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AIMCO PROPERTIES, L.P. FORM 10-Q INDEX

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

Form 10-Q

Commission File Number 0-24497

AIMCO Properties, L.P.
(Exact name of registrant as specified in its charter)

        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 ý    No o

        Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). Yes ý    No o

        The number of Partnership Common Units outstanding as of October 31, 2003: 103,592,513

AIMCO PROPERTIES, L.P.

FORM 10-Q

INDEX

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AIMCO PROPERTIES, L.P.

CONSOLIDATED BALANCE SHEETS
(In Thousands)

See notes to consolidated financial statements.

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AIMCO PROPERTIES, L.P.

CONSOLIDATED STATEMENTS OF INCOME
(In Thousands, Except Per Unit Data)
(Unaudited)

See notes to consolidated financial statements.

4

AIMCO PROPERTIES, L.P.

CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
(Unaudited)

See notes to consolidated financial statements.

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AIMCO PROPERTIES, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2003
(Unaudited)

NOTE 1—Organization

        AIMCO Properties, L.P., a Delaware limited partnership (the "Partnership" and together with its consolidated subsidiaries and other controlled entities, the "Company"), was formed on May 16, 1994 to conduct the business of acquiring, redeveloping, leasing, and managing multifamily apartment properties. The Partnership's securities include Partnership Common Units ("common OP Units"), Partnership Preferred Units ("preferred OP Units"), and High Performance Partnership Units ("High Performance Units"), which are collectively referred to as "OP Units." Apartment Investment and Management Company ("Aimco") is the owner of the Partnership's general partner, AIMCO-GP, Inc. (the "General Partner"), and special limited partner, AIMCO-LP, Inc., (the "Special Limited Partner"). The General Partner and Special Limited Partner hold common OP Units and are the primary holders of outstanding preferred OP Units. "Limited Partners" refers to individuals or entities that are limited partners of the Partnership, other than Aimco, the General Partner or the Special Limited Partner, and own common OP Units or preferred OP Units. Generally, after holding the common OP Units for one year, the Limited Partners have the right to redeem their common OP Units for cash, subject to the prior right of the Partnership to acquire some or all of the common OP Units tendered for redemption in exchange for shares of Aimco Class A Common Stock. Common OP Units redeemed for Aimco Class A Common Stock are generally on a one-for-one basis (subject to antidilution adjustments). Preferred OP Units and High Performance Units may or may not be redeemable based on their respective terms, as provided for in the Third Amended and Restated Agreement of Limited Partnership of AIMCO Properties, L.P. as amended (the "Partnership Agreement").

        On July 24, 2003, the General Partner amended the Partnership Agreement to provide that the Partnership shall continue until it is dissolved pursuant to the provisions of the Partnership Agreement or as otherwise provided by law. Prior to such amendment, the Partnership Agreement provided for the termination of the Partnership in the year 2094.

        The Partnership, through its operating divisions and subsidiaries, holds substantially all of Aimco's assets and manages the daily operations of Aimco's business and assets. Aimco is required to contribute to the Partnership all proceeds from offerings of its securities. In addition, substantially all of Aimco's assets must be owned through the Partnership; therefore, Aimco is generally required to contribute to the Partnership all assets acquired. In exchange for the contribution of offering proceeds or assets, Aimco receives additional interests in the Partnership with similar terms (e.g., if Aimco contributes proceeds of a preferred stock offering, Aimco (through the General Partner and Special Limited Partner) receives preferred OP Units with terms substantially similar to the preferred securities issued by Aimco).

        As of September 30, 2003, the Company:

•

owned a controlling equity interest in 178,913 units in 697 properties (which the Company refers to as "consolidated");



•

owned a non-controlling equity interest in 67,157 units in 467 properties (which the Company refers to as "unconsolidated"), of which 58,634 units were also managed by the Company; and



•

provided services or managed, for third party owners, 51,847 units in 520 properties, primarily pursuant to long-term agreements (including 40,126 units in 418 properties that are asset managed only, and not property managed).

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        At September 30, 2003, the Partnership had outstanding 103,509,952 common OP Units, 39,467,057 preferred OP Units and 2,379,084 High Performance Units (includes only those units that have met the required measurement benchmarks and are dilutive—see Note 10).

NOTE 2—Basis of Presentation

        The accompanying unaudited consolidated financial statements of the Company have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three and nine months ended September 30, 2003 are not necessarily indicative of the results that may be expected for the year ending December 31, 2003.

        The balance sheet at December 31, 2002 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements.

        For further information, refer to the statements and notes thereto included in the Partnership's Annual Report on Form 10-K for the year ended December 31, 2002. Certain 2002 financial statement amounts have been reclassified to conform to the 2003 presentation, including the elimination of certain intercompany items and the treatment of discontinued operations.

        The accompanying consolidated financial statements include the accounts of the Partnership, majority owned corporate subsidiaries and consolidated real estate partnerships. Pursuant to a Management and Contribution Agreement between the Partnership and Aimco, the Partnership has acquired, in exchange for interests in the Partnership, the economic benefits of the subsidiaries of Aimco in which the Partnership does not have an interest, and Aimco has granted the Partnership a right of first refusal to acquire such subsidiaries' net assets for no additional consideration. Pursuant to that agreement, Aimco has also granted the Partnership certain rights with respect to assets of such subsidiaries. As used herein, and except where the context otherwise requires, "partnership" refers to a limited partnership or a limited liability company and "partner" refers to a limited partner in a limited partnership or a member in a limited liability company. 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 Partnership generally are not available to pay creditors of Aimco or the Partnership, however, pursuant to the revolving credit facility and term loans, the Partnership has pledged as collateral, equity interests in certain consolidated real estate partnerships.

        Interests in consolidated real estate partnerships held by partners other than the Company are reflected as minority interest in consolidated real estate partnerships. Minority interest in consolidated real estate partnerships represents the minority partners' share of the underlying net assets of the Company's consolidated real estate partnerships. When these consolidated real estate partnerships make cash distributions in excess of net income, the Company, as the majority partner, records a charge equal to the minority partners' excess of distributions over net income, even though the Company does not suffer any economic effect, cost or risk. This charge is classified in the consolidated statements of income as distributions to minority partners in excess of income. For the three and nine months ended September 30, 2003, such charges were $11.9 million and $21.5 million, respectively, compared to charges of $4.3 million and $15.3 million for the three and nine months ended September 30, 2002, respectively. Losses are allocated to minority partners until such time as such losses exceed the minority partners' basis, in which case, the Company recognizes 100% of the losses in operating

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earnings when the partnership is in a deficit equity position, even though the Company does not suffer any economic effect, cost or risk. With regard to such consolidated real estate partnerships, approximately $0.4 million in depreciation related net recoveries and $1.3 million in depreciation related net losses were charged to minority interest in consolidated real estate partnerships for the three and nine months ended September 30, 2003, respectively, and $0.8 million and $1.5 million in depreciation related net losses were charged to minority interest in consolidated real estate partnerships for the three and nine months ended September 30, 2002, respectively.

NOTE 3—Notes Receivable Primarily From Unconsolidated Real Estate Partnerships

        The following table summarizes the Company's notes receivable primarily from unconsolidated real estate partnerships at September 30, 2003 and 2002 (in thousands):

        The Company recognizes interest income earned from its investments in notes receivable when the collectibility of such amounts is both probable and estimable. The notes receivable were either extended by the Company and are carried at the face amount plus accrued interest ("par value notes") or were made by predecessors whose positions have been acquired at a discount ("discounted notes").

        As of September 30, 2003 and 2002, the Company held, primarily through its consolidated corporate subsidiaries, $105.4 million and $115.7 million, respectively, of par value notes receivable from unconsolidated real estate partnerships, including accrued interest, for which the Company believes the collectibility of such amounts is both probable and estimable. As such, interest income from par value notes for the three and nine months ended September 30, 2003 totaled $3.5 million and $11.0 million, respectively, and for the three and nine months ended September 30, 2002 totaled $7.3 million and $24.2 million, respectively.

        As of September 30, 2003 and 2002, the Company held discounted notes, including accrued interest, with a carrying value of $83.9 million and $133.4 million, respectively. The total face value plus accrued interest of these notes was $147.6 million and $221.7 million at September 30, 2003 and 2002, respectively.

        The discounted notes are accounted for under the cost recovery method, which results in the discounted notes being carried at the acquisition amount, less subsequent cash collections, until such time as collectibility of principal and interest is probable and the timing and amounts are estimable. Based upon closed or pending transactions (which include sales, refinancings, foreclosures and rights offerings), the Company has determined that certain notes are collectible for amounts greater than their carrying value. Accordingly, the Company recognizes accretion income, on a prospective basis over the estimated remaining life of the loans, equal to the difference between the carrying value of the discounted notes and the estimated collectible value. For the three and nine months ended September 30, 2003, the Company recognized accretion income of approximately $0.05 million ($0.00 per basic and diluted unit) and $2.6 million ($0.02 per basic unit and diluted unit), respectively,

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and for the three and nine months ended September 30, 2002, the Company recognized accretion income of approximately $3.8 million ($0.04 per basic and diluted unit) and $19.3 million ($0.20 per basic and diluted unit), respectively. The Company generally realizes the notes receivable through collection of cash or increasing ownership of the property or of an additional equity interest in the partnership owning the property that serves as collateral for the loan.

        Included in the above total notes receivable balances, as of September 30, 2003 and 2002, are $57.2 million and $67.2 million, respectively, in notes that were secured by interests in real estate or interests in real estate partnerships. The Company earns interest on these notes receivable at various annual interest rates ranging between 5.5% and 12.0% and averaging 8.4%.

        The activity in the allowance for loan losses in total for both par value and discounted notes for the nine months ended September 30, 2003, is as follows (in thousands):

        The Company will continue to monitor the collectibility or impairment of each note on a periodic basis, and changes in the allowance may occur due to changes in the market environment that affect operating cash flows.

NOTE 4—Commitments and Contingencies

Commitments

        In connection with the March 2002 acquisition of Casden Properties Inc. ("Casden"), which included the merger of Casden into Aimco, and the merger of a subsidiary of Aimco into another real estate investment trust ("REIT") affiliated with Casden (collectively, the "Casden Merger"), Aimco and the Company have the following commitments to:

•

purchase two properties currently under development, upon satisfactory completion and attainment of 60% occupancy, as follows:



•

Park La Brea



•

Phase 2—comprised of a total of 521 units for a minimum consideration of approximately $163 million, expected to close in late 2003 or early 2004;



•

Phase 3—comprised of a total of 610 units for a minimum consideration of approximately $199 million, expected to close in late 2004 or early 2005; and



•

Westwood—comprised of a total of 350 units for a minimum consideration of approximately $201 million, for which construction has not yet commenced.



•

provide a stand-by facility of $70 million in debt financing associated with the development of Park La Brea and Westwood (as of September 30, 2003, no funds have been drawn on this stand-by facility);



•

invest up to $50 million for a 20% limited liability company interest in Casden Properties, LLC. As of September 30, 2003, the Company had invested $20.9 million. Casden Properties, LLC acts as general contractor for the entity that is developing Park La Brea and Westwood. In addition, Casden Properties, LLC intends to pursue new development opportunities in Southern California and other markets. Aimco will have an option, but not an obligation, to purchase at completion all multifamily rental projects developed by Casden Properties, LLC; and

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