e10vq

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

(Mark One)


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

For the quarterly period ended June 30, 2006


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 0-24497

AIMCO Properties, L.P.

(Exact name of registrant as specified in its charter)


Delaware		84-1275621
(State or other jurisdiction of		(I.R.S. Employer
incorporation or organization)		Identification No.)

4582 South Ulster Street Parkway, 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. Yes þ No o

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

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

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

The number of shares of Partnership Common Units outstanding as of July 31, 2006: 105,205,373

PART I. FINANCIAL INFORMATION

ITEM 1. Financial Statements

AIMCO PROPERTIES, L.P.

CONSOLIDATED BALANCE SHEETS

(In Thousands, Except Unit Data)


	June 30,			December 31,
	2006			2005
	(Unaudited)
ASSETS
Real estate:
Land	$	2,337,304		$	2,241,907
Buildings and improvements		9,621,985			8,314,585

Total real estate		11,959,289			10,556,492
Less accumulated depreciation		(2,806,835	)		(2,116,043	)

Net real estate		9,152,454			8,440,449
Cash and cash equivalents		323,463			161,730
Restricted cash		341,267			284,068
Accounts receivable		65,830			59,888
Accounts receivable from affiliates		24,984			43,070
Deferred financing costs		74,529			65,188
Notes receivable from unconsolidated real estate partnerships		45,705			177,218
Notes receivable from non-affiliates		51,497			23,760
Notes receivable from Aimco		13,655			13,299
Investment in unconsolidated real estate partnerships		57,905			166,667
Other assets		221,081			216,789
Deferred income tax assets, net		—			9,835
Assets held for sale		32,981			369,797

Total assets	$	10,405,351		$	10,031,758


LIABILITIES AND PARTNERS’ CAPITAL
Property tax-exempt bond financing	$	1,043,755		$	1,040,549
Property loans payable		5,163,064			4,438,542
Term loans		400,000			400,000
Credit facility		—			217,000

Total indebtedness		6,606,819			6,096,091

Accounts payable		30,460			34,381
Accrued liabilities and other		396,474			423,633
Deferred income		98,814			46,872
Security deposits		43,851			37,800
Deferred income tax liabilities, net		6,219			—
Liabilities related to assets held for sale		18,135			228,871

Total liabilities		7,200,772			6,867,648


Minority interest in consolidated real estate partnerships		269,679			218,708

Partners’ capital:
Preferred units		1,087,968			1,183,620
General Partner and Special Limited Partner		1,528,930			1,570,046
Limited Partners		342,576			301,452
High Performance Units		(17,039	)		(16,307	)
Investment in Aimco Class A Common Stock		(7,535	)		(7,997	)
Notes receivable from Aimco		—			(85,412	)

Total partners’ capital		2,934,900			2,945,402

Total liabilities and partners’ capital	$	10,405,351		$	10,031,758

See notes to consolidated financial statements.

AIMCO PROPERTIES, L.P.

CONSOLIDATED STATEMENTS OF INCOME

(In Thousands, Except Per Unit Data)
(Unaudited)


	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2006			2005			2006			2005
REVENUES:
Rental and other property revenues	$	419,234		$	344,659		$	830,126		$	677,223
Property management revenues, primarily from affiliates		3,592			5,926			6,622			12,590
Activity fees and asset management revenues, primarily from affiliates		12,133			6,680			21,673			14,697

Total revenues		434,959			357,265			858,421			704,510


EXPENSES:
Property operating expenses		190,485			160,707			388,540			321,552
Property management expenses		2,151			1,829			2,643			3,745
Activity and asset management expenses		3,239			2,305			5,671			4,913
Depreciation and amortization		116,412			95,923			228,236			187,612
General and administrative expenses		24,805			21,723			47,508			42,567
Other expenses (income), net		2,279			(999	)		2,874			(1,754	)

Total expenses		339,371			281,488			675,472			558,635

Operating income		95,588			75,777			182,949			145,875

Interest income		6,899			8,642			15,289			16,612
Recovery of (provision for) losses on notes receivable		(502	)		(34	)		(764	)		1,558
Interest expense		(103,518	)		(86,328	)		(204,289	)		(169,364	)
Deficit distributions to minority partners, net		(4,096	)		(1,654	)		(6,282	)		(3,047	)
Equity in losses of unconsolidated real estate partnerships		(574	)		(418	)		(2,436	)		(1,319	)
Recovery of (impairment losses) related to real estate partnerships		(15	)		(275	)		971			(531	)
Gain on dispositions of real estate related to unconsolidated entities and other		4,060			3,154			13,756			5,161


Loss before minority interest and discontinued operations		(2,158	)		(1,136	)		(806	)		(5,055	)
Minority interest in consolidated real estate partnerships		(360	)		985			5,697			3,559

Income (loss) from continuing operations		(2,518	)		(151	)		4,891			(1,496	)
Income from discontinued operations, net		42,539			31,516			128,748			34,849

Net income		40,021			31,365			133,639			33,353
Net income attributable to preferred unitholders		21,940			24,627			48,913			49,701

Net income (loss) attributable to common unitholders	$	18,081		$	6,738		$	84,726		$	(16,348	)


Earnings (loss) per common unit – basic:
Loss from continuing operations (net of preferred distributions)	$	(0.23	)	$	(0.24	)	$	(0.42	)	$	(0.49	)
Income from discontinued operations		0.40			0.30			1.22			0.33

Net income (loss) attributable to common unitholders	$	0.17		$	0.06		$	0.80		$	(0.16	)

Earnings (loss) per common unit – diluted:
Loss from continuing operations (net of preferred distributions)	$	(0.23	)	$	(0.24	)	$	(0.42	)	$	(0.49	)
Income from discontinued operations		0.40			0.30			1.22			0.33

Net income (loss) attributable to common unitholders	$	0.17		$	0.06		$	0.80		$	(0.16	)


Weighted average common units outstanding		106,291			104,550			105,896			104,412

Weighted average common units and equivalents outstanding		106,291			104,550			105,896			104,412

Distributions declared per common unit	$	0.60		$	0.60		$	1.20		$	1.20

See notes to consolidated financial statements.

AIMCO PROPERTIES, L.P.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In Thousands, Unaudited)


	Six Months
	Ended June 30,
	2006			2005
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	133,639		$	33,353
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		228,236			187,612
Discontinued operations		(154,222	)		(14,753	)
Other adjustments		18,065			(5,171	)
Net changes in operating assets and operating liabilities		40,343			(18,668	)

Net cash provided by operating activities		266,061			182,373


CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of real estate		(41,732	)		(158,584	)
Capital expenditures		(236,203	)		(201,401	)
Proceeds from dispositions of real estate		544,815			140,160
Cash from newly consolidated properties		22,432			1,623
Purchases of non-real estate related corporate assets		(3,697	)		(7,218	)
Purchases of general and limited partnership interests and other assets		(10,932	)		(61,547	)
Originations of notes receivable from unconsolidated real estate partnerships		(7,820	)		(15,125	)
Proceeds from repayment of notes receivable		5,318			13,043
Distributions received from investments in unconsolidated real estate partnerships		11,774			34,051
Other investing activities		(17,558	)		361

Net cash provided by (used in) investing activities		266,397			(254,637	)


CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from property loans		656,634			328,543
Principal repayments on property loans		(599,870	)		(191,093	)
Principal repayments on tax-exempt bond financing		(31,690	)		(26,740	)
Net borrowings (repayments) on term loans and revolving credit facility		(217,000	)		305,900
Redemption of mandatorily redeemable preferred securities		—			(15,019	)
Proceeds from issuance of preferred units, net		12,125			—
Redemption of preferred units		(113,250	)		(31,250	)
Proceeds from Class A Common Stock option exercises		39,459			1,186
Originations of notes receivable from Aimco		—			(85,412	)
Repayment of notes receivable originated from Aimco		85,412			—
Principal repayments received on notes due on common unit purchases		18,626			8,557
Contributions from minority interest		11,529			17,403
Payment of distributions to minority interest		(43,515	)		(14,181	)
Payment of distributions to General Partner and Special Limited Partner		(115,508	)		(113,423	)
Payment of distributions to Limited Partners		(10,692	)		(11,087	)
Payment of distributions to High Performance Units		(2,866	)		(2,856	)
Payment of distributions to preferred units		(47,516	)		(47,074	)
Other financing activities		(12,603	)		(7,754	)

Net cash provided by (used in) financing activities		(370,725	)		115,700

NET INCREASE IN CASH AND CASH EQUIVALENTS		161,733			43,436
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD		161,730			105,343


CASH AND CASH EQUIVALENTS AT END OF PERIOD	$	323,463		$	148,779

See notes to consolidated financial statements.

AIMCO PROPERTIES, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2006
(Unaudited)

Note 1 — Organization

AIMCO Properties, L.P., a Delaware limited partnership, or the Partnership, and together with its consolidated subsidiaries and other consolidated entities that the Partnership controls, the Company, was formed on May 16, 1994 to conduct the business of acquiring, redeveloping, leasing, and managing multifamily apartment properties. Our securities include Partnership Common Units, or common OP Units, Partnership Preferred Units, or preferred OP Units, and High Performance Partnership Units, or High Performance Units, which are collectively referred to as “OP Units.” Apartment Investment and Management Company, or Aimco, is the owner of our general partner, AIMCO-GP, Inc., or the General Partner, and special limited partner, AIMCO-LP, Inc., or 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 our limited partners, 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 our prior right 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, or the Partnership Agreement.

We, through our operating divisions and subsidiaries, hold substantially all of Aimco’s assets and manage the daily operations of Aimco’s business and assets. Aimco is required to contribute all proceeds from offerings of its securities to us. In addition, substantially all of Aimco’s assets must be owned through the Partnership; therefore, Aimco is generally required to contribute all assets acquired to us. In exchange for the contribution of offering proceeds or assets, Aimco receives additional interests in us 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).

Aimco frequently consummates transactions for our benefit. For legal, tax or other business reasons, Aimco may hold title or ownership of certain assets until they can be transferred to us. However, we have a controlling financial interest in substantially all of Aimco’s assets in the process of transfer to us. Except as the context otherwise requires, “we,” “our,” “us” and the “Company” refer to the Partnership, and the Partnership’s consolidated entities, collectively. Except as the context otherwise requires, “Aimco” refers to Aimco and Aimco’s consolidated entities, collectively.

As of June 30, 2006, we:

	•		owned an equity interest in and consolidated 169,267 units in 731 properties (which we refer to as “consolidated”), of which 169,217 units were also managed by us;

	•		owned an equity interest in and did not consolidate 14,834 units in 110 properties (which we refer to as “unconsolidated”), of which 8,706 units were also managed by us; and

	•		provided services or managed, for third-party owners, 46,337 units in 479 properties, primarily pursuant to long-term agreements (including 39,751 units in 425 properties for which we provide asset management services only, and not also property management services), although in certain cases we may indirectly own generally less than one percent of the operations of such properties through a partnership syndication or other fund.

At June 30, 2006, we had outstanding 105,045,240 common OP Units, 37,063,227 preferred OP Units and 2,379,084 High Performance Units (excluding High Performance Units for which the applicable measurement period has not ended – see Note 4).

Note 2 — Basis of Presentation

The accompanying unaudited consolidated financial statements 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 disclosures 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 six months ended June 30, 2006, are not necessarily indicative of the results that may be expected for the year ending December 31, 2006.

The balance sheet at December 31, 2005 has been derived from the audited financial statements at that date but does not include all of the information and disclosures required by generally accepted accounting principles for complete financial statements. For further information, refer to the financial statements and notes thereto included in AIMCO Properties, L.P. Annual Report on Form 10-K for the year ended December 31, 2005. Certain 2005 financial statement amounts have been reclassified to conform to the 2006 presentation.

Principles of Consolidation

The accompanying consolidated financial statements include the accounts of the Partnership, and its consolidated entities. Pursuant to a Management and Contribution Agreement between the Partnership and Aimco, we have acquired, in exchange for interests in the Partnership, the economic benefits of subsidiaries of Aimco in which we do not have an interest, and Aimco has granted us a right of first refusal to acquire such subsidiaries’ assets for no additional consideration. Pursuant to the agreement, Aimco has also granted us 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. Interests held in consolidated real estate partnerships by limited partners other than us are reflected as minority interest in consolidated real estate partnerships. All significant intercompany balances and transactions have been eliminated in consolidation. The assets of consolidated real estate partnerships owned or controlled by Aimco or us generally are not available to pay creditors of Aimco or the Partnership.

As a result of the adoption of FASB Interpretation No. 46 (revised December 2003), Consolidation of Variable Interest Entities, or FIN 46, as of March 31, 2004, we consolidate all variable interest entities for which we are the primary beneficiary. Generally, we consolidate real estate partnerships and other entities that are not variable interest entities when we own, directly or indirectly, a majority voting interest in the entity or are otherwise able to control the entity. As a result of adopting EITF 04-5 as discussed further below, we are applying new criteria for determining whether we control certain partnerships.

Adoption of EITF 04-5

In June 2005, the Financial Accounting Standards Board ratified Emerging Issues Task Force Issue 04-5, Determining Whether a General Partner, or the General Partners as a Group, Controls a Limited Partnership or Similar Entity When the Limited Partners Have Certain Rights, or EITF 04-5. EITF 04-5 provides an accounting model to be used by a general partner, or group of general partners, to determine whether the general partner(s) controls a limited partnership or similar entity in light of substantive kick-out rights and substantive participating rights held by the limited partners, and provides additional guidance on what constitutes those rights. EITF 04-5 was effective after June 29, 2005 for general partners of (a) all newly formed limited partnerships and (b) existing limited partnerships for which the partnership agreements have been modified. We consolidated four partnerships in the fourth quarter of 2005 based on EITF 04-5 requirements. The consolidation of those partnerships had an immaterial effect on our consolidated financial statements. EITF 04-5 was effective on January 1, 2006, for general partners of all limited partnerships and similar entities. We applied EITF 04-5 as of January 1, 2006, using a transition method that does not involve retrospective application to our financial statements for prior periods.

We consolidated 156 previously unconsolidated partnerships as a result of the application of EITF 04-5 in 2006. Those partnerships own, or control other entities that own, 149 apartment properties. Our direct and indirect interests in the profits and losses of those partnerships range from less than one percent to 50 percent, and average approximately 22 percent. The initial consolidation of those partnerships resulted in increases (decreases), net of intercompany eliminations, in amounts reported in our consolidated balance sheet as of January 1, 2006, as follows (in thousands):


	Increase
	(decrease)
Real estate, net	$	665,793
Accounts and notes receivable from affiliates		(150,057	)
Investment in unconsolidated real estate partnerships		(64,419	)
All other assets		122,545

Total assets	$	573,862


Total indebtedness	$	521,711
All other liabilities		81,950
Minority interest in consolidated real estate partnerships		53,258
Partners’ capital		(83,057	)

Total liabilities and partners’ capital	$	573,862

Our income from continuing operations for the three and six months ended June 30, 2006, includes the following amounts for the partnerships consolidated as of January 1, 2006,in accordance with EITF 04-5 (in thousands):


	Three Months			Six Months
	Ended			Ended
	June 30, 2006			June 30, 2006
Revenues	$	40,546		$	81,506
Operating expenses		29,135			58,367

Operating income		11,411			23,139
Interest expense		(10,693	)		(24,896	)
Interest income		870			1,737

Income (loss) before minority interest	$	1,588		$	(20	)

In prior periods, we used the equity method to account for our investments in the partnerships that we consolidated in 2006 in accordance with EITF 04-5. Under the equity method, we recognized partnership income or losses based generally on our percentage interest in the partnership. Consolidation of a partnership does not ordinarily result in a change to the net amount of partnership income or loss that is recognized using the equity method. However, when a partnership has a deficit in equity, generally accepted accounting principles may require the controlling partner that consolidates the partnership to recognize any losses that would otherwise be allocated to noncontrolling partners, in addition to the controlling partner’s share of losses. Certain of the partnerships that we consolidated in accordance with EITF 04-5 had deficits in equity that resulted from losses or deficit distributions during prior periods when we accounted for our investment using the equity method. We would have been required to recognize the noncontrolling partners’ share of those losses had we applied EITF 04-5 in those prior periods. In accordance with our transition method for the adoption of EITF 04-5, we recorded a $83.1 million charge to retained earnings as of January 1, 2006, for the cumulative amount of additional losses that we would have recognized had we applied EITF 04-5 in prior periods. Substantially all of those losses were attributable to real estate depreciation expense. As a result of applying EITF 04-5 for the three and six months ended June 30, 2006, our income from continuing operations includes partnership losses in addition to losses that would have resulted from continued application of the equity method of $4.9 million and $9.1 million, respectively.

Stock-Based Compensation

Aimco, from time to time, issues restricted stock and stock options to its employees. We are required to issue common OP units to Aimco for the same number of shares of Aimco Class A common Stock that are issued to employees under these arrangements. Upon exercise of the stock options, Aimco must contribute to us the proceeds received in connection with the exercised stock options.

Aimco’s board of directors adopted the Apartment Investment and Management Company 1997 Stock Award and Incentive Plan, or the 1997 Plan to attract and retain officers, key employees and independent directors. The 1997 Plan

reserves for issuance a maximum of 20 million shares, which may be in the form of incentive stock options, non-qualified stock options and restricted stock, or other types of awards as authorized under the 1997 Plan. At June 30, 2006, there were approximately 3.5 million shares available to be granted. The 1997 Plan is administered by the Compensation and Human Resources Committee of Aimco’s board of directors. In the case of incentive stock options, the exercise price of the options granted may not be less than the fair market value of the Aimco Class A Common Stock at the date of grant. The term of the incentive and non-qualified options is generally ten years from the date of grant. The options typically vest over a period of one to five years from the date of grant. Aimco generally issues new shares upon exercise of options. Restricted stock awards typically vest over a period of three to five years.

Prior to 2006, we applied the accounting provisions of Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation, or SFAS 123, as amended by Statement of Financial Accounting Standards No. 148, Accounting for Stock-Based Compensation–Transition and Disclosure–an amendment of FASB Statement No. 123, or SFAS 148, to all employee awards granted, modified, or settled on or after January 1, 2003, which resulted in recognition of compensation expense related to Aimco’s stock options based on the fair value of the stock options. For stock options granted prior to January 1, 2003, we applied Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees, or APB 25, and related interpretations. Under APB 25, because the exercise price of Aimco’s employee stock options equaled the market price of the underlying stock on the date of grant, no compensation expense related to such options was recognized. We recognized compensation expense for stock options accounted for under SFAS 123 and restricted stock awards ratably over the period the awards vested. Compensation cost was reversed as forfeitures occurred.

Effective January 1, 2006, we adopted Statement of Financial Accounting Standards No. 123 (revised 2004), Share-Based Payment, or SFAS 123R, which superseded SFAS 123. SFAS 123R requires all share-based employee compensation, including grants of employee stock options, to be recognized in the financial statements based on fair value and provides for a modified prospective application method of adoption. Under this method, we are applying the provisions of SFAS 123R prospectively to new and modified awards granted on or after January 1, 2006, and are recognizing compensation cost over the remaining vesting period for the unvested portion of all outstanding awards granted prior to 2006. The measurement and recognition provisions of SFAS 123R that we apply to Aimco’s stock compensation arrangements are similar to those that we applied under SFAS 123 to awards granted on or after January 1, 2003. Under SFAS 123R, we continue to recognize the cost of stock-based compensation ratably over the vesting period. The primary change in our method of recognizing compensation cost relates to the treatment of forfeitures. Under SFAS 123R, expected forfeitures are required to be estimated in determining periodic compensation cost, whereas under SFAS 123 we recognized forfeitures as they occurred.

In connection with the adoption of SFAS 123R as of January 1, 2006, we estimated that forfeitures of unvested awards of stock options and restricted stock for which compensation expense was recognized prior to 2006 will total approximately $154,000. SFAS 123R provides that a cumulative effect of change in accounting principle be recognized for such estimated forfeitures as of the date of adoption. We believe the estimated forfeitures upon adoption of SFAS 123R are immaterial and have reported the cumulative effect adjustment in our general and administrative expenses for the three and six months ended June 30, 2006. The adoption of SFAS 123R resulted in decreases in our net income for the three and six months ended June 30, 2006, of $346,000 and $601,000, respectively, including the cumulative effect adjustment. We estimate that the adoption of SFAS 123R will result in a decrease in our net income for the year ending December 31, 2006, of approximately $1.0 million due to the recognition of compensation expense related to stock options granted prior to 2003. After 2006, SFAS 123R is not expected to have any significant effect on our financial statements other than the timing of recognition of forfeitures.

We estimated the fair value of options granted by Aimco in 2006 and 2005 using a Black-Scholes closed-form valuation model using the assumptions set forth in the table below. For options granted in 2006, the expected term of the options reflects the average of the vesting period and the contractual term for the options. Expected volatility reflects the historical volatility of Aimco Class A Common Stock during the historical period commensurate with the expected term of the options that ended on the date of grant. The expected dividend yield reflects the actual amount per share paid on Aimco Class A Common Stock after 2003 and the risk-free interest rate reflects the annualized yield of a zero coupon U.S. Treasury security with a term equal to the expected term of the option. For options granted during the six months ended June 30, 2006 and 2005, the weighted average fair value of options and Aimco’s valuation assumptions were as follows:


	Six Months Ended June 30,
	2006			2005
Weighted average fair value of options granted during the period	$	5.23		$	3.57

Assumptions:
Risk-free interest rate		4.58	%		4.10	%
Expected dividend yield		5.58	%		6.31	%
Expected volatility		20.15	%		19.00	%
Weighted average expected life of options	6.5 years			5.0 years

The following table summarizes activity for Aimco’s outstanding stock options for the six months ended June 30, 2006:


				Weighted		Weighted	Aggregate
				Average		Average	Intrinsic
	Options			Exercise		Contractual	Value
	(thousands)			Price		Term	(thousands)
Outstanding at January 1, 2006		11,054		$	38.78
Granted		647			43.01
Exercised		(1,068	)		36.92
Forfeited		(294	)		37.39


Outstanding at June 30, 2006		10,339		$	39.23	4.7 years	$	47,840

Exercisable at June 30, 2006		8,184		$	39.32	3.8 years	$	37,685

The intrinsic value of a stock option represents the amount by which the fair value of the underlying stock exceeds the exercise price of the option. The intrinsic value of stock options exercised during the six months ended June 30, 2006 and 2005 was $7.3 million and $0.1 million, respectively. Tax benefits may be realized in connection with the exercise of options by employees of Aimco’s taxable subsidiaries. We did not realize material tax benefits in connection with the exercise of stock options during the six months ended June 30, 2006 and 2005, respectively.

The following table summarizes activity for Aimco’s restricted stock awards for the six months ended June 30, 2006:


	Six Months Ended
	June 30, 2006
				Weighted
				Average
	Shares			Grant-Date
	(thousands)			Fair Value
Unvested at January 1, 2006		882		$	35.07
Granted		452			43.20
Vested		(229	)		34.26
Forfeited		(141	)		33.15


Unvested at June 30, 2006		964		$	39.11

The aggregate fair value of shares that vested during the six months ended June 30, 2006 and 2005 was $10.0 million and $7.3 million, respectively.

Total compensation cost recognized for restricted stock and stock option awards was $6.7 million and $5.0 million for the six months ended June 30, 2006 and 2005, respectively. Of these amounts, $1.3 million and $0.9 million, respectively, were capitalized. At June 30, 2006, total unvested compensation cost not yet recognized was $35.3 million. We expect to recognize this compensation over a weighted average period of approximately 1.9 years. Certain awards of restricted stock and options granted after 2004 are subject to immediate vesting based on achievement of a specified annual financial performance target during the scheduled vesting period. Recognition of related compensation cost may be accelerated based on our ongoing assessment of whether the performance target is probable of being achieved. At this time, we do not believe that achievement of the performance target is probable.

The following table illustrates the pro forma effect on net income and earnings per unit if the fair value based method under SFAS 123 had been applied to all outstanding and unvested awards for the three and six months ended June 30, 2005 (in thousands, except per unit data):


	Three Months Ended			Six Months Ended
	June 30, 2005			June 30, 2005
Net income (loss) attributable to common unitholders, as reported	$	6,737		$	(16,348	)
Add stock-based employee compensation expense included in reported net income:
Restricted stock awards		2,227			4,082
Stock options		470			923
Deduct total stock-based employee compensation expense determined under fair value based method for all awards:
Restricted stock awards		(2,227	)		(4,082	)
Stock options		(882	)		(1,755	)
Pro forma net income (loss) attributable to common unitholders	$	6,325		$	(17,180	)

Basic earnings (loss) per common unit:
Reported	$	0.06		$	(0.16	)
Pro forma	$	0.06		$	(0.17	)
Diluted earnings (loss) per common unit:
Reported	$	0.06		$	(0.16	)
Pro forma	$	0.06		$	(0.17	)

Use of Estimates

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

We test for the recoverability of real estate assets that do not currently meet all conditions to be classified as held for sale, but are expected to be disposed of prior to the end of their estimated useful lives. If events or circumstances indicate that the carrying amount of a property may not be recoverable, we make an assessment of its recoverability by comparing the carrying amount to our estimate of the undiscounted future cash flows of the property, excluding interest charges. If the carrying amount exceeds the estimated aggregate undiscounted future cash flows, we recognize an impairment loss to the extent the carrying amount exceeds the estimated fair value of the property. If an impairment charge is not required to be recorded under the provisions of Statement of Financial Accounting Standards No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, or SFAS 144, the recognition of depreciation is adjusted prospectively, as necessary, to reduce the carrying value of the real estate to its estimated disposition value over the remaining period that the real estate is expected to be held and used. These depreciation adjustments decreased net income by $4.3 million and $10.3 million, and resulted in a decrease in basic and diluted earnings per unit of $0.04 and $0.10, for the three months ended June 30, 2006 and 2005, respectively. For the six months ended June 30, 2006 and 2005, these depreciation adjustments decreased net income by $9.6 million and $19.6 million, and resulted in a decrease in basic and diluted earnings per unit of $0.09 and $0.19, respectively.

Note 3 — Commitments and Contingencies

Commitments

In connection with the March 2002 acquisition of Casden Properties, Inc., we and Aimco committed to invest up to $50 million for an interest in Casden Properties LLC. As of June 30, 2006, we and Aimco had invested $45.8 million. Casden Properties LLC is pursuing development opportunities in Southern California and other markets. We and Aimco have an option, but not an obligation, to purchase at completion all multifamily rental projects developed by Casden Properties LLC. We and Aimco also committed to pay an aggregate amount of $50 million to Casden Properties LLC as a retainer on account for redevelopment services. As of June 30, 2006, $42.5 million has been paid.

In connection with our redevelopment and capital improvement activities, we have commitments of approximately $82.3 million related to construction projects that are due to be substantially completed during 2006. 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.

Tax Credit Syndication

We are required to manage certain consolidated real estate partnerships in compliance with various laws, regulations and contractual provisions that apply to our syndication of historic and low-income housing tax credits. In some instances, noncompliance with applicable requirements could result in projected tax benefits not being realized and require a refund or reduction of investor capital contributions, which are reported as minority interest in our consolidated balance sheet. The remaining compliance periods for our tax credit syndication arrangements range from less than one year to 15 years. At June 30, 2006, 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 liability insurance, and none of which we expect to have a material adverse effect on our consolidated financial condition or results of operations.

Limited Partnerships

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

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

We have determined that our legal obligations to remove or remediate hazardous substances may be conditional asset retirement obligations as defined in FASB Interpretation No. 47, Conditional Asset Retirement Obligations. Except in limited circumstances where the asset retirement activities are expected to be performed in connection with a planned

construction project or property casualty, we believe that the fair value of our asset retirement obligations cannot be reasonably estimated due to significant uncertainties in the timing and manner of settlement of those obligations. Asset retirement obligations that are reasonably estimable as of June 30, 2006, are immaterial to our consolidated financial condition and results of operations.

Mold

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

Unclaimed Property and Use Taxes

Based on inquiries from several states, we are reviewing our historic forfeiture of unclaimed property pursuant to applicable state and local laws. We are also reviewing our historic filing of use tax returns in certain state and local jurisdictions that impose such taxes. Although the outcome is uncertain, we do not expect the effect of any non-compliance to have a material adverse effect on our consolidated financial condition or results of operations.

Insurance Litigation

Aimco has settled previously disclosed litigation involving National Union Fire Insurance Company of Pittsburgh, Pennsylvania, First Capital Group, a New York based insurance wholesaler, and other agents involved in the issuance of property insurance. Pursuant to the agreements, Aimco will receive $7 million in settlement payments, in the third quarter of 2006. Aimco has also settled its litigation with Cananwill, Inc. (“Cananwill”), Combined Specialty Insurance Company, formerly known as Virginia Surety Company, Inc., and others. Pursuant to the agreements, Aimco will recover from Cananwill $1.6 million of unearned premium and contribute $1.65 million to a settlement pool payable to Cananwill. We recorded a loss of $1.3 million for the six months ended June 30, 2006, as a result of adjustments to Aimco’s accounts receivable affected by these settlements.

The previously disclosed litigation brought by WestRM – West Risk Markets, Ltd. (“WestRM”) against XL Reinsurance America, Inc. (“XL), Greenwich Insurance Company (“Greenwich”) and Lumbermens in which Aimco has been made a third party defendant continues. Summary judgment has been entered against defendants XL and Greenwich. The court issued an opinion on the parties’ cross-motions for summary judgment on July 19, 2006, rejecting Greenwich/XL’s motions in their entirety and granting partial summary judgment in favor of Aimco, dismissing the claims for fraud, civil conspiracy, negligent supervision, and aiding and abetting fraud. The court left intact Greenwich/XL’s claims for contractual indemnification, contractual subrogation, and unjust enrichment. Aimco believes that it has meritorious defenses to assert, and will vigorously prosecute its own claims. Although the outcome of any claim or matter in litigation is uncertain, we do not believe that we will incur any material loss or that the ultimate outcome of this matter will have a material adverse effect on our consolidated financial condition or results of operations.

FLSA Litigation

We and NHP Management Company (“NHPMN”), our subsidiary, are defendants in a lawsuit alleging that we and NHPMN willfully violated the Fair Labor Standards Act (“FLSA”) by failing to pay maintenance workers overtime for time worked in excess of 40 per week. The complaint, filed in the United States District Court for the District of Columbia, attempts to bring a collective action under the FLSA and seeks to certify state subclasses in California, Maryland, and the District of Columbia. Specifically, the plaintiffs contend that we and NHPMN failed to compensate maintenance workers for time that they were required to be “on-call.” Additionally, the complaint alleges we and NHPMN failed to comply with the FLSA in compensating maintenance workers for time that they worked in excess of 40 hours in a week. In June 2005, the court conditionally certified the collective action on both the on-call and overtime issues. Approximately 1,049 individuals opted-in to the class. We and NHPMN are moving to decertify the collective action on both issues in briefs expected to be filed by August 15, 2006. Because the court denied plaintiffs’ motion to certify state subclasses, on

September 26, 2005, the plaintiffs filed a class action with the same allegations in the Superior Court of California (Contra Costa County), and on November 5, 2005, in Montgomery County Maryland Circuit Court. The California case has been stayed, and we and NHPMN have moved to stay the Maryland case as well. Although the outcome of any litigation is uncertain, we do not believe that the ultimate outcome will have a material adverse effect on our consolidated financial condition or results of operations.

Note 4 — Partners’ Capital

Preferred OP Units

On June 29, 2006, Aimco sold 200 shares of its Series A Community Reinvestment Act Perpetual Preferred Stock, $0.01 par value per share (“CRA Preferred Stock”), with a liquidation preference of $500,000 per share, for proceeds of approximately $98 million. Proceeds of $85.4 million were used to repay our note receivable from Aimco, which was classified in our balance sheet as a reduction in partners’ capital, related to the February 2005 acquisition of the Palazzo East at Park La Brea. Concurrently, all of the outstanding 3,416,478 Class Thirteen Partnership Preferred Units held by Aimco were converted into 170.8239 Series A Community Reinvestment Act Perpetual Preferred units, or the CRA Preferred Units. An additional 29.1761 CRA Preferred Units were issued to Aimco in exchange for the $12.6 million excess of gross proceeds from Aimco’s issuance of CRA Preferred Stock over the principal amount of the note that was repaid, resulting in a total of 200 CRA Preferred Units being issued.

The CRA Preferred Units have substantially the same terms as the CRA Preferred Stock. Holders of the CRA Preferred Units are entitled to cumulative cash dividends payable quarterly in arrears on March 31, June 30, September 30, and December 31 of each year, when and as declared, beginning on September 30, 2006. For the period from June 29, 2006, the date of original issuance, through March 31, 2015, the distribution rate is a variable rate per annum equal to the Three-Month LIBOR Rate (as defined in the Articles Supplementary designating the CRA Preferred Stock) plus 1.25%, calculated as of the beginning of each quarterly distribution period. The initial distribution rate is 6.75% per annum.

Upon liquidation, holders of the CRA Preferred Units are entitled to a preference of $500,000 per share, plus an amount equal to accumulated, accrued and unpaid dividends, whether or not earned or declared. The CRA Preferred Units rank prior to our Common OP Units and are on the same level as our other preferred units, with respect to the payment of dividends and the distribution of amounts upon liquidation, dissolution or winding up.

The CRA Preferred Units are not redeemable prior to June 30, 2011, except in limited circumstances related to Aimco’s REIT qualification. On and after June 30, 2011, the CRA Preferred Units are redeemable for cash, in whole or from time to time in part, upon the redemption, at Aimco’s option, of its CRA Preferred Stock at a price per share equal to the liquidation preference, plus accumulated, accrued and unpaid dividends, if any, to the redemption date.

On March 19, 2006, Aimco redeemed all 2.53 million outstanding shares of its 10.1% Class Q Cumulative Preferred Stock. The redemption price per share was $25.00 plus an amount equal to accumulated and unpaid dividends thereon to the redemption date of $0.035, for a total redemption price of $25.035 per share. Concurrently with this redemption we redeemed for cash the remaining Class Q Partnership Preferred Units. The aggregate redemption price of $63.3 million was paid in cash.

On March 31, 2006, Aimco redeemed all 2.0 million outstanding shares of its privately held 8.5% Class X Cumulative Convertible Preferred Stock. The redemption price per share was $25.00 plus an amount equal to accumulated and unpaid dividends thereon to the redemption date of $0.53125, for a total redemption price of $25.53125 per share. Concurrently with this redemption we redeemed for cash the remaining Class X Partnership Preferred Units. The aggregate redemption price of $51.1 million was paid in cash.

Net income attributable to preferred unitholders includes preferred unit distribution requirements of $21.9 million and $46.3 million, and issuance costs related to redemptions of preferred units of zero and $2.6 million, for the three and six months ended June 30, 2006, respectively.

Common OP Units

During the three and six months ended June 30, 2006, approximately 28,000 and 51,000 common OP Units, respectively, were redeemed for cash and approximately 6,000 and 35,000 common OP Units, respectively were redeemed in exchange for shares of Aimco Class A Common Stock. During the three and six months ended June 30, 2005,

approximately 20,000 and 32,000 common OP Units, respectively, were redeemed for cash and approximately 98,000 and 131,000 common OP Units, respectively were redeemed in exchange for shares of Aimco Class A Common Stock.

During the three and six months ended June 30, 2006, we issued approximately 50,000 and 452,000 common OP Units, respectively, to Aimco and Aimco issued corresponding restricted shares of Aimco Class A Common Stock to certain officers and employees. For the three and six months ended June 30, 2005, similar issuances of common OP Units and corresponding restricted shares of Aimco Class A Common Stock totaled zero and 347,000, respectively. We recorded the common OP Units at the fair value of the Aimco Class A Common Stock on the date of issuance. See Stock-Based Compensation in Note 2 for additional information about Aimco’s stock-based compensation arrangements.

During the three and six months ended June 30, 2006, Aimco issued approximately 12,000 shares and 19,000 shares, respectively, of Aimco Class A Common Stock to certain of its non-executive officers at fair value compared to approximately 8,000 shares and 12,000 shares for the three and six months ended June 30, 2005. In exchange for common shares purchased, those non-executive officers executed notes payable totaling $0.5 million and $0.8 million for the three and six months ended June 30, 2006, respectively, and $0.3 million and $0.4 million for the three and six months ended June 30, 2005, respectively, which notes are 25% recourse to the borrowers, have a 10-year maturity and bear interest either at a fixed rate of 6% annually or a floating rate based on the one-month LIBOR plus 3.85%, which is subject to an annual interest rate cap of 7.25%. Aimco contributed those notes to us in exchange for approximately 12,000 and 19,000 common OP Units for the three and six months ended June 30, 2006, respectively, and for 8,000 and 12,000 common OP Units for the three and six months ended June 30, 2005, respectively. Total payments on such notes from all officers for the three and six months ended June 30, 2006 were $2.2 million and $18.6 million, respectively. Total payments on such notes from all officers for the three and six months ended June 30, 2005 were $4.6 million and $8.6 million, respectively.

High Performance Units

In May 2006, we issued 5,000 Class IX High Performance Partnership Units (“Class IX Units”) to a limited liability company owned by certain members of our senior management in exchange for cash of $875,000, representing the estimated fair value of the Class IX Units. Depending on the degree, if any, to which certain financial performance benchmarks are achieved over a three-year measurement period ending on December 31, 2008, the holders of Class IX Units may obtain rights to participate in distributions and undistributed earnings equivalent to those of a maximum of one percent of our outstanding common OP units. Prior to the end of the measurement period, the Class IX Units have insignificant rights to participate in distributions and undistributed earnings.

Potentially dilutive High Performance Units outstanding at June 30, 2006 also include 5,000 Class VIII High Performance Partnership Units, for which the measurement period ends on December 31, 2007, and 4,109 Class VII High Performance, for which the measurement period ends on December 31, 2006.

At June 30, 2006, performance benchmarks for the Class VIII Units and Class IX Units had been achieved that would result in the issuance of the equivalent of approximately 258,000 common OP Units if the related measurement periods had ended on that date.

Note 5 — Discontinued Operations and Assets Held for Sale

At June 30, 2006, we had four properties with an aggregate of 966 units classified as held for sale. During the six months ended June 30, 2006, we sold 38 properties with an aggregate of 8,692 units. Additionally, on February 17, 2006, we closed the sale of a portion of the Flamingo South Beach property known as the South Tower with an aggregate of 562 units. During the year ended December 31, 2005, we sold 83 properties with an aggregate of 16,835 units and our interest in one partnership. For the three and six months ended June 30, 2006, discontinued operations included the results of operations of all of the above properties prior to the date of sale.

The following is a summary of the components of income from discontinued operations for the three and six months ended June 30, 2006 and 2005 (in thousands):


	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2006			2005			2006			2005
Rental and other property revenues	$	5,546		$	45,467		$	23,876		$	93,074
Property operating expense		(3,116	)		(23,533	)		(12,900	)		(48,127	)
Depreciation and amortization		(1,438	)		(12,021	)		(5,815	)		(24,969	)
Other (expenses) income, net		(1,634	)		(302	)		(2,657	)		(549	)


Operating income		(642	)		9,611			2,504			19,429
Interest income		62			109			215			259
Interest expense		(1,464	)		(11,309	)		(6,021	)		(23,346	)
Minority interest in consolidated real estate Partnerships		729			738			1,058			1,693

Loss before gain on dispositions of real estate, impairment losses, deficit distributions to minority partners, income tax		(1,315	)		(851	)		(2,244	)		(1,965	)
Gain on dispositions of real estate, net of minority partners’ interest		42,646			29,719			142,571			36,680
Recovery of impairment losses (impairment losses) on real estate assets sold or held for sale		195			(231	)		(8	)		(2,186	)
Recovery of deficit distributions to minority partners		2,057			4,084			16,415			3,539
Income tax arising from dispositions		(1,044	)		(1,205	)		(27,986	)		(1,219	)

Income from discontinued operations	$	42,539		$	31,516		$	128,748		$	34,849

We are currently marketing for sale certain real estate properties that are inconsistent with our long-term investment strategy. We expect that all properties classified as held for sale will sell within one year from the date classified as held for sale. At June 30, 2006, assets classified as held for sale of $33.0 million included real estate net book value of $32.5 million and liabilities related to assets classified as held for sale of $18.1 million included mortgage debt of $18.0 million. At December 31, 2005, assets classified as held for sale of $369.8 million included real estate net book value of $364.7 million and liabilities related to assets classified as held for sale of $228.9 million included mortgage debt of $221.8 million, represented by 36 properties and the South Tower with 10,220 units that were classified as held for sale during 2006 and 2005. The estimated proceeds, less anticipated costs to sell, for certain of these assets were less than the related net book value, and therefore we recorded net impairment losses of $0.4 million for the three months ended June 30, 2006, offset by $0.6 million in recoveries of estimated impairments from prior periods. Impairment losses recorded for the three and six months ended June 30, 2005 were $0.2 million and $2.2 million, respectively. We are also marketing for sale certain other properties that do not meet the criteria to be classified as held for sale.

Note 6 — Earnings per Unit

We calculate earnings per unit based on the weighted average number of common OP Units, common OP Unit equivalents and dilutive convertible securities outstanding during the period. The following table illustrates the calculation of basic and diluted earnings per unit for the three and six months ended June 30, 2006 and 2005 (in thousands, except per unit data):


	Three Months Ended June 30,						Six Months EndedJune 30,
	2006			2005			2006			2005
Numerator:
Income (loss) from continuing operations	$	(2,518	)	$	(151	)	$	4,891		$	(1,496	)
Less net income attributable to preferred unitholders		(21,940	)		(24,627	)		(48,913	)		(49,701	)

Numerator for basic and diluted earnings per share — Loss from continuing operations	$	(24,458	)	$	(24,778	)	$	(44,022	)	$	(51,197	)


Income from discontinued operations	$	42,539		$	31,516		$	128,748		$	34,849


Net income	$	40,021		$	31,365		$	133,639		$	33,353
Less net income attributable to preferred unitholders		(21,940	)		(24,627	)		(48,913	)		(49,701	)

Numerator for basic and diluted earnings per unit — Net income (loss) attributable to common unitholders	$	18,081		$	6,738		$	84,726		$	(16,348	)

Denominator:
Denominator for basic earnings per unit — weighted average number of common units outstanding		106,291			104,550			105,896			104,412
Effect of dilutive securities:
Dilutive potential common units		—			—			—			—

Denominator for diluted earnings per unit		106,291			104,550			105,896			104,412

Earnings (loss) per common unit:
Basic earnings (loss) per common unit:
Loss from continuing operations (net of preferred distributions)	$	(0.23	)	$	(0.24	)	$	(0.42	)	$	(0.49	)
Income from discontinued operations		0.40			0.30			1.22			0.33

Net income (loss) attributable to common unitholders	$	0.17		$	0.06		$	0.80		$	(0.16	)

Diluted earnings (loss) per common unit:
Loss from continuing operations (net of preferred distributions)	$	(0.23	)	$	(0.24	)	$	(0.42	)	$	(0.49	)
Income from discontinued operations		0.40			0.30			1.22			0.33

Net income (loss) attributable to common unitholders	$	0.17		$	0.06		$	0.80		$	(0.16	)

All of our convertible preferred OP Units are anti-dilutive on an “if converted” basis, therefore, we deduct all of the distributions payable on the convertible preferred OP Units to arrive at the numerator and no additional units are included in the denominator when calculating basic and diluted earnings per common unit. We have excluded from diluted earnings per unit the common OP Unit equivalents related to approximately 11.5 million and 11.5 million of vested and unvested stock options, units issued for the portions of notes receivable that are non-recourse, and restricted stock awards for the three and six months ended June 30, 2006, respectively, and approximately 12.8 million and 12.6 million for the three and six months ended June 30, 2005, respectively, because the effect of their inclusion would be anti-dilutive. We also have excluded from diluted earnings per unit High Performance Units for which the applicable measurement period has not ended because the effect of their inclusion would be anti-dilutive.

Note 7 — Business Segments

We have two reportable segments: real estate (owning and operating apartments) and investment management business (providing property management and other services relating to the apartment business, primarily to affiliates). We own and operate properties throughout the United States and Puerto Rico that generate rental and other property-related income through the leasing of apartment units to a diverse base of residents. We separately evaluate the performance of each of our properties. However, because each of our properties has similar economic characteristics, the properties have been aggregated into a single real estate segment. All real estate revenues are from external customers and no real estate revenues are generated from transactions with other segments. No single resident or related group of residents contributed 10% or more of total revenues during the three and six months ended June 30, 2006 or 2005. Portions of the gross revenues earned in the investment management business are from transactions with affiliates in the real estate segment.

Statement of Financial Accounting Standards No. 131, Disclosures about Segments of an Enterprise and Related Information, or SFAS 131, requires that segment disclosures present the measure(s) used by the chief operating decision maker for purposes of assessing such segments’ performance. Our chief operating decision maker is comprised of several members of our executive management team who use several generally accepted industry financial measures to assess the performance of the business including net operating income, free cash flow, funds from operations, and adjusted funds from operations. The chief operating decision maker emphasizes net operating income as a key measurement of segment profit or loss. Accordingly, below we disclose net operating income for each of our segments. Net operating income is defined as segment revenues (after the elimination of intersegment revenues) less direct segment operating expenses.

The following table presents revenues and net operating income for the three and six months ended June 30, 2006 and 2005, from these segments, and reconciles net operating income of reportable segments to operating income as reported in the Consolidated Statements of Income. Additionally, total assets for our reportable segments is reconciled to total consolidated assets as reported in the Consolidated Balance Sheets (in thousands):


	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2006			2005			2006			2005
Revenues:
Real estate segment	$	419,234		$	344,659		$	830,126		$	677,223
Investment management segment:
Gross revenues		40,901			32,543			76,381			67,057
Elimination of intersegment revenues		(25,176	)		(19,937	)		(48,086	)		(39,770	)

Net revenues after elimination		15,725			12,606			28,295			27,287

Total revenues of reportable segments	$	434,959		$	357,265		$	858,421		$	704,510

Net operating income:
Real estate segment	$	228,749		$	183,952		$	441,586		$	355,671

Investment management segment		10,335			8,472			19,981			18,629

Total net operating income of reportable segments		239,084			192,424			461,567			374,300


Reconciliation of net operating income of reportable segments to operating income:
Depreciation and amortization		(116,412	)		(95,923	)		(228,236	)		(187,612	)
General and administrative expenses		(24,805	)		(21,723	)		(47,508	)		(42,567	)
Other (expenses) income, net		(2,279	)		999			(2,874	)		1,754

Operating income	$	95,588		$	75,777		$	182,949		$	145,875


	June 30,		December 31,
	2006		2005
ASSETS:
Total assets for reportable segments (1)	$	10,046,984	$	9,656,348
Corporate and other assets		358,367		375,410

Total consolidated assets	$	10,405,351	$	10,031,758


(1)		Total assets for reportable segments include assets associated with both the real estate and investment management business segments.

Note 8 – Recent Accounting Developments

In July 2006, the Financial Accounting Standards Board issued FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes, or FIN 48. FIN 48 prescribes a two-step process for the financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return. The first step involves evaluation of a tax position to determine whether it is more likely than not that the position will be sustained upon examination, based on the technical merits of the position. The second step involves measuring the benefit to recognize in the financial statements for those tax positions that meet the more-likely-than-not recognition threshold. FIN 48 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. FIN 48 is effective for fiscal years beginning after December 15, 2006. We have not yet determined the effects that FIN 48 will have on our financial statements.

Note 9 – Subsequent Events

On July 20, 2006, Aimco redeemed all 6,940,000 outstanding shares of its 10% Class R Cumulative Preferred Stock at a redemption price per share of $25.00 plus an amount equal to accumulated and unpaid dividends thereon to the redemption date for a total of $25.243 per share. Concurrently with this redemption we redeemed for cash the remaining Class R Partnership Preferred Units. The aggregate redemption price of $175.2 million was paid in cash. Costs incurred in connection with the issuance of the 10% Class R Cumulative Preferred Stock and the related issuance of Class R Partnership Preferred Units of approximately $4 million will be reported in net income attributable to preferred unitholders in the period of redemption.

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

Forward Looking Statements

The Private Securities Litigation Reform Act of 1995 provides a “safe harbor” for forward-looking statements in certain circumstances. Certain information included in this Report contains or may contain information that is forward-looking, including, without limitation, statements regarding the effect of acquisitions, our future financial performance and the effect of government regulations. Actual results may differ materially from those described in the forward-looking statements and will be affected by a variety of risks and factors that are beyond our control including, without limitation: natural disasters such as hurricanes; national and local economic conditions; the general level of interest rates; energy costs; the terms of governmental regulations that affect us and interpretations of those regulations; the competitive environment in which we operate; financing risks, including the risk that our cash flows from operations may be insufficient to meet required payments of principal and interest; real estate risks, including variations of real estate values and the general economic climate in local markets and competition for tenants in such markets; acquisition and development risks, including failure of such acquisitions to perform in accordance with projections; the timing of acquisitions and dispositions; litigation, including costs associated with prosecuting or defending claims and any adverse outcomes; and possible environmental liabilities, including costs, fines or penalties that may be incurred due to necessary remediation of contamination of properties presently owned or previously owned by us. In addition, Aimco’s current and continuing qualification as a real estate investment trust involves the application of highly technical and complex provisions of the Internal Revenue Code and depends on our ability to meet the various requirements imposed by the Internal Revenue Code, through actual operating results, distribution levels and diversity of stock ownership. Readers should carefully review our financial statements and the notes thereto, as well as the risk factors described in our Annual Report on Form 10-K for the year ended December 31, 2005, and the other documents we file from time to time with the Securities and Exchange Commission. As used herein and except as the context otherwise requires, “we,” “our,” “us” and the “Company” refer to the Partnership and the Partnership’s consolidated corporate subsidiaries and consolidated real estate partnerships, collectively.

Executive Overview

We are engaged in the ownership, acquisition, management and redevelopment of apartment properties. Our property operations are characterized by diversification of product, location and price point. As of June 30, 2006, we owned or managed 1,320 apartment properties containing 230,438 units located in 47 states, the District of Columbia and Puerto Rico. Our primary sources of income and cash are rents associated with apartment leases.

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

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

For 2006, our focus includes the following: continue to improve operations so that customer satisfaction and occupancy increase to bring improved profitability; upgrade the quality of our portfolio through portfolio management and redevelopment; increase efficiency through improved business processes and automation; improve balance sheet flexibility; minimize our cost of capital in the face of rising interest rates; and monetize a portion of the value inherent in our properties with increased entitlements.

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

Results of Operations

Overview

Three months ended June 30, 2006 compared to three months ended June 30, 2005

We reported net income of $40.0 million and net income attributable to common unitholders of $18.1 million for the three months ended June 30, 2006, compared to net income of $31.4 million and net income attributable to common unitholders of $6.7 million for the three months ended June 30, 2005, which were increases of $8.6 million and $11.4 million, respectively. These increases were principally due to the following items:

	•		an increase in income from discontinued operations, primarily related to larger net gains on sales of real estate;

	•		an increase in net operating income from property operations, which is primarily attributable to operations of newly consolidated properties and improved operating results of same store properties; and

	•		an increase in net operating income from activity fees and asset management.

These increases were partially offset by higher depreciation and amortization and interest expense.

Six months ended June 30, 2006 compared to six months ended June 30, 2005

We reported net income of $133.6 million and net income attributable to common unitholders of $84.7 million for the six months ended June 30, 2006, compared to net income of $33.4 million and net loss attributable to common unitholders of $16.3 million for the six months ended June 30, 2005, which were increases of $100.2 million and $101.0 million, respectively. These increases were principally due to the following items:

	•		an increase in income from discontinued operations, primarily related to larger net gains on sales of real estate;

	•		an increase in net operating income from property operations, which is primarily attributable to operations of newly consolidated properties and improved operating results of same store properties; and

	•		an increase in net gain on sale of real estate related to unconsolidated entities and other, primarily related to first quarter 2006 gains on sale of land and other non-depreciable assets.

These increases were partially offset by higher depreciation and amortization and interest expense.

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

Rental Property Operations

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

The following table summarizes the overall performance of our consolidated properties for the three and six months ended June 30, 2006 and 2005 (in thousands):


	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2006		2005		2006		2005
Rental and other property revenues	$	419,234	$	344,659	$	830,126	$	677,223
Property operating expenses		190,485		160,707		388,540		321,552

Net operating income	$	228,749	$	183,952	$	441,586	$	355,671

Newly consolidated properties had a significant effect on our reported consolidated property operating results for the three and six months ended June 30, 2006. Newly consolidated properties are properties that: (i) are consolidated for all or part of the current year reporting period, (ii) were unconsolidated and accounted for by the equity method for all or part of the corresponding prior year reporting period, and (iii) were not sold or classified as held for sale during the current year reporting period. The consolidation of properties upon adoption of Emerging Issues Task Force Issue 04-5, or EITF 04-5, as discussed in Note 2 to the consolidated financial statements in Item 1, contributed to an unusually large number of newly consolidated properties in 2006.

For the three months ended June 30, 2006, compared to the three months ended June 30, 2005, net operating income for our consolidated property operations increased by $44.8 million, or 24.4%. This increase was primarily attributable to $21.2 million in net operating income from newly consolidated properties (141 properties first consolidated in 2006 and 10 properties first consolidated in 2005) and a $17.3 million increase in consolidated same store net operating income, which is discussed further below under “Consolidated Conventional Same Store Property Operating Results.” Increases in net operating income from affordable, redevelopment and acquisition properties also contributed to the overall increase.

For the six months ended June 30, 2006, compared to the six months ended June 30, 2005, net operating income for our consolidated property operations increased by $85.9 million, or 24.2%. This increase was primarily attributable to $41.4 million in net operating income from newly consolidated properties (141 properties first consolidated in 2006 and 13 properties first consolidated in 2005) and a $30.4 million increase in consolidated same store net operating income, which is discussed further below under “Conventional Same Store Property Operating Results.” The operations of acquisition properties, consisting of six properties purchased in 2005 and two properties purchased in 2006, resulted in a $3.8 million increase in net operating income. The increase in net operating income also reflects improved results of affordable properties, favorable changes in estimates of casualty losses and certain 2005 expenses that did not recur in 2006.

Conventional Consolidated Same Store Property Operating Results

Same store operating results is a key indicator we use to assess the performance of our property operations and to understand the period over period operations of a consistent portfolio of properties. We define “consolidated same store” properties as conventional properties (i) that we manage, (ii) in which our ownership interest exceeds 10%, (iii) the operations of which have been stabilized and consolidated for all periods presented and (iv) that have not been classified as held for sale. The rental property operations of our consolidated same store properties are as follows for the three and six months ended June 30, 2006 and 2005 (dollars in thousands):


	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2006			2005			2006			2005
Consolidated same store revenues	$	289,354		$	267,757		$	572,171		$	528,461
Consolidated same store property operating expenses		122,892			118,616			248,975			235,666

Consolidated same store net operating income		166,462			149,141			323,196			292,795
Adjustments to reconcile same store net operating income to real estate segment net operating income (1)		62,287			34,811			118,390			62,876

Real estate segment net operating income	$	228,749		$	183,952		$	441,586		$	355,671


Consolidated Same Store Statistics
Properties		400			400			398			398
Apartment units		117,517			117,517			117,171			117,171
Average physical occupancy		94.3	%		91.1	%		94.5	%		91.1	%
Average rent/unit/month	$	797		$	771		$	791		$	768


(1)		Reflects property revenues and property operating expenses related to consolidated properties other than same store properties (e.g., affordable, acquisition and redevelopment properties) and casualty gains and losses.

For the three months ended June 30, 2006, compared to the three months ended June 30, 2005, consolidated same store net operating income increased by $17.3 million, or 11.6%. Revenues increased by $21.6 million, or 8.1%, primarily due to higher occupancy (up 3.2%), higher average rent (up $26 per unit) and higher utility reimbursements. Property operating expenses increased by $4.3 million, or 3.6%, primarily due to a $2.8 million increase in utilities reflecting higher natural gas rates and a $2.4 million increase in real estate taxes. These increases were partially offset by a $1.9 million decrease in insurance expense and certain self-insured claims.

For the six months ended June 30, 2006, compared to the six months ended June 30, 2005, our share of consolidated same store net operating income increased by $30.4 million, or 10.4%. Revenues increased by $43.7 million, or 8.3%, primarily due to higher occupancy (up 3.4%), higher average rent (up $23 per unit), higher utility reimbursements and lower bad debt expense. Expenses increased by $13.3 million, or 5.6%, primarily due to: a $6.3 million increase in utilities, reflecting higher rates for natural gas; a $3.7 million increase in real estate taxes; and a $2.0 million increase in insurance expense, reflecting higher premiums and claims experience prior to the annual renewal of policies in March 2006.

Property Management

We earn income from property management primarily from certain unconsolidated real estate partnerships for which we are the general partner. The income is primarily in the form of fees generated through property management and other associated activities. Reported revenue from property management decreases as we consolidate real estate partnerships because it is eliminated in consolidation. Additionally, our revenue decreases as properties within our unconsolidated real estate partnerships are sold. Offsetting the revenue earned in property management are the direct expenses associated with property management.

The following table summarizes the overall performance of our property management business for the three and six months ended June 30, 2006 and 2005 (in thousands):


	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2006		2005		2006		2005
Property management revenues, primarily from affiliates	$	3,592	$	5,926	$	6,622	$	12,590
Property management expenses		2,151		1,829		2,643		3,745

Net operating income from property management	$	1,441	$	4,097	$	3,979	$	8,845

For the three months ended June 30, 2006, compared to the three months ended June 30, 2005, net operating income from property management decreased by $2.7 million, or 64.8%. For the six months ended June 30, 2006, compared to the six months ended June 30, 2005, net operating income from property management decreased by $4.9 million, or 55.0%. These decreases were principally due to the consolidation of real estate partnerships upon adoption of EITF 04-5 and otherwise, which resulted in the elimination of fee income and reclassification of related expenses to property operating expenses. Property management revenues that were eliminated in consolidation for our newly consolidated properties totaled $2.8 million and $5.3 million for the three and six months ended June 30, 2006, respectively. Sales of properties by unconsolidated partnerships that had previously generated property management revenues also contributed to decreases in property management revenues and expenses.

Activity Fees and Asset Management

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

The following table summarizes the operating results of our transactional and asset management activities for the three and six months ended June 30, 2006 and 2005 (in thousands):


	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2006		2005		2006		2005
Activity fees and asset management revenues, primarily from affiliates	$	12,133	$	6,680	$	21,673	$	14,697

Activity and asset management expenses		3,239		2,305		5,671		4,913

Net operating income from activity fees and asset management	$	8,894	$	4,375	$	16,002	$	9,784

Activity fees and asset management revenues related to affordable properties within the Aimco Capital portfolio totaled $11.4 million and $6.5 million for the three months ended June 30, 2006 and 2005, respectively, and $18.8 million and $14.3 million for the six months ended June 30, 2006 and 2005, respectively.

For the three months ended June 30, 2006, compared to the three months ended June 30, 2005, net operating income from activity fees and asset management increased by $4.5 million, or 103.3%. This increase reflects increases totaling $2.4 million in disposition fees and promote income earned in connection with property disposition transactions. Proceeds from certain disposition transactions also facilitated the collection and recognition in 2006 of $2.4 million in fees that were earned but not recognized in prior periods. The increases in revenues were partially offset by a $0.9 million increase in expenses associated with these activities.

For the six months ended June 30, 2006, compared to the six months ended June 30, 2005, net operating income from activity fees and asset management increased by $6.2 million, or 63.6%. The higher level of income in 2006 was primarily due to increases totaling $3.8 million in disposition fees and promote income earned in connection with property disposition transactions. In addition, developer fees increased $2.2 million as a result of higher tax credit redevelopment activity. The increases in revenues were partially offset by a $0.8 million increase in expenses associated with these activities.

Depreciation and Amortization

For the three months ended June 30, 2006, compared to the three months ended June 30, 2005, depreciation and amortization increased $20.5 million, or 21.4%. This increase was principally due to $10.1 million in depreciation related to newly consolidated properties, especially properties consolidated in 2006 as a result of adopting EITF 04-5 (see Note 2 to the consolidated financial statements in Item 1). The increase also reflects $10.5 million in depreciation of capital projects placed in service after June 30, 2005 and $2.7 million related to a prospective change as of July 1, 2005 in the estimated useful lives that apply to capitalized payroll and certain indirect costs. These increases were partially offset by a $4.3 million decrease in depreciation adjustments necessary to reduce the carrying value of real estate to its estimated disposition value (see Use of Estimates in Note 2 to the consolidated financial statements in Item 1).

For the six months ended June 30, 2006, compared to the six months ended June 30, 2005, depreciation and amortization increased $40.6 million, or 21.7%. This increase was principally due to $20.6 million in depreciation related to newly consolidated properties, especially properties consolidated in 2006 as a result of adopting EITF 04-5 (see Note 2 to the consolidated financial statements in Item 1). The increase also reflects: $16.5 million in depreciation of capital projects placed in service after June 30, 2005; $4.0 million for acquisition properties; and $5.3 million related to a prospective change as of July 1, 2005 in the estimated useful lives that apply to capitalized payroll and certain indirect costs. These increases were partially offset by a $6.7 million decrease in depreciation adjustments necessary to reduce the carrying value of real estate to its estimated disposition value (see Use of Estimates in Note 2 to the consolidated financial statements in Item 1).

General and Administrative Expenses

For the three months ended June 30, 2006, compared to the three months ended June 30, 2005, general and administrative expenses increased $3.1 million, or 14.2%. This increase was principally due to higher accrued bonus compensation reflecting improved performance in relation to established targets.

For the six months ended June 30, 2006, compared to the six months ended June 30, 2005, general and administrative expenses increased $4.9 million, or 11.6%. This increase was principally due to $5.9 million in higher compensation related expenses, including higher accrued bonus compensation reflecting improved performance in relation to established targets. The increase was partially offset by a $1.0 million decrease in fees for certain professional services.

Other Expenses (Income), Net

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

For the three months ended June 30, 2006, compared to the three months ended June 30, 2005, other expenses (income), net changed unfavorably by $3.3 million. The net change is primarily attributable to a $2.6 million decrease in income tax benefits attributable to continuing operations of our taxable subsidiaries.

For the six months ended June 30, 2006, compared to the six months ended June 30, 2005, other expenses (income), net changed unfavorably by $4.6 million. The net change is primarily attributable a $2.3 million increase in various partnership expenses, including expenses of newly consolidated partnerships, and $1.7 million in separation costs for terminated employees in 2006.

Interest Income

Interest income consists primarily of interest on notes receivable from unconsolidated entities and interest earned on restricted and unrestricted cash balances. Reported interest income on notes receivable from unconsolidated real estate partnerships has declined in 2006 due to the elimination of interest income on notes receivable from newly consolidated properties, especially properties consolidated a result of adopting EITF 04-5 (see Note 2 to the consolidated financial statements in Item 1). The economic benefit for the minority partners’ share of interest on the eliminated notes is reflected in minority interest in consolidated real estate partnerships.

For the three months ended June 30, 2006, compared to the three months ended June 30, 2005, interest income decreased $1.7 million, or 20.2%. The net decrease reflects a $3.5 million decrease due to the elimination of interest income on notes receivable from newly consolidated properties. This decrease was partially offset by interest income on cash balances maintained by the newly consolidated properties, increased interest on higher balances of notes receivable from non-affiliates, and higher interest rates on cash balances.

For the six months ended June 30, 2006, compared to the six months ended June 30, 2005, interest income decreased $1.3 million, or 8.0%. The net decrease reflects a $6.2 million decrease due to the elimination of interest income on notes receivable from newly consolidated properties. This decrease was partially offset by interest income on cash balances maintained by the newly consolidated properties, increased interest on higher balances of notes receivable from non-affiliates, and higher interest rates on cash balances.

Interest Expense

For the three months ended June 30, 2006, compared to the three months ended June 30, 2005, interest expense, which includes the amortization of deferred financing costs, increased $17.2 million, or 19.9%. This increase was principally due to $14.6 million in interest on loans payable for newly consolidated properties, especially properties consolidated in 2006 as a result of adopting EITF 04-5 (see Note 2 to the consolidated financial statements in Item 1). Interest on property loans payable also increased $5.0 million primarily due to higher rates on variable rate loans. The effects of higher variable interest rates and lower outstanding borrowings had largely offsetting effects on corporate interest expense. The overall increase in interest expense was partially offset by a $1.0 million increase in capitalized interest, reflecting higher levels of accumulated expenditures on redevelopment projects.

For the six months ended June 30, 2006, compared to the six months ended June 30, 2005, interest expense, which includes the amortization of deferred financing costs, increased $34.9 million, or 20.6%. This increase was principally due to $26.1 million in interest on loans payable for newly consolidated properties. Property interest expense also increased due to $2.7 million for acquisition properties and $8.0 million for other properties, reflecting higher balances and higher variable rates. Corporate interest expense increased by approximately $2.9 million, reflecting higher variable rates offset in part by lower balances. The overall increase interest expense was partially offset by a $4.6 million increase in capitalized interest, reflecting higher levels of accumulated expenditures on redevelopment projects.

Gain on Dispositions of Real Estate Related to Unconsolidated Entities and Other

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

For the six months ended June 30, 2006, compared to the six months ended June 30, 2005, gain on disposition of real estate related to unconsolidated entities and other increased $8.6 million. This increase is primarily attributable to $5.7 million in gains on sale of land and other non-depreciable assets in 2006.

Minority Interest in Consolidated Real Estate Partnerships

Minority interest in consolidated real estate partnerships reflects minority partners’ share of operating results of consolidated real estate partnerships. This includes the minority partners’ share of property management fees, interest on notes and other amounts eliminated in consolidation that we charge to such partnerships. As a result of adopting EITF 04-5 (see Note 2 to the consolidated financial statements in Item 1), minority interests in our consolidated real estate partnerships have increased in 2006. However, we generally do not recognize a benefit for the minority interest share of partnership losses, which are typically attributable to real estate depreciation, for partnerships that have deficits in partners’ equity.

For the three months ended June 30, 2006, compared to the three months ended June 30, 2005, the net effect of minority interest changed unfavorably by $1.3 million. This change is primarily attributable to a $3.6 million increase in the minority interest share of partnership net losses, reduced by our recognition of $4.9 million for minority partners’ share of losses of partnerships with deficits in equity as a result of adopting EITF 04-5 in 2006.

For the six months ended June 30, 2006, compared to the six months ended June 30, 2005, the net favorable effect of minority interest increased $2.1 million. This increase is primarily attributable to an $11.3 million increase in the minority interest share of partnership net losses, reduced by our recognition of $9.1 million for minority partners’ share of losses of partnerships with deficits in equity as a result of adopting EITF 04-5 in 2006.

Income from Discontinued Operations, Net

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

For the three months ended June 30, 2006 and 2005, income from discontinued operations, net totaled $42.5 million and $31.5 million, respectively, which include losses from operations after interest income, interest expense and minority interest of $1.3 million and $0.9 million in 2006 and 2005, respectively. For the six months ended June 30, 2006 and 2005, income from discontinued operations, net totaled $128.7 million and $34.8 million, respectively, which include losses from operations after interest income, interest expense and minority interest of $2.2 million and $2.0 million, respectively. For 2006, income from discontinued operations included the operating results of 36 properties and one tower of the Flamingo South Beach property (the South Tower) that were sold or classified as held for sale during 2006. For 2005, income from discontinued operations included the operating results of 120 properties and the South Tower that were sold or classified as held for sale in 2005 or 2006. Due to the varying number of properties and the timing of sales, the income from operations is not comparable from year to year.

During the three months ended June 30, 2006, we sold 19 properties, resulting in a net gain on sale of approximately $41.6 million, net of $1.0 million of related income taxes. During the three months ended June 30, 2005, we sold 11 properties, resulting in a net gain on sale of approximately $28.5 million, net of $1.2 million of related income taxes. Additionally, we recognized recoveries of deficit distributions to minority partners of $2.1 million and $4.1 million in connection with the sale of properties in the three months ended June 30, 2006 and 2005, respectively.

During the six months ended June 30, 2006, we sold 38 properties, resulting in a net gain on sale of approximately

$114.6 million, net of $28.0 million of related income taxes. During the six months ended June 30, 2005, we sold 17 properties and our interest in one consolidated partnership, resulting in a net gain on sale of approximately $35.5 million, net of $1.2 million of related taxes. Additionally, we recognized recoveries of deficit distributions to minority partners of $16.4 million and $3.5 million in connection with the sale of properties in the six months ended June 30, 2006 and 2005, respectively. We also recognized a $2.2 million impairment loss in connection with the sale of properties in the six months ended June 30, 2005.

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

Critical Accounting Policies and Estimates

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

Impairment of Long-Lived Assets

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

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

	•		the general economic climate;

	•		competition from other apartment communities and other housing options;

	•		local conditions, such as loss of jobs or an increase in the supply of apartments, that might adversely affect apartment occupancy or rental rates;

	•		changes in governmental regulations and the related cost of compliance;

	•		increases in operating costs (including real estate taxes) due to inflation and other factors, which may not be offset by increased rents;

	•		changes in tax laws and housing laws, including the enactment of rent control laws or other laws regulating multifamily housing;

	•		changes in market capitalization rates; and

	•		the relative illiquidity of such investments.

Any adverse changes in these and other factors could cause an impairment in our long-lived assets, including real estate and investments in unconsolidated real estate partnerships. Based on periodic tests of recoverability of long-lived assets, we determined that the carrying amount for our properties to be held and used was recoverable and, therefore, we did not record any impairment losses related to such properties during the three or six months ended June 30, 2006 or 2005.

Notes Receivable and Interest Income Recognition

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

We record interest income on par value notes as earned in accordance with the terms of the related loan agreements. We discontinue the accrual of interest on such notes when the notes are impaired, as discussed below, or when there is otherwise significant uncertainty as to the collection of interest. We record income on such nonaccrual loans using the cost

recovery method, under which we apply cash receipts first to the recorded amount of the loan; thereafter, any additional receipts are recognized as income.

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

Allowance for Losses on Notes Receivable

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

We recorded provisions for impairment losses on notes receivable of $0.5 million and $0.8 million for the three and six months ended June 30, 2006,respectively. We recorded $1.6 million in net recovery of impairment losses on notes receivable for the six months ended June 30, 2005. We will continue to evaluate the collectibility of these notes, and we will adjust related allowances in the future due to changes in market conditions and other factors.

Capitalized Costs

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

For the three months ended June 30, 2006 and 2005, for continuing and discontinued operations, we capitalized $5.8 million and $4.9 million of interest costs, respectively, and $16.7 million and $11.7 million of site payroll and indirect costs, respectively. For the six months ended June 30, 2006 and 2005, for continuing and discontinued operations, we capitalized $12.0 million and $7.4 million of interest costs, respectively, and $32.1 million and $23.9 million of site payroll and indirect costs, respectively.

Funds From Operations

Funds From Operations, or FFO, is a non-GAAP financial measure that we believe, when considered with the financial statements determined in accordance with GAAP, is helpful to investors in understanding our performance because it captures features particular to real estate performance by recognizing that real estate generally appreciates over time or maintains residual value to a much greater extent than do other depreciable assets such as machinery, computers or other personal property. The Board of Governors of the National Association of Real Estate Investment Trusts, or NAREIT, defines FFO as net income (loss), computed in accordance with GAAP, excluding gains from sales of depreciable property, plus depreciation and amortization, and after adjustments for unconsolidated partnerships and joint ventures. Adjustments for unconsolidated partnerships and joint ventures are calculated to reflect FFO on the same basis. We compute FFO for all periods presented in accordance with the guidance set forth by NAREIT’s April 1, 2002 White Paper, which we refer to as the White Paper. We calculate FFO (diluted) by subtracting redemption related preferred OP Unit issuance costs and distributions on preferred OP Units and adding back distributions on dilutive preferred securities. FFO should not be considered an alternative to net income or net cash flows from operating activities, as determined in accordance with GAAP, as an indication of our performance or as a measure of liquidity. FFO is not necessarily indicative of cash available to fund future cash needs. In addition, although FFO is a measure used for comparability in assessing the performance of real estate investment trusts, there can be no assurance that our basis for computing FFO is comparable with that of other real estate investment trusts.

For the three and six months ended June 30, 2006 and 2005, our FFO is calculated as follows (in thousands):


	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2006			2005			2006			2005
Net income (loss) attributable to common unitholders (1)	$	18,081		$	6,738		$	84,726		$	(16,348	)
Adjustments:
Depreciation and amortization (2)		116,412			95,923			228,236			187,612
Depreciation and amortization related to non-real estate assets		(4,538	)		(4,524	)		(9,268	)		(8,315	)
Depreciation of rental property related to minority partners’ interest (3)		(9,724	)		(9,022	)		(25,217	)		(18,069	)
Depreciation of rental property related to unconsolidated entities		1,186			4,631			1,854			10,589
Gain on dispositions of real estate related to unconsolidated entities and other		(4,060	)		(3,154	)		(13,756	)		(5,161	)
Gain on dispositions of non-depreciable assets		671			118			6,371			793
Deficit distributions to minority partners, net (4)		4,096			1,654			6,282			3,047
Discontinued operations:
Gain on dispositions of real estate, net of minority partners’ interest (3)		(42,646	)		(29,719	)		(142,571	)		(36,680	)
Depreciation of rental property, net of minority partners’ interest (3)		961			10,323			4,403			21,428
Recovery of deficit distributions to minority partners, net (4)		(2,057	)		(4,084	)		(16,415	)		(3,539	)
Income tax arising from disposals		1,044			1,206			27,986			1,219
Preferred OP Unit distributions		21,940			24,627			46,339			48,578
Redemption related preferred Op Unit issuance costs		—			—			2,574			1,123

Funds From Operations	$	101,366		$	94,717		$	201,544		$	186,277
Preferred OP Unit distributions		(21,940	)		(24,627	)		(46,339	)		(48,578	)
Redemption related preferred OP Unit issuance costs		—			—			(2,574	)		(1,123	)
Distributions on dilutive preferred securities		1,183			1,191			2,365			1,625

Funds From Operations attributable to common unitholders - - diluted	$	80,609		$	71,281		$	154,996		$	138,201


Weighted average number of common units, common unit equivalents and dilutive preferred securities outstanding:
Common units and equivalents (5)		106,448			105,078			106,653			104,843
Dilutive preferred securities		3,508			3,527			3,510			2,401

Total		109,956			108,605			110,163			107,244


Notes:

(1)		Represents the numerator for earnings per common unit, calculated in accordance with GAAP.

(2)		Includes amortization of management contracts where we are the general partner. Such management contracts were established in certain instances where we acquired a general partner interest in either a consolidated or an unconsolidated partnership. Because the recoverability of these management contracts depends primarily on the operations of the real estate owned by the limited partnerships, we believe it is consistent with the White Paper to add back such amortization, as the White Paper directs the add-back of amortization of assets uniquely significant to the real estate industry.

(3)		“Minority partners’ interest,” means minority interest in our consolidated real estate partnerships.

(4)		In accordance with GAAP, deficit distributions to minority partners are charges recognized in our income statement when cash is distributed to a non-controlling partner in a consolidated real estate partnership in excess of the positive balance in such partner’s capital account, which is classified as minority interest on our balance sheet. We record these charges for GAAP purposes even though there is no economic effect or cost. Deficit distributions to minority partners occur when the fair value of the underlying real estate exceeds its depreciated net book value because the underlying real estate has appreciated or maintained its value. As a result, the recognition of expense for deficit distributions to minority partners represents, in substance, either (a) our recognition of depreciation previously allocated to the non-controlling partner or (b) a payment related to the non-controlling partner’s share of real estate appreciation. Based on White Paper guidance that requires real estate depreciation and gains to be excluded from FFO, we add back deficit distributions and subtract related recoveries in our reconciliation of net income to FFO.

(5)		Represents the denominator for earnings per common unit – diluted, calculated in accordance with GAAP, plus additional common unit equivalents that are dilutive for FFO.

Liquidity and Capital Resources

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

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

At June 30, 2006, we had $323.5 million in cash and cash equivalents, an increase of $161.7 million from December 31, 2005. This cash reflects $98.0 million in gross proceeds from the sale of Aimco CRA Preferred Stock on June 29, 2006 (see Note 4 to the consolidated financial statements in Item 1) and proceeds from sales and refinancing transactions that had not been distributed or reinvested. On July 20, 2006, Aimco paid $175.2 million to redeem all outstanding shares of its 10% Class R Cumulative Preferred Stock (see Note 9 to the consolidated financial statements in Item 1). At June 30, 2006, we had $341.3 million of restricted cash primarily consisting of reserves and escrows held by lenders for bond sinking funds, capital expenditures, property taxes and insurance. In addition, cash, cash equivalents and restricted cash are held by unconsolidated partnerships. The following discussion relates to changes in cash due to operating, investing and financing activities, which are presented in our Consolidated Statements of Cash Flows.

Operating Activities

For the six months ended June 30, 2006, our net cash provided by operating activities of $266.1 million was primarily from operating income from our consolidated properties, which is affected primarily by rental rates, occupancy levels and operating expenses related to our portfolio of properties. Cash provided by operating activities increased $83.7 million compared with the six months ended June 30, 2005. The increase in operating cash flow is primarily attributable to improved property operations and the consolidation of properties in connection with the adoption of EITF 04-5 (see Note 2 to the consolidated financial statements in Item 1). Deferred income taxes related to taxable gains on 2006 property sales and larger net releases of operating reserves from restricted cash also contributed to the increase.

Investing Activities

For the six months ended June 30, 2006, net cash provided by our investing activities of $266.4 million primarily relates to proceeds received from the sale of properties, partially offset by capital expenditures.

Although we hold all of our properties for investment, we may sell properties when they do not meet our investment criteria or are located in areas that we believe do not justify our continued investment when compared to alternative uses for our capital. During the six months ended June 30, 2006, we sold 38 consolidated properties and the South Tower of the Flamingo South Beach property. These properties and the South Tower were sold for an aggregate sales price of $601.2 million and generated proceeds totaling $544.8 million, after the payment of transaction costs and the assumption of debt. Sales proceeds were used to repay borrowings under our revolving credit facility and for other corporate purposes.

We are currently marketing for sale certain properties that are inconsistent with our long-term investment strategy. Additionally, from time to time, we may market certain properties that are consistent with our long-term investment strategy but offer attractive returns, such as sales to buyers who intend to convert the properties to condominiums. Gross sales proceeds from 2006 dispositions are expected to be $850 million to $1,050 million, and we plan to use our share of the net proceeds from such dispositions to reduce debt, fund capital expenditures on existing assets, fund property and partnership acquisitions and for other operating needs and corporate purposes.

Capital Expenditures

We classify all capital spending as Capital Replacements (which we refer to as CR), Capital Improvements (which we refer to as CI), casualties or redevelopment. Non-redevelopment and non-casualty capitalizable expenditures are apportioned between CR and CI based on the useful life of the capital item under consideration and the period we have owned the property (i.e., the portion that was consumed during our ownership of the item represents CR; the portion of the item that was consumed prior to our ownership represents CI).

For the six months ended June 30, 2006, we spent a total of $37.5 million on CR, which represents the share of expenditures that are deemed to replace the portion of acquired capital assets that was consumed during the period we have owned the asset. For the six months ended June 30, 2006, we spent a total of $51.3 million, $20.2 million and $68.5 million, respectively, on CI, casualties and redevelopment. CI expenditures represent all non-redevelopment and non-casualty capital expenditures that are made to enhance the value, profitability or useful life of an asset as compared to its original purchase condition. Casualty expenditures represent capitalized costs incurred in connection with casualty losses and are associated with the restoration of the asset. A portion of the restoration costs may be reimbursed by insurance carriers subject to deductibles associated with each loss. Redevelopment expenditures represent expenditures that substantially upgrade the property.

The table below details our share of actual spending, on both consolidated and unconsolidated real estate partnerships, for CR, CI, casualties and redevelopment for the six months ended June 30, 2006 on a per unit and total dollar basis. Per unit numbers are based on approximately 137,767 average units in the quarter including 122,738 conventional and 15,029 affordable units. Average units are weighted for the portion of the period that we owned the property and represent effective units excluding non-managed units. Total capital expenditures are reconciled to our consolidated statement of cash flows for the same period (in thousands, except per unit amounts).


	Actual Cost			Cost Per Unit
Capital Replacements Detail:
Building and grounds	$	13,693		$	99
Turnover related		17,263			125
Capitalized site payroll and indirect costs		6,569			48

Our share of Capital Replacements	$	37,525		$	272


Capital Replacements:
Conventional	$	34,409		$	280
Affordable		3,116			207

Our share of Capital Replacements		37,525		$	272


Capital Improvements:
Conventional		42,024		$	342
Affordable		9,259			616

Our share of Capital Improvements		51,283		$	372


Casualties:
Conventional		19,470
Affordable		741

Our share of casualties		20,211


Redevelopment:
Conventional		64,915
Affordable		3,626

Our share of redevelopment		68,541

Our share of capital expenditures		177,560

Plus minority partners’ share of consolidated spending		60,147
Less our share of unconsolidated spending		(1,504	)


Capital expenditures per consolidated statement of cash flows	$	236,203

Included in the above spending for CI, casualties and redevelopment, was approximately $22.6 million of our share of capitalized site payroll and indirect costs related to these activities for the six months ended June 30, 2006.

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

Financing Activities

For the six months ended June 30, 2006, net cash used in financing activities of $369.1 million was primarily related to repayments of property debt and corporate debt.

Mortgage Debt

At June 30, 2006, we had $6.2 billion in consolidated mortgage debt outstanding as compared to $5.5 billion outstanding at December 31, 2005. This increase largely reflects $488.4 million in mortgage loans related to newly consolidated properties, especially properties consolidated in connection with the adoption of EITF 04-5 (see Note 2 to consolidated financial statements in Item 1). During the six months ended June 30, 2006, we refinanced or closed mortgage loans on 32 consolidated properties, generating $656.6 million of proceeds from borrowings with a weighted average interest rate of 5.56%. Our share of the net proceeds after repayment of existing debt, payment of transaction costs and distributions to limited partners, was $340.2 million. We used these total net proceeds for capital expenditures and other corporate

purposes. We intend to continue to refinance mortgage debt to generate proceeds in amounts exceeding our scheduled amortizations and maturities.

Revolving Credit Facility and Term Loans

We have an Amended and Restated Senior Secured Credit Agreement with a syndicate of financial institutions, which we refer to as the Credit Agreement. On March 22, 2006, we amended various terms in our Credit Agreement, including: the ability to request an increase in the aggregate commitments (which may be revolving or term loan commitments) by an amount not to exceed $150 million; a reduction in the interest rate spread applicable to revolving loans and letters of credit; a reduction in the spread applicable to term loans to LIBOR plus 1.5%; and an extension of the maturity dates from November 2, 2007 to May 1, 2009 for the revolver and from November 2, 2009 to March 22, 2011 for the term loan.

The aggregate amount of commitments and loans under the Credit Agreement is $850.0 million, comprised of $450.0 million of revolving loan commitments and $400.0 million in term loans. At June 30, 2006, the term loan had an outstanding principal balance of $400.0 million and an interest rate of 6.64%. At June 30, 2006, the revolving loan had no outstanding principal balance. The amount available under the revolving credit facility at June 30, 2006 was $422.5 million (after giving effect to $27.5 million outstanding for undrawn letters of credit issued under the revolving credit facility). The proceeds of revolving loans are generally permitted to be used to fund working capital and for other corporate purposes.

Partners’ Capital Transactions

During the six months ended June 30, 2006, Aimco redeemed all outstanding shares of its 10.1% Class Q Cumulative Preferred Stock for $63.3 million and all outstanding shares of its 8.5% Class X Cumulative Convertible Preferred Stock for $50.0 million in cash. Concurrently, we redeemed for cash all outstanding Class Q Partnership Preferred Units and Class X Partnership Preferred Units.

On June 29, 2006, Aimco sold 200 shares of its Series A Community Reinvestment Act Perpetual Preferred Stock (“CRA Preferred Stock”), with a liquidation preference of $500,000 per share, for proceeds of approximately $98 million. In connection with this transaction, we received the gross proceeds and issued 200 units of Series A Community Reinvestment Act Perpetual Preferred units, which have substantially the same terms as the CRA Preferred Stock. See Preferred OP Units in Note 4 to the consolidated financial statements in Item 1 for additional information about our preferred stock transactions during the six months ended June 30, 2006.

Under our shelf registration statement, we had available for issuance approximately $500 million of debt securities available and Aimco had approximately $877 million of debt and equity securities available as of June 30, 2006.

Aimco’s board of directors has, from time to time, authorized Aimco to repurchase shares of its outstanding capital stock. Currently, Aimco is authorized to repurchase up to a total of eight million shares of Aimco Class A Common Stock under an authorization that has no expiration date. These repurchases may be made from time to time in the open market or in privately negotiated transactions. In the event of any repurchase of a number of shares of Class A Common Stock by Aimco, we would repurchase an equal number of common OP Units owned by Aimco.

Future Capital Needs

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

ITEM 3. Quantitative and Qualitative Disclosures About Market Risk

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

Our capital structure includes the use of fixed-rate and variable rate indebtedness. As such, we are exposed to the impact of changes in interest rates. We use predominantly long-term, fixed-rate and self-amortizing non-recourse mortgage debt in order to avoid the refunding and repricing risks of short-term borrowings. We use short-term debt financing primarily to fund short-term uses and acquisitions and generally expect to refinance such borrowings with cash from operating activities, property sales proceeds, long-term debt or equity financings. We make limited use of derivative financial instruments and we do not use them for trading or other speculative purposes. In some situations, we may use interest rate caps or swaps to limit our exposure to interest rate risk.

See “Item 7A. Quantitative and Qualitative Disclosures About Market Risk” in our Annual Report on Form 10-K for the year ended December 31, 2005 for a more detailed discussion of interest rate sensitivity. As of June 30, 2006, our market risk had not changed materially from the amounts reported in our Annual Report on Form 10-K for the year ended December 31, 2005.

ITEM 4. Controls and Procedures

Disclosure Controls and Procedures

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

Changes in Internal Control over Financial Reporting

There have been no significant changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f)) under the Exchange Act) during second quarter 2006 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

ITEM 1. Legal Proceedings

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

ITEM 1A. Risk Factors

Refer to the Risk Factors disclosure in the Partnership’s Form 10-K for the year ended December 31, 2005. There have been no material changes in these risk factors during the six months ended June 30, 2006 and through the date of this report.

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

(a) Unregistered Sales of Equity Securities.

On May 31, 2006, we issued 5,000 Class IX High Performance Partnership Units to a limited liability company owned by a limited number of employees for an aggregate offering price of $875,000.

In the event of a change of control of Aimco, holders of the Class IX High Performance Partnership Units, subject to certain restrictions, may require us to redeem all or a portion of such units in exchange for a cash payment per unit equal to their market value at the time of redemption. Our obligation to pay the redemption price is subject to the prior right of Aimco to acquire such units in exchange for an equal number of shares of Aimco Class A Common Stock (subject to certain adjustments).

The foregoing issuance was made in a private placement transaction exempt from registration pursuant to Section 4(2) of the Securities Act of 1933, as amended.

(c) Repurchases of Equity Securities. Our Partnership Agreement generally provides that after holding the common OP Units for one year, our Limited Partners have the right to redeem their common OP Units for cash, subject to our prior right to cause Aimco 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). During the three months ended June 30, 2006, Aimco purchased approximately 6,000 common OP Units in exchange for approximately 6,000 shares of Aimco Class A Common Stock. The following table summarizes repurchases of our equity securities for cash for the three months ended June 30, 2006:

Maximum Number

Total Number of

of Units that

Average

Units Purchased as

May Yet Be

Total

Price

Part of Publicly

Purchased Under the

Number

Paid

Announced Plans or

Plans or Programs

Fiscal period

of Units Purchased

per Unit

Programs

(1) (in millions)

April 1 – April 30, 2006

10,227

46.77

N/A

May 1 – May 31, 2006

16,735

44.88

N/A

June 1 – June 30, 2006

1,298

43.53

N/A

Total

28,260

45.50

N/A


(1)		The terms of our Partnership Agreement do not provide for a maximum number of Units that may be repurchased, and other than the express terms of our Partnership Agreement we have no publicly announced plans or programs of repurchase

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

ITEM 6. Exhibits

The following exhibits are filed with this report:

EXHIBIT NO.

	10.1		Forty-Eighth Amendment to the Third Amended and Restated Agreement of Limited Partnership of AIMCO Properties, L.P. (Exhibit 4.1 to AIMCO Properties, L.P.’s Current Report on Form 8-K dated May 31, 2006, is incorporated herein by this reference)

	10.2		Forty-Ninth Amendment to the Third Amended and Restated Agreement of Limited Partnership of AIMCO Properties, L.P. (Exhibit 10.1 to AIMCO Properties, L.P.’s Current Report on Form 8-K dated June 29, 2006, is incorporated herein by this reference)

	31.1		Certification of Chief Executive Officer pursuant to Securities Exchange Act Rules 13a-14(a)/15d-14(a), as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

	31.2		Certification of Chief Financial Officer pursuant to Securities Exchange Act Rules 13a-14(a)/15d-14(a), as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

	32.1		Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

	32.2		Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

	99.1		Agreement re: disclosure of long-term debt instruments

Exhibit Index

EXHIBIT NO.

	10.1		Forty-Eighth Amendment to the Third Amended and Restated Agreement of Limited Partnership of AIMCO Properties, L.P. (Exhibit 4.1 to AIMCO Properties, L.P.’s Current Report on Form 8-K dated May 31, 2006, is incorporated herein by this reference)

	10.2		Forty-Ninth Amendment to the Third Amended and Restated Agreement of Limited Partnership of AIMCO Properties, L.P. (Exhibit 10.1 to AIMCO Properties, L.P.’s Current Report on Form 8-K dated June 29, 2006, is incorporated herein by this reference)

	31.1		Certification of Chief Executive Officer pursuant to Securities Exchange Act Rules 13a-14(a)/15d-14(a), as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

	31.2		Certification of Chief Financial Officer pursuant to Securities Exchange Act Rules 13a-14(a)/15d-14(a), as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

	32.1		Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

	32.2		Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

	99.1		Agreement re: disclosure of long-term debt instruments


		Page
PART I. FINANCIAL INFORMATION

ITEM 1.	*Financial Statements*

	Consolidated Balance Sheets as of June 30, 2006 (Unaudited) and December 31, 2005		2

	Consolidated Statements of Income for the Three and Six Months Ended June 30, 2006 and 2005 (Unaudited)		3

	Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2006 and 2005 (Unaudited)		4

	Notes to Consolidated Financial Statements (Unaudited)		5

ITEM 2.	*Management’s Discussion and Analysis of Financial Condition and Results of Operations*		19

ITEM 3.	*Quantitative and Qualitative Disclosures about Market Risk*		33

ITEM 4.	*Controls and Procedures*		33

PART II. OTHER INFORMATION

ITEM 1.	*Legal Proceedings*		34

ITEM 1A.	*Risk Factors*		34

ITEM 2.	*Unregistered Sales of Equity Securities and Use of Proceeds*		34

ITEM 6.	*Exhibits*		35

Signatures			36
Certification of CEO Pursuant to Section 302
Certification of CFO Pursuant to Section 302
Certification of CEO Pursuant to Section 906
Certification of CFO Pursuant to Section 906
Agreement Re: Disclosure of Long-Term Debt Instruments


		AIMCO PROPERTIES, L.P.
		By: AIMCO GP, Inc., its general partner

		By:		/s/ THOMAS M. HERZOG

				Thomas M. Herzog
				Executive Vice President and
				Chief Financial Officer
				(duly authorized officer and
				principal financial officer)

		By:		/s/ ROBERT Y. WALKER, IV

				Robert Y. Walker, IV
				Executive Vice President and
				Chief Accounting Officer


/s/ Terry Considine
Terry Considine
Chairman and Chief Executive Officer
(equivalent of the chief executive officer of AIMCO Properties, L.P.)
August 4, 2006


/s/ Thomas M. Herzog
Thomas M. Herzog
Executive Vice President and Chief Financial Officer
(equivalent of the chief financial officer of AIMCO Properties, L.P.)
August 4, 2006


		AIMCO PROPERTIES, L.P. By: AIMCO GP, Inc., its general partner

		By:		/s/ Thomas M. Herzog

				Thomas M. Herzog
				Executive Vice President and Chief Financial Officer

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1.		I have reviewed this quarterly report on Form 10-Q of AIMCO Properties, L.P.;

2.		Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.		Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.		The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

	(a)		Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

	(b)		Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

	(c)		Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

	(d)		Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting.

	(a)		All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

	(b)		Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.



	/s/ Terry Considine
	Terry Considine
	Chairman and Chief Executive Officer (equivalent of the chief executive officer of AIMCO Properties, L.P.)

	(1)		The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

	(2)		The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.