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 March 31, 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 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
As of March 31, 1996, there were outstanding 26,012,326 shares of Class A
Common Stock, and 15,000 shares of 7.5% Step-Up Rate Cumulative Convertible
Preferred Stock.
<PAGE>
INSIGNIA FINANCIAL GROUP, INC. AND SUBSIDIARIES
FORM 10-Q
QUARTERLY PERIOD ENDED MARCH 31, 1996
INDEX
Page No.
PART I FINANCIAL INFORMATION:
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Statements of Income for the
three months ended March 31, 1996 and 1995 2
Condensed Consolidated Balance Sheets as of
March 31, 1996 and December 31, 1995 3
Condensed Consolidated Statements of Cash Flow
for the three months ended March 31, 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 Information
- - ------------------------------
<TABLE>
a) Income Statement
INSIGNIA FINANCIAL GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Thousands of Dollars, except share and per share data)
(Unaudited)
Three Months Ended
March 31,
---------
1996 1995
---- ----
<S> <C> <C>
Revenues
Fee based services .............................. $ 36,837 $ 25,909
Interest ........................................ 919 450
Other ........................................... 587 202
Apartment property revenues ..................... 1,878 --
-----
40,221 26,561
------ ------
Costs and Expenses
Fee based services .............................. 26,552 17,356
Administrative and other ........................ 2,305 1,688
Apartment property expenses ..................... 1,028 --
Interest ........................................ 2,904 1,181
Apartment property interest ..................... 407 --
Depreciation and amortization ................... 4,588 2,988
Apartment properties depreciation ............... 269 --
---
38,053 23,213
------ ------
Equity earnings - limited partnership interests ... 1,454 462
Minority interests in consolidated subsidiaries ... (202) 58
---- --
Income before income taxes ........................ 3,420 3,868
Provision for income taxes ...................... 1,300 1,547
----- -----
Net income ........................................ $ 2,120 $ 2,321
============ ============
Earnings per common share ......................... $ .07 $ .10
============ ============
Weighted average common shares
outstanding and dilutive common
stock equivalents ............................... 28,817,788 21,144,388
========== ==========
</TABLE>
- - ----------
See Notes to Condensed Consolidated Financial Statements.
<PAGE>
b) Balance Sheet
<TABLE>
INSIGNIA FINANCIAL GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Thousands of Dollars)
March 31, December 31,
1996 1995
---- ----
(Unaudited)
<S> <C> <C>
Assets
Cash and cash equivalents .............................. $ 56,865 $ 49,846
Restricted cash ........................................ 7,454 6,282
Receivables ............................................ 12,764 26,445
Property and equipment ................................. 8,291 7,700
Real estate limited partnership interests .............. 126,676 60,473
Property management contracts .......................... 127,404 88,816
Apartment properties ................................... 25,612 --
Costs in excess of net assets of acquired businesses ... 3,130 3,169
Other assets ........................................... 4,167 2,678
----- -----
Total assets ......................................... $372,363 $245,409
======== ========
Liabilities and Stockholders' Equity
Liabilities:
Accounts payable ..................................... $ 1,503 $ 1,497
Accrued and sundry liabilities ....................... 39,963 26,221
Non-recourse mortgage notes payable .................. 17,970 --
Notes payable ........................................ 123,116 32,996
Subordinated convertible note payable ................ 10,000 10,000
------ ------
192,552 70,714
------- ------
Redeemable convertible preferred stock ................. 15,000 15,000
Minority interests ..................................... 4,997 2,682
Stockholders' Equity:
Common Stock, Class A, par value $.01 per share authorized 50,000,000
shares, issued and outstanding 26,012,326 (1996) and 25,877,666
(1995) shares ...................................... 260 259
Additional paid-in capital ........................... 138,023 137,160
Retained earnings .................................... 21,531 19,594
------ ------
Total stockholders' equity ........................... 159,814 157,013
------- -------
Total liabilities and stockholders' equity $372,363 $245,409
======== ========
</TABLE>
NOTE:The Balance Sheet at December 31, 1995 has been derived from the audited
financial statements at that date but does not include all the information
and footnotes required by generally accepted accounting principles for
complete financial statements.
See Notes to Condensed Consolidated Financial Statements.
<PAGE>
c) Statement of Cash Flow
<TABLE>
INSIGNIA FINANCIAL GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW
(Thousands of Dollars)
(Unaudited)
Three Months Ended
March 31,
1996 1995
<S> <C> <C>
Operating Activities
Net income ................................................$ 2,120 $2,321
Adjustments to reconcile net income to net cash
provided by operations:
Depreciation and amortization ........................ 4,588 2,988
Apartment properties depreciation .................... 269 --
Equity in earnings of partnerships ................... (1,454) (462)
Minority interest in net losses of
consolidated subsidiaries 202 (58)
Changes in operating assets and liabilities:
Accounts receivable ................................ (1,009) (638)
Other assets ....................................... 79 (79)
Accrued compensation ............................... (4,316) (3,742)
Deferred income taxes .............................. 11,742 --
Accounts payable and accrued expenses .............. 6,370 517
----- ---
Net cash provided by operating activities .............. 18,591 847
------ ---
Investing activities
Payments made for acquisition of management contracts
and acquired businesses ............................... (43,785) (930)
Acquisition of real estate limited partnership interests (68,108) (5,971)
Investment in apartment properties, net of acquired cash (9,421) --
Limited partnership distributions ......................... 4,978 2,995
Advances made under note agreements ....................... (90) --
Collections on notes receivable ........................... 14,780 1,313
Additions to property and equipment, net .................. (971) (384)
(Increase) decrease in restricted cash .................... (1,172) 7
------ -
Net cash used in investing activities ...................(103,789) (2,970)
-------- ------
Financing activities
Payments on notes payable ................................. (396) (43,032)
Payments on non-recourse mortgage notes ................... (136) --
Proceeds from exercise of stock options ................... 944 489
Proceeds from notes payable ............................... 90,046 37,000
Proceeds from issuance of preferred stock ................. -- 15,000
Investment made by minority interests ..................... 2,301 2,651
Distributions made to minority interests .................. (432) --
Debt and stock issuance costs ............................. (110) (604)
---- ----
Net cash provided by financing activities ............... 92,217 11,504
------ ------
Increase in cash and cash equivalents ....................... 7,019 9,381
Cash and cash equivalents at beginning of period ............ 49,846 36,596
------ ------
Cash and cash equivalents at end of period ..................$56,865 $45,977
======= =======
</TABLE>
- - ----------
See Notes to Condensed Consolidated Financial Statements.
<PAGE>
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------------
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, mortgage banking
and real estate investment banking services for various ownership entities.
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 three month period ended March 31, 1996 are not necessarily indicative
of the results that may be expected for the year ended 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 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
March 31, 1996:
Gillett Family Trust, et al., v., Insignia Financial Group, 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 Partnerships; 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, in behalf of
themselves, on behalf of a putative class of plaintiffs, and derivatively
on behalf of the partnerships, challenging the actions taken by 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 require supplemental
payments to tendering limited partners aggregating approximately $6 million
to be paid by the Affiliated Purchasers (which amount has been accrued as
additional purchase price, with payment to follow court approval); waiver
by the Shelter Properties Partnerships' general partners of any right to
certain proceeds from a sale or refinancing of the partnerships'
properties; some restrictions on Insignia's ability to vote the limited
partner interests it acquired; payment of $1.25 million for plaintiffs'
attorney fees and expenses in the litigation (which amount is divided among
the various partnerships and acquiring entities); and general releases of
all the defendants. On April 23, 1996, the court gave preliminary approval
of the establishment of the class for the purpose of the settlement and of
the settlement terms, and ordered that notice of the settlement be sent to
the class. Notice has been sent. A final hearing has been scheduled for
June 24, 1996. If a certain number of class members opt out, the settlement
may be canceled. Class members also have the right to object to the
settlement, which could lead to alterations in the terms of settlement or
even cancellation of the settlement.
William Wallace, et al. v. Devon Associates, et al. On February 15, 1996,
Devon Associates, a New York general partnership, commenced tender offers
for limited partner interests in two limited partnerships, Growth Hotel
Investors and Growth Hotel Investors II (the "Growth Partnerships").
Insignia controls the managing general partner of the Growth Partnerships
and also owns approximately 8% of Devon Associates.
<PAGE>
On February 21, 1996, certain persons claiming to own limited partner
interests in the Growth Partnerships filed a class action and derivative
suit in the Supreme Court for the State of New York and the County of New
York on behalf of themselves, on behalf of a putative class of plaintiffs,
and derivatively on behalf of the Growth Partnerships. The defendants are
Devon Associates, the general partners of Devon Associates, an affiliate of
one of the general partners of Devon Associates, Insignia, and the general
partners of the Growth Partnerships.
The complaint contains allegations that, among other things, (i) the
defendants breached certain fiduciary duties to the plaintiffs by, among
other things, making tender offers without first shopping the Growth
Partnerships or considering other alternatives to maximize the value to the
limited partners, such as liquidating the properties underlying the Growth
Partnerships: (ii) the defendants breached their fiduciary duties to the
plaintiffs by, among other things, making the tender offers at an
inadequate price; and (iii) the offers to purchase and other documents
disseminated in relation to the tender offers were false and misleading.
The complaint seeks compensatory damages, an injunction blocking the tender
offers, and a Court order directing the defendants to cure certain alleged
breaches of fiduciary duties.
A second class action and derivative suit, similar in all material respects
to the Wallace litigation, was filed on February 28, 1996 in the Superior
Court for the State of California (the "California Court"). Styled R&S
Asset Partners and Jesse B. Small et al. v. Devon Associates, et al., this
complaint raises the same claims as are found in the New York lawsuit.
On April 23, 1996, the parties to the foregoing two Devon Associates class
action and derivative suits entered into a stipulation settling the
matters. The principal terms of the settlement agreement, which remain
subject to approval by the California Court, require the managing general
partner of the Growth Partnerships to (i) take such actions as are
reasonably necessary and consistent with its fiduciary duties to solicit
offers for the purchase of the assets of the Growth Partnerships which
maximize the value of the Growth Partnerships' limited partnerships units;
(ii) deal fairly and in good faith with persons or entities expressing an
interest in making a bona fide offer to purchase the Growth Partnerships'
assets; (iii) consistent with its fiduciary duties, provide all bona fide
offerors with access to the Growth Partnerships' books and records for
purposes of due diligence, (iv) allow plaintiffs' counsel to comment upon
the offering process; (v) make available to plaintiffs' counsel materials
and correspondence sent and received in connection with the offering
process; (vi) distribute supplemental disclosure materials concerning the
existence of an offer to purchase the Growth Partnerships' properties; and
(vii) deposit $1.9 million in an escrow account, from which account
plaintiffs' court-approved attorneys' fees and disbursements will be paid.
Provisional Court approval of the stipulation is required before it will be
distributed to class members for review. If a certain number of class
members opt out, the settlement may be canceled. In the normal course, it
may take several months before it is known whether the provisional
settlement will actually take effect.
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 believwsuits will be resolved without material loss to the
Company or its subsidiaries.es 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,
a wholly owned subsidiary of The Balcor Company, Inc. ("Balcor").
Currently, the Company manages approximately 236 properties, comprising
approximately 45,000 units of multi-family residential housing and 12
million square feet of commercial space, associated with that acquisition
(56 of the properties, comprising approximately 2,000 units of multi-family
residential housing and 5.25 million square feet of commercial space, are
not controlled by Balcor).
<PAGE>
Recently, Balcor announced the pending sale of approximately 20 of such
properties, comprising 6,000 units of multi-family residential housing, to
Equity Residential Properties Trust. The Company has been advised that
Balcor has listed or is considering listing for sale a substantial majority
of the multi-family residential properties controlled by it. In connection
with the potential sales of such properties, Balcor has entered into
agreements with the Company to provide additional services (the "Advisory
Agreements"). These services include collection of data, the preparation of
materials for potential purchasers, and assistance with regard to
transition plans, among other things. The Advisory Agreements have an
initial term of one year. Pursuant to the Advisory Agreements, the Company
is to be paid 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.
In the event the properties were all sold within the next year, the Company
estimates that it would receive approximately $13 million in Advisory Fees,
that its property management fees would be reduced by approximately $12
million per year, and that it would be required to write-off approximately
$6 million of unamortized purchase price. To the extent Balcor does not
sell its properties in the near term because of pricing or other issues,
(a) the Company will continue to receive property management fees or, if
Balcor terminates the property management agreements other than for cause,
the Company will receive a rebate of a portion of the purchase price, (b)
the amount of the write-off will be reduced or eliminated, and (c) the
Company will receive Advisory Fees only if the properties are sold during
the term of the Advisory Agreements. The number and timing of property
sales by Balcor during the term of the Advisory Agreements cannot be
predicted. Therefore, the Company cannot estimate with any reasonable
accuracy the amount of any Advisory Fees it may receive, the reduction of
its management fees or the amount of unamortized purchase price to be
written off. The Company expects that any potential impact to its EBITDA in
1996 from potential property sales and resulting terminations of the
Company's management agreements would not be material. However, revenues
lost and not replaced through acquisitions or incremental third party
servicing would fully impact 1997 EBITDA.
6. Acquisition of National Property Investors, 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") and certain of its affiliates for an aggregate purchase price
of approximately $116 million. The pro forma unaudited results of
operations for the three months ended March 31, 1996 and March 31, 1995
assuming consummation of the purchase as of January 1, 1995 are as follows:
<TABLE>
Three Months Ended
March 31,
---------
1996 1995
---- ----
(000's omitted, except per share data)
<S> <C> <C>
Revenues ................................ $41,927 $32,933
Net Income .............................. 2,051 2,337
Earnings per common share ............... $ 0.07 $ 0.10
</TABLE>
7. During the first three months of 1996, the Company had the following
changes in the equity accounts:
a) Exercise of stock options representing 134,660 shares of Class A Common
Stock at exercise prices ranging from $1.88 to $13.00 per share.
b) Net income of $2,120,000 for the three months ended March 31, 1996.
c) Accrued preferred dividends of $108,000.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
- - --------------------------------------------------------------------------------
of Operations
- - -------------
Financial Condition
- - -------------------
The Company posted strong results for the first quarter of 1996 in all
areas, including asset growth, results of operations, and market capitalization.
Assets grew 51.7% from $245.4 million as of December 31, 1995 to $372.4 million
as of March 31, 1996, primarily in property management contracts and investments
in limited partnership ("LP") interests. Combined earnings before interest,
taxes, depreciation and amortization (EBITDA) and funds from operations (FFO)
increased 53.9% from $8.4 million for first quarter 1995 to $12.9 million for
the first quarter 1996. FFO is a measure of real estate operations, which
represents net income or loss in accordance with generally accepted accounting
principles excluding gains or losses from debt restructuring or sales of
property, plus depreciation and provision for impairment. Market capitalization
(i.e. closing market price multiplied by the number of common shares issued and
outstanding) increased 27.3% from $498.1 million at December 31, 1995 to $634.1
million at March 31, 1996.
The acquisition of National Property Investors, Inc. ("NPI") in January
1996 was the primary cause of the asset growth, with most of the investment
being in property management contracts and limited partnership interests, of
which approximately $43 million was allocated to management contracts and
approximately $74 million was allocated to LP investments. The acquisition added
approximately 32,000 units to the number of units managed, bringing the total
units managed (including co-operatives and condominiums in the New York City
area) to approximately 298,000 units.
The Company benefited from its investments in limited partnerships as a
result of capital improvements to the properties, FFO increases and increases in
cash available for distribution as a result of refinancings of the mortgages on
the properties to lower rate, longer term fixed rate debt. In connection with
its acquisition of limited partnership interests in each portfolio, Insignia
evaluated and implemented strategic operational and property improvement plans.
These plans are resulting in substantial capital improvements to many of the
properties; such improvements are funded from cash maintained by the
partnerships, which aggregated approximately $95 million at March 31, 1996.
In addition, the performance of the properties has continued to improve.
Comparing the results of the 27 partnerships (weighted by Insignia's
proportionate ownerships and making adjustments for three assets sold by the
partnerships during 1995) for the first quarter of 1996 to the first quarter of
1995 indicates growth in FFO attributable to Insignia's current ownership
interests of 9.8%. Such FFO increase was derived primarily from a 4.6% increase
in property revenues, an 8.4% increase in property expenses (of which
approximately 4.6% was attributable to additional expenditures on landscaping,
exterior painting, parking lot repairs and similar curb appeal expenditures
associated with the strategic plans), reduced partnership administrative
expenses arising from Insignia's economies in such matters and the
non-recurrence of litigation costs pertaining to one partnership during the
first quarter of 1995.
For the first quarter, distributions from limited partnerships to Insignia
amounted to $5.0 million, with $1.3 million of that being FFO and the remaining
$3.7 million relating to refinancings and capital events. Since the first
limited partnership interest investments made in December 1994 and prior to the
NPI acquisition, Insignia had invested approximately $70 million in limited
partner interests and received approximately $16 million in distributions from
those partnerships. As a result of the NPI acquisition, limited partner
interests comprise $126.7 million at cost of Insignia's assets at March 31,
1996.
In connection with the NPI acquisition, the Company received approximately
$27.6 million in cash from NPI, of which approximately $13.5 million was part of
the assets of the purchased entities and approximately $14.1 million was payment
in full of the note receivable/loan participation. The remaining source of funds
for the purchase payment was a draw of $88 million on the $200 million revolving
credit facility.
The change in the accrued and sundry liabilities relates primarily to the
deferred taxes that had to be recorded because of the difference in the book and
tax bases of the management contracts acquired in the NPI acquisition.
<PAGE>
Results of Operations
- - ---------------------
The first quarter showed strong positive increases of 44.4% and 53.9% in
revenues from the service company (excluding apartment property revenues) and
combined EBITDA and FFO over the first quarter of 1995. Revenues increased $11.8
million from $26.6 million for the quarter ended March 31, 1995 to $38.3 million
for the quarter ended March 31, 1996. Combined EBITDA and FFO increased $4.5
million from $8.4 million to $12.9 million for the same periods, respectively.
The Company's ability to efficiently absorb acquisitions into its existing
operating infrastructure is the primary reason for the strong operating
performance for the quarter.
Fee based services revenues, the largest revenue item, increased 42.2% from
$25.9 million for 1995 to $36.8 million for 1996 as a direct result of the
acquisitions completed throughout 1995 and the NPI acquisition in January 1996.
The impact from the acquisitions is felt largely in fee based services
revenues generated by the property and asset management group, which increased
55.3% from $22.7 million to $35.2 million. The commercial group in particular
showed positive results from the development of the supporting infrastructure
(which has been an undertaking encompassing all of last year), with fee based
services revenues increasing 69.7% from $4.8 million for first quarter 1995 to
$8.1 million for first quarter 1996. The effects of the increased efficiencies
are most easily seen in the EBITDA contribution from this area, which was up
from approximately $100,000 for 1995 to $1.1 million for 1996. Total units
managed increased to approximately 298,000 as of March 31, 1996 from
approximately 215,000 as of March 31, 1995, and commercial square feet managed
increased to approximately 60.0 million from 42.5 million a year ago.
Fee based services revenues from the financial services group are not
directly tied to growth from acquisition activity. Revenues from this group
decreased 49.3% from $3.3 million for 1995 to $1.6 million for 1996. The fees
generated by this group are transaction oriented in nature, and can vary from
period to period depending on the actual transactions completed.
Interest income increased 104.2% from $450,000 for 1995 to $919,000 for
1996. Much higher interest earning cash balances as well as a rise in interest
rates were the reasons for this increase.
Other income increased 190.6% from $202,000 for 1995 to $587,000 for 1996.
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 service expenses increased 53.0% from $17.4 million for 1995 to
$26.6 million for 1996. This increase is directly attributable to the
acquisitions completed in 1995 and the NPI acquisition in 1996, and is most
easily seen in the impact on fee based services expenses in the property and
asset management group. The expenses for this group increased 63.4% from $15.0
million for 1995 to $24.4 million for 1996. The margins narrowed somewhat
primarily due to the Company's involvement now in the management of co-ops and
condos, which produces smaller margins.
The financial services group had a 12.0% decrease in fee based services
expenses from $2.4 million for 1995 to $2.1 million for 1996. As discussed
earlier, this group is transaction oriented in nature as opposed to being
directly affected by acquisitions.
Administrative and other increased 36.6% from $1.7 million for 1995 to $2.3
million for 1996. Included in this category are the start up costs
(approximately $400,000) for the preferred vendor/discount services subsidiary
that began operations in the first quarter of 1996. This subsidiary, Compleat
Resource Group, Inc. ("CRG"), has formed strategic alliances with other vendors
to market services and products at a discounted rate to the tenants and limited
partners that deal with the Company on a daily basis and to the tenants of third
party owners. Pilot programs have been started in three areas across the United
States to continue defining/refining the marketing approach and establish
benchmarks for customer satisfaction.
<PAGE>
For the first time, the Company has consolidated limited partnership
entities into its financial statements since it owns majority interests in two
partnerships. The categories entitled apartment property revenues and apartment
property expenses relate solely to the operations of the properties owned by
these partnerships, as well as apartment property interest and depreciation. The
portion that does not belong to the Company is set apart in minority interests.
Interest expense increased 145.9% from $1.2 million for 1995 to $2.9
million for 1996. The increase in the outstanding notes payable balances from
$67.9 million at March 31, 1995 to $133.1 million at March 31, 1996 is the
primary cause of the increase in interest expense.
Depreciation and amortization increased 53.5% from $3.0 million for 1995 to
$4.6 million for 1996 as a result of the amortization of the acquired property
management contracts and the additions to property and equipment.
The effective income tax rate dropped from 40% for 1995 to 38% for 1996
primarily through the realization of tax benefits to the Company as a result of
strategic tax planning.
Primarily as a result of the foregoing, net income decreased 8.7% from $2.3
million for first quarter 1995 to $2.1 million for the first quarter 1996.
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 $46.0
million at March 31, 1995 to $56.9 million at March 31, 1996. The Company uses
combined EBITDA and FFO as an indicator of its working capital generated from
operations. Combined EBITDA and FFO increased 53.9% from $8.4 million for the
first quarter of 1995 to $12.9 million for the first quarter of 1996. The
following chart specifically identifies the sources of the combined EBITDA and
FFO and how the numbers for the two quarters are derived.
<TABLE>
Three Months Ended
March 31,
---------------
1996 1995
---- ----
<S> <C> <C>
Fee based services revenues .................... $36,837 $25,909
Interest ....................................... 919 450
Other .......................................... 587 202
--- ---
$38,343 $26,561
Fee based services expenses .................... 26,552 17,356
Administrative and other ....................... 2,305 1,688
----- -----
EBITDA - service company ....................... $ 9,486 $ 7,517
FFO
Concap ...................................... 998 837
Shelter ..................................... 705 --
NPI ......................................... 1,085 --
Century ..................................... 580 --
---
Combined EBITDA and FFO ........................ $12,854 $ 8,354
======= =======
</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 $116 million was outstanding as of March 31, 1996. With the working
capital generated through the operations of the Company and the available
balances on the revolver, the Company feels its capital resources are adequate.
The funding needs are reassessed as acquisitions are identified and pursued.
The Company is currently engaged in advanced negotiations with respect to
three separate potential major acquisitions of real estate service companies and
believes that agreement on most of the principal terms has been reached with
each of the other parties. If all three acquisitions were consummated, they are
anticipated to increase the Company's annualized EBITDA by approximately $50
million. The aggregate purchase price for these proposed acquisitions would be
approximately $250 million. The Company is considering various financing
alternatives, including the issuance of common stock of up to $50 million to
sellers of these businesses and additional long term debt financing. There can
be no assurance that the Company will be able to reach agreement upon or
consummate any or all of the proposed acquisitions, or that if consummated the
acquisitions would be on the terms (including the Company's financing of them)
or produce the results described above.
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.
Subsequent Events
- - ------------------
The Company notified the holders on March 29, 1996 of its intention to
prepay the subordinated convertible note of $10.0 million and called for
redemption of the $15.0 million preferred stock. At the election of the holders,
both the subordinated note and the preferred stock were converted to a total of
approximately 2.6 million shares of common stock on April 29, 1996.
<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 March 31, 1996 for the details on outstanding issues. Also,
see Registrant's Annual Report on Form 10-K for the year ended December 31,
1995.
Item 6. Exhibits and Reports on Form 8-K
- - -----------------------------------------
The following reports on Form 8-K were filed in the first quarter of fiscal year
1996:
1. Form 8-K dated January 19, 1996 filing the closing of the acquisition of
National Property Investors Inc. and certain of its affiliates.
2. Form 8-K dated January 29, 1996 filing the credit agreement for the new
credit facility and the press release.
<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/Andrew L. Farkas
----------------------------------------------
Andrew L. Farkas
Chairman and Chief Executive Officer
by: /s/Ronald Uretta
----------------------------------------------
Ronald Uretta
Chief Financial Officer and Treasurer
<TABLE>
Exhibit 11 - Statement Re: Computation of Earnings Per Common Share
Three Months Ended
March 31,
1996 1995
---- ----
<S> <C> <C>
Primary
Average common shares outstanding .......................... 25,932 20,168
Net effect of dilutive common stock options and warrants
based on the treasury stock method using average
market price ............................................. 2,886 976
----- ---
Total ...................................................... 28,818 21,144
====== ======
Net income ................................................. $ 2,120 2,321
Preferred Dividends ........................................ (108) (265)
---- ----
Adjusted net income ........................................ $ 2,012 2,056
======= =====
Earnings per common share .................................. $ .07 $ .10
======= =======
Fully Diluted
Average common shares outstanding .......................... 25,932 20,168
Net effect of dilutive common stock options and warrants
based on the treasury stock method using the greater
of the average market price or the ending market price ... 3,345 1,228
----- -----
Total ...................................................... 29,277 21,396
====== ======
Net income ................................................. $ 2,120 2,321
Preferred Dividends ........................................ (108) (265)
---- ----
Adjusted net income ........................................ $ 2,012 $ 2,056
======= =======
Earnings per common share .................................. $ .07 $ .10
======= =======
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Insignia Financial Group, Inc. March 31 1996 Form 10-Q and is qualified in its
entirety by reference to such 10-Q filing.
</LEGEND>
<S> <C>
<MULTIPLIER> 1,000
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 56,865
<SECURITIES> 0
<RECEIVABLES> 12,764
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 8,291
<DEPRECIATION> 0
<TOTAL-ASSETS> 372,363
<CURRENT-LIABILITIES> 0
<BONDS> 151,086
15,000
0
<COMMON> 260
<OTHER-SE> 159,554
<TOTAL-LIABILITY-AND-EQUITY> 372,363
<SALES> 0
<TOTAL-REVENUES> 40,221
<CGS> 0
<TOTAL-COSTS> 26,552
<OTHER-EXPENSES> 11,501
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,311
<INCOME-PRETAX> 3,420
<INCOME-TAX> 1,300
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,120
<EPS-PRIMARY> .07
<EPS-DILUTED> .07
</TABLE>
