UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED SEPTEMBER 30, 1998
Commission File Number 1-14179
INSIGNIA PROPERTIES TRUST
(Exact Name of Registrant as Specified in Its Charter)
Maryland 57-1045190
(State of Incorporation) (I.R.S. Employer Identification No.)
One Insignia Financial Plaza, P.O. Box 19059
Greenville, SC 29602
(Address of Principal Executive Offices) (Zip Code)
(864) 239-1300
(Registrant's Telephone Number, Including Area Code)
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 No X .
At November 6, 1998, the Registrant had 23,482,538 Common Shares outstanding.
<PAGE>
INSIGNIA PROPERTIES TRUST
FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 1998
INDEX
Page
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.......................................... 1
Condensed Consolidated Balance Sheets
as of September 30, 1998 and December 31, 1997.................... 1
Condensed Consolidated Statements of Income
for the Three and Nine Months Ended September 30, 1998 and 1997 .. 2
Condensed Consolidated Statements of Shareholders' Equity
for the Nine Months Ended September 30, 1998...................... 3
Condensed Consolidated Statements of Cash Flow
for the Nine Months Ended September 30, 1998 and 1997............. 4
Notes to Condensed Consolidated Financial Statements................ 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations............ 18
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.......................................... 23
Item 4. Submission of Matters to a Vote of Security Holders........ 23
Item 6. Exhibits and Reports on Form 8-K........................... 23
SIGNATURES................................................................ 24
<PAGE>
PART I
FINANCIAL INFORMATION
Item 1. Financial Statements
a) Balance Sheets
INSIGNIA PROPERTIES TRUST
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
(Unaudited)
Assets
<S> <C> <C>
Cash and cash equivalents $ 56,085 $ 37,432
Distributions receivable from real estate
limited partnerships 11,135 --
Investments in real estate limited partnerships 183,072 159,469
Apartment properties, net of depreciation 44,488 22,357
Mortgage notes receivable 20,916 --
Promissory notes receivable 508 --
Other assets 5,907 6,810
Total assets $322,111 $226,068
Liabilities and Shareholders' Equity
Liabilities:
Accounts payable - Due to Insignia $ 94 $ 841
Distribution payable - Insignia 1,590 1,260
Distributions payable 3,751 2,786
Accrued expenses 3,459 1,222
Non-recourse mortgage notes payable 29,002 19,300
Note payable 30,000 --
Total liabilities 67,896 25,409
Minority interest in Operating Partnership 58,849 54,447
Shareholders' Equity:
Common shares, par value $.01 per share -
authorized 400,000,000 shares, 23,446,538 issued
and outstanding (1998) and 18,573,151 issued and
outstanding (1997) 235 186
Additional paid-in capital 198,025 145,594
Unearned compensation (4,974) --
Accumulated earnings in excess of distributions 2,080 432
Total shareholders' equity 195,366 146,212
Total liabilities and shareholders' equity $322,111 $226,068
<FN>
NOTE:The Balance Sheet at December 31, 1997 has been derived from the audited
financial statements at that date but does not include all the information
and footnotes required by generally accepted accounting principles for
complete financial statements.
See Notes to Condensed Consolidated Financial Statements.
</FN>
</TABLE>
<PAGE>
b) Statements of Income
INSIGNIA PROPERTIES TRUST
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except share and per share data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1998 1997 1998 1997
Revenues
<S> <C> <C> <C> <C>
Apartment rentals $ 1,997 $ 1,712 $ 5,624 $ 4,941
Equity earnings - limited partner
interest 3,929 2,070 12,026 5,063
Other 689 647 1,942 1,140
6,615 4,429 19,592 11,144
Costs and expenses
Apartment property operating expenses 849 819 2,585 2,336
Apartment property interest 439 370 1,267 1,114
Apartment property depreciation 304 245 904 725
Administrative 1,188 368 1,763 921
Amortization 111 96 387 148
Other interest 226 5 432 47
3,117 1,903 7,338 5,291
Operating income 3,498 2,526 12,254 5,853
Equity earnings - gain on sale of
properties 116 -- 5,888 --
Income before minority interest and
extraordinary item 3,614 2,526 18,142 5,853
Minority interest in consolidated
Subsidiaries and the Operating
Partnership (1,258) (844) (6,622) (2,923)
Income before extraordinary item 2,356 1,682 11,520 2,930
Equity earnings - extraordinary loss
from property refinancings (net of
minority interest) (36) -- (293) --
Net income $ 2,320 $ 1,682 $11,227 $ 2,930
Net income per share - basic and diluted
Income before extraordinary item $ .12 $ .10 $ .60 $ .21
Extraordinary item -- -- (.01) --
Net income $ .12 $ .10 $ .59 $ .21
Distributions declared per Common
Share $ .16 -- $ .46 --
Weighted average Common Shares
outstanding - basic 19,529,313 17,212,270 19,080,809 13,449,712
Weighted average Common Shares
outstanding - diluted 19,606,172 17,212,270 19,157,668 13,449,712
<FN>
_______________________________________________________________________________
See Notes to Condensed Consolidated Financial Statement.
</FN>
</TABLE>
<PAGE>
c) Statements of Shareholders' Equity
INSIGNIA PROPERTIES TRUST
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(in thousands, except share data)
(Unaudited)
<TABLE>
<CAPTION>
Accumulated
Earnings In Total
Additional Unearned Excess of Share-
Common Paid-In Compen- Distri- holders'
Shares Capital sation butions Equity
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1997 $ 186 $145,594 $ -- $ 432 $146,212
Issuance of 4,363,387
Common Shares 44 46,666 -- -- 46,710
Issuance of 548,000
restricted Common Shares 5 5,765 (4,974) -- 796
Distributions declared and paid -- -- -- (5,828) (5,828)
Distributions declared -- -- -- (3,751) (3,751)
Net income for 1998 -- -- -- 11,227 11,227
Balance at September 30, 1998 $ 235 $198,025 $ (4,974) $ 2,080 $195,366
<FN>
_______________________________________________________________________________
See Notes to Condensed Consolidated Financial Statements.
</FN>
</TABLE>
<PAGE>
d) Statements of Cash Flow
INSIGNIA PROPERTIES TRUST
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW
(in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
1998 1997
Operating Activities
<S> <C> <C>
Net income $11,227 $ 2,930
Adjustments to reconcile net income to net cash
provided by operations:
Amortization of organization and formation costs 387 148
Amortization of loan costs 268 --
Apartment property depreciation 904 725
Equity earnings - partnership investments (12,026) (5,063)
Equity earnings - gain on sale of properties (5,888) --
Equity earnings - extraordinary loss from property
refinancings 293 --
Non-cash compensation 796 --
Minority interests in the Operating Partnership and
consolidated Subsidiaries 6,622 2,923
Changes in operating assets and liabilities:
Other assets (115) (212)
Accounts payable and accrued expenses 66 (224)
Net cash provided by operating activities 2,534 1,227
Investing Activities
Additions to apartment property (395) (171)
Organizational and formation costs (5) (1,737)
Cash received in connection with AMIT merger 13,423 --
Purchase of real estate limited partnership interests (29,292) (2,171)
Investment in apartment property, net of acquired cash (3,804) --
Funding of notes receivable (275) --
Distributions from partnerships 18,656 12,219
Merger costs (1,402) (1,011)
Net cash (used in) provided by investing activities (3,094) 7,129
Financing Activities
Proceeds from issuance of Common Shares -- 52,420
Repayments of non-recourse mortgage notes (16) --
Payments on note payable -- (1,080)
Proceeds from note payable -- 650
Draw on line of credit 30,000 --
Proceeds from refinancing of non-recourse mortgage note 2,660 --
Distributions made to minority investors of NPI 4 (494) (1,420)
Loan costs paid (83) --
Distributions paid to Insignia by Operating Partnership (4,240) (4,077)
Distributions paid to common shareholders (8,614) (5,880)
Net cash provided by financing activities 19,213 40,613
Increase in cash and cash equivalents 18,653 48,969
Cash and cash equivalents at beginning of period 37,432 4,928
Cash and cash equivalents at end of period $56,085 $53,897
<FN>
See Notes to Condensed Consolidated Financial Statements.
</FN>
</TABLE>
<PAGE>
d) Statements of Cash Flow (continued)
INSIGNIA PROPERTIES TRUST
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW
(in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
1998 1997
Supplemental disclosure of non-cash financing
and investing activities
Issuance of Common Shares and operating partnership
<S> <C> <C>
units in exchange for limited partner interests $ 6,656 $12,749
Accrual of distributions to be received from the
investment real estate limited partnerships 11,135 --
Issuance of Common Shares in connection with the
merger of AMIT* 43,081 --
Application and reclassification of capitalized
merger costs to the purchase price of AMIT 3,573 --
<FN>
* In connection with the AMIT merger, IPT received approximately $13,423,000
in cash. Therefore, the net non-cash adjustment to the cash flow statement
is approximately $29,658,000. See Note 4 to the Condensed Consolidated
Financial Statements for a more complete discussion of the AMIT merger.
</FN>
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
<PAGE>
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
September 30, 1998
1. Organization and Basis of Presentation
Insignia Properties Trust ("IPT" or the "Company") is a Maryland real
estate investment trust formed in 1996 by Insignia Financial Group, Inc., a
Delaware Corporation ("Insignia"), for the purpose of acquiring and owning
interests in multifamily residential properties, including limited and
general partner interests in partnerships which hold such real estate
properties. IPT has been organized and is operated in a manner that allows
it to be taxed as a real estate investment trust ("REIT") under the
Internal Revenue Code of 1986, as amended. IPT is the sole general partner
of Insignia Properties, L.P., a Delaware limited partnership ("IPLP"),
which is IPT's operating partnership. Insignia (now Apartment Investment
and Management Company, a Maryland corporation ("AIMCO"), following the
merger of Insignia with and into AIMCO - See Note 6 to the Condensed
Consolidated Financial Statements) is the designated special limited
partner of IPLP, and Insignia Capital Corporation (now a wholly-owned
subsidiary of AIMCO as a result of the merger of Insignia with and into
AIMCO) is the other limited partner of IPLP. IPT's Common Shares are listed
on the American Stock Exchange under the symbol "FFO".
Substantially all of IPT's assets consist of (i) interests in entities
which comprise or control the managing general partners of real estate
limited partnerships (the "IPT Partnerships"), which interests are held by
IPT directly or through wholly-owned subsidiaries, (ii) limited partner
interests in the IPT Partnerships, which interests are held through IPLP,
and (iii) the assets acquired in the AMIT Merger (See Note 4 to the
Condensed Consolidated Financial Statements), including ten wholly-owned
real estate assets, some of which are held by IPT directly and some of
which are held through IPLP. At September 30, 1998, the IPT Partnerships
owned, in the aggregate, 339 properties containing approximately 70,000
residential apartment units and approximately 5.9 million square feet of
commercial space. IPT's ownership share of these assets is included in
"Investments in real estate limited partnerships" on the Condensed
Consolidated Balance Sheet.
The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with generally accepted accounting
principles for interim financial information and with the instructions to
Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not
include all of the information and notes required by generally accepted
accounting principles for complete financial statements. In the opinion of
management, all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation have been included. Operating
results for the three and nine month periods ended September 30, 1998 are
not necessarily indicative of the results that may be expected for the year
ended December 31, 1998. For further information, refer to the consolidated
financial statements and notes thereto included in the Company's
Registration Statement on Form S-4 filed August 10, 1998, File No.
333-53815.
Certain amounts from 1997 have been reclassified to conform with the
1998 presentation.
2. Earnings Per Share
In 1997, the Financial Accounting Standard Board issued Statement No.
128, Earnings per Share ("Statement No. 128"). Statement No. 128 replaced
the calculation of primary and fully diluted earnings per share with basic
and diluted earnings per share. Unlike primary earnings per share, basic
earnings per share excludes any dilutive effects of options, warrants and
convertible securities. Diluted earnings per share is very similar to the
previously reported fully diluted earnings per share.
<PAGE>
Earnings per share is computed based on the weighted average number of
outstanding common shares of beneficial interest of IPT, par value $.01 per
share ("Common Shares"). An IPLP partnership interest is not considered
dilutive because the allocation of earnings to an IPLP partnership interest
is equivalent to a Common Share.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1998 1997 1998 1997
(in thousands, except share
and per share data)
Numerator - basic and diluted
<S> <C> <C> <C> <C>
Income before extraordinary item $ 2,356 $ 1,682 $11,520 $ 2,930
Extraordinary loss (36) -- (293) --
Net income $ 2,320 $ 1,682 $11,227 $ 2,930
Denominator
Denominator for basic earnings
per share - weighted average
Common Shares 19,529,313 17,212,270 19,080,809 13,449,712
Effect of dilutive securities -
Restricted shares and options 76,859 -- 76,859 --
per share -
Adjusted weighted average Common
Shares and assumed conversions 19,606,172 17,212,270 19,157,668 13,449,712
Earnings per Common Share - basic
and diluted
Income before extraordinary item $ .12 $ .10 $ .60 $ .21
Extraordinary loss -- -- (.01) --
Net income $ .12 $ .10 $ .59 $ .21
</TABLE>
3. 1998 Acquisitions
Tender Offers
In December 1997, a wholly-owned subsidiary of IPLP commenced tender
offers to purchase units of limited partner interest in the following IPT
Partnerships: Multi-Benefit Realty Fund '87-1, Century Properties Fund XIV,
Century Properties Fund XV, Century Properties Fund XVIII, Consolidated
Capital Growth Fund, Consolidated Capital Institutional Properties/3,
Consolidated Capital Properties V, Johnstown/Consolidated Income Partners
and Shelter Properties VII. These tender offers expired in January and
February 1998, with IPLP acquiring additional units of limited partner
interest in these partnerships for a total cost, including acquisition
costs, of approximately $11.4 million.
In April 1998, a wholly-owned subsidiary of IPLP commenced tender
offers to purchase units of limited partner interest in the following IPT
Partnerships: Angeles Income Properties, Ltd. II, Angeles Partners IX and
Angeles Partners XII. These tender offers expired in May 1998, with IPLP
acquiring units of limited partner interest in these partnerships for a
total cost, including acquisition costs, of approximately $6.6 million.
As a result of the above tender offers, IPLP increased its stated
ownership interest in these partnerships by a range of 4.52% to 24.39%,
with total stated ownership interest in these partnerships ranging from
13.26% to 45.85% at September 30, 1998. IPLP accounts for these partnership
interests under the equity method.
During the third quarter 1998, a wholly-owned subsidiary of IPLP
commenced tender offers to purchase units of limited partner interest in
the following IPT Partnerships: Shelter Properties I, Shelter Properties
II, Shelter Properties IV, Shelter Properties V, Shelter Properties VI and
Shelter Properties VII. The tender offers for these partnerships expired in
August 1998, with IPLP acquiring additional units of limited partner
interest in these partnerships for a total cost, including acquisition
costs, of approximately $7.5 million. As a result, IPLP increased its
stated ownership interest in these partnerships by a range of 5.19% to
8.36%, with total stated ownership interest in these partnerships ranging
from 23.07% to 46.96% as of September 30, 1998.
During the third quarter of 1998, a wholly-owned subsidiary of IPLP
commenced tender offers to purchase units of limited partner interest in
the following IPT Partnerships: Consolidated Capital Institutional
Properties, Consolidated Capital Institutional Properties/2, Consolidated
Capital Institutional Properties/3, Consolidated Capital Properties III,
Consolidated Capital Properties V, Angeles Income Properties, Ltd. II,
Angeles Income Properties, Ltd. III, Angeles Income Properties, Ltd. IV,
Angeles Income Properties, Ltd. 6, Angeles Partners IX, Angeles Partners X,
Angeles Partners XI, Angeles Partners XII, Angeles Opportunity Properties,
Ltd., Davidson Diversified Real Estate I, LP, Davidson Diversified Real
Estate II, LP, Davidson Diversified Real Estate III, LP, Davidson Income
Real Estate, LP and Davidson Growth Plus, LP, Multi-Benefit Realty Fund
87-1 Class A and B, HCW Pension Real Estate Fund Limited Partnership,
Century Pension Income Fund XXIV, VMS Investors First-Staged Equity LP II
and Drexel Burnham Lambert Real Estate Associates III. Each of these
tenders is currently scheduled to expire on November 16, 1998.
Property Acquisition
On January 28, 1998, a 99% owned subsidiary of IPLP (IPT owns the
other 1% interest) acquired a 168-unit apartment complex located in
Pensacola, Florida known as Raintree Apartments, which is one of the real
estate assets currently directly wholly owned by IPLP. The aggregate
purchase price paid for the Raintree Apartments complex was approximately
$3.8 million, approximately $2.7 million of which was debt financed on a
non-recourse basis.
MAE GP Corporation Merger and Related Transactions
Effective February 25, 1998, MAE GP Corporation, which until then was
a wholly-owned subsidiary of Metropolitan Asset Enhancement, L.P. ("MAE"),
was merged with and into IPT (the "MAE GP Merger"). MAE was at the time an
affiliate of IPT and Insignia. As consideration for the MAE GP Merger, IPT
issued 344,609 Common Shares to MAE, valued for purposes of the MAE GP
Merger at $10.53 per share. MAE GP Corporation owned or controlled equity
interests in entities which comprised or controlled the general partners of
29 public and 61 private real estate limited partnerships (collectively,
the "MAE Partnerships"), which owned, in the aggregate, 167 properties
containing approximately 31,000 residential apartment units and
approximately 2.2 million square feet of commercial space.
On February 17, 1998, IPLP purchased the following assets from MAE for
approximately $596,000 in cash: (i) a 99% limited partner interest in
Insignia Jacques Miller, L. P. ("IJM"), which in turn owned non-controlling
equity interests in entities that comprise or control the general partners
of 30 of the MAE Partnerships and various notes receivable (the 1% general
partner interest in IJM was acquired by IPT from MAE GP in the MAE GP
Merger); and (ii) a 6.557% limited partner interest in Buccaneer Trace
Limited Partnership, which owns a 208-unit residential apartment complex
located in Savannah, Georgia.
On February 17, 1998, Insignia contributed to IPLP all of the limited
partner interests in the MAE Partnerships owned by Insignia and its
wholly-owned subsidiaries in exchange for additional limited partner
interests in IPLP. The interests contributed were valued at approximately
$5,460,000, in exchange for which IPLP issued to Insignia 518,528
additional units of limited partner interest in IPLP (based on a value of
$10.53 per interest). The interests in the MAE Partnerships were recorded
at the historical cost of Insignia.
4. Angeles Mortgage Investment Trust Merger
On September 17, 1998, Angeles Mortgage Investment Trust, an
unincorporated California business trust ("AMIT"), was merged with and into
IPT (the "AMIT Merger"). In the AMIT Merger, each issued and outstanding
Class A common share of AMIT was converted into 1.516 Common Shares of IPT
and each issued and outstanding Class B common share of AMIT was converted
into 0.0309 Common Shares of IPT. IPT issued approximately 4,018,778 Common
Shares to the AMIT shareholders in the AMIT Merger, including approximately
146,749 Common Shares issued to a wholly-owned subsidiary of Insignia as a
result of its ownership of 96,800 Class A common shares of AMIT and
approximately 51,826 Common Shares issued to MAE as a result of its
ownership of 1,675,113 Class B common shares of AMIT. In connection with
the AMIT Merger, on September 16, 1998, Insignia purchased senior
participation interests in certain loans of AMIT for an aggregate purchase
price of $11 million in cash. IPT acquired that cash in the AMIT Merger,
but has no interest in the senior participation interests sold to Insignia.
The AMIT Merger was accounted for under the purchase method of accounting.
Prior to the AMIT Merger, AMIT was in the business of making various
types of intermediate term real estate loans. At the date of the AMIT
Merger, AMIT had 19 loans outstanding with an aggregate principal balance
of approximately $21.1 million, and AMIT owned, as a result of foreclosures
or receipt of deeds in lieu of foreclosure on assets securing certain AMIT
loans, approximately $14.4 million of real property, net of fair value
adjustment of $1.5 million. IPT acquired these assets as a result of the
AMIT Merger, as well as approximately $13.4 million of cash held by AMIT at
the date of the AMIT Merger.
Pro forma results of operations for the nine month periods ended
September 30, 1998 and 1997, giving effect to the AMIT Merger as if
effected at the beginning of each period, are as follows (in thousands,
except share and per share data):
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Revenues $ 25,488 $ 15,226
Income before extraordinary item 16,693 6,052
Net income 16,400 6,052
Diluted earnings per Common Share:
Income before extraordinary item $ .73 $ .35
Net income $ .72 $ .35
Weighed average Common Shares -
diluted 22,899,721 17,468,270
</TABLE>
5. Equity Earnings - Gain on Sale of Properties
On April 16, 1998, Consolidated Capital Institutional Properties
("CCIP"), which is one of the IPT Partnerships, sold Northlake Quadrangle
(one of the properties controlled by CCIP) to an unrelated third party for
$2.3 million. CCIP's net proceeds from this sale were $2.1 million. At the
time of the sale, IPT owned approximately 41% of the equity interests in
CCIP, and its share of the gain (included in IPT's equity earnings) was
approximately $291,000.
On June 30, 1998, National Property Investors 5 ("NPI 5") and National
Property Investors 6 ("NPI 6"), each an IPT Partnership, sold the Village
(an apartment property jointly owned by NPI 5 and NPI 6) to an unrelated
third party for approximately $30.1 million. Aggregate net sales proceeds
to NPI 5 and NPI 6 from this sale were approximately $18.1 million, after
repayment of the mortgage note and closing expenses. IPT owned
approximately 48% and 44% of the equity interests in NPI 5 and NPI 6,
respectively, at the time of this sale, and its share of the gain (included
in IPT's equity earnings) was approximately $5.5 million.
On July 16, 1998, Angeles Income Properties, Ltd. 6 ("AIPL6"), which
is one of the IPT Partnerships, sold Whispering Pines Mobile Home Park (one
of the properties controlled by AIPL6) to an unrelated third party for
approximately $7.0 million. Aggregate net sales proceeds to AIPL6 from this
sale were approximately $1.9 million, after repayment of the first and
second mortgage notes and payment of closing costs. IPT owned approximately
5% of the equity interests in AIPL6 at the time of the sale, and its share
of the gain (included in IPT's equity earnings) was approximately $97,000.
6. Apartment Investment and Management Company Merger
On March 17, 1998, Insignia entered into an agreement to merge its
national residential property management operations, including its
controlling interest in IPT, with AIMCO. On October 1, 1998, AIMCO
completed the merger of Insignia with and into AIMCO (the "Insignia
Merger"). As a result of the Insignia Merger, AIMCO acquired approximately
51% of the outstanding Common Shares of IPT.
Also on October 1, 1998, just prior to the completion of the Insignia
Merger, the IPT Board of Trustees, as constituted prior to the resignations
and appointments of AIMCO nominees described below (the "IPT Board"), held
a special meeting attended by all but one trustee to consider in detail
with its legal and financial advisors the terms of an Agreement and Plan of
Merger (the "IPT Merger Agreement") proposed to be entered into between IPT
and AIMCO, pursuant to which IPT would be merged with and into AIMCO or a
subsidiary of AIMCO (the "IPT Merger"). At the request of the IPT Board,
representatives of Lehman Brothers, Inc., IPT's financial advisor, made a
presentation concerning the analysis underlying their conclusions, and
delivered a written opinion that the consideration to be paid in the IPT
Merger was fair from a financial point of view to the holders of Common
Shares, other than AIMCO and its subsidiaries. Following such discussions
and based in part on the advice of Lehman Brothers, Inc., the IPT Board
(prior to the election of any AIMCO affiliates) unanimously (1) deemed the
IPT Merger advisable and in the best interests of IPT, (2) directed the IPT
Merger to be submitted to the IPT shareholders, (3) recommended the IPT
Merger to the IPT shareholders, and (4) approved the IPT Merger Agreement
and the transactions contemplated by the IPT Merger Agreement.
As contemplated by the IPT Merger Agreement, effective simultaneously
with the execution and delivery of the IPT Merger Agreement, (1) Messrs.
Ronald Uretta and Ronald J. Consiglio resigned as trustees of IPT; (2) the
size of the IPT Board was increased by four from seven to eleven members;
and (3) Messrs. Terry Considine, Peter K. Kompaniez, Patrick J. Foye,
Steven D. Ira, Thomas W. Toomey and Harry G. Alcock, each of whom is an
officer of AIMCO, were appointed to fill the vacancies on the IPT Board.
IPT's bylaws were also amended in the manner contemplated by the IPT
Merger Agreement. One of the bylaw amendments had the effect of exempting
AIMCO's acquisition (through the Insignia Merger) of Common Shares from
Maryland's control share acquisition statute. Maryland's control share
acquisition statute generally provides that persons acquiring more than 20%
of the outstanding shares of a Maryland real estate investment trust will
have no voting rights unless the acquisition is approved by (1) the
affirmative vote of 66 2/3% of all the votes entitled to be cast on the
matter, excluding all interested shares, or (2) by a bylaw provision, as
was the case in AIMCO's acquisition of the Common Shares formerly held by
Insignia through the Insignia Merger. As a result of such bylaw amendment,
AIMCO will be permitted to vote the Common Shares it owns for the IPT
Merger.
In addition, another Maryland statute, the business combination
statute, prohibits certain business combinations between a Maryland real
estate investment trust and a 10% shareholder and certain other persons.
AIMCO was exempted from the provisions of Maryland's business combination
statute by the IPT Board prior to AIMCO's acquisition of the Common Shares
formerly owned by Insignia, therefore the IPT Merger is not restricted by
Maryland's business combination statute.
The IPT Merger requires approval of the holders of a majority of the
outstanding Common Shares. AIMCO and its subsidiaries have agreed to vote
all of the Common Shares they own in favor of the IPT Merger and the IPT
Merger Agreement. Accordingly, IPT shareholder approval is assured.
Upon completion of the IPT Merger, IPT shareholders will receive the
following merger consideration: (1) if the IPT Merger is completed prior to
March 1, 1999, at AIMCO's election, $13.25 ($13.28 to the extent that AIMCO
uses its common stock) per Common Share in cash, AIMCO common stock or a
combination of both, plus a pro rated IPT regular quarterly cash
distribution, in each case subject to certain adjustments specified in the
IPT Merger Agreement; or (2) if the IPT Merger is completed on or after
March 1, 1999, $13.28 per IPT Common Share payable entirely in shares of
AIMCO common stock, plus a pro rated IPT regular quarterly cash
distribution, in each case subject to certain adjustments specified in the
IPT Merger Agreement. IPT will issue a press release announcing the
percentage of the base merger consideration AIMCO elects to pay in cash (if
any) at least 10-trading days before completion of the IPT Merger. Based on
an assumed price per IPT Common Share of $13.25, using 23,446,538 fully
diluted Common Shares as of October 1, 1998, the aggregate value of all
outstanding Common Shares implied by the IPT Merger Agreement would have
been approximately $310,666,629.
Also in connection with the execution of the IPT Merger Agreement, IPT
entered into consulting agreements with each of Messrs. James A. Aston,
Andrew L. Farkas, Frank M. Garrison and Ronald Uretta, each of whom was a
member of the IPT Board at the time the IPT Merger Agreement was approved,
pursuant to which these individuals have become consultants to IPT for a
fee of $1,000 per month. These consulting agreements will terminate on
January 31, 2003. Additionally, all unvested restricted Common Shares owned
by these individuals at the effective time of the IPT Merger will be
converted into restricted shares of AIMCO Common Stock, regardless of
whether AIMCO elects to pay all or a portion of the merger consideration in
cash. As of September 30, 1998, such individuals held approximately 390,000
restricted Common Shares.
As compensation for its services in connection with the IPT Merger and
the rendering of its fairness opinion, IPT paid Lehman Brothers a fee of
$750,000 plus expenses. This amount is reflected in administrative expenses
for the three and nine months ended September 30, 1998. Lehman Brothers
currently is a lender to IPT under a $50 million credit facility. At the
time Lehman Brothers rendered its opinion to IPT, Lehman Brothers and an
officer of Lehman Brothers owned an aggregate of 510,000 Common Shares.
7. Mortgage Note Receivable
In September 1998, IPT funded a new loan in the amount of $275,000
secured by a first deed of trust on a 6,000 square foot commercial building
located in Indianapolis, Indiana. This new loan requires monthly principal
and interest payments based on an annual interest rate of 7.3% and a
principal amortization period of 20 years. The loan has a maturity date of
September 2008.
8. Commitments and Contingencies
General Partners
Qualified REIT subsidiaries of IPT either control or serve as managing
general partner of the IPT Partnerships, and these subsidiaries may be
liable for recourse obligations of the IPT Partnerships in the event that
the IPT Partnerships are unable to satisfy those obligations. IPT believes
that each IPT Partnership has more than adequate resources to discharge all
recourse obligations and maintains adequate insurance.
Loan Commitments
Certain wholly-owned subsidiaries of IPT are obligated to loan up to
$500,000 each to certain IPT Partnerships ($2,600,000 in aggregate) and
$150,000 each to certain other IPT Partnerships ($6,000,000 in aggregate)
at interest rates not to exceed the prime rate plus 2%. There were no
amounts outstanding under these commitments at September 30, 1998.
Obligations to Former General Partners
Certain corporate general partners owned by IPT were acquired by
Insignia from unaffiliated prior owners. The acquisition agreements
provided that Insignia (now IPT) would be indemnified from claims
attributable to events or actions prior to Insignia's ownership, and that
Insignia would indemnify the prior owners from claims or causes of action
arising after the change in ownership. In addition, certain former owners
of the general partners of seven IPT Partnerships retained 100% (and in
some instances 75%) of the obligation to make capital contributions that
may be required by the general partners upon windup of the applicable
partnerships.
Environmental Liabilities
Under various federal and state environmental laws and regulations, a
current or previous owner or operator of real estate may be required to
investigate and clean up certain hazardous or toxic substances or petroleum
product releases at the property, and may be held liable to a governmental
entity or to third parties for property damage and for investigation and
cleanup costs incurred by such parties in connection with contamination. In
addition, some environmental laws create a lien on the contaminated site in
favor of the government for damages and costs it incurs in connection with
the contamination. The owner or operator of a site may be liable under
common law to third parties for damages and injuries resulting from
environmental contamination emanating from the site. There can be no
assurance that IPT, any of its affiliates or any assets owned or controlled
by IPT or any of its affiliates currently are in compliance with all of
such laws and regulations, or that IPT or its affiliates will not become
subject to liabilities that arise in whole or in part out of any such laws,
rules or regulations. Management is not currently aware of any
environmental liabilities that are expected to have a material adverse
effect on the Company's operations or financial condition.
Litigation
In January and February 1998, a limited partner in several of the IPT
Partnerships commenced arbitration proceedings and litigation against those
partnerships and their general partners. The claims in both arbitration and
in complaints filed in the Circuit Court of Jackson County, Missouri assert
that the general partners controlled by IPT breached certain contractual
and fiduciary duties allegedly owed to the claimant. IPT believes the
claims asserted in these proceedings are without merit.
On March 24, 1998, certain persons claiming to own limited partner
interests in certain of the IPT Partnerships filed a purported class and
derivative action in California Superior Court in the County of San Mateo
against IPT, the general partners of the partnerships, certain persons and
entities who purportedly formerly controlled the general partners, and
additional entities affiliated with and individuals who are officers,
directors and/or principals of several of the defendants. The complaint
contains allegations that, among other things, (i) the defendants breached
their fiduciary duties to the plaintiffs by selling or agreeing to sell
their "fiduciary positions" as stockholders, officers and directors of the
general partners for a profit and retaining said profit rather than
distributing it to the plaintiffs; (ii) the defendants breached their
fiduciary duties by mismanaging the partnerships and misappropriating the
assets of the partnerships by (a) manipulating the operations of the
partnerships to depress the trading price of units of limited partner
interest in the partnerships, (b) coercing and fraudulently inducing
unitholders to sell units to certain of the defendants at depressed prices
and (c) using the voting control obtained by purchasing units at depressed
prices to entrench certain of the defendants' positions of control over the
partnerships; and (iii) the defendants breached their fiduciary duties to
the plaintiffs by selling assets (such as mailing lists of unitholders) of
the partnerships and causing the general partners to enter into exclusive
arrangements with their affiliates to sell goods and services to the
general partners, the unitholders and tenants of partnership properties.
The complaint also alleges that the foregoing allegations constitute
violations of various California securities, corporate and partnership
statutes, as well as conversion and common law fraud. The complaint seeks
unspecified compensatory and punitive damages, an injunction blocking the
sale of control of the general partners and a court order directing the
defendants to discharge their fiduciary duties to the plaintiffs. In June
1998, the general partners filed a motion seeking dismissal of the action.
In lieu of responding to that motion, the plaintiffs recently filed an
amended complaint against which the general partners have again filed a
motion seeking dismissal. IPT believes that the allegations contained in
the amended complaint are without merit and intends to defend the action
vigorously.
On July 30, 1998, certain entities claiming to own limited partner
interests in 44 of the IPT Partnerships filed a complaint in the Superior
Court of the State of California, County of Los Angeles against IPT,
Insignia, the applicable IPT Partnerships, the general partners of those
partnerships and additional entities affiliated with several of the
defendants. Plaintiffs allege that they have requested from, but have been
denied by each of the partnerships, lists of their respective limited
partners for the purpose of making tender offers to purchase up to 4.9% of
the units of limited partner interest in each of those partnerships. The
complaint also alleges that certain of the defendants made tender offers to
purchase units of limited partner interest in many of the partnerships,
with the alleged result that plaintiffs have been deprived of the benefits
they would have realized from ownership of the additional units. The
plaintiffs assert eleven causes of action, including breach of contract,
unfair business practices and violations of the partnership statutes of the
states in which the partnerships are organized. Plaintiffs seek
compensatory, punitive and treble damages. Defendants have answered the
complaint. IPT believes the claims are without merit and intends to defend
the action vigorously.
An action was filed against AMIT, Katten Muchin Zavis and David M.
Bass in Superior Court of the State of California by Jules P. Kirsch on
December 26, 1996 alleging that the named defendants had maliciously
prosecuted Mr. Kirsch in certain earlier litigation commenced by AMIT in
1995, which alleged that Mr. Kirsch and several other individuals and
corporations purchased AMIT Class A Shares while in possession of "inside
information" and that they violated Sections 13(d) and 14(a) of the
Exchange Act and the rules and regulations promulgated thereunder. In June
1996, AMIT settled the prior claims with the defendants other than Mr.
Kirsch, and voluntarily dismissed the claims against Mr. Kirsch. The now
pending action commenced by Mr. Kirsch seeks unspecified amounts for
compensatory and punitive damages. On January 5, 1998, summary judgment was
entered in favor of AMIT and against Mr. Kirsch on all claims in the
malicious prosecution action. On January 30, 1998, Mr. Kirsch filed an
appeal of the summary judgment ruling. No decision on that appeal has been
rendered yet.
In addition to the above, certain of the IPT Partnerships and other
subsidiaries of IPT are defendants in lawsuits arising in the ordinary
course of business. Such lawsuits are primarily insured claims arising from
accidents at managed properties. Claims may demand substantial compensatory
and punitive damages. Management believes that the litigation will be
resolved without a material impact on the financial position or results of
operations of the IPT.
9. Other Matters
Winthrop Option
On February 17, 1998, Insignia (now AIMCO) granted IPLP an option (the
"Winthrop Option") to acquire, at any time on or before December 31, 1998,
all of Insignia's interest in certain limited partner interests in two
public and 11 private real estate limited partnerships which own, in the
aggregate, 29 properties containing approximately 12,100 residential
apartment units, together with the right to receive certain asset
management, investor services and partnership management fees from ten of
those partnerships. Insignia acquired such interests from Winthrop
Financial Associates and certain affiliates of Winthrop Financial
Associates. The Winthrop Option is exercisable by IPLP for an aggregate
cash amount of approximately $46 million, plus interest on approximately
$40 million of that amount at a rate equal to Insignia's cost of funds
(based on the interest rate in effect from time to time under Insignia's
revolving credit facility) and a ratable portion of the transaction costs
incurred by Insignia in connection with the acquisitions of those
interests.
Cost of Start-up Activities
In 1998, the Accounting Standards Executive Committee issued Statement
of Position 98-5, Reporting on the Costs of Start-Up Activities ("SOP
98-5"), which is effective for financial statements for fiscal years
beginning after December 15, 1998. SOP 98-5 requires costs of start-up
activities and organization costs to be expensed as incurred. Initial
application should be reported as the cumulative effect of a change in
accounting principle and expensed in the first quarter in the year of
adoption. At September 30, 1998, IPT had approximately $920,000 (net of
accumulated amortization) capitalized as organizational costs that would be
affected by the requirements of SOP 98-5.
EITF 97-11
IPT has not capitalized any internal costs in connection with
identifying and acquiring operating properties. Therefore, EITF 97-11 will
have no effect on IPT's financial statements.
Comprehensive Income
In 1997, the Financial Accounting Standards Board issued Statement No.
130, Reporting Comprehensive Income ("Statement No. 130"). Statement No.
130 establishes new rules for the reporting and display of comprehensive
income and its components. IPT adopted Statement No. 130 as of January 1,
1998. Statement No. 130 had no effect on IPT as of September 30, 1998.
10. Subsequent Events
Contribution Agreement
In order to avoid possible adverse tax consequences to AIMCO, the
merger agreement between Insignia and AIMCO required that AIMCO and
Insignia use their best efforts to cause IPLP to contribute substantially
all of its assets to AIMCO Properties, L.P. ("AIMCO Operating Partnership")
AIMCO's operating partnership, in exchange for units of limited partner
interest in the AIMCO Operating Partnership ("AIMCO OP Units"). As a
result, following the Insignia Merger and the execution of the IPT Merger
Agreement, effective October 1, 1998 IPLP contributed a substantial portion
of its assets to the AIMCO Operating Partnership in exchange for AIMCO OP
Units (valued at the then current market price of AIMCO common stock)
("IPLP Contribution"). In addition, AIMCO and IPT formed a joint venture to
acquire from a third party, multifamily housing assets in which IPT's 99%
joint venture was funded by IPLP.
Retention Compensation Arrangements
During October 1998, approximately $1.4 million was paid to former
executives and other employees of IPT related to retention arrangements
entered into with these employees. The retention agreements were entered
into in order to encourage the executives and other employees to remain
with IPT through the close of the IPT Merger. As a result of the change in
control of IPT, it was determined that the compensation would be awarded to
these employees on October 15, 1998. Also on October 15, 1998, pursuant to
the respective retention agreements, 26,000 restricted Common Shares
previously granted to certain former IPT executives vested, and options to
purchase 25,000 Common Shares held by two former IPT executives were
retired by IPT at an aggregate cost of $81,250. In October 1998, $1 million
was paid to Ronald Consiglio, a former officer and trustee of AMIT and IPT,
as a result of the termination of his employment with IPT without cause.
These amounts will be recorded as expense by IPT in the fourth quarter of
1998.
Property Sale
During November 1998, IPT sold an industrial warehouse acquired in
connection with the AMIT Merger. The warehouse, which is approximately
89,000 square feet and is located in Solon, a suburb of Cleveland, Ohio,
was sold for a price of $2,000,000. In connection with the sale, IPT
provided a first mortgage loan to the buyer in the amount of $1,700,000,
which requires monthly principal and interest payments based on an annual
interest rate of 6.25% and a principal amortization period of 20 years. The
loan has a maturity date of November 2008. In conjunction with the sale of
the property, IPT recognized a gain of approximately $205,000 and received
net cash proceeds in the amount of approximately $201,000.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Financial Condition
On September 17, 1998, AMIT was merged with and into IPT. In the AMIT
Merger, each issued and outstanding Class A and B common share of AMIT was
converted into a total of 4,018,778 Common Shares valued at approximately
$10.72 per share. As a result of the AMIT Merger, IPT acquired
approximately $13.4 million in cash, 19 loans with an aggregate principal
balance of approximately $21.1 million, nine investment properties valued
at approximately $18.8 million, net current assets of approximately $0.3
million and mortgage notes payable with an aggregate principal balance of
approximately $7.1 million. These account balances were recorded at their
estimated fair values at the date of the AMIT Merger. Also in connection
with the AMIT Merger, IPT reclassified previously capitalized merger costs
of approximately $3.6 million against the purchase price of AMIT. Net
income before minority interest and extraordinary item resulting from the
AMIT Merger, and reflected in the statements of income for the three and
nine months ending September 30, 1998, was approximately $89,000.
At September 30, 1998, IPT held assets of $322 million, an increase of
42% from December 31, 1997. IPT's assets consist primarily of cash,
investments in real estate limited partnerships, apartment properties and
mortgage notes receivables. The increase in assets resulted primarily from
increased investments in real estate limited partnerships the AMIT Merger.
Total liabilities increased 167% to $67.9 million at September 30, 1998,
compared to $25.4 million at December 31, 1997. The increase in liabilities
is due primarily to withdrawals of approximately $30 million on IPT's
revolving credit facility and an increase in liabilities of approximately
$8.1 million as a result of the AMIT Merger. The apartment property balance
constitutes the principal assets of The Village of Pennbrook in NPI 4
(which is an IPT Partnership of which IPLP owns a majority of the limited
partner interests), Raintree Apartments in Raintree Pensacola, L.P. (which
is a wholly-owned subsidiary of IPT), and the nine investment properties
acquired in the AMIT Merger, all of which are consolidated in IPT's
financial statements. The non-recourse mortgage notes payable balance
constitutes the primary liabilities of NPI 4, Raintree Apartments and two
of the nine investment properties acquired in the AMIT merger.
Cash and cash equivalents increased 50% to $56.1 million at September
30, 1998, compared to $37.4 million at December 31, 1997. The increase in
cash and cash equivalents is due primarily to cash received as a result of
the AMIT Merger of approximately $13.4 million, distributions received from
partnerships of approximately $18.7 million and draws on the credit
facility of approximately $30.0 million, offset by purchases of limited
partner interests of approximately $29.3 million, combined distributions
paid by IPT and IPLP of approximately $12.9 million and the purchase of
Raintree Apartments, a 168-unit residential apartment complex located in
Pensacola, Florida. The purchase of Raintree Apartments resulted in net
cash outflow of approximately $1.1 million.
Investments in real estate limited partnerships increased from $159.5
million at December 31, 1997, to $183.1 million at September 30, 1998, an
increase of 15%. The increase was attributable to the purchase of limited
partner interests during the first nine months of 1998 as noted above and
the MAE GP Merger and related contribution of limited partner interests by
Insignia, partially offset by distributions of $30.1 million from the IPT
Partnerships, of which approximately $11.1 million was accrued at September
30, 1998.
<PAGE>
Results of Operations
The following discussion compares IPT's results of operations for the
three and nine months ended September 30, 1998 with its results of
operations for the corresponding periods in 1997. The table below
summarizes certain financial information extracted from IPT's financial
statements:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1998 1997 1998 1997
(in thousands, except share data)
<S> <C> <C> <C> <C>
Revenues $ 6,615 $ 4,429 $ 19,592 $ 11,144
Expenses 3,117 1,903 7,338 5,291
Funds from operations 7,808 5,510 24,633 14,176
Net Income 2,320 1,682 11,227 2,930
Weighted average Common Shares
outstanding - diluted 19,606,172 17,212,270 19,157,668 13,449,712
</TABLE>
Net income per share diluted increased to $.12 and $.59 for the three
and nine months ending September 30, 1998, respectively, as compared to
$.10 and $.21 for the corresponding periods of 1997. Total revenues
increased 49% for the three months and 76% for the nine months ending
September 30, 1998, as compared to the same periods in 1997. Total expenses
rose approximately 64% and 39% for the three and nine months ending
September 30, 1998, respectively. IPT's funds from operations ("FFO")
increased 42% to $7.8 million for the three months ending September 30,
1998, and increased 74% to $24.6 million for the nine months ending
September 30, 1998. The increases in revenue and expenses were primarily
attributable to increases in equity earnings resulting from the continued
acquisition of limited partner interests in IPT Partnerships and improved
property operations.
Contributing to the increase in net income for the nine months ending
September 30, 1998 was a gain of approximately $5.9 million realized
primarily on the sale of three properties during the nine months ending
September 30, 1998. There were no gains from property sales during the
comparable period of 1997. Partially offsetting the gain was the
realization of approximately $293,000 in losses related to the refinancings
of several investment properties. These losses resulted from prepayment
penalties and write-offs of unamortized loan costs and debt discounts. Also
offsetting the increase in net income was the accrual of $750,000 in
September relating to services rendered by Lehman Brothers, Inc. for the
fairness opinion issued in connection with the IPT Merger.
Minority interest reflected in the statements of income represents
Insignia's (now AIMCO's) interest in IPLP, the operating partnership of
IPT.
Funds from operations is defined as income or loss from real estate
operations, which is net income in accordance with generally accepted
accounting principles excluding gains or losses for debt restructurings,
sales of property and minority interests, plus depreciation and provision
for impairment. Depreciation of real estate is, except for wholly-owned
properties and properties held by consolidated IPT Partnerships, reflected
within equity earnings - limited partner interests. In general, the
difference between FFO and net income consists of consolidated depreciation
and depreciation recorded within equity earnings, gain on sale of apartment
property, extraordinary loss and minority interest.
Investment Limited Partnership Operations
IPT's FFO growth is attributable to both acquisition activity and
internal growth. Acquisitions at cost (excluding AMIT Merger activity) were
an aggregate of approximately $74 million from July 1, 1997 to September
30, 1998. However, comparable operations of properties owned by IPT
Partnerships during the first nine months of both 1998 and 1997 met or
exceeded management's expectations.
Comparable property revenues grew by 2.3% for the first nine months of
1998 compared to the corresponding period in 1997. The growth was primarily
attributable to the average increase in rental rates year to year,
increases in the average occupancy of approximately 0.5%, and the
renovation and re-leasing of The Sterling in Philadelphia. Conversely,
comparable property revenues decreased 1.75% for the three months ending
September 30, 1998 as compared to the same period in 1997. Operating
expenses declined approximately 8.3% for the three months and 5.3% for the
nine months ending September 30, 1998, respectively. The reduction in
expenses was primarily the result of above normal levels of maintenance
incurred in 1997 as management implemented plans to improve the overall
appearance of the properties. Recurring operating expenses remained
relatively flat. Results from comparable partnerships resulting from the
comparable revenue and expense changes accounted for FFO growth of 28.8%
and 24.2% for the three and nine months ending September 30, 1998,
respectively. The remaining FFO growth is attributable to acquisitions.
Liquidity and Capital Resources
Prior to the IPLP Contribution, IPT's primary source of cash was the
receipt of distributions from the IPT Partnerships. Subsequent to the IPLP
Contribution, IPT's primary source of cash is the receipt of distributions
from the AIMCO Operating Partnership. IPT expects distributions from AIMCO
Operating Partnership to be sufficient for it to maintain its current level
of distributions on an annual basis as required by the IPT Merger
Agreement.
During 1997, IPT raised approximately $62.3 million through the
private placement of Common Shares primarily with institutional investors.
IPT invested approximately $29.3 million of those proceeds to acquire
additional limited partner interests in IPT Partnerships during the first
nine months of 1998, and through September 30, 1998 had invested a total of
approximately $58 million of the offering proceeds to acquire additional
interests in IPT Partnerships.
IPT also has available a revolving credit facility of $50 million to
use for acquisitions. The line of credit is secured by a pledge and
security interest in all of the limited partner interests owned by IPLP.
IPT expects this credit facility to be sufficient for its acquisition
requirements for the remainder of 1998. As of September 30, 1998, IPT has
borrowed $30 million of the available credit facility to finance
outstanding tender offers and future purchases.
On October 15, 1998, IPT paid a third quarter distribution of $.16 per
share to shareholders of record as of the close of business on September
30, 1998.
Year 2000 Compliance
The "Year 2000 Issue" is the result of computer programs being written
using two digits rather than four to define the applicable year. Any
computer programs or hardware that have date-sensitive software or embedded
chips may recognize a date using "00" as the year 1900 rather than the year
2000. This could result in a system failure or miscalculations causing
disruptions of operations, including, among other things, a temporary
inability to process transactions, send invoices, or engage in similar
normal business activities.
IPT is dependent upon AIMCO for management and administrative
services. AIMCO has determined that it will be required to modify or
replace significant portions of its software and certain hardware so that
those systems will properly utilize dates beyond December 31, 1999. AIMCO
presently believes that with modifications or replacements of existing
software and certain hardware, the Year 2000 Issue can be mitigated.
However, if such modifications and replacements are not made, or are not
completed timely, the Year 2000 Issue could have a material impact on the
operations of AIMCO and IPT.
AIMCO's plan to resolve the Year 2000 Issue involves the following
four phases: assessment, remediation, testing and implementation. To date,
AIMCO has fully completed its assessment of all systems that could be
significantly affected by the Year 2000 Issue, and has begun the
remediation, testing and implementation phase on both hardware and software
systems. AIMCO anticipates having all phases complete by June 1, 1999.
AIMCO believes that it has an effective program in place to resolve
the Year 2000 Issue in a timely manner and has appropriate contingency
plans in place for critical applications that could affect IPT's
operations. To date, AIMCO is not aware of any external agent with a Year
2000 Issue that would materially impact IPT's results of operations,
liquidity or capital resources. However, AIMCO has no means of ensuring
that external agents will be Year 2000 compliant. AIMCO does not believe
that the inability of external agents to complete their Year 2000
resolution process in a timely manner will have a material impact on the
financial position or results of operations of IPT. However, the effect of
non-compliance by external agents is not readily determinable.
Other
Certain statements in the Financial Statements and elsewhere in this
Form 10-Q and the documents incorporated by reference herein contain, or
may contain, information that is forward-looking, including, without
limitation, statements regarding the effect of the IPT Merger. Actual
results may differ materially from those described in the forward looking
statements and will be affected by a variety of risks and factors,
including, without limitation: national and local economic conditions; the
general level of interest rates; terms of governmental regulations that
affect IPT and interpretations of those regulations; the competitive
environment in which IPT operates; real estate risks, including the failure
of acquisitions to perform in accordance with projections; and possible
environmental liabilities, including costs that may be incurred due to
necessary remediation of contamination of properties owned, acquired or
previously owned by IPT. In addition, IPT's continued qualification as a
REIT involves the application of highly technical and complex provisions of
the Internal Revenue Code of 1986, as amended. Accordingly, do not place
undo reliance on such forward-looking statements. Readers should carefully
review IPT's financial statements and the notes thereto, as well as risk
factors described herein and in the documents incorporated herein.
<PAGE>
PART II
OTHER INFORMATION
Item 1. Legal Proceedings
See Note 8 in Notes to Condensed Consolidated Financial Statements herein.
Item 4. Submission of Matters to a Vote of Security Holders
On September 14 and 15, 1998, IPT held a special meeting of the IPT
shareholders to consider and vote on the approval of the AMIT Merger. At that
meeting, the AMIT Merger was approved by a vote of 11,886,808 Common Shares in
favor and none opposed or abstained.
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits
Exhibit 2.1 Agreement and Plan of Merger, dated as of October 1, 1998,
by Apartment and Investment Management Company and
Insignia Properties Trust (Exhibit 2.1 to the Company's
Form 8-K, filed October 15, 1998, is incorporated by
reference).
Exhibit 3.2 Bylaws of IPT (Exhibit 3.2 to the Company's Form 8-K,
filed October 15, 1998, is incorporated by reference).
Exhibit 27 Financial Data Schedule for September 30, 1998.
Exhibit 99.1 Shareholders' Agreement, dated October 1, 1998, among
AIMCO, Andrew L. Farkas, James A. Aston and Frank M.
Garrison (Exhibit 10.4 to AIMCO's Schedule 13D, filed
October 15, 1998, is incorporated by reference).
Exhibit 99.2 Irrevocable Limited Proxy, dated October 1, 1998, granted
by AIMCO to Andrew L. Farkas, James A. Aston and
Frank M. Garrison (Exhibit 10.3 to AIMCO's Schedule 13D,
filed October 15, 1998, is incorporated by reference).
b) Reports on Form 8-K
The Company filed a Current Report on Form 8-K, dated September 17,
1998, on September 30, 1998, relating to the AMIT Merger.
<PAGE>
SIGNATURES
Pursuant to the requirements 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.
INSIGNIA PROPERTIES TRUST
By: /s/ Patrick Foye
--------------------------------------------
Patrick J. Foye
Executive Vice President
By: /s/ Martha L. Long
--------------------------------------------
Martha L. Long
Senior Vice President
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Insignia Properties Trust September 30, 1998 Form 10-Q and is qualified in
its entirety by reference to such 10-Q filing.
</LEGEND>
<CIK> 0001062508
<NAME> Insignia Properties Trust
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-mos
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 56,085
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 322,111
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 235
<OTHER-SE> 195,131
<TOTAL-LIABILITY-AND-EQUITY> 322,111
<SALES> 0
<TOTAL-REVENUES> 19,592
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 2,582
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
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