<PAGE>
The following items were the subject of a Form 12b-25
and are included herein: Items 1 and 2 of Part I
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q/A
Amendment No. 1
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended JUNE 30, 1997
-------------------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period to
-----------------------------------------------
Commission File Number 1-13232
APARTMENT INVESTMENT AND MANAGEMENT COMPANY
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
MARYLAND 84-1259577
- --------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
1873 S. BELLAIRE STREET, SUITE 1700, DENVER, COLORADO 80222-4348
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(303) 757-8101
- --------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
NOT APPLICABLE
- --------------------------------------------------------------------------------
(Former name, former address, and former
fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to
such filing requirements for the past 90 days. Yes X No
----- -----
The number of shares of Class A Common Stock
outstanding as of August 8, 1997: 23,153,544
The number of shares of Class B Common Stock
outstanding as of August 8, 1997: 325,000
The number of shares of Class B Convertible Preferred
Stock outstanding as of August 8, 1997: 750,000
1
<PAGE>
APARTMENT INVESTMENT AND MANAGEMENT COMPANY
FORM 10-Q/A
INDEX
PAGE
----
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets as of June 30, 1997
(unaudited) and December 31, 1996 3
Consolidated Statements of Income for the Six and Three
Months Ended June 30, 1997 and 1996 (unaudited) 4
Consolidated Statements of Cash Flow for the Six and Three
Months Ended June 30, 1997 and 1996 (unaudited) 5
Notes to Consolidated Financial Statements
(unaudited) 7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 16
Item 3. Quantitative and Qualitative Disclosures about Market Risk 28
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 28
Item 2. Changes in Securities 29
Item 4. Submission of Matters to a Vote of Security Holders 31
Item 6. Exhibits and Reports on Form 8-K 32
Signatures 39
2
<PAGE>
PART I. FINANCIAL INFORMATION.
ITEM 1. FINANCIAL STATEMENTS.
APARTMENT INVESTMENT AND MANAGEMENT COMPANY
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
<TABLE>
JUNE 30, DECEMBER 31,
1997 1996
----------- ------------
<S> <C> <C>
ASSETS (Unaudited)
Real estate, net of accumulated depreciation of $156,104
and $120,077 $944,855 $745,145
Property held for sale 25,945 6,769
Investment in unconsolidated subsidiary 57,231 -
Investment in real estate partnerships 46,046 -
Cash and cash equivalents 21,521 13,170
Restricted cash 17,963 15,831
Accounts receivable 18,870 4,344
Deferred financing costs 7,184 11,053
Other assets 26,660 31,361
---------- --------
Total assets $1,166,275 $827,673
---------- --------
---------- --------
LIABILITIES AND STOCKHOLDERS' EQUITY
Secured notes payable $ 464,780 $242,110
Secured tax-exempt bond financing 74,799 75,497
Secured short-term financing 71,878 192,039
Unsecured short-term financing 33,000 12,500
---------- --------
Total indebtedness 644,457 522,146
---------- --------
Accounts payable, accrued and other liabilities 56,997 16,299
Resident security deposits and prepaid rents 6,353 4,316
---------- --------
Total liabilities 707,807 542,761
---------- --------
Commitments and contingencies - -
Minority interest in other partnerships 6,625 10,386
Minority interest in Operating Partnership 63,366 58,777
Stockholders' equity:
Class A Common Stock, $.01 par value, 150,000,000 shares
authorized, 22,042,809 and 14,980,441 shares issued and outstanding 221 150
Class B Common Stock, $.01 par value, 425,000 shares
authorized, 325,000 shares issued and outstanding 3 3
Preferred stock, $.01 par value, 10,000,000 authorized,
none issued and outstanding - -
Additional paid-in capital 417,487 236,791
Accumulated deficit (21,631) (14,055)
Notes due on Common Stock purchases (7,603) (7,140)
---------- --------
388,477 215,749
---------- --------
$1,166,275 $827,673
---------- --------
---------- --------
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
APARTMENT INVESTMENT AND MANAGEMENT COMPANY
CONSOLIDATED STATEMENTS OF INCOME
(In Thousands, Except Per Share Data)
(Unaudited)
<TABLE>
FOR THE QUARTER ENDED FOR THE SIX MONTHS ENDED
---------------------------- ----------------------------
JUNE 30, 1997 JUNE 30, 1996 JUNE 30, 1997 JUNE 30, 1996
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
RENTAL PROPERTY OPERATIONS
Rental and other property revenues $ 41,679 $23,801 $ 79,719 $46,252
Property operating expenses (16,704) (9,449) (31,160) (18,153)
Owned property management expense (1,413) (679) (2,734) (1,339)
-------- ------- -------- --------
Income from property operations before depreciation 23,562 13,673 45,825 26,760
Depreciation (7,591) (4,590) (15,046) (9,060)
-------- ------- -------- --------
Income from property operations 15,971 9,083 30,779 17,700
-------- ------- -------- --------
SERVICE COMPANY BUSINESS
Management fees and other income 3,161 1,877 5,605 3,725
Management and other expenses (1,223) (1,204) (2,643) (2,464)
Corporate overhead allocation (147) (147) (294) (296)
Amortization of management company goodwill (237) (116) (474) (230)
Other assets depreciation and amortization (73) (44) (161) (92)
-------- ------- -------- --------
Income from service company business 1,481 366 2,033 643
Minority interests in service company business (1) (16) (2) (2)
-------- ------- -------- --------
Company's share of income from service company business 1,480 350 2,031 641
-------- ------- -------- --------
GENERAL AND ADMINISTRATIVE EXPENSES (433) (226) (784) (549)
INTEREST EXPENSE (11,152) (5,530) (20,604) (10,925)
INTEREST INCOME 834 97 1,341 211
-------- ------- -------- --------
INCOME BEFORE MINORITY INTERESTS AND EQUITY IN LOSSES OF
UNCONSOLIDATED ENTITIES 6,700 3,774 12,763 7,078
MINORITY INTEREST IN OTHER PARTNERSHIPS (196) - (565) -
EQUITY IN LOSSES OF UNCONSOLIDATED PARTNERSHIPS (379) - (379) -
EQUITY IN LOSSES OF UNCONSOLIDATED SUBSIDIARY (86) - (86) -
-------- ------- -------- --------
INCOME BEFORE MINORITY INTEREST IN OPERATING
PARTNERSHIP AND EXTRAORDINARY ITEM 6,039 3,774 11,733 7,078
Minority interest in Operating Partnership (775) (629) (1,616) (1,123)
-------- ------- -------- --------
INCOME BEFORE EXTRAORDINARY ITEM 5,264 3,145 10,117 5,955
Extraordinary item - early extinguishment of debt - - (269) -
-------- ------- -------- --------
NET INCOME $ 5,264 $ 3,145 $ 9,848 $ 5,955
-------- ------- -------- --------
-------- ------- -------- --------
NET INCOME PER COMMON SHARE AND COMMON
SHARE EQUIVALENT:
Income before extraordinary item $ 0.26 $ 0.26 $ 0.54 $ 0.49
Extraordinary item - - (0.01) -
-------- ------- -------- --------
Net income $ 0.26 $ 0.26 $ 0.53 $ 0.49
-------- ------- -------- --------
-------- ------- -------- --------
DIVIDENDS PAID PER COMMON SHARE $ 0.4625 $0.425 $ 0.925 $ 0.850
-------- ------- -------- --------
-------- ------- -------- --------
WEIGHTED AVERAGE SHARES AND COMMON SHARE
EQUIVALENTS OUTSTANDING 20,504 12,217 18,559 12,039
-------- ------- -------- --------
-------- ------- -------- --------
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
APARTMENT INVESTMENT AND MANAGEMENT COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOW
(In Thousands)
(Unaudited)
<TABLE>
Six Months Ended Six Months Ended
June 30, 1997 June 30, 1996
---------------- ----------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $ 9,848 $ 5,955
--------- --------
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 17,067 9,739
Minority interest in Operating Partnership 1,616 1,123
Minority interests in other partnerships 565 -
Equity in losses of unconsolidated partnerships 379 -
Equity in losses of unconsolidated subsidiary 86 -
Extraordinary loss on early extinguishment of debt 269 -
(Increase) decrease from changes in operating assets:
Restricted cash 814 8,464
Accounts receivable (1,742) (293)
Other assets (8,707) (439)
Increase (decrease) from changes in operating liabilities:
Accounts payable, accrued and other liabilities 3,219 (45)
Resident security deposits and prepaid rents 1,621 705
--------- --------
Total adjustments 15,187 19,254
--------- --------
Net cash provided by operating activities 25,035 25,209
--------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of real estate (52,195) (9,395)
Purchase of general and limited partnership interests (45,426) -
Additions to property held for sale (354) -
Capital replacements (2,915) (2,385)
Initial capital expenditures (2,716) (1,630)
Construction in progress and capital enhancements (3,766) (4,351)
Purchase of office equipment and leasehold improvements (762) (313)
--------- --------
Net cash used in investing activities (108,134) (18,074)
--------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of Class A Common Stock,
net of underwriting and offering costs 114,335 (232)
Principal repayments received on notes due from Officers
on Class A Common Stock purchases 11,619 -
Proceeds from secured notes payable borrowings 86,111 56
Proceeds from secured tax-exempt bond financing - 58,010
Net borrowings (paydowns) on Credit Facility 26,100 (828)
Net proceeds from unsecured short-term financing 20,500 -
Principal repayments on secured notes payable (2,554) (1,919)
Principal repayments on secured tax-exempt bond financing (698) (48,140)
Principal repayments on secured short-term financing (146,261) -
Payment of loan costs, net of proceeds from interest rate hedge 2,214 (2,301)
Payment of common stock dividends (17,424) (10,199)
Payment of distributions to minority interest in Operating Partnership (2,492) (1,633)
--------- --------
Net cash provided by (used in) financing activities 91,450 (7,186)
--------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 8,351 (51)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 13,170 2,379
--------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 21,521 $ 2,328
--------- --------
--------- --------
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE>
APARTMENT INVESTMENT AND MANAGEMENT COMPANY
Consolidated Statements of Cash Flow
(In Thousands Except Share and Operating Partnership Unit Data)
NON CASH INVESTING AND FINANCING ACTIVITIES
PURCHASE OF REAL ESTATE
Secured notes payable assumed in connection with
purchase of real estate $55,446
Real estate contributed in exchange for 497,794
Operating Partnership Units 13,876
-------
$69,322
-------
-------
PURCHASE OF 51.3% INTEREST IN NHP INCORPORATED
In May 1997, the Company acquired 2,866,071 shares of NHP Incorporated's
("NHP") common stock in exchange for 2,142,857 shares of the Company's Class
A Common Stock with a recorded value of $57,321. Subsequent to the purchase,
the Company contributed the NHP common stock to AIMCO/NHP Holdings, Inc.
("ANHI"), an unconsolidated subsidiary formed in April 1997, in exchange for
all of the shares of ANHI's nonvoting preferred stock, representing a 95%
economic interest in ANHI.
Concurrent with this contribution, ANHI obtained a loan in the amount of
$72,600, and used the proceeds from the loan to purchase 3,630,002 additional
shares of NHP common stock. Upon the completion of this transaction, ANHI
owned 6,496,073 shares of NHP common stock, representing 51.3% of NHP's
outstanding common stock as of May 31, 1997.
PURCHASE OF GENERAL AND LIMITED PARTNERSHIP INTERESTS, CAPTIVE INSURANCE
SUBSIDIARY AND OTHER ASSETS
The historical cost of the assets and the liabilities assumed in connection
with the purchase of NHP Partners, Inc., NHP Partners Two Limited Partners and
their subsidiaries (the "NHP Real Estate Companies") (see Note 6) were as
follows:
Real estate, net $101,341
Investment in real estate partnerships (9,382)
Restricted cash 2,946
Accounts receivable 12,784
Other assets 3,495
Secured notes payable (83,667)
Accounts payable, accrued and other liabilities (37,482)
Resident security deposits and prepaid rent (416)
REDEMPTION OF OPERATING PARTNERSHIP UNITS
During the six months ended June 30, 1997, 544,694 Operating Partnership units
with a recorded value of $8,447 were redeemed in exchange for an equal number
of shares of Class A Common Stock.
PROPERTY HELD FOR SALE
In the second quarter of 1997, the Company entered into contracts to sell
multifamily properties with a net book value of $19,072. These assets were
reclassified as property held for sale.
ISSUANCE OF NOTES RECEIVABLE DUE FROM OFFICERS
During the six months ended June 30, 1997, the Company issued notes receivable
from officers for a total of $665 in connection with the purchase of 25,000
shares of Class A Common Stock.
OTHER
During the six months ended June 30, 1997, the Company reclassified $1,323 of
Other assets to Real estate as a purchase price allocation adjustment. In
addition, the Company wrote off $4,065 of Other assets allocable to limited
partners in partnerships controlled by the Company, to Minority interest in
other partnerships.
During the six months ended June 30, 1997, the Operating Partnership issued an
additional 1,333 Operating Partnership units with a recorded value of $36 in
connection with the purchase of certain partnership interests in 1996.
6
<PAGE>
APARTMENT INVESTMENT AND MANAGEMENT COMPANY
Notes to Consolidated Financial Statements
June 30, 1997
(Unaudited)
NOTE 1 - ORGANIZATION
Apartment Investment and Management Company, a Maryland corporation
incorporated on January 10, 1994 ("AIMCO" and together with its
subsidiaries and other controlled entities, the "Company") acts as
sole general partner of AIMCO Properties, L.P. (the "Operating
Partnership") through AIMCO-GP, Inc. and AIMCO-LP, Inc., wholly-owned
subsidiaries which hold all of the Company's general and limited
partnership interests in and majority ownership of the Operating
Partnership.
At June 30, 1997, AIMCO had 22,042,809 shares of Class A Common
Stock outstanding and the Operating Partnership had 3,354,940
Operating Partnership units ("OP Units") outstanding, for a combined
total of 25,397,749 shares and OP Units in the Operating Partnership.
The Company held an 87% interest in the Operating Partnership as of
June 30, 1997.
At June 30, 1997, the Company owned or controlled 27,056 apartment
units in 107 properties, held an equity interest in 88,690 units in
537 properties and managed an additional 70,213 apartment units in 387
properties for third party owners and affiliates, bringing the total
managed portfolio to 185,959 apartment units in 1,031 properties
located in 40 states, the District of Columbia and Puerto Rico.
NOTE 2 - BASIS OF PRESENTATION
The accompanying consolidated financial statements include the
accounts of AIMCO, the Operating Partnership, majority owned
subsidiaries and controlled real estate limited partnerships. The
Company operates its service company business through Property Asset
Management Services, L.P. ("PAMS, L.P."). The Operating Partnership
owns a 1% general partnership interest in PAMS, L.P., which provides
the Operating Partnership with control of PAMS, L.P. The 99% limited
partner of PAMS, L.P. is Property Asset Management Services, Inc.
("PAMS, Inc."). The Operating Partnership owns all of the non-voting
preferred stock of PAMS, Inc., representing a 95% economic interest.
As a result of the control held by the Operating Partnership in PAMS,
L.P., the service company business is consolidated.
Interests held by holders of OP Units are reflected as Minority
interest in Operating Partnership. Interests held by limited partners
in real estate partnerships controlled by the Company are reflected as
Minority interest in other partnerships.
AIMCO/NHP Holdings, Inc. ("ANHI") is an unconsolidated subsidiary of
the Company which owns 6,496,073 shares of common stock of NHP
Incorporated ("NHP"), representing 51.3% of the shares outstanding as
of May 31, 1997 (see Note 5). The Operating Partnership owns a 95%
economic interest in ANHI through its ownership of 100% of the
non-voting preferred stock of ANHI (the "ANHI Preferred Stock").
Certain directors and officers of AIMCO own a 5% economic interest in
ANHI through their ownership of all of its outstanding shares of
common stock. As a result of the controlling ownership interest in
ANHI held by such directors and officers, the Company accounts for its
interest in ANHI on the equity method.
7
<PAGE>
APARTMENT INVESTMENT AND MANAGEMENT COMPANY
Notes to Consolidated Financial Statements (continued)
NOTE 2 - BASIS OF PRESENTATION (CONTINUED)
In connection with the purchase of the NHP Real Estate Companies, the
Company purchased controlling interests in nine properties with 1,874
apartments units which are presented on a consolidated basis (see
Notes 3 and 6). In addition, the Company purchased non-controlling
interests in partnerships which own 525 properties with 85,785
apartment units (see Note 6). The Company believes that it does not
possess the power to control these partnerships in which it holds a
general partner interest but owns less than a 50% interest in the
partnership. The terms of these partnership agreements specify that
the general partner must obtain the prior approval of a majority
of the limited partners in order to implement major decisions regarding
the disposal of real estate owned by the partnership. Therefore,
the Company has used the equity method of accounting for these
partnerships. The Company's interest in these properties is reflected
as Investment in real estate partnerships. The acquisition of the NHP
Real Estate Companies was accounted for as a purchase whereby the
assets and liabilities were adjusted to estimated fair market value,
based upon preliminary estimates, which are subject to change as
additional information is obtained.
The accompanying unaudited consolidated financial statements of the
Company as of June 30, 1997 and for the three and six months ended
June 30, 1997 and 1996 have been prepared in accordance with
generally accepted accounting principles for interim financial
information. 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 considered necessary for a fair presentation have been
included and all such adjustments are of a recurring nature.
The consolidated financial statements should be read in conjunction
with the audited consolidated financial statements and notes thereto
included in the Annual Report on Form 10-K for the year ended December
31, 1996. It should be understood that accounting measurements at
interim dates inherently involve greater reliance on estimates than at
year end. The results of operations for the interim periods presented
are not necessarily indicative of the results for the entire year.
Certain reclassifications have been made in the December 31, 1996
balance sheet to conform to the current period presentation.
NOTE 3 - REAL ESTATE
During the six months ended June 30, 1997, the Company purchased or
acquired control of 13 properties as described below. The cash
portions of the acquisitions were funded with short-term unsecured
financings, borrowings under the Company's Credit Facility or with
working capital.
The Company acquired the following multi-family apartment properties
in unrelated transactions during the six months ended June 30, 1997.
The aggregate consideration paid by the Company of $121.5 million
consisted of $52.2 million in cash (provided by unsecured short term
bridge financing and working capital), 497,794 in OP Units with a
total recorded value of $13.9 million and the assumption of $55.4
million of secured long-term indebtedness.
8
<PAGE>
APARTMENT INVESTMENT AND MANAGEMENT COMPANY
Notes to Consolidated Financial Statements (continued)
NOTE 3 - REAL ESTATE (CONTINUED)
Date Number
Acquired Property Location of Units
-------- -------- -------- --------
4/97 Bay Club Aventura, FL 702
6/97 Stonebrook Orlando, FL 244
6/97 Tustin Woods/Californian* Tustin, CA 292
6/97 The Vinings at the Waterways Aventura, FL 180
-----
1,418
-----
-----
*The Company acquired a 45,000 square foot retail complex as part of
the Tustin Woods/Californian acquisition.
In connection with the acquisition of the NHP Real Estate Companies
(see Note 6), the Company acquired a controlling interest in nine
partnerships (the "Controlled NHP Partnerships"), which own nine
properties with 1,874 units. The portion of the aggregate purchase
price for the NHP Real Estate Companies allocated to these general
and limited partnership interests was approximately $101.3 million,
including the assumption of approximately $83.7 million of mortgage
indebtedness. Through its ownership, the Company has the ability to
refinance or sell the properties held by the Controlled NHP
Partnerships.
Date Number
Acquired Property Location of Units
-------- -------- -------- --------
5/97 Elm Creek Chicago, IL 372
5/97 Arbor Crossing Atlanta, GA 240
5/97 Sandpiper Cove West Palm Beach, FL 416
5/97 Lake Crossing Atlanta, GA 300
5/97 Tara Bridge Atlanta, GA 220
5/97 Cambridge Heights Natchez, MS 94
5/97 Newberry Park Chicago, IL 84
5/97 Pride Gardens Jackson, MS 76
5/97 SummerChase Fort Smith, AR 72
-----
1,874
-----
-----
NOTE 4 - PROPERTY HELD FOR SALE
Property held for sale primarily represents five multi-family
apartment properties with a net book value at June 30, 1997 of $19.1
million, which are currently under contract for sale, and $6.8 million
of other assets. The five multi-family properties have been
reclassified from Real estate to Property held for sale. Property
held for sale is recorded at the lower of cost or estimated sales
price less selling costs.
NOTE 5 - INVESTMENT IN UNCONSOLIDATED SUBSIDIARY
In May 1997, the Company acquired 2,866,071 shares of NHP common
stock from Demeter Holdings ("Demeter"), Capricorn Investors, L.P.
("Capricorn") and certain of Capricorn's limited partners
(collectively, the "NHP Sellers") in exchange for 2,142,857 shares
of the Company's Class A Common Stock with a recorded value of $57.3
million. Subsequent to the purchase, the Company contributed the NHP
common stock to ANHI, in exchange for all of the shares of ANHI's
non-voting preferred stock, representing a 95% economic interest in
ANHI.
9
<PAGE>
APARTMENT INVESTMENT AND MANAGEMENT COMPANY
Notes to Consolidated Financial Statements (continued)
NOTE 5 - INVESTMENT IN UNCONSOLIDATED SUBSIDIARY (CONTINUED)
Concurrently, ANHI obtained a loan in the amount of $72.6 million, and
used the proceeds from the loan to purchase 3,630,002 additional
shares of NHP common stock from the NHP Sellers. Upon the completion
of this transaction, ANHI owned 6,496,073 shares of NHP common
stock, representing 51.3% of NHP's outstanding common stock as of
May 31, 1997.
NHP provides a broad array of real estate services, including
property management and asset management as well as a group of
related services including equity investments, purchasing, risk
management and home health care. NHP also has controlling interests
in partnerships which own 12 apartment properties consisting of 2,905
apartment units.
Summarized balance sheet and statement of operations information for
ANHI, including the accounts of NHP, as of June 30, 1997 and for the
period from April 14, 1997 (inception) through June 30, 1997
(representing operations for the period from May 3, 1997, the date of
purchase of 51.3% of NHP common stock to June 30, 1997) follows (in
thousands):
SUMMARIZED BALANCE SHEET INFORMATION
JUNE 30, 1997
-------------
Total assets $356,179
Total liabilities 261,613
Minority interest 37,335
Stockholders' equity 57,231
SUMMARIZED STATEMENT OF OPERATIONS
FOR THE PERIOD
FROM APRIL 14
(INCEPTION) TO
JUNE 30, 1997
---------------
Income from property operations $ 684
Income from property management activities 3,872
Interest expense, net of interest income (2,546)
--------
Income before income taxes and minority interest 2,010
Income tax provision (940)
Minority interest in NHP (1,568)
--------
Loss from continuing operations (498)
Discontinued operations, net of tax 408
--------
Net loss $ (90)
--------
--------
Loss attributable to preferred stockholder $ (86)
--------
--------
Loss attributable to common stockholders $ (4)
--------
--------
10
<PAGE>
APARTMENT INVESTMENT AND MANAGEMENT COMPANY
Notes to Consolidated Financial Statements (continued)
NOTE 6 - INVESTMENT IN REAL ESTATE PARTNERSHIPS
In June 1997, the Company completed the acquisition of the NHP Real
Estate Companies from entities owned by Demeter, Phemus Corporation
(an affiliate of Demeter), Capricorn, and Mr. J. Roderick Heller, III,
the Chairman, President and CEO of NHP, for $54.8 million in cash and
warrants to purchase 399,999 shares of AIMCO Class A Common Stock at
an exercise price of $36 per share. The NHP Real Estate Companies
own interests in partnerships that own 534 conventional and
affordable multi-family apartment properties containing 87,659
apartment units (the "NHP Properties"), a captive insurance company
and other related assets. A substantial majority of the NHP Properties
are currently managed by NHP pursuant to a long-term agreement. Nine
of the apartment properties, containing 1,874 apartment units, are
presented on a consolidated basis due to the control held by the
Company. The remaining 525 apartment properties containing 85,785
apartment units are presented under the equity method.
The Company is currently engaged in a reorganization of its interests
in the NHP Real Estate Companies, which will result in the majority of
the assets of the NHP Real Estate Companies being owned by an
unconsolidated limited partnership in which the Operating Partnership
will hold a 99% limited partnership interest and certain directors and
officers of AIMCO will, directly or indirectly, hold a 1% general
partnership interest.
NOTE 7 - SECURED LONG-TERM FINANCING
In April 1997, 23 partnerships controlled by the Company completed a
$108 million refinancing of its secured, short-term, floating rate
indebtedness with secured, 20-year, all-in fixed interest rate of
7.6%, fully amortizing debt (see Note 8). The loans are secured by 27
multifamily properties owned by such partnerships. In connection with
this refinancing, the Company received proceeds of $3.4 million from
two interest rate swaps accounted for as a hedge. The gain on the
swaps was deferred and will be amortized over the 20 year life of the
debt.
During the six months ended June 30, 1997, the Company assumed $55.4
million in notes payable secured by first trust deeds in connection
with the purchases of the Bay Club and Stonebrook apartments.
In connection with the acquisition of the NHP Real Estate Companies,
the Company has consolidated long-term indebtedness totaling $83.7
million which is secured by nine properties held by partnerships in
which the Company purchased a controlling interest. The indebtedness
bears interest at fixed rates ranging from 8.24% to 10.0% and matures
at various dates through 2029.
NOTE 8 - SECURED SHORT-TERM FINANCING
In February 1997, the Company repaid $25.6 million of floating rate
indebtedness and $8.5 million of borrowings on the variable rate
revolving credit facility with Bank of America (the "Credit Facility")
with proceeds from a public offering of shares of Class A Common Stock
(see Note 10). In addition, the Company used $5.1 million of
restricted cash, which was held in escrow at December 31, 1996, to
repay indebtedness assumed in connection with the acquisition of the
Chesapeake Apartments in December 1996.
In March 1997, the Company paid down the Credit Facility by $11.4
million with funds received in connection with the repayment by
executive officers of notes due to the Company (see Note 10).
11
<PAGE>
APARTMENT INVESTMENT AND MANAGEMENT COMPANY
Notes to Consolidated Financial Statements (continued)
NOTE 8 - SECURED SHORT-TERM FINANCING (CONTINUED)
In April 1997, the Company repaid $115.5 million of secured short-term
indebtedness with borrowings under the Company's Credit Facility and
proceeds from the $108 million refinancing (see Note 7).
In May 1997, the Company increased its maximum amount available under
the Credit Facility from $50 million to $100 million. The interest
rate is LIBOR plus 1.45% unless borrowings exceed 60% of the aggregate
collateral value, in which case, the interest rate is LIBOR plus 1.70%.
The Credit Facility matures in August 1998 and, subject to certain
customary conditions, the outstanding balance may be converted to a
three year term loan. As borrowings exceeded 60% of the aggregate
collateral value during the quarter ended June 30, 1997, the interest
rate charged on the outstanding borrowings was LIBOR plus 1.70%
(7.45% at June 30, 1997).
The Company had outstanding borrowings under the Credit Facility at
June 30, 1997 of $70.9 million and $1.0 million of other secured
short-term financing. The outstanding balance under the Credit
Facility was repaid in August 1997 with proceeds received from the
sale of Convertible Preferred Stock of the Company (see Note 15).
In March 1997, the Company entered into an interest rate swap
agreement with a major investment banking company having a notional
principal amount of $100 million, in anticipation of refinancing
certain floating rate indebtedness to long term fixed-rate
indebtedness in the third quarter of 1997. The interest rate swap
agreement matures on September 25, 1997 and fixed the twelve year
treasury rate at 6.94%. Based on the fair value of the interest rate
swap at June 30, 1997, the Company has a potential loss of
approximately $3.4 million, which is expected to be amortized over
the life of the refinanced debt.
NOTE 9 - UNSECURED SHORT-TERM FINANCING
The Company repaid $12.5 million incurred in connection with the
purchase in 1996 of interests in limited partnerships with proceeds
from a public offering of shares of Class A Common Stock completed in
February 1997 (see Note 10).
In April and June 1997, the Company borrowed an aggregate of $33.0
million in connection with the purchase of two properties. The loans
are unsecured, bear interest at rates ranging from LIBOR plus 1.75% to
LIBOR plus 2.0%, and are unconditionally guaranteed by the Company.
NOTE 10 - STOCKHOLDERS' EQUITY
In February 1997, the Company completed a public offering of 2,015,000
shares of AIMCO Class A Common Stock (including 15,000 shares subject
to the underwriter's overallotment option) at a public offering price
of $26.75 per share. The net proceeds of approximately $51 million
were used to repay a portion of the Company's indebtedness incurred
in connection with acquisitions completed in November and December
1996.
In March 1997, certain executive officers of the Company (or entities
controlled by them) repaid $11.4 million of their $18.6 million in
notes payable to the Company which were executed for the purchase in
1996 of 895,250 shares of AIMCO Class A Common Stock by these executive
officers.
12
<PAGE>
APARTMENT INVESTMENT AND MANAGEMENT COMPANY
Notes to Consolidated Financial Statements (continued)
NOTE 10 - STOCKHOLDERS' EQUITY (CONTINUED)
In May 1997, the Company sold 2.3 million shares of AIMCO Class A
Common Stock at an average price of $28 per share in two public
offerings. The net proceeds of approximately $63 million were used
to repay the then outstanding indebtedness under the Company's Credit
Facility of $56 million and to provide working capital of $7 million.
NOTE 11 - EARNINGS PER SHARE
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128, "Earnings per
Share" ("Statement 128") which specifies the computation, presentation
and disclosure requirements for basic earnings per share and diluted
earnings per share.
Management believes that adoption of Statement 128 will not have a
material effect on earnings per share of the Company.
NOTE 12 - REGISTRATION STATEMENTS
In May 1997, AIMCO filed a shelf registration statement with the
Securities and Exchange Commission (the "SEC") which provides for the
offering on a delayed or continuous basis of debt securities,
preferred stock and AIMCO Class A Common Stock with an aggregate value
of up to $1 billion. The shelf registration statement was declared
effective in May 1997.
NOTE 13 - COMMITMENTS
On April 21, 1997, the Company entered into an Agreement and Plan of
Merger (the "Merger Agreement") with NHP and AIMCO/NHP Acquisition
Corp., a Delaware corporation and a wholly owned subsidiary of AIMCO
("Merger Sub"). Pursuant to the Merger Agreement, the Merger Sub will
be merged with and into NHP (the "Merger"), with NHP being the
surviving corporation after the Merger and becoming a wholly owned
subsidiary of the Company. Upon consummation of the Merger, each
outstanding share of NHP common stock, other than the NHP common
stock held by NHP as treasury stock, the Company or Merger Sub, will
be converted into the right to receive, at the election of the holder,
either: (i) 0.74766 shares of AIMCO Class A Common Stock ("Stock
Consideration"); or (ii) a combination of 0.37383 shares of AIMCO
Class A Common Stock and $10 in cash ("Mixed Consideration"). The
Merger requires the affirmative vote of: (i) a majority of the
outstanding shares of NHP common stock and (ii) at least 66 2/3% of
the outstanding shares of NHP common stock, excluding shares deemed
to be owned by the Company or its affiliates. In addition, under the
rules of the New York Stock Exchange, the issuance of shares of
AIMCO Class A Common Stock in the Merger requires the affirmative
vote of a majority of the votes cast at a meeting of the Company
at which the total votes cast represent over 50% of all shares of
AIMCO Class A Common Stock entitled to vote thereon.
In accordance with the Merger Agreement, on May 9, 1997, NHP
distributed to each stockholder of record as of May 2, 1997, one right
("Right") for each outstanding share of NHP common stock. Each Right
entitles the holder thereof to receive, subject to certain conditions,
on the earlier of the effective time of the Merger, or December 1,
1997 if the Merger has not yet occurred, one third of a share of the
WMF Group, Ltd., a wholly-owned subsidiary of NHP ("WMF") (the "WMF
Spin-off"). If the distribution of WMF stock has not occurred by
December 1, 1997, the holders of the Rights may receive an additional
cash amount equal to $3.05 for each share of NHP common stock held
by them.
The Merger Agreement provides that NHP will contribute cash to
WMF, forgive indebtedness of WMF to NHP, or any combination
thereof, in an aggregate amount equal to NHP's best estimate
(subject to AIMCO's reasonable approval) of the amount by which (i)
NHP's earnings before interest, taxes, depreciation and
amortization, less the amount of cash payments made or obligated to
be made in respect of taxes and interest, and $500,000 per month
for the period from February 1, 1997 to the Merger, or December 1,
1997, if the Merger has not yet occurred, exceeds (ii) the
termination, severance and transaction costs incurred by NHP with
respect to the Merger and the WMF Spin-Off during that same period.
13
<PAGE>
APARTMENT INVESTMENT AND MANAGEMENT COMPANY
Notes to Consolidated Financial Statements (continued)
NOTE 14 - PRO FORMA FINANCIAL STATEMENTS
During the six months ended June 30, 1997, the Company purchased the
NHP Real Estate Companies and, through an unconsolidated subsidiary,
purchased a 51.3% interest in NHP. The following unaudited Pro Forma
Condensed Consolidated Statements of Operations for the six months
ended June 30, 1997 and 1996 have been prepared as if the above
described transactions had occurred at the beginning of the period
being reported on. The following Pro Forma Financial Information is
based, in part, on the following historical financial statements:
(i) the unaudited financial data of the Company for the six months
ended June 30, 1997 and 1996; (ii) the unaudited Consolidated
Financial Statements of NHP for the six months ended June 30, 1997 and
1996 (which have been restated to reflect NHP's subsidiary, WMF Group,
Ltd., as a discontinued operation); and (iii) the unaudited Combined
Financial Statements of the NHP Real Estate Companies for the six
months ended June 30, 1997 and 1996.
The pro forma financial statements are not necessarily indicative of
what the Company's results of operations would have been assuming the
completion of the described transactions at the beginning of the
periods indicated, nor does it purport to project the Company's
results of operations for any future period.
PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
FOR THE SIX MONTHS ENDED
JUNE 30, 1997 JUNE 30, 1996
------------- -------------
<S> <C> <C>
RENTAL PROPERTY OPERATIONS
Rental and other property revenues $ 86,378 $ 54,178
Property operating expenses (34,102) (22,452)
Owned property management expense (3,016) (1,669)
-------- --------
Income from property operations before depreciation 49,260 30,057
Depreciation (16,392) (10,589)
-------- --------
Income from property operations 32,868 19,468
-------- --------
SERVICE COMPANY BUSINESS
Management fees and other income 7,618 7,014
Management and other expenses (6,046) (5,488)
Corporate overhead allocation (294) (296)
Amortization of management company goodwill (474) (230)
Other assets depreciation and amortization (161) (92)
-------- --------
Income from service company business 643 908
Minority interests in service company business (2) (2)
-------- --------
Company's share of income from service company business 641 906
-------- --------
GENERAL AND ADMINISTRATIVE EXPENSES (406) (549)
INTEREST EXPENSE (25,626) (16,546)
INTEREST INCOME 1,881 1,469
-------- --------
INCOME BEFORE MINORITY INTERESTS AND EQUITY
IN LOSSES OF UNCONSOLIDATED ENTITIES 9,358 4,748
MINORITY INTEREST IN OTHER PARTNERSHIPS (1,327) 255
EQUITY IN LOSSES OF UNCONSOLIDATED PARTNERSHIPS (3,599) (5,377)
EQUITY IN EARNINGS (LOSSES) OF UNCONSOLIDATED SUBSIDIARY (549) 105
-------- --------
INCOME BEFORE MINORITY INTEREST IN OPERATING PARTNERSHIP
AND EXTRAORDINARY ITEM 3,883 (269)
Minority interest in Operating Partnership (510) 37
-------- --------
INCOME BEFORE EXTRAORDINARY ITEM 3,373 (232)
Extraordinary item - early extinquishment of debt (269) -
-------- --------
NET INCOME $ 3,104 $ (232)
-------- --------
-------- --------
NET INCOME PER COMMON SHARE AND COMMON SHARE EQUIVALENT $ 0.15 $ (0.02)
-------- --------
-------- --------
WEIGHTED AVERAGE COMMON SHARES AND COMMON SHARE
EQUIVALENTS OUTSTANDING 20,027 14,182
-------- --------
-------- --------
</TABLE>
14
<PAGE>
APARTMENT INVESTMENT AND MANAGEMENT COMPANY
Notes to Consolidated Financial Statements (continued)
NOTE 15 - SUBSEQUENT EVENTS
PRELIMINARY PROXY FILED
In July 1997, pursuant to the requirements of the Securities Exchange
Act of 1934, the Company and NHP filed a preliminary Joint Proxy
Statement/Prospectus (the "Proxy Statement") on a confidential basis
with the SEC relating to the proposed Merger. The SEC is currently
reviewing the Proxy Statement and, as a result of that review, may
request that changes be made to the information contained therein.
In such event, the Company expects that it would amend the
information included herein by making the corresponding changes.
PURCHASE OF SAWGRASS APARTMENTS
In July 1997, the Company purchased Sawgrass apartments, a 208-unit
apartment community located in Orlando, Florida. The purchase price
was $10.1 million, which includes $0.5 million that the Company has
budgeted for initial capital expenditures and closing costs. The cash
purchase price was funded with short-term bridge financing. The
bridge financing bears interest at LIBOR plus 3.0% and matures on
November 1, 1997.
SALE OF 1.1 MILLION SHARES TO SENIOR MANAGEMENT
In July 1997, pursuant to the Company's 1997 Stock Award and Incentive
Plan, the Company sold 1.1 million newly issued shares of AIMCO's
Class A Common Stock at a price of $30 per share, the closing price of
the stock on the date of purchase, to certain members of senior
management of AIMCO. In payment for the stock, senior management
executed notes payable to AIMCO, bearing interest at 7.25% per annum,
payable quarterly, and due in ten years. The stock purchase notes are
secured by the stock purchased and are recourse as to 25% of the
original principal amount borrowed.
DIVIDEND DECLARED
On July 24, 1997, the AIMCO Board of Directors declared a cash
dividend of $0.4625 per share of AIMCO Class A Common Stock for the
quarter ended June 30, 1997, payable on August 14, 1997 to
stockholders of record on August 7, 1997.
SALE OF $75 MILLION OF CONVERTIBLE PREFERRED STOCK
In August 1997, the Company sold 750,000 shares of newly issued Class
B Cumulative Convertible Preferred Stock, par value $.01 per share
(the "Class B Preferred Stock") to an institutional investor for $75
million in cash in a private transaction. The Class B Preferred Stock
pays quarterly dividends equal to 7.125% of the Class B Preferred
Stock's $100 per share liquidation preference, on an annual basis
(subject to adjustment), and is convertible into shares of AIMCO's
Class A Common Stock at a conversion ratio of 3.28407 shares of
AIMCO Class A Common Stock for each share of Class B Preferred Stock
(subject to anti-dilution adjustments). The Class B Preferred Stock
is senior to AIMCO's Class A Common Stock as to dividends and upon
liquidation. The proceeds from the sale of the Class B Preferred
Stock were used to repay borrowings outstanding under the Company's
Credit Facility and to provide working capital.
15
<PAGE>
APARTMENT INVESTMENT AND MANAGEMENT COMPANY
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.
OVERVIEW
The Company owned or controlled 27,056 apartment units in 107 properties (the
"Owned Properties") and held an equity interest in 88,690 units in 537
properties at June 30, 1997. In addition, the Company managed an additional
70,213 apartment units in 387 properties for third party owners and affiliates,
bringing the total managed portfolio to 185,959 apartment units in 1,031
properties located in 40 states, the District of Columbia and Puerto Rico.
On April 21, 1997, the Company entered into a Merger Agreement with NHP,
pursuant to which the Company and NHP have agreed to merge. In May 1997, the
Company acquired 2,866,071 shares of NHP common stock in exchange for
2,142,857 shares of the Company's Class A Common Stock. Subsequent to the
purchase, the Company contributed the NHP common stock to ANHI in exchange
for all of the shares of ANHI's non-voting Preferred Stock. Concurrently,
ANHI obtained a loan in the amount of $72.6 million and used the proceeds to
purchase 3,630,002 additional shares of NHP common stock. Upon the
completion of this transaction, ANHI owned 6,496,073 shares of NHP common
stock representing 51.3% of NHP's outstanding common stock as of May 31,
1997. NHP provides a broad array of real estate services, including property
management and asset management as well as a group of related services
including equity investments, purchasing, risk management and home health
care. NHP also has controlling interests in partnerships which own 12
apartment properties consisting of 2,905 apartment units.
In June 1997, the Company acquired the NHP Real Estate Companies, which own
general and limited partnership interests in 534 conventional and affordable
multifamily apartment properties containing 87,659 apartment units, a captive
insurance subsidiary and certain related assets, for $54.8 million in cash
and warrants to purchase 399,999 of AIMCO's Class A Common Stock at an
exercise price of $36 per share. The Company consolidates the results of
operations of nine of these partnerships, which own nine apartment
properties, consisting of 1,874 apartment units, due to the extent of the
Company's control over these partnerships. The operations of the remaining
525 apartment properties consisting of 85,785 apartment units are presented
using the equity method.
The following discussion contains forward-looking statements that are subject
to significant risks and uncertainties. There are several important factors
that could cause actual results to differ materially from the results
anticipated by the forward-looking statements contained in the following
discussion. Such factors and risks include, but are not limited to:
financing risks, including the risk that the Company's cash flow from
operations may be insufficient to meet required payments of principal and
interest on its debt; real estate risks, including variations of real estate
values and the general economic climate in local markets and competition for
tenants in such markets; acquisition and development risks, including failure
of such acquisitions to perform in accordance with projections; and possible
environmental liabilities, including costs which may be incurred due to
necessary remediation of contamination of properties presently owned or
previously owned by the Company. In addition, the Company's continued
qualification as a real estate investment trust involves the application of
highly technical and complex provisions of the Internal Revenue Code.
Readers should carefully review the financial statements and the notes
thereto, as well as the risk factors described in documents the Company files
from time to time with the Securities and Exchange Commission.
16
<PAGE>
RESULTS OF OPERATIONS
COMPARISON OF THE SIX MONTHS ENDED JUNE 30, 1997 TO THE SIX MONTHS ENDED
JUNE 30, 1996
The Company recognized net income of $9,848,000 for the six months ended June
30, 1997 compared to $5,955,000 for the six months ended June 30, 1996. The
increase in net income of $3,893,000, or 65.4% was primarily the result of the
following:
- - the acquisition of 40 multifamily apartment properties consisting of 9,909
apartment units during the period from April 1996 to December 1996 (the
"1996 Acquisitions");
- - the acquisition of four multifamily apartment properties consisting of
1,418 apartment units in the second quarter of 1997 (the "1997
Acquisitions");
- - the acquisition, through an unconsolidated subsidiary, of 51.3% of the
shares of common stock of NHP in May 1997; and
- - the acquisition of the NHP Real Estate Companies in June 1997.
The increase in net income is partially offset by the sale of four properties in
August 1996 (the "Sold Properties"), increased real estate depreciation and
increased interest expense associated with indebtedness which was assumed or
incurred in connection with the 1996 Acquisitions, the 1997 Acquisitions and the
acquisition of the NHP Real Estate Companies. These factors are discussed in
more detail in the following paragraphs.
RENTAL PROPERTY OPERATIONS
Rental and other property revenues from the Company's Owned Properties totaled
$79,719,000 for the six months ended June 30, 1997 compared to $46,252,000 for
the six months ended June 30, 1996, an increase of $33,467,000, or 72.4%. Rental
and other property revenues consisted of the following (in thousands):
Six months Six months
ended ended
June 30, 1997 June 30, 1996
------------- -------------
52 "same store" properties $43,062 $41,610
1996 Acquisitions 32,293 1,533
1997 Acquisitions 1,931 -
Controlled NHP Partnerships
acquired in connection with the
acquisition of the NHP Real Estate Companies 1,316 -
Properties in lease-up after the completion
of an expansion or renovation 1,117 235
Sold Properties - 2,874
------- -------
Total $79,719 $46,252
------- -------
------- -------
Average monthly rent per occupied unit for the 52 same store properties at June
30, 1997 and 1996 was $559 and $549, respectively, reflecting an increase of
1.8%. Weighted average physical occupancy for the 52 properties increased from
93.8% at June 30, 1996 to 95.4% at June 30, 1997, a 1.7% increase.
17
<PAGE>
Operating expenses, consisting of on-site payroll costs, utilities (net of
reimbursements received from tenants), contract services, turnover costs,
repairs and maintenance, advertising and marketing, property taxes and
insurance, totaled $31,160,000 for the six months ended June 30, 1997 compared
to $18,153,000 for the six months ended June 30, 1996, an increase of
$13,007,000 or 71.7%. Operating expenses consisted of the following (in
thousands):
Six months Six months
ended ended
June 30, 1997 June 30, 1996
------------- -------------
52 "same store" properties $16,045 $16,089
1996 Acquisitions 13,317 425
1997 Acquisitions 793 -
Controlled NHP Partnerships
acquired in connection with the
acquisition of the NHP Real Estate Companies 563 -
Properties in lease up after the completion
of an expansion or renovation 442 66
Sold Properties - 1,573
------- -------
Total $31,160 $18,153
------- -------
------- -------
Owned property management expenses, representing the costs of managing the
Company's Owned Properties, totaled $2,734,000 for the six months ended June 30,
1997 compared to $1,339,000 for the six months ended June 30, 1996, an increase
of $1,395,000, or 104.2%. The increase resulted from the acquisition of
properties in 1996 and 1997 and the acquisition of the NHP Real Estate
Companies.
SERVICE COMPANY BUSINESS
The Company's share of income from the service company business was $2,031,000
for the six months ended June 30, 1997 compared to $641,000 for the six months
ended June 30, 1996. The increase of $1,390,000 is due to the acquisition by
the Company of property management businesses in August and November 1996, the
acquisition of partnership interests which provide for certain partnership and
administrative fees, and a captive insurance subsidiary acquired in connection
with the acquisition of the NHP Real Estate Companies in June 1997, offset by
decreased commercial asset management revenues. The commercial asset management
contracts expired on March 31, 1997.
18
<PAGE>
INTEREST EXPENSE
Interest expense totaled $20,604,000 for the six months ended June 30, 1997
compared to $10,925,000 for the six months ended June 30, 1996. Interest
expense, which includes amortization of deferred financing costs, for the six
months ended June 30, 1997, increased by $9,679,000, or 88.6%, from the six
months ended June 30, 1996. The increase consists of the following (in
thousands):
Interest expense on secured short-term and long-term
indebtedness incurred in connection with the
1996 Acquisitions $6,688
Interest expense on secured and unsecured short-term
and long-term indebtedness incurred in connection
with the 1997 Acquisitions 1,118
Interest expense on secured and unsecured short-term
and long-term indebtedness incurred in connection
with the acquisition of the NHP Real Estate
Companies 649
Write-off of unamortized loan costs upon the
prepayment of bridge financing incurred in
connection with the 1996 Acquisitions 623
Increase in interest expense on the Credit
Facility due to borrowings used in connection
with the refinancing of short-term indebtedness
in April 1997 and the purchase of the NHP Real
Estate Companies in June 1997 601
------
Total increase $9,679
------
------
19
<PAGE>
INTEREST INCOME
Interest income totaled $1,341,000 for the six months ended June 30, 1997,
compared to $211,000 for the six months ended June 30, 1996. The increase of
$1,130,000, or 535.5%, is primarily due to interest earned on notes
receivable from certain partnerships acquired in connection with the 1996
Acquisitions and the acquisition of the NHP Real Estate Companies in June
1997.
COMPARISON OF THE THREE MONTHS ENDED JUNE 30, 1997 TO THE THREE MONTHS ENDED
JUNE 30, 1996
The Company recognized net income of $5,264,000 for the three months ended
June 30, 1997 compared to $3,145,000 for the three months ended June 30,
1996. The increase in net income of $2,119,000, or 67.4% was primarily the
result of the 1996 Acquisitions, the 1997 Acquisitions, the acquisition by an
unconsolidated subsidiary of 51.3% of the common stock of NHP in May 1997 and
the acquisition of the NHP Real Estate Companies.
The increase in net income is partially offset by the sale of the Sold
Properties in August 1996, increased real estate depreciation and increased
interest expense associated with indebtedness which was assumed or incurred in
connection with the acquisitions described above. These factors are discussed
in more detail in the following paragraphs.
RENTAL PROPERTY OPERATIONS
Rental and other property revenues from the Company's Owned Properties totaled
$41,679,000 for the three months ended June 30, 1997, compared to $23,801,000
for the three months ended June 30, 1996, an increase of $17,878,000, or 75.1%.
Rental and other property revenues consisted of the following (in thousands):
Three months ended Three months ended
June 30, 1997 June 30, 1996
------------------ ------------------
52 "same store" properties $21,543 $20,963
1996 Acquisitions 16,279 1,225
1997 Acquisitions 1,931 -
Controlled NHP Partnerships acquired in
connection with the acquisition of
the NHP Real Estate Companies 1,316 -
Properties in lease-up after the completion
of an expansion or renovation 610 151
Sold Properties - 1,462
------- -------
Total $41,679 $23,801
------- -------
------- -------
20
<PAGE>
Operating expenses, consisting of on-site payroll costs, utilities (net of
reimbursements received from tenants), contract services, turnover costs,
repairs and maintenance, advertising and marketing, property taxes and
insurance, totaled $16,704,000 for the three months ended June 30, 1997 compared
to $9,449,000 for the three months ended June 30, 1996, an increase of
$7,255,000 or 76.8%. Operating expenses consisted of the following (in
thousands):
Three months ended Three months ended
June 30, 1997 June 30, 1996
------------------ ------------------
52 "same store" properties $8,209 $8,261
1996 Acquisitions 6,887 344
1997 Acquisitions 793 -
Controlled NHP Partnerships acquired
in connection with the acquisition
of the NHP Real Estate Companies 563 -
Properties in lease-up after the
completion of an expansion or renovation 252 35
Sold Properties - 809
------- ------
Total $16,704 $9,449
------- ------
------- ------
Owned property management expenses, representing the costs of managing the
Company's Owned Properties, totaled $1,413,000 for the three months ended
June 30, 1997, compared to $679,000 for the three months ended June 30, 1996,
an increase of $734,000, or 108.1%. The increase resulted from the
acquisition of properties in 1996 and 1997 and the acquisition of the NHP
Real Estate Companies.
SERVICE COMPANY BUSINESS
The Company's share of income from the service company business was
$1,480,000 for the three months ended June 30, 1997, compared to $350,000 for
the three months ended June 30, 1996. The increase in income of $1,130,000
was due to increased revenues from the acquisition by the Company of property
management businesses in August and November 1996, the acquisition of
partnership interests, which provide for certain partnership and
administrative fees and the acquisition of a captive insurance subsidiary in
connection with the acquisition of the NHP Real Estate Companies in June
1997. The increase in revenues was offset by the loss of commercial asset
management revenues as a result of the scheduled termination of asset
management contracts at March 31, 1997.
21
<PAGE>
INTEREST EXPENSE
Interest expense totaled $11,152,000 for the three months ended June 30,
1997, compared to $5,530,000 for the three months ended June 30, 1996.
Interest expense, which includes amortization of deferred financing costs,
for the three months ended June 30, 1997, increased by $5,622,000, or 101.7%,
from the three months ended June 30, 1996. The increase consists of the
following (in thousands):
Interest expense on secured short-term
and long-term indebtedness incurred
in connection with the 1996 Acquisitions $3,038
Interest expense on secured and unsecured
short-term and long-term indebtedness
incurred in connection with the 1997
Acquisitions 1,118
Interest expense on secured and unsecured
short-term and long-term indebtedness
incurred in connection with the
acquisition of the NHP Real Estate
Companies 649
Write-off of unamortized loan costs upon
the prepayment of bridge financing
incurred in connection with the 1996
Acquisitions 623
Increase in interest expense on the Credit
Facility due to borrowings used in
connection with the refinancing of
short-term indebtedness in April 1997
and the purchase of the NHP Real Estate
Companies in June 1997 357
Decrease in interest expense due to
increased principal amortization and other (163)
------
Total increase $5,622
------
------
22
<PAGE>
INTEREST INCOME
Interest income totaled $834,000 for the three months ended June 30, 1997,
compared to $97,000 for the three months ended June 30, 1996. The increase
of $737,000, or 759.8%, is primarily due to interest earned on notes
receivable from certain partnerships acquired in connection with the 1996
Acquisitions and the acquisition of the NHP Real Estate Companies in June
1997.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1997, the Company had $21,521,000 in cash and cash equivalents.
In addition, the Company had $17,963,000 of restricted cash primarily
consisting of reserves and impounds held by lenders for capital expenditures,
property taxes and insurance. The Company's principal demands for liquidity
include normal operating activities, payments of principal and interest on
outstanding debt, capital improvements, acquisitions of or investments in
properties, dividends paid to its stockholders and distributions paid to
minority limited partners in the Operating Partnership. The Company considers
its cash provided by operating activities and funds available under its
Credit Facility, to be adequate to meet short-term liquidity demands. The
Company utilizes the Credit Facility for general corporate purposes and to
fund investments on an interim basis. In May 1997, the Company increased the
maximum amount available under the Credit Facility from $50 million to $100
million. The outstanding borrowings under the Credit Facility bear interest
at LIBOR plus 1.45%, if the outstanding borrowings do not exceed 60% of the
collateral value, or LIBOR plus 1.70%, if outstanding borrowings are greater
than 60% of the collateral value. The Credit Facility matures in August 1998
and, subject to certain customary conditions, the outstanding balance may be
converted to a three year term loan. As borrowings made during the quarter
ended June 30, 1997 exceeded 60% of the collateral value, the interest rate
charged on the outstanding borrowings was LIBOR plus 1.70% (7.45% at June 30,
1997). The Company had outstanding borrowings under the Credit Facility at
June 30, 1997 of $70.9 million. The Credit Facility was repaid in August 1997
with proceeds received from the sale of the Class B Preferred Stock.
During the six months ended June 30, 1997, the Company repaid $25.6 million
of secured short-term indebtedness, $12.5 million of unsecured short-term
indebtedness and $77.1 million of the balance outstanding from time to time
under the Credit Facility with proceeds from public offerings of AIMCO Class
A Common Stock in February 1997 and May 1997 and funds received in connection
with the repayment of notes due to the Company from certain executive
officers of the Company (or entities controlled by them) related to their
purchase of AIMCO Class A Common Stock.
In April 1997, 23 partnerships controlled by the Company borrowed an
aggregate of $108 million from an institutional lender on a fully amortizing,
fixed rate basis with a term of 20 years. The loans have a weighted average
effective interest rate of 7.6% per year. The loans are secured by 27
multifamily apartment properties owned by such partnerships. The net
proceeds of the borrowings, and $7.5 million from additional borrowings under
the Company's Credit Facility, were used to repay approximately $115.5
million of secured, short term debt. In connection with this refinancing, the
Company received proceeds of $3.4 million from two interest rate swaps
accounted for as a hedge. The gain on the swaps was deferred and will be
amortized over the 20 year life of the debt.
Pursuant to the Merger, if all NHP stockholders other than ANHI elect to
receive Stock Consideration and all NHP stock options are exercised, the
number of shares of AIMCO Class A Common Stock to be issued in the Merger
would be approximately 7.9 million shares of AIMCO Class A Common Stock
(including 2,428,426 shares issued to ANHI), and the Company will pay
approximately $65 million in cash to ANHI. If all of the NHP stockholders
elect to receive the Mixed Consideration and all NHP stock options are
exercised, the number of shares of AIMCO Class A Common Stock to be issued in
the Merger would be approximately 5.2 million shares (including 2,428,426
shares issued to ANHI) and the Company would pay approximately $65 million in
cash to ANHI and $73.1 million in cash to the other NHP stockholders.
23
<PAGE>
From time to time, the Company intends to tender for the unaffiliated limited
partnership interests in certain limited partnerships whose general
partnership interests were acquired by the Company, including certain
partnerships acquired in 1996 and certain partnerships in which the NHP Real
Estate Companies own interests. The tender offers will require funds for
those limited partners who elect to sell their interests for cash.
The Company expects to meet its long-term liquidity requirements, including
the proposed Merger with NHP as well as property acquisitions, refinancings
of short-term debt, and tender offers, with long-term, fixed rate, fully
amortizing debt, secured or unsecured indebtedness, the issuance of debt
securities, OP Units or equity securities and cash generated from operations.
In April 1997, the Company filed a shelf registration statement with the SEC
which registered $1 billion of securities for sale on a delayed or continuous
basis. The shelf registration statement was declared effective in May 1997.
As of June 30, 1997, the Company had outstanding indebtedness totaling $644.5
million including $464.8 million of secured long-term financing, $1.0 million
in secured short-term financing, $74.8 million of secured tax-exempt bonds,
$33.0 million of unsecured short-term financing and $70.9 million outstanding
under its Credit Facility. At June 30, 1997 the weighted average interest
rate on the Company's long-term secured notes payable and secured tax-exempt
financing was 8.1% with a weighted average maturity of 10.9 years. The
weighted average interest rate on the Company's secured and unsecured
short-term financing was 8.0%.
At June 30, 1997, ANHI had outstanding indebtedness totaling $214.7 million,
consisting of $72.6 million of indebtedness outstanding under the ANHI Credit
Facility, $71.1 million of unsecured indebtedness under NHP's credit facility
(the "NHP Credit Facility") and other short-term indebtedness and $71.0 million
of indebtedness secured by real estate wholly owned by NHP. The ANHI Credit
Facility bears interest at LIBOR plus 2.50% (8.32% at June 30, 1997) and matures
on the earlier of November 7, 1997 or ten days following the Merger. The NHP
Credit Facility bears interest at a rate which ranges from LIBOR plus 75 basis
points to LIBOR plus 125 basis points, depending on NHP's ratio of debt to
income from continuing operations before interest expense, income taxes,
depreciation and amortization ("EBITDA"). The weighted average interest rate on
the NHP unsecured short-term financing at June 30, 1997 was 6.7%. The
indebtedness secured by real estate wholly owned by NHP bears interest at
fixed rates ranging from 7.95% to 12.6% and mature at various dates through
2016.
CAPITAL EXPENDITURES
For the six months ended June 30, 1997, the Company spent $2.9 million for
capital replacements and $2.7 million for initial capital expenditures. In
addition, in the six months ended June 30, 1997, the Company spent $3.8
million for the renovation of two properties owned by the Company. These
expenditures were funded by working capital reserves, borrowings under the
Credit Facility and net cash provided by operating activities. The Company
budgets for capital replacements of $300 per apartment unit per annum, or $3.4
million, for the six months ended June 30, 1997. The Company has $0.8 million
of budgeted but unspent costs remaining from prior periods to fund future
capital replacements. The Company expects to incur initial capital
expenditures and capital enhancements (spending to increase a property's
revenue potential including renovations, developments and expansions) of
approximately $6 million during the balance of the year ended December 31,
1997. Initial capital expenditures and capital enhancements are expected to
be funded with cash from operating activities and borrowings under the Credit
Facility.
CASH EARNED FOR SHAREHOLDERS AND FUNDS FROM OPERATIONS
The Company measures its economic profitability based on Funds From
Operations ("FFO") less an annual provision for capital replacements of $300
per apartment unit, which the Company defines as Cash Earned For Shareholders
("CEFS"). The Company intends to pay regular dividends to its stockholders
based on several primary factors, including CEFS and the annual distribution
REIT requirements. Retained CEFS is also available to make new investments,
make reinvestments in existing properties, repay debt and repurchase shares
as the Company's stock. The Company believes that the presentation of CEFS
and FFO, as hereinafter defined, when considered with the financial data
determined in accordance with generally accepted accounting principles,
provide a useful measure of the Company's performance. However, CEFS and FFO
do not represent cash flow and are not necessarily indicative of cash flow or
liquidity
24
<PAGE>
available to the Company, nor should they be considered as an alternative to
net income as an indicator of operating performance. The Board of Governors
of the National Association of Real Estate Investment Trusts ("NAREIT")
defines FFO as net income (loss), computed in accordance with generally
accepted accounting principles, excluding gains and losses from debt
restructuring and sales of property, plus real estate depreciation and
amortization (excluding amortization of financing costs), and after
adjustments for unconsolidated partnerships and joint ventures. In addition,
the Company adjusts FFO for amortization of management company goodwill and
the non-cash deferred portion of the income tax provision of the unconsolidated
subsidiary.
The Company believes that presentation of FFO provides investors with an
industry accepted measurement which helps facilitate understanding of the
Company's ability to meet required dividend payments, capital expenditures,
and principal payments on its debt. There can be no assurance that the
Company's basis for computing FFO is comparable with that of other real
estate investment trusts.
For the three and six months ended June 30, 1997 and 1996, FFO and CEFS were as
follows (amounts in thousands):
<TABLE>
THREE MONTHS THREE MONTHS SIX MONTHS SIX MONTHS
ENDED ENDED ENDED ENDED
JUNE 30, 1997 JUNE 30, 1996 JUNE 30, 1997 JUNE 30, 1996
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Income before minority interest in Operating
Partnership and extraordinary item $ 6,039 $ 3,774 $11,733 $ 7,078
FFO deductions (add backs):
Real estate depreciation 7,591 4,590 15,046 9,060
Less minority interest in other
partnerships' share of real
estate depreciation (922) - (1,796) -
Amortization of management company
goodwill 237 116 474 230
Equity in earnings of unconsolidated
partnerships:
Real estate depreciation 697 - 697 -
Equity in earnings of unconsolidated
subsidiary:
Real estate depreciation 1,263 - 1,263 -
Provision for income taxes (non-cash portion) 874 - 874 -
Amortization of management company goodwill
and management contracts 472 - 472 -
Less amortization of management company
contracts where the recorded values
of certain contracts are not expected
to be recovered through future cash flows (322) - (322) -
------- ------- ------- -------
Funds From Operations (FFO) 15,929 8,480 28,441 16,368
Capital Replacements (1,889) (1,119) (3,422) (2,239)
------- ------- ------- -------
Cash Earned For Shareholders (CEFS) $14,040 $ 7,361 $25,019 $14,129
------- ------- ------- -------
------- ------- ------- -------
Weighted average common shares, common share
equivalents and OP Units outstanding 23,525 14,660 21,590 14,303
------- ------- ------- -------
------- ------- ------- -------
</TABLE>
25
<PAGE>
CONTINGENCIES
Certain of the Company's Owned Properties are, and some of the other properties
managed by the Company or NHP may be, located on or near properties that have
contained underground storage tanks or on which activities have occurred which
could have released hazardous substances into the soil or groundwater. There can
be no assurances that such hazardous substances have not been released or have
not migrated, or in the future will not be released or will not migrate, onto
the properties. Such hazardous substances have been released at certain Owned
Properties and, in at least one case, have migrated from an off-site location
onto an Owned Property. In addition, the Company's Montecito property in
Austin, Texas, is located adjacent to, and may be partially on, land that was
used as a landfill. Low levels of methane and other landfill gas have been
detected at Montecito. The City of Austin (the "City"), the former landfill
operator, has assumed responsibility for conducting all remedial activities to
date associated with the methane and other landfill gas. The remediation of the
landfill gas is now substantially complete and the Texas Natural Resources
Conservation Commission has preliminarily approved the methane gas remediation
efforts. Final approval of the site and the remediation process is contingent
upon the results of continued methane gas monitors to confirm the effectiveness
of the remediation efforts. Should further actionable levels of methane gas be
detected, a proposed contingency plan of passive methane gas venting may be
implemented by the City. The City has also conducted testing at Montecito to
determine whether, and to what extent, groundwater has been impacted. Based on
test reports received to date by the Company, the groundwater does not appear to
be contaminated at actionable levels. The Company has not incurred, and does
not expect to incur, liability for the landfill investigation and remediation;
however, the Company will install sixteen monitors under the building slabs in
connection with raising four of its buildings in order to install stabilizing
piers thereunder, at an estimated total cost of approximately $400,000 and will
relocate some of its tenants. The City will be responsible for monitoring the
conditions of Montecito.
LEGISLATIVE ACTION REGARDING PROPOSED HUD REORGANIZATION AND RESTRUCTURING OF
HUD PROGRAMS
The Company, primarily through NHP, manages approximately 43,800 units that
are subsidized under Section 8 of the United States Housing Act of 1937, as
amended ("Section 8"). These subsidies are generally provided pursuant to
project-based contracts with the owners of the properties or, with respect to
a limited number of units managed by NHP, pursuant to vouchers received by
tenants. For the past several years, various proposals have been advanced by
the United States Department of Housing and Urban Development ("HUD"),
Congress and others proposing the restructuring of Section 8. Three such
proposals are now pending before Congress. These proposals generally seek to
lower subsidized rents to market levels, thereby reducing rent subsidies, and
to lower required debt service costs as needed to ensure financial viability
at the reduced rents and rent subsidies, but vary greatly as to how that
result is to be achieved. Some proposals include a phase-out of project-based
subsidies on a property-by-property basis upon expiration of a property's
Housing Assistance Payments Contract ("HAP Contract"), with a conversion to a
tenant-based subsidy. Under a tenant-based system, rent vouchers would be
issued to qualified tenants who then could elect to reside at a property of
their choice, provided the tenant has the financial ability to pay the
difference between the selected property's monthly rent and the value of the
voucher, which would be established based on HUD's regulated fair market rent
for that geographical area. Congress has not yet accepted any of these
restructuring proposals. With respect to HAP Contracts expiring on or before
September 30, 1997, Congress has elected to renew expiring HAP Contracts for
one year terms, generally at existing rents. Congress is now considering what
action to take with respect to HAP Contracts expiring October 1, 1997 through
September 30, 1998. While the Company does not believe that the proposed
changes would result in a significant number of tenants relocating from
properties managed by the Company, there can be no assurance that the
proposed changes would not significantly affect the Company's management
portfolio. Furthermore, there can be no assurance that changes in Federal
subsidies will not be more restrictive than those currently proposed or that
other changes in policy will not occur. Any such changes could have an
adverse effect on the Company's property management revenues.
26
<PAGE>
INFLATION
Substantially all of the leases at the Company's apartment properties are for a
period of six months or less, allowing, at the time of renewal, for adjustments
in the rental rate and the opportunity to re-lease the apartment unit at the
prevailing market rate. The short term nature of these leases generally serves
to minimize the risk to the Company of the adverse effect of inflation and the
Company does not believe that inflation has had a material adverse impact on its
revenues.
LITIGATION
See "Legal Proceedings."
In addition, the Company is a party to various legal actions resulting from
its operating activities. These actions are routine litigation and
administrative proceedings arising in the ordinary course of business, some
of which are covered by liability insurance, and none of which are expected
to have a material adverse effect on the consolidated financial condition or
results of operations of the Company.
27
<PAGE>
Part I. FINANCIAL INFORMATION
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Not applicable.
Part II. OTHER INFORMATION
Item 1. Legal Proceedings
In November 1996, Apartment Investment and Management Company, a
Maryland corporation ("AIMCO" and, together with its subsidiaries and other
controlled entities, the "Company"), acquired (the "English Acquisition")
certain partnership interests, real estate and related assets owned by J.W.
English, a Houston, Texas-based real estate syndicator and developer, and
certain affiliated entities (collectively, the "J.W. English Companies"). In
the English Acquisition, the Company purchased all of the general and limited
partnership interests in 22 limited partnerships which act as the general
partner to 31 limited partnerships (the "English Partnerships") that own 22
multifamily apartment properties and other assets and interests related to the
J.W. English Companies and assumed management of the properties owned by the
English Partnerships. The Company made separate tender offers (the "English
Tender Offers") to the limited partners of 25 of the English Partnerships
(the "Tender Offer English Partnerships").
In November 1996, purported limited partners of certain of the
Tender Offer English Partnerships filed a purported class action lawsuit
against the Company and J.W. English in the U.S. District Court for the
Northern District of California (the "Federal Action"), alleging, among other
things, that the Company conspired with J.W. English to breach his fiduciary
duty to the plaintiffs, and that the offering materials used by the Company
in connection with the English Tender Offers contained misleading statements
or omissions. The plaintiffs in the Federal Action have filed a motion to
voluntarily dismiss the Federal Action, without prejudice, in favor of
another purported class action. In May 1997, limited partners of certain of
the Tender Offer English Partnerships and six additional English Partnerships
filed two complaints in the Superior Court of the State of California (the
"California Actions") against the Company and the J.W. English Companies,
alleging, among other things, that the consideration the Company offered in
the English Tender Offers was inadequate and designed to benefit the J.W.
English Companies at the expense of the limited partners, that certain
misrepresentations and omissions were made in connection with the English
Tender Offers, that the Company receives excessive fees in connection with
its management of the properties owned by the English Partnerships, that the
Company continues to refuse to liquidate the English Partnerships and that
the English Acquisition violated the partnership agreements governing the
English Partnerships and constituted a breach of fiduciary duty. The
California Actions seek monetary damages and injunctive and declarative
relief. In addition to such monetary damages, the complaints seek an
accounting, a constructive trust of the assets and monies acquired by the
J.W. English Companies in connection with the
28
<PAGE>
English Acquisition, a court order removing the Company from management of
the English Partnerships and/or ordering the sale of the properties and
attorney's fees, expert fees and other costs.
The Company believes all of the foregoing allegations against it are
without merit and intends to vigorously defend itself in connection with
these actions. The Company believes it is entitled to indemnity from the
J.W. English Companies, subject to certain exceptions. On August 4, 1997,
the Company filed demurrers to both complaints in the California Actions. A
hearing on the demurrers is scheduled for October 17, 1997.
Item 2. Change in Securities
On August 4, 1997, AIMCO issued 750,000 shares of its Class B Cumulative
Convertible Preferred Stock, par value $.01 per share (the "Class B Preferred
Stock"), to an institutional investor (the "Preferred Share Investor") for
$75 million in a private transaction exempt from registration under the
Securities Act of 1933, as amended (the "Securities Act"), pursuant to
Section 4(2) thereof. The Class B Preferred Stock ranks prior to AIMCO's
Class A Common Stock, with respect to dividends, liquidation, dissolution,
and winding-up, and has an aggregate liquidation value of $75,000,000.
Holders of the Class B Preferred Stock are entitled to receive, when, as and
if declared by AIMCO's Board of Directors, quarterly cash dividends per share
equal to the greater of (i) $1.78125 (the "Base Rate") and (ii) the cash
dividends declared on the number of shares of Class A Common Stock into which
one share of Class B Preferred Stock is convertible. On or after August 4,
1998, each share of Class B Preferred Stock may be converted at the option of
the holder into the number of shares of Class A Common Stock determined by
dividing the $100 liquidation preference per share by $30.45, subject to
certain anti-dilution adjustments. AIMCO may redeem any or all of the Class B
Preferred Stock on or after August 4, 2002, at a redemption price of $100 per
share, plus unpaid dividends accrued on the shares redeemed.
Holders of Class B Preferred Stock, voting as a class with the holders
of all AIMCO capital stock that ranks on a parity with the Class B Preferred
Stock with respect to the payment of dividends or upon liquidation,
dissolution, winding up or otherwise ("Parity Stock"), will be entitled to
elect (i) two directors of AIMCO if six quarterly dividends (whether or not
consecutive) on the Class B Preferred Stock or any Parity Stock are in
arrears, and (ii) one director of AIMCO if for two consecutive quarterly
dividend periods AIMCO fails to pay at least $0.4625 in dividends on the
Class A Common Stock. The affirmative vote of the holders of 66-2/3% of the
outstanding shares of Class B Preferred Stock will be required to amend
AIMCO's Charter in any manner that would adversely affect the rights of the
holders of Class B Preferred Stock, and to approve the issuance of any
capital stock that ranks senior to the Class B Preferred Stock with respect
to payment of dividends or upon liquidation, dissolution, winding up or
otherwise. If the Internal Revenue Service were to make a final
determination that AIMCO does not qualify as a real estate investment trust
in accordance with Sections 856 through 860 of the Internal Revenue Code of
1986, as amended (the "Code"), the Base Rate for quarterly cash dividends on
the Class B Preferred Stock would be increased to $3.03125 per share.
29
<PAGE>
The terms of the Class B Preferred Stock are set forth in AIMCO's
Articles of Incorporation, which is included as Exhibit 3.1 to this Report
and incorporated herein by this reference.
The agreement pursuant to which AIMCO issued the Class B Preferred Stock
(the "Preferred Share Purchase Agreement) provides that the Preferred Share
Investor may require AIMCO to repurchase such investor's Class B Preferred
Stock in whole or in part at a price of $105 per share, plus accrued and
unpaid dividends on the purchased shares, if (i) AIMCO shall fail to continue
to be taxed as a real estate investment trust pursuant to Sections 856
through 860 of the Code, or (ii) upon the occurrence of a change of control
(as defined in the Preferred Share Purchase Agreement). The Preferred Share
Purchase Agreement also provides that, so long as the Preferred Share
Investor owns Class B Preferred Stock with an aggregate liquidation
preference of at least $18.75 million, neither AIMCO, AIMCO Properties, L.P.
nor any subsidiary of AIMCO may issue preferred securities or incur
indebtedness for borrowed money if immediately following such issuance and
after giving effect thereto and the application of the net proceeds
therefrom, AIMCO's ratio of: (i) aggregate consolidated earnings before
interest, taxes, depreciation and amortization; to (ii) aggregate
consolidated fixed charges, for the four fiscal quarters immediately
preceding such issuance would be less than 1.5 to 1.
30
<PAGE>
On May 5, 1997, AIMCO issued 2,142,857 shares of Class A Common Stock to
Demeter, Phemus Corporation, Capricorn, and certain of Capricorn's limited
partners, as consideration for the purchase of 2,866,073 shares of NHP common
stock. The shares of Class A Common Stock were issued in a transaction not
involving any public offering in reliance on the exemption from registration
contained in Section 4(2) of the Securities Act.
On June 3, 1997, AIMCO issued warrants (the "Warrants") to purchase
399,999 shares of Class A Common Stock to NHP Partners Limited Partnership, a
Delaware limited partnership, Phemus, Mr. J. Roderick Heller III, Capricorn
and NHP Partners Two LLC, a Delaware limited liability company. The Warrants
were issued as partial consideration for the acquisition by the Company of
all the outstanding capital stock of NHP Partners, Inc. and all of the
outstanding limited partnership interests in NHP Partners Two Limited
Partnership. The Warrants have an exercise price of $36 per share and expire
in June 2002. The Warrants were issued in a transaction not involving any
public offering in reliance on the exemption from registration contained in
Section 4(2) of the Securities Act.
Item 4. Submission of Matters to a Vote of Security Holders.
The Company held its annual meeting of stockholders on April 24, 1997.
At the meeting, the stockholders approved the four proposals set forth below:
1. Proposal to elect six directors, for a term of one year each, until
the next annual meeting of stockholders and until their successors are
elected and qualify:
Votes Votes
For Withheld
---------- --------
Terry Considine 14,067,058 104,303
Richard S. Ellwood 14,067,058 104,303
Peter K. Kompaniez 14,067,058 104,303
J. Landis Martin 14,067,058 104,303
Thomas L. Rhodes 14,067,058 104,303
John D. Smith 14,067,058 104,303
2. Proposal to ratify the selection of Ernst & Young LLP, to serve as
independent auditors for the Company for the calendar year ending December
31, 1997:
Votes Votes Broker
For Against Abstentions Non Votes
---------- ------- ----------- ---------
14,081,325 29,858 60,178 0
3. Proposal to approve the Apartment Investment and Management Company
1997 Stock Award and Incentive Plan:
Votes Votes Broker
For Against Abstentions Non Votes
---------- ------- ----------- ---------
7,521,212 1,767,313 148,935 0
4. Proposal to approve and ratify (i) the Amended and Restated Apartment
Investment and Management Company Non-Qualified Stock Option Plan, and (ii)
the issuance and sale of 515,500 shares of AIMCO Class A Common Stock to
certain of the Company's executive officers:
Votes Votes Broker
For Against Abstentions Non Votes
---------- ------- ----------- ---------
8,421,824 826,523 189,114 0
31
<PAGE>
Item 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) The following exhibits are filed with this report(1):
Exhibit
Number Description
------- -----------
2.1 Real Estate Acquisition Agreement, dated as of May 22, 1997, by and
among Apartment Investment and Management Company, AIMCO Properties,
L.P., Demeter Holdings Corporation, Phemus Corporation, Capricorn
Investors, L.P., J. Roderick Heller, III and NHP Partners LLC (2)
2.2 Amendment No. 1 to Real Estate Acquisition Agreement, dated as of
June 13, 1997, by and among Apartment Investment and Management
Company, AIMCO Properties, L.P., Demeter Holdings Corporation,
Phemus Corporation, Capricorn Investors, L.P., J. Roderick Heller,
III and NHP Partners LLC (*)
2.3 Amendment No. 2 to Real Estate Acquisition Agreement, dated as of
July 14, 1997, by and among Apartment Investment and Management
Company, AIMCO Properties, L.P., Demeter Holdings Corporation,
Phemus Corporation, Capricorn Investors, L.P., J. Roderick Heller,
III and NHP Partners LLC (*)
2.4 Stock Purchase Agreement, dated as of April 16, 1997, by and among
Apartment Investment and Management Company, Demeter Holdings
Coporation and Capricorn Investors, L.P. (3)
3.1 Articles of Incorporation (*)
3.2 Amended and Restated Bylaws (*)
10.1 Agreement and Plan of Merger, dated as of April 21, 1997, by and
among Apartment Investment and Management Company, AIMCO/NHP
Acquisition Corp. and NHP Incorporated (3)
32
<PAGE>
Exhibit
Number Description
------- -----------
10.2 Amended and Restated Credit Agreement (Secured Revolver-to-Term
Facility), dated May 5, 1997, by and among AIMCO Properties, L.P., a
Delaware limited partnership, Bank of America National Trust and
Savings Association, as Agent, and Bank of America National Trust
and Savings Association, as initial Lender (4)
10.3 Amended and Restated Credit Agreement (Bridge Loan Facility), dated
May 5, 1997, by and among AIMCO Properties, L.P., a Delaware limited
partnership, Bank of America National Trust and Savings Association,
as Agent, and Bank of America National Trust and Savings
Association, as one of the Lenders (4)
10.4 Promissory Note, dated May 5, 1997, by AIMCO Properties, L.P., a
Delaware limited partnership, in favor of Bank of America National
Trust and Savings Association (4)
10.5 Credit Agreement, dated May 5, 1997, by and among AIMCO/NHP
Holdings, Inc., the lenders from time to time party thereto, Bank of
America National Trust and Savings Association, as one of the
Lenders, and Bank of America National Trust and Savings Association,
as Agent (4)
10.6 Promissory Note, dated May 5, 1997, by AIMCO/NHP Holdings, Inc., a
Delaware corporation, in favor of Bank of America National Trust and
Savings Association (4)
10.7 Promissory Note, dated May 5, 1997, by AIMCO/NHP Holdings, Inc., a
Delaware corporation, in favor of Smith Barney Mortgage Capital
Group, Inc. (4)
10.8 Payment Guaranty (Acquisition Sub Facility), dated May 5, 1997, by
Apartment Investment and Management Company, a Maryland corporation
and AIMCO Properties, L.P., a Delaware limited partnership, to Bank
of America National Trust and Savings Association, as Agent, for
benefit of Bank of America National Trust and Savings Association
and Smith Barney Mortgage Capital Group, Inc. (4)
33
<PAGE>
Exhibit
Number Description
------- -----------
10.9 Pledge Agreement, dated as of May 5, 1997, by AIMCO Properties, L.P.
and Terry Considine and Peter K. Kompaniez and the Bank of America
National Trust and Savings Association, as Agent, for Bank of
America National Trust and Savings Association and Smith Barney
Mortgage Capital Group, Inc. (4)
10.10 Multifamily Note, dated as of April 18, 1997, by Copperfield
Partners, Ltd., a Texas limited partnership ("Copperfield"), payable
to GMAC Commercial Mortgage Corporation, a California corporation
("GMAC"), in the principal sum of $3,577,000 (*)
10.11 Multifamily Deed of Trust, Assignment of Rents and Security
Agreement, dated as of April 18, 1997, by Copperfield to J.C. Paxton
for the benefit of GMAC (*)
10.12 Exceptions to Non-Recourse Guaranty, dated as of April 18, 1997, by
Apartment Investment and Management Company, a Maryland corporation
and AIMCO Properties, L.P., with respect to Copperfield (*)
10.13 Exceptions to Non-Recourse Guaranty with Respect to Yield
Maintenance, dated as of April 18, 1997, by AIMCO and AIMCO
Properties, L.P., with respect to Copperfield (*)
10.14 Pledge and Security Agreement, dated as of April 18, 1997, by AIMCO
Properties, L.P. in favor of GMAC (*)
10.15 Purchase Agreement by and among Williamsberry Development
Corporation, Colley Williamsberry Limited Partnership, Williamsberry
Development Corp II, Colley Williamsberry L-2 Limited Partnership,
Colbro Development L-2 B Corp., Colley Williamsberry L-2 Limited
Partnership, AIMCO Bay Club, L.P. and AIMCO Holdings, L.P. (*)
10.16 Acquisition and Contribution Agreement and Joint Escrow
Instructions, dated April 11, 1997, by and between AIMCO Properties,
L.P. and The Morton Towers Partnership (*)
34
<PAGE>
Exhibit
Number Description
------- -----------
10.17 Second Amended and Restated Agreement of Limited Partnership of
AIMCO Properties, L.P., dated as of July 29, 1994, among AIMCO-GP,
Inc., as general partner, AIMCO-LP, Inc., as special limited
partner, and AIMCO-GP, Inc., as attorney-in-fact for the limited
partners (*)
10.18 First Amendment to the Second Amended and Restated Agreement of
Limited Partnership of AIMCO Properties, L.P., dated as of July 29,
1997, by AIMCO-GP, Inc. (*)
27.1 Financial Data Schedule
(*) Previously filed.
(1) Schedules and supplemental materials to the exhibits have been
omitted but will be provided to the SEC upon request.
(2) Incorporated by reference from the Company's Current Report on Form
8-K, dated June 3, 1997.
(3) Incorporated by reference from the Company's Current Report on Form
8-K, dated April 16, 1997.
(4) Incorporated by reference from the Company's Quarterly Report on
Form 10-Q for the quarterly period ended March 31, 1997.
(b) Reports on Form 8-K
During the quarter for which this report is filed, the Company
filed the following Reports on Form 8-K:
Current Report on Form 8-K, dated April 16, 1997, and Amendment
1 thereto, relating to the proposed merger of NHP Incorporated
into the Company or one of its subsidiaries; the acquisition of
Stonebrook Apartments by the Company or one of its subsidiaries
and the refinancing of the debt of 23 of the Company's
affiliates, including the following financial statements of NHP
Incorporated: Consolidated Statements of Operations for the years
ended December 31, 1996, 1995 and 1994, the Consolidated Balance
Sheets as of December 31, 1996 and 1995, the Consolidated
Statements of Cash Flows for the years ended December 31, 1996,
35
<PAGE>
1995 and 1994 and the Consolidated Statements of Shareholders'
Equity (Deficit) for the years ended December 31, 1996, 1995,
1994.
Current Report on Form 8-K, dated May 5, 1997, relating to the
acquisition by the Company of common stock of NHP Incorporated,
including certain pro forma financial information and the
following financial statements of NHP Incorporated: Consolidated
Statements of Operations for the years ended December 31, 1996,
1995 and 1994, the Consolidated Balance Sheets as of December 31,
1996 and 1995, the Consolidated Statements of Cash Flows for the
years ended December 31, 1996, 1995 and 1994 and the Consolidated
Statements of Shareholders' Equity (Deficit) for the years ended
December 31, 1996, 1995, 1994.
Current Report on Form 8-K, dated June 3, 1997, as amended by
Amendments 1 and 2 thereto, relating to the acquisition by the
Company of all of the outstanding common stock of NHP Partners,
Inc. and all of the outstanding partnership interests of NHP
Partners Two Limited Partnership; the acquisition by the Company
of the Vinings at the Waterways; and the acquisition by the
Company of two apartment communities located in Tustin,
California, including the Combined Financial Statements of NHP
Real Estate Companies, as of December 31, 1996 and 1995 and
March 31, 1997, the Financial Statements of NHP Southwest Partners,
L.P. as of December 31, 1996 and 1995, the Combined Financial
Statements of NHP New LP Entities as of December 31, 1996 and 1995,
the Combined Financial Statements of NHP Borrower Entities as of
December 31, 1996 and 1995, and the Historical Summary of Gross
Income and Certain Expenses (Summary) of The Bay Club at Aventura
for the year ended December 31, 1996 and the three months ended
March 31, 1997 (unaudited).
36
<PAGE>
SCHEDULE 1
Documents substantially identical to Exhibits 10.10 through 10.14,
except as to the loan amount and the subject property, have been omitted in
reliance on Rule 12b-31 under the Securities Exchange Act of 1934. Set forth
below are the material details in which such documents differ from Exhibits
10.10 through 10.14.
SUBJECT PROPERTY LOAN AMOUNT
---------------- -----------
Ashford Apartments $7,559,000
Coventry Square Apartments $3,116,000
Crows Nest Apartments $2,958,000
Cypress Landing Apartments $4,433,000
Easton Village Apartments $2,969,000
Fisherman's Wharf Apartments $3,627,000
Greentree Apartments $7,631,000
Hampton Hill Apartments $4,240,000
Hastings Place Apartments $2,723,000
Highland Park Apartments $9,614,000
Las Brisas Apartments $3,425,000
Meadows Apartments $2,138,000
Oak Falls Apartments $2,802,000
Randol Crossing Apartments $2,517,000
Ridgecrest Apartments $2,538,000
Riverwalk Apartments $5,761,000
Signature Point Apartments $7,565,000
Snug Harbor Apartments $2,103,000
37
<PAGE>
Southridge Apartments $2,160,000
Stoney Brook Apartments $750,000
Sunbury Downs $2,523,000
Swiss Village Apartments $4,655,000
The Waterford Apartments $4,120,000
Woodhill Apartments $5,976,000
Woodland Apartments $2,136,000
Woodland-Tyler Apartments $4,310,000
38
<PAGE>
APARTMENT INVESTMENT AND MANAGEMENT COMPANY
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
REGISTRANT:
APARTMENT INVESTMENT AND
MANAGEMENT COMPANY
Date: August 18, 1997 /s/ Leeann Morein
-----------------
Leeann Morein
Senior Vice President and
Chief Financial Officer
(duly authorized officer and principal
financial officer)
/s/ Patricia K. Heath
---------------------
Patricia K. Heath
Vice President and
Chief Accounting Officer
(principal accounting officer)
39
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<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> APR-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 21,521
<SECURITIES> 0
<RECEIVABLES> 18,870
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 58,354<F1>
<PP&E> 1,100,959
<DEPRECIATION> 156,104
<TOTAL-ASSETS> 1,166,275
<CURRENT-LIABILITIES> 168,228<F2>
<BONDS> 0
0
0
<COMMON> 224
<OTHER-SE> 417,487
<TOTAL-LIABILITY-AND-EQUITY> 1,166,275
<SALES> 41,679
<TOTAL-REVENUES> 44,840<F3>
<CGS> (19,340)<F4>
<TOTAL-COSTS> (27,388)<F5>
<OTHER-EXPENSES> (433)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (11,152)
<INCOME-PRETAX> 5,264
<INCOME-TAX> 0
<INCOME-CONTINUING> 5,264
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,264
<EPS-PRIMARY> 0.26
<EPS-DILUTED> 0.26
<FN>
<F1>Includes cash, restricted cash and accounts receivable.
<F2>Includes secured short-term financing, accounts payable and accrued
liabilities, resident security deposits, prepaid rents, and unsecured
short-term financing.
<F3>Includes rental and other property revenues, management fees and other income.
<F4>Includes property operating expenses, owned property management expense and
management and other expenses.
<F5>Includes CGS, depreciation, corporate overhead allocation, amortization of
management company goodwill and other assets depreciation and amortization.
</FN>
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