<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q/A
AMENDMENT NO. 2
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended MARCH 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
---------------- --------------------
Commission File Number 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
incorporation or organization) Identification No.)
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
-- -- -----
<TABLE>
<S> <C>
The number of shares of Class A Common Stock outstanding as of May 7, 1998: 41,180,472
The number of shares of Class B Common Stock outstanding as of May 7, 1998: 162,500
</TABLE>
1
<PAGE>
APARTMENT INVESTMENT AND MANAGEMENT COMPANY
FORM 10-Q
INDEX
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION PAGE
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<S> <C>
Item 1. Financial Statements
Consolidated Balance Sheets as of March 31, 1998
(unaudited) and December 31, 1997 3
Consolidated Statements of Income for the Three Months
Ended March 31, 1998 and 1997 (unaudited) 4
Consolidated Statements of Cash Flow for the Three
Months Ended March 31, 1998 and 1997 (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 25
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 26
Item 2. Changes in Securities 27
Item 6. Exhibits and Reports on Form 8-K 27
Signatures 29
</TABLE>
2
<PAGE>
APARTMENT INVESTMENT AND MANAGEMENT COMPANY
Consolidated Balance Sheets
As of March 31, 1998 and December 31, 1997
(In Thousands, Except Share Data)
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
------------ ------------
(unaudited)
<S> <C> <C>
ASSETS
Real Estate, net of accumulated depreciation of $215,724 and $153,285 $ 1,537,646 $ 1,503,922
Property held for sale 35,824 6,284
Investments held for sale 23,759 22,144
Investments in and notes receivable from unconsolidated subsidiaries 88,775 84,459
Investments in and notes receivable from unconsolidated real estate partnerships 245,682 212,150
Cash and cash equivalents 35,948 37,088
Restricted cash 31,186 24,229
Accounts receivable 24,586 28,656
Deferred financing costs 14,367 12,793
Goodwill, net of accumulated amortization of $2,087 and $522 123,634 125,239
Other assets 59,064 43,546
------------ ------------
Total assets $ 2,220,471 $ 2,100,510
------------ ------------
------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Secured notes payable $ 697,036 $ 681,421
Secured tax-exempt bond financing 73,560 74,010
Secured short-term financing 40,900 53,099
------------ ------------
Total indebtedness 811,496 808,530
------------ ------------
Accounts payable, accrued and other liabilities 82,809 88,170
Resident security deposits and prepaid rents 10,023 10,213
------------ ------------
Total liabilities 904,328 906,913
------------ ------------
Commitments and contingencies - -
Minority interests in other partnerships 36,128 36,335
Minority interest in AIMCO Operating Partnership 124,952 111,962
Stockholder's equity
Class A Common Stock, $.01 par value, 150,000,000 shares
authorized, 41,144,945 and 40,418,789 shares issued and outstanding 411 403
Class B Common Stock, $.01 par value, 425,000 shares authorized,
authorized, 162,500 shares issued and outstanding 2 2
Non-voting preferred stock, $0.01 par value, 1,890,000 shares
authorized, none issued and outstanding - -
Class B Cumulative Convertible Preferred Stock, $.01 par value,
750,000 shares authorized, 750,000 shares issued and outstanding 75,000 75,000
Class C Cumulative Preferred Stock, $.01 par value, 2,760,000 shares
authorized, 2,400,000 shares issued and outstanding 60,000 60,000
Class D Cumulative Preferred Stock, $.01 par value, 4,600,000 shares
authorized, 4,200,000 and 0 shares issued and outstanding 105,000 -
Additional paid-in capital 992,001 977,601
Notes due on common stock purchases (41,608) (35,095)
Distributions in excess of earnings (33,900) (30,928)
Accumulated other comprehensive losses (1,843) (1,683)
------------ ------------
Total stockholders' equity 1,155,063 1,045,300
------------ ------------
Total liabilities and stockholders' equity $ 2,220,471 $ 2,100,510
------------ ------------
------------ ------------
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
APARTMENT INVESTMENT AND MANAGEMENT COMPANY
Consolidated Statements of Income
For the Three Months Ended March 31, 1998 and 1997
(In Thousands, Except Per Share Data)
(Unaudited)
<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
RENTAL PROPERTY OPERATIONS
Rental and other property revenues $ 71,336 $ 38,040
Property operating expenses (26,309) (14,456)
Owned property management expense (2,132) (1,321)
Depreciation (13,977) (7,455)
--------- ---------
Income from property operations 28,918 14,808
--------- ---------
SERVICE COMPANY BUSINESS
Management fees and other income 4,821 2,444
Management and other expenses (1,961) (1,420)
Corporate overhead allocation (147) (147)
Amortization of management company goodwill (1,717) (237)
Other assets depreciation and amortization (3) (88)
--------- ---------
Income from service company business 993 552
Minority interests in service company business (1) (1)
--------- ---------
Company's share of income from service company business 992 551
--------- ---------
General and administrative expenses (1,974) (351)
Interest expense (15,441) (9,452)
Interest income 6,076 507
Minority interests in other partnerships (582) (369)
Equity in losses of unconsolidated partnerships (653) -
Equity in earnings of unconsolidated subsidiaries 4,068 -
--------- ---------
Income from operations 21,404 5,694
Extraordinary item - early extinguishment of debt - (269)
Gain on disposition of properties 2,526 -
--------- ---------
Income before minority interest in AIMCO Operating Partnership 23,930 5,425
Minority interest in AIMCO Operating Partnership (2,288) (841)
--------- ---------
Net income $ 21,642 $ 4,584
--------- ---------
--------- ---------
Net income attributable to preferred shareholders $ 3,681 $ -
--------- ---------
--------- ---------
Net income attributable to common shareholders $ 17,961 $ 4,584
--------- ---------
--------- ---------
Net income $ 21,642 $ 4,584
Other comprehensive income:
Unrealized losses on investment in securities (160) -
--------- ---------
Comprehensive income $ 21,482 $ 4,584
--------- ---------
--------- ---------
Basic earnings per common share $ 0.44 $ 0.28
--------- ---------
--------- ---------
Diluted earnings per common share $ 0.43 $ 0.28
--------- ---------
--------- ---------
Weighted average common shares outstanding 41,128 16,454
--------- ---------
--------- ---------
Weighted average common shares and common share
equivalents outstanding 41,310 16,586
--------- ---------
--------- ---------
Dividends paid per common share $ 0.5625 $ 0.4625
--------- ---------
--------- ---------
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
APARTMENT INVESTMENT AND MANAGEMENT COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOW
For the Three Months Ended March 31, 1998 and 1997
(In Thousands)
(Unaudited)
<TABLE>
<CAPTION>
1998 1997
-------- -------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $21,642 $ 4,584
-------- -------
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 15,872 8,405
Gain on disposition of properties (3,276) -
Minority interest in Operating Partnership 2,288 841
Minority interests in other partnerships (582) 369
Equity in losses of unconsolidated partnerships 2,673 -
Equity in earnings of unconsolidated subsidiaries (4,068) -
(Increase) decrease from changes in operating assets:
Restricted cash (6,957) 5,408
Accounts receivable 4,070 (969)
Other assets (11,352) 9,082
Increase (decrease) from changes in operating liabilities:
Accounts payable, accrued and other liabilities (10,459) (2,051)
Resident security deposits and prepaid rents (190) 307
-------- -------
Total adjustments (11,981) 21,392
-------- -------
Net cash provided by operating activities 9,661 25,976
-------- -------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of real estate 11,207 -
Purchase of real estate (6,804) (628)
Advances to unconsolidated real estate partnerships (36,092) -
Purchase of general and limited partnership interests (5,790) -
Additions to property held for sale (1,874) -
Capital replacements (2,790) (986)
Initial capital expenditures (3,289) (973)
Construction in progress and capital enhancements (1,743) (2,122)
Purchase of office equipment and leasehold improvements (120) (294)
Proceeds from sale of property held for sale 270 -
-------- -------
Net cash used in investing activities (47,025) (5,003)
-------- -------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of Class A Common Stock,
net of underwriting and offering costs 9,636 51,463
Proceeds from issuance of Class D Preferred Stock,
net of underwriting and offering costs 100,294 -
Principal repayments received on notes due from Officers on
Class A Common Stock purchases 5,783 -
Repurchase of common stock (5,982)
Repayments on secured notes payable (27,830) -
Net borrowings (repayments) on the Company's revolving credit facilities 7,400 (33,300)
Principal repayments on secured notes payable (3,926) (1,175)
Principal repayments on secured tax-exempt bond financing (450) (346)
Repayments on secured short-term financing (19,099) (30,752)
Payment of loan costs, net of proceeds from interest rate hedge (2,041) (148)
Payment of common stock dividends (23,248) (7,183)
Payment of distributions to minority interest in Operating Partnership (2,928) (1,171)
Payment of preferred stock dividends (1,385) -
-------- -------
Net cash provided by (used in) financing activities 36,224 (22,612)
-------- -------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (1,140) (1,639)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 37,088 13,170
-------- -------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $35,948 $11,531
-------- -------
-------- -------
</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)
<TABLE>
<CAPTION>
<S> <C>
NON CASH INVESTING AND FINANCING ACTIVITIES
PURCHASE OF REAL ESTATE
Secured notes payable assumed in connection with purchase of real estate $ 46,971
Issuance of 499,506 AIMCO Operating Partnership Units ("OP Units") in connection
with the purchase of real estate 16,423
Delayed issuance of 166,503 OP Units in connection with the purchase of real
estate. 5,474
---------
$ 68,868
---------
---------
</TABLE>
REDEMPTION OF OPERATING PARTNERSHIP UNITS
During the three months ended March 31, 1998 and 1997, 167,445 and 543,794
OP Units with recorded values of $3,184 and $8,431, respectively, were
redeemed in exchange for an equal number of shares of Class A Common Stock.
PROPERTY HELD FOR SALE
During the three months ended March 31, 1998, the Company entered into
contracts to sell two apartment communities with a net book value of $27.9
million. These assets were reclassified to Property held for sale.
RECEIPT OF NOTES PAYABLE FROM OFFICERS
During the three months ended March 31, 1998, the Company received notes
payable from officers for a total of $12.3 million in connection with the
sale of 336,030 shares of Class A Common Stock.
See accompanying notes to consolidated financial statements.
6
<PAGE>
APARTMENT INVESTMENT AND MANAGEMENT COMPANY
Notes to Consolidated Financial Statements
March 31, 1998 (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") owns a
majority of the ownership interests in AIMCO Properties, L.P. (the
"AIMCO Operating Partnership") through its wholly owned subsidiaries
AIMCO-GP, Inc. and AIMCO-LP, Inc. The Company held an 88% interest
in the Operating Partnership as of March 31, 1998. AIMCO-GP, Inc. is
the sole general partner of the AIMCO Operating Partnership.
At March 31, 1998, AIMCO had 41,308,545 shares of Class A Common
Stock outstanding and the Operating Partnership had 5,728,938
Partnership Common Units ("OP Units") outstanding, for a combined
total of 47,037,483 shares and OP Units outstanding.
As of March 31, 1998, the Company, through its subsidiaries, owned
or controlled 41,886 units in 153 apartment communities and had an
equity interest in 75,109 units in 480 apartment communities. In
addition, the Company managed 67,665 units in 356 apartment
communities for third parties and affiliates, bringing the total
owned and managed portfolio to 184,660 units in 989 apartment
communities. The apartment communities are located in 42 states,
the District of Columbia and Puerto Rico.
NOTE 2 - BASIS OF PRESENTATION
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the
accounts of AIMCO, the AIMCO Operating Partnership, majority owned
subsidiaries and controlled real estate limited partnerships.
Interests held by limited partners in real estate partnerships
controlled by the Company are reflected as Minority Interests in
Other Partnerships.
All significant intercompany balances and transactions have been
eliminated in consolidation.
INVESTMENTS IN UNCONSOLIDATED SUBSIDIARIES
The Company has investments in numerous subsidiaries. Investments in
entities in which the Company does not have control are accounted for
under the equity method. Under the equity method, the Company's
pro-rata share of the earnings or losses of the entity for the
periods being presented is included in equity in earnings from
unconsolidated subsidiaries (see Note 5).
INVESTMENTS IN AND NOTES RECEIVABLE FROM REAL ESTATE PARTNERSHIPS
The Company owns general and limited partnership interests in
numerous partnerships that own multi-family apartment properties.
Investments in real estate partnerships in which the Company does not
have control are accounted for under the equity method. Under the
equity method, the Company's pro-rata share of the earnings or losses
of the entity for the periods being presented is included in equity
in losses from unconsolidated partnerships (see Note 6).
COMPREHENSIVE INCOME
In June 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 130, REPORTING
COMPREHENSIVE INCOME ("SFAS 130") which provides guidance with
respect to the calculation and presentation of comprehensive
income. Comprehensive income includes all transactions affecting
stockholder's equity, including the traditional measure of net
income, and excluding contributions from and distributions to
stockholders. Under SFAS 130, companies are required to present
comprehensive income and its components on the income statement
and as a component of stockholders' equity on the balance sheet.
As required, the Company adopted SFAS 130 as of January 1, 1998
and restated the components of stockholders' equity for the prior
period presented.
EARNINGS PER SHARE
Earnings per share for the three months ended March 31, 1997 have
been restated to comply with Statement of Financial Accounting
Standard No. 128, EARNINGS PER SHARE (see Note 15).
7
<PAGE>
APARTMENT INVESTMENT AND MANAGEMENT COMPANY
Notes to Consolidated Financial Statements (continued)
NOTE 2 - BASIS OF PRESENTATION (CONTINUED)
INTERIM INFORMATION
The accompanying unaudited consolidated financial statements of the
Company as of March 31, 1998 and for the three months ended March
31, 1998 and 1997 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/A for the year
ended December 31, 1997. 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 to prior period financial
statements to conform with the current period presentation.
NOTE 3 - REAL ESTATE
During the three months ended March 31, 1998, the Company purchased
seven apartment communities containing 2,277 apartment units, as
described below:
<TABLE>
<CAPTION>>
Date Number
Acquired Property Location of Units
-------- -------- -------- --------
<S> <C> <C> <C>
1/98 Crossings at Bell Amarillo, TX 160
2/98 Steeplechase Tyler, TX 484
3/98 Casa Anita Phoenix, AZ 224
3/98 San Marina Phoenix, AZ 399
3/98 Cobble Creek Tuscon, AZ 301
3/98 Rio Cancion Tuscon, AZ 379
3/98 Sundown Village Tuscon, AZ 330
-----
2,277
-----
-----
</TABLE>
The aggregate consideration paid by the Company of $75.6 million
consisted of $6.8 million in cash, 666,009 OP Units valued at $21.8
million and the assumption of $47.0 million of secured long-term
indebtedness. The cash portions of the acquisitions were funded with
borrowings under the Company's revolving credit facilities.
In January 1998, the Company sold the Sun Valley Apartments, an
apartment community containing 430 apartment units located in Salt
Lake City, Utah, for $11.5 million, less selling costs of $0.3
million. The Company recognized a $3.3 million gain on the sale.
As of March 31, 1998, the Company's management has indicated its
intent to sell the Rillito Village and Village Park properties.
Accordingly, the underlying assets of these properties have been
reclassified from real estate to property held for sale on the
consolidated balance sheet.
8
<PAGE>
APARTMENT INVESTMENT AND MANAGEMENT COMPANY
Notes to Consolidated Financial Statements (continued)
NOTE 4 - INVESTMENT IN AMBASSADOR APARTMENTS, INC.
In September 1997, the Company acquired 886,600 shares of common
stock ("Ambassador Common Stock") of Ambassador Apartments, Inc.
("Ambassador") for $19.9 million in cash. The shares acquired
represented 8.4% of the shares of Ambassador Common Stock
outstanding as of the date of the purchase. Ambassador is a
self-administered and self-managed real estate investment trust
("REIT") engaged in the ownership and management of garden-style
apartment properties leased primarily to middle income tenants. As
of March 31, 1998, Ambassador owned 52 apartment communities with a
total of 15,728 units located in Arizona, Colorado, Florida,
Georgia, Illinois, Tennessee and Texas, and managed one property
containing 252 units for an unrelated third party. As of March 31,
1998, the fair market value of the Ambassador stock was $18.2
million. Accordingly, the Company has recognized an unrealized
loss on the Ambassador investment of $1.7 million, which is
included as a component of stockholders' equity.
On December 23, 1997, AIMCO and Ambassador entered into an
Agreement and Plan of Merger (the "Ambassador Merger Agreement")
which provides for the merger of Ambassador with and into AIMCO,
with AIMCO being the surviving corporation (the "Ambassador
Merger"). The Ambassador Merger Agreement also provides that,
unless otherwise agreed, the parties will use their reasonable best
efforts to effect a business combination of Ambassador Apartments,
L.P., a Delaware limited partnership (the "Ambassador Operating
Partnership"), and the AIMCO Operating Partnership. Subsequent to
the execution of the Ambassador Merger Agreement, the AIMCO Operating
Partnership and Ambassador Operating Partnership entered into an
Agreement and Plan of Merger (the "OP Merger Agreement) with AIMCO
MergerSub, L.P., a Delaware limited partnership and 99.9% owned
subsidiary partnership of the AIMCO Operating Partnership
("MergerSub"), pursuant to which MergerSub will be merged with and
into the Ambassador Operating Partnership, with the Ambassador
Operating Partnership surviving (the "OP Merger).
On May 8, 1998, holders of a majority of the outstanding shares of
Ambassador Common Stock voted to approve the merger with AIMCO (see
Note 16).
NOTE 5 - INVESTMENT IN AND NOTES RECEIVABLE FROM UNCONSOLIDATED SUBSIDIARIES
In order to satisfy certain requirements of the Internal Revenue
Service Code applicable to AIMCO's status as a REIT, certain assets
of the Company are held through corporations (the "Unconsolidated
Subsidiaries") in which the AIMCO Operating Partnership holds
non-voting preferred stock that represents a 95% economic interest,
and certain officers and/or directors hold, directly or indirectly,
all of the voting common stock, representing a 5% economic
interest. As a result of the controlling interest in the
Unconsolidated Subsidiaries held by others, the Company accounts
for its interest in the Unconsolidated Subsidiaries on the equity
method. As of March 31, 1998, the Unconsolidated Subsidiaries
included Property Asset Management Services, Inc., AIMCO/NHP
Holdings, Inc. ("ANHI"), AIMCO/NHP Properties, Inc., NHP Property
Management Company and NHP A&R Services, Inc.
As of March 31, 1998, the Company's investment in the
Unconsolidated Subsidiaries totaled $88.8 million, which consisted
of a $50.0 million note receivable from, and $38.8 million of
preferred stock of, the Unconsolidated Subsidiaries.
9
<PAGE>
APARTMENT INVESTMENT AND MANAGEMENT COMPANY
Notes to Consolidated Financial Statements (continued)
NOTE 6 - INVESTMENT IN AND NOTES RECEIVABLE FROM UNCONSOLIDATED REAL ESTATE
PARTNERSHIPS
AIMCO/NHP Partners, L.P. ("ANPLP") owns general and limited
partnership interests in partnerships that own conventional and
affordable apartment units. ANPLP's ownership interests in these
partnerships range from 1% to 100%, and the provisions of the
partnership agreements give ANPLP varying degrees of control.
The Company owns a 99% limited partnership interest in ANPLP.
A limited liability company owned by certain officers of the Company
is the 1% general partner of ANPLP. Based on the provisions of the
partnership agreement for ANPLP, the Company does not possess
control of the partnership. As of March 31, 1998, the Company's
investment in unconsolidated partnerships, including ANPLP, totaled
$245.7 million.
The following table provides selected combined financial information
for both the Company's unconsolidated subsidiaries and unconsolidated
real estate partnerships as of and for the three months ended March
31, 1998 (in thousands):
<TABLE>
<CAPTION>
<S> <C>
Real estate, net of accumulated depreciation $2,127,306
Management contracts 50,514
Goodwill 44,799
Other Assets 480,416
Total assets 2,705,305
Secured notes payable 2,855,886
Accounts payable and accrued liabilities 678,770
Stockholders' and partners' equity (829,351)
Total liabilities and stockholders' equity 2,705,305
Rental and other property revenues $186,765
Property operating expenses (107,774)
Depreciation expense (24,955)
Service company revenues 20,779
Service company expenses (12,335)
Interest expense, net (52,737)
Net income 7,873
</TABLE>
NOTE 7 - SECURED NOTES PAYABLE
During the three months ended March 31, 1998, the Company assumed
$47.0 million in notes payable secured by first trust deeds in
connection with the purchase of seven apartment communities (see Note
3).
The following table summarizes the Company's secured notes payable as
of March 31, 1998 and December 31, 1997, all of which are non-recourse
to the Company (in thousands):
<TABLE>
<CAPTION>
March 31, 1998 December 31, 1997
-------------- -----------------
<S> <C> <C>
Fixed rate, fully-amortizing notes $604,882 $561,056
Fixed rate, non-amortizing notes 78,274 106,424
Floating rate, non-amortizing notes 13,880 13,941
---------- ---------
Total $697,036 $681,421
---------- ---------
---------- ----------
</TABLE>
10
<PAGE>
APARTMENT INVESTMENT AND MANAGEMENT COMPANY
Notes to Consolidated Financial Statements (continued)
NOTE 8 - SECURED TAX-EXEMPT BOND FINANCING
The following table summarizes the Company's secured tax-exempt bond
financing at March 31, 1998 and December 31, 1997 (in thousands):
<TABLE>
<CAPTION>
March 31, 1998 December 31, 1997
-------------- -----------------
<S> <C> <C>
7.0% fully-amortizing bonds due July 2016 $46,191 $46,498
6.9% fully-amortizing bonds due July 2016 9,465 9,529
4.2% interest only bonds due July 2016 5,917 5,958
6.0% interest only bonds due September 1998 5,287 5,325
5.4% interest only bonds due December 2002 6,700 6,700
------- -------
Total $73,560 $74,010
------- -------
------- -------
</TABLE>
NOTE 9 - SECURED SHORT-TERM FINANCING
The Company utilizes a variety of secured short-term financing
instruments to manage its working capital needs and to fund real
estate investments, including variable rate revolving credit
facilities, as well as various fixed and floating rate term loans.
In January 1998, the Company replaced its previous revolving credit
facility with a new $50 million unsecured revolving credit facility
with Bank of America National Trust and Savings Association ("Bank
of America") and BankBoston, N.A. (the "BOA Credit Facility"). The
AIMCO Operating Partnership is the borrower under the BOA Credit
Facility, but all obligations thereunder are guaranteed by AIMCO
and certain subsidiaries. The interest rate under the BOA Credit
Facility is based on either LIBOR or Bank of America's reference
rate, at the election of the Company, plus an applicable margin
(the "Margin"). The Margin ranges between 0.6% and 1.0% in the case
of LIBOR-based loans, and between 0% and 0.5% in the case of loans
based on Bank of America's reference rate, depending upon the
credit rating of the AIMCO Operating Partnership's senior
unsubordinated unsecured long-term indebtedness. The BOA Credit
Facility expires on January 26, 2000 unless extended for successive
one-year periods, at the discretion of the lenders. The BOA
Credit Facility provides for the conversion of the revolving
facility into a three-year term loan. The availability of funds to
the Company under the BOA Credit Facility is subject to certain
borrowing base restrictions and other customary restrictions,
including compliance with financial and other covenants thereunder.
The Company had outstanding borrowings under the BOA Credit
Facility of $4.0 million as of March 31, 1998.
On May 8, 1998, the Company increased its borrowing capacity under
the BOA Credit Facility to $125.0 million for a six-month period
(see Note 16).
In February 1998, the AIMCO Operating Partnership, as borrower, and
AIMCO and certain single asset wholly-owned subsidiaries of the
AIMCO Operating Partnership (the "Owners"), as guarantors, entered
into a five year $50 million secured credit facility agreement (the
"WMF Credit Facility") with Washington Mortgage Financial Group,
Ltd. ("Washington Mortgage"), which provides for the conversion of
all or a portion of such revolving credit facility to a base loan
facility. At the AIMCO Operating Partnership's request, the
commitment amount may be increased to an amount not to exceed $250
million, subject to the consent of Washington Mortgage and FNMA in
their sole and absolute discretion. The AIMCO Operating
Partnership and affiliates have pledged their ownership interests
in the Owners as security for its obligations under the WMF Credit
Facility. The guarantees of the Owners are secured by assets of
the Owners, including four apartment properties and two mortgage
notes. The interest rate on each
11
<PAGE>
APARTMENT INVESTMENT AND MANAGEMENT COMPANY
Notes to Consolidated Financial Statements (continued)
NOTE 9 - SECURED SHORT-TERM FINANCING (CONTINUED)
advance is determined by investor bids for FNMA mortgage-backed
securities, plus a margin presently equal to 0.5%. The maturity date
of each advance under the revolving portion of the WMF Credit Facility
is a date between three and nine months from the closing date of the
advance, as selected by the AIMCO Operating Partnership. Advances
under the base facility mature at a date, selected by the AIMCO
Operating Partnership, between ten and twenty years from the date of
the advance. The Company had outstanding borrowings under the WMF
Credit Facility of $36.9 million as of March 31, 1998.
NOTE 10 - INTEREST RATE LOCK AGREEMENTS
In September 1997, the Company entered into an interest rate lock
agreement with a major investment banking company, having a notional
principal amount of $75.0 million, in anticipation of refinancing
certain floating rate indebtedness. The interest rate lock agreement
fixed the ten-year treasury rate at 6.294%. An unrealized loss of
approximately $3.5 million relating to the hedge has been deferred as
of March 31, 1998. On April 30, 1998, the Company refinanced certain
mortgage indebtedness relating to four real estate partnerships. As a
result of the refinancing, the Company reduced the notional value of
the interest rate lock agreement to $44.9 million, and realized losses
of approximately $1.4 million, which were deferred and will be
amortized over the life of the refinanced debt. The remaining amount
of the interest rate lock agreement has been split into separate
agreements with notional amounts equal to $6.9 million and $38.0
million, which fix the ten-year treasury rates at 6.319% and 6.337%,
and mature on May 15, 1998 and May 29, 1998, respectively.
NOTE 11 - COMMITMENTS AND CONTINGENCIES
HIGH PERFORMANCE UNITS
In January 1998, the Company agreed to sell 15,000 Class I High
Performance Partnership Units (the "High Performance Units")
to a partnership owned by fourteen members of AIMCO's senior
management, and to three of its independent directors for $2.1
million in cash. The High Performance Units have nominal value
unless the Company's total return, defined as distribution
income plus share price appreciation, over the three year
period ending December 31, 2000, is at least 30% and exceeds
the industry average, as determined by a peer group index, by
at least 15% (the "Total Return"). At the conclusion of the
three year period, if the Company's Total Return satisfies
these criteria, the holders of the High Performance Units will
receive distributions and allocations of income and loss from
the AIMCO Operating Partnership in the same amounts and at the
same times as would holders of a number of OP Units equal to the
quotient obtained by dividing (i) the products of (a) 15% of the
amount by which the Company's Cumulative Total Return over the
three year period exceeds the greater of 115% of a peer group
index or 30% (such excess being the "Excess Return"), multiplied
by (b) the weighted average market value of the Company's
outstanding Common Stock and OP Units, by (ii) the market value
of one share of Class A Common Stock at the end of the three year
period. The three year measurement period will be shortened in
the event of a change of control of the Company. Unlike OP Units,
the High Performance Units are not redeemable or convertible into
Class A Common Stock. Because there is substantial uncertainty
that the High Performance Units will have more than nominal value
due to the required Total Return over the three year term, the
Company has not recorded any value to the High Performance Units,
if, however, the measurement period would have ended March 31,
1998, the Excess Return would have been $71.2 million and the
value of the High Performance Units would have been $10.7 million.
INSIGNIA MERGER
On March 17, 1998, AIMCO, the AIMCO Operating Partnership and Insignia
Financial Group, Inc. ("Insignia") and its subsidiary, Insignia/ESG,
Inc. entered into a definitive merger agreement (the "Insignia Merger
Agreement"), pursuant to which Insignia will be merged (the "Insignia
Merger") with and into AIMCO, with AIMCO being the surviving
corporation. Upon the completion of the merger, the Company will
assume property management of approximately 192,000 apartment units,
consisting of 115,000 units owned by partnerships which will be
controlled by AIMCO and 77,000 units owned by third parties. In
addition, the Company will acquire an approximate 61% ownership
interest in Insignia Properties Trust ("IPT"), which owns a 32%
weighted average general and limited partnership interest in
approximately 51,000 apartment units. The total consideration to be
paid in the merger of approximately $810.0 million consists of
approximately $303.0 million of AIMCO preferred stock, the assumption
of approximately $307.0 million of mortgage indebtedness, the
assumption of approximately $150.0 million of indebtedness represented
by preferred convertible securities of an Insignia subsidiary, and
the payment of a $50.0 million special dividend to Insignia
shareholders. The Company has agreed to offer to acquire the
outstanding shares of beneficial interest in IPT not held by Insignia
at a price of at least $13.25 per IPT share, or approximately $100.0
million.
Consummation of the Insignia Merger is subject to the affirmative vote
of the holders of two-thirds of the outstanding shares of Insignia
common stock, the approval of all appropriate governmental and
regulatory authorities and other customary conditions. The Insignia
Merger is expected to be consummated during the third quarter of 1998.
12
<PAGE>
APARTMENT INVESTMENT AND MANAGEMENT COMPANY
Notes to Consolidated Financial Statements (continued)
NOTE 12 - MINORITY INTERESTS IN OTHER PARTNERSHIPS
Interests held by limited partners (other than the Company) in real
estate partnerships controlled by the Company are reflected as
Minority Interests in Other Partnerships. Net income is allocated
based on the percentage interest owned by these limited partners in
each respective real estate partnership.
NOTE 13 - MINORITY INTEREST IN OPERATING PARTNERSHIP
The AIMCO Operating Partnership's income for each period is allocated
between the Company and the outside limited partners, whose
interests are represented by OP Units, based on their respective
weighted-average ownership percentage in the Operating Partnership for
the period. The Company records the issuance of OP Units and the
assets acquired in purchase transactions based on the market price of
the Company's Class A Common Stock immediately prior to the date of
execution of the purchase contract. The holders of the OP Units
receive distributions, pro-rated from the date of admittance, in an
amount equivalent to the dividends paid to holders of Class A Common
Stock. During 1998, the weighted-average ownership interest in the
AIMCO Operating Partnership held by the OP Unit holders was 11.4%. At
March 31, 1998, the ownership interest of the OP Unit holders was
11.2%.
After holding the OP Units for one year, the limited partners have the
right to redeem their OP Units for cash. Notwithstanding that right,
AIMCO may elect to acquire some or all of the OP Units tendered for
redemption in exchange for shares of Class A Common Stock in lieu of
cash.
NOTE 14 - STOCKHOLDERS' EQUITY
On February 19, 1998, AIMCO issued 4,200,000 shares of 8 3/4% Class D
Cumulative Preferred Stock, par value $0.01 per share ("Class D
Preferred Stock") in a public offering. Holders of the Class D
Preferred Stock are entitled to receive, when, as and if declared by
the Board of Directors, annual cash dividends equal to $2.1875 per
share. The Class D Preferred Stock is senior to the Class A Common
Stock, and ranks on a parity with the Class B Preferred Stock and
Class C Preferred Stock as to dividends and upon liquidation. Upon
any liquidation, dissolution or winding up of AIMCO, before payment or
distributions by AIMCO shall be made to any holders of Class A Common
Stock, the holders of the Class D Preferred Stock shall be entitled to
receive a liquidation preference of $25 per share, plus accrued and
unpaid dividends. The net proceeds of $100.3 million were used to
repay indebtedness under the BOA Credit Agreement.
13
<PAGE>
APARTMENT INVESTMENT AND MANAGEMENT COMPANY
Notes to Consolidated Financial Statements (continued)
NOTE 14 - STOCKHOLDERS' EQUITY (CONTINUED)
During the three months ended March 31, 1998, the Company sold 336,030
shares of Class A Common Stock to certain members of the Company's
management, at an average price of $36.61 per share. In payment for
the stock, such members of management executed notes payable to AIMCO
totaling $12.3 million, which bear interest at a fixed rate of 7.0%
per annum, payable quarterly, and are due in ten years. The notes are
secured by the stock purchased and are recourse as to 25% of the
original amount borrowed.
In March 1998, the Company repurchased 163,600 shares of Class A
Common Stock on the open market for $6.0 million, or an average price
of $36.55 per share.
NOTE 15 - EARNINGS PER SHARE
The following table illustrates the calculation of basic and diluted
earnings per share for the three months ended March 31, 1998 and 1997
(in thousands, except per share data):
<TABLE>
<CAPTION>
1998 1997
------- -------
<S> <C> <C>
NUMERATOR:
Net income $21,642 $4,584
Preferred stock dividends (3,681) -
------- -------
Numerator for basic and diluted earnings per share - income
attributable to common shareholders $17,961 $4,584
------- -------
------- -------
DENOMINATOR:
Denominator for basic earnings per share - weighted average
number of shares of common stock outstanding 41,128 16,454
Effect of dilutive securities 182 132
------- -------
Denominator for dilutive earnings per share 41,310 16,586
------- -------
------- -------
BASIC EARNINGS PER COMMON SHARE:
Operations $0.38 $0.30
Gain on disposition of properties 0.06 -
Extraordinary item - (0.02)
------- -------
Total $0.44 $0.28
------- -------
------- -------
DILUTED EARNINGS PER COMMON SHARE:
Operations $0.37 $0.30
Gain on disposition of properties 0.06 -
Extraordinary item - (0.02)
------- -------
Total $0.43 $0.28
------- -------
------- -------
</TABLE>
NOTE 16 - SUBSEQUENT EVENTS
ARBOR STATION ACQUISITION
On April 15, 1998, the Company purchased Arbor Station, a 264-unit
apartment community located in Montgomery, Alabama. Total
consideration paid of $11.4 million was comprised of $9.9 million in
cash, and 38,237 OP units valued at $1.5 million.
14
<PAGE>
APARTMENT INVESTMENT AND MANAGEMENT COMPANY
Notes to Consolidated Financial Statements (continued)
NOTE 16 - SUBSEQUENT EVENTS (CONTINUED)
DIVIDEND DECLARED
On April 16, 1998, the AIMCO Board of Directors declared a cash
dividend of $0.5625 per share of AIMCO Class A Common Stock for the
quarter ended March 31, 1998, payable on May 14, 1998 to stockholders
of record on May 7, 1998.
HEATHER RIDGE ACQUISITION
On April 30, 1998, the Company purchased Heather Ridge II, a 72-unit
apartment community located in Arlington, Texas. Total consideration
paid of $2.0 million was comprised of $0.8 million in cash and the
assumption of $1.2 million in mortgage indebtedness.
INCREASE IN UNSECURED REVOLVING CREDIT FACILITY
On May 8, 1998, the Company increased its borrowing capacity under the
BOA Credit Facility to $125.0 million for a six-month period. At the
conclusion of the six-month period, the maximum borrowing capacity
returns to its original $50.0 million. The interest rate to be
applied to the incremental borrowings is based on either LIBOR plus a
margin of 0.9% or the aforementioned Bank of America reference rate.
The additional borrowing capacity will be used to facilitate the
closing of the Ambassador and Insignia mergers.
AMBASSADOR MERGER
On May 8, 1998, holders of a majority of the outstanding shares of
Ambassador Common Stock voted to approve the merger with AIMCO. The
Ambassador Merger was completed the same day. Pursuant to the
Ambassador Merger Agreement, all outstanding shares of Ambassador
Common Stock were converted into AIMCO Class A Common Stock, at a
conversion ratio of 0.553, resulting in the issuance of up to
6,578,833 shares of AIMCO Class A Common Stock. Concurrently, all
outstanding options to purchase Ambassador Common Stock were converted
into options to purchase AIMCO Class A Common Stock, at the same
conversion ratio, or cash. Contemporaneously with the consummation of
the Ambassador Merger, the OP Merger was consummated, each outstanding
unit of limited partnership interest in the Ambassador Operating
Partnership was converted into the right to receive 0.553 AIMCO OP
Units, and as a result. the Ambassador Operating Partnership became a
99.9% owned subsidiary partnership of the AIMCO Operating Partnership.
15
<PAGE>
APARTMENT INVESTMENT AND MANAGEMENT COMPANY
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
OVERVIEW
As of March 31, 1998, the Company owned or managed 184,660 apartment units,
comprised of 41,886 units in 153 apartment communities owned or controlled by
the Company (the "Owned Properties"), 75,109 units in 480 apartment communities
in which the Company has an equity interest (the "Equity Properties") and 67,665
units in 356 apartment communities which the company manages for third parties
and affiliates (the "Managed Properties" and together with the Owned
Properties and Equity Properties, the "AIMCO Properties"). The apartment
communities are located in 42 states, the District of Columbia and Puerto Rico.
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 REIT 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.
RESULTS OF OPERATIONS
COMPARISON OF THE THREE MONTHS ENDED MARCH 31, 1998 TO THE THREE MONTHS ENDED
MARCH 31, 1997
NET INCOME
The Company recognized net income of $21.6 million for the three months ended
March 31, 1998, compared to $4.6 million for the three months ended March 31,
1997. The increase in net income of $17.0 million, or 370.6% was primarily
the result of the significant increase in the number of owned properties and
investments in unconsolidated subsidiaries and real estate partnerships
during 1997 (the "1997 Acquisitions"), including the acquisition of NHP
properties, and the purchase of seven properties in the first quarter of 1998
(the "1998 Acquisitions"). The increase in net income is partially offset by
the sale of five properties in 1997 (the "1997 Sold Properties") and one
property in 1998 (the "1998 Sold Property"), increased real estate
depreciation, increased goodwill amortization 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 $71.3 million for the three months ended March 31, 1998, compared to
$38.0 million for the three months ended March 31, 1997, an increase of $33.3
million, or 87.6%. Rental and other property revenues consisted of the
following (in thousands):
16
<PAGE>
<TABLE>
<CAPTION>
Three months ended Three months ended
March 31, 1998 March 31, 1997
------------------ ------------------
<S> <C> <C>
"Same store" properties $45,473 $34,117
1997 Acquisitions 22,023 -
1998 Acquisitions 326 -
1997 Sold Properties - 1,201
1998 Sold Property 99 520
Properties in lease-up after the completion
of an expansion or renovation 3,415 2.202
----------- ------------
Total $71,336 $38,040
----------- ------------
----------- -------------
</TABLE>
Property 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 $26.3 million for the three months ended March 31, 1998,
compared to $14.5 million for the three months ended March 31, 1997, an
increase of $11.8 million or 81.4%. Operating expenses consisted of the
following (in thousands):
<TABLE>
<CAPTION>
Three months ended Three months ended
March 31, 1998 March 31, 1997
------------------ ------------------
<S> <C> <C>
"Same store" properties $16,612 $13,090
1997 Acquisitions 8,439 -
1998 Acquisitions 164 -
1997 Sold Properties - 535
1998 Sold Property 111 187
Properties in lease-up after the completion
of an expansion or renovation 983 644
-------- ---------
Total $26,309 $14,456
-------- ---------
-------- ---------
</TABLE>
Owned property management expenses, representing the costs of managing the
Company's Owned Properties, totaled $2.1 million for the three months ended
March 31, 1998, compared to $1.3 million for the three months ended March 31,
1997, an increase of $0.8 million, or 61.5%. The increase resulted from the
acquisition of properties in 1997 and 1998.
SERVICE COMPANY BUSINESS
The Company's share of income from the service company business was $1.0
million for the three months ended March 31, 1998, compared to $0.6 million
for the three months ended March 31, 1997. The increase in income of $0.4
million was due to increased revenues from 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.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses increased from $0.4 million for the three
months ended March 31, 1997 to $2.0 million for the three months ended March
31, 1998, a 400.0% increase. The increase is primarily due to additional
corporate costs and additional employee salaries associated with the purchase
of NHP in December 1997.
17
<PAGE>
INTEREST EXPENSE
Interest expense, which includes the amortization of deferred financing
costs, totaled $15.4 million for the three months ended March 31, 1998,
compared to $9.5 million for the three months ended March 31, 1997, an
increase of $5.9 million, or 62.1%. The increase consists of the following
(in thousands):
<TABLE>
<S> <C>
Interest expense on secured short-term and long-term
indebtedness incurred in connection with the 1997
Acquisitions $5,945
Interest expense on secured and unsecured short-term
and long-term indebtedness incurred in connection
with the 1998 Acquisitions 86
Decrease in interest expense on the Company's other
indebtedness due to principal amortization (42)
------
Total increase $5,989
------
------
</TABLE>
INTEREST INCOME
Interest income totaled $6.1 million for the three months ended March 31,
1998, compared to $0.5 million for the three months ended March 31, 1997.
The increase of $5.6 million is primarily due to interest earned on loans
made by the Company to partnerships in which the Company acts as the general
partner.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 1998, the Company had $35.9 million in cash and cash
equivalents. In addition, the Company had $31.2 million 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 facilities, to be adequate to meet short-term
liquidity demands. The Company utilizes its revolving credit facilities for
general corporate purposes and to fund investments on an interim basis.
In January 1998, the Company replaced its previous $100 million revolving
credit facility with a new $50 million unsecured credit facility with Bank of
America and BankBoston, N.A. (the "BOA Credit Facility"). The AIMCO
Operating Partnership is the borrower under the BOA Credit Facility, but all
obligations thereunder are guaranteed by AIMCO and certain subsidiaries. The
interest rate under the BOA Credit Facility is based on either LIBOR or Bank
of America's reference rate, at the election of the Company, plus an
applicable margin (the "Margin"). The Margin ranges between 0.6% and 1.0% in
the case of LIBOR-based loans, and between 0% and 0.5% in the case of loans
based on Bank of America's reference rate, depending upon the credit rating
of the AIMCO Operating Partnership's senior unsubordinated unsecured
long-term indebtedness. The BOA Credit Facility expires on January 26, 2000
unless extended for successive one-year periods, at the discretion of the
lenders. The BOA Credit Facility provides for the conversion of the
revolving facility into a three-year term loan. The availability of funds to
the Company under the BOA Credit Facility is subject to certain borrowing
base restrictions and other customary restrictions, including compliance with
financial and other covenants thereunder. The Company had outstanding
borrowings under the BOA Credit Facility of $4.0 million as of March 31, 1998.
On May 8, 1998, the Company increased its borrowing capacity under the BOA
Credit Facility to $125.0 million for a six-month period. At the conclusion
of the six-month period, the maximum borrowing capacity returns to its
original $50.0 million. The interest rate to be applied to the incremental
borrowings is based on either LIBOR plus a margin of 0.9% or the
aforementioned Bank of America reference rate.
18
<PAGE>
In February 1998, the AIMCO Operating Partnership, as borrower, and AIMCO and
certain single asset wholly-owned subsidiaries of the AIMCO Operating
Partnership (the "Owners"), as guarantors, entered into a five year $50
million secured credit facility agreement (the "WMF Credit Facility") with
Washington Mortgage Financial Group, Ltd. ("Washington Mortgage"), which
provides for the conversion of all or a portion of such revolving credit
facility to a base loan facility. The WMF Credit Facility provides that all
the rights of Washington Mortgage are assigned to the Federal National
Mortgage Association ("FNMA"), but FNMA does not assume Washington Mortgage's
obligations under the WMF Credit Facility. At the AIMCO Operating
Partnership's request, the commitment amount may be increased to an amount
not to exceed $250 million, subject to the consent of Washington Mortgage and
FNMA in their sole and absolute discretion. The AIMCO Operating Partnership
and affiliates have pledged their ownership interests in the Owners as
security for its obligations under the WMF Credit Facility. The guarantees
of the Owners are secured by assets of the Owners, including four apartment
properties and two mortgage notes. Advances to the AIMCO Operating
Partnership under the WMF Credit Facility are funded with the proceeds of the
sale to investors of FNMA mortgage-backed securities that are secured by the
advance and an interest in the collateral. The interest rate on each advance
is determined by investor bids for such mortgage-backed securities, plus a
margin presently equal to 0.5%. The maturity date of each advance under the
revolving portion of the WMF Credit Facility is a date between three and nine
months from the closing date of the advance, as selected by the AIMCO
Operating Partnership. Advances under the base facility mature at a date,
selected by the AIMCO Operating Partnership, between ten and twenty years
from the date of the advance. Subject to certain conditions, the AIMCO
Operating Partnership has the right to add or substitute collateral. The
WMF Credit Facility requires the Company to maintain a ratio of debt to gross
asset value of no more than 0.55 to 1.0, and interest coverage ratio of at
least 2.25 to 1.0, and a debt service coverage ratio of at least 2.0 to 1.0,
imposes minimum net worth requirements and also provides other financial
covenants and interest coverage ratio requirements that are specifically
related to the collateral. The Company had outstanding borrowings under the
WMF Credit Facility of $36.9 million as of March 31, 1998.
In September 1997, the Company entered into an interest rate lock agreement
with a major investment banking company, having a notional principal amount
of $75.0 million, in anticipation of refinancing certain floating rate
indebtedness. The interest rate lock agreement fixed the ten-year treasury
rate at 6.294%. An unrealized loss of approximately $3.5 million relating to
the hedge has been deferred as of March 31, 1998. On April 30, 1998, the
Company refinanced certain mortgage indebtedness relating to four real estate
partnerships. As a result of the refinancing, the Company reduced the
notional value of the interest rate lock agreement by $30.1 million, and
realized losses of approximately $1.4 million, which were deferred and will
be amortized over the life of the refinanced debt. The remaining interest
rate lock agreement of $44.9 million was split into separate agreements with
notional amounts of $6.9 million and $38.0 million, which fix the ten-year
treasury rates at 6.319% and 6.337%, and mature on May 15, 1998 and May 29,
1998, respectively.
From time to time, the Company has offered to acquire and, in the future, may
offer to acquire 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. Any such
acquisitions will require funds to pay the purchase price for such interests.
Cash payments made in connection with such acquisitions totaled $5.8 million
for the three months ended March 31, 1998.
The Company expects to meet its short-term liquidity requirements 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 that registered $1.0 billion of
securities for sale on a delayed or continuous basis. The shelf registration
statement was declared effective in May 1997. Since that time, the Company
has issued common and preferred stock and received net proceeds of $580.6
million.
19
<PAGE>
As of March 31, 1998, 94% of the Company's Owned Properties and 56% of its
total assets were encumbered by debt, and the Company had total outstanding
indebtedness of $811.5 million, all of which was secured by Owned Properties
and other assets. The Company's indebtedness is comprised of $696.5 million
of secured long-term financing, $37.4 million in secured short-term
financing, $73.6 million of secured tax-exempt bonds and $4.0 million
outstanding under its unsecured revolving credit facility As of March 31,
1998, approximately 7% of the Company's indebtedness bears interest at
variable rates. General Motors Acceptance Corporation has made 89 loans (the
"GMAC Loans"), with an aggregate outstanding principal balance of $386.9
million as of March 31, 1998 to property owning partnerships of the Company,
each of which is secured by the underlying Owned Property of such
partnership. Certain GMAC Loans are cross-collateralized with certain other
GMAC Loans. Other than certain GMAC Loans, none of the Company's debt is
subject to cross-collateralization provisions. At March 31, 1998 the
weighted average interest rate on the Company's consolidated indebtedness was
8.0% with a weighted average maturity of 9.0 years.
CAPITAL EXPENDITURES
For the three months ended March 31, 1998, the Company spent $2.8 million for
capital replacements and $3.3 million for initial capital expenditures. In
addition, the Company spent an aggregate of $1.7 million for capital
enhancements and the renovation of four properties owned by the Company.
These expenditures were funded by working capital reserves, borrowings under
the previous and new credit facilities and net cash provided by operating
activities. The Company budgets $300 per apartment unit per annum for
capital replacements, or $2.9 million for the three months ended March 31,
1998. The Company has $2.4 million of budgeted but unspent amounts remaining
from prior periods that can be used for 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 $50.0 million
during the balance of the year ended December 31, 1998. Initial capital
expenditures and capital enhancements will be funded with cash from operating
activities and borrowings under the Company's revolving credit facilities.
FUNDS FROM OPERATIONS
The Company measures its economic profitability based on Funds From
Operations ("FFO"). The Company's management believes that FFO provides
investors with an understanding of the Company's ability to incur and service
debt and make capital expenditures. 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 related depreciation and amortization (excluding
amortization of financing costs), and after adjustments for unconsolidated
partnerships and joint ventures. The Company calculates FFO in a manner
consistent with the NAREIT definition, which includes adjustments for
minority interest in the AIMCO Operating Partnership, plus amortization of
management company goodwill, the non-cash deferred portion of the income tax
provision for unconsolidated subsidiaries and less the payment of dividends
on preferred stock. FFO should not be considered as an alternative to net
income or net cash flows from operating activities, as calculated in
accordance with GAAP, as an indication of the Company's performance or as a
measure of liquidity. FFO is not necessarily indicative of cash available to
fund future cash needs. In addition, there can be no assurance that the
Company's basis for computing FFO is comparable with that of other real
estate investment trusts.
20
<PAGE>
For the three months ended March 31, 1998 and 1997, FFO was as follows (amounts
in thousands):
<TABLE>
<CAPTION>
1998 1997
------- -------
<S> <C> <C>
OPERATING ACTIVITIES
Income before minority interest in Operating Partnership $23,930 $5,425
Extraordinary item - 269
Gain loss on disposition of properties (2,526) -
Real estate depreciation, net of minority interests in
other partnerships 12,779 6,581
Amortization of goodwill 2,389 237
Equity in earnings of other partnerships:
Real estate depreciation 2,301 -
Equity in earnings of unconsolidated subsidiaries:
Real estate depreciation 890 -
Deferred income taxes 309 -
Amortization of recoverable amount of management
contracts 1,379 -
Class C Preferred Stock dividend (1,332) -
Class D Preferred Stock dividend (1,032) -
------- -------
Funds From Operations (FFO) $39,087 $12,512
------- -------
------- -------
Weighted average common shares, common share
equivalents, preferred stock convertible into common
stock and OP Units outstanding 49,069 19,626
------- -------
------- -------
</TABLE>
For the three months ended March 31, 1998 and 1997, net cash flows were as
follows (amounts in thousands):
<TABLE>
<CAPTION>
1998 1997
------- -------
<S> <C> <C>
Cash provided by operating activities $ 9,661 $25,976
Cash flow used in investing activities (47,025) (5,003)
Cash flow provided by (used in) financing activities 36,224 (22,612)
</TABLE>
COMMITMENTS AND CONTINGENCIES
HUD ENFORCEMENT AND LIMITED DENIALS OF PARTICIPATION
A significant number of affordable units included in the AIMCO Properties are
subject to regulation by the U.S. Department of Housing and Urban Development
("HUD"). Under its regulations, HUD has the authority to suspend or deny
property owners and managers from participation in HUD programs with respect
to additional assistance within a geographic region through imposition of a
Limited Denial of Participation ("LDP") by any HUD office or nationwide for
violations of HUD regulatory requirements. In March 1997, HUD announced its
intention to step up enforcement against property owners and managers who
violate their agreements with HUD, and, in July 1997, HUD announced the
creation of a new department-wide enforcement division. Three HUD field
offices recently issued three LDPs to NHP Incorporated, a company acquired by
AIMCO in December 1997 ("NHP"), as a result of physical inspections and
mortgage defaults at four properties owned by NHP-related companies (two of
which properties are managed by NHP). One LDP was subsequently withdrawn and
another was terminated in December 1997 after a reinspection of the property.
The one remaining LDP, unless lifted, suspends NHP's ability to manage or
acquire additional HUD-assisted properties in eastern Missouri until June 24,
1998. The Company has proposed a settlement agreement with HUD which
includes aggregate payments to HUD of approximately $485,000 and withdrawal
of the LDP as of its date of issuance. Because an LDP is prospective, existing
HUD agreements are not affected, so an LDP is not expected to result
21
<PAGE>
in the loss of management service revenue from or to otherwise affect
properties that the Company currently manages in the subject regions. If HUD
were to disapprove the Company as property manager for one or more affordable
properties, the Company's ability to obtain property management revenues from
new affordable properties may be impaired.
HUD monitors the performance of properties with HUD-insured mortgage loans.
HUD also monitors compliance with applicable regulations, and takes
performance and compliance into account in approving management of
HUD-assisted properties. In this regard, since July 1988, 29 HUD-assisted
properties owned or managed by the NHP or NHP-related companies have
defaulted on non-recourse HUD-insured mortgage loans. Eight of these 29
properties are also currently managed by the Company. An additional six
properties owned or managed by NHP have received unsatisfactory performance
ratings. As a result of the defaults and unsatisfactory ratings, the
national HUD office must review any application by the Company to act as
property manager for additional HUD-assisted properties. The national HUD
office has consistently approved NHP's applications to manage new properties,
and the Company received HUD clearance to acquire its interests in NHP and
the NHP-related companies. The Company believes that it enjoys a good
working relationship with HUD and that the national office will continue to
apply the clearance process to large management portfolios such as the
Company's with discretion and flexibility. While there can be no assurance,
the Company believes that the unsatisfactory reviews and the mortgage
defaults will not have a material impact on its results of operations or
financial condition.
In October 1997, NHP received a subpoena from the Inspector General of HUD
(the "Inspector General") requesting documents relating to any arrangement
whereby NHP or any of its affiliates provides or has provided compensation to
owners of HUD multifamily projects in exchange for or in connection with
property management of a HUD project. The Company believes that other owners
and managers of HUD projects have received similar subpoenas. Documents
relating to certain of the Company's acquisitions of property management
rights for HUD projects, may be responsive to the subpoena. The Company is
in the process of complying with the subpoena and has provided certain
documents to the Inspector General, without conceding that they are
responsive to the subpoena. The Company believes that its operations are in
compliance, in all material respects, with all laws, rules and regulations
relating to HUD-assisted or HUD-insured properties. Effective February 13,
1998, counsel for the Company and the U.S. Attorney for the Northern District
of California entered into a Tolling Agreement related to certain civil
claims the government may have against the Company. Although no action has
been initiated against the Company or, to the Company's knowledge, any owner
of a HUD property managed by the Company, if any such action is taken in the
future, it could ultimately affect existing arrangements with respect to HUD
projects or otherwise have a material adverse effect on the Company's results
of operations.
ENVIRONMENTAL
Under Federal, state and local environmental laws and regulations, a current
or previous owner or operator of real property may be required to investigate
and clean up a release of hazardous substances at such property, and may,
under such laws and common law, be held liable for property damage and other
costs incurred by third parties in connection with such releases. The
liability under certain of these laws has been interpreted to be joint and
several unless the harm is divisible or there is a reasonable basis for
allocation of responsibility. The failure to remediate the property properly
may also adversely affect the owner's ability to sell or rent the property or
to borrow using the property as collateral. In connection with its
ownership, operation or management of the AIMCO Properties, the Company could
be potentially liable for environmental liabilities or costs associated with
its properties or properties it may in the future acquire or manage.
22
<PAGE>
Certain Federal, state and local laws and regulations govern the removal,
encapsulation or disturbance of asbestos-containing materials ("ACMs") when
those materials are in poor condition or in the event of building remodeling,
renovation or demolition; impose certain worker protection and notification
requirements and govern emissions of and exposure to asbestos fibers in the
air. These laws also impose liability for a release of ACMs and my enable
third parties to seek recovery from owners or operators of real properties
for personal injury associated with ACMs. In connection with the ownership,
operation or management of properties, the Company could be potentially
liable for those costs. There are ACMs at certain of the Owned Properties,
and there may be ACMs at certain of the other AIMCO Properties. The Company
has developed and implemented operations and maintenance programs, as
appropriate, that establish operating procedures with respect to the ACMs at
most of the Owned Properties, and intends to develop and implement, as
appropriate, such programs at AIMCO Properties that do not have such
programs.
Certain of the Company's Owned Properties, and some of the other AIMCO
Properties, are located on or near properties that contain or 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 AIMCO 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 AIMCO's 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 investigation and 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 ("TNRCC") 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 has relocated
some of its tenants and has installed a venting system according to the
TNRCC's specifications under the buildings slabs, in connection with the
present raising of four of its buildings in order to install stabilizing
piers thereunder, at a total cost of approximately $550,000, which is
primarily the cost for the restabilization. The restabilization was
substantially completed as of January 1998. The City will be responsible for
monitoring the conditions of Montecito.
All of the Owned Properties were subject to Phase I or similar environmental
audits by independent environmental consultants prior to acquisition. The
audits did not reveal, nor is the Company aware of, any environmental
liability relating to such properties that would have a material adverse
effect on the Company's business, assets or results of operations. However,
such audits involve a number of judgements and it is possible that such
audits did not reveal all environmental liabilities or that there are
material environmental liabilities of which the Company is unaware. In
addition, the Managed Properties may not have been subject to Phase I or
similar environmental audits by independent environmental consultants. While
the Company is not aware of any environmental liability that it believes
would have a material adverse effect on its business, financial condition or
results of operations relating to the Managed Properties, for which audits
are not available, there can be no assurance that material environmental
liabilities of which the Company is unaware do not exist at such properties.
23
<PAGE>
In October 1997, NHP received a letter ("the EPA Letter") from the U.S.
Department of Justice ("DOJ") which stated that the U.S. Environmental
Protections Agency ("EPA") has requested that the DOJ file a lawsuit against
NHP alleging, among other things, that NHP violated the Clean Air Act, the
National Recycling and Emissions Reduction Programs and associated
regulations in connection with the employment of certain unlicensed
personnel, maintenance and disposal of certain refrigerants, and
record-keeping practices at two properties. A settlement in principle
between NHP and the EPA has been reached whereby NHP agreed to pay a fine of
$99,900, permit the EPA to audit the maintenance records and technical
staffing at 40 NHP properties and continue to provide training to all
maintenance workers with respect to the disposal of refrigerants. A formal
settlement agreement is expected to be executed in 1998.
LEGISLATIVE ACTION REGARDING PROPOSED HUD REORGANIZATION AND RESTRUCTURING OF
HUD PROGRAMS
The Company owns and/or manages approximately 44,000 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 Housing Assistance Payment Contracts ("HAP Contracts") between
HUD and the owners of the properties or, with respect to a limited number of
units managed by the Company, pursuant to vouchers received by tenants. On
October 27, 1997, the President of the United States signed into law the
Multifamily Assisted Housing Reform and Affordability Act of 1997 (the "1997
Housing Act"). Under the 1997 Housing Act, the mortgage financing and HAP
Contracts of certain properties assisted under Section 8, with rents above
market levels and financed with HUD-insured mortgage loans, will be
restructured by reducing subsidized rents to market levels, thereby reducing
rent subsidies, and lowering required debt service payments as needed to
ensure financial viability at the reduced rents and subsidy levels. The 1997
Housing Act retains project-based subsidies for most properties (properties
in rental markets with limited supply, properties serving the elderly and
certain other properties).
The 1997 Housing Act phases out project-based subsidies on selected
properties serving families not located in the rental markets with limited
supply, converting such subsidies 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 the relevant geographical areas. The
1997 Housing Act provides that properties will begin the restructuring
process in Federal fiscal year 1999 (beginning October 1, 1998), and that HUD
will issue final regulations implementing the 1997 Housing Act on or before
October 27, 1998. Congress has elected to renew HAP Contracts expiring
before October 1, 1998 for one year terms, generally at existing rents, so
long as the properties remain in compliance with the HAP Contracts. While
the Company does not expect the provisions of the 1997 Housing Act to result
in a significant number of tenants relocating from properties managed by the
Company, there can be no assurance that the provisions will not significantly
affect the Company's management portfolio. Furthermore, there can be no
assurance that other changes in Federal housing subsidy will not occur. Any
such changes could have an adverse effect on the Company's property
management revenues.
HIGH PERFORMANCE UNITS
In January 1998, the Partnership agreed to sell 15,000 Class I High
Performance Partnership Units (the "High Performance Units") to a partnership
owned by fourteen members of AIMCO's senior management, and to three of its
independent directors for $2.1 million in cash. The High Performance Units
have nominal value unless the Company's total return, defined as distribution
income plus share price appreciation, over the three year period ending
December 31, 2000, is at least 30% and exceeds the industry average, as
determined by a peer group index, by at least 15% (the "Total Return"). At
the conclusion of the three year period, if the Company's Total Return
satisfies these criteria, the holders of the High Performance Units will
receive distributions and allocations of income and loss from the AIMCO
Operating Partnership in the same amounts and at the same times as would
holders of a number of OP Units equal to the quotient obtained by dividing
(i) the products of (a) 15% of the amount by which the Company's Cumulative
Total Return over the three year period exceeds the greater of 115% of a peer
group index or 30% (such excess being the "Excess Return"), multiplied by (b)
the weighted average market value of the Company's outstanding Common Stock
and OP Units, by (ii) the market value of one share of Class A Common Stock
at the end of the three year period. The three year measurement period will
be shortened in the event of a change of control of the Company. Unlike OP
Units, the High Performance Units are not redeemable or convertible into
Class A Common Stock. Because there is substantial uncertainty that the High
Performance Units will have more than nominal value due to the required Total
Return over the three year term, the Comany has not recorded any value to the
High Performance Units, if, however, the measurement period would have ended
March 31, 1998, the Excess Return would have been $71.2 million and the value
of the High Performance Units would have been $10.7 million.
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.
24
<PAGE>
LITIGATION
See "PART II. OTHER INFORMATION - Item 1. Legal Proceedings," elsewhere in this
report for a discussion of certain 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.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
25
<PAGE>
APARTMENT INVESTMENT AND MANAGEMENT COMPANY
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In November 1996, the Company acquired (the "English Acquisition")
certain partnerships 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 mulitfamily
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 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 Federal Action was
voluntarily dismissed, without prejudice, in favor of another
purported class action filed in May 1997 by limited partners of
certain of the Tender Offer English Partnerships and six additional
English Partnerships. Two complaints were filed in 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.
In addition to unspecified compensation and exemplary damages, the
original complaints in the California Actions sought an accounting, a
constructive trust on the assets and monies acquired by the English
defendants in connection with the English Acquisition, a court order
removing the Company from management of the English Partnerships
and/or ordering disposition of the properties and attorneys fees,
expert fees and other costs. The Company 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. Failure by the Company to prevail in the
California Actions or to receive indemnification could have a material
adverse effect on the Company's financial condition and results of
operations.
26
<PAGE>
On August 4, 1997, the Company filed demurrers to both complaints in
the California Actions. At a hearing on the demurrers on January 9,
1998, the court granted the Company's demurrers to each of the three
causes of action against it in the two complaints, with leave to
amend. On February 25, 1998, the plaintiffs filed a consolidated
amended class and derivative complaint for damages (the
"Consolidated Amended Complaint"). The Consolidated Amended
Complaint has added as defendants the general partners of the
English Partnerships and dropped certain defendants, including AIMCO/
PAM Properties, L.P. The Consolidated Amended Complaint seeks
compensatory and punitive damages and alleges six causes of action
for breach of fiduciary duty (two separate causes of action), for an
accounting, breach of the implied covenant of good faith and fair
dealing, and for inducing breach of contract. Plaintiffs have also
added allegations of alleged wrongful conduct in connection with the
Company's second group of tender offers commenced in late 1997. On
March 27, 1998, the Company filed demurrers on behalf of the AIMCO
defendants. On May 22, 1998, the Court will hold a hearing on the
Company's demurrers.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
In February 1998, AIMCO issued 4,200,000 shares of Class D 83/4%
Cumulative Preferred Stock ("Class D Preferred Stock"), par value
$0.01 per share, in a public offering. The Class D Preferred Stock
ranks prior to AIMCO Class A Common Stock, and ranks on a parity with
the outstanding shares of AIMCO Class B Preferred Stock and AIMCO
Class C Preferred Stock with respect to the payment of dividends and
the distribution of amounts upon liquidation, dissolution or winding
up. The Class D Preferred Stock has an aggregate liquidation value of
$105.0 million. Holders of the Class D Preferred Stock are entitled
to receive, when, as and if declared by the Board of Directors, annual
cash dividends equal to 83/4% of the $25 liquidation preference, or
$0.546875 per share per quarter.
Holders of the Class D Preferred Stock, voting as a class with the
holders of all AIMCO capital stock that ranks on a parity with the
Class D Preferred Stock with respect to the payment of dividends or
upon liquidation, dissolution, winding up or otherwise ("Parity
Stock"), will be entitled to elect two directors of AIMCO if six
quarterly dividends (whether or not consecutive) on the Class D
Preferred Stock or any Parity Stock are in arrears. In addition, the
affirmative vote of the holders of 66-2/3% of the outstanding shares
of Class D Preferred Stock will be required to amend AIMCO's Charter
in any manner that would adversely affect the rights of the holders of
Class D Preferred Stock, and to approve the issuance of any capital
stock that ranks senior to the Class D Preferred Stock
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS. The following exhibits are filed with this report(1):
<TABLE>
<CAPTION>
Exhibit
Number Description
- -------- ------------
<S> <C>
2.1 Amended and Restated Agreement and Plan of Merger, dated as of
March 17, 1998, by and among Apartment Investment and Management
Company, AIMCO Properties, L.P., Insignia Financial Group,
Inc., and Insignia/ESG Holdings, Inc. (incorporated by
reference to the Company's Current Feport on Form 8-K, dated
March 17, 1998)(1)
3.1 Charter (Exhibit 3.1 to the Company's Annual Report on
Form 10-K/A for the period ended December 31, 1997, is incorporated
herein by this reference)(1)
3.2 Bylaws (Exhibit 3.2 to the Company's Quarterly Report on Form 10-Q
for the quarterly period ended September 30, 1997, is
incorporated herein by this reference)(1)
27
<PAGE>
10.1 Credit Agreement (Unsecured Revolver-to-Term Facility), dated
January 26, 1998, by and among Bank of America National Trust
and Savings Association ("Bank of America") and BankBoston,
N.A.(1)
10.2 Payment Guaranty dated as of January 26, 1998, by Apartment
Investment and Management Company, AIMCO-GP, Inc., AIMCO-LP,
Inc., AIMCO Holdings, L.P., AIMCO Holdings QRS, Inc., AIMCO
Somerset, Inc., AIMCO Properties Finance Corp., and AIMCO/OTC
QRS, Inc. in favor of Bank of America(1)
10.3 Payment Guaranty, dated as of January 26, 1998, by Property
Asset Management Services, L.P., NHP Management Company,
Property Asset Management Services-California, L.L.C. in favor
of Bank of America(1)
10.4 First Amendment to Credit Agreement, dated as of May 8, 1998,
by and among AIMCO Properties, L.P., the financial
institutions listed on the signature pages thereof and Bank of
America(1)
10.5 Payment Guaranty, dated as of May 8, 1998, by Ambassador II,
L.P. in favor of Bank of America(1)
10.6 Master Credit Facility Agreement, dated as of February 4, 1998,
by and among Apartment Investment and Management Company,
AIMCO Properties, L.P., AIMCO/Bluffs, L.L.C., AIMCO
Chesapeake, L.P., AIMCO Elm Creek, L.P., AIMCO Lakehaven,
L.P., AIMCO Los Arboles, L.P., and Washington Mortgage
Financial Group, Ltd(1)
10.7 Guaranty, dated as of February 4, 1998, by Apartment
Investment and Management Company, for the benefit of
Washington Mortgage Financial Group, Ltd(1)
10.8 Third Amendment to the Second Amended and Restated Agreement of
Limited Partnership of AIMCO Properties, L.P., dated as of
February 19, 1998, by AIMCO-GP, Inc. (Exhibit 10.36 to the
Company's Annual Report on Form 10-K/A for the period ended
December 31, 1997, is incorporated herein by this reference)(1)
10.9 Fourth Amendment to the Second Amended and Restated Agreement of
Limited Partnership of AIMCO Properties, L.P., dated as of March
25, 1998, by AIMCO-GP, Inc.(1)
10.10 Contribution Agreement, dated January 31, 1998, by and between
Apartment Investment and Management Company and Terry Considine
and Peter K. Kompaniez (Exhibit 2.1 to the Company's Current
Report on Form 8-K dated February 3, 1998, and is incorporated
herein by this reference)(1)
10.11 Indemnification Agreement, dated March 17, 1998, by and between
Apartment Investment and Management Company and Insignia/ESG,
Inc. (incorporated by reference to the Company's Current Report
on Form 8-K, dated March 17, 1998)(1)
10.12 Amendment No. 1 to the Apartment Investment and Management
Company 1997 Stock Award and Incentive Plan(1)
10.13 Apartment Investment Management Company 1998 Incentive
Compensenation Plan(1)
27.1 Financial Data Schedule(1)
</TABLE>
- ------------
(1) Previously filed.
(2) Schedules and supplemental materials to the exhibits have been
omitted but will be provided to the SEC upon request.
(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 January 31, 1998, relating to
Apartment Investment and Management Company's entering into a
Contribution Agreement with the stockholders of CK Services, Inc.
Current Report on Form 8-K, dated March 17, 1998, and Amendment
No. 1 thereto filed April 8, 1998, relating to the proposed
merger of Insignia Financial Group, Inc. with and into Apartment
Investment and Management Company
During the quarter for which this report is filed, the Company
filed Amendment No. 1 to its Current Report on Form 8-K, dated
December 31, 1997, filed February 6, 1998, relating to the
proposed merger of Ambassador Apartments, Inc. with and into
Apartment Investment and Management Company
28
<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.
APARTMENT INVESTMENT AND
MANAGEMENT COMPANY
Date: May 15, 1998 /s/ Troy D. Butts
---------------------------
Troy D. Butts
Senior Vice President and
Chief Financial Officer
(duly authorized officer and principal
financial officer)
29
