), or cash at the Aimco Operating Partnership’s option. The Aimco Operating Partnership has a redemption policy that requires cash settlement of redemption requests for the preferred OP Units, subject to limited exceptions. Accordingly, we have excluded these securities from earnings per share and unit computations for the periods presented above, and we expect to exclude them in future periods.

Note 8 — Business Segments

We have two reportable segments: conventional real estate operations and affordable real estate operations. Our conventional real estate operations consist of market-rate apartment communities with rents paid by the residents and included 143 apartment communities with 43,306 apartment homes at September 30, 2014. Our affordable real estate operations consisted of 61 apartment communities with 9,142 apartment homes at September 30, 2014, with rents that are generally paid, in whole or part, by a government agency.

Due to the diversity of our economic ownership interests in our apartment communities, our chief executive officer, who is our chief operating decision maker, uses proportionate property net operating income to assess the operating performance of our apartment communities. Proportionate property net operating income reflects our share of rental and other property revenues less direct property operating expenses, including real estate taxes, for the consolidated and unconsolidated apartment communities that we manage.

The following tables present the revenues, net operating income (loss) and income (loss) from continuing operations of our conventional and affordable real estate operations segments on a proportionate basis (excluding amounts related to apartment communities sold or classified as held for sale) for the three and nine months ended September 30, 2014 and 2013 (in thousands):



	Conventional Real Estate Operations		Affordable Real Estate Operations		Proportionate Adjustments (1)		Corporate and Amounts Not Allocated to Segments (2)		Consolidated
Three Months Ended September 30, 2014:
Rental and other property revenues (3)	$	195,965	$	23,728	$	8,148	$	12,032	$	239,873
Tax credit and asset management revenues	—		—		—		6,970		6,970
Total revenues	195,965		23,728		8,148		19,002		246,843
Property operating expenses (3)	67,646		9,278		2,822		15,428		95,174
Investment management expenses	—		—		—		1,279		1,279
Depreciation and amortization (3)	—		—		—		69,437		69,437
Provision for real estate impairment losses (3)	—		—		—		1,413		1,413
General and administrative expenses