UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the Period Ended June 30, 2003.

Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from to .

Commission File Number: 0-22569 (Irvine Apartment Communities, L.P.)

IRVINE APARTMENT COMMUNITIES, L.P.

(Exact Name of Registrant as Specified in Its Charters)

Delaware		33-0587829
(State of Incorporation)		(I.R.S. Employer Identification Number)

550 Newport Center Drive, Suite 300, Newport Beach, California 92660

(Address of principal executive offices)

(949) 720-5500

(Registrants’ telephone number, including area code)

Not Applicable

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

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

Irvine Apartment Communities, L.P.

Index

		Page
Part I	FINANCIAL INFORMATION

Item 1.	Consolidated Financial Statements—Irvine Apartment Communities, L.P.

	– Consolidated Balance Sheets as of June 30, 2003 and December 31, 2002	1

	– Consolidated Statements of Operations for the three and six months ended June 30, 2003 and 2002	2

	– Consolidated Statements of Changes in Partners’ Capital for the six months ended June 30, 2003 and 2002	3

	– Consolidated Statements of Cash Flows for the six months ended June 30, 2003 and 2002	4

	Notes to Consolidated Financial Statements	5

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	10

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	16

Item 4.	Controls and Procedures	16

Part II	OTHER INFORMATION

Item 1.	Legal Proceedings	17

Item 2.	Changes in Securities and Use of Proceeds	17

Item 3.	Defaults Upon Senior Securities	17

Item 4.	Submission of Matters to a Vote of Security Holders	17

Item 5.	Other Information	17

Item 6.	Exhibits and Reports on Form 8-K	17

	SIGNATURES	18

Irvine Apartment Communities, L.P.

Consolidated Balance Sheets

(in thousands)	June 30, 2003			December 31, 2002
Assets		(unaudited	)
Real estate
Land	$	465,785		$	465,652
Buildings and improvements		2,101,659			2,096,275

		2,567,444			2,561,927
Accumulated depreciation		(531,241	)		(501,046	)

		2,036,203			2,060,881
Under development, including land		35,076			24,075

		2,071,279			2,084,956
Cash and cash equivalents		3,169			8,913
Restricted cash		1,303			1,250
Deferred financing costs, net		7,731			8,457
Advances to affiliate		40,700			51,300
Other assets		7,408			17,112

	$	2,131,590		$	2,171,988

Liabilities
Mortgages and notes payable	$	1,079,922		$	1,072,643
Accounts payable and accrued liabilities		38,369			38,224
Advances from affiliate		—			50,000
Security deposits		14,074			13,363

		1,132,365			1,174,230

Partners’ Capital
General Partner, 23,145 common partnership units at June 30, 2003 and December 31, 2002		805,662			804,954
Limited Partner, 25,027 common partnership units at June 30, 2003 and December 31, 2002		193,563			192,804

		999,225			997,758

	$	2,131,590		$	2,171,988

See accompanying notes.

Page 1

Irvine Apartment Communities, L.P.

Consolidated Statements of Operations

	Six Months Ended June 30,				Three Months Ended June 30,
(unaudited, in thousands)	2003		2002		2003		2002
Revenues
Rental income	$	161,055	$	153,760	$	81,119	$	76,948
Other income		4,130		4,420		2,112		2,231
Interest income		270		180		108		86

		165,455		158,360		83,339		79,265

Expenses
Property expenses		44,782		42,250		23,011		21,205
Real estate taxes		13,211		12,437		6,409		5,962
Interest expense, net		33,663		33,904		16,819		16,910
Depreciation and amortization		30,392		31,611		15,112		15,393
General and administrative		3,540		4,100		2,172		2,625

		125,588		124,302		63,523		62,095

Income before Redeemable Preferred Interests		39,867		34,058		19,816		17,170
Redeemable preferred interests		—		6,188		—		3,094

Net Income	$	39,867	$	27,870	$	19,816	$	14,076

Allocation of Net Income:
General Partner	$	19,158	$	12,440	$	9,521	$	6,283
Limited Partner	$	20,709	$	15,430	$	10,295	$	7,793

See accompanying notes.

Page 2

Irvine Apartment Communities, L.P.

Consolidated Statements of Changes in Partners’ Capital

(unaudited, in thousands)	Irvine Apartment Communities LLC			The Irvine Company			Total
Partners’ Capital

Balance at January 1, 2002	$	634,094		$	166,928		$	801,022
Net income		12,440			15,430			27,870
Distributions		(14,060	)		(17,440	)		(31,500	)

Balance at June 30, 2002	$	632,474		$	164,918		$	797,392

Balance at January 1, 2003	$	804,954		$	192,804		$	997,758
Net income		19,158			20,709			39,867
Distributions		(18,450	)		(19,950	)		(38,400	)

Balance at June 30, 2003	$	805,662		$	193,563		$	999,225

See accompanying notes.

Page 3

Irvine Apartment Communities, L.P.

Consolidated Statements of Cash Flows

	Six Months Ended June 30,
(unaudited, in thousands)	2003			2002
Cash Flows from Operating Activities
Net income	$	39,867		$	27,870
Adjustments to reconcile net income to net cash provided by operating activities:
Amortization of deferred financing costs		726			802
Depreciation and amortization		30,392			31,611
Redeemable preferred interests		—			6,188
Increase (decrease) in cash attributable to changes in operating assets and liabilities:
Restricted cash		(53	)		(174	)
Other assets		9,507			6,186
Accounts payable and accrued liabilities		2,028			5,193
Security deposits		711			484

Net Cash Provided by Operating Activities		83,178			78,160

Cash Flows from Investing Activities
Capital improvements to operating real estate assets		(2,917	)		(1,164	)
Capital investments in real estate assets		(15,444	)		(33,764	)

Net Cash Used in Investing Activities		(18,361	)		(34,928	)

Cash Flows from Financing Activities
Proceeds from mortgages and notes payable		23,028			4,968
Payments on mortgages and notes payable		(15,789	)		(4,512	)
Advances to affiliate		(140,800	)		(29,000	)
Payments from affiliate		151,400			22,400
Advances from affiliate		—			56,100
Payments to affiliate		(50,000	)		(59,300	)
Distributions to redeemable preferred limited partner unit holders		—			(3,094	)
Distributions to partners		(38,400	)		(31,500	)

Net Cash Used in Financing Activities		(70,561	)		(43,938	)

Net (Decrease) Increase in Cash and Cash Equivalents		(5,744	)		(706	)
Cash and Cash Equivalents at Beginning of Period		8,913			2,572

Cash and Cash Equivalents at End of Period	$	3,169		$	1,866

Supplemental Disclosure of Cash Flow Information Interest paid, net of amounts capitalized	$	33,531		$	34,654

See accompanying notes.

Page 4

Irvine Apartment Communities, L.P.

Notes to Consolidated Financial Statements

(unaudited)

Note 1—Organization

Irvine Apartment Communities, L.P. (the “Partnership”), a Delaware limited partnership, was formed on November 15, 1993. In connection with an initial public offering of common shares on December 8, 1993, Irvine Apartment Communities, Inc. (“IAC, Inc.”) obtained a general partnership interest in and became the sole managing general partner of the Partnership. The Irvine Company transferred 42 apartment communities and a 99% interest in a limited partnership which owns one apartment community to the Partnership. On June 7, 1999, IAC, Inc. was merged with and into TIC Acquisition LLC (the “Acquiror”), a Delaware limited liability company indirectly wholly owned by The Irvine Company (the “Merger”), with the Acquiror remaining as the surviving entity and renamed Irvine Apartment Communities LLC (“IACLLC”). As a result of the Merger and a related transaction, The Irvine Company beneficially owns and controls all of the outstanding common partnership units in the Partnership and IACLLC has become the sole general partner of the Partnership. The Partnership’s management and operating decisions are under the unilateral control of IACLLC. All management powers over the business and affairs of the Partnership are vested exclusively in IACLLC. At June 30, 2003, IACLLC had a 48.0% general partnership interest in the Partnership and The Irvine Company had a 52.0% common limited partnership interest in the Partnership.

The Partnership owns, operates and develops apartment communities in Orange County, California and, since 1997, other locations in California. As of June 30, 2003, the Partnership owned 61 apartment communities representing 19,162 operating apartment units and 319 units under construction or development. All property management responsibilities for the Partnership’s entire portfolio are conducted by Irvine Apartment Management Company (“IAMC”). At June 30, 2003, IAMC is owned 75% by the Partnership and 25% by The Irvine Company.

Note 2—Basis of Presentation

The accompanying financial statements include the consolidated accounts of the Partnership and its financially controlled subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation.

The Partnership operates and develops apartment communities in California which generate rental and other income through the leasing of apartment units to a diverse base of renters. The Partnership separately evaluates the performance of each of its apartment communities. However, because each of the apartment communities have similar economic characteristics, facilities, services and tenants, the apartment communities have been aggregated into a single apartment communities segment.

The Partnership evaluates performance and allocates resources primarily based on the net operating income (“NOI”) of individual apartment communities. NOI is defined by the Partnership as rental and other income less property expenses and real estate taxes. Accordingly, NOI excludes certain expenses included in the determination of net income. NOI from apartment communities totaled $107,192,000 and $103,493,000 for the six months ended June 30, 2003 and 2002, respectively, and $53,811,000 and $52,012,000 for the three months ended June 30, 2003 and 2002, respectively. All other segment measurements are included in the Partnership’s Annual Report on Form 10-K for the year ended December 31, 2002.

Profits and losses of the Partnership are generally allocated to the general partner and to the limited partner based on their respective ownership interests in the Partnership. The former holders of the redeemable preferred limited

Page 5

partner units and redeemable preferred securities (described below in Note 5) were entitled to distributions/dividends at an annual rate of 8¹/4% of the stated value per unit/security. The stated value of each unit/security was $25. These securities were redeemed on December 31, 2002.

The preparation of the financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities as of June 30, 2003 and December 31, 2002, and the revenues and expenses for the three and six months ended June 30, 2003 and 2002. Actual results could differ from those estimates.

The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation have been included. All such adjustments are of a normal, recurring nature. Operating results for the three and six months ended June 30, 2003 are not necessarily indicative of the results that may be expected for the year ending December 31, 2003. These financial statements should be read in conjunction with the Consolidated Financial Statements and Notes thereto included in the Partnership’s Annual Report on Form 10-K for the year ended December 31, 2002.

Certain amounts in the 2002 financial statements have been reclassified to conform with financial statement presentation in 2003.

Page 6

Note 3—Mortgages and Notes Payable

Unsecured Line of Credit: The Partnership had a $125 million unsecured revolving credit facility. The credit facility was terminated as of December 27, 2000. The Partnership had entered into letters of credit under the credit facility. In conjunction with the termination of the credit facility, the letters of credit under the credit facility were transferred to the credit facility of The Irvine Company. The Partnership continues to pay all fees related to the letters of credit transferred to The Irvine Company, as such letters of credit remain outstanding to secure obligations of the Partnership.

Tax-Exempt Mortgage Bond Financings: On August 1, 2001, the Partnership completed a $69.2 million offering of tax-exempt mortgage bonds. The offering included $19.2 million of new tax-exempt mortgage bonds (the “2001 Bonds”) for the construction of a 104-unit apartment building (the “Project”) at the Partnership’s Villa Siena property. Additionally, the offering included the refinancing of the Partnership’s existing $32 million tax-exempt mortgage bonds and $18 million tax-exempt mortgage bonds (the “Refinanced Bonds” and collectively with the 2001 Bonds, the “Bonds”). Payment of principal and interest on the Bonds is secured by an irrevocable direct-pay letter of credit issued by Bank of America, N.A. Monthly interest payments are made to a trustee, which in turn pays the bondholders when interest is due. The Bonds had an average floating interest rate inclusive of fees of 2.13% as of June 30, 2003. The 2001 Bonds represent loans payable that are collateralized by a deed of trust granting a security interest in the Project and are recourse to the Partnership. The 2001 Bonds bear interest at a weekly-remarketed tax-exempt rate and are due August 2034. As of December 31, 2002, the Partnership had received the entire proceeds of $19.2 million representing land acquisition, transaction and development costs related to the Project. Proceeds from the Refinanced Bonds were used to repay the Partnership’s existing tax-exempt mortgage bonds. All terms of the Refinanced Bonds remain unchanged; however, the Refinanced Bonds are now unsecured and no longer collateralized by a deed of trust.

Mortgage Notes Payable to The Irvine Company: The Partnership had $55.9 million of mortgages and notes payable to The Irvine Company outstanding as of March 31, 2003, including $24.6 million relating to Rancho San Joaquin. During the quarter ended June 30, 2003, the Partnership increased the amount of its loan relating to Rancho San Joaquin by $23,027,642. At June 30, 2003 outstanding mortgages and notes payable to The Irvine Company totaled $78.7 million, including $47.4 million relating to Rancho San Joaquin.

The effective interest rate on the new $23 million of funding is 2.20%. During the quarter ended June 30, 2003, the effective interest rate on $10.8 million of the Partnership’s mortgages and notes payable relating to Rancho San Joaquin decreased to 2.20%.

Note 4—Partners’ Capital

Reconciliation of Common Partnership Units Outstanding

*(in thousands, except percentages)*	Six Months Ended June 30, 2003						Six Months Ended June 30, 2002
	IACLLC		The Irvine Company		Total		IACLLC		The Irvine Company		Total
Balance at beginning and end of period	23,145		25,027		48,172		20,176		25,027		45,203
Ownership interest at beginning and end of period	48.0	%	52.0	%	100.0	%	44.6	%	55.4	%	100.0	%

Note 5—Minority Redeemable Preferred Interests

IAC Capital Trust (the “Trust”), a Delaware business trust, was formed on October 31, 1997. The Trust was a limited purpose financing vehicle established by the Partnership. The Trust existed for the sole purpose of issuing redeemable preferred securities and investing the proceeds thereof in preferred limited partner units of the Partnership.

In January 1998, the Trust issued 6.0 million of 8¼% Series A Preferred Securities. The proceeds of $150 million were used to purchase an equivalent amount of 8¼% Series A Preferred Limited Partner Units in the Partnership. The Partnership used the $150 million of proceeds, net of costs and offering expenses, all of which were paid by the Partnership, to repay the outstanding balance on the Partnership’s credit facility and to fund development.

Page 7

On December 31, 2002, the Trust redeemed all 6.0 million of its 8¼% Series A Preferred Securities. The redemption was funded by a corresponding redemption by the Partnership of all 6.0 million of its preferred limited partnership units, all of which were held by the Trust. The Partnership funded the redemption of its preferred limited partnership units through a capital contribution by its general partner. In return for its contribution, the general partner received 2,968,662 partnership units. Immediately after the redemption of its outstanding preferred securities, the Trust was liquidated.

Note 6—Certain Transactions With Related Parties

Included in general and administrative expenses are charges from The Irvine Company pursuant to an administrative services agreement covering services for information technology and other services totaling $511,000 and $461,000 for the six months ended June 30, 2003 and 2002, respectively, and $268,000 and $251,000 for the three months ended June 30, 2003 and 2002, respectively. The Irvine Company and the Partnership jointly purchase employee health care insurance and property and casualty insurance. The Partnership incurred rent totaling $407,000 and $355,000 for the six months ended June 30, 2003 and 2002, respectively, and $203,000 and $178,000 for the three months ended June 30, 2003 and 2002, respectively, related to leases with The Irvine Company that expire at the end of 2003. IAMC incurred rent totaling $192,000 and $182,000 for the six months ended June 30, 2003 and 2002, respectively, and $97,000 and $94,000 for the three months ended June 30, 2003 and 2002, respectively, related to a lease with The Irvine Company.

The Partnership reimburses IACLLC for substantially all of its costs incurred in operating the Partnership, including the compensation of each of the employees of IACLLC who perform services for the Partnership. The aggregate amount paid by the Partnership to IACLLC for such costs was $3.2 million and $3.8 million for the six months ended June 30, 2003 and 2002, respectively, and $1.6 million for each of the three months ended June 30, 2003 and 2002. The aggregate amount incurred by the Partnership for such costs was $6.0 million and $5.9 million for the six months ended June 30, 2003 and 2002, respectively, and $3.5 million and $3.4 million for the three months ended June 30, 2003 and 2002, respectively.

Included in other assets at June 30, 2003 is approximately $1.2 million due from The Irvine Company. The amount represents a receivable of the Partnership for general and administrative costs and development costs incurred by the Partnership on behalf of The Irvine Company.

Included in accounts payable and accrued liabilities at June 30, 2003 is approximately $484,000 due to The Irvine Company. The amount represents a payable to The Irvine Company for information technology and other services incurred by The Irvine Company on behalf of the Partnership.

In October 2000, the Partnership entered into the following loan agreements:

•

A loan agreement pursuant to which the Partnership is the lender and The Irvine Company is the borrower (the “IAC to TIC Loan Agreement”);

•

A loan agreement pursuant to which the Partnership is the borrower and The Irvine Company is the lender (the “TIC to IAC Loan Agreement”);

•

A loan agreement pursuant to which the Partnership is the lender and Irvine Community Development Company is the borrower (the “IAC to ICDC Loan Agreement”); and

•

A loan agreement pursuant to which the Partnership is the borrower and Irvine Community Development Company is the lender (the “ICDC to IAC Loan Agreement”, and collectively with the IAC to TIC Loan Agreement, the TIC to IAC Loan Agreement and the IAC to ICDC Loan Agreement, the “Loan Agreements”).

Borrowings under the Loan Agreements bear interest at a variable or fixed rate to be quoted by the lender under the applicable Loan Agreement, subject to the minimum interest rate as determined pursuant to a formula set forth in the applicable Loan Agreement. Interest, if not paid, accrues monthly until the principal is repaid. Each of the Loan Agreements were amended and restated in June 2003, with a new expiration date of June 30, 2006.

Page 8

The outstanding balance under the IAC to ICDC Loan Agreement totaled $40.7 million at June 30, 2003. During the three and six months ended June 30, 2003, the Partnership recorded interest income of approximately $96,000 and $241,000, respectively, relating to advances to Irvine Community Development Company under the IAC to ICDC Loan Agreement, with interest accruing at 1.48% at June 30, 2003. During the three and six months ended June 30, 2002, the Partnership recorded interest income of approximately $13,000 and $24,000, respectively, relating to advances to Irvine Community Development Company under the IAC to ICDC Loan Agreement.

There were no outstanding balances under the ICDC to IAC Loan Agreement at June 30, 2003. During the first quarter of 2003, the Partnership recorded interest expense of approximately $39,000 relating to advances from Irvine Community Development Company under the ICDC to IAC Loan Agreement. During the three and six months ended June 30, 2002, the Partnership recorded interest expense of approximately $410,000 and $753,000, respectively, relating to advances from Irvine Community Development Company under the ICDC to IAC Loan Agreement.

No amounts were advanced or outstanding under the TIC to IAC Loan Agreement or the IAC to TIC Loan Agreement as of June 30, 2003 or for the three and six months ended June 30, 2003. In addition, no amounts were advanced or outstanding under the TIC to IAC Loan Agreement or the IAC to TIC Loan Agreement as of June 30, 2002 or for the three and six months ended June 30, 2002.

The Partnership receives reimbursement from The Irvine Company for ground rent payments relating to the retail portion of the Partnership’s Cherry Orchard Apartments property. The reimbursement totaled $290,000 and $289,000 for the six months ended June 30, 2003 and 2002, respectively, and $148,000 and $142,000 for the three months ended June 30, 2003 and 2002, respectively.

Page 9

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

The following discussion compares the activities of the Partnership for the three and six month periods ended June 30, 2003 (unaudited) with the activities of the Partnership for the three and six month periods ended June 30, 2002 (unaudited).

The following discussion should be read in conjunction with all the financial statements appearing elsewhere in this report, as well as the information presented in the Partnership’s Annual Report on Form 10-K for the year ended December 31, 2002.

Certain information set forth below is forward looking and involves various risks and uncertainties. Such information is based upon a number of estimates and assumptions that inherently are subject to business, economic and competitive uncertainties and contingencies, many of which are beyond the Partnership’s control.

Results of Operations

Three Months Ended June 30, 2003 Compared to Three Months Ended June 30, 2002.

The Partnership’s net income was $19.8 million for the three months ended June 30, 2003, up from $14.1 million for the same period of 2002. The Partnership’s net income increased in 2003 due primarily to revenue contributions from newly delivered rental units from the Partnership’s development program as well as an increase in physical occupancy and average rental rates. The increase was also due to a decrease in redeemable preferred interest payments as a result of the redemption of the Series A Preferred Limited Partner Units on December 31, 2002.

Revenue and Expense Data

	Three Months Ended June 30,
*(dollars in thousands)*	2003		2002
Number of stabilized communities		59		59
Number of operating units at end of period		19,162		18,932
Consolidated Information:
Operating revenues	$	83,231	$	79,179
Property expenses	$	23,011	$	21,205
Real estate taxes	$	6,409	$	5,962

Operating revenues (rental and other income) increased by 5.1% to $83.2 million in the second quarter of 2003, up from $79.2 million in the same period of 2002. Operating revenues rose in 2003 because of higher physical occupancy and average rental rates, as well as a greater average number of rental units in service as a result of new development.

Interest income totaled $108,000 in the second quarter of 2003 and $86,000 in the same period of 2002. The change in interest income reflects the change in the Partnership’s average cash balance.

Property expenses increased by 8.5% to $23.0 million in the second quarter of 2003, up from $21.2 million in the same period of 2002. Property expenses increased in the second quarter of 2003 primarily due to an increase in property insurance expense.

Real estate taxes totaled $6.4 million in the second quarter of 2003 and $6.0 million in the same period of 2002. Real estate taxes increased in the second quarter of 2003 due primarily to the addition of new rental units through development.

Page 10

Net interest expense decreased to $16.8 million in the second quarter of 2003 compared to $16.9 million in the same period of 2002. Total interest incurred was $17.2 million in the second quarter of 2003 and $17.7 million in the same period of 2002. The decrease in interest incurred in the second quarter of 2003 was primarily due to the repayment of $50 million in advances from The Irvine Company by the Partnership in January 2003. Capitalized interest totaled $348,000 in the second quarter of 2003 and $806,000 in the same period of 2002. The Partnership capitalizes interest on projects actively under development using qualifying asset balances and applicable weighted average interest rates.

Depreciation and amortization expense decreased to $15.1 million in the second quarter of 2003, down from $15.4 million in the same period of 2002. The decrease in 2003 was mostly due to certain abandoned project costs in the second quarter of 2002.

General and administrative expense decreased to $2.2 million in the second quarter of 2003, down from $2.6 million in the same period of 2002. The decrease in 2003 was due to cost reductions related to staffing and associated overhead costs.

Six Months Ended June 30, 2003 Compared to Six Months Ended June 30, 2002.

The Partnership’s net income was $39.9 million for the six months ended June 30, 2003, up from $27.9 million for the same period of 2002. The Partnership’s net income increased in 2003 due primarily to revenue contributions from newly delivered rental units from the Partnership’s development program and properties that stabilized during 2002, as well as an increase in physical occupancy and average rental rates. The increase was also due to a decrease in redeemable preferred interest payments as a result of the redemption of the Series A Preferred Limited Partner Units on December 31, 2002.

Revenue and Expense Data

	Six Months Ended June 30,
*(dollars in thousands)*	2003		2002
Number of stabilized communities		59		59
Number of operating units at end of period		19,162		18,932
Consolidated Information:
Operating revenues	$	165,185	$	158,180
Property expenses	$	44,782	$	42,250
Real estate taxes	$	13,211	$	12,437

Operating revenues (rental and other income) increased by 4.4% to $165.2 million in the first half of 2003, up from $158.2 million in the same period of 2002. Operating revenues rose in 2003 because of higher physical occupancy and average rental rates, as well as a greater average number of rental units in service as a result of new development.

Property expenses increased by 6.0% to $44.8 million in the first half of 2003, up from $42.3 million in the same period of 2002. Property expenses increased in the first half of 2003 primarily due to an increase in property insurance expense.

Interest income totaled $270,000 in the first half of 2003 and $180,000 in the same period of 2002. The change in interest income reflects the change in the Partnership’s average cash balance.

Real estate taxes totaled $13.2 million in the first half of 2003 and $12.4 million in the same period of 2002. Real estate taxes increased in the first half of 2003 due primarily to the addition of new rental units through development.

Page 11

Net interest expense decreased to $33.7 million in the first half of 2003 compared to $33.9 million in the same period of 2002. Total interest incurred was $34.3 million in the first half of 2003 and $35.4 million in the same period of 2002. The decrease in interest incurred in the first half of 2003 was primarily due to the repayment of $50 million in advances from The Irvine Company by the Partnership in January 2003. Capitalized interest totaled $0.6 million in the first half of 2003 and $1.5 million in the same period of 2002. The Partnership capitalizes interest on projects actively under development using qualifying asset balances and applicable weighted average interest rates.

Depreciation and amortization expense decreased to $30.4 million in the first half of 2003, down from $31.6 million in the same period of 2002. The decrease in 2003 was mostly due to certain abandoned project costs in the first half of 2002.

General and administrative expense decreased to $3.5 million in the first half of 2003, down from $4.1 million in the same period of 2002. The decrease in 2003 was due to cost reductions related to staffing and associated overhead costs.

Liquidity and Capital Resources

The Partnership believes that cash provided by operations will be adequate to meet ongoing operating requirements, debt service payments and payment of distributions by the Partnership to its partners in both the short and long term.

Liquidity: The Partnership expects to meet its short-term and long-term liquidity requirements, such as construction costs and scheduled debt maturities, through the refinancing of long-term debt, borrowings from financial institutions or advances from its general and/or limited partner.

Debt Structure at June 30, 2003

*(dollars in thousands)*	Debt Balance		Weighted Average Effective Interest Rate
Fixed rate debt
Conventional mortgage financings	$	479,214	7.60	%
Mortgage notes payable to The Irvine Company		78,656	5.80	%
Tax-exempt assessment district debt		4,319	6.29	%
Unsecured tax-exempt bond financings		334,190	5.32	%
Unsecured notes payable		99,589	7.22	%

Total fixed rate debt		995,968	6.65	%

Variable rate debt
Tax-exempt mortgage bond financings		19,200	2.15	%
Tax-exempt assessment district debt		14,716	1.65	%
Unsecured tax-exempt bond financings		50,038	2.12	%

Total variable rate debt		83,954	2.04	%

Total debt	$	1,079,922	6.29	%

Operating Activities: Cash provided by operating activities was $83.2 million and $78.2 million in the first half of 2003 and 2002, respectively. Cash provided by operating activities increased in the first half of 2003 compared to the same period in 2002 primarily due to an increase in the Partnership’s net income, offset by the elimination of the redeemable preferred interest.

Page 12

Investing Activities: Cash used in investing activities was $18.4 million and $34.9 million in the first half of 2003 and 2002, respectively. The decrease reflects decreased development activity in the first half of 2003 as compared to 2002.

Financing Activities: Cash used in financing activities was $70.6 million and $43.9 million in the first half of 2003 and 2002, respectively. Cash used in financing activities increased primarily due to an increase in total advances and payments to affiliate in excess of total payments from affiliate during the first half of 2003 in comparison to the first half of 2002. These increases were partially offset by a decrease in redeemable preferred interest payments as a result of the redemption of the Series A Preferred Limited Partner Units, as well as proceeds from additional financing of $23 million.

Capital Expenditures

Capital expenditures consist of capital improvements and investments in real estate assets. Capital improvements to operating real estate assets totaled $2.9 million and $1.2 million in the first half of 2003 and 2002, respectively. Capital investments in real estate assets totaled $15.4 million and $33.8 million in the first half of 2003 and 2002, respectively. These investments consisted of capital replacements and new development.

Capital Improvements: The Partnership has a policy of capitalizing expenditures related to new assets, the material enhancement of the value of an existing asset, or the substantial extension of an existing asset’s useful life.

Capital Replacements: Capital replacements consist of special programs to upgrade and enhance a community to achieve higher rental rates. Expenditures for capital replacements totaled $2.0 million in the first half of 2003.

Capital Investments in New Development: Currently, the Partnership has one apartment community under construction that is expected to require total expenditures of approximately $297 million, of which $249 million had been incurred as of June 30, 2003. Funding for this development is expected to come from a combination of fixed mortgage financing and advances from its general and/or limited partner.

Construction Information

Apartment Community

Location

Units

Commencement

of Construction

Total

Estimated Costs

(in millions)

On Irvine Ranch:

Villa Siena⁽¹⁾

Irvine

1,442

2/99

297

(1)

As of June 30, 2003, 1,123 units were delivered and 1,071 units were occupied.

The estimated cost of the Partnership’s apartment community under development is only an estimate. Actual results will depend on numerous factors, many of which are beyond the control of the Partnership. These include the extent and timing of economic growth in the Partnership’s rental markets; future trends in the pricing of construction materials and labor; product design changes; entitlement decisions by local government authorities; weather patterns; changes in interest rate levels; and other changes in capital markets. No assurance can be given that the estimate set forth in the foregoing table will not vary substantially from actual results.

Impact of Inflation

The Partnership’s business is affected by general economic conditions, including the impact of inflation and interest rates. Substantially all of the Partnership’s leases allow, at time of renewal, for adjustments in the rent payable thereunder, and thus may enable the Partnership to seek increases in rents. Substantially all leases are for a period of one year or less. The short-term nature of these leases generally serves to minimize the risk to the Partnership of the adverse effects of inflation.

Page 13

Critical Accounting Policies and Estimates

Management’s Discussion and Analysis of Financial Condition and Results of Operations discusses the Partnership’s consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. On an on-going basis, management evaluates its estimates and judgments, including those related to bad debts, value of real estate investments, intangible assets, financing operations and contingencies and litigation. Management bases its estimates and judgments on historical experience and on various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

Management believes the following critical accounting policies, among others, affect its more significant judgments and estimates used in the preparation of its consolidated financial statements.

Real Estate Assets and Depreciation: Real estate assets, which are held as long-term investments, are stated at cost less accumulated depreciation. Impairment losses on long-lived assets used in operations are recorded when events and circumstances indicate that the assets, on a property-by-property basis, are impaired and the undiscounted cash flows estimated to be generated by those assets are less than the carrying amounts. Land and infrastructure costs are allocated to properties based on relative fair value. Costs related to the development and construction of properties are capitalized as incurred. Interest and property taxes are capitalized to apartment communities which are under active development. When a building within a community under construction is completed and held available for occupancy, the related costs are expensed.

Repair and maintenance expenditures are expensed as incurred. Major replacements and betterments are capitalized and depreciated over their useful lives. Depreciation is computed on a straight-line basis over the useful lives of the properties (principally forty years for buildings; twenty years for siding, roofs and balconies; fifteen years for plumbing and air conditioning equipment; ten years for pools, tennis courts, parking lots and driveways; and five to ten years for furniture and fixtures).

Revenue Recognition: The Partnership leases apartment units to a diverse resident base for terms of one year or less. Credit investigations are performed for all prospective residents and security deposits are also obtained. Resident receivables are evaluated for collectibility each month. Rental revenue is recognized on an accrual basis as it is earned over the life of the lease. Interest income is recorded as earned.

The Partnership’s critical accounting policies are more fully described in Note 2 of the Notes to Consolidated Financial Statements included in the Annual Report on Form 10-K of the Partnership for the year ended December 31, 2002 (the “2002 Form 10-K”).

Off-Balance Sheet Transactions

As of June 30, 2003, the Partnership had $35.0 million of assessment district debt, of which $19.0 million was reflected on the balance sheet and $16.0 million was off-balance sheet. See Notes 3 and 9 of the Notes to Consolidated Financial Statements included in the 2002 Form 10-K.

Page 14

Contractual Obligations and Commercial Commitments

The Partnership’s only material contractual obligations and commercial commitments are its mortgages and notes payable. See Note 3 of the Notes to Consolidated Financial Statements included in the 2002 Form 10-K for a discussion of the mortgages and notes payable and their related maturities.

Related Party Transactions

See Note 6 of the Notes to Unaudited Consolidated Financial Statements (included herein) for a description of the Partnership’s transactions with related parties.

Commitments and Contingencies

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. The Partnership believes it has implemented protocols and procedures that lessen the incidence of mold at its properties, and addresses remediation in a timely and responsible fashion. The Partnership has been named as a defendant in suits that have alleged the presence of mold. Although there can be no assurance, management believes that these actions will not have a material adverse effect on the Partnership’s consolidated financial statements.

Page 15

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

Refer to the Partnership’s Annual Report on Form 10-K for the year ended December 31, 2002 for detailed disclosure about quantitative and qualitative disclosures about market risk. Quantitative and qualitative disclosures about market risk have not materially changed since December 31, 2002.

Item 4. Controls and Procedures.

The President and the Chief Financial Officer of IACLLC, acting in their respective capacities as the principal executive and financial officer of the Partnership, have concluded that the Partnership’s disclosure controls and procedures (as defined in the Securities Exchange Act of 1934 (the “Exchange Act”) Rules 13a-14(c) and 15d-14(c)) are sufficiently effective to ensure that the information required to be disclosed by the Partnership in the reports it files under the Exchange Act is gathered, analyzed and disclosed with adequate timeliness, accuracy and completeness, based on an evaluation of such controls and procedures conducted as of the end of the period covered by this report.

Page 16

PART II—OTHER INFORMATION

Item 1.

Legal Proceedings.

Item 2.

Changes in Securities and Use of Proceeds.

Not applicable.

Item 3.

Defaults Upon Senior Securities.

Not applicable.

Item 4.

Submission of Matters to a Vote of Security Holders.

Not applicable.

Item 5.

Other Information.

Not applicable.

Item 6.

Exhibits and Reports on Form 8-K.

(a)

Exhibits:


Exhibit 10.13		Amended and Restated Loan Agreement dated June 30, 2003 by and between the Partnership and The Irvine Company

Exhibit 10.14		Amended and Restated Loan Agreement dated June 30, 2003 by and between the Partnership and Irvine Community Development Company

Exhibit 10.15		Amended and Restated Letter of Credit Reimbursement Agreement dated March 15, 2003 by and between the Partnership and The Irvine Company

Exhibit 31.1		Sarbanes-Oxley Act Section 302 Certification by Max L. Gardner

Exhibit 31.2		Sarbanes-Oxley Act Section 302 Certification by Marc D. Ley

Exhibit 32.1		Sarbanes-Oxley Act Section 906 Certification by Max L. Gardner

Exhibit 32.2		Sarbanes-Oxley Act Section 906 Certification by Marc D. Ley

(b)

During the second quarter of 2003, the Partnership filed no current reports on Form 8-K.

Page 17

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.


				IRVINE APARTMENT COMMUNITIES, L.P.

				By: Irvine Apartment Communities LLC its sole general partner

Date: August 13, 2003				By: /s/ Marc D. Ley
				Marc D. Ley Senior Vice President and Chief Financial Officer

Page 18

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

IRVINE APARTMENT COMMUNITIES L P 10-Q