exv99w1

Exhibit 99.1

Item 6. Selected Financial Data

The following selected financial data is based on our audited historical financial statements. This information should be read in conjunction with such financial statements, including the notes thereto, and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included herein or in previous filings with the Securities and Exchange Commission.


	For the Years Ended December 31,
	2005 (1)			2004 (1)			2003 (1)			2002 (1)			2001 (1)
	(dollar amounts in thousands, except per unit data)
OPERATING DATA:

Total revenues	$	1,449,478		$	1,314,057		$	1,245,129		$	1,138,433		$	1,055,678
Total operating expenses		(1,162,199	)		(1,025,096	)		(875,492	)		(724,986	)		(710,812	)
Operating income		287,279			288,961			369,637			413,447			344,866
Income (loss) from continuing operations		(26,498	)		58,726			65,567			159,737			93,001
Income from discontinued operations, net		107,242			238,352			112,301			46,465			28,063
Cumulative effect of change in accounting principle		—			(3,957	)		—			—			—
Net income		80,744			293,121			177,868			206,202			121,064
Net income attributable to preferred unitholders		98,946			96,922			103,626			107,646			100,134
Net income (loss) attributable to common unitholders		(18,202	)		196,199			74,242			98,556			20,930

OTHER INFORMATION:
Total consolidated properties (end of period)		619			676			679			728			552
Total consolidated apartment units (end of period)		158,548			169,932			174,172			187,506			156,142
Total unconsolidated properties (end of period)		264			330			441			511			574
Total unconsolidated apartment units (end of period)		35,269			44,728			62,823			73,924			92,626
Units managed for others (end of period) (2)		46,667			49,074			50,565			56,722			31,520
Earnings (loss) per common unit – basic:
Income (loss) from continuing operations (net of income attributable to preferred unitholders)	$	(1.20	)	$	(0.37	)	$	(0.36	)	$	0.53		$	(0.09	)
Net income attributable to common unitholders	$	(0.17	)	$	1.88		$	0.71		$	1.00		$	0.25
Earnings (loss) per common unit – diluted:
Income (loss) from continuing operations (net of income attributable to preferred unitholders)	$	(1.20	)	$	(0.37	)	$	(0.36	)	$	0.53		$	(0.08	)
Net income attributable to common unitholders	$	(0.17	)	$	1.88		$	0.71		$	0.99		$	0.25
Dividends declared per common unit	$	3.00		$	2.40		$	2.84		$	3.28		$	3.16

BALANCE SHEET INFORMATION:
Real estate, net of accumulated depreciation	$	8,391,751		$	7,875,550		$	7,280,577		$	7,108,151		$	5,311,261
Total assets		10,031,758			10,086,229			10,098,649			10,347,829			8,200,526
Total indebtedness		6,057,283			5,402,098			5,170,768			5,000,578			3,722,865
Partners’ capital		2,945,402			3,291,087			3,174,815			3,576,083			3,080,071


(1)		Certain reclassifications have been made to conform to the September 30, 2006 presentation. These reclassifications primarily represent presentation changes related to discontinued operations resulting from the 2002 adoption of Statement of Financial Accounting Standards No. 144.

(2)		In 2005, 2004, 2003 and 2002, includes approximately 41,421, 41,233, 39,428 and 45,187 units, respectively, for which we provide asset management services only, 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.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Executive Overview

We are a self-administered and self-managed real estate investment trust, or REIT, engaged in the ownership, acquisition, management and redevelopment of apartment properties. Our property operations are characterized by diversification of product, location and price point. As of December 31, 2005, we owned or managed 1,370 apartment properties containing 240,484 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.

Our focus in 2005 has been to increase revenue and implement cost management and productivity initiatives, which includes centralizing purchasing, restructuring business processes, using technology to increase efficiency and implementing structured monthly reporting to identify issues and improve effectiveness of spending. We believe that our efforts are having their intended effect, are resulting in a positive trend in certain operating results and are the foundation for improved long-term operating results. These initiatives and others have also resulted in improved asset quality, and we will continue to seek opportunities to reinvest in our properties through capital expenditures and to manage our portfolio through property sales and acquisitions.

For 2006, our focus will include 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

2005 compared to 2004

We reported net income of $80.7 million and net loss attributable to common unitholders of $18.2 million for the year ended December 31, 2005, compared to net income of $293.1 million and net income attributable to common unitholders of $196.2 million for the year ended December 31, 2004, decreases of $212.4 million and $214.4 million, respectively. These decreases were principally due to the following items, all of which are discussed in further detail within this section:

	•		a decrease in income from discontinued operations, primarily related to lower net gains on dispositions of real estate;

	•		a decrease in net gain on disposition of real estate related to unconsolidated entities and other, primarily related to a 2004 gain on sale of land;

	•		an increase in depreciation and amortization expense;

	•		an increase in interest expense; and

	•		an increase in general and administrative expenses.

These decreases were partially offset by an increase in net operating income associated with property operations, which included increases related to acquisition, newly consolidated and same store properties.

2004 compared to 2003

We reported net income of $293.1 million and net income attributable to common unitholders of $196.2 million for the year ended December 31, 2004, compared to net income of $177.9 million and net income attributable to common unitholders of $74.2 million for the year ended December 31, 2003, increases of $115.2 million and $122.0 million, respectively. These increases were principally due to the following items, all of which are discussed in further detail within this section:

	•		an increase in net gain on disposition of real estate (including the gain recognized in discontinued operations and the gain related to unconsolidated entities and other); and

	•		an increase in activity fees and asset management revenues.

These increases were partially offset by:

	•		an overall decline in net operating income, which included a decline in same store net operating results, partially offset by increases related to acquisition and newly consolidated properties;

	•		an increase in general and administrative expenses;

	•		an increase in interest expense; and

	•		an increase in depreciation and amortization 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 entities, which primarily include acquisition, newly consolidated, affordable and redevelopment properties.

The following table summarizes the overall performance of our consolidated properties for the years ended December 31, 2005, 2004 and 2003 (in thousands):


	Year Ended December 31,
	2005		2004		2003
Rental and other property revenues	$	1,387,601	$	1,246,795	$	1,186,939
Property operating expenses		668,360		599,011		522,611

Net operating income	$	719,241	$	647,784	$	664,328

For the year ended December 31, 2005 compared to the year ended December 31, 2004, net operating income for our consolidated property operations increased by $71.5 million, or 11.0%. This increase was principally due to a $39.3 million increase in consolidated same store net operating income (see further discussion of same store results under the heading “Conventional Same Store Property Operating Results”); a $21.3 million increase related to operations of acquisition properties, which were principally comprised of Palazzo East at Park La Brea and five other properties purchased in 2005 and The Palazzo at Park La Brea and 10 other properties purchased in 2004; an $18.0 million increase related to operations of newly consolidated properties, which are properties that had been previously unconsolidated and accounted for by the equity method (21 properties first consolidated in 2005 and 42 properties first consolidated in 2004, which includes 24 properties that were consolidated due to the adoption of FASB Interpretation No. 46, Consolidation of Variable Interest Entities, or FIN 46); a $3.9 million increase related to operations of our affordable properties; and a $2.7 million increase related to the completion of certain redevelopment properties. These increases were offset by $6.4 million of increased property management expenses and $3.3 million of higher net casualty losses in 2005 as compared to 2004, primarily relating to greater hurricane and tropical storm damage that occurred in 2005.

For the year ended December 31, 2004, compared to the year ended December 31, 2003, net operating income for our consolidated property operations decreased by $16.5 million, or 2.5%. This decrease was principally due to a $40.3 million decrease in consolidated same store net operating income (see further discussion of same store results under the heading “Conventional Same Store Property Operating Results”). Additionally, there was a $6.6 million decrease related to net casualty losses and other costs primarily resulting from hurricanes and tropical storms in the third quarter of 2004, which damaged over 100 of our properties and $4.0 million in higher property management expenses. These decreases were offset by an $18.2 million increase related to operations of newly consolidated properties, which are properties that had been previously unconsolidated and accounted for by the equity method (42 properties first consolidated in 2004 and 12 properties that were first consolidated after the first quarter of 2003) and a $16.0 million increase related to operations of acquisition properties, which were principally comprised of The Palazzo at Park La Brea and 10 other properties purchased in 2004, and three properties purchased in 2003.

Conventional Same Store Property Operating Results

Same store operating results is a key indicator we use to assess the performance of our property operations and to understand the period over period operations of a consistent portfolio of properties. We define “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 for all periods presented and (iv) that have not been classified as held for sale. To ensure comparability, the information for all periods shown is based on our ownership in the most current period presented in each table. The following tables summarize the conventional rental property operations on a “same store” basis (which is not in accordance with generally accepted accounting principles, or GAAP) and reconcile them to consolidated rental property operations (which is in accordance with GAAP) described in the above comparative discussions (dollars in thousands):


	Year Ended December 31,						Change
	2005			2004
Our share of same store revenues	$	999,383		$	941,731			6.1	%
Less: Our share of same store expenses		443,112			418,221			6.0	%

Our share of same store net operating income		556,271			523,510			6.3	%
Adjustments to reconcile same store net operating income to real estate segment net operating income (1)		162,970			124,274

Real estate segment net operating income	$	719,241		$	647,784			11.0	%


Same store statistics:
Properties		458			458
Apartment units		131,491			131,491
Average physical occupancy		92.2	%		89.3	%		3.2	%
Average rent /unit/month	$	762		$	746			2.1	%


(1)		Includes: (i) minority partners’ share of consolidated, less our share of unconsolidated, property revenues and property operating expenses (at 2005 ownership); (ii) property revenues and property operating expenses related to consolidated properties other than same store properties (e.g., affordable, acquisition and redevelopment properties); and (iii) eliminations and other adjustments and reclassifications made in accordance with GAAP.

For the year ended December 31, 2005, compared to the year ended December 31, 2004, our share of same store net operating income increased $32.8 million, or 6.3%. Revenues increased $57.7 million, or 6.1%, primarily due to higher occupancy (up 2.9%), higher average rent (up $16 per unit) and lower bad debt. Expenses increased by $24.9 million, or 6.0%, primarily due to: an increase of $9.1 million in compensation expense related to increased staffing levels to support our initiatives to improve customer service; a $7.2 million increase in utilities due primarily to higher natural gas rates; a $5.5 million increase in real estate taxes; and $2.4 million of increases primarily related to turnover expenses associated with our efforts to increase occupancy.


	Year Ended December 31,						Change
	2004			2003
Our share of same store revenues	$	1,005,095		$	1,011,323			(0.6	)%
Less: Our share of same store expenses		441,413			417,281			5.8	%

Our share of same store net operating income		563,682			594,042			(5.1	)%
Adjustments to reconcile same store net operating income to real estate segment net operating income (1)		84,102			70,286

Real estate segment net operating income	$	647,784		$	664,328			(2.5	)%


Same store statistics:
Properties		524			524
Apartment units		147,070			147,070
Average physical occupancy		90.3	%		91.9	%		(1.7	)%
Average rent /unit/month	$	721		$	721			—


(1)		Includes: (i) minority partners’ share of consolidated, less our share of unconsolidated, property revenues and property operating expenses (at 2004 ownership); (ii) property revenues and property operating expenses related to consolidated properties other than same store properties (e.g., affordable, acquisition and redevelopment properties); and (iii) eliminations and other adjustments and reclassifications made in accordance with GAAP.

For the year ended December 31, 2004, compared to the year ended December 31, 2003, our share of same store net operating income decreased $30.4 million, or 5.1%. Revenues decreased $6.2 million, or 0.6%, primarily due to lower occupancy (down 1.6%), offset by higher utility reimbursements from residents and lower bad debt expense. Expenses increased by $24.1 million, or 5.8%, primarily due to: an increase of $20.0 million in compensation and benefit expense related to a new employee health plan, merit increases and increased staffing levels; an increase of $4.3 million in utilities due to the increase in the cost of natural gas; and an increase of $3.9 million in marketing and administrative expenses associated with our efforts to increase occupancy. These increases were partially offset by a decrease in property taxes related to successful appeals and changes in estimates related to assessments.

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. We expect this trend to continue as we increase our ownership in more of these partnerships or otherwise determine that consolidation is required by GAAP. 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 years ended December 31, 2005, 2004 and 2003 (in thousands):


	Year Ended December 31,
	2005		2004		2003
Property management revenues, primarily from affiliates	$	24,528	$	32,461	$	37,992
Property management expenses		7,360		9,789		8,419

Net operating income from property management	$	17,168	$	22,672	$	29,573

For the year ended December 31, 2005, compared to the year ended December 31, 2004, net operating income from property management decreased by $5.5 million, or 24.3%. For the year ended December 31, 2004, compared to the year ended December 31, 2003, net operating income from property management decreased by $6.9 million, or 23.3%. In both periods the decreases were principally due to an increase in the number of consolidated real estate partnerships (resulting from increased ownership and GAAP consolidation requirements), which required elimination of fee income and associated property-operating expense related to such partnerships and the sales of properties within our unconsolidated partnerships (35 properties in 2005, 53 properties in 2004 and 37 properties in 2003) that had previously generated property management revenues.

Activity Fees and Asset Management

Activity fees are generated from transactional activity 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 earned 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 deferred asset management fees that are recognized once a transaction or improvement in operations has occurred thereby generating available cash. Activity and asset management expenses are the direct expenses associated with transactional activities and asset management.

The following table summarizes the operating results of our transactional and asset management activities for the years ended December 31, 2005, 2004 and 2003 (in thousands):


	Year Ended December 31,
	2005		2004		2003
Activity fees and asset management revenues, primarily from affiliates	$	37,349	$	34,801	$	20,198
Activity and asset management expenses		10,630		11,879		8,367

Net operating income from activity fees and asset management	$	26,719	$	22,922	$	11,831

Included in the activity fees and asset management revenues, primarily from affiliates for the years ended December 31, 2005, 2004 and 2003, were $33.3 million, $30.3 million and $18.9 million, respectively, of fees related to affordable properties within the Aimco Capital portfolio.

For the year ended December 31, 2005, compared to the year ended December 31, 2004, net operating income from activity fees and asset management increased $3.8 million, or 16.6%. This overall increase was principally a result of increased activity fees related to syndication and developer activities of $6.0 million and $3.7 million, respectively, as well as a $1.2 million decrease in expenses associated with these activities. Additionally, we received $3.1 million in promote distributions from an unconsolidated partnership, as a result of us, as general partner, achieving financial returns to the limited partners in excess of established targets. These increases were offset by a $5.2 million decrease in asset management fees and decreases of $3.3 million and $1.9 million in activity fees related to disposition and refinancing activities, respectively.

For the year ended December 31, 2004, compared to the year ended December 31, 2003, net operating income from activity fees and asset management increased by $11.1 million, or 93.7%. This overall increase was principally a result of increased activity fees related to disposition, refinancing and developer activities of $7.3 million, $2.3 million and $3.0 million, respectively, due to a greater number of transactions in 2004 than in 2003. Additionally, there was an increase of $2.9 million related to the recognition of deferred asset management fees resulting from closed transactions and improved operations. These increases were offset by a $2.1 million decrease in syndication fees and $3.5 million in higher expenses associated with these activities.

Depreciation and Amortization

For the year ended December 31, 2005, compared to the year ended December 31, 2004, depreciation and amortization increased $62.2 million, or 19.1%. This increase was principally due to: $34.6 million of additional depreciation on certain real estate assets where the depreciation was adjusted prospectively (see Impairment of Long-Lived Assets in Note 2 of the consolidated financial statements in Item 8); $13.8 million and $8.3 million of additional depreciation related to newly consolidated and acquisition properties, respectively; and $11.0 million from the

completion of certain redevelopment properties. Additionally, $4.3 million of the increase was due to a change in estimated useful lives that apply to capitalized payroll and certain indirect costs (see Capital Expenditures and Related Depreciation in Note 2 of the consolidated financial statements in Item 8).

For the year ended December 31, 2004, compared to the year ended December 31, 2003, depreciation and amortization increased $30.7 million, or 10.4%. This increase was principally due to $8.5 million and $7.2 million of additional depreciation related to the newly consolidated and acquisition properties, respectively, as well as $9.9 million from the completion of certain redevelopment properties. Additionally, $5.9 million of the increase resulted from additional depreciation on certain real estate assets where the depreciation was adjusted prospectively (see Impairment of Long-Lived Assets in Note 2 of the consolidated financial statements in Item 8).

General and Administrative Expenses

For the year ended December 31, 2005, compared to the year ended December 31, 2004, general and administrative expenses increased $15.4 million, or 19.9%. This increase was principally due to $14.1 million in higher compensation related to increased staffing levels, increased health care costs, and transition costs associated with the chief financial and chief accounting officer positions. Additionally, at the end of 2005 there was $0.6 million in severance costs related to the restructuring of regional operating centers as a result of property dispositions.

For the year ended December 31, 2004, compared to the year ended December 31, 2003, general and administrative expenses increased $29.1 million, or 60.1%. This increase was principally due to: $15.5 million in higher compensation related to increased staffing levels, merit increases and variable compensation; $7.7 million related to increased health insurance costs and the effect of a favorable change in 2003 related to our accrual for insurance claims incurred but not reported (IBNR); $3.2 million in increased amortization of restricted stock and stock option compensation; and $3.1 million in legal costs and compliance costs primarily related to the internal control reporting requirements of Section 404 of the Sarbanes-Oxley Act of 2002.

Other Expenses (Income), Net

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

For the year ended December 31, 2005 compared to the year ended December 31, 2004, other expenses (income), net changed $6.2 million from expense of $1.5 million in 2004 to income of $4.7 million in 2005. This change was principally due to an $9.5 million higher income tax benefit recognized in 2005 as compared to 2004, reflecting increased losses of our taxable REIT subsidiaries (see further discussion in Note 10 of the consolidated financial statements in Item 8). In the year ended December 31, 2005, there was a tax benefit of $16.1 million recorded, as compared to $6.7 million in the year ended December 31, 2004. Additionally, we had higher income associated with our risk management activities, primarily due to better workers compensation claim experience as a result of more focused loss prevention measures. These increases in other income were partially offset by $3.8 million of higher partnership expenses primarily related to increases in professional fees.

For the year ended December 31, 2004, compared to the year ended December 31, 2003, other expenses (income), net changed $8.6 million from income of $7.1 million in 2003 to expense of $1.5 million in 2004. This change was principally due to an $11.3 million lower income tax benefit recognized in 2004 as compared to 2003, due primarily to an $8.0 million benefit related to the reversal of a deferred income tax asset valuation allowance in 2003 (see further discussion in Note 10 of the consolidated financial statements in Item 8). In the year ended December 31, 2004, there was a tax benefit of $6.7 million recorded, as compared to $18.0 million in the year ended December 31, 2003.

Interest Income

Interest income consists primarily of interest and accretion on general partner notes receivable from our unconsolidated real estate partnerships. Transactions that result in accretion occur on varying timetables and thus the income generated may vary from period to period.

For the year ended December 31, 2005, as compared to the year ended December 31, 2004, interest income increased $2.5 million, or 7.6%. This increase was principally a result of $4.2 million of higher interest on money market and interest-bearing accounts due to increased interest rates and higher cash balances and $3.5 million in interest earned on notes due from Aimco primarily related to the $85.4 million note issued in connection with the acquisition of Palazzo East at Park La Brea in January 2005. These increases were partially offset by lower accretion income.

For the year ended December 31, 2004, as compared to the year ended December 31, 2003, interest income increased $7.4 million, or 28.6%. This increase was principally a result of $5.0 million in higher interest due from general partner notes receivable, and $3.0 million in higher accretion income.

Interest Expense

For the year ended December 31, 2005, compared to the year ended December 31, 2004, interest expense, which includes the amortization of deferred financing costs, increased $25.2 million, or 7.7%. This increase was principally due to: $16.0 million and $5.0 million resulting from interest on the additional debt related to acquisition and newly consolidated properties, respectively; $17.7 million due to increased borrowings and increased interest rates on corporate and variable rate property debt and other items. These increases were partially offset by: $4.8 million in lower amortization of loan costs, primarily due to corporate debt restructuring in 2004; $8.5 million in higher capitalized interest due to increased redevelopment activity; and a $2.1 million decrease related to the redemption of mandatorily redeemable preferred securities in 2004 and early 2005.

For the year ended December 31, 2004, compared to the year ended December 31, 2003, interest expense increased $23.3 million, or 7.7%. This increase was principally due to: $9.9 million resulting from interest on the additional debt related to the newly consolidated properties; $9.6 million resulting from interest on the additional debt related to acquisition properties; and a $4.7 million decrease in capitalized interest due to redevelopment properties being placed in service. Additionally, an $8.8 million increase related to the credit facility and term loan (of which $1.8 million was associated with the write-off of deferred loan costs related to the November 2004 modification of the credit facility and term loan and $0.8 million related to the payoff of the indebtedness incurred to complete the acquisition of Casden Properties, Inc) due to higher average principal balances along with a higher weighted average interest rate. The November 2004 modification reduced the spread over LIBOR by an average of 1.25%, which has favorably impacted interest expense related to our revolving credit facility and $300 million term loan. These increases were partially offset by lower weighted average effective interest rates on mortgage debt due to refinancings that occurred in 2003 and 2004.

Deficit Distributions to Minority Partners

When real estate partnerships consolidated in our financial statements make cash distributions to partners in excess of the carrying amount of the minority interest, we record a charge equal to the amount of such distribution, even though there is no economic effect or cost.

For the year ended December 31, 2005, as compared to the year ended December 31, 2004, deficit distributions to minority partners decreased $5.8 million, or 33.1%. For the year ended December 31, 2004, as compared to the year ended December 31, 2003, deficit distributions to minority partners decreased $0.2 million, or 1.1%. The decrease in both periods was due to reduced levels of distributions being made by the consolidated real estate partnerships as a result of lower refinancing activity and decreased operating results, as well as our increased ownership of such partnerships.

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 our unconsolidated real estate partnerships, gain on dispositions of land and other non-depreciable assets and costs related to asset disposal activities.

For the year ended December 31, 2005, as compared to the year ended December 31, 2004, gain on dispositions of real estate related to unconsolidated entities and other decreased $52.3 million. For the year ended December 31, 2004, as compared to the year ended December 31, 2003, gain on dispositions of real estate related to unconsolidated entities and other increased $66.0 million. The change in both periods was principally due to a $34.6 million gain on the sale of a parcel of land located in Florida and a $17.4 million gain from the sale of one of our unconsolidated core properties, both of which occurred in 2004.

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.

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. For the years ended December 31, 2005, 2004 and 2003, such minority interests had a favorable effect on our consolidated operating results.

For the year ended December 31, 2005, as compared to the year ended December 31, 2004, the benefit from minority interest in consolidated real estate partnerships decreased $9.9 million. For the year ended December 31, 2004, as compared to the year ended December 31, 2003, the benefit from minority interest in consolidated real estate partnerships increased $14.2 million. The change in both periods was driven by property operating results. During 2005 as compared to 2004 our property operating results improved, thereby reducing the benefit from minority interest. When comparing 2004 to 2003 our property operating results declined, thereby increasing the benefit from minority interest.

Income from Discontinued Operations, Net

For properties accounted for as held for sale, 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 (see Note 2 of the consolidated financial statements in Item 8 for further policy information). 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 years ended December 31, 2005, 2004, and 2003, income from discontinued operations, net totaled $107.2 million, $238.4 million and $112.3 million, respectively, which includes a loss from operations of $4.1 million in 2005 and income from operations of $9.0 million and $26.0 million in 2004 and 2003, respectively. In 2005, the income from operations included the operating results of 128 properties and one partnership that were sold or classified as held for sale during 2005 and the first nine months of 2006. In 2004 and 2003, the income from operations included the operating results of 182 properties and one partnership and 239 properties and one partnership, respectively, that were sold or classified as held for sale in 2003, 2004, 2005 and the first nine months of 2006. Due to varying number of properties and the timing of sales, the income from operations is not comparable year to year.

During 2005, we sold 83 properties and one partnership, resulting in a net gain on sale of approximately $100.6 million (which is net of $4.5 million of related income taxes). Additionally, we recognized $3.8 million in impairment losses on assets sold or held for sale in 2005 and $14.6 million of net recoveries of deficit distributions to minority partners. During 2004, we sold 54 properties, resulting in a net gain on sale of approximately $233.4 million (which is net of $16.0 million of related income taxes). Additionally, we recognized $7.3 million in impairment losses on assets sold or held for sale in 2004 and $3.2 million of net recoveries of deficit distributions to minority partners. During 2003, we sold 72 properties, resulting in a net gain on sale of approximately $89.7 million (which is net of $12.1 million of related taxes). Additionally, we recognized $9.0 million in impairment losses on assets sold or held for sale in 2003 and $5.6 million of net recoveries of deficit distributions to minority partners.

Cumulative Effect of Change in Accounting Principle

On March 31, 2004, we recorded a $4.0 million cumulative effect of change in accounting principle related to the adoption of FIN 46. This charge is attributable to our recognition of cumulative losses allocable to minority interest that would otherwise have resulted in minority interest deficits. See Note 2 of the consolidated financial statements in Item 8 for further information.

Critical Accounting Policies and Estimates

We prepare our consolidated financial statements in accordance with GAAP, which requires 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, excluding interest charges, of the property. If the carrying amount exceeds the 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, for the year ended December 31, 2005, we recorded impairment losses of $3.4 million related to properties to be held and used. For the years ended December 31, 2004 and 2003, 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.

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. For the year ended

December 31, 2005, if we had not been able to complete certain transactions, our accretion income would have been lower by $2.5 million. 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.

During the years ended December 31, 2005 and 2004, we recorded $1.4 million and $1.8 million in net recovery of impairment losses on notes receivable. During the year ended December 31, 2003, we identified and recorded $2.2 million in net impairment losses on notes receivable. 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. We characterize as “indirect costs” an allocation of certain department costs, including payroll, at the regional operating center and corporate levels 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. See Note 2 – Capital Expenditures and Related Depreciation of the consolidated financial statements in Item 8 for further policy information.

For the years ended December 31, 2005, 2004 and 2003, for continuing and discontinued operations, we capitalized $18.1 million, $9.5 million and $14.5 million of interest costs, respectively, and $53.3 million, $46.7 million and $45.4 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 and interest expense on dilutive mandatorily redeemable convertible 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 years ended December 31, 2005, 2004 and 2003, our FFO is calculated as follows (in thousands):


	2005			2004			2003
Net income (loss) attributable to common unitholders (1)	$	(18,202	)	$	196,199		$	74,242
Adjustments:
Depreciation and amortization (2)		387,713			325,494			294,809
Depreciation and amortization related to non-real estate assets		(17,700	)		(18,349	)		(20,370	)
Depreciation of rental property related to minority partners’ interest (3)		(34,396	)		(38,096	)		(21,386	)
Depreciation of rental property related to unconsolidated entities		20,661			22,360			25,817
Gain on dispositions of real estate related to unconsolidated entities and other		(16,859	)		(69,204	)		(3,178	)
Gain on dispositions of non-depreciable assets		2,481			38,977			—
Deficit distributions to minority partners (4)		11,615			17,374			17,560
Cumulative effect of change in accounting principle		—			3,957			—
Discontinued operations:
Gain on dispositions of real estate, net of minority partners’ interest (3)		(105,060	)		(249,436	)		(101,849	)
Depreciation of rental property, net of minority partners’ interest (3)		41,662			50,526			66,821
Recovery of deficit distributions to minority partners, net (4)		(14,604	)		(3,231	)		(5,617	)
Income tax arising from disposals		4,481			16,015			12,134
Preferred OP Unit distributions		97,823			93,433			95,981
Redemption related preferred OP Unit issuance costs		1,123			3,489			7,645

Funds From Operations	$	360,738		$	389,508		$	442,609
Preferred OP Unit distributions		(97,823	)		(93,433	)		(95,981	)
Redemption related preferred OP Unit issuance costs		(1,123	)		(3,489	)		(7,645	)
Distributions on dilutive preferred securities		3,962			3,059			9,138
Interest expense on mandatorily redeemable convertible preferred securities		—			—			987

Funds From Operations attributable to common unitholders — diluted	$	265,754		$	295,645		$	349,108


Weighted average number of common units, common unit equivalents and dilutive preferred securities outstanding:
Common units and equivalents (5)		105,081			104,386			104,861
Dilutive preferred securities		2,946			1,308			3,290

Total		108,027			105,694			108,151


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 December 31, 2005, we had $161.7 million in cash and cash equivalents, an increase of $56.4 million from December 31, 2004, which cash is principally from sales and refinancing transactions that has yet to be distributed or applied to the outstanding balance of the revolving credit facility (see Note 8 to the consolidated financial statements in Item 8). At December 31, 2005, we had $284.0 million of restricted cash, primarily consisting of reserves and escrows held by lenders for bond sinking funds, capital expenditures, property taxes and insurance. In addition, cash, cash equivalents and restricted cash are held by partnerships that are not presented on a consolidated basis. 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 in Item 8.

Operating Activities

For the year ended December 31, 2005, our net cash provided by operating activities of $359.3 million was primarily from operating income from our consolidated properties, which is affected primarily by rental rates, occupancy levels and operating expenses related to our portfolio of properties. Cash provided by operating activities decreased $6.2 million compared with the year ended December 31, 2004, driven by changes in operating assets and liabilities. The changes in operating assets and liabilities were primarily due to cash used to reduce current liabilities related to interest and real estate tax accruals, offset by decreases in accounts receivable related to improved collections, and decreases in prepaid expense and restricted cash balances.

Investing Activities

For the year ended December 31, 2005, our net cash provided by investing activities of $36.4 million primarily resulted from proceeds received from sales of properties, partially offset by investments in our existing real estate assets through capital spending as well as the acquisition of Palazzo East at Park La Brea and five other properties (see Note 3 to the consolidated financial statements in Item 8 for further information on acquisitions).

Although we hold all of our properties for investment, we 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 year ended December 31, 2005, we sold 83 consolidated properties and 35 unconsolidated properties. These properties were sold for an aggregate sales price of $960.0 million, of which $764.0 million related to the consolidated properties. The sale of the consolidated properties generated proceeds totaling $718.4 million, after the payment of transaction costs. Our share of the total net proceeds from the sale of the 118 properties, after repayment of existing debt, payment of transaction costs and distributions to limited partners, was $331.8 million, of which $36.4 million related to the unconsolidated properties and was included in our distributions received from investments in unconsolidated real estate partnerships. Sales proceeds were used to repay a portion of our outstanding short-term indebtedness 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 $750 million to $950 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, redeem preferred securities 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 year ended December 31, 2005, we spent a total of $89.7 million on CR. These are expenditures that represent the share of expenditures that are deemed to replace the consumed portion of acquired capital assets. For the year ended December 31, 2005, we spent a total of $112.0 million, $23.9 million and $140.3 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 from 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 year ended December 31, 2005 on a per unit and total dollar basis (based on approximately 150,200 ownership equivalent units (excluding non-managed units) weighted for the portion of the period that we owned the property), and reconciles it to our Consolidated Statement of Cash Flows for the same period (in thousands, except per unit amounts).


	Actual			Cost Per
	Cost			Unit
Capital Replacements Detail:
Building interiors	$	14,453		$	96
Includes: hot water heaters, kitchen/bath

Building exteriors		13,932			93
Includes: roofs, exterior painting, electrical, plumbing

Landscaping and grounds		7,509			50
Includes: parking lot improvements, pool improvements

Turnover related		38,047			253
Includes: carpet, vinyl, tile, appliance, and fixture replacements

Capitalized site payroll and indirect costs		15,719			105

Our share of Capital Replacements	$	89,660		$	597


Capital Replacements:
Conventional	$	83,197
Affordable		6,463

Our share of Capital Replacements		89,660


Capital Improvements:
Conventional		91,228
Affordable		20,736

Our share of Capital Improvements		111,964


Casualties:
Conventional		22,537
Affordable		1,380

Our share of casualties		23,917


Redevelopment:
Conventional		137,311
Affordable		3,021

Our share of redevelopment		140,332

Our share of capital expenditures		365,873

Plus minority partners’ share of consolidated spending		90,113
Less our share of unconsolidated spending		(12,104	)

Total capital expenditures per Consolidated Statement of Cash Flows	$	443,882

Included in the above spending for CI, casualties and redevelopment, was approximately $33.2 million of our share of capitalized site payroll and indirect costs related to these activities for the year ended December 31, 2005.

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 year ended December 31, 2005, net cash used in financing activities of $339.3 million primarily related to payments on our secured notes payable, payment of our distributions, and redemptions of the Class D Partnership Preferred Units and Trust Based Convertible Preferred Securities, which we refer to as TOPRS, partially offset by proceeds from borrowings.

Mortgage Debt

At December 31, 2005 and 2004, we had $5.7 billion in consolidated mortgage debt outstanding, which included $260.6 million and $636.6 million, respectively, of mortgage debt classified within liabilities related to assets held for sale. During the year ended December 31, 2005, we refinanced or closed mortgage loans on 68 consolidated properties generating $591.1 million of proceeds from borrowings with a weighted average interest rate of 5.02%. Our share of the net proceeds after repayment of existing debt, payment of transaction costs and distributions to limited partners, was $254.1 million. In addition, we closed mortgage loans on 15 unconsolidated properties, with a weighted average interest rate of 4.95%. Our share of the net proceeds from these 15 mortgage loans totaled $26.4 million. We used our total net proceeds from all loans closed of $280.5 million for corporate purposes. We intend to continue to refinance mortgage debt to generate proceeds in amounts exceeding our scheduled amortizations and maturities.

During the year ended December 31, 2005, we closed five mortgage loans totaling $130.3 million, with an initial weighted average interest rate of 3.27%, to finance our consolidated acquisitions.

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 June 16, 2005, we amended our Credit Agreement, to provide for $100.0 million in additional term loan borrowings. The additional term loan matures on November 2, 2009 and bears interest at a rate of either LIBOR plus 1.75% or a base rate (determined by reference to the federal funds rate or Bank of America’s prime rate) plus 0.25%. The proceeds from the additional term loan were used to repay outstanding revolving loans.

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. The term loans mature on November 2, 2009 and the revolving loans mature on November 2, 2007. At December 31, 2005, the term loans had an outstanding principal balance of $400.0 million and a weighted average interest rate of 6.18% (based on LIBOR plus 2.00% for the original $300.0 million and LIBOR plus 1.75% for the additional $100.0 million). At December 31, 2005, the revolving loans had an outstanding principal balance of $217.0 million and a weighted average interest rate of 6.26% (based on various weighted average LIBOR and base rate borrowings outstanding with various maturities). The amount available under the revolving credit facility at December 31, 2005 was $208.3 million (after giving effect to $24.7 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. For more information, see Note 8 of the consolidated financial statements in Item 8.

Partners’ Capital Transactions

During the year ended December 31, 2005, Aimco redeemed all outstanding shares of Class D Cumulative Preferred Stock for $31.3 million. Concurrently, we redeemed for cash all outstanding Class D Partnership Preferred Units.

As of December 31, 2005, under the shelf registration statement, which was declared effective in April 2004, we had approximately $500 million of debt securities available and Aimco had approximately $877 million of debt and equity securities available. From time to time Aimco may issue preferred securities in both public offerings and private placements to generate proceeds to be used to redeem higher cost preferred securities, to finance acquisitions of real estate interests and for other corporate purposes.

Aimco’s board of directors has, from time to time authorized Aimco to repurchase shares of Aimco Class A Common Stock and preferred stock. In April 2005, Aimco’s board of directors replaced the existing authorization with a new authorization to repurchase up to a total of eight million shares of Aimco Class A Common Stock. These repurchases may be made from time to time in the open market or in privately negotiated transactions, subject to applicable law. 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.

Contractual Obligations

This table summarizes information contained elsewhere in this Annual Report regarding payments due under contractual obligations and commitments as of December 31, 2005 (amounts in thousands):


			Less than						More than
	Total		One Year		1-3 Years		3-5 Years		5 Years
Scheduled long-term debt maturities	$	5,440,282	$	520,192	$	902,072	$	581,044	$	3,436,975
Secured credit facility and term loans		617,000		—		217,000		400,000		—
Long-term liabilities related to assets held for sale		260,637		22,514		34,069		21,332		182,721
Redevelopment and other construction commitments		99,591		96,704		2,887		—		—
Leases for space occupied		43,743		7,784		14,663		9,925		11,371
Development fee payments (1)		12,500		10,000		2,500		—		—

Total	$	6,473,753	$	657,194	$	1,173,191	$	1,012,301	$	3,631,067


(1)		The development fee payments above were established in connection with the acquisition of Casden Properties, Inc. and our commitment as it relates to the Casden Development Company, LLC. We agreed to pay $2.5 million per quarter for five years (up to an aggregate amount of $50.0 million) to Casden Development Company, LLC as a retainer on account for redevelopment services on our assets.

In addition, we may enter into commitments to purchase 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.

Future Capital Needs

In addition to the items set forth in “Contractual Obligations” above, 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.

In 2006, we plan to invest between $150 and $200 million in conventional redevelopment projects that will impact approximately 70 properties with nearly 30,000 units. Additionally, in 2006 redevelopment expenditures on affordable properties will be approximately $80 million, predominantly funded by third-party tax credit equity, impacting 20 to 25 properties with more than 3,000 units.

Off-Balance Sheet Arrangements

We own general and limited partner interests in unconsolidated real estate partnerships, in which our total ownership interests range typically from less than 1% up to 50%. However, based on the provisions of the relevant partnership agreements, we are not deemed to have control of these partnerships sufficient to require or permit consolidation for accounting purposes (see Note 2 of the consolidated financial statements in Item 8). There are no lines of credit, side agreements, or any other derivative financial instruments related to or between our unconsolidated real estate partnerships and us and no material exposure to financial guarantees. Accordingly, our maximum risk of loss related to these unconsolidated real estate partnerships is limited to the aggregate carrying amount of our investment in the unconsolidated real estate partnerships and any outstanding notes receivable as reported in our consolidated financial statements. See Note 4 of the consolidated financial statements in Item 8 for additional information on our unconsolidated real estate partnerships.

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Partners
AIMCO Properties, L.P.

We have audited the accompanying consolidated balance sheets of AIMCO Properties, L.P. as of December 31, 2005 and 2004, and the related consolidated statements of income, partners’ capital and cash flows for each of the three years in the period ended December 31, 2005. Our audits also included the financial statement schedule listed in the accompanying Index to Financial Statements. These financial statements and schedule are the responsibility of the Partnership’s management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of AIMCO Properties, L.P. at December 31, 2005 and 2004, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2005, in conformity with United States generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly, in all material respects the information set forth therein.

As discussed in Note 2 to the consolidated financial statements, in 2004 the Partnership adopted the provisions of Financial Accounting Standards Board Interpretation No. 46 (revised December 2003), Consolidation of Variable Interest Entities.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of AIMCO Properties, L.P.’s internal control over financial reporting as of December 31, 2005, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 6, 2006 expressed an unqualified opinion thereon.

/s/ ERNST & YOUNG LLP

Denver, Colorado
March 6, 2006, except for notes 6, 10, 14, 15 and 17, as to which the date is November 30, 2006.

AIMCO PROPERTIES, L.P.

CONSOLIDATED BALANCE SHEETS

As of December 31, 2005 and 2004

(In thousands, except share data)


	2005			2004
ASSETS
Real estate:
Land	$	2,233,630		$	2,036,415
Buildings and improvements		8,255,582			7,573,564

Total real estate		10,489,212			9,609,979
Less accumulated depreciation		(2,097,461	)		(1,734,429	)

Net real estate		8,391,751			7,875,550
Cash and cash equivalents		161,730			105,343
Restricted cash		283,955			288,352
Accounts receivable		59,888			77,119
Accounts receivable from affiliates		43,070			39,216
Deferred financing costs		64,873			65,483
Notes receivable from unconsolidated real estate partnerships		177,200			165,281
Notes receivable from non-affiliates		23,760			31,716
Notes receivable from Aimco		13,299			12,613
Investment in unconsolidated real estate partnerships		166,667			206,716
Other assets		216,789			243,243
Deferred income tax assets, net		9,835			—
Assets held for sale		418,921			975,597

Total assets	$	10,031,758		$	10,086,229


LIABILITIES AND PARTNERS’ CAPITAL
Secured tax-exempt bond financing	$	1,035,584		$	1,059,000
Secured notes payable		4,404,699			3,959,379
Mandatorily redeemable preferred securities		—			15,019
Term loans		400,000			300,000
Credit facility		217,000			68,700

Total indebtedness		6,057,283			5,402,098

Accounts payable		34,381			34,663
Accrued liabilities and other		423,633			403,049
Deferred income		46,837			43,625
Security deposits		37,577			33,939
Deferred income tax liabilities, net		—			20,139
Liabilities related to assets held for sale		267,937			644,802

Total liabilities		6,867,648			6,582,315


Minority interest in consolidated real estate partnerships		218,708			212,827

Partners’ capital:
Preferred units		1,183,620			1,131,041
General Partner and Special Limited Partner		1,570,046			1,851,733
Limited Partners		301,452			326,113
High performance units		(16,307	)		(8,880	)
Investment in Aimco Class A Common Stock		(7,997	)		(8,920	)
Notes receivable from Aimco		(85,412	)		—

Total partners’ capital		2,945,402			3,291,087

Total liabilities and partners’ capital	$	10,031,758		$	10,086,229

See notes to consolidated financial statements.

AIMCO PROPERTIES, L.P.

CONSOLIDATED STATEMENTS OF INCOME

For the Years Ended December 31, 2005, 2004 and 2003

(In thousands, except per unit data)


	2005			2004			2003
REVENUES:
Rental and other property revenues	$	1,387,601		$	1,246,795		$	1,186,939
Property management revenues, primarily from affiliates		24,528			32,461			37,992
Activity fees and asset management revenues, primarily from affiliates		37,349			34,801			20,198

Total revenues		1,449,478			1,314,057			1,245,129


OPERATING EXPENSES:
Property operating expenses		668,360			599,011			522,611
Property management expenses		7,360			9,789			8,419
Activity and asset management expenses		10,630			11,879			8,367
Depreciation and amortization		387,713			325,494			294,809
General and administrative expenses		92,826			77,424			48,357
Other expenses (income), net		(4,690	)		1,499			(7,071	)

Total operating expenses		1,162,199			1,025,096			875,492

Operating income		287,279			288,961			369,637

Interest income		35,641			33,118			25,761
Recovery of (provision for) losses on notes receivable		1,365			1,765			(2,183	)
Interest expense		(352,593	)		(327,431	)		(304,149	)
Deficit distributions to minority partners		(11,615	)		(17,374	)		(17,560	)
Equity in losses of unconsolidated real estate partnerships		(3,139	)		(1,768	)		(6,428	)
Impairment losses related to real estate partnerships		(6,120	)		(3,426	)		(4,122	)
Gain on dispositions of real estate related to unconsolidated entities and other		16,859			69,204			3,178

Income (loss) before minority interest, discontinued operations and cumulative effect of change in accounting principle		(32,323	)		43,049			64,134

Minority interest in consolidated real estate partnerships		5,825			15,677			1,433

Income (loss) from continuing operations		(26,498	)		58,726			65,567
Income from discontinued operations, net		107,242			238,352			112,301

Income before cumulative effect of change in accounting principle		80,744			297,078			177,868
Cumulative effect of change in accounting principle		—			(3,957	)		—

Net income		80,744			293,121			177,868
Net income attributable to preferred unitholders		98,946			96,922			103,626

Net income (loss) attributable to common unitholders	$	(18,202	)	$	196,199		$	74,242


Earnings (loss) per common unit — basic:
Loss from continuing operations (net of preferred distributions)	$	(1.20	)	$	(0.37	)	$	(0.36	)
Income from discontinued operations		1.03			2.29			1.07
Cumulative effect of change in accounting principle		—			(0.04	)		—

Net income (loss) attributable to common unitholders	$	(0.17	)	$	1.88		$	0.71

Earnings (loss) per common unit — diluted:
Loss from continuing operations (net of preferred distributions)	$	(1.20	)	$	(0.37	)	$	(0.36	)
Income from discontinued operations		1.03			2.29			1.07
Cumulative effect of change in accounting principle		—			(0.04	)		—

Net income (loss) attributable to common unitholders	$	(0.17	)	$	1.88		$	0.71


Weighted average common units outstanding		104,511			104,251			104,743

Weighted average common units and equivalents outstanding		104,511			104,251			104,743

Distributions declared per common unit	$	3.00		$	2.40		$	2.84

See notes to consolidated financial statements.

AIMCO PROPERTIES, L.P.
CONSOLIDATED STATEMENTS OF PARTNERS’ CAPITAL
For the Years Ended December 31, 2005, 2004 and 2003 (In thousands)


				General
				Partner						High			Investment			Note
				and Special						Perform-			In Aimco			Receivable
	Preferred			Limited			Limited			ance			Common			from
	Units			Partner			Partners			Units			Stock			Aimco			Total
Partners’ Capital at December 31, 2002	$	1,098,683		$	2,129,014		$	362,888		$	(3,230	)	$	(11,272	)	$	—		$	3,576,083
Contributions from Aimco related to preferred offerings		144,808			—			—			—			—			—			144,808
Redemption of preferred units by Aimco		(239,770	)		—			—			—			—			—			(239,770	)
Contribution from Aimco related to stock purchased by officers, net of notes receivable of $1,600		—			590			—			—			—			—			590
Contribution from Aimco related to options and warrants exercised		—			2,344			—			—			—			—			2,344
Amortization of unvested restricted stock of Aimco		—			4,980			—			—			—			—			4,980
Common and preferred units redeemed by Limited Partners to Special Limited Partner		(884	)		12,919			(12,035	)		—			—			—			—
Issuance of Class VI Units, net		—			—			—			761			—			—			761
Conversion of mandatorily redeemable convertible preferred securities		—			50			—			—			—			—			50
Redemption of preferred units and common units		(27,237	)		—			(6,864	)		—			—			—			(34,101	)
Acquisitions of real estate or interests in real estate through issuance of common units		—			153			3,955			—			—			—			4,108
Conversion of Class Eleven Partnership Preferred Units to Class S Preferred Units		(28,101	)		—			—			—			—			—			(28,101	)
Common units received from Aimco related to Casden indemnification agreement and other activity		—			(25,526	)		—			—			—			—			(25,526	)
Repayment of notes receivable from officers of Aimco		—			10,518			—			—			—			—			10,518
Net income		103,626			65,817			6,739			1,686			—			—			177,868
Distributions paid — common and high performance unitholders		—			(286,314	)		(29,289	)		(7,281	)		1,260			—			(321,624	)
Distributions paid — preferred unitholders		(98,173	)		—			—			—			—			—			(98,173	)
Adjustment to reflect Limited Partners’ capital at redemption value		—			5,402			(5,402	)		—			—			—			—

Partners’ Capital at December 31, 2003		952,952			1,919,947			319,992			(8,064	)		(10,012	)		—			3,174,815
Contributions from Aimco related to preferred offerings		359,672			—			—			—			—			—			359,672
Redemption of preferred units by Aimco		(186,093	)		—			—			—			—			—			(186,093	)
Contribution from Aimco related to stock purchased by officers, net of notes receivable of $1,318		—			1,051			—			—			—			—			1,051
Contribution from Aimco related to options and warrants exercised		—			1,883			—			—			—			—			1,883
Amortization of unvested restricted stock of Aimco		—			6,506			—			—			—			—			6,506
Common and preferred units redeemed by Limited Partners to Special Limited Partner		(259	)		23,581			(23,322	)		—			—			—			—
Issuance of Class VII units, net		—			—			—			506			—			—			506
Repurchase of common units		—			(12,598	)		—			—			—			—			(12,598	)
Conversion of mandatorily redeemable convertible preferred securities		—			100			—			—			—			—			100
Redemption of preferred units and common units		(38	)		—			(5,773	)		—			—			—			(5,811	)
Acquisitions of real estate or interests in real estate through issuance of common units		—			—			2,609			—			—			—			2,609
Casden note receivable and legal settlement fair value contingent consideration adjustment		—			(4,848	)		—			—			—			—			(4,848	)
Repayment of notes receivable from officers of Aimco		—			4,639			—			—			—			—			4,639
Net income		96,922			175,542			16,179			4,478			—			—			293,121
Distributions paid — common and high performance unitholders		—			(226,995	)		(20,647	)		(5,800	)		1,092			—			(252,350	)
Distributions paid — preferred unitholders		(92,115	)		—			—			—			—			—			(92,115	)
Adjustment to reflect Limited Partners’ capital at redemption value		—			(37,075	)		37,075			—			—			—			—

Partners’ Capital at December 31, 2004		1,131,041			1,851,733			326,113			(8,880	)		(8,920	)		—			3,291,087
Redemption of preferred units by Aimco		(31,573	)		—			—			—			—			—			(31,573	)
Contribution from Aimco related to stock purchased by officers, net of notes receivable of $1,441		—			13,038			—			—			—			—			13,038
Contribution from Aimco related to options and warrants exercised		—			2,315			—			—			—			—			2,315
Amortization of unvested restricted stock of Aimco		—			9,975			—			—			—			—			9,975
Common and preferred units redeemed by Limited Partners to Special Limited Partner		(41	)		16,894			(16,853	)		—			—			—			—
Issuance of Class VIII units, net		—			—			—			128			—			—			128
Issuance of Class Thirteen Partnership Preferred Units to Aimco		85,412			—			—			—			—			—			85,412
Issuance of note receivable to Aimco		—			—			—			—			—			(85,412	)		(85,412	)
Preferred unit issuance costs		(409	)		—			—			—			—			—			(409	)
Redemption of common units		—			—			(3,130	)		—			—			—			(3,130	)
Purchase of Oxford warrants		—			(1,050	)		—			—			—			—			(1,050	)
Acquisitions of real estate or interests in real estate through issuance of common units and other		—			310			1,396			—			—			—			1,706
Net income		98,946			(16,310	)		(1,476	)		(416	)		—			—			80,744
Distributions paid — common and high performance unitholders		—			(227,738	)		(21,504	)		(5,700	)		923			—			(254,019	)
Distributions declared — common and high performance unitholders		—			(57,439	)		(4,776	)		(1,439	)		—			—			(63,654	)
Distributions paid — preferred unitholders		(97,731	)		—			—			—			—			—			(97,731	)
Distributions declared — preferred unitholders		(2,025	)		—			—			—			—			—			(2,025	)
Adjustment to reflect Limited Partners’ capital at redemption value		—			(21,682	)		21,682			—			—			—			—

Partners’ Capital at December 31, 2005	$	1,183,620		$	1,570,046		$	301,452		$	(16,307	)	$	(7,997	)	$	(85,412	)	$	2,945,402

See notes to consolidated financial statements.

AIMCO PROPERTIES, L.P.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 2005, 2004 and 2003

(In thousands)


	2005			2004			2003
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	80,744		$	293,121		$	177,868

Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		387,713			325,494			294,809
Deficit distributions to minority partners, net		11,615			17,374			17,560
Equity in losses of unconsolidated real estate partnerships		3,139			1,768			6,428
Gain on dispositions of real estate related to unconsolidated entities and other		(16,859	)		(69,204	)		(3,178	)
Impairment losses related to real estate partnerships		6,120			3,426			4,122
Deferred income tax provision (benefit)		(19,146	)		706			(11,215	)
Cumulative effect of change in accounting principle		—			3,957			—
Minority interest in consolidated real estate partnerships		(5,825	)		(15,677	)		(1,433	)
Stock-based compensation expense		9,975			6,506			4,980
Amortization of deferred loan costs and other		1,700			5,484			(5,002	)
Discontinued operations:
Depreciation and amortization		47,151			57,233			78,407
Recovery of deficit distributions to minority partners		(14,604	)		(3,231	)		(5,617	)
Gain on dispositions of real estate, net of minority partners’ interest		(105,060	)		(249,436	)		(101,849	)
Impairment losses on real estate assets sold or held for sale		3,836			7,289			8,991
Minority interest in consolidated real estate partnerships		(2,235	)		(1,102	)		3,817
Changes in operating assets and operating liabilities:
Accounts receivable		11,450			(2,067	)		5,763
Other assets		17,542			(11,406	)		5,630
Accounts payable, accrued liabilities and other		(57,935	)		(4,712	)		(16,202	)

Total adjustments		278,577			72,402			286,011

Net cash provided by operating activities		359,321			365,523			463,879


CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of real estate		(158,584	)		(210,324	)		(126,046	)
Capital expenditures		(443,882	)		(301,937	)		(245,528	)
Proceeds from dispositions of real estate		718,434			971,568			697,642
Change in funds held in escrow from tax-free exchanges		(4,571	)		5,489			(21,643	)
Purchases of non-real estate related corporate assets		(14,405	)		(28,270	)		(23,621	)
Proceeds from sale of investments and other assets		4,629			—			6,730
Cash from newly consolidated properties		4,186			14,765			5,835
Purchases of general and limited partnership interests and other assets		(111,372	)		(104,441	)		(51,356	)
Originations of notes receivable from unconsolidated real estate partnerships		(38,336	)		(145,835	)		(71,969	)
Proceeds from repayment of notes receivable		28,556			149,277			60,576
Cash paid in connection with merger/acquisition related costs		(6,910	)		(15,861	)		(16,383	)
Distributions received from Aimco		923			1,092			1,260
Distributions received from investments in unconsolidated real estate partnerships		57,706			72,160			64,046

Net cash provided by investing activities		36,374			407,683			279,543


CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from secured notes payable borrowings		721,414			501,611			445,793
Principal repayments on secured notes payable		(735,816	)		(728,084	)		(755,786	)
Proceeds from tax-exempt bond financing		—			69,471			14,505
Principal repayments on tax-exempt bond financing		(78,648	)		(188,577	)		(77,793	)
Net borrowings (paydowns) on term loans and revolving credit facility		248,300			(66,687	)		29,376
Proceeds from other borrowings		—			38,871			—
Payment of loan costs		(11,242	)		(17,576	)		(19,516	)
Proceeds from issuance (redemption) of mandatorily redeemable preferred securities		(15,019	)		(98,875	)		97,250
Proceeds from issuance of common units, High Performance Units and exercise of options/warrants and other		2,454			3,164			4,552
Proceeds from issuance of preferred unit, net		—			289,994			144,808
Redemptions of preferred units		(31,573	)		(186,093	)		(239,770	)
Origination of note receivable from Aimco		(85,412	)		—			—
Principal repayments received on notes due on common unit purchases		12,255			4,639			10,518
Repurchase and redemption of common units and warrant purchase		(4,180	)		(18,410	)		(1,287	)
Contributions from minority interest		34,990			44,292			100,684
Payment of distributions to minority interest		(44,158	)		(84,478	)		(60,820	)
Payment of distributions to General Partner and Special Limited Partner		(227,738	)		(226,995	)		(286,314	)
Payment of distributions to Limited Partners		(21,504	)		(20,647	)		(29,289	)
Payment of distributions to High Performance Units		(5,700	)		(5,800	)		(7,281	)
Payment of distributions to preferred units		(97,731	)		(92,115	)		(98,173	)

Net cash used in financing activities		(339,308	)		(782,295	)		(728,543	)

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS		56,387			(9,089	)		14,879
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR		105,343			114,432			99,553

CASH AND CASH EQUIVALENTS AT END OF YEAR	$	161,730		$	105,343		$	114,432

See notes to consolidated financial statements.

AIMCO PROPERTIES, L.P.

CONSOLIDATED STATEMENTS OF CASH FLOWS

For the Years Ended December 31, 2005, 2004 and 2003

(In thousands)


	2005			2004			2003
SUPPLEMENTAL CASH FLOW INFORMATION:

Interest paid	$	399,511		$	372,703		$	372,815

Issuance of preferred units in connection with the purchase of real estate		85,412			69,678			—
Dividends declared		65,679			—			—

Non Cash Transactions Associated with the Acquisition of Real Estate and Interests in Unconsolidated Real Estate Partnerships:
Secured debt assumed in connection with purchase of real estate		38,740			83,114			45,009
Issuance of OP Units for interests in unconsolidated real estate partnerships and acquisitions of real estate		125			2,609			841

Non Cash Transactions Associated with Merger:
Real estate		—			—			(63,535	)
Investments in and notes receivable, primarily from unconsolidated real estate Partnerships		—			—			(2,163	)
Restricted cash		—			—			11,979
Other assets		—			—			3,349
Accounts payable, accrued and other liabilities		—			—			49,770
Deferred income tax payable, net		—			—			600

Non Cash Transactions Associated with Consolidation of Real Estate Partnerships:
Real estate, net		201,492			231,932			152,248
Investments in and notes receivable primarily from affiliated entities		(72,341	)		(40,178	)		(52,478	)
Restricted cash and other assets		16,942			47,744			9,972
Secured debt		112,521			204,243			101,962
Accounts payable, accrued and other liabilities		17,326			21,394			7,030
Minority interest in consolidated real estate partnerships		6,834			29,439			6,585

Other:
Conversion of preferred units and securities into common units		41			259			934
Origination of notes receivable from officers of Aimco		1,441			1,528			1,600
Exchanges of preferred OP Units		—			150,000			—
Tenders payable for purchase of limited partner interests		950			2,799			10,037

See notes to consolidated financial statements.

AIMCO PROPERTIES, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2005

NOTE 1 — Organization

AIMCO Properties, L.P., a Delaware limited partnership, or the Partnership, and together with its consolidated subsidiaries and other controlled entities, the Company, was formed on May 16, 1994 to conduct the business of acquiring, redeveloping, leasing, and managing multifamily apartment properties. 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 December 31, 2005, we:

	•		owned an equity interest in and consolidated 158,548 units in 619 properties (which we refer to as “consolidated”), of which 157,638 units were also managed by us;

	•		owned an equity interest in and did not consolidate 35,269 units in 264 properties (which we refer to as “unconsolidated”), of which 29,182 units were also managed by us; and

	•		provided services or managed, for third-party owners, 46,667 units in 487 properties, primarily pursuant to long-term agreements (including 41,421 units in 435 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 December 31, 2005, we had outstanding 103,692,378 common OP Units, 45,037,094 preferred OP Units and 2,379,084 High Performance Units (includes only those units that have met the required measurement benchmarks and are dilutive – see Note 12).

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

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.

FASB Interpretation No. 46 (revised December 2003), Consolidation of Variable Interest Entities, or FIN 46, addresses the consolidation by business enterprises of variable interest entities. As a result of the adoption of FIN 46, as of March 31, 2004, we consolidate all variable interest entities for which we are the primary beneficiary. Generally, a variable interest entity, or VIE, is an entity with one or more of the following characteristics: (a) the total equity investment at risk is not sufficient to permit the entity to finance its activities without additional subordinated financial support; (b) as a group the holders of the equity investment at risk lack (i) the ability to make decisions about an entity’s activities through voting or similar rights, (ii) the obligation to absorb the expected losses of the entity, or (iii) the right to receive the expected residual returns of the entity; or (c) the equity investors have voting rights that are not proportional to their economic interests and substantially all of the entity’s activities either involve, or are conducted on behalf of, an investor that has disproportionately few voting rights. FIN 46 requires a VIE to be consolidated in the financial statements of the entity that is determined to be the primary beneficiary of the VIE. The primary beneficiary generally is the entity that will receive a majority of the VIE’s expected losses, receive a majority of the VIE’s expected residual returns, or both.

Upon adoption of FIN 46, we determined that we were the primary beneficiary of 27 previously unconsolidated and five previously consolidated VIEs. These VIEs consisted of partnerships that are engaged, directly or indirectly, in the ownership and management of 29 apartment properties with 3,478 units. The initial consolidation of the previously unconsolidated entities as of March 31, 2004 resulted in an increase in our consolidated total assets (primarily real estate), liabilities (primarily indebtedness) and minority interest of approximately $113.5 million, $90.6 million and $26.8 million, respectively. We recorded a charge of approximately $4.0 million for the cumulative effect on retained earnings resulting from the adoption of FIN 46. This charge is attributable to our recognition of cumulative losses allocable to minority interests that would otherwise have resulted in minority interest deficits.

As of December 31, 2005, we were the primary beneficiary of, and therefore consolidated, 46 VIEs, which owned 40 apartment properties with 5,816 units. Real estate with a carrying value of $378.2 million collateralized the debt of those VIEs. The creditors of the consolidated VIEs do not have recourse to our general credit. As of December 31, 2005, we also held variable interests in 107 VIEs for which we were not the primary beneficiary. Those 107 VIEs consist primarily of partnerships, in which we acquired an interest prior to the adoption of FIN 46, that are engaged, directly or indirectly, in the ownership and management of 112 apartment properties with 10,812 units. We are involved with those VIEs as a non-controlling equity holder, lender, management agent, or through other contractual relationships. Our maximum exposure to loss as a result of our involvement with unconsolidated VIEs is limited to our recorded investments in and receivables from those VIEs totaling $30.8 million at December 31, 2005. We may be subject to additional losses to the extent of any financial support that we voluntarily provide in the future.

Generally, we consolidate real estate partnerships and other entities that are not VIEs when we own, directly or indirectly, a majority voting interest in the entity. In June 2005, the Financial Accounting Standards Board, or FASB, 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 certain rights held by the limited partners and provides additional guidance on what constitutes substantive kick-out rights and substantive participating 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 limited partnerships in the fourth quarter of 2005 based on EITF 04-5 requirements. The consolidation of these

partnerships had an immaterial effect on our consolidated financial statements. As discussed in Note 19, we are required to apply EITF 04-5 to all existing limited partnerships and similar entities where we are the general partner as of January 1, 2006.

Acquisition of Real Estate Assets and Related Depreciation and Amortization

We capitalize the purchase price and incremental direct costs associated with the acquisition of properties as the cost of the assets acquired. In accordance with Statement of Financial Accounting Standards No. 141, Business Combinations, or SFAS 141, we allocate the cost of acquired properties to land, building, furniture, fixtures and equipment and intangibles, such as the value of above and below market leases, and origination costs associated with the in-place leases. In order to allocate purchase price on these various components we perform the following procedures for properties we acquire:

	1.		Determine the “as-if vacant” fair value of the physical property acquired (this value assumes the property goes “dark”);

	2.		Allocate the “as-if vacant” fair value among land, building, improvements (based on real estate valuation techniques), and furniture, fixtures and equipment; and

	3.		Compute the difference between the purchase price of the property and the “as-if vacant” fair value and allocate such difference to leases in-place (based on the nature of our business, customer relationship value is assumed to be zero), which will represent the total intangible assets. The fair value of the leases in-place are comprised of:

	a.		The value of the above and/or below market leases in-place. Above-market and below-market in-place lease values are computed based on the difference between (i) the contractual amounts to be paid pursuant to the in-place leases and (ii) management’s estimate of fair market lease rates for the corresponding in-place leases, measured over the period, including estimated lease renewals for below-market leases, that the leases are expected to remain in effect.

	b.		Avoided leasing commissions and other costs that were incurred to execute leases.

	c.		The value associated with lost rents during the absorption period (estimates of lost rental revenue during the expected lease-up periods based on current market demand).

The values of the above and below market leases are amortized over the remaining terms of the associated lease, including estimated lease renewals for below-market leases, to rental income. For the values associated with avoided leasing commissions and other costs that were incurred to execute leases and the value associated with lost rents during the absorption period, amortization expense is recorded over the expected terms of the associated leases. If a resident vacates the unit prior to the contractual termination of the lease and no rental payments are being made on the lease, any unamortized balance of the related intangible will be written off.

Depreciation for all tangible real estate assets is calculated using the straight-line method over their estimated useful lives. Acquired buildings and improvements are depreciated over a composite life of 14 to 52 years, based on the age, condition and other physical characteristics of the property. As discussed under Impairment of Long Lived Assets below, we may adjust depreciation of properties that are expected to be disposed of prior to the end of their useful lives. Furniture, fixtures and equipment associated with acquired properties are depreciated over five years.

Capital Expenditures and Related Depreciation

We depreciate capitalized costs using the straight-line method over the estimated useful life of the related component or improvement, which is five, 15 or 30 years. Prior to July 1, 2005, we recorded capitalized site payroll costs and most capitalized indirect costs separately from other costs of the related capital projects. We depreciated capitalized site payroll costs over five years and capitalized indirect costs associated with capital replacement and improvement projects over five or 15 years. Capitalized indirect costs associated with redevelopment projects, together with other costs of the redevelopment projects, were depreciated over the estimated useful lives of those projects, predominantly 30 years.

Effective July 1, 2005, we refined the estimated useful lives for the capitalized site payroll and indirect costs that were recorded separately from other costs of the related capital projects. All capitalized site payroll and indirect costs incurred after June 30, 2005 are allocated proportionately, based on direct costs, among capital projects and depreciated over the estimated useful lives of such projects. This change in estimate is also being applied prospectively to the June 30, 2005 carrying amounts, net of accumulated depreciation, of previously incurred site payroll and indirect costs. Those amounts, based on the periods the costs were incurred, were allocated among capital projects that were completed in the corresponding periods in proportion to the original direct costs of such projects and are being depreciated over the remaining useful lives of the projects. We anticipate that these refinements will result in generally higher depreciation expense in foreseeable future accounting periods. For the year ended December 31, 2005, these changes in estimated useful lives resulted in decreased net income of approximately $5.1 million, and resulted in a decrease in basic and diluted earnings per share of $0.05.

Certain homogeneous items that are purchased in bulk on a recurring basis, such as carpeting and appliances, are depreciated using group methods that reflect the average estimated useful life of the items in each group. Except in the case of property casualties, where the net book value of lost property is written off in the determination of casualty gains or losses, we generally do not recognize any loss in connection with the replacement of an existing property component because normal replacements are considered in determining the estimated useful lives used in connection with our composite and group depreciation methods.

Asset Retirement Obligations

In March 2005, the FASB issued FASB Interpretation No. 47, Accounting for Conditional Asset Retirement Obligations, or FIN 47. FIN 47 clarifies the accounting for legal obligations to perform asset retirement activity in which the timing and/or method of settlement are conditional on future events. FIN 47 requires the fair value of such conditional asset retirement obligations to be recorded as incurred, if the fair value of the liability can be reasonably estimated. We have determined that FIN 47 applies to certain obligations that we have based on laws that require property owners to remove or remediate hazardous substances in certain circumstances. We adopted the provisions of FIN 47 as of December 31, 2005 and determined that asset retirement obligations that are required to be recognized under FIN 47 are immaterial to our financial condition and results of operations. See Note 9 for further discussion of asset retirement obligations.

Impairment of Long-Lived Assets

We apply the provisions of Statement of Financial Accounting Standards No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, or SFAS 144, to determine whether our real estate and other long-lived assets are impaired. Such 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, excluding interest charges, of the property. If the carrying amount exceeds the aggregate undiscounted future cash flows, we recognize an impairment loss to the extent the carrying amount exceeds the estimated fair value of the property. Based on periodic tests of recoverability of long-lived assets, for the year ended December 31, 2005, we recorded impairment losses of $3.4 million related to properties to be held and used. For the years ended December 31, 2004 and 2003, we determined that the carrying amounts of our properties to be held and used were recoverable and, therefore, we did not record any impairment losses related to such properties.

Our tests of recoverability address 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 an impairment loss is not

required to be recorded in accordance with 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 $35.6 million and $7.1 million, and resulted in a decrease in basic and diluted earnings per share of $0.34 and $0.07, for the years ended December 31, 2005 and 2004, respectively.

Cash Equivalents

We consider highly liquid investments with an original maturity of three months or less to be cash equivalents.

Restricted Cash

Restricted cash includes capital replacement reserves, tax-free exchange funds, completion repair reserves, bond sinking fund amounts and tax and insurance escrow accounts held by lenders.

Accounts Receivable and Allowance for Doubtful Accounts

Accounts receivable are generally comprised of amounts receivable from residents, amounts receivable from non-affiliated real estate partnerships for which we provide property management and other services and other miscellaneous receivables from non-affiliated entities. We evaluate collectibility of accounts receivable from residents and establish an allowance, after the application of security deposits and other anticipated recoveries, for accounts greater than 30 days past due for current residents and all receivables due from former residents. Accounts receivable from residents are stated net of allowances for doubtful accounts of approximately $2.3 million and $2.4 million as of December 31, 2005 and 2004, respectively.

We evaluate collectibility of accounts receivable from non-affiliated entities and establish an allowance for amounts that are considered to be uncollectible. Accounts receivable relating to non-affiliated entities are stated net of allowances for doubtful accounts of approximately $4.2 million and $4.5 million as of December 31, 2005 and 2004, respectively.

Accounts Receivable and Allowance for Doubtful Accounts from Affiliates

Accounts receivable from affiliates are generally comprised of receivables related to property management and other services provided to unconsolidated real estate partnerships in which we have an ownership interest. We evaluate collectibility of accounts receivable balances from affiliates on a periodic basis, and establish an allowance for the amounts deemed to be uncollectible. Accounts receivable from affiliates are stated net of allowances for doubtful accounts of approximately $4.7 million and $4.4 million as of December 31, 2005 and 2004, respectively.

Deferred Costs

We defer lender fees and other direct costs incurred in obtaining financing and amortize the cost over the terms of the related loan agreements. Amortization of these costs is included in interest expense. We defer leasing commissions and other direct costs incurred in connection with successful leasing efforts and amortize the costs over the terms of the related leases. Amortization of these costs is included in property operating expenses.

Advertising Costs

We generally expense all advertising costs as incurred to property operating expense. For the years ended December 31, 2005, 2004 and 2003, for both continuing and discontinued operations, total advertising expense was $36.1 million, $33.1 million and $28.7 million, respectively.

Notes Receivable from Unconsolidated Real Estate Partnerships and Related Interest Income and Provision for Losses

Investments in Unconsolidated Real Estate Partnerships

We own general and limited partner interests in real estate partnerships that own apartment properties. We generally account for investments in real estate partnerships that we do not consolidate under the equity method. Under the equity method, our share of the earnings or losses of the entity for the periods being presented is included in equity in earnings (losses) from unconsolidated real estate partnerships, except for our share of impairments and property disposition gains related to such entities, which we report separately in the consolidated statements of income. Certain investments in real estate partnerships that were acquired in business combinations were determined to have insignificant value at the acquisition date and are accounted for under the cost method. Any distributions received from such partnerships are recognized as income when received.

Intangible Assets

At December 31, 2005 and 2004, other assets included goodwill of $81.9 million and $88.1 million, respectively, associated with our real estate segment. We account for goodwill and other intangible assets in accordance with the requirements of Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets, or SFAS 142. SFAS 142 does not permit amortization of goodwill and other intangible assets with indefinite lives, but requires an annual impairment test of such assets. The impairment test compares the fair value of reporting units with their carrying amounts, including goodwill. Based on the application of the goodwill impairment test set forth in SFAS 142, we determined that our goodwill was not impaired in 2005, 2004 or 2003. As discussed in Note 10, we reduced goodwill by $6.2 million in 2005 in connection with the recognition of deferred income tax assets that were acquired in connection with business combinations in prior years.

Other assets also includes intangible assets for purchased management contracts with finite lives that we amortize on a straight-line basis over terms ranging from five to twenty years and intangible assets for in-place leases as discussed under Acquisition of Real Estate Assets and Related Depreciation and Amortization.

Capitalized Software Costs

Purchased software and other costs related to software developed for internal use are capitalized during the application development stage and are amortized using the straight-line method over the estimated useful life of the software, generally five years. We write off the costs of software development projects when it is no longer probable that the software will be completed and placed in service. For the years ended December 31, 2005, 2004 and 2003, we capitalized software development costs totaling $9.9 million, $18.1 million and $18.9 million, respectively. During 2005 and 2004, we wrote off $0.5 million and $1.1 million of software development costs. At December 31, 2005 and 2004, other assets included $40.2 million and $43.4 million of net capitalized software, respectively.

Minority Interest in Consolidated Real Estate Partnerships

We report unaffiliated partners’ interests in consolidated real estate partnerships as minority interest in consolidated real estate partnerships. Minority interest in consolidated real estate partnerships represents the minority partners’ share of the underlying net assets of our consolidated real estate partnerships. When these consolidated real estate partnerships make cash distributions to partners in excess of the carrying amount of the minority interest, we generally record a charge equal to the amount of such excess distribution, even though there is no economic effect or cost. We report this charge in the consolidated statements of income as deficit distributions to minority partners. We allocate the minority partners’ share of partnership losses to minority partners to the extent of the carrying amount of the minority interest. We generally record a charge when the minority partners’ share of partnership losses exceed the carrying amount of the minority interest, even though there is no economic effect or cost. We report this charge in the consolidated statements of income within minority interest in consolidated real estate partnerships. We do not record charges for distributions or losses in certain limited instances where the minority partner has a legal obligation and financial capacity to contribute additional capital to the partnership. For the years ended December 31, 2005, 2004, and 2003, we recorded charges for partnership losses resulting from depreciation of approximately $9.5 million, $5.2 million, and $1.5 million, respectively, that were not allocated to minority partners because the losses exceeded the carrying amount of the minority interest.

Minority interest in consolidated real estate partnerships consists primarily of equity interests held by limited partners in consolidated real estate partnerships that have finite lives. The terms of the related partnership agreements generally require the partnership to be liquidated following the sale of the partnership’s real estate. As the general partner in these partnerships, we ordinarily control the execution of real estate sales and other events that could lead to the liquidation, redemption or other settlement of minority interests. The aggregate carrying value of minority interests in consolidated real estate partnerships is approximately $218.7 million at December 31, 2005. The aggregate fair value of these interests varies based on the fair value of the real estate owned by the partnerships. Based on the number of classes of finite-life minority interests, the number of properties in which there is direct or indirect minority ownership, complexities in determining the allocation of liquidation proceeds among partners and other factors, we believe it is impracticable to determine the total required payments to the minority interests in an assumed liquidation at December 31, 2005. As a result of real estate depreciation that is recognized in our financial statements and appreciation in the fair value of real estate that is not recognized in our financial statements, we believe that the aggregate fair value of our minority interests exceeds their aggregate carrying value. As a result of our ability to control real estate sales and other events that require payment of minority interests and our expectation that proceeds from real estate sales will be sufficient to liquidate related minority interests, we anticipate that the eventual liquidation of these minority interests will not have an adverse impact on our financial condition.

Revenue Recognition

Our properties have operating leases with apartment residents with terms generally of twelve months or less. We recognize rental revenue related to these leases, net of any concessions, on a straight-line basis over the term of the lease. We recognize revenues from property management, asset management, syndication, development and other services when the related fees are earned and are realized or realizable.

Stock-Based Compensation

Effective January 1, 2003, Aimco adopted 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, and applied the prospective method set forth in SFAS 148 with respect to the transition. Under this method, Aimco applies the fair value recognition provisions of SFAS 123 to all employee awards granted, modified, or settled on or after January 1, 2003, which has resulted in recognition of compensation expense related to stock options based on the fair value of the stock options. For stock options granted prior to January 1, 2003, Aimco applies 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 has been recognized. Aimco recognizes compensation expense for stock options accounted for under SFAS 123 and restricted stock awards ratably over the period the awards vest. Compensation expense is reversed as forfeitures occur.

For purposes of the pro forma disclosures below, the estimated fair values for all awards made prior to January 1, 2003 are amortized over the respective vesting period for each such option and are shown as expense as if SFAS 123 had been applied to all such awards. Pro forma information regarding net income and earnings per unit is required by SFAS 123, which also requires that the information be determined as if Aimco had accounted for its employee stock options granted subsequent to December 31, 1994 under the fair value method. The fair value for these options granted over the last three years was estimated at the date of grant using a Black-Scholes valuation model. The estimated fair value of Aimco’s stock options and underlying assumptions are as follows:


	2005			2004			2003
Weighted average fair value of options granted during the year	$	3.57		$	2.24		$	2.26

Assumptions:
Risk free interest rate		4.1	%		3.5	%		3.5	%
Expected dividend yield		6.31	%		7.5	%		9.0	%
Volatility factor of the expected market price of Aimco Class A Common Stock		0.190			0.191			0.195
Weighted average expected life of options	5.0 years			5.0 years			5.0 years

The Black-Scholes valuation model was developed for use in estimating the fair value of traded options and does not take into account vesting requirements or restrictions on transferability. In addition, the valuation model requires the input of highly subjective assumptions including the expected stock price volatility. Aimco’s employee stock options have characteristics significantly different from those of traded options, and changes in the subjective input assumptions can materially affect the fair value estimate.

The following table illustrates the effect on net income and earnings per unit if the fair value based method had been applied to all outstanding and unvested awards in each period presented. Our pro forma information for the years ended December 31, 2005, 2004 and 2003 is as follows (in thousands, except per unit data):


	2005			2004			2003
Net income (loss) attributable to common unitholders, as reported	$	(18,202	)	$	196,199		$	74,242

Add: Stock-based employee compensation expense included in reported net income:
Restricted stock awards		8,140			4,903			4,088
Stock options		1,835			1,603			892
Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards:
Restricted stock awards		(8,140	)		(4,903	)		(4,088	)
Stock options		(3,422	)		(4,289	)		(4,744	)

Pro forma net income (loss) attributable to common unitholders	$	(19,789	)	$	193,513		$	70,390


Basic earnings (loss) per common unit:
Reported	$	(0.17	)	$	1.88		$	0.71
Pro forma	$	(0.19	)	$	1.86		$	0.67
Diluted earnings (loss) per common unit:
Reported	$	(0.17	)	$	1.88		$	0.71
Pro forma	$	(0.19	)	$	1.86		$	0.67

The effects of applying SFAS 123 in calculating pro forma income attributable to common unitholders and pro forma basic and diluted earnings per unit may not necessarily be indicative of the effects of applying SFAS 123 to future years’ earnings. As discussed in Note 19, Aimco will change its method of accounting for share-based compensation in 2006.

Discontinued Operations

In accordance with SFAS 144, we classify certain properties and related liabilities as held for sale (see Note 14). The operating results of such properties are presented in discontinued operations in both current periods and all comparable periods presented. Depreciation is not recorded on properties held for sale; however, depreciation expense recorded prior to classification as held for sale is included in discontinued operations. The net gain on sale and any impairment losses are presented in discontinued operations when recognized.

Derivative Financial Instruments

We primarily use long-term, fixed-rate and self-amortizing non-recourse debt to avoid, among other things, risk related to fluctuating interest rates. For our variable-rate debt, we are sometimes required by our lenders to limit our exposure to interest rate fluctuations by entering into interest rate swap or cap agreements. The interest rate swap agreements moderate our exposure to interest rate risk by converting the variable-rate debt to a fixed rate. The interest rate cap agreements effectively limit our exposure to interest rate risk by providing a ceiling on the underlying variable interest rate. The fair values of these instruments are reflected as assets or liabilities in the balance sheet, and periodic changes in fair value are included in interest expense. In 2005, we entered into a natural gas commodity swap agreement to limit our exposure to increases in the price of natural gas purchases for certain properties. These instruments are not material to our financial position and results of operations.

Insurance

We believe that our insurance coverages insure our properties adequately against the risk of loss attributable to fire, earthquake, hurricane, tornado, flood, and other perils. In addition, we reinsure substantial portions of our property, workers’ compensation, health, and general liability insurance coverage. Losses are accrued based upon our estimates of the aggregate liability for claims incurred using certain actuarial assumptions followed in the insurance industry and based on our experience.

Income Taxes

Aimco has elected to be taxed as a REIT, as defined under the Internal Revenue Code of 1986, as amended. As a REIT, Aimco generally will not be subject to United States Federal income taxes at the corporate level on its net income that is distributed to its stockholders if Aimco distributes at least 90% of its REIT taxable income to its stockholders. If Aimco’s taxable income exceeds its dividends in a tax year, REIT tax rules allow Aimco to “throw back” dividends from the subsequent tax year in order to avoid current taxation on undistributed income. Throwing back of dividends can result in excise taxes. REITs are also subject to a number of other organizational and operational requirements. If Aimco fails to qualify as a REIT in any taxable year, its taxable income will be subject to United States Federal income tax at regular corporate rates (including any applicable alternative minimum tax). Even if Aimco qualifies as a REIT, it may be subject to certain state and local income taxes and to United States Federal income tax. Aimco also will be required to pay a 100% tax on non-arms length transactions between it and a taxable REIT subsidiary and on any net income from sales of property that was property held for sale to customers in the ordinary course.

Certain of Aimco’s operations (property management, asset management, risk, etc.) are conducted through taxable REIT subsidiaries, which are subsidiaries of the Partnership and each of which we refer to as a TRS. A TRS is a C-corporation that has not elected REIT status and as such is subject to United States Federal corporate income tax. Aimco uses the TRS format to facilitate its ability to offer certain services and activities to its residents, which services and activities are not generally considered to be qualifying REIT activities.

For our taxable REIT subsidiaries, deferred income taxes result from temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for Federal income tax purposes, and are measured using the enacted tax rates and laws that are expected to be in effect when the differences reverse. We reduce deferred tax assets by recording a valuation allowance when we determine based on available evidence that it is more likely than not that the assets will not be realized.

Earnings per Unit

We calculate earnings per unit based on the weighted average number of common OP Units, common unit equivalents and dilutive convertible securities outstanding during the period. Diluted earnings per unit also includes the effect of potential issuances of additional common OP Units if stock options and warrants were exercised or converted into Aimco Class A Common Stock (see Note 15).

Fair Value of Financial Instruments

The aggregate fair value of our cash and cash equivalents, receivables, payables and short-term secured debt as of December 31, 2005 approximates their carrying value due to their relatively short-term nature. We further believe that the fair value of our variable rate secured tax-exempt bond debt and secured long-term debt also approximate their carrying value. For notes receivable, fixed rate secured tax-exempt bond debt and secured long-term debt, fair values have been based on estimates using present value techniques. Present value calculations vary significantly depending

on the assumptions used, including the discount rate and estimates of future cash flows. We estimate fair value for our fixed rate debt agreements based on the market rate for debt with the same or similar terms. In many cases, the fair value estimates may not be realized in immediate settlement of the instruments. The estimated combined fair value of our notes receivable at December 31, 2005 and December 31, 2004, was approximately $211 million and $201 million, respectively. See Note 5 for further details on notes receivable. The estimated combined fair value of our secured tax-exempt bonds and secured notes payable, including amounts within liabilities related to assets held for sale, at December 31, 2005 and December 31, 2004, was approximately $5.8 billion and $5.9 billion, respectively. The combined carrying value of our secured tax-exempt bonds and secured notes payable, including amounts within liabilities related to assets held for sale, at both December 31, 2005 and December 31, 2004, was approximately $5.7 billion. See Note 6 for further details on secured tax-exempt bonds and secured notes payable.

Concentration of Credit Risk

Financial instruments that potentially could subject us to significant concentrations of credit risk consist principally of notes receivable. Concentrations of credit risk with respect to notes receivable are limited due to the large number of partnerships comprising our partnership base, and the geographic diversity of the underlying properties.

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.

Reclassifications

Certain items included in the 2004 and 2003 financial statements amounts have been reclassified to conform to the 2005 presentation.

NOTE 3 — Acquisitions

Real Estate Acquisitions

On February 28, 2005, Aimco completed the acquisition of Palazzo East at Park La Brea, a mid-rise apartment community with 610 units, for approximately $199.3 million. The purchase of Palazzo East at Park La Brea, was funded with cash of approximately $86.8 million and a variable rate secured property note of $112.5 million. In order to fund the acquisition of the Palazzo East at Park La Brea, we loaned $85.4 million to Aimco in exchange for a note receivable. Upon completion of the purchase, Aimco contributed the assets and liabilities of Palazzo East at Park La Brea to us in exchange for 3,416,478 Class Thirteen Partnership Preferred Units.

Additionally during the year ended December 31, 2005, we completed the acquisition of four properties in New York City and one in New Jersey with a total of 396 residential units and six retail spaces for an aggregate purchase price of approximately $84.3 million, including transaction costs. The purchases were primarily funded with new debt of $17.8 million, assumption of existing debt of $38.7 million and the remainder in cash.

On January 30, 2004, Aimco completed the acquisition of The Palazzo at Park La Brea located in Los Angeles, California, a mid-rise apartment community with 521 units, for $162.9 million, which included $0.5 million in transaction costs. Aimco paid approximately $69.7 million in cash and was required to repay existing construction loan financing of approximately $92.7 million. The repayment of existing mortgage indebtedness was funded primarily through a non-recourse, long-term, variable rate, partially amortizing property note of $88.1 million, with an interest rate of 1.50% over 30-day LIBOR. In order to fund the acquisition of The Palazzo at Park La Brea, we loaned $69.7 million to Aimco in exchange for a note receivable, which we refer to as The Palazzo at Park La Brea Note. The note bore interest at the rate of 5.25% per annum, with interest payments due on December 31 of each year, with all unpaid principal and interest due on December 31, 2014. Upon completion of the purchase, Aimco contributed the assets and liabilities of The Palazzo at Park La Brea to us in exchange for 2,787,111 Class Twelve Partnership Preferred Units, or the Class Twelve Preferred Units. The Class Twelve Preferred Units paid distributions of $1.3125 per unit on December 31 of each year,with the first distribution being prorated from the date of issuance. Aimco repaid The Palazzo at Park La Brea Note on March 24, 2004 with the proceeds from the issuance of Class U Cumulative Preferred Stock and concurrently all Class Twelve Preferred Units were converted into Class U Partnership Preferred Units.

Additionally during the year ended December 31, 2004, we completed the acquisitions of 10 properties containing approximately 1,359 residential units and some ground floor retail space for an aggregate purchase price of approximately $197.8 million. Of the 10 properties acquired, six are located in the New York City area, two in Massachusetts, one in Florida and one in the Chicago area. The purchases were funded with cash, tax-free exchange funds, new debt and the assumption of existing debt.

Acquisitions of Partnership Interests

During 2005 and 2004, we acquired limited partnership interests in 84 partnerships and 147 partnerships, respectively, in which our affiliates served as general partner. In connection with such acquisitions in both consolidated and unconsolidated real estate partnerships, during 2005 we paid approximately $56.0 million, including transaction costs, of which $55.6 million was in cash and the remainder in OP Units, and during 2004 we paid approximately $50.0 million, including transaction costs, of which $47.8 million was in cash and the remainder in OP Units. The 2005 and 2004 amounts were approximately $60.6 million and $89.2 million, respectively, in excess of the carrying amount of minority interest in such limited partnerships, which excess we generally assigned to real estate.

NOTE 4 — Investments in Unconsolidated Real Estate Partnerships

We owned general and limited partner interests in unconsolidated real estate partnerships owning approximately 264, 330 and 441 properties at December 31, 2005, 2004 and 2003, respectively. We acquired these interests through various transactions, including large portfolio acquisitions and offers to individual limited partners. Our total ownership interests in these unconsolidated real estate partnerships ranges typically from less than 1% to 50%.

The following table provides selected combined financial information for unconsolidated real estate partnerships as of and for the years ended December 31, 2005, 2004 and 2003 (in thousands):


	2005			2004			2003
Real estate, net of accumulated depreciation	$	763,219		$	1,004,501		$	1,441,739
Total assets		954,970			1,255,434			1,809,990
Secured and other notes payable		932,454			1,146,141			1,704,963
Total liabilities		1,248,450			1,545,250			2,256,370
Partners’ deficit		(293,480	)		(289,816	)		(446,380	)
Rental and other property revenues		311,429			320,687			538,759
Property operating expenses		(177,970	)		(201,248	)		(328,759	)
Depreciation expense		(63,056	)		(72,577	)		(110,978	)
Interest expense		(84,252	)		(99,120	)		(157,513	)
Gain on sale		106,465			100,669			85,718
Net income		82,123			50,778			40,782

The decrease in the amounts in the above table from year to year was primarily due to dispositions of real estate owned by the unconsolidated real estate partnerships and our purchase of additional interests in, and resulting consolidation of, various partnerships previously accounted for under the equity method.

As a result of our acquisition of interests in unconsolidated real estate partnerships, the investment in these partnerships at December 31, 2005 and 2004 of $166.7 million and $206.7 million, respectively, is approximately $234.9 million and $271.2 million, respectively, in excess of our share of the underlying historical partners’ deficit of the partnerships. The excess of the cost of the investments acquired over the equity in the underlying historical partners’ deficit is primarily ascribed to the fair values of land and buildings owned by the unconsolidated real estate partnerships. We amortize the excess basis related to the buildings over the estimated useful lives of the buildings. Such amortization is recorded as a component of equity in losses of unconsolidated real estate partnerships.

NOTE 5 — Notes Receivable

The following table summarizes our notes receivable at December 31, 2005 and 2004 (in thousands):


	2005								2004
	Unconsolidated								Unconsolidated
	Real Estate			Non-					Real Estate			Non-
	Partnerships			Affiliates		Total			Partnerships			Affiliates		Total
Par value notes	$	89,658		$	22,681	$	112,339		$	81,217		$	31,217	$	112,434
Discounted notes		92,451			1,079		93,530			91,221			499		91,720
Allowance for loan losses		(4,891	)		—		(4,891	)		(7,149	)		—		(7,149	)

Total notes receivable	$	177,218		$	23,760	$	200,978		$	165,289		$	31,716	$	197,005


Face value of discounted notes	$	130,342		$	—	$	130,342		$	132,654		$	1,249	$	133,903

Included in notes receivable from unconsolidated real estate partnerships at December 31, 2005 and 2004, are $28.8 million and $31.3 million, respectively, in notes that were secured by interests in real estate or interests in real estate partnerships. We earn interest on these secured notes receivable at various annual interest rates ranging between 6.0% and 12.0% and averaging 10.3%.

Included in the notes receivable from non-affiliates at December 31, 2005 and 2004, are $6.4 million and $9.1 million, respectively, in notes that were secured by interests in real estate or interests in real estate partnerships. We earn interest on these secured notes receivable at various annual interest rates ranging between 4.0% and 7.3% and averaging 6.1%.

Additionally, included in notes receivable from non-affiliates at December 31, 2005 and 2004 are notes receivable from Alan I. Casden for an aggregate of $2.5 million and $9.4 million, respectively. The notes were part of the settlement of litigation involving NAPICO that was underway prior to the March 2002 acquisition of Casden Properties, Inc. by Aimco (which we refer to as the Casden Transactions) in which Aimco acquired NAPICO. The notes were secured by certain shares of Aimco Class A Common Stock and certain settlement cash proceeds. In 2004, Aimco entered into an agreement with respect to certain proceeds to be received by Alan I. Casden and his right to deliver Aimco Class A Common Stock at an agreed-upon value of $47 per share in satisfaction of the Notes. Pursuant to this agreement, in 2004 Aimco received $20 million in cash as payment in full on three notes due in 2004, 2005 and 2006. In 2005, Aimco received cash payments of $7.0 million in satisfaction of the note due in 2007 and in partial satisfaction of the note due in 2008. In 2006, Aimco will receive a final payment of $2.5 million in satisfaction of the note due in 2008. This transaction resolved a contingency based on the price of Aimco Class A Common Stock related to the Casden Transactions. In accordance with SFAS 141, in 2004 Aimco recorded a $4.8 million charge to additional paid-in capital, representing the difference between the $29.1 million fair value of the consideration to be paid pursuant to the settlement and the $33.9 million book value of the notes.

Interest income from total non-impaired par value and certain discounted notes for the years ended December 31, 2005, 2004 and 2003 totaled $19.2 million, $20.5 million and $15.5 million, respectively. For the years ended December 31, 2005, 2004, and 2003, we recognized accretion income on certain discounted notes of approximately $2.5 million, $6.3 million and $3.3 million, respectively.

The activity in the allowance for loan losses in total for both par value notes and discounted notes for the years ended December 31, 2005 and 2004, is as follows (in thousands):


	2005			2004
Balance at beginning of year	$	(7,149	)	$	(10,122	)
Additional provisions for losses on notes receivable		(577	)		(2,061	)
Recoveries of losses on notes receivable		1,942			3,826
Net reductions due to consolidation of real estate partnerships and property dispositions		893			1,208

Balance at end of year	$	(4,891	)	$	(7,149	)

During the years ended December 31, 2005 and 2004, we determined that an allowance for loan losses of $2.4 million and $3.7 million, respectively, was required on certain of our par value notes that had carrying values of $6.5 million and $17.1 million, respectively. The average recorded investment in the impaired par value notes for the years ended December 31, 2005 and 2004 was $6.7 million and $11.8 million, respectively. The remaining $105.8 million in par value notes receivable at December 31, 2005 is estimated to be collectible and, therefore, interest income on these par value notes is recognized as it is earned.

As of December 31, 2005 and 2004, we determined that an allowance for loan losses of $2.5 million and $3.4 million, respectively, was required on certain of our discounted notes that had carrying values of $5.0 million and $6.0 million, respectively. The average recorded investment in the impaired discounted notes for the years ended December 31, 2005 and 2004 was $5.0 million and $5.9 million, respectively.

NOTE 6 — Secured Tax-Exempt Bond Financings and Secured Notes Payable

The following table summarizes our secured tax-exempt bond financings at December 31, 2005 and 2004, the majority of which is non-recourse to us (in thousands):


	Weighted Average
	Interest Rate			Principal Outstanding
	2005			2005		2004
Fixed rate secured tax-exempt bonds payable		5.69	%	$	309,534	$	327,185
Variable rate secured tax-exempt bonds payable		3.56			726,050		731,815

Total				$	1,035,584	$	1,059,000

Fixed rate secured tax-exempt bonds payable mature at various dates through October 2045. Variable rate secured tax-exempt bonds payable mature at various dates through June 2034. Principal and interest on these bonds are generally payable in semi-annual installments or in monthly interest-only payments with balloon payments due at maturity. Certain of our tax-exempt bonds at December 31, 2005 are remarketed periodically by a remarketing agent to maintain a variable yield. If the remarketing agent is unable to remarket the bonds, then the remarketing agent can put the bonds to us. We believe that the likelihood of this occurring is remote. At December 31, 2005, our secured tax-exempt bond financings were secured by 75 properties with a combined net book value of $1,054.3 million.

The following table summarizes our secured notes payable at December 31, 2005 and 2004, the majority of which are non-recourse to us (in thousands):


	Weighted Average
	Interest Rate			Principal Outstanding
	2005			2005		2004
Conventional fixed rate secured notes payable		6.61	%	$	3,755,061	$	3,571,190
Conventional variable rate secured notes payable		5.28			546,850		320,819
Secured notes credit facility		5.08			102,788		67,370

Total				$	4,404,699	$	3,959,379

Fixed rate secured notes payable mature at various dates through August 2053. Variable rate secured notes payable mature at various dates through August 2011. Principal and interest are generally payable monthly or in monthly interest-only payments with balloon payments due at maturity. At December 31, 2005, our secured notes payable were secured by 486 properties with a combined net book value of $7,253.0 million.

We have a secured revolving credit facility that provides for borrowings of up to $250 million primarily to be used for financing properties that we generally intend to hold for the intermediate term, as well as properties that are designated for redevelopment. In addition to the amounts in the above table, there were approximately $4 million and $10 million of notes that were provided through this facility that are obligations of unconsolidated real estate

partnerships and not included within secured notes payable at December 31, 2005 and 2004, respectively. The interest rate on the notes provided through this facility is the Fannie Mae Discounted Mortgage-Backed Security index plus 0.85%, which interest rate resets monthly. Each such loan under this facility is treated as a separate borrowing and is collateralized by a specific property, and none of the loans is cross-collateralized or cross-defaulted. This facility matures in September 2007, but can be terminated and repaid in full without penalty.

Our consolidated debt instruments generally contain covenants common to the type of facility or borrowing, including financial covenants establishing minimum debt service coverage ratios and maximum leverage ratios. At December 31, 2005, we were in material compliance with all financial covenants pertaining to our consolidated debt instruments.

As of December 31, 2005, the scheduled principal amortization and maturity payments for our secured tax-exempt bonds and secured notes payable are as follows (in thousands):


	Amortization		Maturities		Total

2006	$	124,607	$	395,585	$	520,192
2007		132,468		259,338		391,806
2008		137,518		372,748		510,266
2009		143,133		113,265		256,398
2010		147,334		177,312		324,646
Thereafter						3,436,975

					$	5,440,283

NOTE 7 — Mandatorily Redeemable Preferred Securities

In connection with the Insignia merger in 1998, we assumed the obligations under Trust Based Convertible Preferred Securities, which we refer to as TOPRS, with an aggregate liquidation amount of $149.5 million. Prior to 2005, approximately $134.5 million of these securities were converted into Aimco Class A Common Stock, resulting in $15.0 million remaining as of December 31, 2004, which also represented the redemption value. On January 11, 2005, we redeemed for cash all outstanding TOPRS for a total redemption price of $50 per security, or $15.0 million, plus any accrued and unpaid distributions through the redemption date. For the years ended December 31, 2005, 2004 and 2003, $30,000, $1.0 million and $1.0 million, respectively, of distributions have been recorded in interest expense.

NOTE 8 — Term Loans and Credit Facility

On November 2, 2004, we entered into an Amended and Restated Senior Secured Credit Agreement, which we refer to as the Credit Agreement, with a syndicate of financial institutions. In addition to Aimco, the Partnership and an Aimco subsidiary are also borrowers under the Credit Agreement. The Credit Agreement replaced our previous two separate credit agreements.

The Credit Agreement includes customary financial covenants, including the maintenance of specified ratios with respect to total indebtedness to gross asset value, total secured indebtedness to gross asset value, aggregate recourse indebtedness to gross asset value, variable rate debt to total indebtedness, debt service coverage and fixed charge coverage; the maintenance of a minimum adjusted tangible net worth; and limitations regarding the amount of cross-collateralized debt. The Credit Agreement includes other customary covenants, including a restriction on distributions and other restricted payments, but permits distributions during any four consecutive fiscal quarters in an aggregate amount of up to 95% of our funds from operations for such period or such amount as may be necessary to maintain Aimco’s REIT status. The Credit Agreement also permits Aimco to repurchase Aimco Class A Common Stock using up to 80% of sales proceeds in any trailing four-quarter period.

The original aggregate commitment under the Credit Agreement was $750 million, comprised of $450 million of revolving loan commitments and a $300 million term loan tranche. The revolving loans bear interest at a rate equal to (i) the LIBOR rate plus a margin that can range from 1.50% to 2.00% (for LIBOR loans) or (ii) the base rate plus a margin that can range from 0% to 0.25% (for base rate loans), in each case, depending on our leverage ratio. The original $300 million term loan bears interest at a rate equal to (i) the LIBOR rate plus 2.00% (for LIBOR loans) or (ii) the base rate plus 0.25% (for base rate loans). The default rate of interest for the loan is equal to the applicable rate described above plus 3%. The revolving loans mature on November 2, 2007, and the term loan matures on November 2, 2009.

On June 16, 2005, we amended the Credit Agreement to provide for $100.0 million in additional term loan borrowings from a syndicate of financial institutions. The additional $100.0 million term loan matures on November 2,

2009 and bears interest at a rate of either LIBOR plus 1.75% or a base rate (determined by reference to the federal funds rate or Bank of America’s prime rate) plus 0.25%. The proceeds from the additional term loan were used to repay outstanding revolving loans.

The lenders under the Credit Agreement may accelerate any outstanding loans if, among other things: we fail to make payments when due (subject to applicable grace periods); material defaults occur under other debt agreements; certain bankruptcy or insolvency events occur; material judgments are entered against us; we fail to comply with certain covenants, such as the requirement to deliver financial information or the requirement to provide notices regarding material events (subject to applicable grace periods in some cases); indebtedness is incurred in violation of the covenants; or prohibited liens arise.

At December 31, 2005, the outstanding principal balance of the term loans was $400.0 million at a weighted average interest rate of 6.18%. At December 31, 2005, the outstanding principal balance of the revolving loans was $217.0 million at a weighted average interest rate of 6.26% (based on various weighted average LIBOR and base rate borrowings outstanding with various maturities). The amount available under the revolving facility at December 31, 2005 was $208.3 million (after giving effect to $24.7 million outstanding for undrawn letters of credit issued under the revolving facility). As of December 31, 2005, we were in compliance with all financial covenant requirements.

NOTE 9 — Commitments and Contingencies

Commitments

In connection with the Casden Transactions, we and Aimco made commitments to:

	•		invest up to $50 million for a 20% limited liability company interest in Casden Properties LLC. As of December 31, 2005, we had invested $44.8 million. Casden Properties LLC intends to pursue new development opportunities in Southern California and other markets. We have an option, but not an obligation, to purchase at completion all multifamily rental projects developed by Casden Properties LLC; and

	•		pay $2.5 million per quarter for five years (for an aggregate amount of $50 million) to Casden Properties LLC as a retainer on account for redevelopment services on our assets. As of December 31, 2005, $37.5 million has been paid.

In connection with our redevelopment and capital improvement activities, we have commitments of approximately $99.6 million related to construction projects that are due to be completed by early 2007. Additionally, there are times we may 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 interests in our consolidated balance sheet. The remaining compliance period for our tax credit syndication arrangements range from less than one year to 15 years. At December 31, 2005, 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 affect 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 FIN 47. 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 December 31, 2005 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. At this time, we do not have sufficient information available to determine the extent or potential effect of any non-compliance on our consolidated financial condition or results of operations.

National Union Litigation

National Program Services, Inc. and Vito Gruppuso (collectively “NPS”) were insurance agents who sold to Aimco property insurance issued by National Union Fire Insurance Company of Pittsburgh, Pennsylvania (“National Union”). The financial failure of NPS resulted in defaults under two agreements by which NPS indemnified Aimco from losses relating to the matters described below. As a result of such defaults, Aimco had a $16.7 million insurance-related receivable that was subsequently reduced to $6.7 million following Aimco’s settlement with Lumbermens Mutual Casualty Company (“Lumbermens”) and an insurance agency. In addition, Aimco has pending litigation against National Union, First Capital Group, a New York based insurance wholesaler, NPS and other agents of National Union, for a refund of at least $10 million of the prepaid premium plus other damages. Trial is set for May 30, 2006. The contingent liabilities arising from the NPS defaults also resulted in litigation against Aimco by Cananwill, Inc. (“Cananwill”), a premium funding company, regarding an alleged balance due of $5.7 million on a premium finance agreement that funded premium payments made to National Union. Aimco is also a plaintiff in litigation against Cananwill and Combined Specialty Insurance Company, formerly known as Virginia Surety Company, Inc., alleging Cananwill’s conversion of $1.6 million of unearned premium belonging to Aimco and misapplication of such funds to the alleged debt asserted in the lawsuit initiated by Cananwill. The matter in which Aimco is a plaintiff has been stayed by the court pending resolution of the action filed by Cananwill against us. 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 had been made a third party defendant continues. Summary judgment has been entered against defendants XL and Greenwich. Similarly, the previously disclosed litigation brought by Highlands Insurance Company (“Highlands”) against Cananwill, XL, Greenwich and Aimco also continues. In those cases in which Aimco is a defendant, Aimco believes that it has meritorious defenses to assert, and will vigorously defend itself against claims brought against it. In addition, Aimco 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 in connection with the insurance-related receivable or that the ultimate outcome of these separate but related matters 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 they willfully violated the Fair Labor Standards Act (“FLSA”) by failing to pay maintenance workers overtime for all hours worked in excess of forty 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, which allows the plaintiffs to provide notice of the collective action to all non-exempt maintenance workers from August 7, 2000 through the present. Notices have been sent out to all current and former hourly maintenance workers. The opt-in period has not yet closed. When it does, we and NHPMN will have the opportunity to move to decertify the collective action. 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. 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.

SEC Investigation

The Central Regional Office (the “Regional Office”) of the United States Securities and Exchange Commission (the “Commission”) conducted a formal investigation relating to certain matters. We believe the areas of investigation included Aimco’s miscalculated monthly net rental income figures in third quarter 2003, forecasted guidance, accounts payable, rent concessions, vendor rebates, capitalization of payroll and certain other costs, and tax credit transactions. On December 19, 2005, Aimco announced that the Regional Office informed them that its investigation has been recommended for termination and no enforcement action has been recommended to the Commission.

Operating Leases

We are obligated under office space and equipment non-cancelable operating leases. In addition, we sublease certain of our office space to tenants under non-cancelable subleases. Approximate minimum annual rentals under operating leases and approximate minimum payments to be received under annual subleases are as follows (in thousands):


	Operating
	Lease		Sublease
	Obligations		Receivables

2006	$	7,784	$	1,485
2007		7,622		1,508
2008		7,041		1,086
2009		5,508		597
2010		4,417		597
Thereafter		11,371		—

Total	$	43,743	$	5,273

Substantially all of the office space and equipment subject to the operating leases described above are for the use of our corporate offices and regional operating centers. Rent expense recognized totaled $7.4 million, $5.8 million, and $6.1 million for the years ended December 31, 2005, 2004 and 2003, respectively. Sublease receipts that offset rent expense totaled approximately $0.7 million, $0.9 million and $1.1 million for the years ended December 31, 2005, 2004 and 2003, respectively.

NOTE 10 — Income Taxes

Deferred income taxes reflect the net effects of temporary differences between the carrying amounts of assets and liabilities of the taxable REIT subsidiaries for financial reporting purposes and the amounts used for income tax purposes. Significant components of our deferred tax liabilities and assets are as follows (in thousands):


	December 31,			December 31,
	2005			2004

Deferred tax liabilities:
Partnership differences	$	53,347		$	50,109
Depreciation		6,330			3,745
Interest income		—			809
Deferred gains		—			13,070
Other		178			130

Total deferred tax liabilities	$	59,855		$	67,863


Deferred tax assets:
Net operating, capital and other loss carryforwards	$	34,046		$	10,432
Receivables		5,856			7,350
Accrued liabilities		6,942			11,184
Accrued interest expense		6,519			5,215
Intangibles — management contracts		9,880			10,922
Tax credit carryforwards		7,878			5,703
Other		442			—

Total deferred tax assets		71,563			50,806
Valuation allowance for deferred tax assets		(1,873	)		(3,082	)

Deferred tax assets, net of valuation allowance		69,690			47,724

Net deferred income tax assets (liabilities)	$	9,835		$	(20,139	)

During the year ended December 31, 2005, we identified approximately $12.2 million in previously unrecorded net deferred tax assets that were acquired in connection with business combinations in prior years. We recorded adjustments to recognize these net assets and reduce goodwill and real estate acquired in the corresponding business combinations by $6.2 million and $6.0 million, respectively. At December 31, 2005 and 2004, we maintained a $1.9 million valuation allowance for deferred tax assets primarily related to alternative minimum tax credits totaling approximately $1.9 million. At December 31, 2004, we also maintained a $1.2 million valuation allowance for certain low-income housing credits and rehabilitation credits. That allowance was reversed in 2005 based on our determination that it is more likely than not that the credits will be realized.

Significant components of the provision (benefit) for income taxes are as follows and are classified within other expenses (income), net in continuing operations and income from discontinued operations, net in our statements of income for 2005, 2004 and 2003 (in thousands):


	Year Ended			Year Ended			Year Ended
	December 31,			December 31,			December 31,
	2005			2004			2003

Current:
Federal	$	3,412		$	7,345		$	4,556
State		1,590			748			840

Total current		5,002			8,093			5,396


Deferred:
Federal		(17,303	)		634			(10,065	)
State		(1,843	)		72			(1,150	)

Total deferred		(19,146	)		706			(11,215	)

Total provision (benefit)	$	(14,144	)	$	8,799		$	(5,819	)

Classification:
Continuing operations	$	(16,353	)	$	(6,825	)	$	(17,953	)
Discontinued operations	$	2,209		$	15,624		$	12,134

Consolidated income (loss) subject to tax, consisting of pretax income of our taxable REIT subsidiaries and gains on certain property sales that are subject to income tax under section 1374 of the Internal Revenue Code, is $(36.9) million for 2005, $20.5 million for 2004, and $(4.0) million for 2003. The reconciliation of income tax attributable to continuing and discontinued operations computed at the U.S. statutory rate to income tax expense (benefit) is shown below (dollars in thousands):


	Year Ended						Year Ended					Year Ended
	December 31, 2005						December 31, 2004					December 31, 2003

	Amount			Percent			Amount		Percent			Amount			Percent

Tax at U.S. statutory rates on consolidated income (loss) subject to tax	$	(12,922	)		35.0	%	$	7,174		35.0	%	$	(1,396	)		35.0	%
State income tax, net of Federal tax benefit		(253	)		0.7	%		818		4.0	%		(306	)		7.6	%
Effect of permanent differences		(69	)		0.2	%		314		1.5	%		2,202			(55.2	%)
Increase (decrease) valuation allowance		(900	)		2.4	%		493		2.4	%		(6,319	)		158.4	%

	$	(14,144	)		38.3	%	$	8,799		42.9	%	$	(5,819	)		145.8	%

During the quarter ended March 31, 2003, in an effort to streamline business processes and operational efficiencies of our property management and services businesses, we contributed all of the capital stock of NHP Management Company to AIMCO/Bethesda Holdings, Inc. (both of which are wholly-owned taxable REIT subsidiaries). In connection with this transaction, we reversed a valuation allowance related to future deductions and tax loss carryforwards of NHP Management Company and thereby recognized approximately $8.0 million of deferred tax benefits within other expenses (income), net. This deferred tax benefit increased net income by approximately $8.0 million and resulted in an increase in basic and diluted earnings per unit of $0.08 for the year ended December 31, 2003.

Income taxes paid totaled approximately $4.8 million, $2.7 million, and $3.8 million in the years ended December 31, 2005, 2004 and 2003, respectively.

At December 31, 2005, we had net operating loss carryforwards (NOLs) of approximately $87.0 million for income tax purposes that expire in years 2020 to 2023. Subject to certain separate return limitations, we may use these NOLs to offset all or a portion of taxable income generated by our taxable REIT subsidiaries. Additionally, at December 31, 2005, we had low-income housing and rehabilitation tax credit carryforwards of approximately $6.0 million for income tax purposes that expire in years 2012 to 2024.

Note 11 — Related Party Notes Receivable

In exchange for the sale of certain real estate assets to Aimco in December 2000, we received notes receivable, which we refer to as the Notes, totaling $10.1 million. The Notes bear interest at the rate of 5.7% per annum. Of the $10.1 million total, $7.6 million is due upon demand, and the remainder is due in scheduled semi-annual payments with all unpaid principal and interest due on December 31, 2010. At December 31, 2005 and 2004, the balance of the Notes totaled $13.3 million and $12.6, respectively, which includes accrued and unpaid interest.

On February 28, 2005, in connection with the acquisition of Palazzo East at Park La Brea, the Partnership loaned $85.4 million to Aimco in exchange for a note receivable, which is presented as a deduction from partners’ capital. The note bears interest at the rate of 5.25% per annum, with interest payments due on December 31 of each year.

NOTE 12 — Partners’ capital

Preferred OP Units

All classes of preferred OP Units are pari passu with each other and are senior to the common OP Units. None of the classes of preferred OP Units have any voting rights, except the right to approve certain changes to the Partnership Agreement that would adversely affect holders of such class of units. Distributions on all preferred OP Units are subject to being declared by the General Partner.

At December 31, 2005 and 2004, we had the following classes of preferred OP Units outstanding (stated at their redemption values) owned by Aimco:



					Annual
					Dividend			Balance
	Redemption		Conversion		Rate Per Unit			2005		2004
	Date (1)		Price		(paid quarterly)			(in thousands)		(in thousands)

Perpetual:
Class D Partnership Preferred Units, zero and 1,250,002 units issued and outstanding (2)		02/19/2003		—		8.75	%	$	—	$	31,250
Class G Partnership Preferred Units, 4,050,000 units issued and outstanding		07/15/2008		—		9.375	%		101,250		101,250
Class Q Partnership Preferred Units, 2,530,000 units issued and outstanding		03/19/2006		—		10.10	%		63,250		63,250
Class R Partnership Preferred Units, 6,940,000 units issued and outstanding		07/20/2006		—		10.00	%		173,500		173,500
Class T Partnership Preferred Units, 6,000,000 units issued and outstanding		07/31/2008		—		8.00	%		150,000		150,000
Class U Partnership Preferred Units, 8,000,000 units issued and outstanding		03/24/2009		—		7.75	%		200,000		200,000
Class V Partnership Preferred Units, 3,450,000 units issued and outstanding		09/29/2009		—		8.00	%		86,250		86,250
Class Y Partnership Preferred Units, 3,450,000 units issued and outstanding		12/21/2009		—		7.875	%		86,250		86,250

									860,500		891,750


Convertible (3):
Class W Partnership Preferred Units, 1,904,762 units issued and outstanding		09/30/2007	$	52.50		8.10	%		100,000		100,000
Class X Partnership Preferred Units, 2,000,000 units issued and outstanding		03/31/2006	$	52.50		8.50	%		50,000		50,000
Class Thirteen Partnership Preferred Units, 3,416,478 and none issued and outstanding (4)		12/31/2015	$	25.00		5.25	%		85,412		—

									235,412		150,000

Total								$	1,095,912	$	1,041,750


(1)		All classes of preferred units are redeemable by the Partnership only in connection with a concurrent redemption by Aimco of the corresponding preferred Aimco equity held by unrelated parties.

(2)		On January 21, 2005, Aimco redeemed for cash the remaining 1.25 million shares outstanding of the Class D Cumulative Preferred Stock for a total redemption price of $25.0425 per share, which included a redemption price of $25.0 per share, and $0.0425 per share of accumulated and unpaid dividends through January 21, 2005. Concurrently with this redemption, we redeemed for cash the remaining Class D Partnership Preferred Units. This redemption resulted in $1.1 million of related preferred OP Unit issuance costs being deducted from net income to arrive at net loss attributable to common unitholders and thereby increased by $0.01 our loss per basic and diluted common unit for the year ended December 31, 2005.

(3)		The Partnership’s agreement of limited partnership sets forth the relative rights and preferences of each class of securities and as shown above, the distribution rate on each class of convertible securities is the rate specified in the Partnership agreement for each class. Such rate can be increased to the rate of the distributions paid on the number of common OP Units into which one unit of such preferred security is convertible. The initial conversion price of each class was in excess of the fair market value of a common OP Unit on the respective dates on which the purchasers of each class agreed to purchase such securities.


(4)		On February 28, 2005, in connection with the acquisition of Palazzo East at Park La Brea, Aimco contributed the assets and liabilities of Palazzo East at Park La Brea to us in exchange for 3,416,478 Class Thirteen Preferred Units, or the Class Thirteen Preferred Units. The Class Thirteen Preferred Units pay distributions of $1.3125 per unit on December 31 of each year,with the first distribution prorated from the date of issuance.

As of December 31, 2005 and 2004, the following classes of preferred OP Units (stated at their redemption values) owned by third parties were outstanding (in thousands, except unit data):


	2005		2004

Class One Partnership Preferred Units, 90,000 units issued and outstanding, redeemable for Aimco Class A Common Stock in one year from issuance, holder to receive distributions at 8% ($8.00 per annum per unit)	$	9,000	$	9,000
Class Two Partnership Preferred Units, 58,126 and 59,056 units issued and outstanding, redeemable for Aimco Class A Common Stock in one year from issuance, holders to receive distributions at 5.9% for 2005 and 8% for 2004 ($1.48 per annum per unit for 2005 and $2.00 per annum per unit for 2004)		1,453		1,476
Class Three Partnership Preferred Units, 1,484,603 and 1,496,965 units issued and outstanding, redeemable for Aimco Class A Common Stock in one year from issuance, holders to receive distributions at 7.88% for 2005 and 9.5% for 2004 ($1.97 per annum per unit for 2004 and $2.375 per annum per unit for 2004)		37,115		37,424
Class Four Partnership Preferred Units, 755,999 and 757,149 units issued and outstanding, redeemable for Aimco Class A Common Stock in one year from issuance, holders to receive distributions at 8% ($2.00 per annum per unit)		18,900		18,929
Class Five Partnership Preferred Units, 68,671 units issued and outstanding, redeemable for cash at any time at our option, holder to receive distributions equal to the per unit distribution on the common OP Units ($2.40 per annum per unit)		2,747		2,747
Class Six Partnership Preferred Units, 802,453 units issued and outstanding, redeemable for Aimco Class A Common Stock in one year from issuance, holder to receive distributions at 8.5% ($2.125 per annum per unit)		20,061		20,061
Class Seven Partnership Preferred Units, 29,752 units issued and outstanding, redeemable for Aimco Class A Common Stock in one year from issuance, holder to receive distributions at 9.5% ($2.375 per annum per unit)		744		744
Class Eight Partnership Preferred Units, 6,250 units issued and outstanding, redeemable for cash at any time at our option, holder to receive distributions equal to the per unit distribution on the common OP Units ($2.40 per annum per unit)		156		156

	$	90,176	$	90,537

For all preferred OP Units that are redeemable for Aimco Class A Common Stock, upon redemption, we will issue a common OP Unit to Aimco for each share of Aimco Class A Common Stock issued. In addition, subject to certain conditions, the Class Four, Class Five, Class Six and Class Eight Partnership Preferred Units are convertible into common OP Units, two years from issuance, after December 21, 2000, three years from issuance, and after November 16, 2001, respectively.

During the years ended December 31, 2005 and 2004 approximately 1,700 and 10,400 preferred OP Units were tendered for redemption in exchange for approximately 1,100 and 7,900 shares of Aimco Class A Common Stock, respectively. Additionally, during the years ended December 31, 2005 and 2004, approximately 12,800 and 1,600 preferred OP Units were tendered for redemption in exchange for cash.

The distributions paid on each class of preferred OP Units classified as partners’ capital for the years ended December 31, 2005, 2004, and 2003 are as follows (in thousands, except per unit data):


	2005					2004					2003

	Amount			Total		Amount			Total		Amount			Total
	Per			Amount		Per			Amount		Per			Amount
Class of Preferred Units	Unit (1)			Paid		Unit (1)			Paid		Unit (1)			Paid

Class C	$	—		$	—	$	—		$	—	$	1.60	(10)	$	3,840
Class D		0.59	(2)		736		4.87	(6)		6,090		3.21	(11)		8,677
Class G		2.34			9,492		2.34			9,492		2.34			9,492
Class H		—			—		—			—		2.01	(10)		4,011
Class L		—			—		—			—		1.81	(10)		4,532
Class M		—			—		—			—		2.42	(12)		2,903
Class N		—			—		2.59	(7)		10,361		2.25			9,000
Class O		—			—		4.73	(7)		9,000		4.73			9,000
Class P		—			—		1.16	(7)		4,648		2.25			8,996
Class Q		2.53			6,388		2.53			6,388		2.53			6,389
Class R		2.50			17,350		2.50			17,350		2.50			17,350
Class S		—			—		—			—		0.23	(13)		908
Class T		2.00			12,000		2.00			12,000		0.42	(14)		2,501
Class U		1.94			15,500		1.08	(8)		8,655		—			—
Class V		2.09	(3)		7,207		—	(3)		—		—			—
Class W		4.25	(3)		8,100		—	(3)		—		—			—
Class X		2.13	(3)		4,262		—	(3)		—		—			—
Class Y		1.61	(3)		5,547		—	(3)		—		—			—
Class One		8.00			720		8.00			720		8.00			720
Class Two		1.88	(4)		109		2.00			118		1.94			115
Class Three		2.07	(4)		3,078		2.38			3,555		2.41			3,626
Class Four		2.00			1,514		2.00			1,514		2.00			1,514
Class Five		2.40			165		2.40			165		3.06			207
Class Six		2.13			1,705		2.13			1,714		2.13			1,718
Class Seven		2.38			71		2.38			70		2.38			71
Class Eight		2.40			15		2.40			15		3.06			19
Class Nine		—			—		—			—		1.70	(15)		1,835
Class Ten		—			—		—			—		—			—
Class Eleven		—			—		—			—		0.67	(16)		749
Class Twelve		—			—		0.09	(9)		260		—			—
Class Thirteen		1.10	(5)		3,772		—			—		—			—

Total				$	97,731				$	92,115				$	98,173


(1)		Amounts per unit are calculated based on the number of preferred units outstanding either at the end of each year or as of conversion or redemption date, as noted.

(2)		For the period from January 1, 2005 to the date of redemption.

(3)		For the period from the date of issuance to December 31, 2005. No distributions were paid during 2004 as preferred units were issued during the third and fourth quarters of 2004.

(4)		During 2005, the distribution rate was reset on the Class Two Partnership Preferred Units from 8.0% to 5.9% per annum and the distribution rate was reset on the Class Three Partnership Preferred Units from 8.0% to 7.88% per annum based on terms within the respective agreements.

(5)		For the period from the date of issuance to December 31, 2005.

(6)		Total amount paid includes distributions paid on 2.7 million Class D Partnership Preferred Units until November 5, 2004, when 1.5 million Class D Preferred Units were redeemed for cash.

(7)		For the period from January 1, 2004 to the date of redemption. For Class N Partnership Preferred Units, includes a 2%, or $0.50 redemption premium per unit, on 2,000,000 units.

(8)		For the period from the date of issuance to December 31, 2004.

(9)		Total amount paid includes distributions paid on all 2.8 million Class Twelve Partnership Preferred Units from January 30, 2004 to the date of conversion to Class U Partnership Preferred Units.

(10)		For the period from January 1, 2003 to the date of redemption.

(11)		Total amount paid includes distributions paid on all 4.2 million Class D Partnership Preferred Units until August 18, 2003, when 1.5 million Class D Partnership Preferred Units were redeemed for cash.


(12)		For the period from January 1, 2003 to the date of redemption. Additionally, the amount per unit includes a scheduled increase in the distribution from $2.13 per unit to $2.31 per unit starting after January 13, 2003 and a 2%, or $0.50 redemption premium per unit.

(13)		For the period from the date of issuance to July 1, 2003 when Statement of Financial Accounting Standards No. 150, Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity required the Class S Partnership Preferred Units to be reclassified from partners’ capital to liabilities.

(14)		For the period from the date of issuance to December 31, 2003.

(15)		Total amount paid includes distributions paid on all 1.1 million Class Nine Partnership Preferred Units from January 1, 2003 to the date of conversion and repurchase.

(16)		Total amount paid includes distributions paid on all 1.1 million Class Eleven Partnership Preferred Units from January 1, 2003 to the date of conversion to Class S Partnership Preferred Units.

Common OP Units

Common OP Units are redeemable by common OP Unitholders (other than the General Partner and Special Limited Partner) at their option, subject to certain restrictions, on the basis of one common OP Unit for either one share of Aimco Class A Common Stock or cash equal to the fair value of a share of Aimco Class A Common Stock at the time of redemption. We have the option to deliver shares of Aimco Class A Common Stock in exchange for all or any portion of the cash requested. When a Limited Partner redeems a common OP Unit for Aimco Class A Common Stock, Limited Partners’ Capital is reduced and Special Limited Partners’ capital is increased. Common OP Units held by Aimco are not redeemable.

During the years ended December 31, 2005 and 2004, approximately 77,000 and 160,000 common OP Units, respectively, were redeemed in exchange for cash, and approximately 425,000 and 735,000 common OP Units, respectively, were redeemed in exchange for shares of Aimco Class A Common Stock. Additionally, we completed tender offers for limited partnership interests resulting in the issuance of approximately 3,000 and 82,000 common OP Units in 2005 and 2004, respectively.

During 2005 and 2004, Aimco issued approximately 37,000 shares and 45,000 shares, respectively, of Aimco Class A Common Stock to certain of its non-executive officers at market prices. In exchange for the shares purchased, the officers executed notes payable totaling $1.4 million and $1.5 million, respectively. These notes, which 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 typically 7.25%. The notes were contributed by Aimco to us in exchange for approximately 37,000 and 45,000 common OP Units, respectively. Total payments on such notes from officers in 2005 and 2004 were $12.3 million and $4.6 million, respectively.

In addition, in 2005 and 2004, we issued approximately 393,000 and 532,000 common OP Units to Aimco and Aimco issued approximately 393,000 and 532,000 restricted shares of Aimco Class A Common Stock, respectively, to certain officers and employees. The restricted stock was recorded at the fair market value of Aimco Class A Common Stock on the date of issuance. These restricted shares of Aimco Class A Common Stock may not be sold, assigned, transferred, pledged, hypothecated or otherwise disposed of and are subject to a risk of forfeiture prior to the expiration of the applicable vesting period (typically ratably over a period of three or five years). Certain shares of restricted stock issued during 2005 are subject to accelerated vesting upon the achievement of a specified calendar year performance measure target. As of December 31, 2005, achievement of the specified target is not considered probable.

There were no shares of Aimco Class A Common Stock repurchased during the year ended December 31, 2005. On February 18, 19 and 24, 2004, Aimco purchased on the open market 30,000, 60,000 and 20,000 shares of Aimco Class A Common Stock, respectively, at an average price per share of approximately $32.03, $32.17 and $31.26, respectively. Concurrently, we purchased 30,000, 60,000 and 20,000 common OP Units from Aimco. Additionally, on February 24, 2004, Aimco completed the purchase of 287,272 shares of Class A Common Stock in a privately negotiated transaction at a price of $31.60 per share. Concurrently, we purchased 287,272 common OP Units from Aimco.

High Performance Partnership Units

In January 1998, Aimco shareholders approved the sale by the Partnership of an aggregate of 15,000 Class I High Performance Partnership Units to a joint venture comprised of fourteen members of Aimco’s senior management and to three of Aimco’s independent directors for $2.1 million in cash. The value of these units was determined on December 31, 2000 and the 15,000 units were adjusted to 2,379,084 units in January 2001. The holders of these units receive distributions and allocations of income and loss from us in the same amounts and at the same times as would holders of the same number of common OP Units.

On April 29, 2005, Aimco stockholders approved the sale by the Partnership of up to 5,000 of its Class VIII High Performance Units, or the Class VIII Units, for which the valuation period began on January 1, 2005 and will end on December 31, 2007. On May 31, 2005, we issued 5,000 Class VIII Units to a limited liability company owned by a limited number of employees for an aggregate offering price of $780,000. Additionally, at December 31, 2005, we had outstanding 5,000 Class VI High Performance Partnership Units, or the Class VI Units, for which the valuation period began on January 1, 2003 and ended on December 31, 2005 and 4,109 Class VII High Performance Partnership Units, or the Class VII Units, for which the valuation period began on January 1, 2004 and will end on December 31, 2006.

At December 31, 2005, we did not meet the required measurement benchmarks for the Class VI Units, Class VII Units, or Class VIII Units and therefore, we have not recorded any value to such High Performance Units in the consolidated financial statements as of December 31, 2005 and such High Performance Units have no dilutive effect.

Investment in Aimco

In 1998, Aimco issued 1.0 million shares of Class J Cumulative Convertible Preferred Stock, which we refer to as Class J Preferred Stock, for proceeds of $100.0 million. The proceeds were contributed by Aimco to us in exchange for 1.0 million Class J Partnership Preferred Units, which we refer to as Class J Preferred Units. Concurrently, we issued 250,000 Class J Preferred Units valued at $25.0 million to Aimco, in exchange for 250,000 shares of Class J Preferred Stock. In June 2000, we converted 250,000 shares of Aimco Class J Preferred Stock, with a liquidation value of $25 million, into 625,000 shares of Aimco Class A Common Stock. In connection with this conversion, 41,991 shares of Aimco Class A Common Stock, valued at $1.5 million, were exchanged by us for common OP Units held by a limited partner. In 2001, 198,269 shares of Aimco Class A Common Stock, valued at $7.1 million, were exchanged by us for common OP Units held by a limited partner. The investment in Aimco’s Class A Common Stock is presented in the accompanying financial statements as a reduction to partners’ capital.

Registration Statements

As of December 31, 2005, under the shelf registration statement filed by Aimco and the Partnership, which was declared effective in April 2004, Aimco had available for issuance approximately $876.6 million of debt and equity securities, and the Partnership had available for issuance $500.0 million of debt securities.

NOTE 13 — Employee Benefit and Stock Plans

Aimco, from time to time, issues stock options. Upon exercise of the stock options, Aimco must contribute to us the proceeds received in exchange for the same number of common OP Units as shares of Aimco Class A Common Stock issued in connection with the exercised stock options. Therefore, the following disclosures are made pertaining to Aimco’s stock options.

401K Plan

We provide a 401(k) defined-contribution employee savings plan. Employees who have completed 30 days of service and are age 18 or older are eligible to participate. Our matching contributions are made in the following manner: (1) a 100% match on the first 3% of the participant’s contribution; (2) a 50% match on the next 2% of the participant’s contribution. We incurred costs in connection with this plan of approximately $4.1 million, $3.2 million and $2.4 million in 2005, 2004 and 2003, respectively.

Stock Award and Incentive Plan and Stock Warrants

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 20,000,000 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 December 31, 2005, there were approximately 4,200,000 shares available for issuance. 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 ten years from the date of grant. The options typically vest over a period of one to five years from the date of grant. Terms may be modified at the discretion of the Compensation and Human Resources Committee of Aimco’s board of directors.

The 1997 Plan also authorizes grants of restricted stock awards as part of Aimco’s equity compensation plan. For the years ended December 31, 2005, 2004 and 2003, Aimco granted restricted stock awards of approximately 393,000, 532,000 and 235,000 shares, respectively, with weighted average fair values per share of $38.46, $29.56, and $38.09, respectively. Compensation cost related to these awards is being recognized ratably over the applicable vesting period (typically three or five years). Dividends paid on restricted stock awards (whether vested or unvested) are charged to partners’ capital. We evaluate quarterly the previously paid dividends on restricted stock awards that are forfeited to determine whether a reclassification between partners’ capital and compensation expense should be recorded. Dividends paid on restricted stock awards that were forfeited were immaterial for the years ended December 31, 2005, 2004 and 2003.

On December 2, 1997, Aimco issued warrants, which are referred to as the Oxford Warrants, exercisable through December 31, 2006 to purchase up to an aggregate of 500,000 shares of Aimco Class A Common Stock at $41 per share. The Oxford Warrants were issued to affiliates of Oxford Realty Financial Group, Inc., a Maryland corporation, or Oxford, in connection with the amendment of certain agreements pursuant to which we manage properties formerly controlled by Oxford or its affiliates. During the year ended December 31, 2005, Aimco purchased from the holders thereof all outstanding Oxford Warrants for an aggregate purchase price of $1.05 million, which was determined to be fair value.

The following table summarizes the option and warrant activity for the years ended December 31, 2005, 2004 and 2003 (in thousands, except price data):


	2005					2004					2003

				Weighted					Weighted					Weighted
	Options			Average		Options			Average		Options			Average
	and			Exercise		and			Exercise		and			Exercise
	Warrants			Price		Warrants			Price		Warrants			Price

Outstanding at beginning of year		11,338		$	38.87		10,607		$	39.59		9,269		$	40.13
Granted		383			38.14		1,219			32.19		1,757			36.37
Exercised		(65	)		38.22		(69	)		29.11		(72	)		37.46
Forfeited		(102	)		39.98		(419	)		37.81		(347	)		37.67
Warrants purchased		(500	)		41.00		—			—		—			—

Outstanding at end of year		11,054		$	38.78		11,338		$	38.87		10,607		$	39.59

Exercisable at end of year		8,177		$	39.30		7,132		$	39.47		5,844		$	38.46
Weighted average fair value of options granted during the year				$	3.57				$	2.24				$	2.26

As of December 31, 2005, outstanding and exercisable options have the following ranges of exercise prices and remaining weighted average contractual terms (in thousands, except for price data):


	Range of Exercise Price
	$20.75 to $36.35		$36.48 to $39.94		$40.00 to $49.05		Total
Outstanding:
Number of options		2,840		5,158		3,056		11,054
Weighted average exercise price	$	34.51	$	37.55	$	44.83	$	38.78
Weighted average remaining term	7.46 years		2.98 years		5.79 years		4.91 years
Exercisable:
Number of options		1,148		4,752		2,277		8,177
Weighted average exercise price	$	35.14	$	37.51	$	45.12	$	39.30

NOTE 14 — Discontinued Operations and Assets Held for Sale

In accordance with SFAS 144 we report as discontinued operations real estate assets that meet the definition of a component of an entity and have been sold or meet the criteria to be classified as held for sale under SFAS 144. We included all results of these discontinued operations, less applicable income taxes, in a separate component of income on the consolidated statements of income under the heading “discontinued operations.” This treatment resulted in certain reclassifications of 2004 and 2003 financial statement amounts.

At December 31, 2005, we had 45 properties with an aggregate of 10,550 units classified as held for sale. For the years ended December 31, 2005, 2004 and 2003, discontinued operations includes the results of operations of these properties. 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 years ended December 31, 2005, 2004, and 2003, discontinued operations includes the results of operations of these 83 properties and one partnership for periods prior to the date of sale. During 2004, we sold 54 properties with an aggregate of 12,248 units. For the years ended December 31, 2004 and 2003, discontinued operations includes the results of operations of these 54 properties for periods prior to the date of sale. During 2003, we sold 72 properties with an aggregate of 18,291 units. For the year ended December 31, 2003, discontinued operations includes the results of operations of these 72 properties for periods prior to the date of sale.

The following is a summary of the components of income from discontinued operations for the years ended December 31, 2005, 2004, and 2003 (dollars in thousands):


	2005			2004			2003
Rental and other property revenues	$	171,376		$	261,741		$	366,372
Property operating expense		(93,408	)		(132,138	)		(168,640	)
Depreciation and amortization		(47,151	)		(57,233	)		(78,407	)
Other (expenses) income, net		(79	)		(2,159	)		(4,142	)

Operating income		30,738			70,211			115,183
Interest income		558			424			744
Interest expense		(37,636	)		(62,748	)		(86,150	)
Minority interest in consolidated real estate partnerships		2,235			1,102			(3,817	)

Income (loss) before gain on dispositions of real estate, impairment losses, deficit distributions to minority partners and income tax		(4,105	)		8,989			25,960
Gain on dispositions of real estate, net of minority partners’ interest		105,060			249,436			101,849
Impairment losses on real estate assets sold or held for sale		(3,836	)		(7,289	)		(8,991	)
Recovery of deficit distributions to minority partners		14,604			3,231			5,617
Income tax arising from disposals		(4,481	)		(16,015	)		(12,134	)

Income from discontinued operations	$	107,242		$	238,352		$	112,301

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. Assets classified as held for sale of $418.9 million at December 31, 2005 include real estate net book value of $413.4 million and restricted cash and other assets of $5.5 million. Liabilities related to assets classified as held for sale of $267.9 million at December 31, 2005 include mortgage debt of $260.6 million. Assets classified as held for sale of $975.6 million at December 31, 2004 include real estate net book value of $961.9 million and restricted cash and other assets of $13.7 million, represented by 128 properties with 27,385 units that were classified as assets held for sale during 2004 and 2005. Liabilities related to assets classified as held for sale of $644.8 million at December 31, 2004 include mortgage debt of $636.6 million. 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 impairment losses of $3.8 million, $7.3 million and $9.0 million for the years ended December 31, 2005, 2004 and 2003, respectively. We are also marketing for sale certain other properties that do not meet all of the criteria to be classified as held for sale.

NOTE 15 — 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 years ended December 31, 2005, 2004 and 2003 (in thousands, except per unit data):


	2005			2004			2003
Numerator:
Income (loss) from continuing operations	$	(26,498	)	$	58,726		$	65,567
Less net income attributable to preferred unitholders		(98,946	)		(96,922	)		(103,626	)

Numerator for basic and diluted earnings per unit — Loss from continuing operations	$	(125,444	)	$	(38,196	)	$	(38,059	)


Income from discontinued operations	$	107,242		$	238,352		$	112,301


Cumulative effect of change in accounting principle	$	—		$	(3,957	)	$	—


Net income	$	80,744		$	293,121		$	177,868
Less net income attributable to preferred unitholders		(98,946	)		(96,922	)		(103,626	)

Numerator for basic and diluted earnings per unit — Net income (loss) attributable to common unitholders	$	(18,202	)	$	196,199		$	74,242


Denominator:
Denominator for basic earnings per unit — weighted average number of common units outstanding		104,511			104,251			104,743
Effect of dilutive securities:
Dilutive potential common units		—			—			—

Denominator for diluted earnings per unit		104,511			104,251			104,743


Earnings (loss) per common unit:
Basic earnings (loss) per common unit:
Loss from continuing operations (net of income attributable to preferred unitholders)	$	(1.20	)	$	(0.37	)	$	(0.36	)
Income from discontinued operations		1.03			2.29			1.07
Cumulative effect of change in accounting principle		—			(0.04	)		—

Net income (loss) attributable to common unitholders	$	(0.17	)	$	1.88		$	0.71

Diluted earnings (loss) per common unit:
Loss from continuing operations (net of income attributable to preferred unitholders)	$	(1.20	)	$	(0.37	)	$	(0.36	)
Income from discontinued operations		1.03			2.29			1.07
Cumulative effect of change in accounting principle		—			(0.04	)		—

Net income (loss) attributable to common unitholders	$	(0.17	)	$	1.88		$	0.71

The Class W Partnership Preferred Units, Class X Partnership Preferred Units and Class Thirteen Preferred Units are convertible into common OP Units (see Note 12). All of our convertible preferred OP Units are anti-dilutive on an “as 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 12.6 million, 12.4 million and 11.8 million of vested and unvested stock options, units issued for non-recourse notes receivable, and restricted stock awards for the years ended December 31, 2005, 2004 and 2003, respectively, because their effect would be anti-dilutive. For purposes of calculating diluted earnings per unit in accordance with Statement of Financial Accounting Standards No. 128, Earnings per Share, we treat the dilutive impact of the unvested portion of restricted shares as common OP Unit equivalents.

NOTE 16 — Unaudited Summarized Consolidated Quarterly Information

Summarized unaudited consolidated quarterly information for 2005 and 2004 is provided below (amounts in thousands, except per unit amounts).


	Quarter (1)
Year Ended December 31, 2005	First			Second			Third			Fourth
Total revenues	$	344,484		$	354,432		$	368,374		$	382,188
Total operating expenses		(274,036	)		(278,010	)		(300,990	)		(309,163	)
Operating income		70,448			76,422			67,384			73,025
Income (loss) from continuing operations		(1,645	)		99			(7,305	)		(17,647	)
Income from discontinued operations		3,632			31,266			37,341			35,003
Net income		1,987			31,365			30,036			17,356
Earnings (loss) per common unit — basic:
Loss from continuing operations (net of income attributable to preferred unitholders)	$	(0.26	)	$	(0.23	)	$	(0.31	)	$	(0.40	)
Net income (loss) attributable to common unitholders	$	(0.22	)	$	0.06		$	0.05		$	(0.06	)
Earnings (loss) per common unit — diluted:
Loss from continuing operations (net of income attributable to preferred unitholders)	$	(0.26	)	$	(0.23	)	$	(0.31	)	$	(0.40	)
Net income (loss) attributable to common unitholders	$	(0.22	)	$	0.06		$	0.05		$	(0.06	)
Weighted average common units outstanding		104,273			104,550			104,585			104,634
Weighted average common units and common unit equivalents outstanding		104,273			104,550			104,585			104,634


	Quarter (1)
Year Ended December 31, 2004	First			Second			Third			Fourth
Total revenues	$	314,433		$	322,550		$	333,307		$	343,767
Total operating expenses		(237,206	)		(247,155	)		(258,840	)		(281,895	)
Operating income		77,227			75,395			74,467			61,872
Income (loss) from continuing operations		2,978			677			28,855			26,216
Income from discontinued operations		16,632			14,539			153,443			53,738
Income before cumulative effect of change in accounting principle		19,610			15,216			182,298			79,954
Cumulative effect of change in accounting principle		(3,957	)		—			—			—
Net income		15,653			15,216			182,298			79,954
Earnings (loss) per common unit — basic:
Income (loss) from continuing operating (net of income attributable to preferred unitholders)	$	(0.18	)	$	(0.22	)	$	0.02		$	0.02
Net income (loss) attributable to common unitholders	$	(0.06	)	$	(0.08	)	$	1.49		$	0.53
Earnings (loss) per common unit — diluted:
Income (loss) from continuing operations (net of income attributable to preferred unitholders)	$	(0.18	)	$	(0.22	)	$	0.02		$	0.02
Net income (loss) attributable to common unitholders	$	(0.06	)	$	(0.08	)	$	1.49		$	0.53
Weighted average common units outstanding		104,346			104,156			104,296			104,206
Weighted average common units and common unit equivalents outstanding		104,346			104,156			104,443			104,537


(1)		Certain reclassifications have been made to 2005 and 2004 quarterly amounts to conform to the full year 2005 presentation and to conform to the September 30, 2006 presentation of discontinued operations.

NOTE 17 — 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 to third parties and 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 apartment communities, or real estate, segment. All real estate revenues are from external customers and no 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 years ended December 31, 2005, 2004 or 2003.

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. In 2005 and 2004, the chief operating decision maker emphasized 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. In 2003, we reported free cash flow as the primary basis for measurement of segment profit or loss. Certain reclassifications have been made to 2004 and 2003 amounts to conform to the 2005 presentation. These reclassifications primarily represent presentation changes related to discontinued operations.

The following table presents revenues and net operating income for the years ended December 31, 2005, 2004 and 2003, from these segments, and reconciles net operating income of reportable segments to operating income as reported (in thousands):


	For the Years Ended December 31,
	2005			2004			2003
Revenues:
Real estate segment	$	1,387,601		$	1,246,795		$	1,186,939
Investment management segment:
Gross revenues		141,649			144,304			141,942
Elimination of intersegment revenues		(79,772	)		(77,042	)		(83,752	)

Net revenues after elimination		61,877			67,262			58,190

Total revenues of reportable segments	$	1,449,478		$	1,314,057		$	1,245,129

Net operating income:
Real estate segment	$	719,241		$	647,784		$	664,328
Investment management segment		43,887			45,594			41,404

Total net operating income of reportable segments		763,128			693,378			705,732

Reconciliation of net operating income of reportable segments to operating income:
Depreciation and amortization		(387,713	)		(325,494	)		(294,809	)
General and administrative expenses		(92,826	)		(77,424	)		(48,357	)
Other (expenses) income, net		4,690			(1,499	)		7,071

Operating income	$	287,279		$	288,961		$	369,637


	December 31,		December 31,
	2005		2004
ASSETS (in thousands):
Total assets for reportable segments (1)	$	9,659,327	$	9,720,993
Corporate and other assets		372,431		365,236

Total consolidated assets	$	10,031,758	$	10,086,229


(1)		Total assets for reportable segments include assets associated with both the real estate and investment management business segments, as well as our investment in unconsolidated real estate partnerships.

Our capital expenditures primarily relate to the real estate segment and totaled $443.9 million, $301.9 million and $245.5 million for the years ended December 31, 2005, 2004 and 2003, respectively.

NOTE 18 — Transactions with Affiliates

We earn revenue from affiliated real estate partnerships. These revenues include fees for property management services, partnership and asset management services, risk management services and transactional services such as syndication and acquisition, development, refinancing, construction supervisory and disposition. In addition, we are reimbursed for our costs in connection with the management of the unconsolidated real estate partnerships. These fees and reimbursements for the years ended December 31, 2005, 2004 and 2003 totaled $73.6 million, $89.6 million and $93.1 million, respectively. The total accounts receivable due from affiliates was $43.1 million, net of allowance for doubtful accounts of $4.7 million, at December 31, 2005, and $39.2 million, net of allowance for doubtful accounts of $4.4 million, at December 31, 2004.

Additionally, we earn interest income on notes from real estate partnerships, in which we are the general partner and hold either par value or discounted notes. Interest income earned on par value notes from unconsolidated real estate partnerships totaled $17.4 million, $16.8 million, and $14.3 million for the years ended December 31, 2005, 2004 and 2003, respectively. Accretion income earned on discounted notes from unconsolidated real estate partnerships totaled $0.7 million, $6.2 million, and $2.7 million for the years ended December 31, 2005, 2004 and 2003, respectively. See Note 5 for additional information on notes receivable from unconsolidated real estate partnerships.

NOTE 19 — Recent Accounting Developments

In December 2004, the FASB issued Statement of Financial Accounting Standards No. 123 (revised 2004), Share-Based Payment, or SFAS 123R, which supersedes the existing SFAS 123, which we adopted in 2003 using the prospective method of transition as described therein. 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 requires a modified prospective application method of adoption. Under this method, the provisions of SFAS 123R will be applied prospectively to new and modified awards granted on or after the required effective date. In addition, compensation cost is required to be recognized over the remaining vesting period for the unvested portion of outstanding awards granted prior to the effective date. The measurement and recognition provisions of SFAS 123R that apply to our stock option plans are similar to those currently being followed by us for awards granted on or after January 1, 2003. The primary change in expense recognition requirements, which also applies to our unvested restricted stock awards, relates to the treatment of forfeitures. Under SFAS 123R, expected forfeitures are required to be estimated in determining periodic compensation cost, whereas we currently recognize forfeitures as they occur. Upon adoption of SFAS 123R, we will estimate forfeitures of unvested awards of stock options and restricted stock and record a cumulative effect of a change in accounting principle to reflect the compensation expense that would not have been recognized in prior periods had forfeitures been estimated prior to the date of adoption. Aimco is required to adopt SFAS 123R as of January 1, 2006. Upon adoption, our periodic compensation cost will increase over the remaining vesting period for stock options granted prior to January 1, 2003, for which no cost is currently being recognized. Based on preliminary estimates of such additional compensation cost, we do not anticipate that the adoption of SFAS 123R will have a material effect on our consolidated financial condition or results of operations.

In May 2005, the FASB issued Statement of Financial Accounting Standards No. 154, Accounting Changes and Error Corrections, or SFAS 154, which replaces APB Opinion No. 20 and Statement of Financial Accounting Standards No. 3, and changes the requirements for the accounting for and reporting of a change in accounting principle. This statement is effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005, although early adoption is permitted for accounting changes and corrections of errors made in fiscal years beginning after the date SFAS 154 was issued. We do not anticipate that the adoption of SFAS 154 will have a material effect on our consolidated financial condition or results of operations.

As discussed under Principles of Consolidation in Note 2, we applied EITF 04-5 after June 29, 2005 to newly formed limited partnerships and to existing limited partnerships for which the partnership agreement was modified. EITF 04-5 is effective on January 1, 2006 for general partners in all other limited partnerships. We are analyzing the effects of EITF 04-5 on our investments in limited partnerships where we are a general partner and have tentatively identified certain unconsolidated partnerships that will be consolidated upon adoption of EITF 04-5. We plan to adopt EITF 04-5 using a transition method that does not involve retrospective application, but potentially involves an adjustment to opening retained earnings for the cumulative effect of the change in accounting principle. A charge to opening retained earnings will be required if we consolidate partnerships with deficits in partners’ equity that we were not required to recognize using the equity method of accounting for our investments in such partnerships. After adoption, we may be required to recognize losses for deficit distributions to minority partners in newly consolidated partnerships that would not be recognized using the equity method. We have not yet fully determined the effects that the adoption of EITF 04-5 will have on our financial condition or results of operations, but we anticipate that it will result in consolidation of additional partnerships.

NOTE 20 — Subsequent Events

Redemption of Class Q Partnership Preferred Units

On February 17, 2006, Aimco announced that it would redeem for cash all 2.53 million outstanding shares of 10.10% Class Q Cumulative Preferred Stock on March 19, 2006. The total redemption price of $25.035 per share, or $63.3 million, includes the redemption price of $25.00 per share and $0.035 per share of accumulated and unpaid dividends through March 19, 2006. Concurrently with this redemption, we will redeem for cash 2.53 million Class Q Partnership Preferred Units at $25.035 per unit.

Sale of a Portion of the Flamingo South Beach Property

On February 17, 2006, we closed the sale of a portion of the Flamingo South Beach property known as the South Tower. The South Tower sale price was $163.5 million and included 562 residential units and our rights to the property’s marina. Additionally, the buyer paid non-refundable funds of $5 million for the option to purchase the 614-unit North Tower for $169 million between September 1, 2006 and February 28, 2007 (subject to the right to extend for up to six months subject to certain conditions), and the option to purchase the 513-unit Central Tower, along with the remainder of improvements on the property, for $267.5 million between December 1, 2007 and May 31, 2008 (subject to the right to extend for up to four months subject to certain conditions and provided that the buyer has previously purchased the North Tower). The sales agreement also provides us with profit participation if certain thresholds are met. We will receive, through one of our taxable REIT subsidiaries, the first $19.8 million in proceeds in the proposed condominium conversion after certain development fees and certain returns on the buyer’s equity have been achieved, plus 20% of the buyer’s net profits thereafter. At December 31, 2005, the South Tower had a net book value of approximately $80 million and related property debt of approximately $77 million.

AIMCO PROPERTIES, L.P.

REAL ESTATE AND ACCUMULATED DEPRECIATION
For the Years Ended December 31, 2005, 2004 and 2003
(In Thousands)


	2005			2004			2003
Real Estate
Balance at beginning of year	$	9,609,979		$	8,742,152		$	8,397,629
Additions during the year:
Newly consolidated assets (1)		260,715			277,580			262,054
Acquisitions		288,212			393,088			192,365
Foreclosures		—			2,022			—
Capital expenditures		436,781			301,937			245,528
Deductions during the year:
Casualty and other write-offs		(18,872	)		(13,869	)		(15,404	)
Assets held for sale reclassification (2)		(87,603	)		(92,931	)		(37,911	)
Sales (3)		—			—			(302,109	)

Balance at end of year	$	10,489,212		$	9,609,979		$	8,742,152

Accumulated Depreciation
Balance at beginning of year	$	1,734,429		$	1,461,575		$	1,289,478
Additions during the year:
Depreciation		412,701			346,156			304,537
Newly consolidated assets (1)		40,277			(31,209	)		(20,960	)
Deductions during the year:
Casualty and other write-offs		(3,191	)		(4,038	)		(7,372	)
Assets held for sale reclassification (2)		(86,755	)		(38,055	)		(40,570	)
Sales (3)		—			—			(63,538	)

Balance at end of year	$	2,097,461		$	1,734,429		$	1,461,575


(1)		Includes acquisition of limited partnership interests and related activity.

(2)		Represents activity on properties that have been sold or classified as held for sale that is included in the line items above.

(3)		Effective in fourth quarter of 2003 and on a prospective basis, all properties sold were classified as held for sale and, therefore, reclassified in the prior period balances.


	Page
Financial Statements:
Report of Independent Registered Public Accounting Firm		20
Consolidated Balance Sheets as of December 31, 2005 and 2004		21
Consolidated Statements of Income for the Years Ended December 31, 2005, 2004 and 2003		22
Consolidated Statements of Partners’ Capital for the Years Ended December 31, 2005, 2004 and 2003		23
Consolidated Statements of Cash Flows for the Years Ended December 31, 2005, 2004 and 2003		24
Notes to Consolidated Financial Statements		26

Financial Statement Schedule:
Schedule III — Real Estate and Accumulated Depreciation		58
All other schedules are omitted because they are not applicable or the required information is shown in the financial statements or notes thereto


															December 31, 2005
									(2)
									Initial Cost				(3)
		(1)											Cost Capitalized								Accumulated			Total Cost
	Property	Date			Year		Number				Buildings and		Subsequent to				Buildings and				Depreciation			Net of
Property Name	Type	Consolidated	Location		Built		of Units		Land		Improvements		Acquisition		Land		Improvements		Total		(AD)			AD		Encumbrances

100 Forest Place	High Rise	Dec-97		OakPark, IL		1987		237	$	2,664	$	18,815	$	2,358	$	2,664	$	21,173	$	23,837	$	(5,830	)	$	18,007	$	13,556
1582 First Avenue	High Rise	Mar-05		New York, NY		1900		17		4,250		752		56		4,250		808		5,058		(30	)		5,028		2,784
173 E. 90th	High Rise	May-04		New York, NY		1910		72		11,773		4,535		467		11,773		5,002		16,775		(275	)		16,500		9,812
236-238 East 88th Street	High Rise	Jan-04		New York, NY		1900		47		8,751		2,914		839		8,751		3,752		12,503		(238	)		12,265		7,389
237-239 Ninth Avenue	High Rise	Mar-05		New York, NY		1900		36		8,430		1,866		314		8,430		2,180		10,610		(75	)		10,535		5,449
306 East 89th Street	High Rise	Jul-04		New York, NY		1900		20		2,659		1,006		66		2,659		1,072		3,730		(69	)		3,661		1,989
311 & 313 East 73rd Street	Mid-Rise	Mar-03		New York, NY		1904		34		5,635		1,609		224		5,635		1,833		7,468		(269	)		7,199		2,965
322-324 East 61st Street	High Rise	Mar-05		New York, NY		1900		40		6,319		2,224		281		6,319		2,505		8,825		(76	)		8,749		—
452 East 78th Street	High Rise	Jan-04		New York, NY		1900		13		1,966		608		160		1,966		767		2,734		(44	)		2,689		1,719
510 East 88th Street	High Rise	Jan-04		New York, NY		1900		20		3,137		1,002		156		3,137		1,157		4,295		(78	)		4,217		2,829
514-516 East 88th Street	High Rise	Mar-05		New York, NY		1900		36		6,230		2,168		228		6,230		2,396		8,626		(75	)		8,551		4,803
6111 At Ridgeway Crossing	Garden	Dec-97		Memphis, TN		1984		584		1,749		10,479		6,326		1,749		16,805		18,554		(6,841	)		11,712		7,671
Alliance Towers	High Rise	Mar-02		Lombard, IL		1971		101		530		1,934		511		530		2,445		2,975		(347	)		2,628		2,285
Anchorage Apartments	Garden	Nov-96		League City, TX		1985		264		1,155		7,172		2,425		1,155		9,598		10,753		(2,556	)		8,197		3,911
Apartment, The	Garden	Jul-00		Omaha, NE		1973		204		959		8,526		742		959		9,268		10,227		(4,289	)		5,938		4,092
Arbors (Grovetree), The	Garden	Oct-97		Tempe, AZ		1967		200		1,092		6,208		1,476		1,092		7,684		8,776		(2,497	)		6,279		2,928
Arbors of Battle Creek I	Garden	Dec-99		Battle Creek, MI		1981		586		2,732		16,325		5,768		2,732		22,093		24,825		(4,643	)		20,182		7,280
Arbors on Battle Creek II	Garden	Dec-99		Battle Creek, MI		1987		76		496		3,555		328		496		3,883		4,378		(905	)		3,474		1,735
Arbors on Westheimer	Garden	Nov-96		Houston, TX		1972		360		1,760		9,325		7,899		1,760		17,224		18,984		(3,746	)		15,238		6,220
Arbours of Hermitage, The	Garden	Jul-00		Hermitage, TN		1972		350		1,797		14,451		4,176		1,797		18,627		20,424		(7,383	)		13,040		10,961
Arrowsmith	Garden	Mar-02		Corpus Christi, TX		1980		70		240		968		330		240		1,298		1,538		(256	)		1,282		1,374
Arvada House	High Rise	Nov-04		Arvada, CO		1977		88		641		3,314		1,805		641		5,118		5,760		(139	)		5,620		4,273
Ashford, The	Garden	Dec-95		Atlanta, GA		1968		221		2,771		8,366		23,267		2,771		31,633		34,404		(6,284	)		28,120		9,184
Ashland Manor	High Rise	Mar-02		East Moline, IL		1977		189		205		1,162		506		205		1,668		1,873		(244	)		1,629		1,268
Aspen Point	Garden	Dec-97		Arvada, CO		1972		120		353		3,807		3,594		353		7,401		7,754		(3,031	)		4,723		—
Aspen Station	Garden	Oct-01		Richmond, VA		1979		232		2,428		7,874		823		2,428		8,697		11,125		(2,794	)		8,331		6,742
Aspen Stratford B	High Rise	Oct-02		Newark, NJ		1920		60		362		2,887		510		362		3,397		3,758		(1,773	)		1,986		1,794
Aspen Stratford C	High Rise	Oct-02		Newark, NJ		1920		56		363		2,818		414		363		3,232		3,595		(1,692	)		1,903		1,582
Atriums of Plantation	Mid-Rise	Aug-98		Plantation, FL		1980		210		1,807		10,385		1,466		1,807		11,851		13,658		(3,344	)		10,314		6,901
Autumn Run	Garden	Oct-02		Naperville, IL		1984		320		1,812		16,911		1,249		1,812		18,160		19,972		(6,894	)		13,079		11,648
Autumn Woods	Garden	Sep-00		Jackson, MI		1973		112		1,042		3,705		1,354		1,042		5,059		6,101		(1,489	)		4,613		2,821
Baisley Park Gardens	Mid-Rise	Apr-02		Jamaica, NY		1982		212		1,765		12,309		1,767		1,765		14,076		15,841		(3,028	)		12,813		11,741
Baldwin Oaks	Mid-Rise	Oct-99		Parsippany ,NJ		1980		251		746		8,516		1,033		746		9,549		10,295		(4,716	)		5,578		6,707
Bangor House	High Rise	Mar-02		Bangor, ME		1979		121		1,140		4,595		556		1,140		5,150		6,290		(530	)		5,761		3,067
Bank Lofts	High Rise	Apr-01		Denver, CO		1920		117		3,525		9,045		690		3,525		9,734		13,259		(1,903	)		11,356		7,596
Bannock Arms	Garden	Mar-02		Boise, ID		1978		66		275		1,102		235		275		1,337		1,612		(239	)		1,373		1,473
Barcelona	Garden	Oct-99		Houston ,TX		1963		127		770		4,250		1,284		770		5,534		6,304		(1,444	)		4,860		3,090
Bay Parc Plaza	High Rise	Sep-04		Miami, FL		2000		471		22,680		41,847		1,630		22,680		43,476		66,156		(1,250	)		64,906		47,846


(1)	Date we acquired the property or first consolidated the partnership which owns the property.

(2)	Initial cost includes the tendering costs to acquire the minority interest share of our consolidated real estate partnerships.

(3)	Costs capitalized subsequent to acquisition includes costs capitalized since acquisition or first consolidation of the partnership/property.

(4)	Other includes land parcels and commercial properties.