UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the period ended March 31, 1997
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, 1997, there were outstanding 29,048,643 shares of Class A Common
Stock.
<PAGE>
INSIGNIA FINANCIAL GROUP, INC. AND SUBSIDIARIES
FORM 10-Q/A
QUARTERLY PERIOD ENDED MARCH 31, 1997
INDEX
Page No.
PART I FINANCIAL INFORMATION:
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Statements of Income for the
three months ended March 31, 1997 and 1996 2
Condensed Consolidated Balance Sheets as of
March 31, 1997 and December 31, 1996 3
Condensed Consolidated Statements of Cash Flow
for the three months ended March 31, 1997 and 1996 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>
<TABLE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
a) Income Statement
INSIGNIA FINANCIAL GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Thousands of Dollars, except share and per share data)
(Unaudited)
<CAPTION>
Three Months Ended
March 31,
1997 1996
<S> <C> <C>
Revenues
Fee based services $65,066 $36,837
Interest 734 919
Other 529 587
Apartment property 1,583 1,878
67,912 40,221
Costs and Expenses
Fee based services 51,717 26,552
Administrative 2,282 2,305
Apartment property 732 1,028
Interest 1,633 2,904
Apartment property interest 372 407
Depreciation and amortization 7,086 4,588
Apartment property depreciation 239 269
64,061 38,053
Equity earnings - limited partnership interests 3,067 1,454
Minority interests in consolidated subsidiaries (3,578) (202)
Income before income taxes 3,340 3,420
Provision for income taxes 1,336 1,300
Net income $ 2,004 $ 2,120
Earnings per common share $ .06 $ .07
Weighted average common shares outstanding and
dilutive common stock equivalents 32,753,677 28,817,788
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
<PAGE>
<TABLE>
b) Balance Sheet
INSIGNIA FINANCIAL GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Thousands of Dollars, except share data)
<CAPTION>
March 31, December 31,
1997 1996
(Unaudited)
<S> <C> <C>
Assets
Cash and cash equivalents $ 69,821 $ 54,614
Receivables 52,455 46,040
Property and equipment 12,195 12,083
Investments in real estate limited partnerships and other securities 127,099 150,863
Apartment property 21,957 22,125
Property management contracts 116,096 122,915
Costs in excess of net assets of acquired businesses 77,044 75,627
Other assets 10,142 8,135
Total assets $486,809 $492,402
Liabilities and Stockholders' Equity
Liabilities:
Accounts payable $ 2,417 $ 1,711
Commissions payable 18,264 18,736
Accrued and sundry liabilities 32,186 40,741
Notes payable 49,605 49,840
Non-recourse mortgage note payable 19,300 19,300
Total liabilities 121,772 130,328
Company-obligated mandatorily redeemable convertible
preferred securities of a subsidiary trust holding
solely debt securities of the Company 143,943 144,169
Stockholders' Equity:
Common stock, class A, par value $.01 per share - authorized
50,000,000 shares, issued and outstanding 29,048,643 (1997)
and 28,857,097 (1996) shares 290 289
Additional paid-in capital 190,841 189,657
Retained earnings 29,963 27,959
Total stockholders' equity 221,094 217,905
Total liabilities and stockholders' equity $486,809 $492,402
<FN>
NOTE: The Balance Sheet at December 31, 1996 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.
</FN>
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
<PAGE>
<TABLE>
c) Statement of Cash Flow
INSIGNIA FINANCIAL GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW
(Thousands of Dollars)
(Unaudited)
<CAPTION>
Three Months Ended
March 31,
1997 1996
<S> <C> <C>
Operating Activities
Net income $ 2,004 $ 2,120
Adjustments to reconcile net income to net cash
provided by operations:
Depreciation and amortization 7,086 4,588
Apartment property depreciation 239 269
Equity in earnings of partnerships (3,067) (1,454)
Minority interest in consolidated subsidiaries 3,578 202
Changes in operating assets and liabilities:
Accounts receivable (4,478) (1,009)
Other assets (1,258) 79
Accrued compensation (6,647) (4,316)
Deferred income taxes -- 11,742
Accounts payable and accrued expenses (173) 6,370
Commissions payable (472) --
Net cash (used in) provided by operating activities (3,188) 18,591
Investing activities
Increase in restricted cash -- (1,172)
Additions to property and equipment, net (772) (971)
Payments made for acquisition of management contracts
and acquired businesses (2,990) (43,785)
Proceeds from Balcor dispositions 2,149 --
Purchase of real estate limited partnership interests (1,698) (68,108)
Distributions from partnerships 28,329 4,978
Advances made under note agreements (2,886) (90)
Investment in apartment property, net of acquired cash -- (9,421)
Collections on notes receivable 375 14,780
Net cash provided by (used in) investing activities 22,507 (103,789)
Financing activities
Proceeds from issuance of common stock of subsidiary 110 --
Payments on notes payable (445) (396)
Payments on non-recourse mortgage notes -- (136)
Payment of dividends on trust based convertible preferred securities (2,429) --
Proceeds from exercise of stock options 1,185 944
Proceeds from notes payable -- 90,046
Investments made by minority interests -- 2,301
Distributions made to minority interests (1,581) (432)
Debt and stock issuance costs (952) (110)
Net cash (used in) provided by financing activities (4,112) 92,217
Increase in cash and cash equivalents 15,207 7,019
Cash and cash equivalents at beginning of period 54,614 49,846
Cash and cash equivalents at end of period $ 69,821 $ 56,865
</TABLE>
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 services company specializing in the ownership and operation of
securitized real estate assets throughout the United States. As a full
service real estate management organization, Insignia performs property
management, asset management, investor services, partnership accounting,
real estate investment banking and real estate brokerage services for
various types of property owners.
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, 1997 are not necessarily indicative
of the results that may be expected for the year ended December 31, 1997.
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, 1996.
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.
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128 ("FAS 128"), Earnings Per Share.
FAS 128, which is required to be adopted on December 31, 1997, will change
the method currently used to compute earnings per share. Under the new
requirements, the current primary earnings per share will be replaced by
basic earnings per share, which excludes all dilutive common stock
equivalents. The impact is expected to result in an increase in earnings
per share of $.01 for the quarters ended March 31, 1997 and March 31, 1996,
respectively. The impact of FAS 128 on the calculation of fully diluted
earnings per share for these quarters is not expected to be material.
4. The following is a summary of the Company's material contingencies as of
March 31, 1997:
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.
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 Street, 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 Street.
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,
<PAGE>
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 the second
amended and consolidated class action complaint. That motion was heard by
the court in December 1996.
On December 18, 1996 the court issued a decision granting Insignia's motion
to dismiss. By order dated January 7, 1997 the court dismissed the second
amended and consolidated class action complaint with prejudice. Plaintiffs
filed a notice of appeal in the Dee action on February 14, 1997.
The Company understands that the United States Department of Housing and
Urban Development ("HUD") has filed a civil lawsuit against one of the
third party, unaffiliated owners of affordable housing to which the Company
provides management services. The complaint alleges that the owner,
Associated Financial Corporation ("AFC") of Los Angeles, California, whose
chairman is A. Bruce Rozet, had improperly received monies from 17
properties managed by the Company over a period of approximately six years.
The allegations include statutory violations which could, if proven, give
rise to double and treble damages as well as civil penalties for false
filings. The Company was not named as a defendant in the suit. The Company
has no ownership interest in any of the properties or partnerships that are
the subject of the complaint and is not affiliated with AFC. The Company
has managed approximately 75 properties (approximately 8,600 units) for AFC
since 1991 when the Company succeeded to the existing management contract
portfolio as part of its acquisition of substantially all of the assets of
U.S. Shelter Corporation. The Company believes that it earns approximately
$1.6 million per year in EBITDA from the management of the entire portfolio
of AFC properties. HUD has stated that the payments to AFC from 1990 -
April 1995 at issue aggregate nearly $5 million.
The Company has received assurances over the course of the past several
years that its activities were in compliance with laws and regulations
applicable to the Company's role as property manager. The Company does not
believe the matters at issue will have a material adverse effect on its
financial condition. Moreover, in connection with the Company's acquisition
of materially all the assets of U.S. Shelter Corporation, the Company
received certain representations, warranties and indemnities from the
seller which included the propriety of the subject contract. The Company
has given notice to the seller that the Company intends to seek
indemnification for this matter should the Company incur any loss, damage
or expense related thereto. The Company cannot predict whether or not the
seller will contest such indemnification.
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. Property Dispositions
In November 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").
<PAGE>
Balcor announced in the second quarter of 1996 its intention to sell a
large portion of the properties covered by these management contracts. The
Company entered into an agreement with Balcor whereby an advisory fee would
be paid to the Company based on the property sales for services rendered in
the sales transactions. The Advisory Agreements have terms of one year and
the fees range from .75% to 1.25% of the sales price of the property. The
fees are and will continue to be paid in cash after the close of each
transaction. Presently, all unamortized management contract costs
associated with the completed property sales have been fully recovered.
Management believes that the unamortized purchase price relating to
properties managed for Balcor properly reflects the asset value and that no
impairment exists.
6. Acquisition of Rostenberg-Doern Company, Inc. and HMB Property Services,
Inc.
In the first quarter of 1997, the Company completed the purchase of two
commercial brokerage and property management companies. Both were acquired
on February 28, 1997. The aggregate purchase price paid for these
businesses was $2.9 million consisting of approximately $700,000 in
management contract rights, $2.2 million of cost in excess of assets
acquired and $40,000 for purchased capital items. Assuming certain
qualified revenue requirements are met, contingent payments up to
approximately $1.3 million could be paid to the sellers in relation to the
Rostenberg acquisition. These acquisitions are collectively and
individually insignificant to the Company under the provisions of
Regulation S-X, therefore, pro forma disclosures are not required.
7. Amended and Restated Credit Agreement.
In the first quarter of 1997, the Company completed the renegotiation of an
amendment to its revolving credit facility, increasing the credit limit
from $200 million to $275 million. The amended revolving credit facility
involves a syndicate of 14 national and international financial
institutions. The Company currently has $43 million outstanding under the
credit facility.
8. Trust Based Convertible Preferred Securities
In November 1996, Insignia Financing I, a Delaware trust and a wholly owned
subsidiary of the Company (the "Trust"), issued and sold 2,990,000 shares
of Trust Based Convertible Preferred Securities (the "Securities") with an
aggregate liquidation amount of $149.5 million, sold pursuant to exemptions
under the Securities Act of 1933, as amended, and the rules thereunder. All
of the outstanding common Securities of the Trust are owned by the Company.
The sole asset of the Trust is the $154.1 million principal amount of 6.5%
convertible subordinated debentures of the Company due September 30, 2016.
The Company has certain obligations relating to the Securities which amount
to a full and unconditional guarantee of the Trust's obligations under the
Securities. The debentures issued and the common securities purchased by
the Company are eliminated in the balance sheet. The Securities bear
interest at the rate of 6.5% per annum, with quarterly distributions
payable in arrears. The Company has the option to defer interest payments
from time to time, not to exceed 20 consecutive quarters. The Company's
first quarter distribution of approximately $2.4 million was made on March
31, 1997, and is reflected in minority interests in the consolidated
statements. The Securities are convertible into the Company's Class A
Common Stock at $26.50 per share beginning 60 days after the Securities
first issuance date through September 30, 2016, or upon the Company's
option to redeem the Securities after November 1, 1999. The Securities are
structured such that the distributions are tax deductible to the Company.
9. During the first three months of 1997, the Company had the following
changes in the equity accounts:
a) Exercise of 141,546 stock options and 50,000 warrants representing
191,546 shares of Class A Common Stock at exercise prices ranging from
$1.88 to $13.69 per share.
b) Net income of $2,004,000 for the three months ended March 31, 1997.
<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 1997, with net
EBITDA increasing 46% from $9.9 million in the first quarter of 1996 to $14.4
million for the first quarter of 1997. The Company uses Net EBITDA as a primary
indicator of financial performance. Net EBITDA is defined as earnings before
interest, taxes, depreciation and amortization ("EBITDA") combined with funds
from operations ("FFO") less interest expense and earnings allocable to
preferred securities. Additionally, EBITDA for the service company increased 30%
from $9.5 million to $12.3 million while FFO increased 80% from $3.4 million to
$6.1 million for the first quarter of 1997.
The Company closed two acquisitions in the first quarter of 1997. HMB
Property Services, Inc. ("HMB") and Rostenberg-Doern Company, Inc.
("Rostenberg") were purchased on February 28, 1997 for an approximate aggregate
purchase price of $2.9 million with approximately $700,000 allocated to
management contracts, $2.2 million allocated to costs in excess of assets
acquired representing client relationships and $40,000 for purchased capital
assets. HMB and Rostenberg added approximately 2.4 million square feet to the
existing commercial portfolio. These acquisitions bring the total number of
properties managed at March 31, 1997, to approximately 2,500 with total
commercial square feet of approximately 137.2 million and the total number of
residential units managed to approximately 255,000. The acquisition purchase
prices were paid with cash currently on hand. These acquisitions had little or
no impact on the operating results for first quarter of 1997. Assuming certain
qualified revenue requirements are met, contingent payments up to approximately
$1.3 million could be paid to the sellers in relation to the Rostenberg
acquisition.
Cash and cash equivalents increased in the first quarter of 1997 by $15.2
million from the end of 1996. The increased cash holdings is due to
distributions received of approximately $12.2 million from Insignia Properties
Trust ("IPT") and other limited partnership interests, in the first quarter of
1997 as well as $16.1 million received from a real estate co-investment
representing the Company's portion of refinancing proceeds distributed to the
owners. Increased acquisition activity, income tax payments and accrued
compensation payments offset the cash distributions received from the Company's
investments in real estate limited partnerships and other securities. The
increase in the Company's cash position has enabled much of the acquisition
funding to be made with cash on hand as opposed to drawing on the Company's
recently increased revolving credit facility.
Receivables increased 14% from $46 million at December 31, 1996 to $52.5
million at March 31, 1997. The increase is primarily due to increased leasing
activity transactions which are to be collected at future dates as defined in
the terms of the individual brokerage agreements.
FFO attributable to real estate investments increased 80% to $6.1 million
for the first quarter of 1997. FFO from investments in those limited
partnerships now included in IPT increased 53% to $5.2 million, while FFO from
co-investment ventures was $928,000 for the first quarter of 1997. A refinancing
of one of the Company's co-investment deals occurred on February 28, 1997. Had
the refinancing occurred on January 1, 1997, FFO results from the co-investment
venture would have decreased by $268,000. The Company's co-investment program
involves the co-investing by Insignia in the equity of real properties acquired
by its third party institutional customers. In connection with this program, the
Company generally receives its pro-rata share of income, a promoted equity
interest, and servicing rights relative to the assets throughout the holding
period. A significant portion of IPT's FFO growth was attributable to
acquisition growth, including the NPI acquisition in late January 1996 and
additional purchases of interests in the partnerships during 1996. However,
comparable property growth was 23%, as 5% revenue growth along with flat
operating expenses permitted NOI growth of 9%. Major maintenance expense on the
properties owned by the partnerships declined in the first quarter 1997.
Insignia believes that future revenue growth may be hampered by more competitive
markets with lower occupancies and increased concessions, particularly in
southeastern markets.
The Company's investments in real estate limited partnerships and other
securities decreased $24 million. This represents a decrease of 16% from
December 31, 1996. The decrease is a direct result of distributions received
from the partnerships in which the Company holds limited partnership interests
through IPT, co-investments and other limited partnership interests.
Management contracts decreased by $6.8 million from $122.9 million at
December 31, 1996 to $116.1 million at March 31, 1997, representing a 6%
decrease. The decrease in the first quarter of 1997 is due to the amortization
of management contracts. Even though there were several acquisitions in the
first quarter of 1997, the assets acquired were primarily purchased goodwill
representing client relationships as opposed to management contracts.
The change in accrued and sundry liabilities primarily relates to the first
quarter payment of bonuses and income taxes accrued at December 31, 1996, as
well as the continued payments of acquisition liabilities. Accrued and sundry
liabilities decreased $8.6 million, a 21% decrease from the end of 1996.
Results of Operations
All major components of operational results for the first quarter showed
large increases over the first quarter of 1996 primarily due to acquisitions
that have closed over the past twelve months as well as new business ventures.
Even though the recent acquisitions have not materially impacted results, Net
EBITDA increased 46% over the first quarter of 1996. Net EBITDA per common share
increased 29% to $.44. EBITDA increased 30% to $12.3 million while FFO increased
80% to $6.1 million. Financial expenses, including interest and trust based
preferred dividends increased 35% to $4.1 million.
Total revenue increased $27.7 million, a 69% increase over 1996. Total fee
based service revenue increased by $28 million, a 77% increase over 1996. The
increase was primarily in the commercial segment of the Company due to the ESG
and Paragon acquisitions which occurred on June 30, 1996. In addition to the
growth from acquisitions since the first quarter of 1996, both the residential
and commercial groups set records for new management assignments from third
party owners during the first quarter of 1997 gaining approximately 6200 units
and 7.1 million square feet from new business.
Interest income decreased $185,000 or 20% from March 31, 1996 as compared
to the same period in 1997. This variance is primarily due to a note receivable
held for a small portion of the first quarter of 1996 in relation to the NPI
acquisition. The note was repaid in January 1996 with $130,000 of interest
income recorded in the first quarter of 1996. No comparable note exists in 1997.
Revenue from apartment property has decreased $295,000 or 16% from March
31, 1996 as compared to the same period in 1997. The decrease correlates
directly to the sale of a property since the first quarter of 1996 that
contributed to this type of revenue. In 1997, apartment property operations
reflect one property as opposed to two in 1996.
Fee based service expenses increased 95% or $25.2 million in the first
quarter of 1997 as compared to the first quarter of 1996. As with the fee based
service revenues, fee based service expenses increased in the commercial segment
of the Company as a direct result of the commercial acquisitions that have
occurred since the first quarter of 1996. Other segments of the Company
experienced little change in expense levels from the first quarter of 1996.
Administrative expenses remained constant in the first quarter of 1997 as
compared to the same quarter of 1996. The Company's ability to efficiently
absorb acquisitions into its existing administrative and corporate
infrastructure is responsible for the steady expense level.
Interest expense decreased 44% or $1.3 million in the first quarter of 1997
as compared to the first quarter of 1996. This decrease correlates directly to
the reduction in borrowing from $123.1 million at March 31, 1996 to $49.6
million at March 31, 1997.
Apartment property expense, interest and depreciation all decreased in the
first quarter of 1997 as compared to the first quarter of 1996. The reduction
relates primarily to the sale of one of the properties in 1996. In the first
quarter of 1997, apartment property operations reflect one property as opposed
to two.
Depreciation and amortization increased $2.5 million in the first quarter
of 1997 as compared to the same time period in 1996, representing a 54%
increase. The increase is directly related to the growth in the Company since
the
<PAGE>
first quarter of 1996. With the acquisitions occurring after March 31, 1996, the
increase in amortizable assets has caused the corresponding increase in
depreciation and amortization expense.
Equity earnings for the first three months ended March 31, 1997 reflects an
increase of $1.6 million, a 111% change, as compared to the three months ended
March 31, 1996. The increase is primarily due to: 1) equity earnings from the
investments in co-investments; 2) the prorated ownership of National Properties
Investors partnerships in 1996 compared to the full ownership in 1997 due to the
purchase of NPI occurring in the first quarter of 1996 and 3) the improved
results of the partnerships as discussed in the Financial Condition section on
FFO above.
Minority interests in consolidated subsidiaries increased $3.4 million from
1996 to 1997. Minority interest as of March 31, 1997 consists of dividends of
$2.4 million on trust based convertible preferred securities and $1.2 million in
charges resulting from distributions made by majority owned subsidiaries to the
holders of minority equity interests (which caused the minority owner to then
have negative equity). Generally accepted accounting principles requires such
charges to be taken by the majority owner on the presumption that the negative
equity of the minority owner on an historical book value basis cannot be
recovered by the majority owner.
The income tax provision increased 3% primarily due to an increase in the
effective tax rate from 38% to 40% because of changes in assets acquired and
their tax bases as determined by the structure of the purchase agreements for
acquisitions closed in the past twelve months and higher state tax rates where
these acquisitions occured.
Primarily as a result of the foregoing, net income stayed relatively flat
for the first quarter of 1997 as compared to 1996.
Liquidity and Capital Resources
The Company has several sources available for capital, primarily cash
generated from operations, distributions from IPT and partnerships and available
credit from the recently renegotiated $275 million revolving credit facility.
The renegotiated credit facility not only increased the cash sources available
to the Company by $75 million, but also reduced associated fees. At March 31,
1997, there was $43 million outstanding under the facility. As a result of the
Company's ability to generate cash from operations, and such additional sources
the cash balances grew from $54.6 million at December 31, 1996 to $69.8 million
at March 31, 1997. The Company uses net EBITDA as an indicator of its working
capital generated from operations. Net EBITDA increased 46% from $9.9 million
for the first quarter of 1996 to $14.4 million for the first quarter of 1997.
The chart specifically identifies the sources of net EBITDA and how the numbers
for the two quarters are derived.
Three Months Ended
March 31,
1997 1996
(Thousands of dollars)
Fee based services revenues $65,066 $36,837
Interest 734 919
Other 529 587
$66,329 $38,343
Fee based services expenses 51,717 26,552
Administrative and other 2,282 2,305
EBITDA - service company $12,330 $ 9,486
FFO
Insignia Properties Trust 5,179 3,387
Co-investments 928 --
Total FFO 6,107 3,387
Combined EBITDA and FFO 18,437 12,873
Interest expense (1,633) (2,904)
Preferred dividend (2,429) (108)
Net EBITDA $14,375 $ 9,861
With the working capital generated through the operations of the Company
and the availability under the revolving credit facility, the Company feels its
capital resources are adequate. The Company's funding needs are reassessed as
acquisitions are identified and pursued.
Subsequent Events
Acquisitions
The Company has closed two acquisitions since the end of the first quarter
of 1997. The purchase of Frain, Camins and Schwartzchild ("FC&S") closed on
April 1, 1997 while certain management rights were acquired from The Related
Group of Florida ("RTF") on April 29, 1997. The aggregate purchase price for
these acquisitions was approximately $14 million allocated to management
contracts, cost in excess of assets acquired and capital assets. The
acquisitions were financed with notes aggregating approximately $8.5 million
with the remainder paid from cash on hand. Assuming certain qualified revenue
requirements are met, a maximum of $4.5 million could be paid to the sellers of
FC&S over a three year period. The acquisitions increase the Company's
commercial portfolio by more than 12 million square feet and the residential
portfolio by approximately 10,300 units.
Business Combination
On April 3, 1997, Insignia and Angeles Mortgage Investment Trust ("AMIT")
entered into a non-binding agreement in principle contemplating, among other
things, a business combination of AMIT and Insignia Properties Trust, an entity
owned 98% by Insignia and its affiliates ("IPT"). It is anticipated that the
resulting combined entity would be owned approximately 82% by Insignia and its
affiliates and 18% by the pre-combination AMIT shareholders, of which 16% are
affiliates of Insignia. The proposed transaction is contingent upon, among other
things, satisfactory review of the business, operations, properties and assets
of AMIT and IPT, the negotiation and execution of definitive agreements and the
approval of the proposed transaction by the trustees and shareholders of each of
AMIT and IPT.
Stock Repricing and Related Amendments
On April 18, 1997, the Company approved the repricing of certain employee
stock options issued over the prior year. The 183,750 options involved were
issued primarily to new employees joining the Company through acquisitions, and
no options issued to members of senior management were subject to repricing. The
Company believes that this repricing is important to its employee retention and
incentive programs. The repriced options have an exercise price of $17.50 per
share over the five year vesting period, compared to a weighted average exercise
price of $23.65 prior to the repricing. On April 30, 1997, the Company approved
amendments to the Certificate of Incorporation, as amended, authorizing
50,000,000 additional shares of Class A Common Stock, par value $0.01 per share,
and to the 1992 Stock Incentive Plan increasing the aggregate number of shares
of Common Stock authorized from 4,666,666 to 5,250,000.
Other
Certain items discussed in this quarterly report may constitute
forward-looking statements within the meaning of the Private Litigation Reform
Act of 1995 (the "Reform Act") and as such may involve known and unknown risks,
uncertainties and other factors which may cause the actual results, performance
or achievements of the Company to be materially different from any future
results, performance, or achievements expressed or implied by such
forward-looking statements. Such forward-looking statements speak only as of the
date of this quarterly report. The Company expressly disclaims any obligation or
undertaking to release publicly any updates of revisions to any forward-looking
statements contained herein to reflect any change in the Company's expectations
with regard thereto or any change in events, conditions or circumstances on
which any such statement is based.
<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, 1997 for the details on outstanding issues. Also,
see Registrant's Annual Report on Form 10-K for the year ended December 31,
1996.
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
1997:
1. Form 8-K dated January 15, 1997 and filed January 15, 1997 disclosing
the acquisition of 25 multifamily residential properties by a 25%
owned affiliate of the Registrant.
2. Form 8-K dated March 5, 1997 and filed March 5, 1997 disclosing
Registrant's earnings for the year ended December 31, 1996 on Form
10-K.
3. Form 8-K dated March 28, 1997 and filed March 28, 1997 disclosing
Registrant's acquisition of Rostenberg-Doern Company, Inc. and HMB
Property Services, Inc.
4. Form 8-K dated March 31, 1997 and filed March 31, 1997 disclosing
Registrant's completion of an amendment to its revolving credit
facility, increasing the credit limit from $200 million to $275
million.
<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/James A. Aston
--------------------------------------
James A. Aston
Chief Financial Officer
DATED: May 27, 1997
<TABLE>
13
EXHIBIT 11 - Statement Re: Computation of Earnings Per Share
<CAPTION>
Three Months Ended
March 31,
1997 1996
(Thousands of dollars,
except per share data)
(Unaudited)
<S> <C> <C>
Primary
Average common shares outstanding 28,997 25,932
Net effect of dilutive stock options and warrants
based on the treasury stock method using
average market price 3,757 2,886
Total 32,754 28,818
Net income $ 2,004 $ 2,120
Preferred dividends -- (108)
Adjusted net income $ 2,004 $ 2,012
Earnings per common share $ .06 $ .07
Fully Diluted
Average common shares outstanding 28,997 25,932
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 3,756 3,345
Total 32,753 29,277
Net income $ 2,004 $ 2,120
Preferred dividends -- (108)
Adjusted net income $ 2,004 $ 2,012
Earnings per common share $ .06 $ .07
</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/A and is qualified in its
entirety by reference to such 10-Q/A filing.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 69,821
<SECURITIES> 0
<RECEIVABLES> 52,455
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 12,195
<DEPRECIATION> 0
<TOTAL-ASSETS> 486,809
<CURRENT-LIABILITIES> 0
<BONDS> 68,905
143,943
0
<COMMON> 290
<OTHER-SE> 220,804
<TOTAL-LIABILITY-AND-EQUITY> 486,809
<SALES> 0
<TOTAL-REVENUES> 67,912
<CGS> 0
<TOTAL-COSTS> 51,717
<OTHER-EXPENSES> 10,339
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,005
<INCOME-PRETAX> 3,340
<INCOME-TAX> 1,336
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,004
<EPS-PRIMARY> .06
<EPS-DILUTED> .06
</TABLE>
