UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

Form 10-Q

(Mark One)

þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2007

o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from            to

Apartment Investment and Management Company

(Exact name of registrant as specified in its charter)

Maryland		84-1259577
(State or other jurisdiction of		(I.R.S. Employer
incorporation or organization)		Identification No.)
4582 South Ulster Street Parkway, Suite 1100		80237
Denver, Colorado		(Zip Code)
(Address of principal executive offices)

(303) 757-8101
(Registrant’s telephone number, including area code)

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

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition in Rule 12b-2 of the Exchange Act.

Large accelerated filer þ      Accelerated filer o      Non-accelerated filer o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ

The number of shares of Class A Common Stock outstanding as of July 31, 2007: 96,740,114

 

 

APARTMENT INVESTMENT AND MANAGEMENT COMPANY

TABLE OF CONTENTS

FORM 10-Q

		Page
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
Consolidated Balance Sheets as of June 30, 2007 and December 31, 2006 (Unaudited)			2
Consolidated Statements of Income for the Three and Six Months Ended June 30, 2007 and 2006 (Unaudited)			3
Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2007 and 2006 (Unaudited)			4
Notes to Consolidated Financial Statements (Unaudited)			5
ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			16
ITEM 3. Quantitative and Qualitative Disclosures about Market Risk			30
ITEM 4. Controls and Procedures			30
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings			31
ITEM 1A. Risk Factors			31
ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds			31
ITEM 4. Submission of Matters to a Vote of Security Holders			32
ITEM 5. Other Information			32
ITEM 6. Exhibits			34
Signatures			35
Amended and Restated Bylaws
Certification of CEO Pursuant to Section 302
Certification of CFO Pursuant to Section 302
Certification Pursuant to Section 906
Certification Pursuant to Section 906
Agreement Re: Disclosure of Long-Term Instruments

PART I. FINANCIAL INFORMATION

ITEM 1. Financial Statements

APARTMENT INVESTMENT AND MANAGEMENT COMPANY

CONSOLIDATED BALANCE SHEETS

		June 30,				December 31,
		2007				2006
		(Unaudited)
ASSETS
Real estate:
Land		$	2,608,316			$	2,384,926
Buildings and improvements			9,486,611				9,301,769
Total real estate			12,094,927				11,686,695
Less accumulated depreciation			(2,905,219	)			(2,778,355	)
Net real estate			9,189,708				8,908,340
Cash and cash equivalents			258,027				229,824
Restricted cash			332,955				346,552
Accounts receivable			76,347				85,772
Accounts receivable from affiliates			33,680				20,763
Deferred financing costs			73,136				72,214
Notes receivable from unconsolidated real estate partnerships			43,106				40,641
Notes receivable from non-affiliates			138,678				139,352
Investment in unconsolidated real estate partnerships			37,124				39,000
Other assets			199,321				202,760
Deferred income tax assets, net			5,139				—
Assets held for sale			12,420				204,557
Total assets		$	10,399,641			$	10,289,775
LIABILITIES AND STOCKHOLDERS’ EQUITY
Property tax-exempt bond financing		$	949,692			$	926,952
Property loans payable			5,595,153				5,198,010
Term loans			400,000				400,000
Credit facility			154,000				140,000
Other borrowings			59,786				67,660
Total indebtedness			7,158,631				6,732,622
Accounts payable			42,096				54,972
Accrued liabilities and other			300,373				409,991
Deferred income			150,326				142,442
Security deposits			48,038				43,325
Deferred income tax liabilities, net			—				4,379
Liabilities related to assets held for sale			8,546				164,556
Total liabilities			7,708,010				7,552,287
Minority interest in consolidated real estate partnerships			262,608				212,149
Minority interest in Aimco Operating Partnership			155,564				185,447
Stockholders’ equity:
Preferred Stock, perpetual			723,500				723,500
Preferred Stock, convertible			100,000				100,000
Class A Common Stock, $0.01 par value, 426,157,976 shares authorized, 96,717,908 and 96,820,252 shares issued and outstanding, at June 30, 2007 and December 31, 2006, respectively			967				968
Additional paid-in capital			3,060,683				3,095,430
Notes due on common stock purchases			(3,760	)			(4,714	)
Distributions in excess of earnings			(1,607,931	)			(1,575,292	)
Total stockholders’ equity			2,273,459				2,339,892
Total liabilities and stockholders’ equity		$	10,399,641			$	10,289,775

See notes to consolidated financial statements.

APARTMENT INVESTMENT AND MANAGEMENT COMPANY

CONSOLIDATED STATEMENTS OF INCOME

		Three Months Ended								Six Months Ended
		June 30,								June 30,
		2007				2006				2007				2006
REVENUES:
Rental and other property revenues		$	421,864			$	392,499			$	832,363			$	776,894
Property management revenues, primarily from affiliates			1,271				3,592				3,367				6,622
Activity fees and asset management revenues			15,178				12,133				26,808				21,673
Total revenues			438,313				408,224				862,538				805,189
OPERATING EXPENSES:
Property operating expenses			192,681				173,506				385,924				353,571
Property management expenses			2,072				2,151				3,278				2,643
Activity and asset management expenses			6,076				4,946				11,351				9,134
Depreciation and amortization			121,807				112,272				244,195				219,461
General and administrative expenses			24,606				23,207				46,683				44,236
Other expenses (income), net			(4,272	)			1,615				(2,266	)			1,994
Total operating expenses			342,970				317,697				689,165				631,039
Operating income			95,343				90,527				173,373				174,150
Interest income			9,242				5,437				18,810				12,368
Recoveries of (provision) for losses on notes receivable, net			(735	)			(502	)			(2,278	)			(764	)
Interest expense			(104,875	)			(98,157	)			(209,615	)			(193,971	)
Deficit distributions to minority partners, net			(2,028	)			(3,935	)			(3,221	)			(6,011	)
Equity in earnings (losses) of unconsolidated real estate partnerships			930				(574	)			(2,055	)			(2,436	)
Provision for real estate impairment losses, net			—				(15	)			—				971
Gain on dispositions of unconsolidated real estate and other			639				1,059				21,061				10,757
Loss before minority interests and discontinued operations			(1,484	)			(6,160	)			(3,925	)			(4,936	)
Minority interests:
Minority interest in consolidated real estate partnerships			(265	)			1,522				(6,182	)			6,636
Minority interest in Aimco Operating Partnership, preferred			(1,782	)			(1,785	)			(3,564	)			(3,583	)
Minority interest in Aimco Operating Partnership, common			1,821				2,238				4,342				4,171
Total minority interests			(226	)			1,975				(5,404	)			7,224
Income (loss) from continuing operations			(1,710	)			(4,185	)			(9,329	)			2,288
Income from discontinued operations, net			21,039				39,277				53,866				116,874
Net income			19,329				35,092				44,537				119,162
Net income attributable to preferred stockholders			16,346				19,034				32,694				43,088
Net income attributable to common stockholders		$	2,983			$	16,058			$	11,843			$	76,074
Earnings (loss) per common share — basic:
Loss from continuing operations (net of preferred dividends)		$	(0.19	)		$	(0.24	)		$	(0.44	)		$	(0.43	)
Income from discontinued operations			0.22				0.41				0.56				1.23
Net income attributable to common stockholders		$	0.03			$	0.17			$	0.12			$	0.80
Earnings (loss) per common share — diluted:
Loss from continuing operations (net of preferred dividends)		$	(0.19	)		$	(0.24	)		$	(0.44	)		$	(0.43	)
Income from discontinued operations			0.22				0.41				0.56				1.23
Net income attributable to common stockholders		$	0.03			$	0.17			$	0.12			$	0.80
Weighted average common shares outstanding			95,973				96,071				95,972				95,627
Weighted average common shares and equivalents outstanding			95,973				96,071				95,972				95,627
Dividends declared per common share		$	0.60			$	0.60			$	0.60			$	0.60

See notes to consolidated financial statements.

APARTMENT INVESTMENT AND MANAGEMENT COMPANY

CONSOLIDATED STATEMENTS OF CASH FLOWS

		Six Months
		Ended June 30,
		2007				2006
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income		$	44,537			$	119,162
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization			244,195				219,461
Discontinued operations			(53,121	)			(127,029	)
Other adjustments			(9,103	)			11,527
Net changes in operating assets and operating liabilities			(23,171	)			41,819
Net cash provided by operating activities			203,337				264,940
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of real estate			(174,991	)			(41,732	)
Capital expenditures			(268,608	)			(236,203	)
Proceeds from dispositions of real estate			259,631				544,815
Change in funds held in escrow from tax-free exchanges			9,975				—
Cash from newly consolidated properties			—				22,432
Purchases of general and limited partnership interests and other assets			(17,541	)			(10,932	)
Originations of notes receivable from unconsolidated real estate partnerships			(8,640	)			(7,820	)
Proceeds from repayment of notes receivable			14,152				5,318
Distributions received from investments in unconsolidated real estate partnerships			1,814				11,312
Other investing activities			(2,756	)			(21,255	)
Net cash provided by (used in) investing activities			(186,964	)			265,935
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from property loans			791,330				656,634
Principal repayments on property loans			(528,459	)			(599,870	)
Proceeds from tax exempt bonds			82,350				—
Principal repayments on tax-exempt bond financing			(58,659	)			(31,690	)
Net borrowings (repayments) on term loans and revolving credit facility			14,000				(217,000	)
Proceeds from issuance of preferred stock, net			—				97,537
Redemption of preferred stock			—				(113,250	)
Repurchases of Class A Common Stock			(136,603	)			—
Proceeds from Class A Common Stock option exercises			53,232				39,459
Principal repayments received on notes due on Class A Common Stock purchases			1,605				18,626
Payment of Class A Common Stock dividends			(116,363	)			(115,046	)
Payment of preferred stock dividends			(32,720	)			(41,879	)
Payment of distributions to minority interest			(52,877	)			(61,589	)
Other financing activities			(5,006	)			(1,074	)
Net cash provided by (used in) financing activities			11,830				(369,142	)
NET INCREASE IN CASH AND CASH EQUIVALENTS			28,203				161,733
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD			229,824				161,730
CASH AND CASH EQUIVALENTS AT END OF PERIOD		$	258,027			$	323,463

See notes to consolidated financial statements.

APARTMENT INVESTMENT AND MANAGEMENT COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1 — Organization

     Apartment Investment and Management Company, or Aimco, is a Maryland corporation incorporated on January 10, 1994. We are a self-administered and self-managed real estate investment trust, or REIT, engaged in the acquisition, ownership, management and redevelopment of apartment properties. As of June 30, 2007, we owned or managed a real estate portfolio of 1,216 apartment properties containing 209,507 apartment units located in 47 states, the District of Columbia and Puerto Rico. Based on apartment unit data compiled by the National Multi Housing Council, as of January 1, 2007, we were the largest owner and operator of apartment properties in the United States.

     As of June 30, 2007, we:

	•		owned an equity interest in and consolidated 156,958 units in 676 properties (which we refer to as “consolidated”), of which 156,240 units were also managed by us;
	•		owned an equity interest in and did not consolidate 11,741 units in 101 properties (which we refer to as “unconsolidated”), of which 5,465 units were also managed by us; and
	•		provided services or managed, for third-party owners, 40,808 units in 439 properties, primarily pursuant to long-term agreements (including 37,283 units in 399 properties for which we provide asset management services only, and not also property management services), although in certain cases we may indirectly own generally less than one percent of the operations of such properties through a partnership syndication or other fund.

     Through our wholly-owned subsidiaries, AIMCO-GP, Inc. and AIMCO-LP, Inc., we own a majority of the ownership interests in AIMCO Properties, L.P., which we refer to as the Aimco Operating Partnership. As of June 30, 2007, we held approximately a 91% interest in the common partnership units and equivalents of the Aimco Operating Partnership. We conduct substantially all of our business and own substantially all of our assets through the Aimco Operating Partnership. Interests in the Aimco Operating Partnership that are held by limited partners other than Aimco are referred to as “OP Units.” OP Units include common OP Units, partnership preferred units, or preferred OP Units, and high performance partnership units, or High Performance Units. The Aimco Operating Partnership’s income is allocated to holders of common OP Units based on the weighted average number of common OP Units outstanding during the period. The Aimco Operating Partnership records the issuance of common OP Units and the assets acquired in purchase transactions based on the market price of Aimco Class A Common Stock (which we refer to as Common Stock) at the date of execution of the purchase contract. The holders of the common OP Units receive distributions, prorated from the date of issuance, in an amount equivalent to the dividends paid to holders of Common Stock. Holders of common OP Units may redeem such units for cash or, at the Aimco Operating Partnership’s option, Common Stock. Preferred OP Units entitle the holders thereof to a preference with respect to distributions or upon liquidation. At June 30, 2007, 96,717,908 shares of our Common Stock were outstanding and the Aimco Operating Partnership had 9,714,777 common OP Units and equivalents outstanding for a combined total of 106,432,685 shares of Common Stock and OP Units outstanding (excluding preferred OP Units).

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

Note 2 — Basis of Presentation

     The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America, or GAAP, for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and disclosures required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three and six months ended June 30, 2007, are not necessarily indicative of the results that may be expected for the year ending December 31, 2007.

     The balance sheet at December 31, 2006, has been derived from the audited financial statements at that date but does 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 Annual Report on Form 10-K for the year ended December 31, 2006. Certain 2006 financial statement amounts have been reclassified to conform to the 2007 presentation.

Principles of Consolidation

     The accompanying consolidated financial statements include the accounts of Aimco, the Aimco Operating Partnership, and their consolidated entities. Interests held in the Aimco Operating Partnership by partners other than Aimco are reflected as minority interest in 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 in a limited liability company. Interests held in consolidated real estate partnerships by partners other than us are reflected as minority interest in consolidated real estate partnerships. All significant intercompany balances and transactions have been eliminated in consolidation. The assets of consolidated real estate partnerships owned or controlled by Aimco or the Aimco Operating Partnership generally are not available to pay creditors of Aimco or the Aimco Operating Partnership.

     We consolidate all variable interest entities for which we are the primary beneficiary. Generally, we consolidate real estate partnerships and other entities that are not variable interest entities when we own, directly or indirectly, a majority voting interest in the entity or are otherwise able to control the entity.

Adoption of FIN 48

     In June 2006, the Financial Accounting Standards Board, or FASB, issued FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes – an Interpretation of FASB Statement No. 109, or FIN 48. FIN 48 prescribes a two-step process for the financial statement recognition and measurement of income tax positions taken or expected to be taken in a tax return. The first step involves evaluation of a tax position to determine whether it is more likely than not that the position will be sustained upon examination, based on the technical merits of the position. The second step involves measuring the benefit to recognize in the financial statements for those tax positions that meet the more-likely-than-not recognition threshold. FIN 48 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition.

     We adopted FIN 48 as of January 1, 2007. Upon adoption, we recorded a $0.8 million charge to distributions in excess of earnings to reflect our measurement in accordance with FIN 48 of uncertain income tax positions that affect net operating loss carryforwards recognized as deferred tax assets. As of January 1, 2007, our unrecognized tax benefits totaled approximately $3.1 million. To the extent these unrecognized tax benefits are ultimately recognized, they will affect the effective tax rates in future periods. There were no changes in unrecognized tax benefits during the six months ended June 30, 2007. We do not anticipate any material changes in existing unrecognized tax benefits during the next 12 months. Our federal and state income tax returns for the year ended December 31, 2003, and subsequent years are currently subject to examination by the Internal Revenue Service or other taxing authorities. Certain of our state income tax returns for the year ended December 31, 2002, also are currently subject to examination. Our policy is to include interest and penalties related to income taxes in other expenses (income), net.

Use of Estimates

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

     We test for the recoverability of real estate assets that do not currently meet all conditions to be classified as held for sale, but are expected to be disposed of prior to the end of their estimated useful lives. If 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 of the property, excluding interest charges. 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.

     If an impairment loss is not required to be recorded under the provisions of Statement of Financial Accounting Standards No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, or SFAS 144, the recognition of depreciation is adjusted prospectively, as necessary, to reduce the carrying amount of the real estate to its estimated disposition value over the remaining period that the real estate is expected to be held and used. We also may adjust depreciation prospectively to reduce to zero the carrying amount of buildings that we plan to demolish in connection with a redevelopment project. These depreciation adjustments decreased net income by $9.9 million and $3.8 million, and resulted in a decrease in basic and diluted earnings per share of $0.10 and $0.04, for the three months ended June 30, 2007 and 2006, respectively. For the six months ended June 30, 2007 and 2006, these depreciation adjustments decreased net income by $20.8 million and $8.6 million, and resulted in a decrease in basic and diluted earnings per share of $0.22 and $0.09, respectively.

Note 3 — Commitments and Contingencies

Commitments

     In connection with our redevelopment and capital improvement activities, we have commitments of approximately $156.2 million related to construction projects, most of which we expect to incur within one year. Additionally, we enter into certain commitments for future purchases of goods and services in connection with the operations of our properties. Those commitments generally have terms of one year or less and reflect expenditure levels comparable to our historical expenditures.

     We have committed to fund an additional $9.9 million in second mortgage loans on certain properties in West Harlem, in New York City. In certain circumstances, we also could be required to acquire the properties for cash and/or assumption of first mortgage debt totaling approximately $139 million to $206 million, in addition to amounts funded and committed under the related loan agreement.

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 syndication of historic and low-income housing tax credits. 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 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 15 years. At June 30, 2007, we do not anticipate that any material refunds or reductions of investor capital contributions will be required in connection with these arrangements.

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 or results of operations.

     Limited Partnerships

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

     Various Federal, state and local laws subject property owners or operators to liability for management, and the costs of removal or remediation, of certain hazardous substances present on a property. Such laws often impose liability without regard to whether the owner or operator knew of, or was responsible for, the release or presence of the hazardous substances. The presence of, or the failure to manage or remedy properly, hazardous substances may adversely affect occupancy at affected apartment communities and the ability to sell or finance affected properties. In addition to the costs associated with investigation and remediation actions brought by government agencies, and potential fines or penalties imposed by such agencies in connection therewith, the presence of hazardous substances on a property could result in claims by private plaintiffs for personal injury, disease, disability or other infirmities. Various laws also impose liability for the cost of removal, remediation or disposal of hazardous substances through a licensed disposal or treatment facility. Anyone who arranges for the disposal or treatment of hazardous substances is potentially liable under such laws. These laws often impose liability whether or not the person arranging for the disposal ever owned or operated the disposal facility. In connection with the ownership, operation and management of properties, we could potentially be liable for environmental liabilities or costs associated with our properties or properties we acquire or manage in the future.

     We have determined that our legal obligations to remove or remediate hazardous substances may be conditional asset retirement obligations as defined in FASB Interpretation No. 47, Conditional Asset Retirement Obligations. Except in limited circumstances where the asset retirement activities are expected to be performed in connection with a planned construction project or property 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 June 30, 2007, are immaterial to our consolidated financial condition and results of operations.

     Mold

     We have been named as a defendant in lawsuits that have alleged personal injury and property damage as a result of the presence of mold. In addition, we are aware of lawsuits against owners and managers of multifamily properties asserting claims of personal injury and property damage caused by the presence of mold, some of which have resulted in substantial monetary judgments or settlements. We have only limited insurance coverage for property damage loss claims arising from the presence of mold and for personal injury claims related to mold exposure. We have implemented policies, procedures, third-party audits and training, and include a detailed moisture intrusion and mold assessment during acquisition due diligence. We believe these measures will prevent or eliminate mold exposure from our properties and will minimize the effects that mold may have on our residents. To date, we have not incurred any material costs or liabilities relating to claims of mold exposure or to abate mold conditions. Because the law regarding mold is unsettled and subject to change, we can make no assurance that liabilities resulting from the presence of or exposure to mold will not have a material adverse effect on our consolidated financial condition or results of operations.

     FLSA Litigation

     The Aimco Operating Partnership and NHP Management Company (“NHPMN”), our subsidiary, were defendants in a lawsuit, filed in August 2003 in the United States District Court for the District of Columbia, alleging that they willfully violated the Fair Labor Standards Act (“FLSA”) by failing to pay maintenance workers overtime for time worked in excess of 40 hours per week. The complaint, attempted to bring a collective action under the FLSA and sought to certify state subclasses in California, Maryland, and the District of Columbia. Specifically, the plaintiffs contended that the Aimco Operating Partnership and NHPMN failed to compensate maintenance workers for time that they were required to be “on-call.” Additionally, the complaint alleged the Aimco Operating Partnership and NHPMN failed to comply with the FLSA in compensating maintenance workers for time that they worked in excess of 40 hours in a week. In addition to the District of Columbia case, in 2005 the plaintiffs filed class actions with the same allegations in the Superior Court of California (Contra Costa County) and in Montgomery County Maryland Circuit Court. On March 28, 2007, the court in the District of Columbia issued an opinion decertifying the collective action on both the on-call and overtime issues. The court held that the 1,049 people who had opted into the collective action were not similarly situated and the case may not proceed as a collective action. On July 16, 2007, plaintiffs’ counsel filed individual cases on behalf of at least 700 individual plaintiffs in Federal court in 21 different jurisdictions: Northern District of Alabama; District of Arizona; Northern District of California; District of Colorado; Middle District of Florida; Northern District of Georgia; Northern District of Illinois; Southern District of Indiana; Western District of Kentucky; District of Maryland; Eastern District of Michigan; Western District of Missouri; District of New Jersey; Western District of North Carolina; Southern District of New York; Southern District of Ohio; Eastern District of Pennsylvania; District of South Carolina; Middle District of Tennessee; Eastern District of Texas; and Western District of Virginia. The cases in Illinois, New York and Texas were styled as class actions. Although the outcome of any litigation is uncertain, we do not believe that the ultimate outcome will have a material adverse effect on our consolidated financial condition or results of operations.

Note 4 — Stockholders’ Equity

     During the three and six months ended June 30, 2007, we repurchased 477,300 and 2,243,600 shares of Common Stock at an average price of $52.36 and $56.29 per share (including commissions) for cash totaling $25.0 million and $126.3 million, respectively. We also paid cash totaling $10.3 million in January 2007 to settle repurchases of Common Stock in December 2006.

     During the three and six months ended June 30, 2007, we issued approximately 19,000 and 461,000 shares of Common Stock, respectively, in exchange for common OP Units tendered for redemption. During the three and six months ended June 30, 2006, we issued approximately 6,000 and 35,000 shares of Common Stock, respectively, in exchange for common OP Units tendered for redemption. In addition, during the three and six months June 30, 2007, we issued to certain officers and employees approximately 28,000 and 274,000 restricted shares of Common Stock, compared to 50,000 and 452,000 restricted shares of Common Stock for the three and six months ended June 30, 2006. The restricted shares are subject to vesting over periods of predominantly four or five years. During the three and six months ended June 30, 2007, we issued to independent members of our Board of Directors 6,000 and 26,000 unrestricted shares of Common Stock, compared to zero and 15,000 unrestricted shares of Common Stock for the three and six months ended June 30, 2006.

     During the three and six months ended June 30, 2007, we issued approximately 5,000 and 13,000 shares of Common Stock to certain non-executive officers at fair value, compared to approximately 12,000 and 19,000 shares for the three and six months ended June 30, 2006, respectively. In exchange for common shares purchased, those non-executive officers executed promissory notes payable totaling $0.3 million and $0.7 million for the three and six months ended June 30, 2007, and $0.5 million and $0.8 million for the three and six months ended June 30, 2006, respectively. Total payments on all such notes from all officers for the three and six months ended June 30, 2007 were $0.3 million and $1.6 million, respectively. Total payments on such notes from all officers for the three and six months ended June 30, 2006 were $2.2 million and $18.6 million, respectively.

     During the three and six months ended June 30, 2007, we granted options to certain executive officers to purchase approximately 12,000 and 326,000 shares of Common Stock, respectively, compared to 11,000 and 647,000 shares of Common Stock during the three and six months ended June 30, 2006. The options all have exercise prices equal to the fair market value at the date of grant. During the three and six months ended June 30, 2007, stock option exercises resulted in the issuance of approximately 17,000 and 1,387,000 shares of Common Stock, respectively, and generated net proceeds of $0.7 million and $53.2 million, respectively. During the three and six months ended June 30, 2006, stock option exercises resulted in the issuance of approximately 22,000 and 1,071,000 shares of Common Stock, respectively, and generated net proceeds of $0.8 million and $39.5 million, respectively.

Note 5 — Discontinued Operations and Assets Held for Sale

     At June 30, 2007, we had one property with an aggregate of 245 units classified as held for sale. During the six months ended June 30, 2007, we sold 40 properties with an aggregate of 6,535 units. During the year ended December 31, 2006, we sold 77 properties with an aggregate of 17,307 units and closed the sale of a portion of the Flamingo South Beach property, known as the South Tower, with an aggregate of 562 units. For the three and six months ended June 30, 2007 and 2006, discontinued operations included the results of operations of all of the above properties prior to the date of sale.

     The following is a summary of the components of income from discontinued operations for the three and six months ended June 30, 2007 and 2006 (in thousands):

		Three Months Ended								Six Months Ended
		June 30,								June 30,
		2007				2006				2007				2006
Rental and other property revenues		$	6,413			$	32,280			$	18,499			$	77,110
Property operating expenses			(3,309	)			(16,459	)			(9,775	)			(40,132	)
Depreciation and amortization			(1,598	)			(9,214	)			(4,711	)			(22,329	)
Other (expenses) income, net			(269	)			(2,115	)			(1,089	)			(3,154	)
Operating income			1,237				4,492				2,924				11,495
Interest income			32				224				120				537
Interest expense			(1,018	)			(6,898	)			(4,249	)			(16,530	)
Gain on extinguishment of debt			—				—				22,852				—
Minority interest in consolidated real estate partnerships			644				1,392				935				2,888
Income (loss) before gain on dispositions of real estate, impairment losses, deficit distributions to minority partners, income tax and minority interest in Aimco Operating Partnership			895				(790	)			22,582				(1,610	)
Gain on dispositions of real estate, net of minority partners’ interest			24,273				43,112				39,906				142,822
Recovery of real estate impairment losses (impairment losses)			60				195				(783	)			(8	)
Recovery of deficit distributions to minority partners			555				1,896				418				16,145
Income tax arising from dispositions			(2,597	)			(1,044	)			(2,761	)			(27,986	)
Minority interest in Aimco Operating Partnership			(2,147	)			(4,092	)			(5,496	)			(12,489	)
Income from discontinued operations		$	21,039			$	39,277			$	53,866			$	116,874

     Gain on disposition of real estate is reported net of incremental direct costs incurred in connection with the transaction, including any prepayment penalties incurred upon repayment of mortgage loans collateralized by the property being sold. Such prepayment penalties totaled $4.2 million and $5.3 million for the three and six months ended June 30, 2007, respectively, and $2.9 million and $30.3 million for the three and six months ended June 30, 2006, respectively.

     We are currently marketing for sale certain real estate properties that are inconsistent with our long-term investment strategy. We expect that all properties classified as held for sale will sell within one year from the date classified as held for sale. At June 30, 2007, assets classified as held for sale of $12.4 million included real estate net book value of $12.0 million, and liabilities related to assets classified as held for sale of $8.5 million consisted primarily of mortgage debt. At December 31, 2006, we had assets classified as held for sale of $204.6 million, including real estate with a net book value of $202.1 million, and liabilities related to assets classified as held for sale of $164.6 million, including $140.1 million of mortgage debt. We are also marketing for sale certain other properties that do not meet all criteria to be classified as held for sale.

Note 6 — Earnings per Share

     We calculate earnings per share based on the weighted average number of shares of Common Stock, common stock equivalents and dilutive convertible securities outstanding during the period. The following table illustrates the calculation of basic and diluted earnings per share for the three and six months ended June 30, 2007 and 2006 (in thousands, except per share data):

		Three Months Ended								Six Months Ended
		June 30,								June 30,
		2007				2006				2007				2006
Numerator:
Income (loss) from continuing operations		$	(1,710	)		$	(4,185	)		$	(9,329	)		$	2,288
Less net income attributable to preferred stockholders			(16,346	)			(19,034	)			(32,694	)			(43,088	)
Numerator for basic and diluted earnings per share — Loss from continuing operations		$	(18,056	)		$	(23,219	)		$	(42,023	)		$	(40,800	)
Income from discontinued operations		$	21,039			$	39,277			$	53,866			$	116,874
Net income		$	19,329			$	35,092			$	44,537			$	119,162
Less net income attributable to preferred stockholders			(16,346	)			(19,034	)			(32,694	)			(43,088	)
Numerator for basic and diluted earnings per share — Net income attributable to common stockholders		$	2,983			$	16,058			$	11,843			$	76,074
Denominator:
Denominator for basic earnings per share — weighted average number of shares of Common Stock outstanding			95,973				96,071				95,972				95,627
Effect of dilutive securities:
Dilutive potential common shares			—				—				—				—
Denominator for diluted earnings per share			95,973				96,071				95,972				95,627
Earnings (loss) per common share:
Basic earnings (loss) per common share:
Loss from continuing operations (net of preferred dividends)		$	(0.19	)		$	(0.24	)		$	(0.44	)		$	(0.43	)
Income from discontinued operations			0.22				0.41				0.56				1.23
Net income attributable to common stockholders		$	0.03			$	0.17			$	0.12			$	0.80
Diluted earnings (loss) per common share:
Loss from continuing operations (net of preferred dividends)		$	(0.19	)		$	(0.24	)		$	(0.44	)		$	(0.43	)
Income from discontinued operations			0.22				0.41				0.56				1.23
Net income attributable to common stockholders		$	0.03			$	0.17			$	0.12			$	0.80

     All of our convertible preferred stock is anti-dilutive on an “if converted” basis. Therefore, we deduct all of the dividends payable on the convertible preferred stock to arrive at the numerator and no additional shares are included in the denominator when calculating basic and diluted earnings per common share. During the three and six months ended June 30, 2007 and 2006, securities that could potentially dilute basic earnings per share in future periods included stock options, restricted stock awards and non-recourse shares. As of June 30, 2007 and 2006, the common share equivalents for such potentially dilutive securities totaled 8.6 million and 11.5 million, respectively. These securities have been excluded from the earnings per share computations for the periods presented above because their effect would have been antidilutive. At June 30, 2007 and 2006, performance benchmarks for the Class VIII and Class IX High Performance Units of the Aimco Operating Partnership had been achieved that would result in the issuance of the equivalent of approximately 858,000 and 258,000 common OP Units, respectively, if the related measurement periods had ended on those dates. Those common OP Unit equivalents have been excluded in the calculation of diluted earnings per share because their effect would be antidilutive.

Note 7 — Business Segments

     We have two reportable segments: real estate (owning and operating apartments) and asset management and transactions (providing asset management, investment and transaction services). Our reportable segments changed in 2007 as a result of the reorganization of certain departments and functions. These changes include a realignment of our property management services from the asset management and transactions segment to the real estate segment. In addition, the asset management and transactions segment was expanded to include certain departments involved in asset acquisitions, dispositions, and other transactional activities. Prior to the reorganization, those departments were considered to be general and administrative functions and were not associated with any operating segment.

     Our real estate segment owns and operates properties that generate rental and other property-related income through the leasing of apartment units to a diverse base of residents. We separately evaluate the performance of each of our properties. However, because the properties have similar economic characteristics, the properties are aggregated into a single real estate segment. All real estate revenues are from external customers and are not generated from transactions with other segments. No single resident or related group of residents contributed 10% or more of total revenues during the three and six months ended June 30, 2007 or 2006. Portions of the gross revenues earned in the asset management and transactions business are from transactions with affiliates in the real estate segment.

     Statement of Financial Accounting Standards No. 131, Disclosures about Segments of an Enterprise and Related Information, or SFAS 131, requires that segment disclosures present the measure(s) used by the chief operating decision maker for purposes of assessing such segments’ performance. Our chief operating decision maker is comprised of several members of our executive management team who use several generally accepted industry financial measures to assess the performance of the business, including net asset value, net operating income, free cash flow, funds from operations, and adjusted funds from operations. The chief operating decision maker emphasizes net operating income as a key measurement of segment profit or loss. Net operating income is generally defined as segment revenues less direct segment operating expenses. Real estate segment net operating income also reflects adjustments related to minority interest in consolidated real estate operations and our equity in unconsolidated real estate operations. Asset management and transactions segment net operating income is adjusted to reflect a portion of our interest income and certain other income, including gains on sale of non-depreciable assets. Segment net operating income for 2006 has been revised to conform to the 2007 presentation.

     The following table presents the revenues and net operating income of our segments for the three and six months ended June 30, 2007 and 2006, and reconciles net operating income of our segments to income from continuing operations as reported in our consolidated statements of income (in thousands):

		Three Months Ended								Six Months Ended
		June 30,								June 30,
		2007				2006				2007				2006
Revenues:
Real estate segment		$	423,135			$	396,091			$	835,730			$	783,516
Asset management and transactions segment:
Gross revenues			20,785				12,661				34,438				22,758
Elimination of intersegment revenues			(5,607	)			(528	)			(7,630	)			(1,085	)
Net revenues after elimination			15,178				12,133				26,808				21,673
Total revenues of reportable segments		$	438,313			$	408,224			$	862,538			$	805,189
Net operating income:
Real estate segment		$	201,193			$	187,465			$	388,513			$	362,535
Asset management and transactions segment			11,614				7,775				20,257				18,965
Total net operating income of reportable segments			212,807				195,240				408,770				381,500
Income (expenses) generally excluded from segment net operating income:
Depreciation and amortization			(121,807	)			(112,272	)			(244,195	)			(219,461	)
General and administrative expenses			(24,606	)			(23,207	)			(46,683	)			(44,236	)
Other (expenses) income, net			4,272				(1,615	)			2,266				(1,994	)
Interest income			9,242				5,437				18,810				12,368
Provision for losses on notes receivable, net			(735	)			(502	)			(2,278	)			(764	)
Interest expense			(104,875	)			(98,157	)			(209,615	)			(193,971	)
Deficit distributions to minority partners			(2,028	)			(3,935	)			(3,221	)			(6,011	)
Equity in earnings (losses) of unconsolidated real estate partnerships			930				(574	)			(2,055	)			(2,436	)
Recoveries of (provision for) real estate impairment losses, net			—				(15	)			—				971
Gain on dispositions of unconsolidated real estate and other			639				1,059				21,061				10,757
Minority interests			(226	)			1,975				(5,404	)			7,224
Less portions of generally excluded items included in segment net operating income:
Other expenses (income), net			(2,615	)			(96	)			3,690				(2,131	)
Interest income			(802	)			84				(2,560	)			(54	)
Interest expense			409				—				409				—
Gain on sale of non-depreciable real estate assets			—				(671	)			—				(6,371	)
Minority interest in consolidated real estate operations			31,007				35,854				57,502				73,232
Equity in unconsolidated real estate operations			(3,322	)			(2,790	)			(5,826	)			(6,335	)
Income (loss) from continuing operations		$	(1,710	)		$	(4,185	)		$	(9,329	)		$	2,288

     The assets of our reportable segments are as follows (in thousands):

		June 30,				December 31,
		2007				2006
ASSETS:
Total assets for reportable segments (1)		$	10,128,710			$	10,004,701
Corporate and other assets			270,931				285,074
Total consolidated assets		$	10,399,641			$	10,289,775

Note 8 — Transactions Involving VMS National Properties Joint Venture

     In January 2007, VMS National Properties Joint Venture (“VMS”), a consolidated real estate partnership in which we hold a 22% equity interest, refinanced mortgage loans secured by its 15 apartment properties. The existing loans had an aggregate carrying amount of $110.0 million and an aggregate face amount of $152.2 million. The $42.2 million difference between the face amount and carrying amount resulted from a 1997 bankruptcy settlement in which the lender agreed to reduce the principal amount of the loans subject to VMS’s compliance with the terms of the restructured loans. Because the reduction in the loan amount was contingent on future compliance, recognition of the inherent debt extinguishment gain was deferred. Upon refinancing of the loans in January 2007, the existing lender accepted the reduced principal amount in full satisfaction of the loans, and we recognized the $42.2 million debt extinguishment gain in earnings.

     In January 2007, eight of VMS’s properties met all conditions necessary to be classified as held for sale and reported in discontinued operations in accordance with SFAS 144. Accordingly, the $22.8 million portion of the debt extinguishment gain related to the mortgage loans that were secured by such eight properties is reported in discontinued operations for the six months ended June 30, 2007. The $19.4 million portion of the debt extinguishment gain related to the mortgage loans that were secured by the seven VMS properties that are not held for sale is reported in our continuing operations as gain on dispositions of unconsolidated real estate and other for the six months ended June 30, 2007. The eight properties reported in discontinued operations were sold during the six months ended June 30, 2007, at an aggregate gain of $22.7 million. Although 78% of the equity interests in VMS are held by unrelated minority partners, no minority interest share of the gains on debt extinguishment and sale of the properties was recognized in our earnings for the three and six months ended June 30, 2007. As required by GAAP, we had in prior years recognized the minority partners’ share of VMS losses in excess of the minority partners’ capital contributions. The amounts of those previously recognized losses exceeded the minority partners’ share of the gains on debt extinguishment and sale of the properties; accordingly, the minority interest in such gains recognized in our earnings is limited to the minority interest in the Aimco Operating Partnership. For the three months ended June 30, 2007, the aggregate effect of the gains on extinguishment of VMS debt and sale of VMS properties had no impact on loss from continuing operations and increased net income by $6.5 million, or $0.07 per share. For the six months ended June 30, 2007, the aggregate effect of the gains on extinguishment of VMS debt and sale of VMS properties was to decrease loss from continuing operations by $17.6 million, or $0.18 per share, and increase net income by $59.0 million, or $0.61 per share.

     During the second quarter, VMS contributed its seven remaining properties to wholly-owned subsidiaries of Aimco in exchange for consideration totaling $230.1 million, consisting primarily of cash of $21.3 million, common OP Units with a fair value of $9.8 million, the assumption of $168.0 million in mortgage debt, and the assumption of $30.9 million in mortgage participation liabilities. This total consideration included $50.7 million related to our 22% equity interest in VMS. Exclusive of our share, the consideration paid for the seven properties exceeded the carrying amount of the minority interest in such properties by $44.9 million. This excess consideration is reflected in our consolidated balance sheet as an increase in the carrying amount of the seven properties.

     At June 30, 2007, VMS held cash of $46.6 million, consisting primarily of undistributed proceeds from the sale of its 15 properties (including properties sold to us). Substantially all of this cash is expected to be distributed to VMS’s partners, including us, during the second half of 2007. Our consolidated balance sheet at June 30, 2007, reflects a minority interest liability of $41.9 million for the portion of VMS’s cash balance that is expected to be distributed to unrelated limited partners.

Note 9 — Asset Impairments

     During the three months ended March 31, 2007, we evaluated the recoverability of our $6.3 million equity investment in a group purchasing organization and a related $3.4 million note receivable. We initiated our evaluation as a result of information concerning its relationships with significant vendors. Based on our evaluation, we recorded impairments of $2.5 million in equity in losses of real estate partnerships and $1.4 million in provision for losses on notes receivable to adjust the carrying amounts of our equity investment and note receivable, respectively, to their estimated fair values.

     During the three months ended March 31, 2007, we abandoned certain internal-use software development projects and recorded a $1.8 million write-off of the capitalized costs of such projects in depreciation and amortization.

Note 10 — Real Estate Acquisitions

     During the six months ended June 30, 2007, we completed the acquisition of 14 conventional properties with a total of 1,187 units, including nine properties in New York City; two properties in Daytona Beach, Florida; one property in Park Forest, Illinois; one property in Poughkeepsie, New York; and one property in Redwood City, California. The aggregate purchase price for these properties, including transaction costs, was approximately $191.0 million including the assumption of mortgage debt of $16.0 million. The remainder of the purchase price was funded using cash of $149.3 million and tax-free exchange proceeds of $25.7 million.

Note 11 — Recent Accounting Developments

     In September 2006, the FASB issued Statement of Financial Accounting Standards No. 157, Fair Value Measurements, or SFAS 157. SFAS 157 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants in the market in which the reporting entity transacts. SFAS 157 applies whenever other standards require assets or liabilities to be measured at fair value and does not expand the use of fair value in any new circumstances. SFAS 157 establishes a hierarchy that prioritizes the information used in developing fair value estimates. The hierarchy gives the highest priority to quoted prices in active markets and the lowest priority to unobservable data, such as the reporting entity’s own data. SFAS 157 requires fair value measurements to be disclosed by level within the fair value hierarchy. SFAS 157 is effective for fiscal years beginning after November 15, 2007. We have not yet determined the effects that SFAS 157 will have on our financial statements.

     In February 2007, the FASB issued Statement of Financial Accounting Standards No. 159, The Fair Value Option for Financial Asset and Financial Liabilities, or SFAS 159. SFAS 159 permits entities to choose to measure many financial instruments and certain other items at fair value that are not currently required to be measured at fair value. The objective is to improve financial reporting by providing entities with the opportunity to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without having to apply complex hedge accounting provisions. SFAS 159 also establishes presentation and disclosure requirements designed to facilitate comparisons between entities that choose different measurement attributes for similar types of assets and liabilities. SFAS 159 is effective for fiscal years beginning after November 15, 2007. We have not yet determined whether we will elect the fair value option for any of our financial instruments.

ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Forward Looking Statements

The Private Securities Litigation Reform Act of 1995 provides a “safe harbor” for forward-looking statements in certain circumstances. Certain information included in this Report contains or may contain information that is forward-looking, including, without limitation, statements regarding the effect of acquisitions and redevelopments, our future financial performance, including our ability to maintain current or meet projected occupancy levels, rent levels and same store results, and the effect of government regulations. Actual results may differ materially from those described in the forward-looking statements and will be affected by a variety of risks and factors that are beyond our control including, without limitation: natural disasters such as hurricanes; national and local economic conditions; the general level of interest rates; energy costs; the terms of governmental regulations that affect us and interpretations of those regulations; the competitive environment in which we operate; financing risks, including the risk that our cash flows from operations may be insufficient to meet required payments of principal and interest; real estate risks, including variations of real estate values and the general economic climate in local markets and competition for residents in such markets; acquisition and development risks, including failure of such acquisitions to perform in accordance with projections; the timing of acquisitions and dispositions; litigation, including costs associated with prosecuting or defending claims and any adverse outcomes; and possible environmental liabilities, including costs, fines or penalties that may be incurred due to necessary remediation of contamination of properties presently owned or previously owned by us. In addition, 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 risk factors described in our Annual Report on Form 10-K for the year ended December 31, 2006, and the other documents we file from time to time with the Securities and Exchange Commission. As used herein and except as the context otherwise requires, “we,” “our,” “us” and the “Company” refer to Aimco, AIMCO Properties, L.P. (which we refer to as the Aimco Operating Partnership) and Aimco’s consolidated corporate subsidiaries and consolidated real estate partnerships, collectively.

Executive Overview

     We are a self-administered and self-managed real estate investment trust, or REIT, engaged in the ownership, acquisition, management and redevelopment of apartment properties. Our property operations are characterized by diversification of product, location and price point. As of June 30, 2007, we owned or managed 1,216 apartment properties containing 209,507 apartment units located in 47 states, the District of Columbia and Puerto Rico. Our primary sources of income and cash are rents associated with apartment leases.

     The key financial indicators that we use in managing our business and in evaluating our financial condition and operating performance are: Net Asset Value, or NAV; Funds From Operations, or FFO; FFO less spending for Capital Replacements, or AFFO; same store property operating results; net operating income; net operating income less spending for Capital Replacements, or Free Cash Flow; financial coverage ratios; and leverage as shown on our balance sheet. These terms are defined and described in the sections captioned “Funds From Operations” and “Capital Expenditures” below. The key macro-economic factors and non-financial indicators that affect our financial condition and operating performance are: rates of job growth; single-family and multifamily housing starts; and interest rates.

     Because our operating results depend primarily on income from our properties, the supply and demand for apartments influences our operating results. Additionally, the level of expenses required to operate and maintain our properties, the pace and price at which we redevelop, acquire and dispose of our apartment properties, and the volume and timing of fee transactions affect our operating results. Our cost of capital is affected by the conditions in the capital and credit markets and the terms that we negotiate for our equity and debt financings.

     For 2007, our focus includes the following: enhance operations to improve and sustain customer satisfaction; obtain rate and occupancy increases to bring improved profitability; upgrade the quality of our portfolio through portfolio management, capital replacement, capital improvement and redevelopment; increase efficiency through improved business processes and automation; improve balance sheet flexibility; expand the use of tax credit equity to finance redevelopment of affordable properties; minimize our cost of capital; and monetize a portion of the value inherent in our properties with increased entitlements.

     The following discussion and analysis of the results of our operations and financial condition should be read in conjunction with the financial statements.

Results of Operations

Overview

Three months ended June 30, 2007 compared to three months ended June 30, 2006

     We reported net income of $19.3 million and net income attributable to common stockholders of $3.0 million for the three months ended June 30, 2007, compared to net income of $35.1 million and net income attributable to common stockholders of $16.1 million for the three months ended June 30, 2006, which were decreases of $15.8 million and $13.1 million, respectively. These decreases were principally due to the following items:

	•		a decrease in income from discontinued operations, primarily related to lower net gains on sales of real estate;
	•		an increase in depreciation expense, reflecting depreciation on newly acquired properties and recent capital projects; and
	•		an increase in interest expense, reflecting higher loan principal balances resulting from refinancings and acquisitions.

The effects of these items on our operating results were partially offset by:

	•		an increase in net operating income from property operations, which is attributable to improved operating results of same store properties and the addition of net operating income from acquired properties; and
	•		a net favorable change in other expenses (income), net and an increase in interest income.

Six months ended June 30, 2007 compared to six months ended June 30, 2006

     We reported net income of $44.5 million and net income attributable to common stockholders of $11.8 million for the six months ended June 30, 2007, compared to net income of $119.2 million and net income attributable to common stockholders of $76.1 million for the six months ended June 30, 2006, which were decreases of $74.7 million and $64.3 million, respectively. These decreases were principally due to the following items:

	•		a decrease in income from discontinued operations, primarily related to lower net gains on sales of real estate;
	•		an increase in depreciation expense, reflecting depreciation on newly acquired properties and recent capital projects;
	•		a decrease in gains on sales of non-depreciable real estate;
	•		a net unfavorable change in allocations to minority interests of earnings and losses in our consolidated real estate partnerships; and
	•		an increase in interest expense, reflecting higher loan principal balances resulting from refinancings and acquisitions.

The effects of these items on our operating results were partially offset by:

	•		an increase in net operating income from property operations, which is attributable to improved operating results of same store properties and the addition of net operating income from acquired properties;
	•		an increase in interest income resulting primarily from loans collateralized by properties in West Harlem in New York City; and
	•		recognition of deferred debt extinguishment gains in connection with the refinancing of certain mortgage loans that had been restructured in a 1997 bankruptcy settlement.

The following paragraphs discuss these and other items affecting the results of our operations in more detail.

Rental Property Operations

     Our operating income is primarily generated from the operations of our consolidated properties. The principal components within our total consolidated property operations are: consolidated same store properties, which consist of all conventional properties that were owned (and not classified as held for sale) and managed by us, stabilized and consolidated for all comparable periods presented, and other consolidated properties, which primarily include newly consolidated, acquisition, affordable and redevelopment properties.

     The following table summarizes the overall performance of our consolidated properties for the three and six months ended June 30, 2007 and 2006 (in thousands):

		Three Months Ended								Six Months Ended
		June 30,								June 30,
		2007				2006				2007				2006
Rental and other property revenues		$	421,864			$	392,499			$	832,363			$	776,894
Property operating expenses			192,681				173,506				385,924				353,571
Net operating income		$	229,183			$	218,993			$	446,439			$	423,323

     For the three months ended June 30, 2007, compared to the three months ended June 30, 2006, net operating income for our consolidated property operations increased by $10.2 million, or 4.7%. This increase was primarily attributable to a $7.4 million increase in consolidated same store net operating income, which is discussed further below under “Consolidated Conventional Same Store Property Operating Results.” The operations of properties acquired resulted in increases in net operating income of $4.1 million and affordable properties and properties undergoing redevelopment each contributed increases in net operating income of $0.8 million. These increases were partially offset by a $3.6 million increase in net casualty losses.

     For the six months ended June 30, 2007, compared to the six months ended June 30, 2006, net operating income for our consolidated property operations increased by $23.1 million, or 5.5%. This increase was primarily attributable to a $16.6 million increase in consolidated same store net operating income, which is discussed further below under “Consolidated Conventional Same Store Property Operating Results.” The operations of properties acquired resulted in increases in net operating income of $8.0 million and affordable properties and properties undergoing redevelopment contributed increases in net operating income of $2.5 million and $2.8 million, respectively. These increases were partially offset by a $6.8 million increase in net casualty losses.

Consolidated Conventional Same Store Property Operating Results

     Same store operating results is a key indicator we use to assess the performance of our property operations and to understand the period over period operations of a consistent portfolio of properties. We define “consolidated same store” properties as conventional properties (i) that we manage, (ii) in which our ownership interest exceeds 10%, (iii) the operations of which have been stabilized and consolidated for all periods presented and (iv) that have not been classified as held for sale. The rental property operations of our consolidated same store properties are as follows for the three and six months ended June 30, 2007 and 2006 (dollars in thousands):

		Three Months Ended								Six Months Ended
		June 30,								June 30,
		2007				2006				2007				2006
Consolidated same store revenues		$	300,949			$	284,833			$	583,743			$	554,660
Consolidated same store property operating expenses			126,437				117,685				246,123				233,653
Consolidated same store net operating income		$	174,512			$	167,148			$	337,620			$	321,007
Consolidated Same Store Measures:
Properties			375				375				373				373
Apartment units			111,213				111,213				110,538				110,538
Average physical occupancy			94.7	%			94.4	%			94.6	%			94.6	%
Average rent/unit/month			$864				$830				$862				$824

     For the three months ended June 30, 2007, compared to the three months ended June 30, 2006, consolidated same store net operating income increased by $7.4 million, or 4.4%. Revenues increased by $16.1 million, or 5.7%, primarily due to higher average rent (up $34 per unit) and higher utility reimbursements. Property operating expenses increased by $8.8 million, or 7.4%, primarily due to increases in utilities, personnel, marketing and administrative expenses.

     For the six months ended June 30, 2007, compared to the six months ended June 30, 2006, consolidated same store net operating income increased by $16.6 million, or 5.2%. Revenues increased by $29.1 million, or 5.2%, primarily due to higher average rent (up $38 per unit), higher utility reimbursements and higher miscellaneous income. Expenses increased by $12.5 million, or 5.3%, primarily due to increases in utilities, personnel, and contract services expenses.

Activity Fees and Asset Management

     Activity fees are generated from transactions, including dispositions, refinancings, and tax credit syndications and redevelopments. These transactions occur on varying timetables; thus, the income varies from period to period. We have affiliated real estate partnerships for which we have identified a pipeline of transactional opportunities. As a result, we view activity fees as a predictable part of our core business strategy. Asset management revenue is from the financial management of partnerships, rather than management of day-to-day property operations. Asset management revenue includes certain fees that were earned in a prior period, but not recognized at that time because collectibility was not reasonably assured. Those fees may be recognized in a subsequent period upon occurrence of a transaction or improvement in operations that generates sufficient cash to pay the fees. Activity and asset management expenses consist primarily of the costs of departments that perform transactional activities and asset management services. These activities are conducted primarily by our taxable subsidiaries, and the related operating income is generally subject to income taxes.

     The following table summarizes the operating results of our transactional and asset management activities for the three and six months ended June 30, 2007 and 2006 (in thousands):

		Three Months Ended								Six Months Ended
		June 30,								June 30,
		2007				2006				2007				2006
Activity fees and asset management revenues		$	15,178			$	12,133			$	26,808			$	21,673
Activity and asset management expenses			6,076				4,946				11,351				9,134
Net operating income from activity fees and asset management		$	9,102			$	7,187			$	15,457			$	12,539

     For the three months ended June 30, 2007, compared to the three months ended June 30, 2006, net operating income from activity fees and asset management increased by $1.9 million, or 26.6%. This increase is primarily attributable to a $3.6 million increase in revenues from tax credit arrangements and a $1.4 million increase in promote income and fees earned in connection with property dispositions. These increases were partially offset by a decrease in other transaction fee income of $1.7 million. Expenses associated with these activities increased by $1.1 million.

     For the six months ended June 30, 2007, compared to the six months ended June 30, 2006, net operating income from activity fees and asset management increased by $2.9 million, or 23.3%. This increase is primarily attributable to a $5.6 million increase in revenues from tax credit arrangements and increases totaling $1.0 million in promote income, disposition fees and previously deferred asset management fees realized in connection with property dispositions. These increases were partially offset by a decrease in other transaction fee income of $1.4 million. Expenses associated with these activities increased by $2.2 million.

Depreciation and Amortization

     For the three months ended June 30, 2007, compared to the three months ended June 30, 2006, depreciation and amortization increased $9.5 million, or 8.5%. This increase reflects depreciation of $2.1 million for newly acquired properties, completed redevelopments, and other capital projects recently placed in service. Depreciation also increased by $7.4 million as a result of depreciation adjustments necessary to reduce the carrying amount of buildings and improvements to their estimated disposition value or to zero in connection with a planned demolition (see Use of Estimates in Note 2 to the consolidated financial statements in Item 1).

     For the six months ended June 30, 2007, compared to the six months ended June 30, 2006, depreciation and amortization increased $24.7 million, or 11.3%. This increase reflects depreciation of $7.4 million for newly acquired properties, completed redevelopments, and other capital projects recently placed in service. Depreciation also increased by $15.5 million as a result of depreciation adjustments necessary to reduce the carrying amount of buildings and improvements to their estimated disposition value or to zero in connection with a planned demolition (see Use of Estimates in Note 2 to the consolidated financial statements in Item 1) and by $1.8 million as a result of the write-off of certain capitalized software costs (see Note 9 to the consolidated financial statements in Item 1).

General and Administrative Expenses

     For the three months ended June 30, 2007, compared to the three months ended June 30, 2006, general and administrative expenses increased $1.4 million, or 6.0%. This increase was principally due to higher compensation related expenses, including higher accrued bonus compensation reflecting improved performance in relation to established targets. The increase was partially offset by a $0.9 million decrease in fees for certain professional services.

     For the six months ended June 30, 2007, compared to the six months ended June 30, 2006, general and administrative expenses increased $2.4 million, or 5.5%. This increase was principally due to higher compensation related expenses, including higher accrued bonus compensation reflecting improved performance in relation to established targets. The increase was partially offset by a $1.1 million decrease in fees for certain professional services.

Other Expenses (Income), Net

     Other expenses (income), net includes income tax provision/benefit, franchise taxes, risk management activities, partnership administration expenses and certain non-recurring items.

     For the three months ended June 30, 2007, compared to the three months ended June 30, 2006, other expenses (income), net changed favorably by $5.9 million. The net favorable change reflects a $2.5 million increase in income tax benefits related to losses of our taxable subsidiaries and a $1.5 million net reduction of partnership and asset management expenses.

Other expenses (income), net for the three months ended June 30, 2007, also includes income of $1.3 million related to the transfer of certain property rights to an unrelated third party.

     For the six months ended June 30, 2007, compared to the six months ended June 30, 2006, other expenses (income), net changed favorably by $4.3 million. The net favorable change reflects a $5.0 million increase in income tax benefits related to losses of our taxable subsidiaries, a $3.2 million net reduction of partnership and asset management expenses and a $1.7 million charge for one-time benefits to certain employees terminated in 2006 that did not recur in 2007. Other expenses (income), net for the six months ended June 30, 2007, also includes $1.8 million related to the transfer of certain property rights to an unrelated third party. These favorable changes were partially offset by unfavorable changes related to the settlement of certain litigation matters, including a $3.8 million loss during the six months ended June 30, 2007 and $2.9 million of net gains during the six months ended June 30, 2006.

Interest Income

     Interest income consists primarily of interest on notes receivable from non-affiliates and unconsolidated real estate partnerships, and interest earned on restricted and unrestricted cash balances.

     For the three months ended June 30, 2007, compared to the three months ended June 30, 2006, interest income increased $3.8 million, or 70.0%. This increase reflects $1.7 million in 2007 related to loans collateralized by properties in West Harlem in New York City, which were funded in November 2006. Accretion of loan discounts in connection with property sales and an increase in interest income earned on escrowed funds related to a tax exempt bond financing transaction also contributed to the increased interest income.

     For the six months ended June 30, 2007, compared to the six months ended June 30, 2006, interest income increased $6.4 million, or 52.1%. This increase reflects $4.8 million in 2007 related to loans collateralized by properties in West Harlem in New York City, which were funded in November 2006, including accretion of loan discounts in connection with the prepayment of principal on such loans. An increase in interest income earned on escrowed funds related to a tax exempt bond financing transaction also contributed to the increased interest income.

Interest Expense

     For the three months ended June 30, 2007, compared to the three months ended June 30, 2006, interest expense which includes the amortization of deferred financing costs, increased $6.7 million, or 6.8%. Interest on property debt increased $8.3 million primarily due to higher balances resulting from refinancing activities and mortgage loans on newly acquired properties, offset by a $0.4 million reduction due to lower weighted average rates. Corporate interest increased by $2.1 million as a result of a higher average balance in 2007. These increases were partially offset by a $1.6 million increase in capitalized interest related to higher levels of redevelopment and entitlement activities and a $1.4 million adjustment to amortization of deferred financing costs.

     For the six months ended June 30, 2007, compared to the six months ended June 30, 2006, interest expense, increased $15.6 million, or 8.1%. Interest on property debt increased $19.3 million primarily due to higher balances resulting from refinancing activities and mortgage loans on newly acquired properties, offset by a $0.4 million reduction due to lower weighted average rates. Corporate interest increased by $1.4 million as a result of a higher average balance in 2007. These increases were partially offset by a $1.9 million increase in capitalized interest related to higher levels of redevelopment and entitlement activities and a $1.4 million adjustment to amortization of deferred financing costs.

Gain on Dispositions of Unconsolidated Real Estate and Other

     Gain on dispositions of unconsolidated real estate and other includes our share of gain related to dispositions of real estate by unconsolidated real estate partnerships, gain on dispositions of land and other non-depreciable assets and costs related to asset disposal activities. Changes in the level of gains recognized from period to period reflect the changing level of disposition activity from period to period. Additionally, gains on properties sold are determined on an individual property basis or in the aggregate for a group of properties that are sold in a single transaction, and are not comparable period to period. For the six months ended June 30, 2007, gain on dispositions of unconsolidated real estate and other also includes gains on extinguishment of debt.

     For the six months ended June 30, 2007, compared to the six months ended June 30, 2006, gain on dispositions of unconsolidated real estate and other increased $10.3 million. The increase is primarily attributed to a $19.4 million gain on debt extinguishment related to seven properties in the VMS partnership (see Note 8 to the consolidated financial statements in Item 1). This increase was partially offset by $5.7 million in gains on sale of land and other non-depreciable assets in 2006.

Minority Interest in Consolidated Real Estate Partnerships

     Minority interest in consolidated real estate partnerships reflects minority partners’ share of operating results of consolidated real estate partnerships. This includes the minority partners’ share of property management fees, interest on notes and other amounts eliminated in consolidation that we charge to such partnerships. However, we generally do not recognize a benefit for the minority interest share of partnership losses, which are typically attributable to real estate depreciation, for partnerships that have deficits in partners’ capital.

     For the six months ended June 30, 2007, compared to the six months ended June 30, 2006, the net unfavorable effect of minority interests increased $12.8 million. This change is primarily attributable to the effects of a revision in our accounting treatment for tax credit arrangements effective in the third quarter of 2006, pursuant to which we now consider our tax credit partnerships to be wholly owned subsidiaries. For the six months ended June 30, 2006, minority interest in consolidated real estate partnerships included a $10.5 million benefit for the minority partners’ share of losses of tax credit partnerships. No comparable minority interest benefit was recognized for the six months ended June 30, 2007, under our revised accounting treatment. An increase in the minority partners’ share of income of other consolidated real estate partnerships also contributed to the total unfavorable change.

Income from Discontinued Operations, Net

     The results of operations for properties sold during the period or designated as held for sale at the end of the period are generally required to be classified as discontinued operations for all periods presented. The property-specific components of net earnings that are classified as discontinued operations include all property-related revenues and operating expenses, depreciation expense recognized prior to the classification as held for sale, property-specific interest expense and debt extinguishment gains and losses to the extent there is secured debt on the property, and the associated minority interest. In addition, any impairment losses on assets held for sale and the net gain on the eventual disposal of properties held for sale are reported as discontinued operations.

     For the three months ended June 30, 2007 and 2006, income from discontinued operations, net totaled $21.0 million and $39.3 million, respectively, which includes income from operations after interest income, interest expense and minority interest of $0.9 million in 2007 and a loss of $0.8 million in 2006. For the six months ended June 30, 2007 and 2006, income from discontinued operations, net totaled $53.9 million and $116.9 million, respectively, which includes income from operations after interest income, interest expense, gain on extinguishment of debt and minority interest of $22.6 million in 2007 and a loss of $1.6 million in 2006. For the six months ended June 30, 2007, income from discontinued operations also included a $22.9 million gain on debt extinguishment related to eight properties that were sold during the six months ended June 30, 2007 (see Note 8 to the consolidated financial statements in Item 1). For 2007, income from discontinued operations included the operating results of 41 properties that were sold or classified as held for sale during 2007. For 2006, income from discontinued operations included the operating results of 118 properties and the South Tower of the Flamingo South Beach property that were sold or classified as held for sale in 2006 or 2007. Due to the varying number of properties and the timing of sales, the income from operations is not comparable from period to period.

     During the three months ended June 30, 2007, we sold 28 properties, resulting in a net gain on sale of approximately $21.7 million, net of $2.6 million of related income taxes. Additionally, in 2007 we recognized a $0.1 million recovery of previously recognized impairment losses on assets sold or held for sale and a $0.6 million recovery of deficit distributions to minority partners. During the three months ended June 30, 2006, we sold 19 properties, resulting in a net gain on sale of approximately $42.1 million, net of $1.0 million of related income taxes. Additionally, in 2006 we recognized a $0.2 million recovery of previously recognized impairment losses on assets sold or held for sale and a $1.9 million recovery of deficit distributions to minority partners.

     During the six months ended June 30, 2007, we sold 40 properties, resulting in a net gain on sale of approximately $37.1 million, net of $2.8 million of related income taxes. Additionally, in 2007 we recognized $0.8 million of impairment losses on assets sold or held for sale and a $0.4 million recovery of deficit distributions to minority partners. During the six months ended June 30, 2006, we sold 38 properties and the South Tower, resulting in a net gain on sale of approximately $114.8 million, net of $28.0 million of related taxes. Additionally, we recognized a $16.1 million recovery of deficit distributions to minority partners during the six months ended June 30, 2006.

     Changes in gains recognized from period to period reflect the changing level of our disposition activity from period to period. Additionally, gains on properties sold are determined on an individual property basis or in the aggregate for a group of properties that are sold in a single transaction, and are not comparable period to period. See Note 5 to the consolidated financial statements in Item 1 for more information on discontinued operations.

Business Segment Operating Results

     We have two reportable segments: real estate (owning and operating apartments) and asset management and transactions (providing asset management, investment and transaction services). Our reportable segments changed in 2007 as a result of the reorganization of certain departments and functions. These changes include a realignment of our property management services from the asset management and transactions segment to the real estate segment. In addition, the asset management and transactions segment was expanded to include certain departments involved in asset acquisitions, dispositions, and other transactional activities. Prior to the reorganization, those departments were considered to be general and administrative functions and were not associated with any operating segment. See Note 7 to the consolidated financial statements in Item 1 for additional information about our business segments.

Real Estate Segment

     Our real estate segment owns and operates properties that generate rental and other property-related income through the leasing of apartment units to a diverse base of residents. Net operating income from our rental property operations is the primary component of real estate segment net operating income. Our real estate segment operating results also include income from property management services performed for unconsolidated partnerships, and reflects adjustments for minority interests in consolidated real estate partnerships and our share of unconsolidated real estate operations.

     For the three months ended June 30, 2007, net operating income of our real estate segment was $201.2 million, compared to $187.5 million for the three months ended June 30, 2006, representing an increase of $13.7 million, or 7.3%. This increase is primarily attributable to a $10.2 million increase in the net operating income of our consolidated property operations, as discussed above under “Rental Property Operations.”

     For the six months ended June 30, 2007, net operating income of our real estate segment was $388.5 million, compared to $362.5 million for the six months ended June 30, 2006, representing an increase of $26.0 million, or 7.2%. This increase is primarily attributable to a $23.1 million increase in the net operating income of our consolidated property operations, as discussed above under “Rental Property Operations.”

Asset Management and Transaction Segment

     Our asset management and transaction segment generates income from fees associated with real estate transactions, such as dispositions, refinancings, tax credit syndications and redevelopments, and from asset management fees associated with the financial management of partnerships. The income of this segment also includes gains on dispositions of non-depreciable assets, accretion of loan discounts resulting from transactional activities and certain other income. The expenses of this segment consist primarily of the costs of departments that perform transactional activities and asset management services.

     For the three months ended June 30, 2007, net operating income of our asset management and transactions segment was $11.6 million, compared to $7.8 million for the three months ended June 30, 2006, representing an increase of $3.8 million, or 49.4%. This increase is primarily attributable to a $1.9 million increase in net operating income from activity fees and asset management (see “Activity Fees and Asset Management” above), a $0.9 million increase in accretion income, and $1.3 million in 2007 related to the transfer of certain property rights.

     For the six months ended June 30, 2007, net operating income of our asset management and transactions segment was $20.3 million, compared to $19.0 million for the six months ended June 30, 2006, representing an increase of $1.3 million, or 6.8%. This increase reflects a $2.9 million increase in net operating income from activity fees and asset management (see “Activity Fees and Asset Management” above), a $2.5 million increase in accretion income, and $1.8 million in 2007 related to the transfer of certain property rights. These increases were partially offset by the effects of $6.4 million in gains on disposition of non-depreciable assets in 2006 that did not recur in 2007.

Critical Accounting Policies and Estimates

     We prepare our consolidated financial statements in accordance with GAAP, which require us to make estimates and assumptions. We believe that the following critical accounting policies involve our more significant judgments and estimates used in the preparation of our consolidated financial statements.

Impairment of Long-Lived Assets

     Real estate and other long-lived assets to be held and used are stated at cost, less accumulated depreciation and amortization, unless the carrying amount of the asset is not recoverable. If events or circumstances indicate that the carrying amount of a property may not be recoverable, we make an assessment of its recoverability by comparing the carrying amount to our estimate of the undiscounted future cash flows of the property, excluding interest charges. 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.

     Real estate investments are subject to varying degrees of risk. Several factors may adversely affect the economic performance and value of our real estate investments. These factors include:

	•		the general economic climate;
	•		competition from other apartment communities and other housing options;
	•		local conditions, such as loss of jobs or an increase in the supply of apartments, that might adversely affect apartment occupancy or rental rates;
	•		changes in governmental regulations and the related cost of compliance;
	•		increases in operating costs (including real estate taxes) due to inflation and other factors, which may not be offset by increased rents;
	•		changes in tax laws and housing laws, including the enactment of rent control laws or other laws regulating multifamily housing;
	•		changes in market capitalization rates; and
	•		the relative illiquidity of such investments.

     Any adverse changes in these and other factors could cause an impairment in our long-lived assets, including real estate and investments in unconsolidated real estate partnerships. Based on periodic tests of recoverability of long-lived assets, we determined that the carrying amount for our properties to be held and used was recoverable and, therefore, we did not record any impairment losses related to such properties during the three or six months ended June 30, 2007 or 2006.

Notes Receivable and Interest Income Recognition

     Notes receivable from unconsolidated real estate partnerships consist primarily of notes receivable from partnerships in which we are the general partner. The ultimate repayment of these notes is subject to a number of variables, including the performance and value of the underlying real estate and the claims of unaffiliated mortgage lenders. Our notes receivable include loans extended by us that we carry at the face amount plus accrued interest, which we refer to as “par value notes,” and loans extended by predecessors whose positions we generally acquired at a discount, which we refer to as “discounted notes.”

     We record interest income on par value notes as earned in accordance with the terms of the related loan agreements. We discontinue the accrual of interest on such notes when the notes are impaired, as discussed below, or when there is otherwise significant uncertainty as to the collection of interest. We record income on such nonaccrual loans using the cost recovery method, under which we apply cash receipts first to the recorded amount of the loan; thereafter, any additional receipts are recognized as income.

     We recognize interest income on discounted notes receivable based upon whether the amount and timing of collections are both probable and reasonably estimable. We consider collections to be probable and reasonably estimable when the borrower has entered into certain closed or pending transactions (which include real estate sales, refinancings, foreclosures and rights offerings) that provide a reliable source of repayment. In such instances, we recognize accretion income, on a prospective basis using the effective interest method over the estimated remaining term of the loans, equal to the difference between the carrying amount of the discounted notes and the estimated collectible value. We record income on all other discounted notes using the cost recovery method. Accretion income recognized in any given period is based on our ability to complete transactions to monetize the notes receivable and the difference between the carrying amount and the estimated collectible amount of the notes; therefore, accretion income varies on a period-by-period basis and could be lower or higher than in prior periods.

Allowance for Losses on Notes Receivable

     We assess the collectibility of notes receivable on a periodic basis, which assessment consists primarily of an evaluation of cash flow projections of the borrower to determine whether estimated cash flows are sufficient to repay principal and interest in accordance with the contractual terms of the note. We recognize impairments on notes receivable when it is probable that principal and interest will not be received in accordance with the contractual terms of the loan. The amount of the impairment to be recognized generally is based on the fair value of the partnership’s real estate that represents the primary source of loan repayment. In certain instances where other sources of cash flow are available to repay the loan, the impairment is measured by discounting the estimated cash flows at the loan’s original effective interest rate.

     We recorded provisions for impairment losses on notes receivable of $0.7 million and $2.3 million for the three and six months ended June 30, 2007, respectively, and $0.5 million and $0.8 million for the three and six months ended June 30, 2006, respectively. We will continue to evaluate the collectibility of these notes, and we will adjust related allowances in the future due to changes in market conditions and other factors.

Capitalized Costs

     We capitalize costs, including certain indirect costs, incurred in connection with our capital expenditure activities, including redevelopment and construction projects, other tangible property improvements, and replacements of existing property components. Included in these capitalized costs are payroll costs associated with time spent by site employees in connection with the planning, execution and control of all capital expenditure activities at the property level. Capitalized “indirect costs” represent an allocation of certain regional operating center and corporate level department costs, including payroll costs, which clearly relate to capital expenditure activities. We capitalize interest, property taxes and insurance during periods in which redevelopment and construction projects are in progress. Costs incurred in connection with capital expenditure activities are capitalized where the costs of the improvements or replacements exceed $250. We charge to expense as incurred costs that do not relate to capital expenditure activities, including ordinary repairs, maintenance, resident turnover costs and general and administrative expenses.

     For the three months ended June 30, 2007 and 2006, for continuing and discontinued operations, we capitalized $7.4 million and $5.8 million of interest costs, respectively, and $19.2 million and $16.7 million of site payroll and indirect costs, respectively. For the six months ended June 30, 2007 and 2006, for continuing and discontinued operations, we capitalized $13.9 million and $12.0 million of interest costs, respectively, and $39.1 million and $32.1 million of site payroll and indirect costs, respectively.

Funds From Operations

     Funds From Operations, or FFO, is a non-GAAP financial measure that we believe, when considered with the financial statements determined in accordance with GAAP, is helpful to investors in understanding our performance because it captures features particular to real estate performance by recognizing that real estate generally appreciates over time or maintains residual value to a much greater extent than do other depreciable assets such as machinery, computers or other personal property. The Board of Governors of the National Association of Real Estate Investment Trusts, or NAREIT, defines FFO as net income (loss), computed in accordance with GAAP, excluding gains from sales of depreciable property, plus depreciation and amortization, and after adjustments for unconsolidated partnerships and joint ventures. Adjustments

for unconsolidated partnerships and joint ventures are calculated to reflect FFO on the same basis. We compute FFO for all periods presented in accordance with the guidance set forth by NAREIT’s April 1, 2002 White Paper, which we refer to as the White Paper. We calculate FFO (diluted) by subtracting redemption related preferred stock issuance costs and dividends on preferred stock and adding back dividends/distributions on dilutive preferred securities. FFO should not be considered an alternative to net income or net cash flows from operating activities, as determined in accordance with GAAP, as an indication of our performance or as a measure of liquidity. FFO is not necessarily indicative of cash available to fund future cash needs. In addition, although FFO is a measure used for comparability in assessing the performance of real estate investment trusts, there can be no assurance that our basis for computing FFO is comparable with that of other real estate investment trusts.

     For the three and six months ended June 30, 2007 and 2006, our FFO is calculated as follows (in thousands):

		Three Months Ended								Six Months Ended
		June 30,								June 30,
		2007				2006				2007				2006
Net income attributable to common stockholders (1)		$	2,983			$	16,058			$	11,843			$	76,074
Adjustments:
Depreciation and amortization (2)			121,807				112,272				244,195				219,461
Depreciation and amortization related to non-real estate assets			(4,866	)			(7,682	)			(11,480	)			(15,765	)
Depreciation of rental property related to minority partners’ interest and unconsolidated entities(3) (4)			(4,434	)			(9,552	)			(18,049	)			(23,043	)
Gain on dispositions of unconsolidated real estate and other			(639	)			(1,059	)			(21,061	)			(10,757	)
Gain on dispositions of non-depreciable assets and other			—				671				19,373				6,371
Deficit distributions to minority partners, net (5)			2,028				3,935				3,221				6,011
Discontinued operations:
Gain on dispositions of real estate, net of minority partners’ interest (3)			(24,273	)			(43,112	)			(39,906	)			(142,822	)
Depreciation of rental property, net of minority partners’ interest (3) (4)			1,152				6,724				(13,829	)			16,608
Recovery of deficit distributions to minority partners, net (5)			(555	)			(1,896	)			(418	)			(16,145	)
Income tax arising from disposals			2,597				1,044				2,761				27,986
Minority interest in Aimco Operating Partnership’s share of above adjustments			(8,525	)			(6,055	)			(15,259	)			(6,699	)
Preferred stock dividends			16,346				19,034				32,694				40,514
Redemption related preferred stock issuance costs			—				—				—				2,574
Funds From Operations		$	103,621			$	90,382			$	194,085			$	180,368
Preferred stock dividends			(16,346	)			(19,034	)			(32,694	)			(40,514	)
Redemption related preferred stock issuance costs			—				—				—				(2,574	)
Dividends/distributions on dilutive preferred securities			58				61				58				123
Funds From Operations attributable to common stockholders – diluted		$	87,333			$	71,409			$	161,449			$	137,403
Weighted average number of common shares, common share equivalents and dilutive preferred securities outstanding:
Common shares and equivalents (6)			99,128				97,475				99,572				97,007
Dilutive preferred securities			72				91				36				93
Total			99,200				97,566				99,608				97,100

Liquidity and Capital Resources

     Liquidity is the ability to meet present and future financial obligations either through the sale or maturity of existing assets or by the acquisition of additional funds through working capital management. Both the coordination of asset and liability maturities and effective working capital management are important to the maintenance of liquidity. Our primary source of liquidity is cash flow from our operations. Additional sources are proceeds from property sales and proceeds from refinancings of existing mortgage loans and borrowings under new mortgage loans.

     Our principal uses for liquidity include normal operating activities, payments of principal and interest on outstanding debt, capital expenditures, dividends paid to stockholders and distributions paid to partners, and acquisitions of and investments in properties. We use our cash provided by operating activities to meet short-term liquidity needs. In the event that the cash provided by operating activities is not sufficient to cover our short-term liquidity demands, we have additional means, such as short-term borrowing availability and proceeds from property sales and refinancings, to help us meet our short-term liquidity demands. We use our revolving credit facility for general corporate purposes and to fund investments on an interim basis. We expect to meet our long-term liquidity requirements, such as debt maturities and property acquisitions, through long-term borrowings, both secured and unsecured, the issuance of debt or equity securities (including OP Units), the sale of properties and cash generated from operations.

     At June 30, 2007, we had $258.0 million in cash and cash equivalents, an increase of $28.2 million from December 31, 2006. As discussed in Note 8 to the consolidated financial statements in Item 1, at June 30, 2007, cash and cash equivalents included approximately $46.6 million in undistributed proceeds from the VMS partnership’s sale of its properties, of which $41.9 million is expected to be distributed to unrelated limited partners in VMS during the second half of 2007. At June 30, 2007, we had $333.0 million of restricted cash primarily consisting of reserves and escrows held by lenders for bond sinking funds, capital expenditures, property taxes and insurance. In addition, cash, cash equivalents and restricted cash are held by unconsolidated partnerships. The following discussion relates to changes in cash due to operating, investing and financing activities, which are presented in our consolidated statements of cash flows.

Operating Activities

     For the six months ended June 30, 2007, our net cash provided by operating activities of $203.3 million was primarily from operating income from our consolidated properties, which is affected primarily by rental rates, occupancy levels and operating expenses related to our portfolio of properties. Cash provided by operating activities decreased $61.6 million compared with the six months ended June 30, 2006, primarily reflecting unfavorable changes in restricted cash and accrued liabilities during the six months ended June 30, 2007, as compared to the six months ended June 30, 2006.

Investing Activities

     For the six months ended June 30, 2007, net cash used in our investing activities of $187.0 million consisted primarily of capital expenditures and acquisitions of real estate, partially offset by proceeds from disposition of real estate.

     Although we hold all of our properties for investment, we may sell properties when they do not meet our investment criteria or are located in areas that we believe do not justify our continued investment when compared to alternative uses for our capital. During the six months ended June 30, 2007, we sold 40 consolidated properties. These properties were sold for an aggregate sales price of $282.1 million and generated proceeds totaling $259.6 million, after the payment of transaction costs and the assumption of debt. Sales proceeds were used to repay borrowings under our revolving credit facility and for other corporate purposes.

     We are currently marketing for sale certain properties that are inconsistent with our long-term investment strategy. Additionally, from time to time, we may market certain properties that are consistent with our long-term investment strategy but offer attractive returns, such as sales to buyers who intend to convert the properties to condominiums. Gross sales proceeds from 2007 dispositions are expected to be $400 million to $600 million, and we plan to use our share of the net proceeds from such dispositions to reduce debt, fund capital expenditures on existing assets, fund property and partnership acquisitions and for other operating needs and corporate purposes.

Capital Expenditures

     We classify all capital spending as Capital Replacements (which we refer to as CR), Capital Improvements (which we refer to as CI), casualties, redevelopment or entitlement. Expenditures other than casualty, redevelopment and entitlement capital expenditures are apportioned between CR and CI based on the useful life of the capital item under consideration and the period we have owned the property.

     CR represents the share of capital expenditures that are deemed to replace the portion of acquired capital assets that was consumed during the period we have owned the asset. CI represents the share of expenditures that are made to enhance the value, profitability or useful life of an asset as compared to its original purchase condition. CI excludes capital expenditures for casualties, redevelopment and entitlements. Casualty expenditures represent capitalized costs incurred in connection with casualty losses and are associated with the restoration of the asset. A portion of the restoration costs may be reimbursed by insurance carriers subject to deductibles associated with each loss. Redevelopment expenditures represent expenditures that substantially upgrade the property. Entitlement expenditures represent costs incurred in connection with obtaining local governmental approvals to increase density and add residential units to a site. For the six months ended June 30, 2007, we spent a total of $44.7 million, $42.8 million, $8.4 million, $128.8 million and $12.6 million on CR, CI, casualties, redevelopment and entitlement, respectively.

     The table below details our share of actual spending, on both consolidated and unconsolidated real estate partnerships, for CR, CI, casualties, redevelopment and entitlements for the six months ended June 30, 2007, on a per unit and total dollar basis. Per unit numbers are based on approximately 132,088 average units in the quarter including 114,057 conventional and 18,031 affordable units. Average units are weighted for the portion of the period that we owned an interest in the property, represent ownership-adjusted effective units, and exclude non-managed units. Total capital expenditures are reconciled to our consolidated statement of cash flows for the same period (in thousands, except per unit amounts).

		Our Share of
		Expenditures				Cost Per Unit
Capital Replacements Detail:
Building and grounds		$	18,206			$	138
Turnover related			20,971				159
Capitalized site payroll and indirect costs and other			5,476				41
Our share of Capital Replacements		$	44,653			$	338
Capital Replacements:
Conventional		$	41,554			$	364
Affordable			3,099				172
Our share of Capital Replacements			44,653			$	338
Capital Improvements:
Conventional			38,634			$	339
Affordable			4,180				232
Our share of Capital Improvements			42,814			$	324
Casualties:
Conventional			6,820
Affordable			1,590
Our share of casualties			8,410
Redevelopment:
Active Conventional			105,389
Active tax credit projects			10,637
Pre-construction and other activities			12,753
Our share of redevelopment			128,779
Entitlements			12,560
Our share of total capital expenditures			237,216
Plus minority partners’ share of consolidated spending			31,680
Less our share of unconsolidated spending			(288	)
Capital expenditures per consolidated statement of cash flows		$	268,608

     Our share of capitalized site payroll and indirect costs related to CI, casualties, redevelopment and entitlements totaled approximately $33.1 million for the six months ended June 30, 2007.

     We funded all of the above capital expenditures with cash provided by operating activities, working capital, property sales and borrowings under the revolving credit facility.

Financing Activities

     For the six months ended June 30, 2007, net cash provided by financing activities of $11.8 million primarily related to net proceeds from property loans and proceeds from stock option exercises, offset by repurchases of Common Stock, the payment of dividends to common and preferred stockholders and payment of distributions to minority interests.

     At June 30, 2007, we had $6.6 billion in consolidated mortgage debt outstanding (including amounts classified as liabilities related to assets held for sale) as compared to $6.3 billion outstanding at December 31, 2006. During the six months ended June 30, 2007, we refinanced or closed mortgage loans on 61 consolidated properties, generating $873.7 million of proceeds from borrowings with a weighted average interest rate of 5.91%. Our share of the net proceeds after repayment of existing debt, payment of transaction costs and distributions to minority interests, was $357.0 million. We used these total net proceeds for capital expenditures and other corporate purposes. We intend to continue to refinance mortgage debt to generate proceeds in amounts exceeding our scheduled amortizations and maturities.

     We have an Amended and Restated Senior Secured Credit Agreement with a syndicate of financial institutions, which we refer to as the Credit Agreement. The aggregate amount of commitments and loans under the Credit Agreement is $850.0 million, comprised of a $400.0 million term loan and $450.0 million of revolving loan commitments. The term loan matures on March 22, 2011, and the revolving loan commitments mature on May 1, 2009. At June 30, 2007, the term loan had an outstanding principal balance of $400.0 million and an interest rate of 6.86%. At June 30, 2007, the revolving loans had an outstanding principal balance of $154.0 million and a weighted average interest rate of 6.70% (based on various LIBOR borrowings outstanding with various maturities and rates). The amount available under the revolving credit facility at June 30, 2007, was $256.2 million (after giving effect to $39.8 million outstanding for undrawn letters of credit issued under the revolving credit facility). The proceeds of revolving loans are generally permitted to be used to fund working capital and for other corporate purposes.

     Under our shelf registration statement, we had available for issuance approximately $877 million of debt and equity securities, and the Aimco Operating Partnership had available for issuance $500 million of debt securities as of June 30, 2007.

     Our Board of Directors has, from time to time, authorized us to repurchase shares of our outstanding capital stock. During the six months ended June 30, 2007, we repurchased approximately 2.24 million shares of Common Stock for cash totaling $126.3 million. We also paid cash totaling $10.3 million in January 2007 to settle repurchases of Common Stock in December 2006. In April 2005, our Board of Directors authorized us to repurchase up to a total of eight million shares of Common Stock, and on July 31, 2007, our Board of Directors increased that authorization by an additional ten million shares. These repurchases may be made from time to time in the open market or in privately negotiated transactions.

     During the six months ended June 30, 2007, we issued approximately 1.39 million shares of Common Stock and received proceeds of $53.2 million in connection with the exercise of stock options.

Future Capital Needs

     We expect to fund any future acquisitions, additional redevelopment projects and capital improvements principally with proceeds from property sales (including tax-free exchange proceeds), short-term borrowings, debt and equity financings and operating cash flows.

ITEM 3. Quantitative and Qualitative Disclosures About Market Risk

     Our primary market risk exposure relates to changes in interest rates. We are not subject to any material foreign currency exchange rate risk or any other material market rate or price risks.

     Our capital structure includes the use of fixed-rate and variable rate indebtedness. As such, we are exposed to the impact of changes in interest rates. We use predominantly long-term, fixed-rate and self-amortizing non-recourse mortgage debt in order to avoid the refunding and repricing risks of short-term borrowings. We use short-term debt financing primarily to fund short-term uses and acquisitions and generally expect to refinance such borrowings with cash from operating activities, property sales proceeds, long-term debt or equity financings. We make limited use of derivative financial instruments and we do not use them for trading or other speculative purposes. From time to time, we are required by mortgage lenders to use interest rate caps or swaps to limit our exposure to market interest rate risk. Additionally, we utilize total rate-of-return swaps on a limited basis to effectively convert certain of our tax-exempt fixed rate debt to variable rate debt.

     See “Item 7A. Quantitative and Qualitative Disclosures About Market Risk” in our Annual Report on Form 10-K for the year ended December 31, 2006 for a more detailed discussion of interest rate sensitivity. As of June 30, 2007, our market risk had not changed materially from the amounts reported in our Annual Report on Form 10-K for the year ended December 31, 2006.

ITEM 4. Controls and Procedures

     Disclosure Controls and Procedures

     Our management, with the participation of our chief executive officer and chief financial officer, has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the period covered by this report. Based on such evaluation, our chief executive officer and chief financial officer have concluded that, as of the end of such period, our disclosure controls and procedures are effective.

     Changes in Internal Control over Financial Reporting

     There have been no significant changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f)) under the Exchange Act) during second quarter of 2007 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

ITEM 1. Legal Proceedings

     See the information under the heading “Legal Matters” in Note 3 to the consolidated financial statements in this Quarterly Report on Form 10-Q for information regarding legal proceedings, which information is incorporated by reference in this Item 1.

ITEM 1A. Risk Factors

     As of the date of this report, there have been no material changes from the risk factors in the Company’s Annual Report on Form 10-K for the year ended December 31, 2006.

ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds

     (a) Unregistered Sales of Equity Securities. From time to time during the three months ended June 30, 2007, we issued shares of Common Stock in exchange for common and preferred OP Units tendered to the Aimco Operating Partnership for redemption in accordance with the terms and provisions of the agreement of limited partnership of the Aimco Operating Partnership. Such shares are issued based on an exchange ratio of one share for each common OP Unit or the applicable conversion ratio for preferred OP Units. During the three months ended June 30, 2007, approximately 19,000 shares of Common Stock were issued in exchange for OP Units in these transactions. All of the foregoing issuances were made in private placement transactions exempt from registration pursuant to Section 4(2) of the Securities Act of 1933, as amended.

     (c) Repurchases of Equity Securities. The following table summarizes repurchases of our equity securities for the three months ended June 30, 2007:

														Maximum Number
										Total Number of				of Shares that
						Average				Shares Purchased				May Yet Be
		Total				Price				as Part of Publicly				Purchased Under the
		Number				Paid				Announced Plans				Plans or Programs
Period		of Shares Purchased				per Share				or Programs				(1)
April 1 – April 30, 2007			0				N/A				0				3,932,780
May 1 – May 31, 2007			0				N/A				0				3,932,780
June 1 – June 30, 2007			477,300			$	52.36				477,300				3,455,480
Total			477,300			$	52.36				477,300

     Dividend Payments. Our Credit Agreement includes customary covenants, including a restriction on dividends and other restricted payments, but permits dividends during any 12-month period in an aggregate amount of up to 95% of our Funds From Operations for such period or such amount as may be necessary to maintain our REIT status.

ITEM 4. Submission of Matters to a Vote of Security Holders

     We held our annual meeting of stockholders on April 30, 2007. At the meeting, the stockholders elected the following eight directors by the votes indicated below:

		Votes For				Votes Withheld
Terry Considine			81,580,987				1,388,358
James N. Bailey			81,659,930				1,309,415
Richard S. Ellwood			81,143,477				1,825,868
Thomas L. Keltner			81,688,346				1,280,999
J. Landis Martin			81,156,522				1,812,823
Robert A. Miller			81,688,027				1,281,318
Thomas L. Rhodes			81,125,813				1,843,532
Michael A. Stein			81,685,292				1,284,053

     There were no abstentions or broker non-votes.

     At the meeting, the stockholders approved the following proposals by the votes indicated below:

1.

Proposal to ratify the selection of Ernst & Young LLP, to serve as our independent registered public accounting firm for the fiscal year ending December 31, 2007:

Votes For		Votes Against		Abstentions		Broker Non-Votes
80,910,360		1,574,806		484,179		—

2.

Proposal to approve the Aimco 2007 Stock Award and Incentive Plan:

Votes For		Votes Against		Abstentions		Broker Non-Votes
65,787,256		8,989,403		527,254		7,665,432

3.

Proposal to approve the Aimco 2007 Employee Stock Purchase Plan:

Votes For		Votes Against		Abstentions		Broker Non-Votes
74,535,735		259,997		508,181		7,665,432