UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
{X} Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the period ended September 30, 1996
or
{ }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 0-19066
INSIGNIA FINANCIAL GROUP, INC.
(Exact name of registrant as specified in its charter)
Delaware 13-3591193
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
One Insignia Financial Plaza, P.O. Box 1089 29602
Greenville, South Carolina (Zip Code)
(Address of principal executive offices)
Registrant's telephone number, including area code (864) 239-1000
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 of 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 .
As of September 30, 1996, there were outstanding 28,796,039 shares of Class A
Common Stock.
<PAGE>
INSIGNIA FINANCIAL GROUP, INC.
FOR 10-Q
QUARTERLY PERIOD ENDED SEPTEMBER 30, 1996
INDEX
Page No.
PART I FINANCIAL INFORMATION:
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Statements of Income
for the three and nine months ended
September 30, 1996 and 1995 2
Condensed Consolidated Balance Sheets as
of September 30, 1996 and December 31, 1995 3
Condensed Consolidated Statements of
Cash Flow for the nine months ended
September 30, 1996 and 1995 4
Notes to Condensed Consolidated Financial Statements 5 - 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 8 - 11
PART II OTHER INFORMATION:
Item 1. Legal Proceedings 12
Item 6. Exhibits and Reports on Form 8-K 12
SIGNATURES 13
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
a) Income Statement
INSIGNIA FINANCIAL GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Thousands of Dollars, except per share data)
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
1996 1995 1996 1995
Revenues
Fee based services $62,924 $30,157 $140,117 $84,132
Interest 606 505 2,193 1,490
Other 457 430 1,597 1,177
Apartment property revenues 1,898 -- 5,297 --
----- -----
65,885 31,092 149,204 86,799
------ ------ ------- ------
Costs and Expenses
Fee based services 51,055 22,611 106,570 58,798
Administrative 1,974 1,826 5,681 5,892
Apartment property expenses 994 -- 2,838 --
Termination of employment
agreement -- -- -- 1,000
Interest 4,309 2,183 10,244 4,937
Apartment property interest 965 -- 1,698 --
Depreciation and amortization 6,708 3,428 16,189 9,572
Apartment property depreciation 276 -- 769 --
--- ---
66,281 30,048 143,989 80,199
------ ------ ------- ------
Equity earnings - limited
partnership interests 732 700 3,072 2,378
Minority interests in
consolidated subsidiaries 71 (28) (190) (138)
-- --- ---- ----
Income before income taxes 407 1,716 8,097 8,840
Provision for income taxes 155 686 3,077 3,536
--- --- ----- -----
Net income $ 252 $ 1,030 $ 5,020 $ 5,304
======= ======= ======= =======
Earnings per common share $0.01 $0.03 $0.15 $0.20
===== ===== ===== =====
Weighted average common shares
outstanding and dilutive
common stock equivalents 33,205,030 22,132,954 31,107,789 21,598,908
========== ========== ========== ==========
See Notes to Condensed Consolidated Financial Statements.
Certain prior year amounts have been reclassified to conform with current
year presentation.
<PAGE>
b) Balance Sheet
INSIGNIA FINANCIAL GROUP, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Thousands of Dollars)
September 30, December 31,
1996 1995
(Unaudited) (Note)
Assets
Cash and equivalents $ 60,131 $ 49,846
Restricted cash 642 6,282
Receivables 14,292 24,454
Commissions receivable 16,582 1,991
Property and equipment 11,282 7,700
Investments in real estate limited partnerships 124,898 60,473
Property management contracts 133,827 88,816
Apartment properties 25,178 --
Costs in excess of net assets of acquired
businesses 76,474 3,169
Other assets 8,583 2,678
----- -----
Total assets $471,889 $245,409
======== ========
Liabilities and Stockholders' Equity
Liabilities:
Accounts payable $ 2,602 $ 1,497
Commissions payable 9,257 602
Accrued and sundry liabilities 24,604 23,867
Deferred taxes 13,661 1,752
Non-recourse mortgage notes payable 20,408 --
Notes payable 185,182 32,996
Subordinated convertible note payable -- 10,000
------
Total liabilities 255,714 70,714
======= ======
Redeemable convertible preferred stock -- 15,000
Minority interests in consolidated subsidiaries 2,762 2,682
Stockholders'Equity:
Common stock, class A, par value $.01 per share - authorized
50,000,000 shares, issued and outstanding 28,796,039 (1996)
and 25,877,666 (1995) shares 288 259
Additional paid-in capital 188,710 137,160
Retained earnings 24,415 19,594
------ ------
Total stockholders'equity 213,413 157,013
------- -------
Total liabilities and stockholders' equity $471,889 $245,409
======== ========
NOTE: The Balance Sheet at December 31, 1995 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.
<PAGE>
c) Statements of Cash Flow
INSIGNIA FINANCIAL GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW
(Thousands of Dollars)
(Unaudited)
Nine Months Ended
September 30,
-------------
1996 1995
---- ----
Operating Activities
Net income $ 5,020 $ 5,304
Adjustments to reconcile net income to
net cash provided by operations:
Depreciation and amortization 16,189 9,572
Apartment property depreciation 769 --
Equity in earnings of partnerships (3,072) (2,378)
Minority interest in consolidated subsidiaries 190 138
Changes in operating assets and liabilities:
Accounts receivable 2,425 (74)
Commissions receivable (14,591) --
Other assets (1,503) (1,209)
Accrued compensation 631 --
Deferred income taxes -- --
Accounts payable and accrued expenses (485) (4,500)
Commissions payable 8,655 --
-----
Net cash provided by operating activities 14,228 6,853
------ -----
Investing activities
Acquisition of real estate limited
partnership interests (67,840) (20,182)
Payments made for acquisition of
management contracts and acquired businesses (102,609) (20,667)
Investment in apartment properties, net of
acquired cash (7,789) --
Limited partnership distributions 6,805 4,173
Collections on notes receivable 15,272 1,856
Additions to property and equipment, net (4,518) (2,172)
Advances made under note agreements (2,535) (16,376)
(Increase) decrease in restricted cash 5,640 (135)
----- ----
Net cash used in investing activities 157,574) (53,503)
------- -------
Financing activities
Payments on notes payable (1,802) (43,908)
Payments on non-recourse mortgage notes (16,997) --
Proceeds from refinancing of non-recourse
mortgage note 19,300 --
Proceeds from notes payable 152,816 64,910
Proceeds from issuance of preferred stock -- 15,000
Investment made by minority interests -- 2,651
Distributions made to minority interests (432) (100)
Proceeds from exercise of stock options 2,058 1,168
Debt and stock issuance costs (1,031) (1,233)
Payment of preferred stock dividends (281) (791)
---- ----
Net cash provided by financing activities 153,631 37,697
------- ------
Increase (Decrease) in cash and cash equivalents 10,285 (8,953)
Cash and cash equivalents at beginning of period 49,846 36,596
------ ------
Cash and cash equivalents at end of period $ 60,131 $ 27,643
========= =========
See Notes to Condensed Consolidated Financial Statements.
<PAGE>
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
----------------------------------------------------------------
1. Insignia Financial Group, Inc. ("the Company" or "Insignia") is a Delaware
corporation incorporated in July 1990. The Company is a fully integrated
real estate service organization performing property management, asset
management, investor services, partnership administration, and real estate
investment banking services for various ownership entities. The Company has
consolidated all accounts of significant subsidiaries and reflected the
appropriate minority interest.
2. 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 footnotes 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 nine month period ended September 30, 1996 are not necessarily
indicative of the results that may be expected for the year ending December
31, 1996. For further information, refer to the consolidated financial
statements and footnotes thereto included in the Company's annual report on
Form 10-K for the year ended December 31, 1995.
3. The calculation of earnings per common share is based on the weighted
average number of shares of common stock outstanding during the year and
common stock equivalents of dilutive common stock options and warrants. See
Exhibit 11 for the calculations of primary and fully diluted earnings per
share and the applicable adjustments to net income.
4. The following is a summary of the Company's material contingencies as of
September 30, 1996:
Gillett Family Trust, et al., v. Insignia Financial Group, Inc., et al. In
April 1995, six wholly-owned subsidiaries of Insignia (the "Affiliated
Purchasers") commenced tender offers for limited partner interests in six
partnerships: Shelter Properties I Limited Partnership; Shelter Properties
II Limited Partnership; Shelter Properties III Limited Partnership; Shelter
Properties IV Limited Partnership; Shelter Properties V Limited
Partnership; and Shelter Properties VI Limited Partnership (collectively,
the "Shelter Properties Partnerships"). In May 1995, in the United States
District Court for the District of South Carolina, certain limited partners
of the Shelter Properties Partnerships commenced a lawsuit, on behalf of
themselves, on behalf of a putative class of plaintiffs, and derivatively
on behalf of the Shelter Properties Partnerships, challenging the actions
of the defendants (including Insignia, the Affiliated Purchasers and
certain officers of Insignia) in the management of the Shelter Properties
Partnerships and in connection with the tender offers and certain other
matters. On September 27, 1995, the parties entered into a stipulation to
settle the matter. The principal terms of the stipulation required
supplemental payments to tendering limited partners aggregating
approximately $6 million to be paid by the Affiliated Purchasers, which was
paid on September 5, 1996, together with the payment of plaintiff's
attorney's fees and expenses which have also been paid.
Chipain, Tom, et al., v. Walton Street Capital Acquisition II, LLC, et al.
In May 1996, Walton Street Capital Acquisition II, MLLC ("Walton Street"),
together with certain Insignia affiliates, commenced tender offers for
limited partner interests in ten real estate limited partnerships
syndicated by The Balcor Company ("Balcor"). In May 1996, certain persons
claiming to be holders of limited partner interests commenced a lawsuit in
the Circuit Court of Cook County, Illinois, County Department, Chancery
Division, on behalf of themselves, on behalf of a putative class of
plaintiffs, and, as amended, derivatively on behalf of the
Balcor-syndicated partnerships, challenging the actions of the defendants
(including Insignia, an Insignia officer and certain affiliates, Walton
Street and the general partners of the Balcor-syndicated partnerships ) in
connection with the tender offers and certain other matters.
<PAGE>
The complaint, as amended, contained allegations that the tender offers
were inadequate and coercive based, in part, upon information allegedly
obtained by Insignia in violation of its fiduciary duties. Defendants
promptly moved to dismiss the complaint and on June 5, 1996, the court
dismissed the complaint as to Insignia and Walton, with leave to replead.
On June 11, 1996, plaintiffs filed an amended class and derivative action
complaint, repeating the same allegations as in their initial complaint,
and recasting some as derivative, rather than direct class, claims.
Defendants moved to dismiss the amended complaint and on June 18, 1996, the
court again dismissed plaintiffs' amended complaint as to Insignia and
Walton.
On June 14, 1996, a second class and derivative suit, similar in material
respects to the Chipain litigation, was filed in the Circuit Court of Cook
County, Illinois, County Department, Chancery Division. That complaint,
entitled Sandra Dee v. Walton Street Capital Acquisition II, LLC, et al.,
contained substantially the same allegations as the Chipain complaints and
asserted additionally that the tender offers violated certain state
securities and consumer statutes. Pursuant to the court's orders
consolidating the Chipain and Dee complaints with another action which does
not name Insignia, a new amended and consolidated class and derivative
action complaint was filed on July 25, 1996. The plaintiffs in the Chipain
action are not parties to this latest complaint.
On August 16, 1996, Insignia moved to dismiss the amended and consolidated
class and derivative action complaint. The motion was heard by the court on
September 27, 1996 at which time the court granted leave to the plaintiff
to (i) withdraw its pending complaint and (ii) serve a second amended and
consolidated class and derivative action complaint. On October 8, 1996,
plaintiffs filed a second amended and consolidated class and derivative
action complaint which added claims of alleged antitrust injury and unjust
enrichment. On October 25, 1996, Insignia moved to dismiss this latest
complaint. That motion is scheduled to be heard by the court in December
1996.
The Company and certain subsidiaries 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 aforementioned lawsuits will be resolved
without material loss to the Company or its subsidiaries.
5. Other matters
In November of 1994, the Company acquired substantially all of the assets
(consisting primarily of management contracts) of Allegiance Realty Group,
Inc., a wholly-owned subsidiary of Balcor. As of September 30, 1996, the
Company managed approximately 178 properties, comprising approximately
30,200 units of multifamily residential housing and 11.0 million square
feet of commercial space associated with that acquisition (44 of the
properties, comprising approximately 1,600 units of multifamily residential
housing and 4.9 million square feet of commercial space are not controlled
by Balcor).
During the first quarter of 1996 Balcor announced its intention to sell a
significant number of its properties. In connection with the potential
sales of such properties, Balcor has entered into agreements with the
Company to provide additional services (the "Advisory Agreements"),
including collection of data, the preparation of materials for potential
purchasers, and assistance with regard to transition plans. The Advisory
Agreements have an initial term of one year with fees ranging from .75% to
1.25% of the sale price of a property if and when sold (the "Advisory
Fees"), regardless of whether or not the purchaser retains the Company to
continue to manage the property. If all sales were consummated for the
properties that Balcor is marketing, $14.4 million in annual revenues would
be lost while $14.7 million in advisory fees would be collected. The
remaining basis would be approximately $8.9 million with a revenue stream
of $6.9 million. To date, 48 properties comprising 14,800 residential units
producing $4.9 million in annual management fees have been sold, with $4.6
million in earned advisory fees. There are proposed sales of an additional
113 properties comprising approximately 25,800 units and 3.3 million in
commercial square feet which generate approximately $9.5 million in
management revenues and which would produce advisory fees of $10.1 million.
The completed and pending
<PAGE>
sales are included in the totals mentioned above. Management believes that
the unamortized purchase price relating to properties managed for Balcor
properly reflects the asset value and that no impairment exists.
6. Acquisitions of National Property Investors, Inc. and Edward S. Gordon
Company, Inc.
As discussed in the Company's Annual Report on Form 10-K, the Company
acquired substantially all of the assets of National Property Investors,
Inc. ("NPI"), its property management affiliates and certain of its limited
partner interests in real estate limited partnerships for an aggregate
purchase price of approximately $116 million in January 1996. In addition,
the Company acquired substantially all of the assets of the Edward S.
Gordon Company, Incorporated for approximately $74 million on June 30,
1996. The pro forma unaudited results of operations for the nine months
ended September 30, 1996 and September 30, 1995 assuming consummation of
the purchases as of January 1, 1995 are as follows:
Nine Months Ended
September 30,
-------------
1996 1995
---- ----
(000's omitted, except per share data)
Revenues $197,058 $175,007
Net Income 5,573 3,426
===== =====
Earnings per common share $0.17 $0.11
===== =====
7. During the nine months ended September 30, 1996, the following changes
occurred in the Company's equity accounts:
a) Exercise of 273,879 stock options and 17,700 warrants representing
291,579 shares of Class A Common Stock at exercise prices ranging from
$1.88 to $13.69 per share.
b) Conversion of preferred stock and a subordinated convertible note to
1,509,062 and 1,117,732 shares, respectively, of Class A Common Stock.
c) Net income of $5,020,000 for the nine months ended September 30, 1996.
d) Preferred dividends of $199,000.
e) Additional paid-in capital of $24,450,000 resulting from the
assumption of options in connection with the acquisition of the Edward
S. Gordon Company, Incorporated.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
- -------------------- ----------------------------------------------------------
of Operations
- -------------
Financial Condition
- -------------------
The Company's assets grew 92% from $245.4 million at December 31, 1995 to $471.9
million at September 30, 1996, primarily from the completion of three strategic
acquisitions during the nine months. The third quarter ended September 30, 1996
reflects operating results from all the acquisitions for the first time, and
shows strong increases in earnings before interest, taxes, depreciation, and
amortization ("EBITDA") combined with funds from operations ("FFO") for both the
third quarter and nine months over the third quarter and nine months ended
September 30, 1995. EBITDA combined with FFO increased 76 % and 70% for the
three and nine months from $8.1 million and $24.7 million for 1995,
respectively, to $14.3 million and $41.9 million for 1996, respectively.
During the nine months, the Company has completed the acquisitions of 1)
National Property Investors, Inc. ("NPI") in January 1996; 2) the capital stock
of the Paragon Group Property Services, Inc., the commercial property services
operation ("Paragon Commercial") of Paragon Group, Inc., effective June 30,
1996; and 3) the Edward S. Gordon Company, Incorporated ("ESG") also effective
June 30, 1996. These three acquisitions were acquired for a total purchase price
of approximately $208.5 million, most of which was paid in cash funded by draws
on the Company's $200 million revolving credit facility. The acquisitions added
approximately 32,000 units and 46 million square feet of commercial space to the
managed portfolio, bringing the totals to 283,000 units and 107.2 million square
feet in commercial space. While the Paragon Commercial and ESG acquisitions
added approximately $2.5 million in EBITDA, as a result of transition and other
acquisition expenses, the results are less than proforma annual results.
The NPI acquisition also added a substantial amount ($74 million) to the
investment in limited partner interests and increased the number of partnerships
in which a significant interest was owned by 14 public real estate limited
partnerships. Also, the general partner interests for 28 public limited
partnerships and 83 private limited partnerships were acquired as part of the
NPI transaction.
In addition to the acquired limited partner interests, the Company has invested
an additional $2.6 million in such interests through acquisitions in the open
market. In total, the Company has $133.1 million invested in limited partnership
interests. Insignia has received $13.3 million in capital distributions from the
partnerships over the past four quarters.
Insignia's proportionate share of FFO from its partnership investments was $3.3
million and $10.3 million for the three months and nine months ended September
30, 1996, respectively, 129% and 186% increases from $1.5 million and $3.6
million for the three and nine months ended September 30, 1995, respectively.
With respect to those assets operating during the entire third quarters of both
1995 and 1996, property revenues increased by 5.2% and operating expenses
increased by 5.3%. Most of the increase in operating expenses arose from the
planned increase in property appearance improvements, primarily painting,
landscaping and paving, to $932,000 in 1996 compared to $366,000 of similar
expenses in 1995; all other operating expenses decreased 0.7%. The appearance
improvements undertaken in connection with the recent investments should reflect
peak expenditures during the third and fourth quarters of 1996 and return to
more normal levels in 1997. Insignia's share of FFO as to comparable properties
increased by 7.0%, despite the substantial expenditures during the quarter for
property appearance improvements and higher interest resulting from net
refinance proceeds of $9.6 million recovered from the partnerships.
In April 1996, both the subordinated convertible note and the preferred stock
were converted into common stock of approximately 1.1 million and 1.5 million
shares, respectively.
Also, during the quarter ended September 30, 1996, the Company terminated
acquisition negotiations and expensed approximately $935,000 in failed deal
costs. The termination of the discussions reflects management's commitment to
acquire only assets or companies that will enhance the Company's value and
provide sufficient return on investment for the Company's stockholders.
<PAGE>
Subsequent to the quarter ended September 30, 1996, the Company completed its
largest capital market transaction yet by raising approximately $149.5 million
through the issuance of a trust-originated convertible preferred security, with
a term of 20 years and an annual cash distribution of 6.5% of the liquidation
amount, convertible into the Company's Class A common stock at $26.50 per share.
The convertible securities, commonly known as TOPrs or QUIPS, are structured
such that the distribution is tax deductible to the Company, and may be deferred
by the Company for a period of up to 20 consecutive quarters. The securities
received a rating of B2/B+ from Moody's and Standard & Poors, respectively.
Results of Operations
- ---------------------
Combined EBITDA and FFO increased 76% and 70% respectively for the three and
nine months ended September 30, 1996 (to $14.3 million and $41.9 million,
respectively) over the same periods in 1995 ($8.1 million and $24.7 million,
respectively). The primary reasons for the growth were the increases in third
party fee management, the completed acquisitions, and the increased investments
in limited partner interests.
Fee based services revenues increased 109% and 67% for the three and nine months
ended September 30, 1996 over comparable periods in 1995. Fee based services
revenues increased to $62.9 million and $140.1 million for the three and nine
months ended September 30, 1996 from $30.2 million and $84.1 million for the
same periods in 1995, almost all of which occurred in the property and asset
management group of the Company. The acquisitions completed contributed
significantly to the growth in the fee based services revenues, as well as the
net growth in third party fee management of 8,500 units in residential and 5.6
million in commercial square feet.
The financial services division of the Company is primarily transactional in
nature and, consequently, its operations can vary significantly from period to
period depending on when transactions are consummated. Revenues from the group
increased 103% and 7% for the three and nine months ended September 30, 1996
over the same periods in 1995.
Interest income increased 20% and 47% over the third quarter and nine months
ended September 30, 1995 primarily as a result of the higher average interest
earning cash balances and higher interest rates.
Other income increased 6% and 36% for the three and nine months ended September
30, 1996 over the same periods of 1995. The primary factor for the increase was
the growth in the amounts received from an agency that serves as an insurance
broker for various partnerships managed by the Company.
Fee based services expenses increased by 126% and 81% for the three and nine
months ended September 30, 1996 over the same periods in 1995, primarily from
the completion of the acquisitions mentioned previously, including the
transition costs incurred to bring the acquired operations into the Company. In
addition, with the expansion of the Company into new and diversified areas, such
as the management of cooperatives and condominiums in New York, and many types
of commercial services, the margins have narrowed somewhat. The New York
business is a tighter market, and the commercial business is much more
transactional in nature. These two factors combined narrow the Company's
traditional margins from the residential operations, but do, however, provide
stable sources of revenue and future EBITDA for stockholder value.
Fee based services expenses from the financial services division increased 29%
and 10% for the three and nine months ended September 30, 1996 compared to the
same periods in 1995. The transactional nature of this division combined with
the write-off of the failed deal costs caused the bulk of these increases. Since
this division is transactional in nature, amounts can vary from period to
period.
Also, included in fee based services revenues and expenses are the results of
the Company's activities in the consumer services area, with operations
contributing losses of $300,000 and $1.6 million for the three and nine months
ended September 30, 1996. Through September 1996, approximately 105,000 units
have been signed up with approximately 81,000 units rolled out resulting from
recent communications.
<PAGE>
During 1995, a one-time charge for $1.0 million was incurred as a result of
terminating a contractual arrangement with a senior executive/director. Both the
Company and the employee agreed to the termination. No such expenses were
incurred during the nine months ended September 30, 1996.
Interest expense increased 97% and 108 % for the three and nine months ended
September 30, 1996 over the same periods in 1995. Increasing interest rates and
higher debt balances ($97.1 million at September 30, 1995 compared to $185.2
million at September 30, 1996) were the primary causes for the increase.
With the acquisition of limited partner interests in excess of 50% in two
limited partnerships, the Company now consolidates the results of these two
limited partnerships. The categories entitled apartment property revenues,
apartment property expenses, apartment property interest and depreciation relate
solely to the operations of the properties owned by the partnerships. The
percentage not owned by the Company is recorded in minority interests.
Depreciation and amortization increased 96% and 69% for the three and nine
months ended September 30, 1996 over the same periods in 1995 as a result of the
amortization of the acquired property management contracts and the additions to
property and equipment.
The provision for income taxes decreased 77% and 13% primarily due to the
decreases in income before taxes.
As a result of the foregoing, net income decreased 76% and 5% for the three and
nine months ended September 30, 1996 over 1995. Earnings per share was $0.01 for
the three months ended September 30, 1996 compared to $0.03 for 1995, and $0.15
the nine months ended September 30, 1996 compared to $0.20 for 1995.
<PAGE>
Liquidity and Capital Resources
- -------------------------------
The Company has several sources available for capital, primarily cash
generated from operations, distributions from partnerships, and available credit
under the $200 million revolving credit facility. As a result of its ability to
generate cash, and such additional sources, the cash balances grew from $27.6
million at September 30, 1995 to $60.1 million at September 30, 1996. The
Company uses combined EBITDA and FFO as an indicator of its working capital
generated from operations. Combined EBITDA and FFO increased 76% and 70% for the
three and nine months from $8.1 million and $24.7 million for 1995 to $14.3
million and $41.9 million for 1996. The following chart specifically identifies
the sources of the combined EBITDA and FFO and how the numbers are derived for
each period.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Fee based services revenues $62,924 $30,157 $140,117 $84,132
Interest 606 505 2,193 1,490
Other 457 430 1,597 1,177
--- --- ----- -----
$63,987 $31,092 $143,907 $86,799
Fee based services expenses 51,055 22,611 106,570 58,798
Termination of agreement -- -- -- 1,000
Administrative and other 1,974 1,826 5,681 5,892
----- ----- ----- -----
EBITDA - service company $10,958 $ 6,655 $ 31,656 $21,109
FFO 3,349 1,460 10,278 3,592
----- ----- ------ -----
Combined EBITDA and FFO $14,307 $ 8,115 $41,934 $24,701
======= ======== ======= =======
</TABLE>
In addition to internally generated cash, the Company has a $200 million
revolving credit facility available for acquisitions and working capital needs,
of which $178 million was committed as of September 30, 1996. Subsequent to the
quarter end, the Company successfully raised approximately $149.5 million in
trust-originated convertible preferred securities, which will be used
principally to reduce the outstanding balance on the revolving credit facility.
With the working capital generated through the operations of the Company and the
available balances on the revolving credit facility, the Company feels its
capital resources are adequate. The Company's funding needs are reassessed and
additional sources of capital evaluated as acquisitions are identified and
pursued.
The Company is also currently engaged in active evaluation of a change in
the manner in which its real estate partnership interests are held and financed.
The Company's objective is to raise external capital through a real estate
ownership entity for the continued acquisition of real estate interests and to
replace some of Insignia's capital currently deployed in its real estate
investments. There can be no assurance that the Company will achieve the results
sought.
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
- -------------------------
See note 4 in Notes to Condensed Consolidated Financial Statements, Part I,
Item 1, of Form 10-Q for September 30, 1996, for the details on outstanding
issues. Also, see Registrant;s Form 10-K for the period ended December 31, 1995.
Item 2. Changes in Securities
- ------- ---------------------
In November 1996, Insignia Financing I, a Delaware business trust (the
"Trust"), issued and sold 2,990,000 of its 6-1/2% Trust Convertible Preferred
Securities with an aggregate liquidation amount of $149.5 million (the
"Convertible Preferred Securities"). All of the outstanding common securities of
the Trust are owned by the Company. The Convertible Preferred Securities were
sold by Lehman Brothers, Dillon, Read & Co. Inc., Goldman, Sachs & Co. and A.G.
Edwards & Sons, Inc. for $149.5 million to "qualified institutional buyers" (as
defined in Rule 144A under the Securities Act of 1933, as amended (the
Securities Act")) in compliance with Rule 144A. The Preferred Securities may be
converted at the option of the holder into shares of the Company's Class A
Common Stock ("Common Stock") at a conversion price of $26.50 per share of
Common Stock.
Item 6. Exhibits and Reports on Form 8-K
- ------- --------------------------------
(a) Exhibits
11. Statement re computation of per share earnings.
(b) Reports on Form 8-K
The following reports on Form 8-K were filed during the quarter ended
September 30, 1996:
Form 8-K dated July 1, 1996 and filed July 12, 1996 disclosing Registrant's
acquisition of the Edward S. Gordon Company, Incorporated.
Form 8-K dated July 1, 1996 and filed July 15, 1996 disclosing Registrant's
acquisition of the capital stock of Paragon Group Property Services, Inc.,
the commercial operation of Paragon Group, Inc.
Form 8-K dated August 21, 1996 and filed August 26, 1996 disclosing
Registrant's internal reorganization and title changes of Ronald Uretta to
Chief Operating Officer and James A. Aston to Chief Financial Officer.
Form 8-K dated September 13, 1996 and filed September 13, 1996 amending
Form 8-K dated July 1, 1996 to file financial statements for the Edward S.
Gordon Company, Incorporated acquisition.
<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 there unto duly authorized.
INSIGNIA FINANCIAL GROUP, INC.
by: /s/ Ronald Uretta
----------------------
Ronald Uretta
Chief Operating Officer and Treasurer
by: /s/ James A. Aston
-----------------------
James A. Aston
Chief Financial Officer
Dated: November 12, 1996
<PAGE>
<TABLE>
EXHIBIT 11 - Statement Re: Computation of Earnings Per Share
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Primary
Average common shares outstanding 28,752 20,508 27,517 20,362
Net effect of dilutive stock
options and warrants based on the
treasury stock method using average
market price 4,453 1,625 3,591 1,237
----- ----- ----- -----
Total 33,205 22,133 31,108 21,599
====== ====== ====== ======
Net income $ 252 $ 1,030 $ 5,020 $ 5,304
========= ======= ======== ========
Preferred dividends - 327 199 918
--- --- ---
Adjusted net income $ 252 $ 703 $ 4,821 $ 4,386
========= ======= ======== ========
Earnings per common share $ 0.01 $ 0.03 $ 0.15 $ 0.20
========= ======= ======== ========
Fully Diluted
Average common shares outstanding 28,752 20,508 27,517 20,362
Net effect of dilutive stock options and warrants
based on the treasury stock method using
the greater of the average market price or the
ending market price 4,578 1,762 3,859 1,452
----- ----- ----- -----
Total 33,330 22,270 31,376 21,814
====== ====== ====== ======
Net income $ 252 $ 1,030 $ 5,020 $ 5,304
Preferred dividends -- 327 199 918
--- --- ---
Adjusted net income $ 252 $ 703 $ 4,821 $ 4,386
========= ========= ========= ========
Earnings per common share $ 0.01 $ 0.03 $ 0.15 $ 0.20
========= ========= ======== =========
</TABLE>
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Insignia Financial Group, Inc. September 30, 1996 Form 10-Q and is
qualified in its entirety by reference to such 10-Q filing.
</LEGEND>
<CIK> 0000870480
<NAME> Insignia Financial Group, Inc.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-mos
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 60,131
<SECURITIES> 0
<RECEIVABLES> 30,874
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 11,282
<DEPRECIATION> 0
<TOTAL-ASSETS> 471,889
<CURRENT-LIABILITIES> 0
<BONDS> 205,590
0
0
<COMMON> 288
<OTHER-SE> 213,125
<TOTAL-LIABILITY-AND-EQUITY> 471,889
<SALES> 0
<TOTAL-REVENUES> 149,204
<CGS> 0
<TOTAL-COSTS> 106,570
<OTHER-EXPENSES> 25,477
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 11,942
<INCOME-PRETAX> 8,097
<INCOME-TAX> 3,077
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,020
<EPS-PRIMARY> .15
<EPS-DILUTED> .15
</TABLE>
