Q2 2013 10-Q
Table of Contents

 
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_______________________________________
Form 10-Q
(Mark One)
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2013
OR
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
 
For the transition period from          to
Commission File Number 1-13232 (Apartment Investment and Management Company)
Commission File Number 0-24497 (AIMCO Properties, L.P.)
 
Apartment Investment and Management Company
AIMCO Properties, L.P.
(Exact name of registrant as specified in its charter)
 
Maryland (Apartment Investment and Management Company)
 
84-1259577
 
Delaware (AIMCO Properties, L.P.)
 
84-1275621
 
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
 
 
 
 
 
4582 South Ulster Street, Suite 1100
 
 
 
Denver, Colorado
 
80237
 
(Address of principal executive offices)
 
(Zip Code)
 
(303) 757-8101
(Registrant’s telephone number, including area code)
 
Not Applicable
(Former name, former address, and former fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Apartment Investment and Management Company: Yes x    No o
AIMCO Properties, L.P.: Yes x    No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Apartment Investment and Management Company: Yes x    No o
AIMCO Properties, L.P.: Yes x    No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Apartment Investment and Management Company:
Large accelerated filer
x
 
Accelerated filer
o
Non-accelerated filer
o
(Do not check if a smaller reporting company)
Smaller reporting company
o
AIMCO Properties, L.P.:
Large accelerated filer
o
 
Accelerated filer
x
Non-accelerated filer
o
(Do not check if a smaller reporting company)
Smaller reporting company
o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Apartment Investment and Management Company: Yes
o
No
x
AIMCO Properties, L.P.: Yes
o
No
x
 
_______________________________________________________
The number of shares of Apartment Investment and Management Company
Class A Common Stock outstanding as of August 1, 2013: 145,906,799
 

Table of Contents

EXPLANATORY NOTE
This filing combines the reports on Form 10-Q for the quarterly period ended June 30, 2013, of Apartment Investment and Management Company, or Aimco, and AIMCO Properties, L.P., or the Aimco Operating Partnership. Where it is important to distinguish between the two entities, we refer to them specifically. Otherwise, references to “we,” “us” or “our” mean collectively Aimco, the Aimco Operating Partnership and their consolidated entities.
Aimco, a Maryland corporation, is a self-administered and self-managed real estate investment trust, or REIT. Aimco, through wholly-owned subsidiaries, is the general and special limited partner of and, as of June 30, 2013, owned a 94.8% ownership interest in the common partnership units of, the Aimco Operating Partnership. The remaining 5.2% interest is owned by limited partners. As the sole general partner of the Aimco Operating Partnership, Aimco has exclusive control of the Aimco Operating Partnership’s day-to-day management.
The Aimco Operating Partnership holds all of Aimco’s assets and manages the daily operations of Aimco’s business and assets. Aimco is required to contribute all proceeds from offerings of its securities to the Aimco Operating Partnership. In addition, substantially all of Aimco’s assets must be owned through the Aimco Operating Partnership; therefore, Aimco is generally required to contribute all assets acquired to the Aimco Operating Partnership. In exchange for the contribution of offering proceeds or assets, Aimco receives additional interests in the Aimco Operating Partnership with similar terms (e.g., if Aimco contributes proceeds of a stock offering, Aimco receives partnership units with terms substantially similar to the stock issued by Aimco).
We believe combining the periodic reports of Aimco and Aimco Operating Partnership into this single report provides the following benefits:
•
presents our business as a whole, in the same manner our management views and operates the business;
•
eliminates duplicative disclosure and provides a more streamlined and readable presentation since a substantial portion of the disclosures apply to both Aimco and the Aimco Operating Partnership; and
•
saves time and cost through the preparation of a single combined report rather than two separate reports.
We operate Aimco and the Aimco Operating Partnership as one enterprise and the management of Aimco directs the management and operations of the Aimco Operating Partnership.
We believe it is important to understand the few differences between Aimco and the Aimco Operating Partnership in the context of how Aimco and the Aimco Operating Partnership operate as a consolidated company. Aimco has no assets or liabilities other than its investment in the Aimco Operating Partnership. Also, Aimco is a corporation that issues publicly traded equity from time to time, whereas the Aimco Operating Partnership is a partnership that has no publicly traded equity. Except for the net proceeds from stock offerings by Aimco, which are contributed to the Aimco Operating Partnership in exchange for additional limited partnership interests (of a similar type and in an amount equal to the shares of stock sold in the offering), the Aimco Operating Partnership generates all remaining capital required by its business. These sources include the Aimco Operating Partnership’s working capital, net cash provided by operating activities, borrowings under its revolving credit facility, the issuance of secured and unsecured debt and equity securities, including additional partnership units, and proceeds received from the disposition of certain properties and investments in real estate.
Stockholders’ equity, partners’ capital and noncontrolling interests are the main areas of difference between the consolidated financial statements of Aimco and those of the Aimco Operating Partnership. Interests in the Aimco Operating Partnership held by entities other than Aimco are classified within partners’ capital in the Aimco Operating Partnership’s financial statements and as noncontrolling interests in Aimco’s financial statements.
To help investors understand the differences between Aimco and the Aimco Operating Partnership, this report provides separate consolidated financial statements for Aimco and the Aimco Operating Partnership; a single set of consolidated notes to such financial statements that includes separate discussions of each entity’s stockholders’ equity or partners’ capital, as applicable; and a combined Management’s Discussion and Analysis of Financial Condition and Results of Operations section that includes discrete information related to each entity.
This report also includes separate Part I, Item 4. Controls and Procedures sections and separate Exhibits 31 and 32 certifications for Aimco and the Aimco Operating Partnership in order to establish that the requisite certifications have been made and that Aimco and the Aimco Operating Partnership are both compliant with Rule 13a-15 or Rule 15d-15 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and 18 U.S.C. §1350.

1
Table of Contents

APARTMENT INVESTMENT AND MANAGEMENT COMPANY
AIMCO PROPERTIES, L.P.

TABLE OF CONTENTS

FORM 10-Q

 
 
Page
 
 
ITEM 1.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
ITEM 2.
ITEM 3.
ITEM 4.
 
 
ITEM 1A.
ITEM 2.
ITEM 6.
 


2
Table of Contents

PART I. FINANCIAL INFORMATION

ITEM 1.
Financial Statements


APARTMENT INVESTMENT AND MANAGEMENT COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
(Unaudited)

 
June 30,
2013
 
December 31,
2012
ASSETS
 
 
 
Buildings and improvements
$
6,511,811

 
$
6,376,338

Land
1,952,811

 
1,940,254

Total real estate
8,464,622

 
8,316,592

Less accumulated depreciation
(2,924,109
)
 
(2,811,906
)
Net real estate ($427,043 and $599,302 related to VIEs)
5,540,513

 
5,504,686

Cash and cash equivalents ($20,995 and $23,599 related to VIEs)
46,923

 
84,413

Restricted cash ($36,573 and $38,576 related to VIEs)
123,112

 
146,782

Accounts receivable, net
29,906

 
34,020

Notes receivable
217,013

 
102,897

Other assets ($221,911 and $221,638 related to VIEs)
513,248

 
519,904

Assets held for sale
—

 
8,678

Total assets
$
6,470,715

 
$
6,401,380

LIABILITIES AND EQUITY
 
 
 
Non-recourse property debt ($372,489 and $495,012 related to VIEs)
$
4,656,497

 
$
4,681,836

Revolving credit facility borrowings
187,050

 
—

Total indebtedness
4,843,547

 
4,681,836

Accounts payable
33,415

 
30,747

Accrued liabilities and other ($162,618 and $162,795 related to VIEs)
334,473

 
318,595

Deferred income
116,238

 
128,468

Liabilities related to assets held for sale
—

 
6,794

Total liabilities
5,327,673

 
5,166,440

Preferred noncontrolling interests in Aimco Operating Partnership
79,984

 
80,046

Commitments and contingencies (Note 8)
—

 
—

Equity:
 
 
 
Perpetual Preferred Stock
68,114

 
68,114

Common Stock, $0.01 par value, 505,787,260 shares authorized, 145,906,799 and 145,563,903 shares issued/outstanding at June 30, 2013 and December 31, 2012, respectively
1,459

 
1,456

Additional paid-in capital
3,704,026

 
3,712,684

Accumulated other comprehensive loss
(4,365
)
 
(3,542
)
Distributions in excess of earnings
(2,917,863
)
 
(2,863,287
)
Total Aimco equity
851,371

 
915,425

Noncontrolling interests in consolidated real estate partnerships
246,793

 
271,065

Common noncontrolling interests in Aimco Operating Partnership
(35,106
)
 
(31,596
)
Total equity
1,063,058

 
1,154,894

Total liabilities and equity
$
6,470,715

 
$
6,401,380


See notes to condensed consolidated financial statements.


3
Table of Contents

APARTMENT INVESTMENT AND MANAGEMENT COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
 
Three Months Ended
 
Six Months Ended
 
June 30,
 
June 30,
 
2013
 
2012
 
2013
 
2012
REVENUES
 
 
 
 
 
 
 
Rental and other property revenues
$
251,853

 
$
244,374

 
$
499,700

 
$
488,279

Tax credit and asset management revenues
7,809

 
8,914

 
15,061

 
16,985

Total revenues
259,662

 
253,288

 
514,761

 
505,264

OPERATING EXPENSES
 
 
 
 
 
 
 
Property operating expenses
101,717

 
99,807

 
203,420

 
198,418

Investment management expenses
1,697

 
3,240

 
3,130

 
6,628

Depreciation and amortization
78,345

 
87,229

 
158,618

 
173,795

Provision for real estate impairment losses
—

 
2,275

 
—

 
8,349

General and administrative expenses
11,153

 
13,556

 
22,932

 
25,181

Other expense (income), net
2,226

 
(957
)
 
4,436

 
4,772

Total operating expenses
195,138

 
205,150

 
392,536

 
417,143

Operating income
64,524

 
48,138

 
122,225

 
88,121

Interest income, net
2,651

 
2,397

 
9,072

 
4,854

Interest expense
(61,821
)
 
(60,322
)
 
(124,267
)
 
(125,130
)
Equity in income (losses) of unconsolidated real estate partnerships
104

 
(2,242
)
 
628

 
(3,005
)
(Loss) gain on dispositions and other, net
(1,154
)
 
4,314

 
(2,664
)
 
4,602

Income (loss) before income taxes and discontinued operations
4,304

 
(7,715
)
 
4,994

 
(30,558
)
Income tax (expense) benefit
(116
)
 
234

 
(163
)
 
460

Income (loss) from continuing operations
4,188

 
(7,481
)
 
4,831

 
(30,098
)
Income from discontinued operations, net
2,791

 
41,612

 
4,981

 
74,876

Net income
6,979

 
34,131

 
9,812

 
44,778

Noncontrolling interests:
 
 
 
 
 
 
 
Net loss (income) attributable to noncontrolling interests in consolidated real estate partnerships
6,150

 
(9,665
)
 
11,112

 
(17,430
)
Net income attributable to preferred noncontrolling interests in Aimco Operating Partnership
(1,606
)
 
(1,611
)
 
(3,212
)
 
(3,281
)
Net (income) loss attributable to common noncontrolling interests in Aimco Operating Partnership
(575
)
 
(55
)
 
(872
)
 
682

Net loss (income) attributable to noncontrolling interests
3,969

 
(11,331
)
 
7,028

 
(20,029
)
Net income attributable to Aimco
10,948

 
22,800

 
16,840

 
24,749

Net income attributable to Aimco preferred stockholders
(701
)
 
(22,182
)
 
(1,403
)
 
(34,621
)
Net income attributable to participating securities
(140
)
 
(95
)
 
(280
)
 
(214
)
Net income (loss) attributable to Aimco common stockholders
$
10,107

 
$
523

 
$
15,157

 
$
(10,086
)
Earnings (loss) attributable to Aimco per common share – basic and diluted (Note 9):
 
 
 
 
 
 
 
Income (loss) from continuing operations attributable to Aimco common stockholders
$
0.02

 
$
(0.26
)
 
$
0.01

 
$
(0.56
)
Income from discontinued operations attributable to Aimco common stockholders
0.05

 
0.26

 
0.09

 
0.48

Net income (loss) attributable to Aimco common stockholders
$
0.07

 
$
—

 
$
0.10

 
$
(0.08
)
Weighted average common shares outstanding – basic
145,321

 
127,395

 
145,245

 
123,960

Weighted average common shares outstanding – diluted
145,674

 
127,395

 
145,532

 
123,960

Dividends declared per common share
$
0.24

 
$
0.18

 
$
0.48

 
$
0.36


See notes to condensed consolidated financial statements.

4
Table of Contents

APARTMENT INVESTMENT AND MANAGEMENT COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
(Unaudited)

 
Three Months Ended
 
Six Months Ended
 
June 30,
 
June 30,
 
2013
 
2012
 
2013
 
2012
Net income
$
6,979

 
$
34,131

 
$
9,812

 
$
44,778

Other comprehensive income (loss):
 
 
 
 
 
 
 
Unrealized gains (losses) on interest rate swaps
1,430

 
(1,640
)
 
1,608

 
(1,774
)
Losses on interest rate swaps reclassified into interest expense from accumulated other comprehensive loss
417

 
415

 
836

 
840

Unrealized (losses) gains on debt securities classified as available-for-sale
(1,347
)
 
(1,114
)
 
(3,055
)
 
1,459

Other comprehensive income (loss)
500

 
(2,339
)
 
(611
)
 
525

Comprehensive income
7,479

 
31,792

 
9,201

 
45,303

Comprehensive loss (income) attributable to noncontrolling interests
3,767

 
(11,093
)
 
6,816

 
(19,986
)
Comprehensive income attributable to Aimco
$
11,246

 
$
20,699

 
$
16,017

 
$
25,317


See notes to condensed consolidated financial statements.



5
Table of Contents

APARTMENT INVESTMENT AND MANAGEMENT COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)

 
Six Months Ended
 
June 30,
 
2013
 
2012
CASH FLOWS FROM OPERATING ACTIVITIES
 
 
 
Net income
$
9,812

 
$
44,778

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation and amortization
158,618

 
173,795

Provision for real estate impairment losses
—

 
8,349

Equity in (income) losses of unconsolidated real estate partnerships
(628
)
 
3,005

Discontinued operations
(4,620
)
 
(56,003
)
Other adjustments
1,440

 
(9,149
)
Net changes in operating assets and operating liabilities
8,404

 
(12,743
)
Net cash provided by operating activities
173,026

 
152,032

CASH FLOWS FROM INVESTING ACTIVITIES
 
 
 
Purchases of real estate
(19,444
)
 
(79,743
)
Capital expenditures
(163,368
)
 
(117,431
)
Proceeds from dispositions of real estate
7,960

 
153,869

Purchases of corporate assets
(5,123
)
 
(4,851
)
Purchase of property loans
(119,101
)
 
—

Change in restricted cash
19,932

 
(6,279
)
Proceeds from sale of interests in and distributions from unconsolidated real estate partnerships
1,701

 
14,698

Other investing activities
10,674

 
10,399

Net cash used in investing activities
(266,769
)
 
(29,338
)
CASH FLOWS FROM FINANCING ACTIVITIES
 
 
 
Proceeds from non-recourse property debt
111,007

 
115,654

Principal repayments on non-recourse property debt
(153,532
)
 
(173,947
)
Net borrowings on revolving credit facility
187,050

 
—

Proceeds from issuance of Preferred Stock
—

 
9,818

Proceeds from issuance of Common Stock
—

 
558,600

Redemptions of Preferred Stock
—

 
(300,938
)
Proceeds from Common Stock option exercises
983

 
48,906

Payment of dividends to holders of Preferred Stock
(1,402
)
 
(28,999
)
Payment of dividends to holders of Common Stock
(70,014
)
 
(45,773
)
Payment of distributions to noncontrolling interests
(22,513
)
 
(26,958
)
Purchases of noncontrolling interests in consolidated real estate partnerships
(2,528
)
 
(48,280
)
Other financing activities
7,202

 
(8,879
)
Net cash provided by financing activities
56,253

 
99,204

NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS
(37,490
)
 
221,898

CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD
84,413

 
91,066

CASH AND CASH EQUIVALENTS AT END OF PERIOD
$
46,923

 
$
312,964


See notes to condensed consolidated financial statements.



6
Table of Contents


AIMCO PROPERTIES, L.P.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited)

 
June 30,
2013
 
December 31,
2012
ASSETS
 
 
 
Buildings and improvements
$
6,511,811

 
$
6,376,338

Land
1,952,811

 
1,940,254

Total real estate
8,464,622

 
8,316,592

Less accumulated depreciation
(2,924,109
)
 
(2,811,906
)
Net real estate ($427,043 and $599,302 related to VIEs)
5,540,513

 
5,504,686

Cash and cash equivalents ($20,995 and $23,599 related to VIEs)
46,923

 
84,413

Restricted cash ($36,573 and $38,576 related to VIEs)
123,112

 
146,782

Accounts receivable, net
29,906

 
34,020

Notes receivable
217,013

 
102,897

Other assets ($221,911 and $221,638 related to VIEs)
513,248

 
519,904

Assets held for sale
—

 
8,678

Total assets
$
6,470,715

 
$
6,401,380

LIABILITIES AND PARTNERS' CAPITAL
 
 
 
Non-recourse property debt ($372,489 and $495,012 related to VIEs)
$
4,656,497

 
$
4,681,836

Revolving credit facility borrowings
187,050

 
—

Total indebtedness
4,843,547

 
4,681,836

Accounts payable
33,415

 
30,747

Accrued liabilities and other ($162,618 and $162,795 related to VIEs)
334,473

 
318,595

Deferred income
116,238

 
128,468

Liabilities related to assets held for sale
—

 
6,794

Total liabilities
5,327,673

 
5,166,440

Redeemable preferred units
79,984

 
80,046

Commitments and contingencies (Note 8)
—

 
—

Partners’ Capital:
 
 
 
Preferred units
68,114

 
68,114

General Partner and Special Limited Partner
783,257

 
847,311

Limited Partners
(35,106
)
 
(31,596
)
Partners’ capital attributable to the Aimco Operating Partnership
816,265

 
883,829

Noncontrolling interests in consolidated real estate partnerships
246,793

 
271,065

Total partners’ capital
1,063,058

 
1,154,894

Total liabilities and partners’ capital
$
6,470,715

 
$
6,401,380


See notes to condensed consolidated financial statements.


7
Table of Contents

AIMCO PROPERTIES, L.P.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per unit data)
(Unaudited)
 
Three Months Ended
 
Six Months Ended
 
June 30,
 
June 30,
 
2013
 
2012
 
2013
 
2012
REVENUES
 
 
 
 
 
 
 
Rental and other property revenues
$
251,853

 
$
244,374

 
$
499,700

 
$
488,279

Tax credit and asset management revenues
7,809

 
8,914

 
15,061

 
16,985

Total revenues
259,662

 
253,288

 
514,761

 
505,264

OPERATING EXPENSES
 
 
 
 
 
 
 
Property operating expenses
101,717

 
99,807

 
203,420

 
198,418

Investment management expenses
1,697

 
3,240

 
3,130

 
6,628

Depreciation and amortization
78,345

 
87,229

 
158,618

 
173,795

Provision for real estate impairment losses
—

 
2,275

 
—

 
8,349

General and administrative expenses
11,153

 
13,556

 
22,932

 
25,181

Other expense (income), net
2,226

 
(957
)
 
4,436

 
4,772

Total operating expenses
195,138

 
205,150

 
392,536

 
417,143

Operating income
64,524

 
48,138

 
122,225

 
88,121

Interest income, net
2,651

 
2,397

 
9,072

 
4,854

Interest expense
(61,821
)
 
(60,322
)
 
(124,267
)
 
(125,130
)
Equity in income (losses) of unconsolidated real estate partnerships
104

 
(2,242
)
 
628

 
(3,005
)
(Loss) gain on dispositions and other, net
(1,154
)
 
4,314

 
(2,664
)
 
4,602

Income (loss) before income taxes and discontinued operations
4,304

 
(7,715
)
 
4,994

 
(30,558
)
Income tax (expense) benefit
(116
)
 
234

 
(163
)
 
460

Income (loss) from continuing operations
4,188

 
(7,481
)
 
4,831

 
(30,098
)
Income from discontinued operations, net
2,791

 
41,612

 
4,981

 
74,876

Net income
6,979

 
34,131

 
9,812

 
44,778

Net loss (income) attributable to noncontrolling interests in consolidated real estate partnerships
6,150

 
(9,665
)
 
11,112

 
(17,430
)
Net income attributable to the Aimco Operating Partnership
13,129

 
24,466

 
20,924

 
27,348

Net income attributable to the Aimco Operating Partnership’s preferred unitholders
(2,307
)
 
(23,793
)
 
(4,615
)
 
(37,902
)
Net income attributable to participating securities
(140
)
 
(95
)
 
(280
)
 
(214
)
Net income (loss) attributable to the Aimco Operating Partnership's common unitholders
$
10,682

 
$
578

 
$
16,029

 
$
(10,768
)
Earnings (loss) attributable to the Aimco Operating Partnership per common unit – basic and diluted (Note 9):


 


 
 
 
 
Income (loss) from continuing operations attributable to the Aimco Operating Partnership’s common unitholders
$
0.02

 
$
(0.26
)
 
$
0.01

 
$
(0.56
)
Income from discontinued operations attributable to the Aimco Operating Partnership’s common unitholders
0.05

 
0.26

 
0.09

 
0.48

Net income (loss) attributable to the Aimco Operating Partnership’s common unitholders
$
0.07

 
$
—

 
$
0.10

 
$
(0.08
)
Weighted average common units outstanding – basic
153,294

 
135,622

 
153,217

 
132,159

Weighted average common units outstanding – diluted
153,647

 
135,622

 
153,504

 
132,159

Distributions declared per common unit
$
0.24

 
$
0.18

 
$
0.48

 
$
0.36


See notes to condensed consolidated financial statements.
 

8
Table of Contents

AIMCO PROPERTIES, L.P.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
(Unaudited)

 
Three Months Ended
 
Six Months Ended
 
June 30,
 
June 30,
 
2013
 
2012
 
2013
 
2012
Net income
$
6,979

 
$
34,131

 
$
9,812

 
$
44,778

Other comprehensive income (loss):
 
 
 
 
 
 
 
Unrealized gains (losses) on interest rate swaps
1,430

 
(1,640
)
 
1,608

 
(1,774
)
Losses on interest rate swaps reclassified into interest expense from accumulated other comprehensive loss
417

 
415

 
836

 
840

Unrealized (losses) gains on debt securities classified as available-for-sale
(1,347
)
 
(1,114
)
 
(3,055
)
 
1,459

Other comprehensive income (loss)
500

 
(2,339
)
 
(611
)
 
525

Comprehensive income
7,479

 
31,792

 
9,201

 
45,303

Comprehensive loss (income) attributable to noncontrolling interests
5,965

 
(9,562
)
 
10,855

 
(17,341
)
Comprehensive income attributable to the Aimco Operating Partnership
$
13,444

 
$
22,230

 
$
20,056

 
$
27,962


See notes to condensed consolidated financial statements.


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AIMCO PROPERTIES, L.P.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)

 
Six Months Ended
 
June 30,
 
2013
 
2012
CASH FLOWS FROM OPERATING ACTIVITIES
 
 
 
Net income
$
9,812

 
$
44,778

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation and amortization
158,618

 
173,795

Provision for real estate impairment losses
—

 
8,349

Equity in (income) losses of unconsolidated real estate partnerships
(628
)
 
3,005

Discontinued operations
(4,620
)
 
(56,003
)
Other adjustments
1,440

 
(9,149
)
Net changes in operating assets and operating liabilities
8,404

 
(12,743
)
Net cash provided by operating activities
173,026

 
152,032

CASH FLOWS FROM INVESTING ACTIVITIES
 
 
 
Purchases of real estate
(19,444
)
 
(79,743
)
Capital expenditures
(163,368
)
 
(117,431
)
Proceeds from dispositions of real estate
7,960

 
153,869

Purchases of corporate assets
(5,123
)
 
(4,851
)
Purchase of property loans
(119,101
)
 
—

Change in restricted cash
19,932

 
(6,279
)
Proceeds from sale of interests in and distributions from unconsolidated real estate partnerships
1,701

 
14,698

Other investing activities
10,674

 
10,399

Net cash used in investing activities
(266,769
)
 
(29,338
)
CASH FLOWS FROM FINANCING ACTIVITIES
 
 
 
Proceeds from non-recourse property debt
111,007

 
115,654

Principal repayments on non-recourse property debt
(153,532
)
 
(173,947
)
Net borrowings on revolving credit facility
187,050

 
—

Proceeds from issuance of Preferred Units to Aimco
—

 
9,818

Proceeds from issuance of common partnership units to Aimco
—

 
558,600

Redemption of Preferred Units from Aimco
—

 
(300,938
)
Proceeds from Aimco Common Stock option exercises
983

 
48,906

Payment of distributions to Preferred Units
(4,614
)
 
(32,280
)
Payment of distributions to General Partner and Special Limited Partner
(70,014
)
 
(45,773
)
Payment of distributions to Limited Partners
(3,884
)
 
(2,935
)
Payment of distributions to noncontrolling interests
(15,417
)
 
(20,742
)
Purchases of noncontrolling interests in consolidated real estate partnerships
(2,528
)
 
(48,280
)
Other financing activities
7,202

 
(8,879
)
Net cash provided by financing activities
56,253

 
99,204

NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS
(37,490
)
 
221,898

CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD
84,413

 
91,066

CASH AND CASH EQUIVALENTS AT END OF PERIOD
$
46,923

 
$
312,964


See notes to condensed consolidated financial statements.


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APARTMENT INVESTMENT AND MANAGEMENT COMPANY
AIMCO PROPERTIES, L.P.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2013
(Unaudited)

NOTE 1 — Organization
Apartment Investment and Management Company, or Aimco, is a Maryland corporation incorporated on January 10, 1994. Aimco is a self-administered and self-managed real estate investment trust, or REIT. AIMCO Properties, L.P., or the Aimco Operating Partnership, is a Delaware limited partnership formed on May 16, 1994, to conduct our business, which is focused on the ownership, management and redevelopment of quality apartment communities located in the largest coastal and job growth markets of the United States.
Aimco, and through its wholly-owned subsidiaries, AIMCO-GP, Inc. and AIMCO-LP Trust, owns a majority of the ownership interests in the Aimco Operating Partnership. Aimco conducts all of its business and owns all of its assets through the Aimco Operating Partnership. Interests in the Aimco Operating Partnership that are held by limited partners other than Aimco are referred to as “OP Units.” OP Units include common partnership units, high performance partnership units and partnership preferred units, which we refer to as common OP Units, HPUs and preferred OP Units, respectively. We also refer to HPUs as common OP Unit equivalents. At June 30, 2013, after eliminations for units held by consolidated entities, the Aimco Operating Partnership had 153,863,293 common partnership units and equivalents outstanding. At June 30, 2013, Aimco owned 145,906,799 of the common partnership units (94.8% of the common partnership units and equivalents) of the Aimco Operating Partnership and Aimco had outstanding an equal number of shares of its Class A Common Stock, which we refer to as Common Stock.
Except as the context otherwise requires, “we,” “our” and “us” refer to Aimco, the Aimco Operating Partnership and their consolidated subsidiaries, collectively.
As of June 30, 2013, we owned an equity interest in 176 conventional real estate properties with 55,965 units and 82 affordable real estate properties with 11,212 units. Of these properties, we consolidated 172 conventional properties with 55,817 units and 66 affordable properties with 10,098 units. These conventional and affordable properties generated 90% and 10%, respectively, of our proportionate property net operating income (as defined in Note 10) during the six months ended June 30, 2013.
NOTE 2 — Basis of Presentation and Summary of Significant Accounting Policies
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America, or GAAP, have been condensed or omitted in accordance with such rules and regulations, although management believes the disclosures are adequate to prevent the information presented from being misleading. In the opinion of management, all adjustments (consisting of normal recurring items) considered necessary for a fair presentation have been included. Operating results for the three and six months ended June 30, 2013, are not necessarily indicative of the results that may be expected for the year ending December 31, 2013.
The balance sheets of Aimco and the Aimco Operating Partnership at December 31, 2012, have been derived from their audited financial statements at that date, but do not include all of the information and disclosures required by GAAP for complete financial statements. For further information, refer to the financial statements and notes thereto included in Aimco’s and the Aimco Operating Partnership’s combined Annual Report on Form 10-K for the year ended December 31, 2012. Certain 2012 financial statement amounts have been reclassified to conform to the 2013 presentation, including adjustments for discontinued operations. Except where indicated, the footnotes refer to both Aimco and the Aimco Operating Partnership.
Principles of Consolidation
Aimco’s accompanying condensed consolidated financial statements include the accounts of Aimco, the Aimco Operating Partnership, and their consolidated subsidiaries. The Aimco Operating Partnership’s condensed consolidated financial statements include the accounts of the Aimco Operating Partnership and its consolidated entities.
We consolidate all variable interest entities for which we are the primary beneficiary. Generally, a variable interest entity, or VIE, is a legal entity in which the equity investors do not have the characteristics of a controlling financial interest or the equity

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investors lack sufficient equity at risk for the entity to finance its activities without additional subordinated financial support. In determining whether we are the primary beneficiary of a VIE, we consider qualitative and quantitative factors, including, but not limited to: which activities most significantly impact the VIE’s economic performance and which party controls such activities; the amount and characteristics of our investment; the obligation or likelihood for us or other investors to provide financial support; and the similarity with and significance to the business activities of us and the other investors. Significant judgments related to these determinations include estimates about the current and future fair values and performance of real estate held by these VIEs and general market conditions. Refer to Note 5 for further information regarding our involvement with VIEs.
Generally, we consolidate real estate partnerships and other entities that are not variable interest entities when we own, directly or indirectly, a majority voting interest in the entity or are otherwise able to control the entity. All significant intercompany balances and transactions have been eliminated in consolidation.
Interests in the Aimco Operating Partnership that are held by limited partners other than Aimco are reflected in Aimco’s accompanying balance sheets as noncontrolling interests in Aimco Operating Partnership. Interests in partnerships consolidated into the Aimco Operating Partnership that are held by third parties are reflected in our accompanying balance sheets as noncontrolling interests in consolidated real estate partnerships. The assets of consolidated real estate partnerships owned or controlled by the Aimco Operating Partnership generally are not available to pay creditors of Aimco or the Aimco Operating Partnership.
As used herein, and except where the context otherwise requires, “partnership” refers to a limited partnership or a limited liability company and “partner” refers to a partner in a limited partnership or a member in a limited liability company.
Temporary Equity and Partners’ Capital
The following table presents a reconciliation of the Aimco Operating Partnership’s Preferred OP Units from December 31, 2012 to June 30, 2013 (in thousands). These amounts are presented within temporary equity in Aimco’s condensed consolidated balance sheets as preferred noncontrolling interests in the Aimco Operating Partnership, and within temporary capital in the Aimco Operating Partnership’s condensed consolidated balance sheets as redeemable preferred units.
Balance, December 31, 2012
$
80,046

Distributions to preferred unitholders
(3,212
)
Redemption of preferred units
(62
)
Net income
3,212

Balance, June 30, 2013
$
79,984

Aimco Equity (including Noncontrolling Interests)
The following table presents a reconciliation of Aimco’s consolidated permanent equity accounts from December 31, 2012 to June 30, 2013 (in thousands):
 
Aimco
Equity
 
Noncontrolling
interests in
consolidated real estate
partnerships
 
Common
noncontrolling
interests in
Aimco Operating
Partnership
 
Total
Equity
Balance, December 31, 2012
$
915,425

 
$
271,065

 
$
(31,596
)
 
$
1,154,894

Contributions
—

 
1,157

 
—

 
1,157

Preferred stock dividends
(1,402
)
 
—

 
—

 
(1,402
)
Common dividends and distributions
(70,014
)
 
(16,664
)
 
(3,884
)
 
(90,562
)
Amortization of stock-based compensation cost
3,459

 
—

 
—

 
3,459

Stock option exercises
983

 
—

 
—

 
983

Effect of changes in ownership for consolidated entities (Note 4)
(12,489
)
 
2,012

 
(666
)
 
(11,143
)
Change in accumulated other comprehensive loss
(823
)
 
257

 
(45
)
 
(611
)
Other
(608
)
 
78

 
213

 
(317
)
Net income (loss)
16,840

 
(11,112
)
 
872

 
6,600

Balance, June 30, 2013
$
851,371

 
$
246,793

 
$
(35,106
)
 
$
1,063,058


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Partners’ Capital attributable to the Aimco Operating Partnership
The following table presents a reconciliation of the consolidated partners’ capital balances in permanent capital that are attributable to the Aimco Operating Partnership from December 31, 2012 to June 30, 2013 (in thousands):
 
Partners’ capital
 attributable to
the Partnership
Balance, December 31, 2012
$
883,829

Distributions to preferred units held by Aimco
(1,402
)
Distributions to common units held by Aimco
(70,014
)
Distributions to common units held by Limited Partners
(3,884
)
Amortization of Aimco stock-based compensation cost
3,459

Common OP Units issued to Aimco in connection with Aimco stock option exercises
983

Effect of changes in ownership for consolidated entities (Note 4)
(13,155
)
Change in accumulated other comprehensive loss
(868
)
Other
(395
)
Net income
17,712

Balance, June 30, 2013
$
816,265

A separate reconciliation of noncontrolling interests in consolidated real estate partnerships and total partners’ capital for the Aimco Operating Partnership is not presented as these amounts are identical to the corresponding noncontrolling interests in consolidated real estate partnerships and total equity for Aimco, which are presented above.
Income Taxes
On October 25, 2012, the Internal Revenue Service issued Final Partnership Administrative Adjustments with respect to the Aimco Operating Partnership 2006 and 2007 tax years.  On January 18, 2013, AIMCO-GP, Inc., in its capacity as tax matters partner of the Aimco Operating Partnership, filed a petition challenging those adjustments in the United States Tax Court in Washington, D.C.  We do not expect the litigation regarding the 2006 or 2007 proposed adjustments to have any material effect on our unrecognized tax benefits, financial condition or results of operations. 
Use of Estimates
The preparation of our condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts included in the financial statements and accompanying notes thereto. Actual results could differ from those estimates.
NOTE 3 — Assets Held for Sale and Discontinued Operations
We report as discontinued operations real estate properties that meet the definition of a component of an entity and have been sold or meet the criteria to be classified as held for sale. We include all results of these discontinued operations, less applicable income taxes, in a separate component of income on the consolidated statements of operations under the heading “income from discontinued operations, net.” This treatment resulted in the retrospective adjustment of the statements of operations for the three and six months ended June 30, 2012 and the balance sheet as of December 31, 2012.
We are currently marketing for sale certain real estate properties that are inconsistent with our long-term investment strategy. At the end of each reporting period, we evaluate whether such properties meet the criteria to be classified as held for sale, including whether such properties are expected to be sold within 12 months. Additionally, certain properties that do not meet all of the criteria to be classified as held for sale at the balance sheet date may nevertheless be sold and included in discontinued operations in the subsequent 12 months; thus the number of properties that may be sold during the subsequent 12 months could exceed the number classified as held for sale. At December 31, 2012, after adjustments to classify as held for sale properties that were sold during the six months ended June 30, 2013, we had five properties with an aggregate of 230 units classified as held for sale. Amounts classified as held for sale in the accompanying condensed consolidated balance sheets as of December 31, 2012 are as follows (in thousands):

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December 31, 2012
Real estate, net
$
7,968

Other assets
710

Assets held for sale
$
8,678

Property debt
$
6,611

Other liabilities
183

Liabilities related to assets held for sale
$
6,794

During the six months ended June 30, 2013 and 2012, we sold five properties and 28 properties with an aggregate of 230 units and 3,934 units, respectively. During the year ended December 31, 2012, we sold 75 consolidated properties with an aggregate of 11,232 units. For the three and six months ended June 30, 2013 and 2012, discontinued operations includes the results of operations for the periods prior to the date of disposition for all properties sold as of June 30, 2013.
The following is a summary of the components of income from discontinued operations and the related amounts of income from discontinued operations attributable to Aimco, the Aimco Operating Partnership and noncontrolling interests for the three and six months ended June 30, 2013 and 2012 (in thousands):
 
Three Months Ended
 
Six Months Ended
 
June 30,
 
June 30,
 
2013
 
2012
 
2013
 
2012
Rental and other property revenues
$
247

 
$
20,892

 
$
781

 
$
46,317

Property operating expenses
(229
)
 
(6,433
)
 
(427
)
 
(19,341
)
Depreciation and amortization
(43
)
 
(7,357
)
 
(140
)
 
(16,203
)
(Provision for) recovery of real estate impairment losses
(103
)
 
(5,773
)
 
124

 
(6,384
)
Operating (loss) income
(128
)
 
1,329

 
338

 
4,389

Interest income
114

 
134

 
172

 
284

Interest expense
(70
)
 
(2,753
)
 
(165
)
 
(8,387
)
(Loss) income before gain on dispositions of real estate and income tax
(84
)
 
(1,290
)
 
345

 
(3,714
)
Gain on dispositions of real estate
2,663

 
48,518

 
4,606

 
84,211

Income tax benefit (expense)
212

 
(5,616
)
 
30

 
(5,621
)
Income from discontinued operations, net
$
2,791

 
$
41,612

 
$
4,981

 
$
74,876

Loss (income) from discontinued operations attributable to noncontrolling interests in consolidated real estate partnerships
5,452

 
(5,153
)
 
8,673

 
(11,684
)
Income from discontinued operations attributable to the Aimco Operating Partnership
8,243

 
36,459

 
13,654

 
63,192

Income from discontinued operations attributable to noncontrolling interests in Aimco Operating Partnership
(455
)
 
(2,262
)
 
(738
)
 
(3,951
)
Income from discontinued operations attributable to Aimco
$
7,788

 
$
34,197

 
$
12,916

 
$
59,241

Gain on dispositions of real estate is reported net of incremental direct costs incurred in connection with the transactions, including any prepayment penalties incurred upon repayment of property loans collateralized by the properties being sold. Such prepayment penalties totaled $0.7 million and $0.9 million for the three and six months ended June 30, 2013, respectively, and $1.2 million and $2.5 million for the three and six months ended June 30, 2012, respectively. We classify interest expense related to property debt within discontinued operations when the related real estate asset is sold or classified as held for sale.
In connection with properties sold during the three and six months ended June 30, 2013, we allocated $0.2 million and $0.4 million, respectively, of goodwill related to our conventional and affordable segments to the carrying amounts of the properties sold. In connection with properties sold or during the three and six months ended June 30, 2012, we allocated $1.4 million and $2.1 million, respectively, of goodwill related to our conventional and affordable segments to the carrying amounts of the properties sold. The amounts of goodwill allocated to these properties were based on the relative fair values of the properties sold and the retained portions of the reporting units to which the goodwill was allocated.
In connection with our real estate dispositions during the six months ended June 30, 2013, the purchasers assumed approximately $2.1 million of non-recourse property debt, and during the three and six months ended June 30, 2012, the purchasers assumed approximately $45.1 million and $56.3 million, respectively, of non-recourse property debt.

14
Table of Contents

NOTE 4 — Other Significant Transactions
Investments in Real Estate Properties
During the three months ended June 30, 2013, we acquired for $29.0 million a 60-unit property located in La Jolla, California. In connection with this acquisition, we assumed non-recourse property debt with an outstanding principal balance of $12.4 million and a fair value of $14.8 million, resulting in a total fair value of $31.3 million allocated to real estate.
Purchase of West Harlem Property Loans
In 2006, we funded $100.1 million of second mortgage loans related to 84 buildings containing 1,596 residential units and 43 commercial spaces in the West Harlem neighborhood of New York City. We concurrently entered into an agreement with the borrower under which we had the right to purchase the buildings and the borrower had the right to put the buildings to us upon achievement of certain revenue thresholds. At June 30, 2013 and December 31, 2012, the aggregate carrying amount of these second mortgage loans and the purchase option, which are included in notes receivable and other assets in our condensed consolidated balance sheets, totaled $110.2 million and $110.5 million, respectively.
During the three months ended June 30, 2013, we purchased at par first mortgage loans secured by the same 84 buildings for $119.1 million, the majority of which matured on June 1, 2013. The loans bear interest at a weighted average rate of 5.2%. In conjunction with the acquisition of the first mortgage loans, the borrower agreed to repay all loans on or before November 22, 2013 and to pay us the value of our unexercised option to acquire the properties and to terminate its right to put the properties to us.
Acquisitions of Noncontrolling Partnership Interests
During the three months ended June 30, 2013, we acquired for $10.7 million the remaining noncontrolling limited partner interests in one consolidated real estate partnership that owns two properties in which we serve as general partner. The noncontrolling interest balance attributed to these limited partners was in a deficit position at the time of acquisition.The excess of the consideration paid over the carrying amount of the noncontrolling interests we acquired is reflected as an adjustment of additional paid-in capital within Aimco's equity and the Aimco Operating Partnership's partners' capital (see equity and partners' capital reconciliations in Note 2). The estimated fair value of the real estate corresponding to the interests we acquired totaled $21.0 million.
Asset Management Business Disposition
In December 2012, we closed the sale of the Napico portfolio, our legacy asset management business. The transaction was primarily seller-financed, and the associated notes are scheduled to be repaid over six years. The notes will be repaid from the operation and liquidation of the Napico portfolio and are collateralized by the buyer’s interests in the portfolio. 
In accordance with the provisions of GAAP applicable to sales of real estate or interests therein, for accounting purposes, we have not recognized a sale and will account for the transaction under the profit sharing method. Under this method, until full payment has been received for the seller-financed notes, we will continue to recognize the portfolio’s assets and liabilities, each condensed into single line items within other assets and accrued liabilities and other, respectively, in our consolidated balance sheets for all dates following the transaction. Similarly, we will continue to recognize the portfolio’s results of operations, also condensed into a single line item within our consolidated statements of operations, for periods subsequent to the transaction. Any cash payments we receive under the sale and related financing will be reflected as deferred income in our consolidated balance sheets until full payment has been received for the seller-financed notes.
At June 30, 2013, the Napico portfolio consisted of 20 partnerships that held investments in 17 apartment properties that were consolidated and 92 apartment properties that were accounted for under the equity or cost method of accounting. The portfolio’s assets and liabilities included in our condensed consolidated balance sheets are summarized below (in thousands):
 
June 30, 2013
 
December 31, 2012
Real estate, net
$
128,917

 
$
127,025

Cash and cash equivalents and restricted cash
30,092

 
31,560

Investment in unconsolidated real estate partnerships
13,943

 
15,997

Other assets
4,150

 
4,163

Total assets
$
177,102

 
$
178,745

Total indebtedness
$
112,077

 
$
110,737

Accrued and other liabilities
29,646

 
29,435

Total liabilities
$
141,723

 
$
140,172


15
Table of Contents

Summarized information regarding the Napico portfolio's results of operations, including any expense we recognize under the profit sharing method is shown below and is included in loss on dispositions and other in our condensed consolidated statement of operations (in thousands):
 
Three Months Ended
 
Six Months Ended
 
June 30, 2013
 
June 30, 2013
Revenues
$
7,395

 
$
13,333

Expenses
(5,667
)
 
(11,935
)
Equity in earnings or loss of unconsolidated entities, gains or losses on dispositions and other, net
(2,997
)
 
(4,094
)
Net loss related to legacy asset management business
(1,269
)
 
(2,696
)
Noncontrolling interests in consolidated real estate partnerships
1,623

 
3,410

Net income of legacy asset management business attributable to Aimco and the Aimco Operating Partnership
$
354

 
$
714

Based on our limited historical economic ownership in this portfolio, a significant portion of the assets and liabilities and results of operations shown are attributable to noncontrolling interests and do not significantly affect consolidated equity, partners’ capital and income or loss attributable to Aimco or the Aimco Operating Partnership. At June 30, 2013 and December 31, 2012, noncontrolling interests in consolidated real estate partnerships within our consolidated balance sheet included $52.8 million and $57.2 million, respectively, related to the Napico portfolio. Income or loss attributable to these noncontrolling interests will continue to be recognized commensurate with the recognition of the results of operations of the portfolio. If full payment is received on the notes and we meet the requirements to recognize the sale for accounting purposes, we expect to recognize a gain attributable to Aimco and the Aimco Operating Partnership.
NOTE 5 — Variable Interest Entities
As of June 30, 2013, we were the primary beneficiary of, and therefore consolidated, 66 VIEs, which owned 52 apartment properties with 8,100 units. Real estate with a carrying value of $427.0 million collateralized $372.5 million of debt of those VIEs. Any significant amounts of assets and liabilities related to our consolidated VIEs are identified parenthetically on our accompanying condensed consolidated balance sheets. The creditors of the consolidated VIEs do not have recourse to our general credit.
As of June 30, 2013, we also held variable interests in 39 VIEs for which we were not the primary beneficiary. Those VIEs consist primarily of partnerships that are engaged, directly or indirectly, in the ownership and management of 92 apartment properties with 2,360 units. We are involved with those VIEs as an equity holder or lender. Our maximum risk of loss related to our investment in these VIEs is generally limited to our $4.0 million recorded investment in such entities, which is included in other assets within our consolidated balances sheets.
In addition to our investments in unconsolidated VIEs discussed above, at June 30, 2013, we had in aggregate $215.8 million of receivables from unconsolidated VIEs (primarily notes receivable collateralized by first and second mortgages on real estate properties discussed in Note 4). Our maximum risk of loss associated with our lending activities related to these unconsolidated VIEs is limited to these amounts. We may be subject to additional losses to the extent of any receivables relating to future provision of services to these entities or financial support that we voluntarily provide.
In addition to the consolidated and unconsolidated VIEs discussed above, at June 30, 2013, our consolidated financial statements included certain consolidated and unconsolidated VIEs that were sold in connection with the sale of our legacy asset management business.
NOTE 6 — Derivative Financial Instruments
We have limited exposure to derivative financial instruments. We primarily use long-term, fixed-rate and self-amortizing non-recourse debt to avoid, among other things, risk related to fluctuating interest rates. For our variable rate debt, we are sometimes required by our lenders to limit our exposure to interest rate fluctuations by entering into interest rate swap agreements, which moderate our exposure to interest rate risk by effectively converting the interest on variable rate debt to a fixed rate. The fair values of the interest rate swaps are reflected as assets or liabilities in the balance sheet, and periodic changes in fair value are included in interest expense or equity and partners’ capital, as appropriate.
As of June 30, 2013 and December 31, 2012, we had interest rate swaps with aggregate notional amounts of $50.9 million and $51.0 million, respectively, and recorded fair values of $5.5 million and $8.0 million, respectively, reflected in accrued liabilities and other in our condensed consolidated balance sheets. At June 30, 2013, these interest rate swaps had a weighted average term

16
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of 7.5 years. We have designated these interest rate swaps as cash flow hedges and recognize any changes in their fair value as an adjustment of accumulated other comprehensive loss within equity to the extent of their effectiveness. Changes in the fair value of these instruments and the related amounts of such changes that were reflected as an adjustment of accumulated other comprehensive loss within equity and as an adjustment of earnings (ineffectiveness) are discussed in Note 7.
If the forward rates at June 30, 2013 remain constant, we estimate that during the next 12 months, we would reclassify into earnings approximately $1.7 million of the unrealized losses in accumulated other comprehensive loss. If market interest rates increase above the 3.43% weighted average fixed rate under these interest rate swaps we will benefit from net cash payments due to us from our counterparty to the interest rate swaps.
At June 30, 2013 and December 31, 2012, we had borrowings payable subject to total rate of return swaps with aggregate outstanding principal balances of $73.4 million and $74.0 million, respectively, that were collateralized by four properties. We use total rate of return swaps to convert fixed-rate property debt obligations to a variable rate to lower our cost of borrowing. In exchange for our receipt of a fixed rate equal to the underlying borrowing’s interest rate, the total rate of return swaps require that we pay a variable rate plus a risk spread. The underlying borrowings are callable at our option, with no prepayment penalty. We have designated the total rate of return swaps as hedges of the risk of overall changes in the fair value of the underlying borrowings. At each reporting period, we estimate the fair value of these borrowings and the total rate of return swaps and recognize any changes therein as an adjustment of interest expense. During the periods presented, we determined these hedges were fully effective and accordingly we made no adjustments to interest expense for ineffectiveness.
At June 30, 2013, the weighted average fixed receive rate under the total return swaps was 5.9% and the weighted average variable pay rate was 2.1%, based on the applicable index rate effective as of that date. The debt subject to these total rate of return swaps matures in 2036 whereas the corresponding swaps mature in May 2014.
The total rate of return swaps require specified loan-to-value ratios which may require us to pay down the debt or provide additional collateral. At June 30, 2013 and December 31, 2012, we had provided $20.0 million of cash collateral pursuant to the swap agreements, which is included in restricted cash in our condensed consolidated balance sheets.
NOTE 7 — Fair Value Measurements
In accordance with GAAP, we are required to measure certain assets and liabilities in our consolidated financial statements at fair value. Certain assets, such as our investment in the first loss and mezzanine positions in a securitization trust that holds certain of our property debt, our interest rate swaps (IR swaps), total rate of return swaps (TRR swaps), and the debt subject to TRR swaps (TRR debt) are required to be measured at fair value on a quarterly basis. Other assets, such as real estate, are required to be measured at fair value when we determine that the carrying amount of an asset held for use is no longer recoverable, or to be measured at fair value less estimated costs to sell when we determine that the carrying amount of an asset classified as held for sale is no longer recoverable.
We are required to classify these fair value measurements into one of three categories, based on the nature of the inputs used in the fair value measurement. Level 1 of the hierarchy includes fair value measurements based on unadjusted quoted prices in active markets for identical assets or liabilities we can access at the measurement date. Level 2 includes fair value measurements based on inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. Level 3 includes fair value measurements based on unobservable inputs. The classification of fair value measurements is subjective and GAAP requires us to disclose more detailed information regarding those fair value measurements classified within the lower levels of the hierarchy.
Recurring Fair Value Measurements
The table below presents information regarding significant items measured in our condensed consolidated financial statements at fair value on a recurring basis, consisting of investments in the securitization trust discussed above, which we classify as available for sale (AFS), IR swaps, TRR swaps and TRR debt (in thousands):

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Level 2
 
Level 3
 
 
 
AFS (1)
 
IR swaps (2)
 
TRR swaps (3)
 
TRR debt (4)
 
Total
Fair value at December 31, 2011
$
51,693

 
$
(7,012
)
 
$
(5,841
)
 
$
5,841

 
$
44,681

Investment accretion
1,516

 
—

 
—

 
—

 
1,516

Unrealized gains (losses) included in interest expense (5)
—

 
(24
)
 
2,554

 
(2,554
)
 
(24
)
Losses on interest rate swaps reclassified into interest expense from accumulated other comprehensive loss
—

 
840

 
—

 
—

 
840

Unrealized (losses) gains included in equity and partners’ capital
1,459

 
(1,774
)
 
—

 
—

 
(315
)
Fair value at June 30, 2012
$
54,668

 
$
(7,970
)
 
$
(3,287
)
 
$
3,287

 
$
46,698

Fair value at December 31, 2012
$
59,145

 
$
(7,968
)
 
$
(2,581
)
 
$
2,581

 
$
51,177

Investment accretion
1,681

 
—

 
—

 
—

 
1,681

Unrealized gains (losses) included in interest expense (5)
—

 
(24
)
 
(1,134
)
 
1,134

 
(24
)
Losses on interest rate swaps reclassified into interest expense from accumulated other comprehensive loss
—

 
836

 
—

 
—

 
836

Unrealized (losses) gains included in equity and partners’ capital
(3,055
)
 
1,608

 
—

 
—

 
(1,447
)
Fair value at June 30, 2013
$
57,771

 
$
(5,548
)
 
$
(3,715
)
 
$
3,715

 
$
52,223

(1)
Our investments classified as AFS are presented within other assets in the accompanying condensed consolidated balance sheets. We estimate the fair value of these investments using an income and market approach with primarily observable inputs, including yields and other information regarding similar types of investments, and adjusted for certain unobservable inputs specific to these investments. We are accreting the discount to the $100.9 million face value of the investments into interest income using the effective interest method over the remaining expected term of the investments, which, as of June 30, 2013, was approximately 7.9 years. Our amortized cost basis for these investments, which represents the original cost adjusted for interest accretion less interest payments received, was $58.0 million and $56.3 million at June 30, 2013 and December 31, 2012, respectively. Although the amortized cost exceeded the fair value of these investments at June 30, 2013, we currently expect to hold the investments to their maturity dates and we believe we will fully recover the investments. Accordingly, we believe the impairment in the fair value of these investments is temporary and we have not recognized any of the loss in value in earnings.
(2)
The fair value of IR swaps is estimated using an income approach with primarily observable inputs including information regarding the hedged variable cash flows and forward yield curves relating to the variable interest rates on which the hedged cash flows are based.
(3)
TRR swaps have contractually-defined termination values generally equal to the difference between the fair value and the counterparty’s purchased value of the underlying borrowings. We calculate the termination value, which we believe is representative of the fair value, of total rate of return swaps using a market approach by reference to estimates of the fair value of the underlying borrowings, which are discussed below, and an evaluation of potential changes in the credit quality of the counterparty to these arrangements.
(4)
This represents changes in fair value of debt subject to TRR swaps. We estimate the fair value of debt instruments using an income and market approach, including comparison of the contractual terms to observable and unobservable inputs such as market interest rate risk spreads, contractual interest rates, remaining periods to maturity, collateral quality and loan-to-value ratios on similarly encumbered assets within our portfolio. We handle a large volume of financing transactions annually and use pricing information obtained during the financing process to evaluate market pricing information for reasonableness.
(5)
Unrealized gains (losses) for the TRR swaps and TRR debt relate to periodic revaluations of fair value and are included in interest expense in the accompanying condensed consolidated statements of operations.
Due to their subjectivity, GAAP requires us to disclose additional quantitative and qualitative information about the unobservable inputs significant to our Level 3 fair value measurements. The unobservable inputs significant to our estimation of the fair value of TRR debt classified within Level 3 includes information about the property debt, such as the payment schedule, contractual interest rate and loan-to-value ratio (computed using real estate values estimated as described below). Based on the impracticality of providing payment schedules for our nonrecourse property debt measured at fair value, we believe the disclosure of the weighted average maturity date is meaningful in the context of the related valuation input. Information regarding the weighted average unobservable inputs for TRR debt measured at fair value during the six months ended June 30, 2013 and 2012 is as follows:

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2013
 
2012
Number of properties encumbered by non-recourse property debt measured at fair value during period
4

 
4

Weighted average interest rate
5.9
%
 
5.8
%
Weighted average maturity in years
23.4

 
24.4

Weighted average loan-to-value ratio
79.0
%
 
78.5
%
Of these unobservable inputs significant to the TRR debt fair value measurement, the loan-to-value ratio is the only input to which the fair value measurement is sensitive to changes, as the property debt interest rates and maturities are not subject to adjustment. Holding constant the other observable inputs which may also be significant to the fair value measurement, such as market interest rates for similar types of debt, we believe any increase in the loan-to-value ratios for the TRR debt would result in a decrease in the fair value of the TRR debt and any decrease in the loan-to-value ratios would result in an increase in the fair value of the TRR debt. Based on the relationship of the fair value of the TRR debt to that of the TRR swaps, we believe any increase or decrease in the fair value of the TRR debt would have an equal and offsetting decrease or increase in the fair value of the TRR swaps, and therefore would have no effect on our financial position, results of operations or liquidity.
Nonrecurring Fair Value Measurements
During the six months ended June 30, 2012, we reduced the aggregate carrying amounts of six assets classified as held for use from $72.7 million to their estimated fair values of $59.6 million, resulting in an impairment loss of $13.1 million. A portion of these impairment losses has subsequently been reclassified to discontinued operations upon the sale of the related properties.
The fair values for the properties we impaired during these periods were based primarily on contract prices for pending sales or expected sales values of the properties. The contract prices were based in part on unobservable inputs classified within Level 3 of the fair value hierarchy, but were also based on observable inputs that can be validated to observable external sources, such as pricing information about widely marketed real estate properties for sale.
The unobservable inputs significant to our estimation of the fair value of real estate impaired during the periods include, among other things, information such as the properties’ net operating income, or NOI, free cash flow, or FCF, which represents the property's NOI less capital spending required to maintain the condition of the property, and assumptions about NOI and FCF growth rates and exit values. A FCF internal rate of return, which represents the rate of return generated by discounting the expected FCF from the property and the proceeds from its eventual sale, is a common benchmark used in the real estate industry for relative comparison of real estate valuations. The projected cash flows, including the expected sales prices, on which the impairment losses were based translated to weighted average implied FCF internal rates of return of 6.24% for the properties impaired during the six months ended June 30, 2012.
Fair Value Disclosures
We believe that the aggregate fair value of our cash and cash equivalents, receivables and payables approximates their aggregate carrying amounts at June 30, 2013 and December 31, 2012, due to their relatively short-term nature and high probability of realization. The estimated aggregate fair value of our notes receivable was approximately $216.0 million and $96.0 million at June 30, 2013 and December 31, 2012, respectively, as compared to their carrying amounts of $217.0 million and $102.9 million, respectively. The estimated aggregate fair value of our consolidated debt (including amounts reported in liabilities related to assets held for sale) was approximately $5.1 billion at both June 30, 2013 and December 31, 2012, as compared to aggregate carrying amounts of $4.8 billion and 4.7 billion, respectively. We classify within Level 3 of the valuation hierarchy the fair values of our notes receivable and consolidated debt disclosed above, based on the significance of certain of the unobservable inputs used to estimate their fair values. The fair value of our notes receivable and consolidated debt is estimated using a methodology consistent with that described above for the property debt we measure at fair value on a recurring and nonrecurring basis.
NOTE 8 — Commitments and Contingencies
Commitments
In connection with our redevelopment and capital improvement activities, we have commitments of approximately $176.4 million related to construction projects, most of which we expect to incur during the next 18 months. Pursuant to financing arrangements on our Lincoln Place, Pacific Bay Vistas, The Preserve at Marin and Elm Creek conventional redevelopment properties, we are contractually obligated to complete the planned projects. 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 for properties included in continuing operations.

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Table of Contents

Tax Credit Arrangements
We are required to manage certain consolidated real estate partnerships in compliance with various laws, regulations and contractual provisions that apply to our historic and low-income housing tax credit syndication arrangements. In some instances, noncompliance with applicable requirements could result in projected tax benefits not being realized and require a refund or reduction of investor capital contributions, which are reported as deferred income in our condensed consolidated balance sheet, until such time as our obligation to deliver tax benefits is relieved. The remaining compliance periods for our tax credit syndication arrangements range from less than one year to 13 years. 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, results of operations or cash flows.
Limited Partnerships
In connection with our acquisitions of interests in real estate partnerships, we are sometimes subject to legal actions, including allegations that such activities may involve breaches of fiduciary duties to the partners of such real estate partnerships or violations of the relevant partnership agreements. We may incur costs in connection with the defense or settlement of such litigation. We believe that we comply with our fiduciary obligations and relevant partnership agreements. Although the outcome of any litigation is uncertain, we do not expect any such legal actions to have a material adverse effect on our consolidated financial condition, results of operations or cash flows.
Environmental
Various Federal, state and local laws subject property owners or operators to liability for management, and the costs of removal or remediation, of certain potentially hazardous materials present on a property, including lead-based paint, asbestos, polychlorinated biphenyls, petroleum-based fuels, and other miscellaneous materials. Such laws often impose liability without regard to whether the owner or operator knew of, or was responsible for, the release or presence of such materials. The presence of, or the failure to manage or remedy properly, these materials 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 improper management of these materials 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 these materials through a licensed disposal or treatment facility. Anyone who arranges for the disposal or treatment of these materials is potentially liable under such laws for the proper operation of the disposal facility. 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 responsible 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 certain potentially hazardous materials may be conditional asset retirement obligations, as defined in GAAP. Except in limited circumstances where the asset retirement activities are expected to be performed in connection with a planned construction project or 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, 2013, are immaterial to our consolidated financial condition, results of operations and cash flows.

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Table of Contents

NOTE 9 — Earnings (Loss) per Share/Unit
Aimco
Aimco calculates earnings (loss) per share based on the weighted average number of shares of Common Stock, participating securities, common stock equivalents and dilutive convertible securities outstanding during the period. The following table illustrates Aimco’s calculation of basic and diluted earnings (loss) per share for the three and six months ended June 30, 2013 and 2012 (in thousands, except per share data):
 
Three Months Ended
 
Six Months Ended
 
June 30,
 
June 30,
 
2013
 
2012
 
2013
 
2012
Numerator:
 
 
 
 
 
 
 
Income (loss) from continuing operations
$
4,188

 
$
(7,481
)
 
$
4,831

 
$
(30,098
)
Income (loss) from continuing operations attributable to noncontrolling interests
(1,028
)
 
(3,916
)
 
(907
)
 
(4,394
)
Income attributable to preferred stockholders
(701
)
 
(22,182
)
 
(1,403
)
 
(34,621
)
Income attributable to participating securities
(140
)
 
(95
)
 
(280
)
 
(214
)
Income (loss) from continuing operations attributable to Aimco common stockholders
$
2,319

 
$
(33,674
)
 
$
2,241

 
$
(69,327
)
Income from discontinued operations    
$
2,791

 
$
41,612

 
$
4,981

 
$
74,876

Loss (income) from discontinued operations attributable to noncontrolling interests
4,997

 
(7,415
)
 
7,935

 
(15,635
)
Income from discontinued operations attributable to Aimco common stockholders
$
7,788

 
$
34,197

 
$
12,916

 
$
59,241

Net income    
$
6,979

 
$
34,131

 
$
9,812

 
$
44,778

Net loss (income) attributable to noncontrolling interests
3,969

 
(11,331
)
 
7,028

 
(20,029
)
Income attributable to preferred stockholders
(701
)
 
(22,182
)
 
(1,403
)
 
(34,621
)
Income attributable to participating securities
(140
)
 
(95
)
 
(280
)
 
(214
)
Net income (loss) attributable to Aimco common stockholders
$
10,107

 
$
523

 
$
15,157

 
$
(10,086
)
Denominator:
 
 
 
 
 
 
 
Denominator for basic earnings per share — weighted average number of shares of Common Stock outstanding
145,321

 
127,395

 
145,245

 
123,960

Effect of dilutive securities:
 
 
 
 
 
 
 
Dilutive potential common shares
353

 
—

 
287

 
—

Denominator for diluted earnings per share
145,674

 
127,395

 
145,532

 
123,960

Earnings (loss) per common share – basic and diluted:
 
 
 
 
 
 
 
Income (loss) from continuing operations attributable to Aimco common stockholders
$
0.02

 
$
(0.26
)
 
$
0.01

 
$
(0.56
)
Income from discontinued operations attributable to Aimco common stockholders
0.05

 
0.26

 
0.09

 
0.48

Net income (loss) attributable to Aimco common stockholders
$
0.07

 
$
—

 
$
0.10

 
$
(0.08
)
The Aimco Operating Partnership
The Aimco Operating Partnership calculates earnings (loss) per unit based on the weighted average number of common partnership units and equivalents, participating securities and dilutive convertible securities outstanding during the period. The Aimco Operating Partnership considers both common OP Units and HPUs, which have identical rights to distributions and undistributed earnings, to be common units for purposes of the earnings per unit data presented below. The following table illustrates the Aimco Operating Partnership’s calculation of basic and diluted earnings (loss) per unit for the three and six months ended June 30, 2013 and 2012 (in thousands, except per unit data):

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Three Months Ended
 
Six Months Ended
 
June 30,
 
June 30,
 
2013
 
2012
 
2013
 
2012
Numerator:
 
 
 
 
 
 
 
Income (loss) from continuing operations
$
4,188

 
$
(7,481
)
 
$
4,831

 
$
(30,098
)
Loss (income) from continuing operations attributable to noncontrolling interests
698

 
(4,512
)
 
2,439

 
(5,746
)
Income attributable to the Aimco Operating Partnership’s preferred unitholders
(2,307
)
 
(23,793
)
 
(4,615
)
 
(37,902
)
Income attributable to participating securities
(140
)
 
(95
)
 
(280
)
 
(214
)
Income (loss) from continuing operations attributable to the Aimco Operating Partnership’s common unitholders
$
2,439

 
$
(35,881
)
 
$
2,375

 
$
(73,960
)
Income from discontinued operations    
$
2,791

 
$
41,612

 
$
4,981

 
$
74,876

Loss (income) from discontinued operations attributable to noncontrolling interests
5,452

 
(5,153
)
 
8,673

 
(11,684
)
Income from discontinued operations attributable to the Aimco Operating Partnership’s common unitholders
$
8,243

 
$
36,459

 
$
13,654

 
$
63,192

Net income
$
6,979

 
$
34,131

 
$
9,812

 
$
44,778

Net loss (income) attributable to noncontrolling interests
6,150

 
(9,665
)
 
11,112

 
(17,430
)
Income attributable to the Aimco Operating Partnership’s preferred unitholders
(2,307
)
 
(23,793
)
 
(4,615
)
 
(37,902
)
Income attributable to participating securities
(140
)
 
(95
)
 
(280
)
 
(214
)
Net income (loss) attributable to the Aimco Operating Partnership’s common unitholders
$
10,682

 
$
578

 
$
16,029

 
$
(10,768
)
Denominator:
 
 
 
 
 
 
 
Denominator for basic earnings per unit — weighted average number of common units outstanding
153,294

 
135,622

 
153,217

 
132,159

Effect of dilutive securities:
 
 
 
 
 
 
 
Dilutive potential common units
353

 
—

 
287

 
—

Denominator for diluted earnings per unit
153,647

 
135,622

 
153,504

 
132,159

Earnings (loss) per common unit – basic and diluted:
 
 
 
 
 
 
 
Income (loss) from continuing operations attributable to the Aimco Operating Partnership’s common unitholders
$
0.02

 
$
(0.26
)
 
$
0.01

 
$
(0.56
)
Income from discontinued operations attributable to the Aimco Operating Partnership’s common unitholders
0.05

 
0.26

 
0.09

 
0.48

Net income (loss) attributable to the Aimco Operating Partnership’s common unitholders
$
0.07

 
$
—

 
$
0.10

 
$
(0.08
)
Aimco and the Aimco Operating Partnership
As of June 30, 2013, the common share equivalents or common partnership unit equivalents that could potentially dilute basic earnings per share or unit in future periods totaled 3.0 million. These securities represent options to purchase shares of Common Stock, which, if exercised, would result in Aimco’s issuance of additional shares and the Aimco Operating Partnership’s issuance to Aimco of additional common partnership units equal to the number of shares purchased under the options. The effect of these securities was dilutive for the three and six months ended June 30, 2013 and accordingly has been included in the denominator for calculating diluted earnings (loss) per share and unit during these periods. These securities have been excluded from the earnings (loss) per share or unit computations for the three and six months ended June 30, 2012, because their effect would have been anti-dilutive. Participating securities, consisting of unvested restricted shares of Common Stock, receive dividends similar to shares of Common Stock and common partnership units and totaled 0.6 million and 0.5 million at June 30, 2013 and 2012, respectively. The effect of participating securities is included in basic and diluted earnings (loss) per share and unit computations for the periods presented above using the two-class method of allocating distributed and undistributed earnings.
Various classes of preferred OP Units of the Aimco Operating Partnership are outstanding. Depending on the terms of each class, these preferred OP Units are convertible into common OP Units or redeemable for cash or, at the Aimco Operating Partnership’s option, Common Stock, and are paid distributions varying from 1.8% to 8.8% per annum per unit, or equal to the dividends paid on Common Stock based on the conversion terms. As of June 30, 2013, a total of 2.9 million preferred OP Units were outstanding with an aggregate redemption value of $79.2 million and were potentially redeemable for approximately 2.6 million shares of Common Stock (based on the period end market price), or cash at the Aimco Operating Partnership’s option. The Aimco Operating Partnership has a redemption policy that requires cash settlement of redemption requests for the preferred

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OP Units, subject to limited exceptions. Accordingly, we expect these securities to be excluded from earnings (loss) per share or unit computations in future periods.
NOTE 10 — Business Segments
We have two reportable segments: conventional real estate operations and affordable real estate operations. Our conventional real estate operations consist of market-rate apartments with rents paid by the residents and included 176 properties with 55,965 units at June 30, 2013. Our affordable real estate operations consisted of 82 properties with 11,212 units at June 30, 2013, with rents that are generally paid, in whole or part, by a government agency.
Our chief executive officer, who is our chief operating decision maker, uses various generally accepted industry financial measures to assess the performance and financial condition of the business, including: Net Asset Value, which is the estimated fair value of our assets, net of liabilities and preferred equity; Funds From Operations, which represents net income or loss computed in accordance with GAAP, excluding gains from sales of, and impairment losses recognized with respect to, depreciable property, plus depreciation and amortization, and after adjustments for unconsolidated partnerships and joint ventures; Pro forma Funds From Operations, which is Funds From Operations excluding preferred equity redemption related amounts; Adjusted Funds From Operations, which is Pro forma Funds From Operations less spending for Capital Replacements, which represents our estimation of the capital additions required to maintain the value of our portfolio during our ownership period; property net operating income, which is rental and other property revenues less direct property operating expenses, including real estate taxes; proportionate property net operating income, which reflects our share of property net operating income of the consolidated and unconsolidated properties that we own and manage; same store property operating results; Free Cash Flow, which is net operating income less spending for Capital Replacements; Free Cash Flow internal rate of return; financial coverage ratios; and leverage as shown on our balance sheet. Our chief operating decision maker emphasizes proportionate property net operating income as a key measurement of segment profit or loss.
The following tables present the revenues, net operating income (loss) and income (loss) from continuing operations of our conventional and affordable real estate operations segments on a proportionate basis for the three months ended June 30, 2013 and 2012 (in thousands):
 
Conventional
Real Estate
Operations
 
Affordable
Real Estate
Operations
 
Proportionate
Adjustments (1)
 
Corporate and
Amounts Not
Allocated to
Segments
 
Consolidated
Three Months Ended June 30, 2013:
 
 
 
 
 
 
 
 
 
Rental and other property revenues (2)
$
213,331

 
$
25,494

 
$
13,008

 
$
20

 
$
251,853

Tax credit and asset management revenues
—

 
—

 
—

 
7,809

 
7,809

Total revenues
213,331

 
25,494

 
13,008

 
7,829

 
259,662

Property operating expenses (2)
77,606

 
10,123

 
4,806

 
9,182

 
101,717

Investment management expenses
—

 
—

 
—

 
1,697

 
1,697

Depreciation and amortization (2)
—

 
—

 
—

 
78,345

 
78,345

General and administrative expenses
—

 
—

 
—

 
11,153

 
11,153