Aimco - 10-K annual report

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APARTMENT INVESTMENT AND MANAGEMENT COMPANY INDEX TO FINANCIAL STATEMENTS

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

Form 10-K

Commission File Number 1-13232

Apartment Investment and Management Company
(Exact name of registrant as specified in its charter)

Registrant's Telephone Number, Including Area Code: (303) 757-8101

Securities Registered Pursuant to Section 12(b) of the Act:

Securities Registered Pursuant to Section 12(g) of the Act: none

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

        Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o

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

        The aggregate market value of the voting and non-voting common stock held by non-affiliates of the registrant, was approximately $4.4 billion as of June 30, 2002. As of February 18, 2003, there were 93,804,497 shares of Class A Common Stock outstanding.

Documents Incorporated by Reference

        Portions of the registrant's definitive proxy statement to be issued in conjunction with the registrant's annual meeting of stockholders to be held April 25, 2003 are incorporated by reference into Part III of this Annual Report.

APARTMENT INVESTMENT AND MANAGEMENT COMPANY

TABLE OF CONTENTS

ANNUAL REPORT ON FORM 10-K
For the Fiscal Year Ended December 31, 2002

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FORWARD-LOOKING STATEMENTS

The Private Securities Litigation Reform Act of 1995 provides a "safe harbor" for forward-looking statements in certain circumstances. In addition to historical information, this Annual Report on Form 10-K ("Annual Report") contains forward-looking statements that discuss future expectations, contain projections of results of operations or financial condition or state other "forward-looking" information. When used in this Annual Report, the words "may," "will," "expect," "intend," "plan," "believe," "anticipate," "estimate," "continue" or other similar words or expressions are generally intended to identify forward-looking statements. You should not place undue reliance on these forward-looking statements, which reflect our opinions only as of the date of this Annual Report. Actual results may differ materially from those described and will be affected by a variety of risks and factors including, without limitation: national and local economic conditions; the level of interest rates; terms and interpretations of governmental regulations that affect us; the competitive environment in which we operate; financing risks, including the risk that our cash flows from operations may be insufficient to meet required payments of principal and interest; real estate risks, including variations of real estate values, the general economic climate in local markets and competition for tenants in such markets; acquisition and development risks, including failure of such acquisitions to perform in accordance with projections; litigation, including the costs of settlements, adverse judgments and litigation costs; and possible environmental liabilities, including costs that may be incurred in remediation of contamination of properties presently or previously owned by us. In addition, our current and continuing qualification as a real estate investment trust involves the application of highly technical and complex provisions of the Internal Revenue Code and depends on our ability to meet the various requirements imposed by the Internal Revenue Code, through actual operating results, distribution levels and diversity of stock ownership. Readers should carefully review our financial statements and the notes thereto, as well as the section entitled "Risk Factors" described in this Annual Report.

PART I

ITEM 1. Business

        Apartment Investment and Management Company, or AIMCO, is a Maryland corporation incorporated on January 10, 1994. We are a self-administered and self-managed real estate investment trust, or REIT, engaged in the acquisition, ownership, management and redevelopment of apartment properties. As of December 31, 2002, we owned or managed a portfolio of 1,788 apartment properties (individually a "property" and collectively the "properties") containing 318,152 apartment units located in 47 states, the District of Columbia and Puerto Rico. Based on apartment unit data compiled by the National Multi Housing Council, as of December 31, 2002, we were the largest owner and operator of apartment properties in the United States. We serve approximately one million residents per year.

        As of December 31, 2002, we:

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owned a controlling equity interest in 187,506 apartment units in 728 properties (which we refer to as "consolidated");



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owned a non-controlling equity interest in 73,924 apartment units in 511 properties (which we refer to as "unconsolidated"), of which 64,937 apartment units were managed by us; and



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provided services or managed, for third party owners, 56,722 apartment units in 549 properties, primarily pursuant to long-term agreements (includes 45,187 apartment units in 448 properties that are asset managed only, and not also property managed).

        AIMCO is the sole general partner of, and through our wholly owned subsidiaries, AIMCO-GP, Inc. and AIMCO-LP, Inc., owns a majority interest in, AIMCO Properties, L.P., which we refer to as the AIMCO Operating Partnership. As of December 31, 2002, AIMCO held an approximate 89% ownership interest in the AIMCO Operating Partnership. AIMCO conducts substantially all of its business and owns substantially all of its assets through the AIMCO Operating Partnership. Interests in the AIMCO Operating Partnership that are held by limited partners other than AIMCO are referred to as "OP Units." Holders of common OP Units may redeem such units for cash or, at AIMCO's option, AIMCO Class A Common Stock, which we refer to as Common Stock. Except as

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the context otherwise requires, "we," "our," "us" and the "Company" refer to AIMCO, the AIMCO Operating Partnership and AIMCO's consolidated corporate subsidiaries and consolidated real estate partnerships, collectively.

        At December 31, 2002, 93,769,996 shares of our Common Stock were outstanding. At December 31, 2002, the AIMCO Operating Partnership had 12,061,259 common OP Units and equivalents outstanding. At December 31, 2002, a combined total of 105,831,255 shares of Common Stock and OP Units were outstanding (excluding preferred OP Units).

        Effective March 3, 2003, our principal executive offices were moved to 4582 South Ulster Street Parkway, Suite 1100, Denver, Colorado 80237. Our telephone number is (303) 757-8101.

        We make all of our filings with the Securities and Exchange Commission available free of charge as soon as reasonably practicable through our website at www.aimco.com. The information contained on our website is not incorporated into this Annual Report. Our Common Stock is listed on the New York Stock Exchange under the symbol "AIV."

2002 Developments

Casden Merger

        On March 11, 2002, we completed the acquisition of Casden Properties, Inc., or Casden, which included the merger of Casden into the Company. We refer to this transaction as the Casden Merger. In the Casden Merger we acquired 4,975 conventional apartment units located in Southern California and 11,027 affordable apartment units located in 25 states. In that transaction, we also acquired National Partnership Investments Corp., which we refer to as NAPICO, a subsidiary of Casden, which, as general partner and/or limited partner of numerous limited partnerships, has interests in more than 400 properties with more than 41,000 apartment units. We paid approximately $1.1 billion for the properties and NAPICO, which included an earnout of $15 million as a result of property performance for the period ended December 31, 2001. To fund this acquisition we issued 3.508 million shares of Common Stock and 882,784 common OP Units (valued at $164.9 million and $41.5 million, respectively, based on $47 per share/unit), paid approximately $198 million in cash, acquired title subject to existing mortgage indebtedness of approximately $685 million, and assumed short-term indebtedness of approximately $48 million. We also incurred approximately $15 million in transaction costs comprised largely of professional fees, which included legal, accounting, tax and acquisition due diligence.

        In connection with the Casden Merger, we borrowed $287 million from Lehman Commercial Paper Inc. and other participating lenders, pursuant to a term loan that we refer to as the Casden Loan, to pay the cash and transaction costs required to complete the Casden Merger. During 2002, we repaid approximately 60% of the Casden Loan principally with portions of the proceeds from our public offering of Common Stock, our offering of Class R Cumulative Preferred Stock, property sales and other net cash flow from operations. The outstanding balance on the Casden Loan was $115 million at December 31, 2002. For additional information on the Casden Loan see Note 10 of the consolidated financial statements in Item 8 of this Annual Report.

        In addition, as part of the Casden Merger we committed to purchase two properties currently under development, upon satisfactory completion and attainment of 60% occupancy. On November 27, 2002, we closed on the purchase of The Villas at Park La Brea, a mid-rise apartment community with 250 units for approximately $55.5 million. The Villas at Park La Brea is the first of three phases to be completed as part of the Park La Brea development, which is one of the two development properties we have committed to purchase. The other two phases of the Park La Brea development are scheduled to be complete sometime in 2003 and 2004. There is not yet a schedule for completion of the second of the two development properties.

New England Properties Acquisition

        On August 29, 2002, we completed the acquisition of certain New England area apartment properties. In this acquisition, which we refer to as the New England Properties Acquisition, we acquired 11 conventional garden and mid-rise properties primarily located in the greater Boston, Massachusetts area. The 11 properties include 4,323 apartment units located on approximately 553 acres in the aggregate. The total cost of the acquisition included a purchase price of $500 million for the properties, $2.5 million in transaction costs and $34.2 million of initial capital expenditures (of which $28 million will be spent to complete a kitchen and bath program and $6.2 million will be spent to address other identified property needs). We funded the acquisition through a combination of non-recourse property debt of $308.7 million and $200 million from our credit facility. We expect to repay the borrowings on the credit facility with operating cash flows and proceeds from property sales.

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Property Dispositions

        During 2002, we sold 53 conventional properties, 26 affordable properties, one commercial property and seven senior living facilities for an aggregate sales price of $551.8 million. These sales resulted in net proceeds to the partnerships of $184.5 million after repayment of existing debt and payment of transaction costs (net of cash in the partnerships) totaling $367.3 million. Our share of the net proceeds was $137.2 million and was used to repay a portion of our outstanding short-term indebtedness and for other corporate purposes. Of the total property dispositions, 44 were unconsolidated and accounted for under the equity method.

Debt Assumptions and Financings

        On February 14, 2003, we and our lenders amended our revolving credit facility to provide for a $100 million increase, at our option, in the available commitment to $500 million (such commitment in excess of $400 million is not available until it has been syndicated), reduce the minimum fixed charge coverage ratio from 1.60:1 to 1.50:1 through the maturity date and extend the maturity date one year to July 31, 2005. Upon the effective date of the amendment, the margin on LIBOR-based loans and base rate loans was amended to a range between 2.05% to 2.65% and .55% to 1.15%, respectively, based on the fixed charge coverage ratio. For additional information on the credit facility see Note 11 of the consolidated financial statements in Item 8 of this Annual Report.

        During the year ended December 31, 2002, we refinanced or closed 93 mortgage loans generating $1,031.7 million of total proceeds at a weighted average interest rate of 4.26%, of which $937.9 million related to consolidated properties (these mortgages do not include the $308.7 million in mortgage loans related to the New England Properties Acquisition that are discussed below). Each loan is non-recourse. Among the 93 loans, 81 are individually secured by one of 81 properties with no cross-collateralization, and 12 loans totaling $228.4 million are cross-collateralized with certain other loans. After repayment of existing debt and payment of transaction costs totaling $832.0 million, our share of the total $199.7 million in net proceeds was $165.8 million, which was used to repay existing short-term debt and for other corporate purposes.

        In connection with the New England Properties Acquisition, we closed 11 mortgage loans generating $308.7 million of long-term, fixed rate, fully amortizing notes with a weighted average interest rate of 5.69%. Each loan is non-recourse and is individually secured by one of the 11 properties, with no cross-collateralization.

        In connection with our purchase of the Villas at Park La Brea, we closed a $38.0 million, long-term, fixed rate, fully amortizing note with an interest rate of 6.01%. This note is non-recourse and secured by the property.

        In addition, in connection with the Casden Merger, we assumed $684.7 million of primarily long-term, fixed-rate, fully amortizing notes payable with a weighted average interest rate of 6.85%. Each of the notes is individually secured by one of 116 properties with no cross-collateralization.

Equity Transactions

Preferred Stock

        In 2002, we issued $51.1 million of preferred stock in two underwritten public offerings yielding approximately $50.0 million of net proceeds. These transactions are summarized below:

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Dividends on the Class R Cumulative Preferred Stock, or Class R Preferred Stock, are paid quarterly in an amount per share equal to $2.50 per year (equivalent to 10% per annum of the $25.00 liquidation preference).

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Common Stock

        The following table summarizes our significant 2002 issuances of Common Stock:

        In addition, the AIMCO Operating Partnership issued 882,784 common OP Units (valued at $41.5 million, based on $47 per unit) in connection with the Casden Merger, and 331,451 OP Units (valued at $16.9 million) in connection with acquisitions of limited partnership and other interests.

Acquisitions of Limited Partnership Interests

        From time to time, we have offered and, in the future, may offer to acquire the interests held by third party investors in certain partnerships for which we act as general partner. Any such acquisitions will require funds to pay the cash purchase price for such interests. During the year ended December 31, 2002, we made separate offers to the limited partners of 323 partnerships to acquire their limited partnership interests, and purchased limited partnership interests for an aggregate of approximately $31.0 million, of which $27.7 million was in cash and the remainder in common OP Units. This compares to the year ended December 31, 2001 when we made separate offers to the limited partners of 261 partnerships to acquire their limited partnership interests, and purchased approximately $178.0 million, of which $135.6 million was in cash and the remainder in common OP Units. Although the reason for this year over year decline is uncertain, we believe four primary factors contributed: improved real estate partnership results (including cash distributions to partners in recent years in increasing amounts resulting in increased returns); the relative attractiveness of investments in real estate as compared to other investment opportunities; greater sensitivity on the part of investors to tax liabilities related to such sales in the current volatile investment marketplace; and less third party equity available in affiliated partnerships as a result of our prior purchases.

Transactions Involving Notes Receivable

        During 2002, we completed a thorough collectibility analysis of each of our notes receivable, primarily from unconsolidated real estate partnerships. As a result of this process, we recorded a provision for loan losses of approximately $9.0 million. In addition, we identified transactions (including sales, refinancings, foreclosures and rights offerings) that would provide for collection of certain notes receivable (either in cash or by obtaining title to the property or additional ownership interest in the partnership owning the property). In 2002, we executed such transactions on notes receivable with carrying values of $111.2 million, and based on their fair values, recorded accretion income of approximately $36.8 million.

Financial Information About Industry Segments

        We operate in two industry segments: the acquisition, ownership, operation and redevelopment of a diversified portfolio of properties; and providing management and other services relating to the apartment business to third parties and affiliates. For further information on these segments and other related information on the various components of our operations, see Note 24 of the consolidated financial statements in Item 8, and Management's Discussion and Analysis in Item 7, of this Annual Report.

Operating and Financial Strategies

        Our principal operating objectives are to increase long-term stockholder value by increasing operating cash flows, and to provide long-term, predictable Funds From Operations, or FFO (as defined by the National Association of Real Estate Investment Trusts), per share of Common Stock, less capital spending for replacements and enhancements. For a description of the meaning of FFO and its use and limitation as an operating measure, see the discussion titled "Funds From Operations" in Item 7 of this Annual Report. We strive to meet our objective by implementing operating and financing strategies that include the following:

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Acquisition of Properties at Less Than Replacement Cost.    We attempt to acquire properties at a significant discount to their replacement cost.



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Geographic Diversification.    We operate in 47 states, the District of Columbia and Puerto Rico. This geographic diversification insulates us, to some degree, from inevitable downturns in any one market. Our income before depreciation and interest expense, is currently earned in more than 198 local markets. In 2002, the largest single market (Washington, D.C.) contributed approximately 12% to income before depreciation and interest expense, and the five largest markets (Washington, D.C., Chicago, greater Los Angeles, southeast Florida and Houston) together contributed approximately 32%. With the properties acquired through the New England Properties Acquisition, in the last quarter of 2002, the greater Boston market became one of our five largest markets. Although we intend to maintain broad geographic diversification, we plan to concentrate conventional operations in core markets in order to achieve economies of scale in management and operations.



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Market Growth.    We seek to operate in markets where population and employment growth are expected to exceed the national average and where we believe we can become a regionally significant owner or manager of properties.



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Price Point Diversification.    Our portfolio of properties covers a broad range of average monthly rental rates, with most between $500 and $1,200 per month.



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Product Diversification.    Our portfolio of properties spans a wide range of apartment community types, both within and among markets, including garden and high-rise apartments. In addition to community types, we have a wide range of quality, from A to C rated properties, with our principal focus on B rated properties.



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Capital Replacements and Capital Enhancements.    We believe that the physical condition and amenities of our apartment properties are important factors in our ability to maintain and increase rental rates. In 2002, we spent approximately $478 per owned apartment unit for Capital Replacements, which are expenditures required to maintain the related asset, and $46 per owned apartment unit for Capital Enhancements, which are expenditures that add a new feature or revenue source at a property.



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Debt Financing.    Our strategy is generally to incur debt to increase our return on equity while maintaining acceptable interest coverage ratios. We seek to maintain a ratio of free cash flow to combined interest expense and preferred stock dividends of between 2:1 and 3:1 and to match debt maturities to the character of the assets financed. For the year ended December 31, 2002, however, we had a ratio of free cash flow to combined interest expense and preferred stock dividends of 1.81:1, and this ratio in prior periods has also deviated from our goal. This ratio is below our desired minimum and primarily resulted from the difficult national economy and weaker operations. Our goal over time is to increase the coverage ratio to 2.2:1 through debt repayment from property sales, debt amortization, conversions of convertible preferred securities, redemptions of preferred securities and improved operating performance. As a comparison to our free cash flow ratio, for the year ended December 31, 2002, we had a ratio of earnings before interest, taxes, depreciation and amortization, or EBITDA, to interest expense equal to 2.6:1. We predominantly use long-term, fixed-rate and self-amortizing non-recourse debt in order to avoid the refunding and repricing risks of short-term borrowings. We use short-term debt to fund short-term uses as well as acquisitions and generally expect to repay acquisition borrowings with operating earnings, property sales proceeds or long-term debt financings. As of December 31, 2002, approximately 9% of our outstanding debt was short-term debt and 91% was long-term debt.



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Dispositions.    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, in both cases as compared to alternative uses for our capital. We have identified approximately 300 conventional properties comprising 75,000 apartment units that we characterize as "intermediate-term hold" properties. We intend to sell these properties over the next four years and use the proceeds to fund repayment of short-term debt, improvements to "long-term hold" properties, acquisitions of properties and limited partnership interests, share repurchases or redemptions of preferred securities and other corporate purposes. Approximately 440 conventional properties comprising 130,000 apartment units concentrated in 27 primary markets are what we characterize as "long-term hold" properties.



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Dividend Policy.    We pay dividends to our stockholders. We distributed 70.7%, 60.7%, and 59.9% of FFO to holders of Common Stock for the years ended December 31, 2002, 2001 and 2000, respectively. It is the present policy of our Board of Directors to increase the dividend annually in an amount equal to one-half of

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the projected increase in Adjusted Funds From Operations, or AFFO (which is FFO adjusted for Capital Replacement and Capital Enhancement spending), subject to minimum distribution requirements to maintain our REIT status. Beginning with the year ended December 31, 2002, AFFO includes a deduction for Capital Enhancements, a discretionary spending item, as well as a deduction for Capital Replacements. Our Board of Directors considers the discretionary nature of Capital Enhancement spending in its consideration of AFFO as it relates to our dividend policy. The dividend paid in February 2003 of $0.82 per share, which was the same dividend amount as was paid in each quarter of 2002, represents a distribution of 96% of AFFO (before deducting Capital Enhancements) and 78% of FFO for the quarter ended December 31, 2002. We continue to monitor the dividend as a percentage of AFFO (before deducting Capital Enhancements). If the payout were to exceed 100% for a sustained period, our Board of Directors would consider a change in the dividend to match our operating profitability.

Growth Strategies

        We seek growth through four primary sources — property operations, affordable activities, redevelopment of properties and acquisitions.

Property Operations

        We pursue operational growth primarily through the following strategies:

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Revenue Increases.    We increase rents where feasible and seek to improve occupancy rates. We are also focused on the automation of on-site operations, as we believe that timely and accurate collection of property performance and resident profile data will enable us to maximize revenue through better property management and leasing decisions. In addition, we intend to continue our emphasis on the quality of our on-site employees through recruiting, training and retention programs, which we believe lead to increased occupancy rates through improved customer service and enhanced performance.



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Controlling Expenses.    Cost reductions are accomplished by local focus at the regional operating center level and by taking advantage of economies of scale at the corporate level. As a result of the size of our portfolio and our creation of regional concentrations of properties, we have the ability to spread over a large property base fixed costs for general and administrative expenditures and certain operating functions, such as purchasing, insurance and information technology. We are automating our supply chain to provide better control over purchasing decisions and to take advantage of volume discounts.



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Ancillary Services.    We believe that our ownership and management of properties provide us with unique access to a customer base that allows us to provide additional services and thereby increase occupancy and rents, while also generating incremental revenue. We currently provide cable television, telephone services, appliance rental, and carport, garage and storage space rental at certain properties.



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Resident Selection and Retention.    In apartment properties, neighbors are a part of the product together with the location of the property and the physical quality of the apartment units. We have created a resident acquisition and retention department to focus efforts on attracting and retaining residents who are good neighbors and are credit worthy. We are taking a national approach to marketing to take advantage of our scale in media buying, with pricing decisions being made at the regional level.



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Focus on Top Properties.    Our conventional properties are ranked by their contribution to free cash flow. We have 25 properties that contribute approximately 23% of our total free cash flow, which we characterize as our "Top 25." In these properties, management decision-making is close to the property level as 20 properties out of the Top 25 properties have community managers that report directly to a Regional Vice President.

Affordable Activities

        In 2002, we formed Aimco Capital to integrate our affordable property operations, asset management and transaction activities. Our primary objective with Aimco Capital is to provide a predictable and increasing free cash flow through ownership and expertise in affordable properties and transactions. In order to enhance the value of our affordable properties, we seek to identify redevelopment opportunities and increase rent levels. In addition, we manage assets and transactions generating fees to Aimco Capital.

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Redevelopment of Properties

        We believe redevelopment of selected properties in superior locations provides advantages over ground-up development, enabling us to generate rents comparable to new properties with relatively lower financial risk, in less time and with reduced delays due to governmental regulation. Our current policy is to generally limit redevelopments to approximately 10% of total common and preferred equity market capitalization, which, as of December 31, 2002 was approximately $5.0 billion. As of December 31, 2002, we had 10 properties with 3,678 units under redevelopment having an estimated total investment (fair market value prior to redevelopment plus new redevelopment spending) of $601 million, of which approximately $34 million remains to be spent. Our share of the estimated total investment is $501 million of which approximately $21 million remains to be spent.

Acquisitions

        We believe our acquisition strategies may increase profitability and predictability of earnings by expanding operations in select markets, gaining economies of scale and increasing opportunities to provide ancillary services to residents at acquired properties. We acquire additional properties primarily in three ways:

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Direct Acquisitions.    We may directly, including through mergers and other business combinations, acquire individual apartment properties or portfolios of apartment properties and controlling interests in entities that own or control such properties or portfolios. To date, a significant portion of our growth has resulted from the acquisition of other companies that owned or controlled apartment properties.



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Increasing our Interest in Partnerships.    For properties where we own a general partnership interest in the property-owning partnership, we may seek to acquire, subject to our fiduciary duties, the interests in the partnership held by third parties for cash or, in some cases, in exchange for OP Units. Since 1996, we have completed over 2,500 tender offers with respect to various partnerships resulting in over 160,000 transactions totaling $826 million in cash and OP Units spent to purchase additional interests in such partnerships.



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Acquisition of Managed Properties.    Our property management operations have contributed to our acquisition activities. Since our initial public offering, we have acquired from our managed portfolio 16 properties comprising 5,697 apartment units for total consideration of $189.9 million. In addition, in September 2000, we acquired interests in 167 Oxford properties comprising 36,949 apartment units, which we had managed for a number of years previously, for a total purchase price of approximately $1.2 billion.

Property Management Strategies

        We seek to improve the operating results from our property management operations by, among other methods, combining centralized financial control and uniform operating procedures with localized property management decision-making and market knowledge. Currently, our property management operations are organized by our two major business components of conventional and affordable. Our conventional management operations are organized into 15 regional operating centers, each of which is supervised by a Regional Vice-President. As discussed previously, we formed Aimco Capital to integrate our affordable property operations, asset management and transaction activities. Within Aimco Capital, the affordable management operations are organized into four regional operating centers, each of which is supervised by a Regional Vice-President.

Our Taxation

        We have elected to be taxed as a REIT under the Internal Revenue Code of 1986, as amended, which we refer to as the Code, commencing with our taxable year ended December 31, 1994, and intend to continue to operate in such a manner. Our current and continuing qualification as a REIT depends on our ability to meet the various requirements imposed by the Code, through actual operating results, distribution levels and diversity of stock ownership.

        If we qualify for taxation as a REIT, we will generally not be subject to United States Federal corporate income tax on our net income that is currently distributed to stockholders. This treatment substantially eliminates the "double taxation" (at the corporate and stockholder levels) that generally results from investment in a corporation. If we fail to qualify as a REIT in any taxable year, our taxable income will be subject to United States Federal income tax at regular corporate rates (including any applicable alternative minimum tax). Even if we qualify as a REIT, we may be subject to certain state and local income taxes and to United States Federal income and excise taxes on our undistributed income.

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        If in any taxable year we fail to qualify as a REIT and incur additional tax liability, we may need to borrow funds or liquidate certain investments in order to pay the applicable tax and we would not be compelled to make distributions under the Code. Unless entitled to relief under certain statutory provisions, we would also be disqualified from treatment as a REIT for the four taxable years following the year during which qualification is lost. Although we currently intend to operate in a manner designed to qualify as a REIT, it is possible that future economic, market, legal, tax or other considerations may cause us to fail to qualify as a REIT or may cause our Board of Directors to revoke the REIT election.

        We and our stockholders may be subject to state or local taxation in various state or local jurisdictions, including those in which we or they transact business or reside. The state and local tax treatment that we and our stockholders receive may not conform to the United States Federal income tax treatment.

        Certain of our operations (property management, asset management, risk, etc.) are conducted through Taxable REIT Subsidiaries, 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. We use the TRS format to facilitate our ability to offer certain services and activities to our residents that are not generally considered as qualifying REIT activities.

Competition

        In attracting and retaining residents we compete with numerous other housing alternatives. Our properties compete directly with other rental apartments and with single family homes that are available for rent or purchase in the markets in which our properties are located. Our properties also compete for residents with new and existing condominiums. The number of competitive properties in a particular area has a material effect on our ability to lease apartment units at our properties and on the rents we charge. We compete with numerous real estate companies in acquiring, developing and managing apartment properties and in seeking residents to occupy our properties.

Regulation

General

        Apartment properties are subject to various laws, ordinances and regulations, including regulations relating to recreational facilities such as swimming pools, activity centers and other common areas. Changes in laws increasing the potential liability for environmental conditions existing on properties or increasing the restrictions on discharges or other conditions, as well as changes in laws affecting development, construction and safety requirements, may result in significant unanticipated expenditures, which would adversely affect our cash flows from operating activities. In addition, future enactment of rent control or rent stabilization laws or other laws regulating multifamily housing may reduce rental revenue or increase operating costs in particular markets.

Environmental

        Various Federal, state and local laws subject property owners and operators to liability for 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 of the hazardous substances. The presence of, or the failure to remedy properly, hazardous substances may adversely affect both occupancy at affected apartment communities and also the ability to sell or finance the affected properties. In addition to the costs associated with investigation and remediation actions brought by governmental agencies, the presence of hazardous wastes 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 or remediation of hazardous substances at the disposal or treatment facility. Anyone who arranges for the disposal or treatment of hazardous or toxic 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.

        There have been recent reports of lawsuits against owners and managers of multifamily properties asserting claims of personal injury and property damage caused by the presence of mold in residential units. Some of these lawsuits have resulted in substantial monetary judgments or settlements. We have been named as a defendant in lawsuits that have alleged personal injury as a result of the presence of mold. Prior to March 31, 2002, we generally

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were insured against claims arising from the presence of mold due to water intrusion. However, since March 31, 2002, our insurance coverage for property damage loss claims arising from the presence of mold has become more limited and generally includes only limited coverage for catastrophic property damage due to mold. In addition, since December 31, 2002, our insurance coverage for personal injury claims related to mold exposure has also become more limited.

        We have implemented protocols and procedures to prevent or eliminate mold from our properties and believe that our measures will reduce, or even minimize, the effects that mold could have on our residents. To date, we have not incurred any material costs or liabilities relating to claims of mold exposure or to abatement of mold conditions. However, because the law regarding mold is unsettled and subject to change we can make no assurance that future 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 taken as a whole.

Affordable Housing

        As of December 31, 2002, we owned a controlling equity interest in 137 properties, held a non-controlling equity interest in 383 properties and managed for third parties and affiliates 523 properties that benefit from governmental programs intended to provide housing to people with low or moderate incomes. These programs, which are usually administered by the United States Department of Housing and Urban Development, or HUD, or state housing finance agencies, typically provide mortgage insurance, favorable financing terms, tax credits or rental assistance payments to the property owners. As a condition of the receipt of assistance under these programs, the properties must comply with various requirements, which typically limit rents to pre-approved amounts. If permitted rents on a property are insufficient to cover costs, a sale of the property may become necessary, which could result in a loss of management fee revenue. We usually need to obtain the approval of HUD in order to manage, or acquire a significant interest in, a HUD-assisted property. We may not always receive such approval.

Laws benefiting disabled persons

        Under the Americans with Disabilities Act of 1990, or ADA, all places intended to be used by the public are required to meet certain Federal requirements related to access and use by disabled persons. Likewise, the Fair Housing Amendments Act of 1988, or FHAA, requires apartment properties first occupied after March 13, 1990 to be accessible to the handicapped. These and other Federal, state and local laws may require modifications to our properties, or restrict renovations of the properties. Noncompliance with these laws could result in the imposition of fines or an award of damages to private litigants and also could result in an order to correct any non-complying feature, which could result in substantial capital expenditures. Although we believe that our properties are substantially in compliance with present requirements, we may incur unanticipated expenses to comply with the ADA and the FHAA.

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. AIMCO Assurance Ltd., a Bermuda domiciled insurer wholly owned by us, has a reinsurance contract with a third party insurer to cover 100% of the first $1 million loss from any casualty related to the conventional properties. The affordable properties are insured for the first $1 million through an independent third party carrier. For the policy year ending February 28, 2003, we were insured for any casualty loss in excess of $1 million, up to $230 million, by a combination of several "excess" insurance providers, all of which were at least A-rated. For the policy year ending February 28, 2003, we also have retained an annual aggregate exposure of $4 million above the first $1 million per occurrence. As a result of the Terrorism Risk Insurance Act of 2002, we are currently evaluating the price of offers, mandated by the legislation, to purchase terrorism insurance.

        In addition, we have self-insured retentions in workers' compensation and general liability coverage. In workers' compensation, we retain the first $500,000 per incident. We perform regular analyses to ensure adequate reserves for losses. Recent insurance marketplace conditions led to a dramatic increase in general liability insurance premiums. To mitigate proposed increases, we chose to take a self-insured retention. Effective December 31, 2002, AIMCO Assurance Ltd., reinsures 100% of the risk of the first $250,000 of any general liability loss. We have established loss prevention, loss mitigation, claim handling, litigation management, and loss reserving procedures to manage our exposure. Where appropriate, in order to comply with HUD regulations, we separate segments of our properties into different insurance programs.

10

        We believe that our ability to manage successfully these retentions creates a competitive cost advantage relative to other smaller competitors; however the realization of this potential advantage depends upon the skill with which we manage this risk.

Employees

        We currently have approximately 7,500 employees, of which approximately 6,500 are at the property level, performing various on-site functions. The balance of our employees manage corporate and regional operations, including investment transactions, legal, financial reporting, accounting, information systems, human resources and other support functions. Fewer than 200 of our employees are represented by unions. We have never experienced a work stoppage and believe we maintain satisfactory relations with our employees.

Risk Factors

        The risk factors noted in this section and other factors noted throughout this Annual Report, describe certain risks and uncertainties that could cause our actual results to differ materially from those contained in any forward-looking statement.

If we are not able successfully to acquire, operate, redevelop and expand properties, our growth and results of operations will be adversely affected.

        The selective acquisition, redevelopment and expansion of properties is one component of our growth strategy. However, we may not be able to complete successfully transactions in the future. Although we seek to acquire, operate, develop and expand properties only when such activities increase our net income on a per share basis, such transactions may fail to perform in accordance with our expectations. When we develop or expand properties, we are subject to the risks that:

•

costs may exceed original estimates;



•

occupancy and rental rates at the property may be below our projections;



•

financing may not be available on favorable terms or at all;



•

redevelopment and leasing of the properties may not be completed on schedule; and



•

we may experience difficulty or delays in obtaining necessary zoning, land-use, building, occupancy and other governmental permits and authorizations.

We may have difficulty integrating any acquired businesses or properties.

        We have grown rapidly. Since our initial public offering in July 1994, we have completed numerous acquisition transactions, expanding our portfolio of owned or managed properties from 132 properties with 29,343 apartment units to 1,788 properties with 318,152 apartment units as of December 31, 2002. These acquisitions have included purchases of properties and interests in entities that own or manage properties, as well as corporate mergers. Our ability to integrate successfully acquired businesses and properties depends, among other things, on our ability to:

•

attract and retain qualified personnel;



•

integrate the personnel and operations of the acquired businesses;



•

maintain standards, controls, procedures and policies; and



•

maintain adequate accounting and information systems.

        We can provide no assurance that we will be able to accomplish these goals and successfully integrate any acquired businesses or properties. If we fail to integrate successfully such businesses, our results of operations could be adversely affected.

As our size increases, it becomes more difficult for us to achieve a comparably rapid rate of growth in assets.

        Our rapid growth since our initial public offering in July 1994 was achieved when we were a smaller company. As a result of our current size, future acquisitions of the same size and magnitude will likely have a smaller effect on us. It may also be more difficult for us to identify and complete acquisitions of greater size that are consistent with our growth strategy.

We are subject to litigation associated with partnership acquisitions that could increase our expenses and prevent completion of beneficial transactions.

11

        We have engaged in, and intend to continue to engage in, the selective acquisition of interests in limited partnerships that own apartment properties. In some cases, we have acquired the general partner of a partnership and then made an offer to acquire the limited partners' interests in the partnership. In these transactions, we may be subject to litigation based on claims that we, as the general partner, have breached our fiduciary duty to our limited partners or that the transaction violates the relevant partnership agreement or state law. Although we intend to comply with our fiduciary obligations and the relevant partnership agreements, we may incur additional costs in connection with the defense or settlement of this type of litigation. In some cases, this type of litigation may adversely affect our desire to proceed with, or our ability to complete, a particular transaction. Any litigation of this type could also have a material adverse effect on our financial condition or results of operations.

Our existing and future debt financing could render us unable to operate, result in foreclosure on our properties or prevent us from making distributions on our equity.

        Our strategy is generally to incur debt to increase the return on our equity while maintaining acceptable interest coverage ratios. We seek to maintain a ratio of free cash flow to combined interest expense and preferred stock dividends of between 2:1 and 3:1 and to match debt maturities to the character of the assets financed. For the year ended December 31, 2002, however, we had a ratio of free cash flow to combined interest expense and preferred stock dividends of 1.81:1, and this ratio in prior periods has also deviated from our goal. As a comparison to our free cash flow ratio, for the year ended December 31, 2002, we had a ratio of earnings before interest, taxes, depreciation and amortization, or EBITDA, to interest expense equal to 2.6:1. In addition, our Board of Directors could change this strategy at any time and increase our leverage. Our organizational documents do not limit the amount of debt that we may incur, and we have significant amounts of debt outstanding. Payments of principal and interest may leave us with insufficient cash resources to operate our properties or pay distributions required to be paid in order to maintain our qualification as a REIT. We are also subject to the risk that our cash flow from operations will be insufficient to make required payments of principal and interest, and the risk that existing indebtedness may not be refinanced or that the terms of any refinancing will not be as favorable as the terms of existing indebtedness. If we fail to make required payments of principal and interest on any debt, our lenders could foreclose on the properties securing such debt that would result in loss of income and asset value to us. As of December 31, 2002, substantially all of the properties that we owned or controlled were encumbered by debt. As of December 31, 2002, we had $6.2 billion of indebtedness outstanding on a consolidated basis, approximately 93% of which was secured by our properties.

Increases in interest rates may increase our interest expense.

        As of December 31, 2002, approximately $1,411.2 million of our debt (22.6% of total debt outstanding) was subject to variable interest rates. Of the total debt subject to variable interest rates, the major components were floating rate tax-exempt bond financing ($786.2 million), floating rate secured notes ($219.0 million), the Casden Loan ($115.0 million) and our credit facility ($291.0 million). Based on this level of debt, an increase in interest rates of 1% would result in our income and cash flows being reduced by $14.1 million on an annual basis and could impair our ability to service our indebtedness and make dividends or other distributions. Historically, changes in tax-exempt interest rates have been at a ratio less than 1:1 with changes in taxable interest rates. Variable rate tax-exempt bond financing is benchmarked against the Bond Market Association Municipal Swap Index (the "BMA Index"). Since 1981, the BMA Index has averaged 54.2% of the 10-year Treasury Yield. If this relationship continues and based on our level of tax-exempt debt, an increase of 1% in taxable interest rates would result in our income and cash flows being reduced by $10.5 million on an annual basis.

Covenant restrictions may limit our ability to make payments to our investors.

        Some of our debt and other securities contain covenants that restrict our ability to make distributions or other payments to our investors unless certain financial tests or other criteria are satisfied. Our credit facilities provide that we may make distributions to our investors during any 12-month period in an aggregate amount that does not exceed the greater of 80% of our Funds From Operations for such period or such amount as may be necessary to maintain our REIT status. Pursuant to the amendment of our credit facilities, effective February 2003, the credit facilities prohibit all distributions if our:

•

fixed charge coverage ratio (excluding scheduled amortization of the Casden Loan) is less than 1.50 to 1 through July 31, 2005;



•

adjusted fixed charge coverage ratio (including scheduled amortization of the Casden Loan) is less than 1.45 to 1;



•

interest coverage ratio is less than 2.25 to 1;



•

unsecured debt service coverage ratio is less than 3.00 to 1;

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•

total combined debt to gross asset value ratio exceeds 0.55 to 1;



•

total obligations to gross asset value ratio exceeds 0.65 to 1;



•

encumbered property debt coverage ratio is less than 1.60 to 1; or



•

consolidated net worth is less than the sum of $3.2 billion and 85% of the net proceeds of any securities issuances after September 30, 2002.

        Our outstanding classes of preferred stock prohibit the payment of dividends on our Common Stock if we fail to pay the dividends to which the holders of the preferred stock are entitled. In addition, our 6¹/2% convertible debentures prohibit the payment of dividends on our capital stock if we elect to defer payments of interest on these convertible debentures, which we may have the right to do for up to 60 months. If we are unable to pay dividends, we may fail to qualify as a REIT. This would subject us to corporate taxation and reduce our ability to make distributions to our investors.

We depend on distributions and other payments from our subsidiaries that they may be prohibited from making to us.

        All of our properties are owned, and all of our operations are conducted, by the AIMCO Operating Partnership and our other subsidiaries. As a result, we depend on distributions and other payments from our subsidiaries in order to satisfy our financial obligations and make payments to our investors. The ability of our subsidiaries to make such distributions and other payments depends on their earnings and may be subject to statutory or contractual limitations. As an equity investor in our subsidiaries, our right to receive assets upon their liquidation or reorganization will be effectively subordinated to the claims of their creditors. To the extent that we are recognized as a creditor of such subsidiaries, our claims may still be subordinate to any security interest in or other lien on their assets and to any of their debt or other obligations that are senior to our claims.

Changes in the real estate market may limit our ability to generate Funds From Operations.

        Our ability to make payments to our investors depends on our ability to generate Funds From Operations in excess of required debt payments and capital expenditure requirements. Funds From Operations and the value of our properties may be adversely affected by events or conditions beyond our control, including:

•

the general economic climate;



•

competition from other apartment communities and other housing options;



•

local conditions, such as an increase in unemployment 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 necessarily 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 interest rates and the availability of financing; and



•

the relative illiquidity of real estate investments.

Laws benefiting disabled persons may result in our incurrence of unanticipated expenses.

        Under the Americans with Disabilities Act of 1990, or ADA, all places intended to be used by the public are required to meet certain Federal requirements related to access and use by disabled persons. Likewise, the Fair Housing Amendments Act of 1988, or FHAA, requires apartment properties first occupied after March 13, 1990 to be accessible to the handicapped. These and other Federal, state and local laws may require modifications to our properties, or restrict renovations of the properties. Noncompliance with these laws could result in the imposition of fines or an award of damages to private litigants and also could result in an order to correct any non-complying feature, which could result in substantial capital expenditures. Although we believe that our properties are substantially in compliance with present requirements, we may incur unanticipated expenses to comply with the ADA and the FHAA.

Affordable housing regulations may limit rent increases at some of our properties, reducing our revenue and, in some cases, causing us to sell properties that we might otherwise continue to own.

        As of December 31, 2002, we owned a controlling equity interest in 137 properties, held a non-controlling equity interest in 383 properties and

13

managed for third parties and affiliates 523 properties that benefit from governmental programs intended to provide housing to people with low or moderate incomes. These programs, which are usually administered by HUD or state housing finance agencies, typically provide mortgage insurance, favorable financing terms or rental assistance payments to the property owners. As a condition of the receipt of assistance under these programs, the properties must comply with various requirements, which typically limit rents to pre-approved amounts. If permitted rents on a property are insufficient to cover costs, a sale of the property may become necessary, which could result in a loss of management fee revenue. We usually need to obtain the approval of HUD in order to manage, or acquire a significant interest in, a HUD-assisted property. We may not always receive such approval.

We depend on our chief executive officer and president; our operations might be harmed if we lost their services.

        Although we have entered into employment agreements with our Chairman and Chief Executive Officer, Terry Considine, and our Vice Chairman and President, Peter K. Kompaniez, the loss of either of their services could have a material adverse effect on our operations.

We may fail to qualify as a REIT.

        We believe that we operate, and have always operated, in a manner that enables us to meet the requirements for qualification as a REIT for Federal income tax purposes. Our continued qualification as a REIT will depend on our satisfaction of certain asset, income, investment, organizational, distribution, stockholder ownership and other requirements on a continuing basis. Our ability to satisfy the asset tests depends upon our analysis of the fair market values of our assets, some of which are not susceptible to a precise determination, and for which we will not obtain independent appraisals. Our compliance with the REIT income and quarterly asset requirements also depends upon our ability to manage successfully the composition of our income and assets on an ongoing basis. Moreover, the proper classification of an instrument as debt or equity for Federal income tax purposes may be uncertain in some circumstances, which could affect the application of the REIT qualification requirements. Accordingly, there can be no assurance that the Internal Revenue Service, or the IRS, will not contend that our interests in subsidiaries or other issuers constitutes a violation of the REIT requirements. Moreover, future economic, market, legal, tax or other considerations may cause us to fail to qualify as a REIT, or our Board of Directors may determine to revoke our REIT status. If we fail to qualify as a REIT, we will not be allowed a deduction for dividends paid to our stockholders in computing our taxable income, and we will be subject to Federal income tax at regular corporate rates, including any applicable alternative minimum tax. This would substantially reduce our funds available for payment to our investors. Unless entitled to relief under certain provisions of the Code, we would also be disqualified from taxation as a REIT for the four taxable years following the year during which we ceased to qualify as a REIT.

        In addition, our failure to qualify as a REIT would trigger the following consequences:

•

we would be obligated to repurchase a material amount of our preferred stock, plus accrued and unpaid dividends to the date of repurchase; and



•

we would be in default under our primary credit facilities and certain other loan agreements.

REIT distribution requirements limit our available cash.

        As a REIT, we are subject to annual distribution requirements, which limit the amount of cash we retain for other business purposes, including amounts to fund our growth. We generally must distribute annually at least 90% of our net REIT taxable income, excluding any net capital gain, in order for corporate income tax not to apply to earnings that we distribute. We intend to make distributions to our stockholders to comply with the requirements of the Code. However, differences in timing between the recognition of taxable income and the actual receipt of cash could require us to sell assets or borrow funds on a short-term or long-term basis to meet the 90% distribution requirement of the Code.

Legislative or other actions affecting REITs could have a negative effect on us.

        The rules dealing with Federal income taxation are constantly under review by persons involved in the legislative process and by the IRS and the United States Treasury Department. Changes to the tax laws (which may have retroactive application) could adversely affect our investors. We cannot predict how changes in the tax laws might affect our investors or us. For example, under legislation effective January 1, 2001, if any of our management companies were deemed to operate or manage a health care or lodging facility, we would fail to qualify as a REIT. Although we believe that, since January 1, 2001, none of the management companies have operated or managed any health care

14

or lodging facilities, the statute provides little guidance as to the definition of a health care or lodging facility. Accordingly, we cannot assure that the IRS will not contend that any of our management companies operate or manage a health care or lodging facility, resulting in our disqualification as a REIT. President Bush has proposed changes in the taxation of corporate dividends and gains on dispositions of corporate securities, We cannot predict whether all or any portion of the proposal will be adopted and, if adopted, the effect it would have on our share price.

We may be subject to other tax liabilities.

        Even if we qualify as a REIT, we and our subsidiaries may be subject to certain Federal, state and local taxes on our income and property. Any such taxes would reduce our operating cash flow.

The FBI has issued an alert regarding potential terrorist threats involving apartment buildings — a risk for which we are partially insured.

        On May 6, 2002 and February 7, 2003, respectively, the Federal Bureau of Investigation and the United States Department of Homeland Security issued alerts regarding potential terrorist threats involving apartment buildings. Threats of future terrorist attacks, such as those announced by the FBI and the Department of Homeland Security, could have a negative effect on rent and occupancy levels at our properties. The effect that future terrorist activities or threats of such activities could have on our business cannot presently be determined. If we incur a loss at a property as a result of an act of terrorism, we could lose all or a portion of the capital we have invested in the property, as well as the anticipated future revenue from the property. The recent enactment by the United States Congress of the Terrorism Risk Insurance Act, or TRIA, has resulted in terrorism coverage exclusions being invalidated, pending formal mandated notice from our carriers of terrorism coverage pricing. We are currently reviewing these quotes so as to make a determination as to whether the cost is reasonable. Prior to the enactment of TRIA, and because we have a highly diversified and geographically dispersed portfolio of residential properties, our lenders generally have not required us to purchase terrorism insurance. If in the future we decide to purchase such insurance, or if our lenders require us to purchase such insurance, the cost could have a negative effect on our consolidated financial condition or results of operations taken as a whole.

Insurance coverage is becoming more expensive and more difficult to obtain.

        The current insurance market is characterized by rising premium rates, increasing deductibles, and more restrictive coverage language. Recent developments have resulted in significant increases in our insurance premiums and have made it more difficult to obtain certain types of insurance. As an example, many insurance carriers are excluding mold-related risks from their policy coverages, or are adding significant restrictions to such coverage. Although we make use of many alternative methods of risk financing that enable us to insulate ourselves to some degree from variation in coverage language and cost, continued deterioration in insurance market place conditions may have a negative effect on our operating results.

Limits on ownership of shares in our charter may result in the loss of economic and voting rights by purchasers that violate those limits.

        Our charter limits ownership of our Common Stock by any single stockholder to 8.7% of our outstanding shares of Common Stock, or 15% in the case of certain pension trusts, registered investment companies and Mr. Considine. Our charter also limits ownership of our Common Stock and preferred stock by any single stockholder to 8.7% of the value of the outstanding Common Stock and preferred stock, or 15% in the case of certain pension trusts, registered investment companies and Mr. Considine. The charter also prohibits anyone from buying shares of our capital stock if the purchase would result in us losing our REIT status. This could happen if a transaction results in fewer than 100 persons owning all of our shares of capital stock or results in five or fewer persons, applying certain attribution rules of the Code, owning 50% or more of the value of all of our shares of capital stock. If you or anyone else acquires shares in excess of the ownership limit or in violation of the ownership requirements of the Code for REITs:

•

the transfer will be considered null and void;



•

we will not reflect the transaction on our books;



•

we may institute legal action to enjoin the transaction;



•

we may demand repayment of any dividends received by the affected person on those shares;



•

we may redeem the shares;

15

•

the affected person will not have any voting rights for those shares; and



•

the shares (and all voting and dividend rights of the shares) will be held in trust for the benefit of one or more charitable organizations designated by us.

        We may purchase the shares of capital stock held in trust at a price equal to the lesser of the price paid by the transferee of the shares or the then current market price. If the trust transfers any of the shares of capital stock, the affected person will receive the lesser of the price paid for the shares or the then current market price. An individual who acquires shares of capital stock that violate the above rules bears the risk that the individual:

•

may lose control over the power to dispose of such shares;



•

may not recognize profit from the sale of such shares if the market price of the shares increases;



•

may be required to recognize a loss from the sale of such shares if the market price decreases; and



•

may be required to repay to us any distributions received from us as a result of his or her ownership of the shares.

Our charter may limit the ability of a third party to acquire control of us.

        The 8.7% ownership limit discussed above may have the effect of precluding acquisition of control of us by a third party without the consent of our Board of Directors. Our charter authorizes our Board of Directors to issue up to 510,587,500 shares of capital stock. As of December 31, 2002, 454,962,738 shares were classified as Common Stock and 55,624,762 shares were classified as preferred stock. Under the charter, our Board of Directors has the authority to classify and reclassify any of our unissued shares of capital stock into shares of capital stock with such preferences, rights, powers and restrictions as our Board of Directors may determine. The authorization and issuance of a new class of capital stock could have the effect of delaying or preventing someone from taking control of us, even if a change in control were in our stockholders' best interests.

Maryland business statutes may limit the ability of a third party to acquire control of us.

        As a Maryland corporation, we are subject to various Maryland laws that may have the effect of discouraging offers to acquire us and increasing the difficulty of consummating any such offers, even if our acquisition would be in our stockholders' best interests. The Maryland General Corporation Law restricts mergers and other business combination transactions between us and any person who acquires beneficial ownership of shares of our stock representing 10% or more of the voting power without our Board of Directors' prior approval. Any such business combination transaction could not be completed until five years after the person acquired such voting power, and generally only with the approval of stockholders representing 80% of all votes entitled to be cast and 66²/3% of the votes entitled to be cast, excluding the interested stockholder, or upon payment of a fair price. Maryland law also provides generally that a person who acquires shares of our capital stock that represent 10% or more of the voting power in electing directors will have no voting rights unless approved by a vote of two-thirds of the shares eligible to vote. Additionally, Maryland law provides, among other things, that the board of directors has broad discretion in adopting stockholders' rights plans and has the sole power to fix the record date, time and place for special meetings of the stockholders. In addition, Maryland law provides that corporations that:

•

have at least three directors who are not employees of the entity or related to an acquiring person; and



•

are subject to the reporting requirements of the Securities Exchange Act of 1934,

may elect in their charter or bylaws or by resolution of the board of directors to be subject to all or part of a special subtitle that provides that:

•

the corporation will have a staggered board of directors;



•

any director may be removed only for cause and by the vote of two-thirds of the votes entitled to be cast in the election of directors generally, even if a lesser proportion is provided in the charter or bylaws;



•

the number of directors may only be set by the board of directors, even if the procedure is contrary to the charter or bylaws;



•

vacancies may only be filled by the remaining directors, even if the procedure is contrary to the charter or bylaws; and



•

the secretary of the corporation may call a special meeting of stockholders at the request of stockholders only on the written request of the stockholders entitled to cast at least a majority of all the votes entitled to be cast at the meeting, even if the procedure is contrary to the charter or bylaws.

        To date, we have not made any of the elections described above.

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ITEM 2. Properties

        Our properties are located in 47 states, the District of Columbia and Puerto Rico. Conventional property operations are headed by six Division Vice Presidents who together oversee 15 regional operating centers. Affordable property operations are managed through Aimco Capital, with one Division Vice President overseeing four regional operating centers. The following table sets forth information on all of our property operations as of December 31, 2002:

        At December 31, 2002, we owned a controlling equity interest in 728 properties containing 187,506 apartment units, which we refer to as "consolidated." These consolidated properties contain, on average, 260 apartment units, with the largest property containing 2,907 apartment units. These properties offer residents a range of amenities, including swimming pools, clubhouses, spas, fitness centers, tennis courts and saunas. Many of the apartment units offer design and appliance features such as vaulted ceilings, fireplaces, washer and dryer hook-ups, cable television, balconies and patios. Additional information on our consolidated properties is contained in "Schedule III, Real Estate and Accumulated Depreciation" in this Annual Report. At December 31, 2002, we held a non-controlling equity interest in 511 properties containing 73,924 apartment units, which we refer to as "unconsolidated." In addition, we provided services or managed for third parties 549 other properties containing 56,722 apartment units. This includes 45,187 apartment units in 448 properties that are asset-managed only, not also property managed, by us. Our total portfolio of 1,788 properties contain, on average, 201 apartment units, with the largest property containing 2,907 apartment units, and includes 47 properties with 8,987 apartment units that are not currently managed by us.

17

        Substantially all of our consolidated apartment properties are encumbered by mortgage indebtedness. At December 31, 2002, we had aggregate mortgage indebtedness totaling $5,827.7 million, which was secured by 708 properties with a combined net book value of $8,862.3 million, having an aggregate weighted average interest rate of 6.45%, not including $50.9  million of liabilities related to assets held for sale. As of December 31, 2002, we had a total of 49 mortgage loans, with an aggregate principal balance outstanding of $573.4 million, that were each secured by property and cross-collateralized with certain other mortgage loans. See the financial statements set forth in Item 8 of this Annual Report for additional information about our indebtedness.

ITEM 3. Legal Proceedings

        See Note 12 to the consolidated financial statements in Item 8 of this Annual Report for information regarding legal proceedings, which information is incorporated by reference in this Item 3.

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

        None.

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PART II

ITEM 5. Market for the Registrant's Common Equity and Related Stockholder Matters

        Our Common Stock has been listed and traded on the NYSE under the symbol "AIV" since July 22, 1994. The following table sets forth the quarterly high and low sales prices of the Common Stock, as reported on the NYSE, and the dividends paid for the periods indicated:

        On February 18, 2003, there were 93,804,497 shares of Common Stock outstanding, held by 4,451 stockholders of record, and 9,620,827 common OP Units outstanding. The number of holders does not include individuals or entities who beneficially own shares but whose shares are held of record by a broker or clearing agency, but does include each such broker or clearing agency as one recordholder.

        As a REIT, we are required to distribute annually to holders of common stock at least 90% of our "real estate investment trust taxable income," which, as defined by the Code and United States Department of Treasury regulations, is generally equivalent to net taxable ordinary income. We measure our economic profitability and intend to pay regular dividends to our stockholders based on Funds From Operations, less Capital Replacements during the relevant period. However, the future payment of dividends will be at the discretion of our Board of Directors and will depend on numerous factors including our financial condition, capital requirements, the annual distribution requirements under the provisions of the Code applicable to REITs and such other factors as our Board of Directors deems relevant.

        From time to time, we issue shares of Common Stock in exchange for OP Units tendered to the AIMCO Operating Partnership for redemption in accordance with the terms and provisions of the agreement of limited partnership of the AIMCO Operating Partnership. Such shares are issued based on an exchange ratio of one share for each OP Unit. The shares are generally issued in exchange for OP Units in private transactions exempt from registration under the Securities Act of 1933, as amended, pursuant to Section 4(2) thereof. During the three and twelve months ended December 31, 2002, approximately 583,000 and 1,100,000 shares of Common Stock were issued in exchange for OP Units.

        Our Board of Directors has, from time to time, authorized us to repurchase shares of our outstanding capital stock. Currently, we are authorized to repurchase up to a total of approximately 1.9 million shares, of which up to 1.9 million shares may be Common Stock and up to 1.7 million shares may be preferred stock. While we have no current plans to repurchase Common Stock or our preferred stock, these repurchases may be made from time to time in the open market or in privately negotiated transactions, subject to applicable law. During the year ended December 31, 2002, we repurchased no shares of Common Stock or preferred stock.

        Additional information required by this item is presented under the caption "Securities Authorized for Issuance Under Equity Compensation Plans" in the proxy statement for our 2003 annual meeting of stockholders and is incorporated herein by reference.

19

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.

(1)

Certain reclassifications have been made to 2001, 2000, 1999 and 1998 amounts to conform to the 2002 presentation. These reclassifications primarily represent presentation changes related to discontinued operations resulting from the adoption of Statement of Financial Accounting Standard No. 144 in 2002. Also, effective January 1, 2001, we began consolidating our previously unconsolidated subsidiaries. Prior to this date, we had significant influence over, but did not control, certain subsidiaries. Accordingly, such investments were accounted for under the equity method, and as a result, the periods prior to 2001 are not comparable.

(2)

In 2002, includes approximately 33,000 units that were acquired as part of the Casden Merger, and were asset managed by us only, and not also property managed.

20

ITEM 7. Management's Discussion and Analysis of Financial Condition and Results of Operations

Overview

        The following discussion and analysis of the results of operations and financial condition of the Company should be read in conjunction with the financial statements incorporated by reference in Item 8 of this Annual Report. The following discussion of results of operations is based on net income calculated under accounting principles generally accepted in the United States, or GAAP. In addition to net income, we measure our economic profitability based on Funds From Operations, or FFO, less Capital Replacement and Capital Enhancement spending, which we refer to as Adjusted Funds From Operations, or AFFO. See the discussion of FFO and AFFO as supplemental measurements under the heading "Funds From Operations" in this Item 7.

Critical Accounting Policies and Estimates

        The consolidated financial statements are prepared in accordance with GAAP, which require us to make estimates and assumptions. We believe that the following critical accounting policies, among others, 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 are recorded at cost, less accumulated depreciation, unless considered impaired. If events or circumstances indicate that the carrying amount of a property may be impaired, we will make an assessment of its recoverability by estimating the undiscounted future cash flows, excluding interest charges, of the property. If the carrying amount exceeds the aggregate undiscounted future cash flows, we would 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 an increase in unemployment 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; and



•

changes in market rental rates.

        Any adverse changes in these factors could cause an impairment in our assets, including real estate and investments in unconsolidated real estate partnerships.

Notes Receivable and Interest Income Recognition

        We generally recognize interest income earned from our investments in notes receivable when the collectibility of such amounts is both probable and estimable. The notes receivable were either extended by us and are carried at the face amount plus accrued interest ("par value notes") or were made by predecessors whose positions we acquired usually at a discount ("discounted notes").

        We continue to assess the collectibility or impairment of each note on a periodic basis. Under the cost recovery method, we carry the discounted notes at the acquisition amount, less subsequent cash collections, until such time as collectibility of principal and interest is probable and the timing and amounts are estimable. Based upon closed or pending transactions (which include sales, refinancing, foreclosures and rights offerings), we have determined that certain notes are collectible for amounts greater than their carrying value. Accordingly, we are recognizing accretion income, on a prospective basis over the estimated remaining life of the loans, as the difference between the carrying value of the discounted notes and the estimated collectible value. If we had not been able to complete certain transactions, our accretion income would have decreased by $16.0 million for the year ended December 31, 2002. Accretion income recognized in any given period is based on the 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 in future periods could vary and could result in lower accretion income than in prior periods.

21

Allowance for Losses on Notes Receivable

        In estimating the collectibility of notes receivable, management's judgment is required in assessing the ultimate realization of these receivables including the current credit-worthiness of each borrower. Allowances are based on management's opinion of an amount that is adequate to absorb losses in the existing portfolio. The allowance for losses on notes receivable is established through a provision for loss based on management's evaluation of the risk inherent in the notes receivable portfolio, the composition of the portfolio, specific impaired notes receivable and current economic conditions. Such evaluation, which includes a review of notes receivable on which full collectibility may not be reasonably assured, considers among other matters, full realizable value or the fair value of the underlying collateral, economic conditions, historical loss experience, management's estimate of probable credit losses and other factors that warrant recognition in providing for an adequate allowance for losses on notes receivable. During the years ended December 31, 2002 and 2001, we identified and recorded $9.0 million and no losses on notes receivable, respectively. We will continue to monitor and assess these notes and changes in required reserves may occur in the future due to changes in the market environment.

Capitalized Costs

        We capitalize direct and indirect costs (including salaries, interest, real estate taxes and other costs) incurred in connection with redevelopment, initial capital expenditures, Capital Enhancement and Capital Replacement activities. Indirect costs that do not relate to the above activities, including general and administrative expenses, are charged to expense as incurred. The amounts capitalized depend on the volume, timing and costs of such activities. As a result, changes in costs and activities may have a significant effect on our results of operations and cash flows if the costs being capitalized are not proportionately increased or reduced, as the case may be. Based on the level of capital spending during 2002, if capital activities had decreased during the year by 10%, we could have had additional operating expenses of between $2.5 million and $5.9 million. Additionally, if capital activities had increased during the year by 10%, we could have had lower operating expenses of between $2.5 million and $5.9 million. See further discussion under the heading "Capital Expenditures."

Results of Operations

Comparison of the Year Ended December 31, 2002 to the Year Ended December 31, 2001

Net Income

        We recognized net income of $169.0 million, and net income attributable to common stockholders of $75.5 million, for the year ended December 31, 2002, compared to net income of $107.4 million, and net income attributable to common stockholders of $17.0 million, for the year ended December 31, 2001. Net income attributable to common stockholders represents net income less dividends accrued on preferred stock for that period.

        The following paragraphs discuss the results of operations in detail.

Consolidated Rental Property Operations

        Rental and other property revenues from our consolidated properties totaled $1,405.7 million for the year ended December 31, 2002, compared with $1,224.7 million for the year ended December 31, 2001, an increase of $181.0 million, or 14.8%. This increase in consolidated rental and other property revenues was principally a result of the following:

•

$148.7 million of the increase related to operations of the properties acquired through three direct purchases in 2001, ten months of operations of the properties acquired through the Casden Merger and four months of operations of the properties acquired in the New England Properties Acquisition in 2002;



•

$70.2 million of the increase related to the purchase of controlling interests in, and the subsequent consolidation of, real estate partnerships. These real estate partnerships included six properties that were first consolidated at the end of 2001, one property that was first consolidated in the second quarter of 2002, 27 properties that were first consolidated in the third quarter of 2002 and 56 properties that were first consolidated in the fourth quarter of 2002;

22

•

$14.1 million of an offsetting decrease related to the disposition of 25 apartment properties in 2001 (results of 2002 dispositions were included in discontinued operations); and



•

$8.6 million of an offsetting decrease related to a 0.70% decrease in same store revenues. See further discussion of same store results under the heading "Conventional Same Store Property Operating Results."

        Property operating expenses for our consolidated properties, consisting of on-site payroll costs, utilities (net of reimbursements received from residents), contract services, property management fees, turnover costs, repairs and maintenance, advertising and marketing, property taxes and insurance, totaled $561.4 million for the year ended December 31, 2002, compared with $465.7 million for the year ended December 31, 2001, an increase of $95.7 million or 20.5%. This increase in property operating expenses was principally a result of the following:

•

$58.8 million of the increase related to operations of the properties acquired through three direct purchases in 2001, ten months of operations of properties acquired in the Casden Merger and four months of operations of the properties acquired in the New England Properties Acquisition in 2002;



•

$36.4 million of the increase related to the purchase of controlling interests in, and the subsequent consolidation of, real estate partnerships. These real estate partnerships included six properties that were first consolidated at the end of 2001, one property that was first consolidated in the second quarter of 2002, 27 properties that were first consolidated in the third quarter of 2002 and 56 properties that were first consolidated in the fourth quarter of 2002;



•

$4.3 million of the increase related to a 0.90% increase in same store operating expense. See further discussion of same store results under the heading "Conventional Same Store Property Operating Results;"



•

$3.1 million of the increase was related to properties in the redevelopment portfolio becoming ready for their intended use, and as a result certain operating expenses are no longer being capitalized; and



•

$8.8 million of an offsetting decrease related to the disposition of 25 apartment properties in 2001 (results of 2002 dispositions were included in discontinued operations).

Consolidated Investment Management Business

        Income from the consolidated investment management business, which is primarily earned from unconsolidated real estate partnerships and the minority interest share of consolidated real estate partnerships, for which we are the general partner, was $18.3 million for the year ended December 31, 2002, compared to $27.6 million for the year ended December 31, 2001, a decrease of $9.3 million or 33.7%. This decrease in income from the consolidated investment management business was principally a result of the following:

•

$13.2 million of the decrease related to reduced fees billed for construction supervisory management services in 2002. These fees were calculated and billed to the real estate partnerships based on a percentage of volume of construction activities. In addition, lower costs were incurred and therefore lower billings occurred as a result of the ongoing management initiative to contain costs;



•

$7.3 million of the decrease related to an increase in insurance costs in the property hazard program. These increased costs were the result of historical claim losses from prior years;



•

$5.5 million of the decrease related to increased ownership in and number of consolidated real estate partnerships, which results in an additional elimination of management fee income and the associated property operating expense;



•

$4.5 million of the decrease related to a net reduction in fees including: $6.9 million decrease in refinancing and disposition fees, due to decreased refinancing transactions (28 in 2002 compared to 59 in 2001) resulting in lower fees earned; and $7.7 million decrease in fees earned for services provided to third parties due to a planned reduction in third party asset management. This decrease was offset by a $10.1 million increase in asset management and developer fees related to the NAPICO acquisition in 2002;



•

$2.5 million of the decrease related to additional depreciation expense related primarily to the new site solutions hardware and software purchases in late 2001 and early 2002;



•

$14.7 million of an offsetting increase related to the reduced amortization of intangibles, of which $6.8 million was due to property management and asset management contract intangibles that were fully

23

amortized in 2001, and $7.9 million was attributable to the elimination of goodwill amortization in accordance with the adoption of Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets ("SFAS 142"); and

•

$9.3 million of an offsetting increase related to lower compensation and health insurance expense resulting from a change in plan administrator and a reduction in work force, in part due to planned reduction in third party property management and management cost reduction initiatives.

Consolidated General and Administrative Expenses

        Consolidated general and administrative expenses of $20.3 million for the year ended December 31, 2002 increased by $1.8 million from the $18.5 million of such expenses for the year ended December 31, 2001. This increase was principally a result of increased professional fees, primarily incurred in connection with the evaluation of the loan receivable portfolio.

Consolidated Other Expenses

        Consolidated other expenses were $10.2 million for the year ended December 31, 2002 compared to $6.4 million for the year ended December 31, 2001. In 2002, these expenses included the following:

•

$3.1 million related to payments in settlement of claims asserted against us, including litigation and arbitration;



•

$2.2 million related to the write-off of costs related to potential acquisitions that were not completed;



•

$0.9 million was primarily related to severance and hiring costs, and costs associated with the transition of certain accounting functions from Greenville, South Carolina to our headquarters in Denver, Colorado; and



•

$4.0 million related to personnel costs associated with annual compensation.

        In 2001, we incurred $6.4 million of other expenses comprised of consulting fees paid to a specialized third party vendor in connection with a systematic and comprehensive effort to improve our business processes and financial controls.

Consolidated Provision for Losses on Accounts, Fees and Notes Receivable

        Consolidated provision for losses on accounts, fees and notes receivable was $9.0 million for the year ended December 31, 2002, compared to $6.6 million for the year ended December 31, 2001. In 2002, all $9.0 million related to provision for losses on notes receivable, which provision was determined based on our review in 2002 of the collectibility of each loan made to affiliated partnerships within our loan receivable portfolio. We will continue to monitor these loans and assess the collectibility of each loan on a periodic basis. In 2001, there was no provision for losses on notes receivable as all $6.6 million related to additional allowance for possible losses on accounts, fees and other contingencies.

Consolidated Depreciation of Rental Property

        Consolidated depreciation of rental property decreased $38.5 million, or 11.8%, to $288.6 million for the year ended December 31, 2002, compared to $327.1 million for the year ended December 31, 2001. This decrease was principally a result of the following:

•

$69.0 million of the decrease related to the change in useful lives of assets made in 2001, which was consistent with management's expectations. During 2001, we completed a comprehensive review of our real estate related depreciation. As a result of this review, we changed our estimate of the remaining useful lives for our buildings. We believe the change better reflects the remaining useful lives of the assets and is consistent with prevailing industry practice. This change in useful lives increased net income by approximately $74.3 million, net of minority interest, in 2002 over 2001, of which a portion was recognized as an increase to equity in earnings of unconsolidated real estate partnerships. The recognition of this change in useful lives resulted in an increase in basic and diluted earnings per share of $0.87 and $0.86, respectively, for the year ended December 31, 2002;

24

•

$0.8 million of the decrease related to the disposition of 25 apartment properties in 2001 (results of 2002 dispositions were included in discontinued operations);



•

$24.0 million of an offsetting increase related to depreciation of the properties acquired through three direct purchases in 2001, ten months of depreciation of the properties acquired in the Casden Merger and four months of depreciation of the properties acquired in the New England Properties Acquisition in 2002; and



•

$13.2 million of an offsetting increase related to the purchase of controlling interests in, and the subsequent consolidation of, real estate partnerships. These real estate partnerships included six properties that were first consolidated at the end of 2001, one property that was first consolidated in the second quarter of 2002, 27 properties that were first consolidated in the third quarter of 2002 and 56 properties that were first consolidated in the fourth quarter of 2002.

Consolidated Interest Expense

        Consolidated interest expense, which includes the amortization of deferred financing costs together with any prepayment penalties incurred, totaled $339.7 million for the year ended December 31, 2002, compared with $297.5 million for the year ended December 31, 2001, an increase of $42.2 million, or 14.2%. The increase was principally a result of the following:

•

$34.8 million of the increase related to interest on additional property debt acquired through three direct purchases in 2001, ten months of interest on additional property debt acquired in the Casden Merger and four months of interest on the debt related to the New England Properties Acquisition in 2002;



•

$17.8 million of the increase related to the purchase of controlling interests in, and the subsequent consolidation of, real estate partnerships. These real estate partnerships included six properties that were first consolidated at the end of 2001, one property that was first consolidated in the second quarter of 2002, 27 properties that were first consolidated in the third quarter of 2002 and 56 properties that were first consolidated in the fourth quarter of 2002;



•

$2.3 million of the increase related to increased interest expense on our revolving credit facility and term loan. We had an average balance outstanding during the year ended December 31, 2002 of $500.4 million (including the Casden Loan), and an average balance outstanding for the year ended December 31, 2001 of $236.1 million (including the term loan we borrowed for the acquisition of interests in the Oxford properties). The cost of such borrowings was at a weighted average interest rate of 4.43% compared to 7.06%, respectively;



•

$10.9 million of an offsetting decrease related to an overall decrease in variable interest rates of approximately 1.5% from the prior year; and



•

$2.4 million of an offsetting decrease related to the disposition of 25 apartment properties in 2001 (results of 2002 dispositions were included in discontinued operations).

Consolidated Interest and Other Income

        Consolidated interest and other income increased $5.3 million, or 7.7%, to $73.7 million for the year ended December 31, 2002, compared with $68.4 million for the year ended December 31, 2001. This increase was principally a result of the following:

•

$26.9 million of the increase related to accretion income increasing from $9.9 million, net of allocated expenses of $4.4 million, for the year ended December 31, 2001, compared to $36.8 million, net of allocated expenses of $1.0 million, for the year ended December 31, 2002. This increase in accretion income was due to more completed transactions resulting in accretion occurring in 2002 than in 2001;



•

$18.4 million of an offsetting decrease related to a decrease in recognized gain on certain tax-exempt bonds that were held in 2001 and sold in the second quarter of 2002; and



•

$3.8 million of an offsetting decrease related to lower interest on money market and interest bearing accounts, as interest rates on deposit accounts have decreased approximately 1.5% from the prior year, while the average cash balances outstanding for both periods remained consistent.

25

Equity in Earnings (Losses) of Unconsolidated Real Estate Partnerships

        Equity in earnings of unconsolidated real estate partnerships totaled $0.7 million for the year ended December 31, 2002, compared with a loss of $16.7 million for the year ended December 31, 2001, a change of $17.4 million. This change was principally due to the change in estimate of useful lives of the underlying real estate assets completed by us in 2001, which resulted in lower depreciation expense of approximately $16.0 million. See the previous discussion on the change in estimate of useful lives of assets under the heading "Consolidated Depreciation of Rental Property."

Minority Interest in Consolidated Real Estate Partnerships

        Minority interest in consolidated real estate partnerships totaled $15.1 million for the year ended December 31, 2002, compared to $37.6 million for the year ended December 31, 2001, a decrease of $22.5 million. This decrease is primarily a result of our purchase of additional interests in consolidated real estate partnerships and a reduction in net income, thereby reducing the minority interest allocation.

Gain (Loss) on Dispositions of Real Estate

        Loss on dispositions of real estate, primarily by unconsolidated entities, totaled $27.9 million for the year ended December 31, 2002, compared to a gain of $17.4 million for the year ended December 31, 2001, a change of $45.3 million. Part of this change was a result of our adoption of Statement of Financial Accounting Standard No. 144, Accounting for the Impairment of Long-Lived Assets to be Disposed Of ("SFAS 144") effective January 1, 2002, where we now report assets held for sale (as defined by SFAS 144) and assets sold in the current period, as discontinued operations. Due to this adoption, for the year ended December 31, 2002, gain (loss) on dispositions of real estate does not include any gain or loss associated with the disposal of consolidated properties that were classified as discontinued operations during 2002. For 2001, however, gain (loss) on dispositions of real estate included gain or loss associated with the disposal of all properties sold. The properties sold in both periods, as well as the properties held for sale, were considered by management to be inconsistent with our long-term investment strategy. Gain (loss) on properties sold were determined on a property by property basis and are not entirely comparable year over year due to individual property differences.

        Included in gain (loss) on dispositions of real estate, we recorded a loss of approximately $28.0 million. This $28.0 million loss resulted primarily from a change in estimate due to better insight into information related to the finalization of the recording of purchase price accounting to appropriate entities acquired in past acquisitions and the related historical estimation process in determining the carrying value of assets sold. The recognition of this amount in the current period is considered to be a change in estimate associated with the historical estimated gain or loss on the sale of these properties. The recognition of this change in estimate resulted in a decrease in basic and diluted earnings per share of $0.28 for the year ended December 31, 2002. In addition to the $28.0 million loss discussed above, we recorded approximately $9.0 million of impairment losses on investments in unconsolidated real estate partnerships, offset by approximately $9.0 million of net casualty gains.

Distributions to Minority Partners in Excess of Income

        Distributions to minority partners in excess of income decreased $19.4 million to $27.0 million for the year ended December 31, 2002, compared to $46.4 million for the year ended December 31, 2001. When real estate partnerships consolidated in our financial statements make cash distributions in excess of net income, generally accepted accounting principles require us, as the majority partner, to record a charge equal to the minority partners' excess of distributions over net income when the partnership is in a deficit equity position, even though we do not suffer any economic effect, cost or risk. This decrease was due to a reduced level of distributions being made by the consolidated real estate partnerships as a result of lower refinancing activity, and our increased ownership of such partnerships.

Discontinued Operations

        Loss from discontinued operations was $6.1 million for the year ended December 31, 2002, compared to income of $4.2 million for the year ended December 31, 2001, a change of $10.3 million. As a result of the adoption of SFAS 144, effective January 1, 2002, we now report assets classified as held for sale (as defined by SFAS 144) and assets sold in the current period, as discontinued operations. For the year ended December 31, 2002, discontinued operations included the operations of the properties sold and classified as held for sale in 2002 and the associated gain (loss) on the disposition of the properties. For the year ended December 31, 2001, discontinued operations included the 2001 operations of the properties sold and classified as held for sale in 2002. There were no gains or

26

losses on assets sold in 2001 included in discontinued operations for the year ended December 31, 2001. The change in discontinued operations was primarily related to a net loss on disposals of $9.0 million for the year ended December 31, 2002. We incurred net losses of $21.0 million from the sale of certain senior living facilities, which we deemed non-strategic assets. In addition, approximately $3.0 million of impairment losses were recorded on properties that were classified as held for sale. These losses were partially offset by $15.0 million in net gains on the sale of other discontinued operations properties. The properties sold, as well as the properties classified as held for sale, were considered by management to be inconsistent with our long-term investment strategy. See Note 27 to the consolidated financial statements in Item 8 of this Annual Report for more details on discontinued operations.

Comparison of the Year Ended December 31, 2001 to the Year Ended December 31, 2000

        Effective January 1, 2001, we began consolidating our previously unconsolidated subsidiaries (see Note 6 to the consolidated financial statements in Item 8 of this Annual Report). Prior to this date, we had significant influence over, but did not have control of, such subsidiaries. Accordingly, such investments were accounted for under the equity method. Under the equity method, our pro-rata share of the earnings or losses of the entity for the periods being presented was included in equity in losses of unconsolidated subsidiaries. In order for a meaningful analysis of the financial statements to be made, the revenues and expenses for the unconsolidated subsidiaries for the year ended December 31, 2000, have been included in the following analysis as though they had been consolidated, and as a result the 2000 amounts are different than the historical information as previously reported. All significant intercompany revenues and expenses have been eliminated. Dollar amounts are in thousands.

27

Net Income

        We recognized net income of $107.4 million, and net income attributable to common stockholders of $17.0 million, for the year ended December 31, 2001, compared to net income of $99.2 million, and net income attributable to common stockholders of $36.0 million for the year ended December 31, 2000. Net income attributable to common stockholders represents net income less dividends accrued on preferred stock for that period.

        The following paragraphs discuss the results of operations in detail.

Consolidated Rental Property Operations

        Rental and other property revenues from consolidated properties totaled $1,224.7 million for the year ended December 31, 2001, compared with $1,028.5 million for the year ended December 31, 2000, an increase of $196.2 million, or 19.1%. This increase in consolidated rental and other property revenues was principally a result of the following:

•

$130.0 million of the increase related to operations of the properties acquired through three direct purchases in 2001 and operations of the properties acquired through the Oxford acquisition and 12 other properties acquired in the third and fourth quarters of 2000;



•

$58.5 million of the increase related to the purchase of controlling interests in, and the subsequent consolidation of, real estate partnerships. These real estate partnerships included six properties that were first consolidated in 2001 and 79 properties that were first consolidated after the first quarter of 2000;



•

$38.2 million of the increase related to a 3.6% increase in same store revenues; and



•

$34.9 million of an offsetting decrease related to the disposition of 25 properties in 2001 and 22 properties after the first quarter of 2000.

        Property operating expenses from our consolidated properties, consisting of on-site payroll costs, utilities (net of reimbursements received from residents), contract services, property management fees, turnover costs, repairs and maintenance, advertising and marketing, property taxes and insurance, totaled $465.7 million for the year ended December 31, 2001, compared with $429.6 million for the year ended December 31, 2000, an increase of $36.1 million or 8.4%. This increase in consolidated property operating expenses was principally a result of the following:

•

$37.8 million of the increase related to operations of the properties acquired through three direct purchases in 2001 and operations of the properties acquired through the Oxford acquisition and 12 other properties acquired in the third and fourth quarters of 2000;



•

$25.6 million of the increase related to the purchase of controlling interests in, and the subsequent consolidation of, real estate partnerships. These real estate partnerships included six properties that were first consolidated in 2001 and 79 properties that were first consolidated after the first quarter of 2000;



•

$18.0 million of the increase related to a 4.4% increase in same store expenses;



•

$26.9 million of an offsetting decrease related to the capitalization of construction-related costs; and



•

$18.2 million of an offsetting decrease related to the disposition of 25 properties in 2001 and 22 properties after the first quarter of 2000.

Consolidated Investment Management Business

        Income from the consolidated investment management business, which is primarily earned from unconsolidated real estate partnerships and the minority interest share of consolidated real estate partnerships, for which we are the general partner, was $27.6 million for the year ended December 31, 2001, compared with $39.2 million for the year ended December 31, 2000, a decrease of $11.6 million or 29.6%. This decrease in consolidated investment management business was principally a result of the following:

•

$22.0 million of the decrease related to the reduction in the number of properties managed, including approximately 225 for third parties;

28

•

$6.6 million of the decrease related to increased amortization of intangibles from additional property and asset management contract intangibles that were acquired as part of the acquisition of the Oxford properties;



•

$5.6 million of the decrease related to losses from health and property casualty insurance claims;



•

$2.5 million of the decrease related to the increased ownership in controlled, consolidated partnerships, which requires additional elimination of management fee income and the associated property management expense;



•

$10.3 million of an offsetting increase related to fees resulting from additional construction supervisory management services in 2001. These fees were calculated and billed to the real estate partnerships based on a percentage of volume of construction activities;



•

$9.7 million of an offsetting increase related to increased capitalization of direct and indirect costs related to construction, redevelopment, Capital Enhancement and Capital Replacement activities; and



•

$4.6 million of an offsetting increase related to additional accounting and other fees earned from the Oxford properties, which were acquired by us in September 2000.

Consolidated General and Administrative and Other Expenses

        Consolidated general and administrative expenses remained consistent, with $18.5 million for the year ended December 31, 2001 compared with $18.1 million for the year ended December 31, 2000.

        We incurred $6.4 million of consulting fees paid to a specialized third party vendor for the year ended December 31, 2001 in connection with a systematic and comprehensive effort to improve our business processes and financial controls. This effort resulted in identifying many initiatives to eliminate work and reduce costs. Three of the main themes were to increase focus on the operation of the conventional properties, strengthen corporate support to field operations and increase focus on the realization of equity values embedded in our portfolio of affordable properties. In 2001, we transferred affordable property management to a team separate from conventional property management, and reduced our business of providing property management services to unrelated third parties from 60,669 units at the end of 2000 to 31,520 units by the end of 2001, in order to focus on the operation of conventional properties. We have strengthened a number of our corporate functions including: purchasing, which has provided for lower costs; marketing, to improve traffic; human resources, to improve the recruitment, training and retention of top performers; financial control, to provide more timely financial information; and information technology systems, which includes the pending installation of an on site property management program.

        Additionally, for the year ended December 31, 2001, we provided for an additional allowance of $6.6 million for possible losses on accounts, fees and other contingencies.

Consolidated Depreciation of Rental Property

        Consolidated depreciation of rental property totaled $327.1 million for the year ended December 31, 2001, compared with $290.6 million for the year ended December 31, 2000, an increase of $36.5 million or 12.6%. This increase was principally a result of the following:

•

$51.5 million of the increase related to operations of the properties acquired through three direct purchases in 2001 and operations of the properties acquired through the Oxford acquisition and 12 other properties acquired in the third and fourth quarters of 2000;



•

$12.9 million of the increase related to the purchase of controlling interests in, and the subsequent consolidation of, real estate partnerships. These real estate partnerships included six properties that were first consolidated in 2001 and 79 properties that were first consolidated after the first quarter of 2000;



•

$12.0 million of the increase related to depreciable additions to same store properties;



•

$34.0 million of an offsetting decrease related to the change in useful lives of assets. During 2001, we completed a comprehensive review of our real estate related depreciation. As a result of this review, we changed our estimate of the remaining useful lives for our buildings. Effective July 1, 2001 for certain

29

assets and October 1, 2001 for the majority of the portfolio, we extended useful lives of these assets from a weighted average composite life of 25 years to a weighted average composite life of 30 years. This change increased net income by approximately $31 million, net of minority interest, or $0.42 per diluted share in 2001. We believe the change better reflects the remaining useful lives of the assets and is consistent with prevailing industry practice; and

•

$7.8 million of an offsetting decrease related to the disposition of 25 properties in 2001 and 22 properties after the first quarter of 2000.

Consolidated Interest Expense

        Consolidated interest expense, which includes the amortization of deferred financing costs, totaled $297.5 million for the year ended December 31, 2001, compared with $274.3 million for the year ended December 31, 2000, an increase of $23.2 million or 8.5%. This increase was principally a result of the following:

•

$38.4 million of the increase related to operations of the properties acquired through three direct purchases in 2001 and operations of the properties acquired through the Oxford acquisition and 12 other properties acquired in the third and fourth quarters of 2000;



•

$13.2 million of the increase related to the purchase of controlling interests in, and the subsequent consolidation of, real estate partnerships. These real estate partnerships included six properties that were first consolidated in 2001 and 79 properties that were first consolidated after the first quarter of 2000;



•

$14.1 million of an offsetting decrease related to lower interest expense on our line of credit. We had lower average balances outstanding during the year, and the cost of such borrowing was at a weighted average interest rate of 6.64% for the year ended December 31, 2001 compared to 8.95% for the year ended December 31, 2000;



•

$7.3 million of an offsetting decrease related to a reduction in interest expense paid on our mandatorily redeemable convertible preferred securities, as approximately 2.4 million and 0.2 million of these securities were converted into Common Stock in late 2000 and in 2001, respectively; and



•

$6.3 million of an offsetting decrease related to the disposition of 25 properties in 2001 and 22 properties occurring after the first quarter of 2000.

Consolidated Interest and Other Income

        Consolidated interest and other income decreased $2.1 million or 3.0% from $70.5 million for the year ended December 31, 2000, compared to $68.4 million for the year ended December 31, 2001. This decrease was principally the result of the following:

•

$16.5 million of the decrease related to a reduction in accretion income of discounted notes from $26.4 million, net of allocated expenses of $4.3 million, for the year ended December 31, 2000 to $9.9 million, net of allocated expenses of $4.4 million, for the year ended December 31, 2001. This decrease in accretion income was due to fewer loans and fewer transactions completed that resulted in accretion income.



•

$10.0 million of the decrease related to lower interest from money market and interest bearing accounts as interest rates on deposit accounts had decreased approximately 200 basis points from the prior year, as well as we had lower average cash balances ($87.8 million in 2001, compared to $113.8 million in 2000) due to the paydown of certain obligations and distributions to minority interest partners.



•

$26.1 million of an offsetting increase related to the gain recognized from the sale of certain tax-exempt bonds.

Equity in Earnings (Losses) of Unconsolidated Real Estate Partnerships

        Equity in losses from unconsolidated real estate partnerships totaled $16.7 million for the year ended December 31, 2001, compared to earnings of $5.2 million for the year ended December 31, 2000, a decrease of $21.9 million. The acquisition of interests in the Oxford properties in 2000 contributed $2.1 million to the earnings of unconsolidated real estate partnerships. However, this was offset by the purchase of additional partnership interests

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which resulted in the related properties being consolidated and contributing to consolidated rental revenues and expenses (seven properties in 2001 and 80 properties in 2000).

Minority Interest in Consolidated Real Estate Partnerships

        Minority interest in consolidated real estate partnerships totaled $37.6 million for the year ended December 31, 2001, compared to $27.5 million for the year ended December 31, 2000, a change of $10.1 million. The change was primarily a result of our purchase of additional interests in real estate partnerships, thereby reducing the minority interest allocation.

Distributions to Minority Partners in Excess of Income

        Distributions to minority partners in excess of income increased $22.0 million from $24.4 million for the year ended December 31, 2000 to $46.4 million for the year ended December 31, 2001. When real estate partnerships consolidated in our financial statements make cash distributions in excess of net income, generally accepted accounting principles require us, as the majority partner, to record a charge equal to the minority partners' excess of distribution over net income when the partnership is in a deficit equity position, even though we do not suffer any economic effect, cost or risk. The increase for the year occurred due to increased refinancing and operating activity, resulting in an increased amount of cash distributions to minority interest partners.

Gain on Dispositions of Real Estate

        Gain on dispositions of real estate totaled $17.4 million for the year ended December 31, 2001, compared to $26.3 million for the year ended December 31, 2000, a decrease of $8.9 million. The sales in both periods are of properties that are considered by management to be inconsistent with our long-term investment strategy. Gains (losses) on properties sold were determined on a property by property basis and are not entirely comparable year over year due to individual property differences.

Discontinued Operations

        Income from discontinued operations was $4.2 million for the year ended December 31, 2001, compared to $4.4 million for the year ended December 31, 2000. As a result of the adoption of SFAS 144, effective January 1, 2002, we now report assets classified as held for sale (as defined by SFAS 144) and assets sold in the current period, as discontinued operations. This change has resulted in certain reclassifications of 2001 and 2000 financial statement amounts, as all results of operations for those properties sold or classified as held for sale in 2002 must be included in a separate component of income on the consolidated statements of income for all comparable periods. For the year ended December 31, 2001 and 2000, discontinued operations included the operations of the properties sold or classified as held for sale in 2002. There are no gains or losses on assets sold in 2001 or 2000 included in discontinued operations for the years ended December 31, 2001 and 2000. See Note 27 to the consolidated financial statements in Item 8 of this Annual Report for more information on discontinued operations.

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Conventional Same Store Property Operating Results

        We define "same store" properties as conventional apartment properties in which our ownership interest exceeds 10% and operations are stabilized for over one year in the comparable periods of 2002 and 2001. "Total portfolio" includes same store properties plus conventional acquisition and redevelopment properties. The following table summarizes the unaudited conventional rental property operations on a "same store" and a "total portfolio" basis (dollars in thousands):

        Same store net operating income decreased $11.6 million, or 1.6%, for the year ended December 31, 2002 compared to the year ended December 31, 2001. Revenues decreased $8.0 million, or 0.7%, primarily due to lower average rent (down $1 per unit), lower occupancy (down 0.8%), and increased bad debt; all of which were somewhat offset by an increase in ancillary income. Expenses increased by $3.6 million, or 0.9%, primarily due to an increase of $5.3 million in property taxes as well as increased insurance expense of $1.5 million as the cost of property hazard insurance coverage rose in March 2002. These increases were somewhat offset by reductions in other categories. Same store expenses for both periods presented above are net of capitalized costs. The same store net operating results above represent 88.5% and 92.0% of total Free Cash Flow for the years ended December 31, 2002 and 2001, respectively.

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Funds From Operations

        We believe that FFO and AFFO, when considered with the financial data determined in accordance with GAAP, provide investors with an understanding of our ability to incur and service debt and make capital expenditures. These supplemental measures capture real estate performance by recognizing that real estate generally appreciates over time or maintains residual value to a much greater extent than machinery, computers or other personal property. The Board of Governors of the National Association of Real Estate Investment Trusts ("NAREIT") defines FFO as net income (loss), computed in accordance with GAAP, excluding gains and losses from extraordinary items, disposals of depreciable real estate property, net of related income taxes, plus real estate related depreciation and amortization (excluding amortization of financing costs), including depreciation for unconsolidated real estate partnerships and joint ventures and discontinued operations. We calculate FFO based on the NAREIT definition, as further adjusted for minority interest in the AIMCO Operating Partnership, plus amortization of intangibles, plus distributions to minority partners in excess of income and less dividends on preferred stock. We calculate FFO (diluted) by adding back the interest expense and preferred dividends relating to convertible securities whose conversion is dilutive to FFO. FFO should not be considered an alternative to net income or net cash flows from operating activities, as calculated 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, 2002, 2001 and 2000, our FFO is calculated as follows (amounts in thousands):

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Contribution to Free Cash Flow

        We look at our Free Cash Flow as a means of monitoring the operations of the components of our business. In this regard, in addition to the year-to-year comparative discussion, we have provided disclosure (see Note 24 to the consolidated financial statements in Item 8 of this Annual Report) on the contribution (separated between consolidated and unconsolidated activity) to our Free Cash Flow from several components of our business, and a reconciliation of Free Cash Flow to FFO, less Capital Replacements and Capital Enhancements, and to net income for the years ended December 31, 2002, 2001 and 2000. We define Free Cash Flow as FFO, less Capital Replacements and Capital Enhancements, plus interest expense and preferred stock dividends.

        The following table summarizes the contributions to our Free Cash Flow (dollars in thousands):

Comparison of the Year Ended December 31, 2002 to the Year Ended December 31, 2001

        Total Free Cash Flow contributed was $802.3 million and $783.9 million in 2002 and 2001, respectively, an increase of $18.4 million or 2.3%.

        The real estate Free Cash Flow contribution was $745.9 million and $700.7 million in 2002 and 2001, respectively, an increase of $45.2 million or 6.5%. Real estate contribution to total Free Cash Flow increased to 93% in 2002 from 89% in 2001. The increase was primarily due to acquisitions ($88.7 million), offset by a decrease due to increased Capital Replacement and Capital Enhancement spending ($31.8 million), and a decrease in same store operating results ($12.6 million).

        The property and asset management income within the investment management business contributed $13.4 million (2%) and $32.5 million (4%) to Free Cash Flow in 2002 and 2001, respectively. This decrease is primarily a result of (a) a reduction in fees related to construction supervisory management services, (b) a reduction in management fees and other income earned due to a decrease in the number of properties managed, including third parties, (c) an increase in losses from property casualty insurance claims, and (d) a reduction due to the increased ownership in and number of consolidated real estate partnerships, which results in additional elimination of management fee income and the associated property operating expense. These decreases in Free Cash Flow were partially offset by increases in Free Cash Flow as a result of a decrease in compensation and health insurance expense. Activity based fees contributed $8.9 million (1%) and $13.8 million (2%) to Free Cash Flow in 2002 and 2001, respectively. Activity based fees are earned on partnership refinancing, sales and other transactions. This decrease was primarily due to decreased refinancing transactions resulting in fees (28 in 2002 compared to 59 in 2001).

        Recurring interest income decreased $3.2 million primarily as a result of a decrease in interest income from money market and interest bearing accounts while general partner loan interest remained consistent. Money market and interest bearing accounts decreased as interest rates on deposit accounts have decreased approximately 1.5% from the prior year, while the average cash balances outstanding for both periods remained consistent. The transactional related interest income contribution was $44.5 million (6%) and $36.0 million (5%) of Free Cash Flow contribution in 2002 and 2001, respectively, an increase of $8.5 million. Transactional interest income was comprised of gain on sale of bonds and accretion income on discounted notes. We hold investments in both par value notes receivable and discounted notes receivable. Accretion income on discounted notes increased $26.9 million from 2001 due to more completed transactions in 2002. Offsetting this increase was a decrease of $18.4 million related to the recognized gain on sale of certain tax-exempt bonds that were held in 2001 and sold in the second quarter of 2002.

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        Contributions to conventional real estate Free Cash Flow for 2002, 2001 and 2000 before adjustment for minority interest were as follows (dollars in thousands):

        The conventional real estate contribution to Free Cash Flow was $741.0 million and $732.8 million in 2002 and 2001, respectively, an increase of $8.2 million or 1.1%. The increase was primarily due to acquisitions ($53.7 million), offset by a decrease due to increased Capital Replacement and Capital Enhancement spending ($26.9 million), a decrease in same store operating results ($12.6 million), and a decrease due to 2001 dispositions ($5.3 million).

        The changes in the composition of conventional real estate contribution resulted in an increase in contribution from properties with an average monthly rent greater than $900 per unit to 32% from 24% in 2001, and a decrease in contribution from properties with an average monthly rent below $600 per unit to 23% from 24% in 2001. The changes were due to acquisitions offset by decreases in property operations and dispositions.

        Note 24 to the consolidated financial statements in Item 8 of this Annual Report provides additional detail on each component of Free Cash Flow. We believe this disclosure is complementary to the results of operations discussed above.

Comparison of the Year Ended December 31, 2001 to the Year Ended December 31, 2000

        Total Free Cash Flow contributed was $783.9 million and $674.6 million in 2001 and 2000, respectively, an increase of $109.3 million or 16.2%.

        The real estate Free Cash Flow contribution was $700.7 million and $575.9 million in 2001 and 2000, respectively, an increase of $124.8 million or 21.7%. Real estate contribution to total Free Cash Flow increased to 89% in 2001 from 85% in 2000. The increase was due to improvements in property operations (96%), acquisitions (2%) and limited partnership acquisitions (2%).

        The property and asset management income within the investment management business contributed $32.5 million (4%) and $41.0 million (6%) to Free Cash Flow in 2001 and 2000, respectively. This decrease is primarily a result of (a) a reduction in management fees and other income earned due to a decrease in the number of properties managed, including third parties, (b) an increase in losses from health and property casualty insurance claims and (c) a reduction due to the increased ownership in controlled, consolidated partnerships, which requires additional elimination of management fee income and the associated property management expense. These decreases in Free Cash Flow were partially offset by increases in Free Cash Flow as a result of (a) an increase in property and asset management income resulting from additional fees due to the acquisition of the Oxford properties in September 2000, (b) an increase in property and asset management income as we earned additional construction supervisory management services in 2001 and (c) an increase in the capitalization of direct and indirect costs related to construction, redevelopment, Capital Enhancement and Capital Replacement activities. Activity based fees contributed $13.8 million (2%) and $7.4 million (1%) to Free Cash Flow in 2001 and 2000, respectively. Activity based fees are earned on partnership refinancing, sales and other transactions. The increase in fee income is due to increased refinancing fees of $10.4 million in 2001, compared to $4.0 million in 2000.

        Recurring interest income decreased $9.6 million primarily as a result of a decrease in interest income from money market and interest bearing accounts. We had $80.0 million in cash as of December 31, 2001, compared to $157.1 million at December 31, 2000 due to the paydown of certain obligations such as the term loan and revolving

35

credit facility, and interest rates on deposit accounts having decreased approximately 200 basis points. The transactional related interest income contribution was $36.0 million (5%) and $26.4 million (4%) of Free Cash Flow contribution in 2001 and 2000, an increase of $9.6 million. Transactional interest income was comprised of gain on sale of bonds and accretion income on discounted notes. We hold investments in both par value notes receivable and discounted notes. Accretion income on discounted notes decreased $16.5 million from 2000 due to fewer loans and fewer transactions completed. However, this was offset by a $26.1 million gain recognized from the sale of certain tax-exempt bonds.

        The conventional real estate contribution to Free Cash Flow was $732.8 million and $587.6 million in 2001 and 2000, respectively, an increase of $145.2 million or 24.7%. The increase was due to improvements in property operations (96%), acquisitions (2%) and acquisition of limited partnership interests (2%).

        The changes in the composition of conventional real estate contribution resulted in an increase in contribution from properties with an average monthly rent greater than $900 per unit to 24% from 14% in 2000, and a decrease in contribution from properties with an average monthly rent below $600 per unit to 24% from 37% in 2000. The changes were due to improvements in property operations, acquisitions, limited partnership acquisitions and dispositions.

        Note 24 to the consolidated financial statements in Item 8 of this Annual Report provides additional detail on each component of Free Cash Flow. We believe this disclosure is complementary to the results of operations discussed above.

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 our cash flow from operations as determined by rental rates, occupancy levels and operating expenses related to our portfolio of apartment properties, as well as cash flow from operations generated by our investment management business.

        Our principal demands for liquidity include normal operating activities, payments of principal and interest on outstanding debt, capital expenditures, acquisitions of and investments in properties, dividends paid to stockholders and distributions paid to limited partners. We consider our cash provided by operating activities to be adequate to meet short-term liquidity demands. In the event that there continues to be an economic downturn or the national economy continues to deteriorate and the cash provided by operating activities is no longer adequate, we have additional means, such as short-term borrowing availability, 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, 2002, we had $99.6 million in cash and cash equivalents, an increase of $19.6 million from December 31, 2001. In addition, we had $224.9 million of restricted cash ($70 million of which was acquired in the Casden Merger), primarily consisting of reserves and impounds 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 of this Annual Report.

Operating Activities

        For the year ended December 31, 2002, our net cash provided by operating activities was $497.3 million, compared to $494.5 million for the year ended December 31, 2001. This decline is due primarily to the economic downturn in the national economy and the related deterioration in our operating activities, as well as an increase in our level of operating assets, partially offset by a decrease in our operating liabilities.

Investing Activities

        For the year ended December 31, 2002, our net cash used in investing activities was $786.4 million compared to $132.0 million for the year ended December 31, 2001. In 2002 our investing activities related to investments in acquisitions and our existing real estate assets through capital expenditures and redevelopment, as well as

36

dispositions of apartment properties. See further discussion on capital expenditures under the heading "Capital Expenditures."

        Our acquisitions included the Casden Merger and the New England Properties Acquisition. In addition, we acquired the Villas at Park La Brea and made various acquisitions of limited partnership interests held by third party investors in certain partnerships for which we act as the general partner. See Note 4 to the consolidated financial statements in this Annual Report for further discussion on these activities.

        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, in both cases as compared to alternative uses for our capital. The table below shows our dispositions during the year ended December 31, 2002:

        We are currently marketing for sale certain real estate properties that are inconsistent with our long-term investment strategies (as determined by management from time to time). Proceeds from 2003 dispositions are expected to be at levels above that of 2002, and are planned to be used to reduce debt and fund capital and other operating needs.

Financing Activities

        For the year ended December 31, 2002, net cash provided by financing activities was $308.6 million compared to net cash used in financing activities of $439.6 million for the year ended December 31, 2001. In 2002 our financing activities related to mortgage financing, short-term debt financing, issuance of common and preferred equity, payment of our dividends and payment of our principal debt amortization.

        During the year ended December 31, 2002, we refinanced or closed 93 mortgage loans generating $1,031.7 million of total proceeds at a weighted average interest rate of 4.26%, of which approximately $937.9 million related to consolidated properties (these mortgages do not include the $308.7 million in mortgage loans related to the New England Properties Acquisition that are discussed below). Each loan is non-recourse. Among the 93 loans, 81 are individually secured by one of 81 properties with no cross-collateralization, and 12 loans totaling $228.4 million are cross-collateralized with certain other mortgage loans. After repayment of existing debt and payment of transaction costs totaling $832.0 million, our share of the total $199.7 million in net proceeds was $165.8 million which was used to repay existing short-term debt and for other corporate purposes. Further details on these mortgage loans are shown in the table below:

        In connection with the Casden Merger, we assumed $684.7 million of primarily long-term, fixed-rate, fully amortizing notes payable with a weighted average interest rate of 6.85%. Each of the notes is individually secured by one of 116 properties with no cross-collateralization.

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        In connection with the New England Properties Acquisition, we closed 11 mortgage loans generating $308.7 million of long-term, fixed rate, fully amortizing notes with a weighted average interest rate of 5.69%. Each loan is non-recourse and is individually secured by one of the 11 properties, with no cross-collateralization.

        In connection with our purchase of the Villas at Park La Brea, we closed a $38.0 million, long-term, fixed rate, fully amortizing note with an interest rate of 6.01%. This note is non-recourse and secured by the property.

        As of December 31, 2002, substantially all of the Company's owned or controlled properties and 86.5% of our total assets were encumbered by or served as collateral for debt. As of December 31, 2002, we had total secured outstanding indebtedness of $6,233.7 million, comprised of $4,582.9 million of secured long-term financing, $1,244.8 million of secured tax-exempt long-term bond financing and $406.0 million in secured short-term financing. As of December 31, 2002, approximately 22.6% of our indebtedness bears interest at variable rates, of which $786.2 million, or 12.6%, is tax-exempt bond financing. As of December 31, 2002, we had a total of 49 mortgage loans, with an aggregate principal balance outstanding of $573.4 million, that were cross-collateralized with certain other mortgage loans. Other than these loans, none of our debt is subject to cross-collateralization provisions. The weighted average interest rate on our long-term secured notes payable and tax-exempt bonds was 6.49%, with a weighted average maturity of 14 years as of December 31, 2002.

        In 2002 we issued the following equity:

•

3.5 million shares of Common Stock, valued at $164.9 million, in connection with the Casden Merger



•

2.0 million shares of Class R Preferred Stock, par value $0.01 per share, in two registered public offerings, with total net proceeds of approximately $50 million used to repay short-term indebtedness



•

8.0 million shares of Common Stock in a registered public offering at a net price of $46.17 per share. The total net proceeds of approximately $369 million were used to repay outstanding indebtedness on our revolving credit facility and a portion of the Casden Loan.

        Our Board of Directors has, from time to time, authorized us to repurchase shares of Common Stock and our preferred stock. Currently, we are authorized to repurchase up to a total of approximately 1.9 million shares, of which up to 1.9 million shares may be Common Stock and up to 1.7 million shares may be preferred stock. While we have no current plans to repurchase Common Stock or our preferred stock, these repurchases may be made from time to time in the open market or in privately negotiated transactions, subject to applicable law. During the year ended December 31, 2002, we repurchased no shares of Common Stock or preferred stock.

        It is the present policy of our Board of Directors to increase the dividend annually in an amount equal to one-half of the projected increase in AFFO subject to minimum distribution requirements to maintain our REIT status. Our Board of Directors considers the discretionary nature of Capital Enhancement spending in its consideration of AFFO as it relates to our dividend policy. The dividend paid in February 2003 of $0.82 per share, which was the same dividend amount as was paid in each quarter of 2002, represents a distribution of 96% of AFFO (before deducting Capital Enhancements) and 78% of FFO for the quarter ended December 31, 2002. We continue to monitor the dividend as a percentage of AFFO (before deducting Capital Enhancements). If the payout were to exceed 100% for a sustained period, our Board of Directors would consider a change in the dividend to match our operating profitability.

        On November 7, 2001, AIMCO and the AIMCO Operating Partnership filed a shelf registration statement with the Securities and Exchange Commission, or SEC, with respect to an aggregate of $822 million of debt and equity securities of AIMCO and $500 million of debt securities of the AIMCO Operating Partnership, all of which was carried forward from AIMCO's 1998 shelf registration statement. The SEC declared the registration statement effective on November 9, 2001. As of December 31, 2002, we had approximately $400 million of debt and equity available and the AIMCO Operating Partnership had $500 million of debt available from this registration statement. We expect to finance acquisitions of real estate interests with the issuance of equity and debt securities under the shelf registration statement as well as with cash from operations or short-term borrowings.

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Credit Facility and Term Loan

        On February 14, 2003, we and our lenders amended our revolving credit facility to increase the available commitment, at our option, to $500 million (such commitment in excess of $400 million is not available until it has been syndicated), reduce the minimum fixed charge coverage ratio from 1.60:1 to 1.50:1 through the maturity date and extend the maturity date one year to July 31, 2005. Upon the effective date of the amendment, the margin on LIBOR-based loans and base rate loans was amended to a range between 2.05% to 2.65% and .55% to 1.15%, respectively, based on the fixed charge coverage ratio. In addition, we and our lenders amended the Casden Loan with the same reduction in the fixed charge coverage ratio as stated above for the credit facility, through maturity, and to eliminate mandatory prepayments for the remainder of the term using proceeds from equity, sales or refinancing proceeds (except as such proceeds arise from transactions of the properties acquired in the Casden Merger).

        The financial covenants contained in the amended and restated revolving credit facility and the Casden Loan require us to maintain a ratio of debt to gross asset value of no more than 0.55 to 1.0, and an interest coverage ratio of 2.25 to 1.0. In addition, the amended and restated revolving credit facility and the Casden Loan limit us from distributing more than 80% of our Funds From Operations over any 12-month period (or such amounts as may be necessary for us to maintain our status as a REIT). Finally, the fixed charge coverage ratio requirement for the quarter ended June 30, 2002 through February 13, 2003 (at which time the coverage ratios were further amended as indicated above) was 1.60:1. As of December 31, 2002, we were in compliance with all financial covenant requirements.

Future Capital Needs

        We expect to fund any future acquisitions, redevelopment and capital improvements principally with proceeds from property sales, short-term borrowings and operating cash flows. As of December 31, 2002, we had 10 properties with 3,678 units under redevelopment having an estimated total investment (fair market value prior to redevelopment plus new redevelopment spending) of $601 million, of which approximately $34 million remains to be spent. Our share of the estimated total investment is $501 million of which approximately $21 million remains to be spent.

        During 2003, we have:

•

$178.9 million of scheduled maturities of property debt that we expect to refinance;



•

$134.6 million of scheduled principal amortization payments on property debt that we expect to pay with operating cash flows and proceeds from property sales; and



•

$406.0 million of short-term debt ($291.0 million on the credit facility and $115.0 million on the Casden Loan) that we expect to repay a portion of with operating cash flows and proceeds from property sales.

Capital Expenditures

        For the year ended December 31, 2002, we spent a total of $82.9 million and $8.0 million on Capital Replacements (expenditures required to maintain the related asset) and on Capital Enhancements (expenditures that add a new feature or revenue source at a property), respectively.

        Capital Replacements spending has increased for two primary reasons: a general increase in spending to maintain our assets; and an increase in capitalized costs. In addition to Capital Replacements, we monitor Capital Enhancements, which we distinguish from Capital Replacements. Capital Enhancements are costs incurred to add additional rental square footage, a new building or a new revenue producing feature. For example, replacement of existing kitchen appliances is a Capital Replacement, however, if the same replacements are done in connection with an extensive remodeling project then they are characterized as a Capital Enhancement. Because the distinction between Capital Replacements and Capital Enhancements is not consistently applied across REITs and because there is a risk of partial substitution between Capital Replacements and Capital Enhancements, we monitor and report both Capital Replacements and Capital Enhancements and deduct both in our calculation of AFFO.

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        The table below details our actual spending on Capital Replacements and Capital Enhancements based on a per unit and total dollar basis (based on approximately 173,000 units) for the year ended December 31, 2002 and reconciles it to our 2002 Consolidated Statement of Cash Flows:

        In addition, we capitalized approximately $8.8 million of our share of indirect costs related to these activities for the year ended December 31, 2002, increasing our share of Capital Replacement ($90.4 million) and Capital Enhancement ($9.2 million) spending to $99.6 million. We funded these expenditures with cash provided by operating activities, working capital reserves, and borrowings under our credit facility.

        For the year ended December 31, 2002, we spent a total of $170.9 million for initial capital expenditures, or ICE, (expenditures at a property that have been identified, at the time the property is acquired, as expenditures to be incurred within one year of the acquisition, which in this period relates primarily to the properties acquired in the Casden Merger) and redevelopment (expenditures that substantially upgrade the property). The following table reconciles our share of those expenditures to our 2002 Consolidated Statement of Cash Flows (in millions):

        In addition, we capitalized approximately $15.4 million of our share of direct and indirect costs related to these activities for the year ended December 31, 2002, increasing our share of ICE and redevelopment spending to $186.3 million. We funded these expenditures with cash provided by operating activities, working capital reserves, and borrowings under our credit facility.

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        During 2001 and 2002, we refined our process for identifying and capitalizing certain indirect costs, which include the implementation of a detailed time reporting system to measure such activities more accurately. As a result of the refined process, we capitalized approximately $40.7 million of our share of indirect costs for the year ended December 31, 2002, compared to approximately $48.1 million for the year ended December 31, 2001, for a reduction of approximately $7.4 million.

Off-Balance Sheet Arrangements

        We own general and limited partner interests in unconsolidated real estate partnerships, which interests were acquired through acquisitions, direct purchases and separate offers to other limited partners. Our total ownership interests in these unconsolidated real estate partnerships range from 1% to 55%. However, based on the provisions of the related partnership agreements, which grant varying degrees of control, we are not deemed to have control of these partnerships sufficient to require or permit consolidation for accounting purposes. There are no lines of credit, side agreements, financial guarantees, or any other derivative financial instruments related to or between us and our unconsolidated real estate partnerships. 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 5 to the consolidated financial statements in Item 8 of this Annual Report for additional information on our unconsolidated real estate partnerships.

Contractual Obligations

        This table summarizes information contained elsewhere in this Annual Report regarding contractual obligations and commitments (amounts in thousands):

(1)

The development fee payments above were established in connection with the Casden Merger 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. Additionally, we have committed to invest up to $50 million for a 20% limited liability company interest in Casden Properties, LLC, a newly formed company controlled by third parties. As of December 31, 2002, we had invested $11.7 million (see Note 4 to the consolidated financial statements in Item 8 of this Annual Report for additional information).

41

ITEM 7a. Quantitative and Qualitative Disclosures About Market Risk

        Our primary market risk exposure relates to changes in interest rates. We are not subject to any foreign currency exchange rate risk or commodity price risk, or any other material market rate or price risks. We use predominantly long-term, fixed-rate and self-amortizing non-recourse mortgage debt in order to avoid the refunding and repricing risks of short-term borrowings. We use short-term debt financing and working capital primarily to fund short-term uses and acquisitions and generally expect to refinance such borrowings with cash from operating activities, property sales proceeds or long-term debt financings.

        We had $1,411.2 million of variable rate debt outstanding at December 31, 2002, which represented 22.6% of our total outstanding debt. Of the total variable debt, the major components were floating rate tax-exempt bond financing ($786.2 million), floating rate secured notes ($219.0 million), the Casden Loan ($115.0 million), and the credit facility ($291.0 million). Based on this level of debt, an increase in interest rates of 1% would result in our income and cash flows being reduced by $14.1 million on an annual basis. Historically, changes in tax-exempt interest rates have been at a ratio less than 1:1 with changes in taxable interest rates. Variable rate tax-exempt bond financing is benchmarked against the Bond Market Association Municipal Swap Index (the "BMA Index"). Since 1981, the BMA Index has averaged 54.2% of the 10-year Treasury Yield. If this relationship continues and based on our level of tax-exempt debt, an increase of 1% in taxable interest rates would result in our income and cash flows being reduced by $10.5 million on an annual basis. At December 31, 2002, the Company had $4,822.5 million of fixed-rate debt outstanding. As of December 31, 2001, based on our level of variable debt of $925.1 million, an increase in interest rates of 1% would have resulted in our income and cash flows being reduced by $9.3 million on an annual basis. The year ended December 31, 2002 had an increased potential reduction of $4.8 million as compared to the year ended December 31, 2001 due to our increased variable debt balance in 2002, as a result of our acquisitions and newly consolidated properties.

        As of December 31, 2002, the scheduled principal amortization and maturity payments for our consolidated secured notes payable and consolidated secured tax-exempt bonds were as follows (dollars in thousands):

        The estimated aggregate fair value of our cash and cash equivalents, receivables, payables and short-term secured debt as of December 31, 2002 approximate their carrying value due to their relatively short-term nature. Management further believes that the fair value of our variable rate secured tax-exempt bond debt and variable rate secured long-term debt approximate their carrying values. The fair value for our fixed-rate debt agreements were estimated based on the quoted market rate for the same or similar issues. The carrying amount of our fixed-rate debt at December 31, 2002 was $4.8 billion compared to the computed fair value of $5.5 billion (see Note 3 to the consolidated financial statements in Item 8 of this Annual Report).

ITEM 8. Financial Statements and Supplementary Data

        The independent auditor's report, consolidated financial statements and schedule listed in the accompanying index are filed as part of this report and incorporated herein by this reference. See "Index to Financial Statements" on page F-1.

ITEM 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

        None.

42

PART III

ITEM 10. Directors and Executive Officers of the Registrant

        The information required by this item is presented under the caption "Board of Directors and Officers" in the proxy statement for our 2003 annual meeting of stockholders and is incorporated herein by reference.

ITEM 11. Executive Compensation

        The information required by this item is presented under the captions "Summary Compensation Table," "Option/SAR Grants in Last Fiscal Year," "Aggregated Option/SAR Exercises in Last Fiscal Year and Fiscal Year-End Option/SAR Values" and "Employment Arrangements" in the proxy statement for our 2003 annual meeting of stockholders and is incorporated herein by reference.

ITEM 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

        The information required by this item is presented under the captions "Security Ownership of Certain Beneficial Owners and Management" and "Securities Authorized for Issuance Under Equity Compensation Plans" in the proxy statement for our 2003 annual meeting of stockholders and is incorporated herein by reference.

ITEM 13. Certain Relationships and Related Transactions

        The information required by this item is presented under the caption "Certain Relationships and Related Transactions" in the proxy statement for our 2003 annual meeting of stockholders and is incorporated herein by reference.

ITEM 14. Controls and Procedures

        Our principal executive officer and principal financial officer have within 90 days of the filing date of this annual report, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-14(c) and 15d-14(c) under the Securities Exchange Act of 1934, as amended) and have determined that such disclosure controls and procedures are adequate. There have been no significant changes in our internal controls or in other factors that could significantly affect our internal controls since the date of evaluation. We do not believe any significant deficiencies or material weaknesses exist in our internal controls. Accordingly, no corrective actions have been taken.

43

ITEM 15. Exhibits, Financial Statement Schedule, and Reports on Form 8-K

INDEX TO EXHIBITS (1)

44

45

46

47

48

49

(1)

Schedule and supplemental materials to the exhibits have been omitted but will be provided to the Securities and Exchange Commission upon request.

*

Management contract

50

SIGNATURES

        Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on the 7^th day of March, 2003.

        Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the date indicated.

51

CHIEF EXECUTIVE OFFICER CERTIFICATION

I, Terry Considine, certify that:

1.

I have reviewed this annual report on Form 10-K of Apartment Investment and Management Company;

2.

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

3.

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

4.

The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

a)

Designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;

b)

Evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and

c)

Presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5.

The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions):

a)

All significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and

b)

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and

6.

The registrant's other certifying officers and I have indicated in this annual report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Date: March 7, 2003

52

CHIEF FINANCIAL OFFICER CERTIFICATION

I, Paul J. McAuliffe, certify that:

1.

I have reviewed this annual report on Form 10-K of Apartment Investment and Management Company;

2.

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

3.

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

4.

The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

a)

Designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;

b)

Evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and

c)

Presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5.

The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions):

a)

All significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and

b)

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and

6.

The registrant's other certifying officers and I have indicated in this annual report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Date: March 7, 2003

53

APARTMENT INVESTMENT AND MANAGEMENT COMPANY

INDEX TO FINANCIAL STATEMENTS

F-1

REPORT OF INDEPENDENT AUDITORS

Stockholders and Board of Directors
Apartment Investment and Management Company

We have audited the accompanying consolidated balance sheets of Apartment Investment and Management Company as of December 31, 2002 and 2001, and the related consolidated statements of income, stockholders' equity and cash flows for each of the three years in the period ended December 31, 2002. Our audits also included the financial statement schedule listed in the Index at Item 15(a)(2). These financial statements and schedule are the responsibility of the Company'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 auditing standards generally accepted in the 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 Apartment Investment and Management Company at December 31, 2002 and 2001, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2002, in conformity with accounting principles generally accepted in the United States. 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, the Company adopted Statement of Financial Accounting Standards No. 144, "Accounting for Impairment or Disposal of Long-Lived Assets," as of January 1, 2002. As a result, the accompanying consolidated financial statements for 2001 and 2000, referred to above, have been restated to conform to the presentation adopted in 2002 in accordance with accounting principles generally accepted in the United States.

F-2

APARTMENT INVESTMENT AND MANAGEMENT COMPANY

CONSOLIDATED BALANCE SHEETS
As of December 31, 2002 and 2001
(In Thousands, Except Share Data)

See notes to consolidated financial statements.

F-3

APARTMENT INVESTMENT AND MANAGEMENT COMPANY

CONSOLIDATED STATEMENTS OF INCOME
For the Years Ended December 31, 2002, 2001 and 2000
(In Thousands, Except Per Share Data)