<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------
AMENDMENT NO. 5
TO
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported) MARCH 17, 1998
APARTMENT INVESTMENT AND MANAGEMENT COMPANY
------------------------------------------------------
(Exact name of registrant as specified in its charter)
MARYLAND 1-13232 84-1259577
- ------------------------------- ------------ -------------------
(State or other jurisdiction of (Commission (I.R.S. Employer
incorporation or organization) File Number) Identification No.)
1873 SOUTH BELLAIRE STREET, SUITE 1700, DENVER, CO 80222-4348
- -------------------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (303) 757-8101
NOT APPLICABLE
-------------------------------------------------------------
(Former Name or Former Address, if Changed Since Last Report)
<PAGE> 2
Item 5. OTHER EVENTS
On March 17, 1998, Apartment Investment and Management Company
("AIMCO") and AIMCO Properties, L.P. entered into an Agreement and Plan of
Merger as amended and restated on May 26, 1998, (the "Insignia Merger
Agreement") with Insignia Financial Group, Inc., a Delaware corporation
("Insignia"), and its subsidiary, Insignia/ESG Holdings, Inc. pursuant to
which, upon the approval of stockholders holding a majority of the outstanding
common stock of Insignia, Insignia will be merged with and into AIMCO with
AIMCO as the survivor (the "Insignia Merger"). The Insignia Merger Agreement
provides that prior to the Insignia Merger, Insignia will spin off to its
stockholders all assets related to its U.S. and international commercial real
estate business, its New York-based cooperative and condominium management
company, its single-family home brokerage operations and other related
holdings.
Assuming the stockholders of AIMCO and Insignia approve the Insignia
Merger, Class A common stock, par value $0.01 per share, of Insignia ("Insignia
Common Stock") will be converted into the right to receive an aggregate of
approximately $303 million in Series E Preferred Stock, par value of $0.01 per
share, of AIMCO ("Series E Preferred Stock"). In addition to receiving the same
dividends as holders of AIMCO Common Stock, holders of Series E Preferred Stock
are entitled to a preferred cash dividend of $50 million in the aggregate, and
when such dividend is paid, the Series E Preferred Stock automatically will
convert into AIMCO Common Stock on a one-for-one basis, subject to antidilution
adjustments, if any. In addition, AIMCO will assume approximately $308 million
in outstanding indebtedness and other liabilities and will assume approximately
$150 million aggregate liquidation amount of 6 1/2% Trust Convertible Preferred
Securities (the "TOPRs") issued by Insignia Financing I, a subsidiary of
Insignia, for a total transaction value of approximately $811 million. Also, the
Insignia Merger Agreement provides that AIMCO is required to propose to acquire
(by merger) the outstanding shares of beneficial interest in Insignia Properties
Trust, a Maryland real estate investment trust ("IPT"), at a price of at least
$13.25 per IPT share and use its reasonable best efforts to consummate the
transaction after the closing of the Insignia Merger but not earlier than August
15, 1998. IPT is a 61% owned subsidiary of Insignia; the 39% of IPT not owned by
Insignia is valued at an aggregate of approximately $100 million, or
approximately $13.25 per share.
If the stockholders of AIMCO do not approve the Insignia Merger, but
the stockholders of Insignia do approve it, the Insignia Merger may nonetheless
be consummated. However, instead of receiving $303 million in Series E Preferred
Stock, holders of Insignia Common Stock would receive approximately $203 million
in Series E Preferred Stock and $100 million aggregate liquidation value of
Series F Preferred Stock, par value $0.01 per share, of AIMCO ("Series F
Preferred Stock"). In either case, holders of Series E Preferred Stock would be
entitled to a preferred cash dividend of $50 million. Holders of Series F
Preferred Stock are entitled to receive the greater of (i) the dividends
received by holders of AIMCO Common Stock and (ii) preferred distributions of
10% of the liquidation value of the Series F Preferred Stock, with the preferred
return rate escalating by 1% each year until a 15% annual return is achieved.
Upon the approval by stockholders of AIMCO, the Series F Preferred Stock will
convert into AIMCO Common Stock on a one-to-one basis, subject to antidilution
adjustments, if any.
Insignia Financial Group, Inc. is a leading fully integrated real
estate services company. Insignia is the largest manager of multifamily
residential properties in the United States and is among the largest managers of
commercial properties. Insignia commenced operations in December 1990 and since
then has grown to provide property and/or asset management and other real estate
services for over 2,700 properties which include approximately 280,000
residential units (including cooperative and condominium units), and
approximately 160 million square feet and commercial space located in over 500
cities and 48 states and overseas.
On March 24, 1998, certain persons claiming to own limited partner
interests in certain limited partnerships whose general partners (the "General
Partners") are affiliates of Insignia (the "Partnerships") filed a purported
class and derivative action in California Superior Court in the County of San
Mateo (the "California Class Action") against Insignia, the General Partners,
AIMCO, certain persons and entities who purportedly formerly controlled the
General Partners, and additional entities affiliated with and individuals who
are officers, directors and/or principals of several of the defendants. The
complaint contains allegations that, among other things, (i) the defendants
breached their fiduciary duties to the plaintiffs by selling or agreeing to
sell their "fiduciary positions" as stockholders, officers and directors of the
General Partners for a profit and retaining said profit rather than
distributing it to the plaintiffs; (ii) the defendants breached their fiduciary
duties by mismanaging the Partnerships and misappropriating the assets of the
Partnerships by (a) manipulating the operations of the Partnerships to depress
the trading price of limited partnership units (the "Units") of the
Partnerships, (b) coercing and fraudulently inducing Unit holders to sell Units
to certain of the defendants at depressed prices, and (c) using the voting
control obtained by purchasing Units at depressed prices to entrench certain of
the defendants' positions of control over the Partnerships; and (iii) the
defendants breached their fiduciary duties to the plaintiffs by (a) selling
assets of the Partnerships such as mailing lists of Unit holders and (b)
causing the General Partners to enter into exclusive arrangements with their
affiliates to sell goods and services to the Partnerships, the Unit holders and
tenants of Partnership properties (collectively, the "Allegations"). The
complaint also alleges that the Allegations constitute violations of various
California securities, corporate and partnership statutes, as well as
conversion and common law fraud. The complaint seeks unspecified compensatory
and punitive damages, an injunction blocking the sale of control of the General
Partners to AIMCO and a court order directing the defendants to discharge their
fiduciary duties to the plaintiffs. On June 25, 1998, Insignia, the General
Partners and certain other defendants served a demurrer to the complaint and a
motion to strike. Also on June 25, 1998, AIMCO served a separate demurrer on the
plaintiffs. On July 30, 1998 the plaintiffs filed an amended complaint in
response to the demurrers. The response to the amended complaint is due October
14, 1998. Based upon the allegations of the complaint, neither Insignia nor
AIMCO is able to quantify the relief sought. Both Insignia and AIMCO intend to
defend the action vigorously.
2
<PAGE> 3
Item 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS
(a) Financial Statements of Businesses Acquired
Consolidated Financial Statements and Report of Independent Auditors
for Ambassador Apartments, Inc., as of December 31, 1997 and 1996 and for each
of the three years in the period ended December 31, 1997 (included as Exhibit
99.1 to this Report and incorporated herein by this reference).
Consolidated Financial Statements and Report of Independent Auditors
for Insignia Financial Group, Inc., as of December 31, 1997 and 1996 and for
each of the three years in the period ended December 31, 1997 (included as
Exhibit 99.2 to this Report and incorporated herein by this reference).
Consolidated Financial Statements for Insignia Financial Group, Inc.
as of June 30, 1998 (unaudited) and December 31, 1997 and for the three and six
months ended June 30, 1998 (unaudited) and 1997 (unaudited) (included as
Exhibit 99.3 to this Report and incorporated herein by this reference).
(b) Pro Forma Financial Information
The required pro forma financial information is included as Exhibit
99.4 to this Report and incorporated herein by this reference.
(c) Exhibits
The following exhibits are filed with this report:
Exhibit
Number Description
- -------- -----------
2.1* Amended and Restated Agreement and Plan of Merger, dated as of May
26, 1998, by and among Apartment Investment and Management Company,
AIMCO Properties, L.P., Insignia Financial Group, Inc. and
Insignia/ESG Holdings, Inc.
12.1 Calculation of Ratio of Earnings to Fixed Charges.
12.2 Calculation of Ratio of Earnings to Combined Fixed Charges and
Preferred Stock Dividends.
23.1* Consent of Ernst & Young LLP, Chicago, Illinois.
23.2* Consent of Ernst & Young LLP, Greenville, South Carolina.
99.1* Consolidated Financial Statements and Report of Independent Auditors
for Ambassador Apartments, Inc., as of December 31, 1997 and 1996 and
for each of the three years in the period ended December 31, 1997.
99.2* Consolidated Financial Statements and Report of Independent Auditors
for Insignia Financial Group, Inc., as of December 31, 1997 and 1996
and for each of the three years in the period ended December 31, 1997.
99.3 Consolidated Financial Statements for Insignia Financial Group, Inc.
as of June 30, 1998 and December 31, 1997 and for the three and six
months ended June 30, 1998 and 1997.
99.4 Pro Forma Financial Information of Apartment Investment and Management
Company as of June 30, 1998 and for the year ended December 31, 1997
and the six months ended June 30, 1998.
* * * * *
* Previously filed
3
<PAGE> 4
SIGNATURE
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: September 4, 1998 /s/ Troy Butts
------------------------------------
Troy D. Butts
Senior Vice President and Chief
Financial Officer
4
<PAGE> 5
EXHIBIT INDEX TO CURRENT REPORT ON FORM 8-K
<TABLE>
<CAPTION>
Exhibit
Number Description
- -------- -----------
<S> <C>
2.1* Amended and Restated Agreement and Plan of Merger, dated as of May
26, 1998, by and among Apartment Investment and Management Company,
AIMCO Properties, L.P., Insignia Financial Group, Inc. and
Insignia/ESG Holdings, Inc.
12.1 Calculation of Ratio of Earnings to Fixed Charges.
12.2 Calculation of Ratio of Earnings to Combined Fixed Charges and
Preferred Stock Dividends.
23.1* Consent of Ernst & Young LLP, Chicago, Illinois.
23.2* Consent of Ernst & Young LLP, Greenville, South Carolina.
99.1* Consolidated Financial Statements and Report of Independent Auditors
for Ambassador Apartments, Inc., as of December 31, 1997 and 1996 and
for each of the three years in the period ended December 31, 1997.
99.2* Consolidated Financial Statements and Report of Independent Auditors
for Insignia Financial Group, Inc., as of December 31, 1997 and 1996
and for each of the three years in the period ended December 31, 1997.
99.3 Consolidated Financial Statements for Insignia Financial Group, Inc.
as of June 30, 1998 and December 31, 1997 and for the three and six
months ended June 30, 1998 and 1997.
99.4 Pro Forma Financial Information of Apartment Investment and Management
Company as of June 30, 1998 and for the year ended December 31, 1997
and the six months ended June 30, 1998.
</TABLE>
* Previously filed
<PAGE> 1
EXHIBIT 12.1
CALCULATION OF RATIO OF EARNINGS TO FIXED CHARGES
(DOLLARS IN THOUSANDS)
APARTMENT INVESTMENT AND MANAGEMENT COMPANY
<TABLE>
<CAPTION>
HISTORICAL
------------------------------------------------------------------------------
Six months
Ended January 10, 1994
June 30, Year ended December 31, (Inception)
--------------------- ---------------------------------- Through
1998 1997 1997 1996 1995 December 31, 1994
-------- -------- -------- -------- -------- -----------------
<S> <C> <C> <C> <C> <C> <C>
Earnings (1) $ 35,586 $ 12,763 $ 67,535 $ 15,696 $ 14,988 $ 7,702
Fixed charges:
Interest expense 34,778 20,604 51,385 24,802 13,322 1,576
Capitalized interest 1,252 475 1,300 821 113 29
-------- -------- -------- -------- -------- -----------------
Total fixed charges (A) 36,030 21,079 52,685 25,623 13,435 1,605
-------- -------- -------- -------- -------- -----------------
Earnings before fixed charges (2)(B) $ 70,364 $ 33,367 $118,920 $ 40,498 $ 28,310 $ 9,278
======== ======== ======== ======== ======== =================
Ratio of earnings to fixed
charges (B divided by A) 2.0:1.0 1.6:1.0 2.3:1.0 1.6:1.0 2.1:1.0 5.8:1.0
======== ======== ======== ======== ======== =================
<CAPTION>
PRO FORMA
------------------------------------------------
Six months ended Year ended
June 30, 1998 December 31, 1997
----------------------- ---------------------
Pre-Merger Merger Pre-Merger Merger
----------------------- ---------------------
<S> <C> <C> <C> <C>
Earnings (1) $ 42,521 $ 37,363 $ 92,316 $104,731
Fixed charges:
Interest expense 41,730 57,382 85,681 106,890
Capitalized interest 1,252 1,252 1,300 1,300
---------- -------- -------- --------
Total fixed charges (A) 42,982 58,634 86,981 108,190
---------- -------- -------- --------
Earnings before fixed charges (2)(B) $ 84,251 $ 94,745 $177,997 $211,621
========== ======== ======== ========
Ratio of earnings to fixed
charges (B divided by A) 2.0:1.0 1.6:1.0 2.0:1.0 2.0:1.0
========== ======== ======== =======
</TABLE>
AIMCO PREDECESSORS
<TABLE>
<CAPTION>
HISTORICAL
-----------------------------------
January 1, 1994 Year ended
Through December 31,
July 28, 1994 1993
--------------- --------------
<S> <C> <C>
Earnings (1) $ (1,463) $ 627
Fixed charges:
Interest expense 4,214 3,510
Capitalized interest -- --
--------------- --------------
Total fixed charges (A) 4,214 3,510
--------------- --------------
Earnings before fixed charges (2) (B) $ 2,751 $ 4,137
=============== ==============
Ratio of earnings to fixed
charges (B divided by A) (3) 1.2:1.0
=============== ==============
</TABLE>
(1) Earnings represents pretax income before Minority Interest in Operating
Partnership and minority interest in other partnerships Equity in earnings
of unconsolidated subsidiaries and partnerships is included in earnings
only to the extent of dividends and distributions received.
(2) Earnings before fixed charges exclude capitalized interest.
(3) Earnings for the period January 1, 1994 through July 28, 1994 were
inadequate to cover fixed charges. The deficiency for the period was
$1,463.
<PAGE> 1
EXHIBIT 12.2
CALCULATION OF RATIO OF EARNINGS TO COMBINED FIXED CHARGES AND
PREFERRED STOCK DIVIDENDS
(DOLLARS IN THOUSANDS)
APARTMENT INVESTMENT AND MANAGEMENT COMPANY
<TABLE>
<CAPTION>
Historical
----------------------------------------------------------------------------------
Six months
Ended January 10, 1994
June 30, Year ended December 31, (Inception)
--------------------- ---------------------------------- Through
1998 1997 1997 1996 1995 December 31, 1994
-------- -------- -------- -------- -------- -----------------
<S> <C> <C> <C> <C> <C> <C>
Earnings (1) $ 35,586 $ 12,763 $ 67,535 $ 15,696 $ 14,988 $ 7,702
Fixed charges:
Interest expense 34,778 20,604 51,385 24,802 13,322 1,576
Capitalized interest 1,252 475 1,300 821 113 29
Preferred stock dividends 8,650 -- 2,315 -- 5,169 3,114
-------- -------- -------- -------- -------- -----------------
Total fixed charges (A) 44,680 21,079 55,000 25,623 18,604 4,719
-------- -------- -------- -------- -------- -----------------
Earnings before fixed charges (2)(B) $ 70,364 $ 33,367 $118,920 $ 40,498 $ 28,310 $ 9,278
======== ======== ======== ======== ======== =================
Ratio of earnings to fixed
charges (B divided by A) 1.6:1.0 1.6:1.0 2.2:1.0 1.6:1.0 1.5:1.0 2.0:1.0
======== ======== ======== ======== ======== =================
<CAPTION>
Pro Forma
-----------------------------------------------
Six months ended Year ended
June 30, 1998 December 31, 1997
--------------------- ---------------------
Pre-Merger Merger Pre-Merger Merger
--------------------- ---------------------
<S> <C> <C> <C> <C>
Earnings (1) $ 42,521 $ 37,363 $ 92,316 $104,731
Fixed charges:
Interest expense 41,730 57,382 85,681 106,890
Capitalized interest 1,252 1,252 1,300 1,300
Preferred stock dividends 17,004 17,004 34,174 34,174
-------- -------- -------- --------
Total fixed charges (A) 59,986 75,638 121,155 142,364
-------- -------- -------- --------
Earnings before fixed charges (2)(B) $ 84,251 $ 94,745 $177,997 $211,621
======== ======== ======== ========
Ratio of earnings to fixed
charges (B divided by A) 1.4:1.0 1.3:1.0 1.5:1.0 1.5:1.0
======== ======== ======= =======
</TABLE>
AIMCO PREDECESSORS
<TABLE>
<CAPTION>
Historical
----------------------------------
January 1, 1994 Year ended
Through December 31,
July 28, 1994 1993
--------------- --------------
<S> <C> <C>
Income (loss) before extraordinary item and income taxes $ (1,463) $ 627
Fixed charges:
Interest expense 4,214 3,510
Capitalized interest -- --
Preferred stock dividends (3) -- --
-------------- --------------
Total fixed charges (A) 4,214 3,510
-------------- --------------
Earnings before fixed charges (2) (B) $ 2,751 $ 4,137
============== ==============
Ratio of earnings to fixed charges (B divided by A) (4) 1.2:1.0
============== ==============
</TABLE>
(1) Earnings represents pretax income before Minority Interest in Operating
Partnership and minority interest in other partnerships. Equity in earnings
of unconsolidated subsidiaries and partnerships is included in earnings
only to the extent of dividends and distributions received.
(2) Earnings before fixed charges exclude capitalized interest.
(3) The AIMCO Predecessors did not have any shares of Preferred Stock
outstanding during the period from January 1, 1993 through July 28, 1994.
(4) Earnings for the period January 1, 1994 through July 28, 1994 were
inadequate to cover fixed charges. The deficiency for the period was
$1,463.
<PAGE> 1
EXHIBIT 99.3
CONSOLIDATED FINANCIAL STATEMENTS
for Insignia Financial Group, Inc.
as of June 30, 1998 and December 31, 1997 and
for the three and six months ended June 30, 1998 and 1997
<PAGE> 2
INSIGNIA FINANCIAL GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Thousands of Dollars, except share and per share data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
-------- --------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
REVENUES
Fee based services $ 146,444 $ 83,854 $ 273,206 $ 149,276
Interest 1,536 1,007 2,878 1,741
Other 960 108 1,543 281
Apartment property revenues 1,856 1,646 3,627 3,229
------------ ------------ ------------ ------------
150,796 86,615 281,254 154,527
------------ ------------ ------------ ------------
COSTS AND EXPENSES
Fee based services 123,644 67,049 228,454 118,766
Administrative 4,283 1,958 8,179 4,240
Apartment property 846 784 1,736 1,516
Interest 5,420 1,565 9,492 3,198
Apartment property interest 422 372 828 744
Depreciation and amortization 10,011 8,218 20,021 15,304
Apartment property depreciation 329 241 600 480
Merger related expenses 2,901 -- 4,937
------------ ------------ ------------ ------------
------------
147,856 80,187 274,247 144,248
------------ ------------ ------------ ------------
2,940 6,428 7,007 10,279
Equity earnings - limited partnership interests 10,431 569 13,624 3,636
Minority interests in consolidated subsidiaries (4,723) (2,707) (8,497) (6,285)
------------ ------------ ------------ ------------
INCOME BEFORE INCOME TAXES 8,648 4,290 12,134 7,630
Provision for income taxes 3,891 1,716 5,460 3,052
------------ ------------ ------------ ------------
NET INCOME $ 4,757 $ 2,574 $ 6,674 $ 4,578
============ ============ ============ ============
Per share amounts - basic: $ .15 $ .09 $ .21 $ .16
============ ============ ============ ============
Per share amounts - assuming dilution: $ .14 $ .08 $ .19 $ .14
============ ============ ============ ============
Weighted average common shares
and assumed conversions 34,808,146 31,640,668 34,253,189 31,797,433
============ ============ ============ ============
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Condensed Consolidated Financial Statements.
1
<PAGE> 3
b) Balance Sheet
INSIGNIA FINANCIAL GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Thousands of Dollars, except share data)
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
---- ----
(Unaudited) (Note)
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 57,807 $ 88,847
Receivables 147,569 122,180
Property and equipment 24,414 19,011
Investments in real estate limited partnerships 282,599 215,735
Apartment property 25,808 22,357
Property management contracts 134,344 147,256
Costs in excess of net assets of acquired businesses 245,391 158,524
Other assets 36,257 26,313
-------- --------
Total assets $954,189 $800,223
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Accounts payable $ 16,205 $ 13,705
Commissions payable 54,467 51,285
Accrued and sundry liabilities 105,658 102,009
Notes payable 267,384 170,404
Non-recourse mortgage notes payable 21,951 19,300
-------- --------
Total liabilities 465,665 356,703
-------- --------
Company-obligated mandatorily redeemable convertible preferred
securities of a subsidiary trust 144,210 144,065
Minority interests in consolidated subsidiaries 66,484 61,546
Stockholders' Equity:
Common stock, class A, par value $.01 per share - authorized 100,000,000
shares, 31,987,072 issued and 31,820,672 outstanding
(1998) and 30,159,161 issued and outstanding (1997) shares 318 302
Additional paid-in capital 234,819 201,597
Retained earnings 42,693 36,010
-------- --------
Total stockholders' equity 277,830 237,909
-------- --------
Total liabilities and stockholders' equity $954,189 $800,223
======== ========
</TABLE>
NOTE: The Balance Sheet at December 31, 1997 has been derived from the
audited financial statements at that date but does not include all the
information and footnotes required by generally accepted accounting
principles for complete financial statements.
- --------------------------------------------------------------------------------
See Notes to Condensed Consolidated Financial Statements.
2
<PAGE> 4
c) Statement of Cash Flow
INSIGNIA FINANCIAL GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW
(Thousands of Dollars)
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
--------
1998 1997
---- ----
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 6,674 $ 4,578
Adjustments to reconcile net income to net cash
provided by operations:
Depreciation and amortization 20,021 15,304
Apartment property depreciation 600 480
Equity in earnings of partnerships (13,624) (3,636)
Minority interests in consolidated subsidiaries 8,497 6,285
Foreign currency translation 9 --
Changes in operating assets and liabilities:
Receivables 2,768 (9,222)
Other assets (6,481) (3,815)
Accrued compensation (9,607) (3,077)
Accounts payable and accrued expenses (12,270) 4,207
Commissions payable 516 8,201
--------- ---------
Net cash (used in) provided by operating activities (2,897) 19,305
--------- ---------
INVESTING ACTIVITIES
Additions to property and equipment, net (6,273) (2,507)
Payments made for acquisition of management contracts
and acquired businesses (50,846) (8,312)
Net increase in mortgage loans (2,296) --
Proceeds from Balcor dispositions 196 4,069
Purchase of real estate limited partnership interests (54,512) (22,831)
Investment in apartment property, net of acquired cash (3,804) --
Distributions from partnerships 9,804 29,579
Advances made under note agreements (12,145) (12,265)
Collections on notes receivable 1,629 1,263
--------- ---------
Net cash used in investing activities (118,247) (11,004)
--------- ---------
FINANCING ACTIVITIES
Proceeds from issuance of common stock of subsidiary -- 31,710
Payments on non-recourse mortgage notes payable (9) --
Payments on notes payable (1,642) (11,543)
Payment of distributions on trust based convertible preferred securities (5,012) (5,001)
Proceeds from exercise of stock options and warrants 7,140 1,769
Proceeds from notes payable 89,660 --
Proceeds from refinancing of non-recourse mortgage notes payable 2,660 --
Distributions made to minority interests (2,631) (1,571)
Debt and stock issuance costs (62) (1,196)
--------- ---------
Net cash provided by financing activities 90,104 14,168
--------- ---------
(Decrease) increase in cash and cash equivalents (31,040) 22,469
Cash and cash equivalents at beginning of period 88,847 54,614
--------- ---------
Cash and cash equivalents at end of period $ 57,807 $ 77,083
========= =========
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Condensed Consolidated Financial Statements.
3
<PAGE> 5
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. Insignia Financial Group, Inc. (the "Company" or "Insignia") is a Delaware
corporation incorporated in July 1990. The Company is a fully integrated
real estate services company with operations throughout the United States
and the United Kingdom. Insignia provides property management, leasing,
tenant representation, investment, asset management, partnership
administration, investor services, consulting, brokerage, development and
investment banking services to owners and users of real estate. In
addition, Insignia has substantial ownership of real estate, primarily
investments in partnerships, through its REIT subsidiary Insignia
Properties Trust and co-investments with institutional partners.
2. The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles
for interim financial information and with the instructions to Form 10-Q
and Article 10 of Regulation S-X. Accordingly, they do not include all of
the information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management,
all adjustments (consisting of normal recurring accruals) considered
necessary for a fair presentation have been included. Operating results for
the three and six month periods ended June 30, 1998 are not necessarily
indicative of the results that may be expected for the year ended December
31, 1998. For further information, refer to the consolidated financial
statements and footnotes thereto included in the Company's annual report on
Form 10-K for the year ended December 31, 1997.
3. In 1997, the Financial Accounting Standards Board issued Statement No. 128,
Earnings Per Share ("Statement 128"). Statement 128 replaced the
calculation of primary and fully diluted earnings per share with basic and
diluted earnings per share. Unlike primary earnings per share, basic
earnings per share exclude any dilutive effects of options, warrants and
convertible securities. Diluted earnings per share is very similar to the
previously reported fully diluted earnings per share. All earnings per
share amounts for all periods have been presented and, where appropriate,
restated to conform to the Statement 128 requirement.
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
-------- --------
1998 1997 1998 1997
---- ---- ---- ----
(Thousands of Dollars, except share data)
<S> <C> <C> <C> <C>
BASIC
Average common shares outstanding 31,579 29,105 31,100 29,036
Assumed conversions -- -- -- --
------- ------- ------- -------
Total 31,579 29,105 31,100 29,036
======= ======= ======= =======
Net income $ 4,757 $ 2,574 $ 6,674 $ 4,578
------- ------- ------- -------
Per share amounts - basic $ .15 $ .09 $ .21 $ .16
======= ======= ======= =======
DILUTED
Average common shares outstanding 31,579 29,105 31,100 29,036
Assumed conversions 3,229 2,536 3,153 2,761
------- ------- ------- -------
Total 34,808 31,641 34,253 31,797
======= ======= ======= =======
Net income $ 4,757 $ 2,574 $ 6,674 $ 4,578
------- ------- ------- -------
Per share amounts - diluted $ .14 $ .08 $ .19 $ .14
======= ======= ======= =======
</TABLE>
4. In 1997, the Financial Accounting Standards Board issued Statement No. 130,
Reporting Comprehensive Income ("Statement 130"). Statement 130 establishes
new rules for the reporting and display of comprehensive income and its
components. Statement 130 requires unrealized gains or losses on the
Company's available-for-sale securities and foreign currency translation
adjustments, reported separately in shareholders' equity, to be included in
other comprehensive income. The Company adopted Statement 130 as of January
1, 1998. The impact of this adoption on the Company's net income and
shareholders' equity for all periods presented was immaterial.
5. In 1998, the Accounting Standards Executive Committee issued Statement of
Position 98-5, Reporting on the Costs of Start-Up Activities ("SOP 98-5"),
which is effective for financial statements for fiscal years beginning
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<PAGE> 6
after December 15, 1998. SOP 98-5 requires costs of start-up activities and
organization costs to be expensed as incurred. Initial application should
be reported as the cumulative effect of a change in accounting principle
and expensed in the first quarter in the year of adoption. At June 30,
1998, Insignia Properties Trust ("IPT") had approximately $1.0 million
capitalized as organizational costs that would be affected by the
requirements of SOP 98-5.
6. The following is a summary of the Company's material contingencies as of
June 30, 1998:
1996 Tender Offer Litigation
In May 1996, Walton Street Capital Acquisition II, LLC ("Walton Street"),
together with certain Insignia affiliates, commenced tender offers for
limited partner interests in ten real estate limited partnerships
syndicated by The Balcor Company ("Balcor"). In May 1996, certain persons
claiming to be holders of limited partner interests commenced a lawsuit
entitled Chipain, Tom, v. Walton Street Capital Acquisition II, LLC, in the
Circuit Court of Cook County, Illinois, County Department, Chancery
Division, on behalf of themselves, on behalf of a putative class of
plaintiffs, and, as amended, derivatively on behalf of the
Balcor-syndicated partnerships, challenging the actions of the defendants
(including the Company, an officer of the Company and certain affiliates,
Walton Street and the general partners of the Balcor-syndicated
partnerships) in connection with the tender offers and certain other
matters.
The complaint, as amended, contained allegations that the tender offers
were inadequate and coercive based, in part, upon information allegedly
obtained by Insignia in violation of its fiduciary duties. Defendants
promptly moved to dismiss the complaint and on June 5, 1996 the court
dismissed the complaint as to Insignia and Walton Street, with leave to
replead. On June 11, 1996 plaintiffs filed an amended class and derivative
action complaint, repeating the same allegations as in their initial
complaint, and recasting some as derivative, rather than direct class,
claims. Defendants moved to dismiss the amended complaint and on June 18,
1996, the court again dismissed plaintiffs' amended complaint as to
Insignia and Walton Street.
On June 14, 1996 a second class and derivative suit, similar in material
respects to the Chipain litigation, was filed in the Circuit Court of Cook
County, Illinois, County Department, Chancery Division. That complaint,
entitled Sandra Dee v. Walton Street Capital Acquisition II, LLC, et al.,
contained substantially the same allegations as the Chipain complaints and
asserted additionally that the tender offers violated certain state
securities and consumer statutes. Pursuant to the court's orders
consolidating the Chipain and Dee complaints with another action which does
not name Insignia, a new amended and consolidated class and derivative
action complaint was filed on July 25, 1996. The plaintiffs in the Chipain
action are not parties to this latest complaint.
On August 16, 1996 Insignia moved to dismiss the amended and consolidated
class and derivative action complaint. The motion was heard by the court on
September 27, 1996 at which time the court granted leave to the plaintiff
to (i) withdraw its pending complaint and (ii) serve a second amended and
consolidated class and derivative action complaint. On October 8, 1996
plaintiffs filed a second amended and consolidated class and derivative
action complaint which added claims of alleged antitrust injury and unjust
enrichment. On October 25, 1996 Insignia moved to dismiss the second
amended and consolidated class action complaint. That motion was heard by
the court in December 1996. On December 18, 1996 the court issued a
decision granting Insignia's motion to dismiss. By order dated January 7,
1997 the court dismissed the second amended and consolidated class action
complaint with prejudice. Plaintiffs filed a notice of appeal in the Dee
action on February 14, 1997. Plaintiffs perfected their appeal, which was
argued in March 1998. The appellate court has not yet rendered its decision
on the appeal.
1998 Litigation
On March 24, 1998, certain persons claiming to own limited partner
interests in certain limited partnerships whose general partners (the
"General Partners") are affiliates of Insignia (the "Partnerships") filed a
purported class and derivative action in California Superior Court in the
County of San Mateo against Insignia, the General Partners, Apartment
Investment and Management Company ("AIMCO"), certain persons and entities
who purportedly formerly controlled the General Partners, and additional
entities affiliated with individuals who are officers, directors and/or
principals of several of the defendants. The complaint contains allegations
5
<PAGE> 7
that, among other things, (i) the defendants breached their fiduciary
duties to the plaintiffs by selling or agreeing to sell their "fiduciary
positions" as stockholders, officers and directors of the General Partners
for a profit and retaining said profit rather than distributing it to the
plaintiffs; (ii) the defendants breached their fiduciary duties by
mismanaging the Partnerships and misappropriating the assets of the
Partnerships by (a) manipulating the operations of the Partnerships to
depress the trading price of limited partnership units (the "Units") of the
Partnerships; (b) coercing and fraudulently inducing unit holders to sell
Units to certain of the defendants at depressed prices; and (c) using the
voting control obtained by purchasing Units at depressed prices to entrench
certain of the defendants' positions of control over the Partnerships; and
(iii) the defendants breached their fiduciary duties to the plaintiffs by
(a) selling assets of the Partnerships such as mailing lists of
unitholders; and (b) causing the General Partners to enter into exclusive
arrangements with their affiliates to sell goods and services to the
partnerships, the unit holders and tenants of Partnership properties. The
complaint also alleges that the foregoing allegations constitute violations
of various California securities, corporate and partnership statutes, as
well as conversion and common law fraud. The complaint seeks unspecified
compensatory and punitive damages, an injunction blocking the sale of
control of the General Partners to AIMCO and a court order directing the
defendants to discharge their fiduciary duties to the plaintiffs. On June
25, 1998, Insignia, the General Partners and certain other defendants
served a demurrer and a motion to strike the complaint. In lieu of
responding to defendants' demurrer and motion, plaintiffs filed an amended
complaint. Insignia believes the suit to be without merit and intends to
defend the suit vigorously.
On July 30, 1998, certain entities claiming to own limited partnership
interests in certain limited partnerships whose general partners are
affiliates of Insignia filed a complaint in the Superior Court of the State
of California, County of Los Angeles. The action involves 44 real estate
limited partnerships (each named as a defendant) in which the plaintiffs
allegedly own interests and which Insignia affiliates allegedly manage or
control (the "Subject Partnerships"). The complaint names as defendants
Insignia, IPT, Insignia Properties, L.P. and several Insignia affiliates
alleged to be managing partners of the defendant limited partnerships.
Plaintiffs allege that they have requested from, but have been denied by
each of the Subject Partnerships, lists of their respective limited
partners for the purpose of making tender offers to purchase up to 4.9% of
the limited partner units of each of the Subject Partnerships. The
complaint also alleges that certain of the defendants made tender offers to
purchase limited partner units in many of the Subject Partnerships, with
the alleged result that plaintiffs have been deprived of the benefits they
would have realized from ownership of the additional units. The plaintiffs
assert eleven causes of action, including breach of contract, unfair
business practices, and violations of the partnership statutes of the
states in which the Subject Partnerships are organized. Plaintiffs seek
compensatory, punitive and treble damages. Insignia was only recently
served with the complaint and has not yet responded to it. The Company
believes the claims to be without merit and intends to defend the action
vigorously.
The Company and certain subsidiaries are defendants in lawsuits arising in
the ordinary course of business. Such lawsuits are primarily insured claims
arising from accidents at managed properties. Claims may demand substantial
compensatory and punitive damages.
Management believes that the aforementioned contingencies will be resolved
without material loss to the Company or its subsidiaries.
7. Acquisitions
Richard Ellis Group Limited
In February 1998, the shareholders of Richard Ellis Group Limited ("Richard
Ellis") accepted the Company's offer to acquire 100% of the stock of
Richard Ellis. Richard Ellis is a real estate services and investment firm
located in the United Kingdom. The total purchase price was approximately
$82.9 million, of which $14.7 million is contingent on the future
performance of Richard Ellis. The transaction was completed on February 26,
1998. The Company funded the acquisition by borrowing approximately $35
million from its revolving credit facility, issuing 617,371 shares of Class
A Common Stock, and assuming existing stock options which will enable
Richard Ellis employees to purchase 853,741 shares of the Company's Class A
Common Stock. The acquisition was accounted for as a purchase.
6
<PAGE> 8
Hotel Partners
On May 11, 1998, the Company announced that it had acquired Hotel Partners
("Hotel Partners"), an international brokerage firm focused exclusively on
the hospitality segment of the real estate industry. The total purchase
price is estimated at approximately $14.2 million with $7.0 million paid in
cash at closing and potential additional consideration contingent upon the
performance of such unit over a five-year period. Hotel Partners operates
as an integral part of the Capital Advisors Group of Insignia/ESG, Inc.
("Insignia/ESG"), which focuses on investment sales and debt placement
internationally. During 1997, Hotel Partners was responsible for the sale
of 115 hotel, motel and resort properties ranging in price from $550,000 to
$150 million. Hotel Partners, based in Chicago, also has offices in New
York, London, Frankfurt, Tokyo, Singapore, Hong Kong, Los Angeles, Dallas,
Miami, Atlanta, Honolulu and Boston. The acquisition was accounted for as a
purchase.
Jackson Cross Company
On June 15, 1998, the Company completed the acquisition of Jackson Cross
Company ("Jackson Cross"), a prominent commercial real estate service firm
with operations primarily in the greater Philadelphia area. The total
purchase consideration paid by the Company for Jackson Cross was
approximately $9.1 million, consisting of $8.6 million paid in cash and
$500,000 in guaranteed deferred payments. Additional payments of up to $5.4
million is contingent on the future performance of Jackson Cross. The
acquisition was accounted for as a purchase.
8. Merger and Spin-off
On March 17, 1998, the Company entered into an Agreement and Plan of Merger
(as subsequently amended and restated, the "Merger Agreement") with AIMCO,
a Maryland corporation, and AIMCO Properties, L.P., a Delaware limited
partnership, pursuant to which the Company will merge with and into AIMCO,
with AIMCO as the survivor (the "Merger"). Consummation of the Merger is
subject to certain conditions, including the approval of the stockholders
of the Company (but not the approval of the stockholders of AIMCO).
Assuming the stockholders of AIMCO approve the Merger, shares of the
Company's Class A Common Stock will be converted into the right to receive
a number of shares of Class E Cumulative Convertible Preferred Stock, par
value $.01 per share, of AIMCO (the "Class E Preferred") equal to
approximately $303 million divided by the AIMCO Index Price (as defined in
the Merger Agreement). In addition to receiving the same dividends as
holders of AIMCO Common Stock, holders of Class E Preferred are entitled to
receive a preferred dividend of approximately $50 million in the aggregate
to be paid on or before January 15, 1999 and when paid, the Series E
Preferred will automatically convert into AIMCO Common Stock on a
one-for-one basis, subject to certain antidilution adjustments. The actual
number of shares of Class E Preferred issued in the Merger will be
determined by a formula based on the AIMCO Index Price, subject to a fixed
maximum AIMCO Index Price of $38. If the AIMCO Index Price during that
period is less than $36.50, AIMCO may elect to pay up to $15 million of the
purchase price in cash.
In addition, AIMCO and its subsidiaries will assume approximately $308
million in outstanding indebtedness and other liabilities of the Company
and its subsidiaries and $149.5 million (liquidation value) of the 6.5%
Trust Convertible Preferred Securities issued by Insignia Financing I, a
subsidiary of the Company.
If the stockholders of AIMCO do not approve the Merger, the Merger may
nonetheless be consummated. However, instead of receiving only Class E
Preferred, holders of the Company's Class A Common Stock would receive a
number of shares of Class E Preferred approximately equal to $203 million
divided by the AIMCO Index Price and a number of shares of Class F
Cumulative Convertible Preferred Stock, par value $.01 per share, of AIMCO
(the "Class F Preferred") approximately equal to $100 million divided by
the AIMCO Index Price. In either case, holders of Class E Preferred would
be entitled to receive the $50 million preferred dividend and AIMCO and its
subsidiaries would assume the $308 million of indebtedness and other
liabilities of the Company and the $149.5 million of Trust Convertible
Preferred Securities issued by Insignia Financing I. Holders of Class F
Preferred are entitled to receive the greater of (i) the same dividends as
holders of AIMCO common stock received and (ii) preferred distributions of
10% of the liquidation value of the Class F Preferred, with the preferred
return rate escalating 1% each year until a 15% annual return is achieved.
Upon
7
<PAGE> 9
the approval by the stockholders of AIMCO, the Series F Preferred will
convert into AIMCO Common Stock on a one-for-one basis, subject to certain
antidilution adjustments.
The Merger Agreement also provides that following the Merger, AIMCO is
required to offer to purchase (by merger) the outstanding shares of
beneficial interest of IPT, a majority owned subsidiary of the Company, not
owned by the Company or its subsidiaries at a price of at least $13.25 per
IPT share payable in cash. IPT is a 75% owned subsidiary of the Company;
the 25% interest of IPT not owned by the Company is valued at an aggregate
of approximately $100 million, assuming a value of $13.25 per share.
As a condition to execution of the Merger Agreement, certain of the
Company's executive officers executed voting agreements and irrevocable
proxies in favor of AIMCO, pursuant to which each of the foregoing
individuals agreed to vote the shares of the Company's Class A Common Stock
owned of record by him in favor of the Merger and the Merger Agreement and
against any competing transaction. In addition, each of Metropolitan
Acquisition Partners IV, L.P. and Metropolitan Acquisition Partners V, L.P.
(collectively, the "MAPs") also executed voting agreements and irrevocable
proxies, pursuant to which each has agreed to vote certain shares of the
Company's Class A Common Stock to which the Company's Chairman, Chief
Executive Officer and President would be entitled in a distribution of
shares of the Company's Class A Common Stock made by the MAPs in favor of
the Merger and the Merger Agreement and against any competing transaction.
Prior to the Merger, the Company will spin off its commercial businesses
through a pro rata distribution (the "Distribution") to it stockholders of
all of the outstanding Common Stock, par value $.01 per share ("Holdings
Common Stock"), of Insignia/ESG Holdings, Inc., a Delaware corporation and
a wholly owned subsidiary of the Company ("Holdings"). Holdings will
consist of Insignia/ESG, the Company's commercial real estate services
unit, throughout the U.S., and will include Richard Ellis in the United
Kingdom and Insignia/CAGISA in Italy; Insignia Residential Group, a New
York based cooperative and condominium management company; Realty One, a
full service residential real estate brokerage firm headquartered in
Cleveland, Ohio; and other select holdings (collectively, the "Holdings
Businesses").
Most of Insignia's existing liabilities, other than those directly relating
to the Holdings Businesses, will remain with Insignia after the
Distribution (subject to certain guarantees and pledges of Holdings and its
subsidiaries pending the completion of the Merger or refinancing thereof by
Insignia). Assuming the Merger is consummated, those liabilities will be
assumed by AIMCO and Holdings will be released from all guarantees, liens
and pledges in favor of Insignia's revolving credit facility.
Subject to receipt of Insignia stockholder approval and the satisfaction of
certain other conditions, Insignia will effect the Distribution by
distributing to each record holder of Insignia Common Stock as of September
15, 1998 (the "Distribution Record Date") certificates representing that
number of whole shares of Holdings Common Stock equal to two-thirds of the
number of shares of Insignia Common Stock held by such holder. It is
currently anticipated that the Distribution will be effected as soon as
practicable after approval thereof at the Insignia Meeting. In the event
that Insignia stockholders approve the Distribution but not the Merger
Agreement, the Distribution will nonetheless be consummated if the Insignia
Board determines that the conditions to the Distribution have been
satisfied, The Holdings Common Stock has been approved for listing on the
NYSE, subject to official notice of issuance and approval of the
Distribution by Insignia stockholders, under the symbol "IEG." Consummation
of the Distribution is not conditioned upon approval or consummation of the
Merger.
In connection with the Merger, Holdings will assume certain existing
options and warrants to purchase shares of Insignia Common Stock. It is
estimated that following the Distribution, such options and warrants will
represent the right to purchase approximately 3.86 million shares of
Holdings Common Stock. The precise number of shares underlying certain of
such options and warrants and the exercise prices thereof will depend in
part upon the fair market value of Holdings Common Stock following the
Distribution, and thus is indeterminable at this time. Such options and
warrants are in addition to the approximately 1,100,000 options to purchase
Holding Common Stock to be granted under the Holdings 1998 Stock Incentive
Plan upon consummation of the Distribution.
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<PAGE> 10
9. Trust Based Convertible Preferred Securities
In connection with the Distribution, Insignia anticipates distributing to
record holders of the Convertible Preferred Securities ("Preferred Shares")
on the Distribution Record Date warrants to purchase approximately
1,196,000 shares of Holdings Common Stock (four warrants for each $500
liquidation amount of Convertible Preferred Securities held by them). Each
warrant will represent the right to purchase one share of Holdings Common
Stock and will have an exercise price of 120% of the market price of
Holdings Common Stock following the Distribution. The term of each warrant
will be five years, and no warrant will be exercisable before two years
after it is granted. Immediately prior to the warrant distribution,
Insignia will purchase the warrants from Holdings for approximately $8.5
million, which represents the estimated aggregate fair market value of the
warrants. The value was determined using the Black-Scholes method, based on
the following assumptions: (i) no dividends are paid on Holdings Common
Stock, (ii) an exercise price equal to 120% of the market price, (iii) a
five-year term, and (iv) 30% volatility of the Holdings Common Stock.
The Insignia Board will formally declare and authorize Insignia to effect
the warrant distribution if the Distribution has occurred and the Insignia
Board determines, among other things, that (i) the conditions to the Merger
have been satisfied and (ii) the closing of the Merger is imminent.
Under the terms of the Merger Agreement with AIMCO, the Preferred Shares
would become an obligation of AIMCO and would become convertible into AIMCO
securities, as Insignia Financing I would become a subsidiary of AIMCO.
Pursuant to the trust indenture governing the Preferred Shares, prescribed
adjustments to the conversion price would occur both as a result of the
Distribution and as a result of the Merger.
10. Other Matters
On July 18, 1997, IPT, Insignia and Angeles Mortgage Investment Trust, an
unincorporated California business trust ("AMIT"), entered into a
definitive merger agreement pursuant to which AMIT is to be merged with and
into IPT, with IPT being the surviving entity, in a stock for stock
transaction (the "AMIT Merger"). AMIT is a public company whose Class A
Common Shares trade on the American Stock Exchange under the symbol ANM.
Insignia and its affiliates currently own 96,800 (or approximately 3.7%) of
the 2,617,000 outstanding Class A shares of AMIT and all of the 1,675,113
outstanding Class B shares of AMIT. If the AMIT Merger is consummated, IPT
will become a publicly traded company shares (IPT's shares have been
approved for listing on the American Stock Exchange under the symbol "FFO",
subject to consummation of the AMIT Merger) and it is anticipated that
Insignia and its affiliates will own approximately 57% of post-merger IPT.
The former AMIT shareholders (other than Insignia and its affiliates) will
own approximately 16% of post-merger IPT, and the current unaffiliated
shareholders of IPT will own the remaining 27% of post-merger IPT. The AMIT
Merger is expected to be completed in the third quarter of 1998. However,
consummation of the AMIT Merger is subject to several conditions, including
approval of the AMIT Merger Agreement and the AMIT Merger by the
shareholders of AMIT. Accordingly, there can be no assurance as to when the
AMIT Merger will occur, or that it will occur at all.
11. During the six months ended June 30, 1998, the Company had the following
changes in the equity accounts:
a) Exercise of 939,140 stock options and 105,000 warrants representing
1,044,140 shares of Class A Common Stock at exercise prices ranging
from $0.01 to $17.69 per share.
b) Net income of $6,674,000 for the six months ended June 30, 1998.
c) Accrued compensation of $1,232,000 relating to restricted stock awards.
d) Issuance of 617,371 shares at $21.12 and the assumption of 853,741
options with regard to the Richard Ellis acquisition.
<PAGE> 1
EXHIBIT 99.4
PRO FORMA FINANCIAL INFORMATION OF
APARTMENT INVESTMENT AND MANAGEMENT COMPANY
as of June 30, 1998 and for the year
ended December 31, 1997 and the
six months ended June 30, 1998
INTRODUCTION
In May and September of 1997, AIMCO directly or indirectly through a
subsidiary, acquired (the "NHP Stock Purchase") an aggregate of 6,930,122 shares
of common stock ("NHP Common Stock") of NHP. On December 8, 1997, AIMCO acquired
the remaining shares of NHP Common Stock in a merger transaction accounted for
as a purchase (the "NHP Merger"). As a result of the NHP Merger, AIMCO issued
6,759,148 shares of AIMCO Class A Common Stock, par value $0.01 per share (the
"AIMCO Common Stock"), valued at $180.8 million, and paid $86.5 million in cash.
The total cost of the purchase of NHP was $349.5 million.
In June 1997, AIMCO purchased a group of companies (the "NHP Real Estate
Companies") affiliated with NHP that hold general and limited partnership
interests in partnerships (the "NHP Partnerships") that own 534 conventional and
affordable multifamily apartment properties (the "NHP Properties") containing
87,659 units, a captive insurance subsidiary and certain related assets (the
"NHP Real Estate Acquisition"). AIMCO paid aggregate consideration of $54.8
million in cash and warrants to purchase 399,999 shares of AIMCO Common Stock at
an exercise price of $36.00 per share. AIMCO engaged in a reorganization (the
"NHP Real Estate Reorganization") of its interests in the NHP Real Estate
Companies, which will result in certain of the assets of the NHP Real Estate
Companies being owned by a limited partnership (the "Unconsolidated
Partnership") in which the AIMCO Operating Partnership holds 99% limited partner
interest and certain directors and officers of AIMCO directly or indirectly,
hold a 1% general partner interest.
Immediately following the NHP Merger, in order to satisfy certain
requirements of the Code applicable to AIMCO's status as a REIT, AIMCO engaged
in a reorganization (the "NHP Reorganization") of the assets and operations of
NHP that resulted in the Master Property Management Agreement being terminated
and NHP's operations being conducted 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 of AIMCO hold, directly or indirectly, all of the voting common
stock, representing a 5% economic interest. As a result of the controlling
ownership interest in the Unconsolidated Subsidiaries held by others, AIMCO
accounts for its interest in the Unconsolidated Subsidiaries on the equity
method.
On May 8, 1998, AIMCO completed a merger with Ambassador Apartments, Inc.
("Ambassador"), pursuant to which Ambassador was merged into AIMCO (the
"Ambassador Merger"). Each outstanding share of stock ("Ambassador Common
Stock") of Ambassador, other than those shares held by AIMCO or Ambassador, were
converted into 0.553 shares of AIMCO Common Stock. Any outstanding options to
purchase Ambassador Common Stock were converted, at the election of the option
holder, into cash or options to purchase AIMCO Common Stock at their current
exercise price divided by the Conversion Ratio. In accordance with the Agreement
and Plan of Merger, dated December 23, 1997 and supplemented by letter dated as
of March 11, 1998 (the "Ambassador Merger Agreement"), the outstanding shares
of Class A Senior Cumulative Convertible Preferred Stock of Ambassador, (the
"Ambassador Preferred Stock") were redeemed and converted into Ambassador Common
Stock prior to the Ambassador Merger. Following the consummation of the
Ambassador Merger, a subsidiary of the AIMCO Operating Partnership was merged
with and into the Ambassador Operating Partnership (the "Ambassador OP Merger").
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.
Also during 1997; AIMCO (i) acquired (a) 44 properties for aggregate
purchase consideration of $467.4 million, of which $56.0 million was paid in the
form of 1.9 million AIMCO OP Units (b) paid $34.2 million in cash and issued OP
Units valued at $7.3 million in connection with the acquisition of partnership
interests through tender offers in certain partnerships ((a) and (b) together
are the "1997 Property Acquisitions") and (c) paid $19.9 million to acquire
886,600 shares of Ambassador Common Stock
1
<PAGE> 2
(together with the 1997 Property Acquisitions, the "1997 Acquisitions"); (ii)
sold (a) approximately 16,367,000 shares of AIMCO Common Stock for aggregate net
proceeds of $513.4 million; (b) 750,000 shares of AIMCO Class B Cumulative
Convertible Preferred Stock for net proceeds of $75 million; and (c) 2,400,000
shares of AIMCO Class C 9% Cumulative Preferred Stock for net proceeds of $58.1
million (collectively, the "1997 Stock Offerings"); and (iii) sold five real
estate properties (the "1997 Dispositions").
During 1998: AIMCO (i) (a) sold 4,200,000 shares of its Class D
Cumulative Preferred Stock for net proceeds of $101.5 million (the "1998 Stock
Offering"); (b) sold 4,050,000 shares of its Class G Cumulative Preferred Stock
for net proceeds of $98.0 million (the "Class G Preferred Stock Offering"); and
(c) sold 2,000,000 shares of its Class H Cumulative Preferred Stock for net
proceeds of $48.1 million (the "Class H Preferred Stock Offering")
(collectively, the "1998 Stock Offerings"); (ii) purchased 15 properties for
aggregate purchase consideration of $138.0 million, of which $27.3 million was
paid in the form of AIMCO OP Units (the "1998 Acquisitions"); (iii) sold one
real estate property (the "1998 Disposition"); and (iv) completed the Ambassador
Merger.
PRO FORMA FINANCIAL INFORMATION (PRE-MERGER)
The following Pro Forma Consolidated Balance Sheet (Pre-Merger) of AIMCO as
of June 30, 1998 has been prepared as if each of the following transactions had
occurred as of June 30, 1998: (i) the purchase of three properties for an
aggregate purchase price of $32.6 million; (ii) the Class G Preferred Stock
Offering; and (iii) the Class H Preferred Stock Offering.
The following Pro Forma Consolidated Statement of Operations (Pre-Merger)
of AIMCO for the year ended December 31, 1997 has been prepared as if each of
the following transactions had occurred as of January 1, 1997: (i) the 1997
Acquisitions; (ii) the 1997 Stock Offerings; (iii) the 1997 Dispositions; (iv)
the NHP Real Estate Acquisition; (v) the NHP Real Estate Reorganization; (vi)
the NHP Stock Purchase; (vii) the NHP Merger; (viii) the NHP Reorganization;
(ix) the 1998 Stock Offerings; (x) the 1998 Acquisitions; (xi) the 1998
Disposition; and (xii) the Ambassador Merger.
The following Pro Forma Consolidated Statement of Operations (Pre-Merger)
of AIMCO for the six months ended June 30, 1998 has been prepared as if each of
the following transactions had occurred as of January 1, 1997: (i) the 1998
Stock Offerings; (ii) the 1998 Acquisitions; (iii) the 1998 Disposition; and
(iv) the Ambassador Merger.
The following Pro Forma Financial Information (Pre-Merger) is based, in
part, on the following historical financial statements, which have been
previously filed by AIMCO: (i) the audited Consolidated Financial Statements of
AIMCO for the year ended December 31, 1997; (ii) the unaudited Consolidated
Financial Statements of AIMCO for the six months ended June 30, 1998; (iii) the
audited Consolidated Financial Statements of Ambassador for the year ended
December 31, 1997; (iv) the unaudited Consolidated Financial Statements of
Ambassador for the four months ended April 30, 1998; (v) the unaudited
Consolidated Financial Statements of NHP for the nine months ended September 30,
1997; (vi) the unaudited Combined Financial Statements of the NHP Real Estate
Companies for the three months ended March 31, 1997; (vii) the unaudited
Financial Statements of NHP Southwest Partners, L.P. for the three months ended
March 31, 1997; (viii) the unaudited Combined Financial Statements of the NHP
New LP Entities for the three months ended March 31, 1997; (ix) the unaudited
Combined Financial Statements of the NHP Borrower Entities for the three months
ended March 31, 1997; (x) the unaudited Historical Summaries of Gross Income and
Certain Expenses of The Bay Club at Aventura for the three months ended March
31, 1997; (xi) the unaudited Historical Summary of Gross Income and Direct
Operating Expenses of Morton Towers for the six months ended June 30, 1997;
(xii) the unaudited Combined Statement of Revenues and Certain Expenses of the
Thirty-Five Acquisition Properties for the six months ended June 30, 1997;
(xiii) the unaudited Statement of Revenues and Certain Expenses of First
Alexandria Associates, a Limited Partnership for the nine months ended September
30, 1997; (xiv) the unaudited Statement of Revenues and Certain Expenses of
Country Lakes Associates Two, a Limited Partnership for the nine months ended
September 30, 1997; (xv) the unaudited Statement of Revenues and Certain
Expenses of Point West Limited Partnership, A Limited Partnership for the nine
months ended September 30, 1997; and (xvi) the unaudited Statement of Revenues
and Certain Expenses for The Oak Park Partnership for the nine months ended
September 30, 1997. The following Pro Forma Financial Information (Pre-Merger)
should be read in conjunction with such financial statements and the notes
thereto.
2
<PAGE> 3
The unaudited Pro Forma Financial Information (Pre-Merger) has been
prepared using the purchase method of accounting whereby the assets and
liabilities of NHP, the NHP Real Estate Companies, Ambassador, the 1997
Acquisitions, and the 1998 Acquisitions are adjusted to estimated fair market
value, based upon preliminary estimates, which are subject to change as
additional information is obtained. The allocations of purchase costs are
subject to final determination based upon estimates and other evaluations of
fair market value. Therefore, the allocations reflected in the following
unaudited Pro Forma Financial Information (Pre-Merger) may differ from the
amounts ultimately determined.
The following unaudited Pro Forma Financial Information (Pre-Merger) is
presented for informational purposes only and is not necessarily indicative of
the financial position or results of operations of AIMCO that would have
occurred if such transactions had been completed on the dates indicated, nor
does it purport to be indicative of future financial positions or results of
operations. In the opinion of AIMCO's management, all material adjustments
necessary to reflect the effects of these transactions have been made.
3
<PAGE> 4
APARTMENT INVESTMENT AND MANAGEMENT COMPANY
PRO FORMA CONSOLIDATED BALANCE SHEET (PRE-MERGER)
AS OF JUNE 30, 1998
IN THOUSANDS, EXCEPT SHARE DATA
<TABLE>
<CAPTION>
COMPLETED PRO
HISTORICAL(A) TRANSACTIONS(B) FORMA
------------- --------------- ----------
<S> <C> <C> <C>
Real estate............................ $2,287,309 $ 32,624 $2,319,933
Property held for sale................. 35,695 -- 35,695
Investments in securities.............. 5,767 -- 5,767
Investments in and notes receivable
from unconsolidated subsidiaries..... 108,105 -- 108,105 (C)
Investments in and notes receivable
from unconsolidated real estate
partnerships......................... 243,799 -- 243,799
Cash and cash equivalents.............. 49,320 -- 49,320
Restricted cash........................ 75,123 -- 75,123
Accounts receivable.................... 26,201 -- 26,201
Deferred financing costs............... 22,629 -- 22,629
Goodwill............................... 122,068 -- 122,068
Other assets........................... 78,725 -- 78,725
---------- -------- ----------
TOTAL ASSETS................... $3,054,741 $ 32,624 $3,087,365
========== ======== ==========
Secured notes payable.................. $ 751,337 $ 23,031 $ 774,368
Secured tax-exempt bond financing...... 394,662 -- 394,662
Secured short term financing........... 50,000 (38,532) 11,468
Unsecured short-term financing......... 118,476 (97,987) 20,489
Accounts payable, accrued and other
liabilities.......................... 155,129 -- 155,129
Security deposits and prepaid rents.... 12,882 -- 12,882
---------- -------- ----------
1,482,486 (113,488) 1,368,998
Minority interest in other
partnerships......................... 43,167 -- 43,167
Minority interest in Operating
Partnership.......................... 134,694 -- 134,694
Class A common stock, $.01 par value... 481 -- 481
Class B common stock, $.01 par value... 2 -- 2
Non-voting preferred stock, $.01 par
value................................ -- -- --
Class B Cumulative Convertible
Preferred Stock, $.01 par value...... 75,000 -- 75,000
Class C Cumulative Preferred Stock $.01
par value............................ 60,000 -- 60,000
Class D Cumulative Preferred Stock $.01
par value............................ 105,000 -- 105,000
Class G Cumulative Preferred Stock
$.01 par value....................... -- 101,250 101,250
Class H Cumulative Preferred Stock
$.01 par value........................ 50,000 50,000
Additional paid in capital............. 1,247,839 (5,138) 1,242,701
Notes receivable on common stock
purchases............................ (45,508) -- (45,508)
Distributions in excess of earnings.... (48,203) -- (48,203)
Unrealized gain on investments ........ (217) -- (217)
---------- -------- ----------
1,394,394 146,112 1,540,506
---------- -------- ----------
TOTAL LIABILITIES AND EQUITY... $3,054,741 $ 32,624 $3,087,365
========== ======== ==========
</TABLE>
- ---------------
(A) Represents the unaudited historical consolidated financial position of
AIMCO as of June 30, 1998, as reported in AIMCO's Quarterly Report on Form
10-Q.
(B) Represents adjustments to reflect the purchase of three properties for an
aggregate purchase price of $32.6 million; the sale of 4,050,000 shares of
AIMCO Class G Preferred Stock for net proceeds of $98.0 million; and the
sale of 2,000,000 shares of AIMCO Class H Preferred Stock for net proceeds
of $48.1 million.
(C) Represents notes receivable from the Unconsolidated Subsidiaries of
$50,000, advances to the Unconsolidated Subsidiaries of $18,933, and equity
in the Unconsolidated Subsidiaries of $39,172. The combined historical
balance sheet of the Unconsolidated Subsidiaries as of June 30, 1998 is
presented below. There were no pro forma adjustments to the balance sheet
as of June 30, 1998.
4
<PAGE> 5
UNCONSOLIDATED SUBSIDIARIES
PRO FORMA CONSOLIDATED BALANCE SHEET (PRE-MERGER)
AS OF JUNE 30, 1998
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
HISTORICAL
----------
<S> <C>
Real estate................................................. $ 21,727
Cash and cash equivalents................................... 5,627
Restricted cash............................................. 5,010
Management contracts........................................ 50,320
Deferred financing costs.................................... 3,217
Goodwill.................................................... 44,252
Other assets................................................ 21,020
--------
Total assets...................................... $151,173
========
Secured notes payable....................................... $ 72,037
Accounts payable, accrued and other liabilities............. 41,761
Security deposits and prepaid rents......................... 316
--------
114,114
Common stock................................................ 2,319
Preferred stock............................................. 39,172
Retained earnings........................................... (4,174)
Notes receivable on common stock purchases.................. (258)
--------
37,059
--------
Total liabilities and equity...................... $151,173
========
</TABLE>
5
<PAGE> 6
APARTMENT INVESTMENT AND MANAGEMENT COMPANY
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS (PRE-MERGER)
FOR THE YEAR ENDED DECEMBER 31, 1997
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
AMBASSADOR
COMPLETED NHP AMBASSADOR PURCHASE PRICE PRO
HISTORICAL(A) TRANSACTIONS(B) TRANSACTIONS(C) HISTORICAL(D) ADJUSTMENTS(E) FORMA
------------- --------------- --------------- ------------- -------------- ---------
<S> <C> <C> <C> <C> <C> <C>
Rental and other property
revenues.................... $193,006 $102,295(F) $ 6,660 $ 93,329 $ -- $ 395,290
Property operating expenses... (76,168) (50,662)(F) (2,941) (36,088) -- (165,859)
Owned property management
expense..................... (6,620) (3,510)(F) (282) -- -- (10,412)
Depreciation.................. (37,741) (20,828)(F) (1,414) (18,979) (5,997)(J) (84,959)
-------- -------- ------- -------- -------- ---------
Income from property
operations.................. 72,477 27,295 2,023 38,262 (5,997) 134,060
-------- -------- ------- -------- -------- ---------
Management fees and other
income...................... 13,937 -- 7,813 -- -- 21,750
Management and other
expenses.................... (9,910) -- (5,394) -- -- (15,304)
Corporate overhead
allocation.................. (588) -- -- -- -- (588)
Amortization.................. (1,401) -- (5,800) -- -- (7,201)
-------- -------- ------- -------- -------- ---------
Income from service company
business.................... 2,038 -- (3,381) -- -- (1,343)
Minority interest in service
company business............ (10) -- -- -- -- (10)
-------- -------- ------- -------- -------- ---------
AIMCO's share of income from
service company business.... 2,028 -- (3,381) -- -- (1,353)
-------- -------- ------- -------- -------- ---------
General and administrative
expenses.................... (5,396) -- (1,025) (7,392) 7,392(K) (6,421)
Interest expense.............. (51,385) (1,626)(G) (5,462) (26,987) (221)(L) (85,681)(P)
Interest income............... 8,676 -- 1,900 -- -- 10,576
Minority interest in other
partnerships................ 1,008 779(H) 16 (851) 705(M) 1,657
Equity in losses of
unconsolidated
partnerships................ (1,798) (122)(I) (8,542) 405 -- (10,057)
Equity in earnings of
unconsolidated
subsidiaries................ 4,636 -- 5,790 -- -- 10,426(R)
-------- -------- ------- -------- -------- ---------
Income from operations........ 30,246 26,326 (8,681) 3,437 1,879 53,207
Gain on dispositions of
property.................... 2,720 (2,720) -- -- -- --
-------- -------- ------- -------- -------- ---------
Income before extraordinary
item and minority interest
in AIMCO Operating
Partnership................. 32,966 23,606 (8,681) 3,437 1,879 53,207
Extraordinary item -- early
extinguishment of debt...... (269) 269 -- -- -- --
-------- -------- ------- -------- -------- ---------
Income before minority
interest in AIMCO Operating
Partnership................. 32,697 23,875 (8,681) 3,437 1,879 53,207
Minority interest in AIMCO
Operating Partnership....... (4,064) 542(N) 1,703(N) (386)(N) (33)(N) (2,238)
-------- -------- ------- -------- -------- ---------
Net income.................... 28,633 24,417 (6,978) 3,051 1,846 50,969(P)
Income attributable to
preferred stockholders...... 2,315 31,859 -- 2,296 (2,296)(O) 34,174(Q)
-------- -------- ------- -------- -------- ---------
Income attributable to common
stockholders................ $ 26,318 $ (7,442) $(6,978) $ 755 $ 4,142 $ 16,795(P)
======== ======== ======= ======== ======== =========
Basic earnings per share...... $ 1.09 $ 0.36(P)
======== =========
Diluted earnings per share.... $ 1.08 $ 0.36(P)
======== =========
Weighted average shares
outstanding................. 24,055 46,685
======== =========
Weighted average shares and
equivalents outstanding..... 24,436 47,066
======== =========
</TABLE>
- ---------------
(A) Represents AIMCO's audited consolidated results of operations for the year
ended December 31, 1997.
(B) Represents adjustments to reflect the following as if they had occurred on
January 1, 1997: (i) the 1997 Acquisitions; (ii) the 1997 Stock Offerings;
(iii) the 1997 Dispositions; (iv) the 1998 Stock Offerings; (v) the 1998
Acquisitions; and (vi) the 1998 Disposition.
(C) Represents adjustments to reflect the purchase of the NHP Real Estate
Companies, the NHP Merger, and the NHP Reorganization, as if the
transactions had taken place on January 1, 1997. These adjustments are
detailed, as follows:
6
<PAGE> 7
<TABLE>
<CAPTION>
NHP
REAL ESTATE NHP NHP NHP NHP
PURCHASE(i) HISTORICAL(ii) ADJUSTMENTS(iii) REORGANIZATION(iv) TRANSACTIONS
----------- -------------- ---------------- ------------------ ------------
<S> <C> <C> <C> <C> <C>
Rental and other property
revenues........................ $ 6,660(v) $ 16,842 $ -- $(16,842)(xvii) $ 6,660
Property operating expenses....... (2,941)(v) (8,411) -- 8,411(xvii) (2,941)
Owned property management
expense......................... (282)(v) (862) -- 862(xvii) (282)
Depreciation...................... (1,414)(vi) (2,527) (693)(xi) 3,220(xvii) (1,414)
------- -------- ------- -------- -------
Income from property operations... 2,023 5,042 (693) (4,349) 2,023
------- -------- ------- -------- -------
Management fees and other
income.......................... 1,405(vii) 72,176 -- (65,768)(xviii) 7,813
Management and other expenses..... (2,263)(viii) (35,267) -- 32,136 (xviii) (5,394)
Corporate overhead allocation..... -- -- -- -- --
Amortization...................... -- (9,111) (4,432)(xii) 7,743(xix) (5,800)
------- -------- ------- -------- -------
Income from service company
business........................ (858) 27,798 (4,432) (25,889) (3,381)
Minority interest in service
company business................ -- -- -- -- --
------- -------- ------- -------- -------
AIMCO's share of income from
service company business........ (858) 27,798 (4,432) (25,889) (3,381)
------- -------- ------- -------- -------
General and administrative
expenses........................ -- (16,266) 8,668 (xiii) 6,573(xviii) (1,025)
Interest expense.................. (5,082)(ix) (10,685) -- 10,305(xx) (5,462)
Interest income................... 540(v) 1,963 -- (603)(xxi) 1,900
Minority interest in other
partnerships.................... 16(v) -- -- -- 16
Equity in losses of unconsolidated
partnerships.................... (3,905)(x) -- (4,631)(xiv) (6) (8,542)
Equity in earnings of
unconsolidated subsidiaries..... -- -- (4,636)(xv) 10,426(xxii) 5,790
------- -------- ------- -------- -------
Income (loss) from operations..... (7,266) 7,852 (5,724) (3,543) (8,681)
Income tax provision.............. -- (3,502) 3,502(xvi) -- --
------- -------- ------- -------- -------
Income (loss) before minority
interest in Operating
Partnership..................... (7,266) 4,350 (2,222) (3,543) (8,681)
Minority interest in Operating
Partnership..................... 1,296 -- -- 407 1,703
------- -------- ------- -------- -------
Net income (loss)................. (5,970) 4,350 (2,222) (3,136) (6,978)
Income attributable to preferred
stockholders.................... -- -- -- -- --
------- -------- ------- -------- -------
Income (loss) attributable to
common stockholders............. $(5,970) $ 4,350 $(2,222) $ (3,136) $(6,978)
======= ======== ======= ======== =======
</TABLE>
- ---------------
(i) Represents the adjustment to record activity from January 1, 1997 to the
date of acquisition, as if the acquisition of the NHP Real Estate
Companies had occurred on January 1, 1997. The historical financial
statements of the NHP Real Estate Companies consolidate certain real
estate partnerships in which they have an interest that will be presented
on the equity method by AIMCO as a result of the NHP Real Estate
Reorganization. In addition, represents adjustments to record additional
depreciation and amortization related to the increased basis in the assets
of the NHP Real Estate Companies as a result of the allocation of the
purchase price of the NHP Real Estate Companies and additional interest
expense incurred in connection with borrowings incurred by AIMCO to
consummate the NHP Real Estate Acquisition.
(ii) Represents the unaudited consolidated results of operations of NHP for the
period from January 1, 1997 through December 8, 1997 (date of NHP Merger).
7
<PAGE> 8
(iii) Represents the following adjustments occurring as a result of the NHP
Merger: (i) the reduction in personnel costs, primarily severance costs,
pursuant to a restructuring plan; (ii) the incremental depreciation of the
purchase price adjustment related to real estate; (iii) the incremental
amortization of the purchase price adjustment related to the management
contracts, furniture, fixtures and equipment, and goodwill; (iv) the
reversal of equity in earnings of NHP during the pre-merger period when
AIMCO held a 47.62% interest in NHP; and (v) the amortization of the
increased basis in investments in real estate partnerships based on the
purchase price adjustment related to real estate and an estimated average
life of 20 years.
(iv) Represents adjustments related to the NHP Reorganization, whereby AIMCO
will contribute or sell to the Unconsolidated Subsidiaries and the
Unconsolidated Partnership: (i) certain assets and liabilities of NHP,
primarily related to the management operations and other businesses owned
by NHP and (ii) 12 real estate properties containing 2,905 apartment
units. The adjustments represent (i) the related revenues and expenses
primarily related to the management operations and other businesses owned
by NHP and (ii) the historical results of operations of such real estate
partnerships contributed, with additional depreciation and amortization
recorded related to AIMCO's new basis resulting from the allocation of the
combined purchase price of NHP and the NHP Real Estate Companies.
(v) Represents adjustments to reflect the acquisition of the NHP Real Estate
Companies and the corresponding historical results of operations as if
they had occurred on January 1, 1997.
(vi) Represents incremental depreciation related to the consolidated real
estate assets purchased from the NHP Real Estate Companies. Buildings and
improvements are depreciated on the straight-line method over a period of
30 years, and furniture and fixtures are depreciated on the straight-line
method over a period of 5 years.
(vii) Represents the adjustment to record the revenues from ancillary businesses
purchased from the NHP Real Estate Companies as if the acquisition had
occurred on January 1, 1997.
(viii)Represents $4,878 related to the adjustment to record the expenses from
ancillary businesses purchased from the NHP Real Estate Companies as if
the acquisition had occurred on January 1, 1997, less $2,615 related to a
reduction in personnel costs pursuant to a restructuring plan, approved by
AIMCO senior management, assuming that the acquisition of the NHP Real
Estate Companies had occurred on January 1, 1997 and that the
restructuring plan was completed on January 1, 1997. The restructuring
plan specifically identifies all significant actions to be taken to
complete the restructuring plan, including the reduction of personnel, job
functions, location and the date of completion.
(ix) Represents adjustments in the amount of $3,391 to reflect the acquisition
of the NHP Real Estate Companies and the corresponding historical results
of operations as if they had occurred on January 1, 1997, as well as the
increase in interest expense in the amount of $1,691 related to borrowings
on AIMCO's Credit Facility of $55,807 to finance the NHP Real Estate
Acquisition
(x) Represents adjustments in the amount of $2,432 to reflect the acquisition
of the NHP Real Estate Companies and the corresponding historical results
of operations as if they had occurred on January 1, 1997, as well as
amortization of $1,473 related to the increased basis in investment in
real estate partnerships, as a result of the allocation of the purchase
price of the NHP Real Estate Companies, based on an estimated average life
of 20 years.
(xi) Represents incremental depreciation related to the real estate assets
purchased from NHP. Buildings and improvements are depreciated on the
straight-line method over a period of 20 years, and furniture and fixtures
are depreciated on the straight-line method over a period of 5 years.
(xii) Represents incremental depreciation and amortization of the tangible and
intangible assets related to the property management and other business
operated by the Unconsolidated Subsidiaries, based on AIMCO's new basis as
adjusted by the allocation of the combined purchase price of NHP including
amortization of management contracts of $3,782, depreciation of furniture,
fixtures and equipment of $2,018 and amortization of goodwill of $7,743,
less NHP's historical depreciation and amortization of $9,111. Management
contracts are amortized using the straight-line method over the weighted
average life of the contracts estimated to be approximately 15 years.
8
<PAGE> 9
Furniture, fixtures and equipment are depreciated using the straight-line
method over the estimated life of 3 years. Goodwill is amortized using the
straight-line method over 20 years.
(xiii)Represents a reduction in personnel costs, primarily severance costs,
pursuant to a restructuring plan, approved by AIMCO senior management,
specifically identifying all significant actions to be taken to complete
the restructuring plan, assuming that the Merger had occurred on January
1, 1997 and that the restructuring plan was completed on January 1, 1997.
(xiv) Represents adjustment for amortization of the increased basis in
investments in real estate partnerships, as a result of the allocation of
the combined purchase price of NHP and the NHP Real Estate Companies,
based on an estimated average life of 20 years.
(xv) Represents the reversal of equity in earnings in NHP during the pre-merger
period when AIMCO held a 47.62% interest in NHP, as a result of AIMCO's
acquisition of 100% of the NHP Common Stock.
(xvi) Represents the reversal of NHP's income tax provision due to the
restructuring of the management business to the Unconsolidated
Subsidiaries.
(xvii)Represents the contribution of NHP's 12 real estate properties containing
2,905 apartment units to the Unconsolidated Partnership pursuant to the
NHP Reorganization.
(xviii)
Represents the historical income and expenses associated with certain
assets and liabilities of NHP that were contributed or sold to the
Unconsolidated Subsidiaries, primarily related to the management
operations and other businesses owned by NHP.
(xix) Represents the amortization and depreciation of certain management
contracts and other assets of NHP, based on AIMCO's new basis resulting
from the allocation of the purchase price of NHP, that will be contributed
or sold to the Unconsolidated Subsidiaries, primarily related to the
management operations and other businesses owned by NHP.
(xx) Represents interest expense of $6,020 related to the contribution of NHP's
12 real estate properties containing 2,905 apartment units to the
Unconsolidated Partnership and interest expense of $4,285 related to the
certain assets and liabilities that will be contributed or sold to the
Unconsolidated Subsidiaries pursuant to the NHP Reorganization.
(xxi) Represents the interest income of $5,000 earned on notes payable of
$50,000 to AIMCO issued as consideration for certain assets and
liabilities sold to the Unconsolidated Subsidiaries by AIMCO, net of the
elimination of AIMCO's share of the related interest expense of $4,750
reflected in the equity in earnings of the Unconsolidated Subsidiaries
operating results, offset by $853 in interest income primarily related to
the management operations and other businesses owned by NHP contributed or
sold to the Unconsolidated Subsidiaries pursuant to the NHP
Reorganization.
(xxii)Represents AIMCO's equity in earnings of the Unconsolidated Subsidiaries.
(D) Represents the audited historical statement of operations of Ambassador for
the year ended December 31, 1997. Certain reclassifications have been made
to Ambassador's historical Statement of Operations to conform to AIMCO's
Statement of Operations presentation. The Ambassador historical Statement
of Operations excludes extraordinary loss of $1,384 and a loss on sale of
an interest rate cap of $509.
(E) Represents the following adjustments occurring as a result of the
Ambassador Merger: (i) the incremental depreciation of the purchase price
adjustment related to real estate; (ii) the reduction in personnel costs,
primarily severance costs, pursuant to a restructuring plan; (iii) the
reduction of interest expense resulting from the net reduction of debt; and
(iv) the elimination of the minority interest associated with Jupiter I,
L.P.
(F) Represents adjustments to reflect the 1997 Property Acquisitions and the
1998 Acquisitions, less the 1997 Dispositions and the 1998 Disposition as
if they had occurred on January 1, 1997. These pro forma operating results
are based on historical results of the properties, except for depreciation,
which is based on AIMCO's investment in the properties.
9
<PAGE> 10
These adjustments are as follows:
<TABLE>
<CAPTION>
1997 PROPERTY 1997 1998 1998
ACQUISITIONS DISPOSITIONS ACQUISITIONS DISPOSITION TOTAL
------------- ------------ ------------ ----------- --------
<S> <C> <C> <C> <C> <C>
Rental and other property revenues....... $ 88,589 $(4,081) $19,892 $(2,105) $102,295
Property operating expense............... (44,109) 1,944 (9,280) 783 (50,662)
Owned property management expense........ (3,233) 133 (485) 75 (3,510)
Depreciation............................. (16,839) 452 (4,795) 354 (20,828)
</TABLE>
(G) Represents adjustments to interest expense for the following:
<TABLE>
<S> <C>
Borrowings on AIMCO's Credit Facility and other loans and
mortgages assumed in connection with the 1997 Property
Acquisitions.............................................. $(29,427)
Repayments on AIMCO's Credit Facility and other indebtedness
with proceeds from the 1997 Dispositions and the 1997
Stock Offerings........................................... 19,505
Repayments on AIMCO's Credit Facility with proceeds from a
dividend received from one of the Unconsolidated
Subsidiaries.............................................. 1,889
Borrowings on AIMCO's Credit Facility and other loans and
mortgages assumed in connection with the 1998
Acquisitions.............................................. (8,270)
Repayments on AIMCO's Credit Facility and other indebtedness
with proceeds from the 1998 Disposition and the 1998 Stock
Offerings................................................. 14,677
--------
$ (1,626)
========
</TABLE>
(H) Represents income related to limited partners in consolidated partnerships
acquired in connection with the 1997 Property Acquisitions.
(I) Represents the reduction in AIMCO's earnings in unconsolidated partnerships
as a result of the consolidation of additional partnerships resulting from
additional ownership acquired through tender offers.
(J) Represents incremental depreciation related to the real estate assets
purchased in connection with the Ambassador Merger. Buildings and
improvements are depreciated on the straight-line method over a period of
30 years, and furniture and fixtures are depreciated on the straight-line
method over a period of 5 years.
(K) Decrease results from identified historical costs of certain items which
will be eliminated or reduced as a result of the Ambassador Merger, as
follows:
<TABLE>
<S> <C>
Duplication of public company expenses...................... $ 724
Reduction in salaries and benefits.......................... 4,197
Merger related costs........................................ 524
Other....................................................... 1,947
------
$7,392
======
</TABLE>
The reduction in salaries and benefits is pursuant to a restructuring plan,
approved by AIMCO senior management, assuming that the Ambassador Merger
had occurred on January 1, 1997 and that the restructuring plan was
completed on January 1, 1997. The restructuring plan specifically
identifies all significant actions to be taken to complete the
restructuring plan, including the reduction of personnel, job functions,
location and date of completion.
(L) Represents the decrease in interest expense of $3,612 related to the
repayment of the Ambassador revolving lines of credit upon consummation of
the Ambassador Merger, offset by an increase in interest expense of $3,833
related to borrowings under the AIMCO line of credit.
(M) Represents elimination of minority interest in Jupiter-I, L.P. resulting
from the redemption of limited partnership interests not owned by
Ambassador in connection with the Ambassador Merger.
(N) Represents adjustments to Minority Interest in AIMCO Operating Partnership
assuming the Completed Transactions, the NHP Transactions, and the
Ambassador Merger had occurred as of January 1, 1997. On a pro forma
10
<PAGE> 11
basis, without giving effect to the NHP Transactions, as of December 31,
1997, the minority interest percentage is approximately 15.7%. On a pro
forma basis, without giving effect to the Ambassador Merger, as of December
31, 1997, the minority interest percentage is approximately 13.3%. On a pro
forma basis, giving effect to the Ambassador Merger, as of December 31,
1997, the minority interest percentage is approximately 11.8%.
(O) Represents the elimination of the preferred stock dividends of Ambassador
upon the conversion of the Ambassador Preferred Stock to AIMCO Common
Stock.
(P) The following table presents the net impact to pro forma net income
applicable to holders of AIMCO Common Stock and net income per share of
AIMCO Common Stock assuming the interest rate per annum increases by 0.25%:
<TABLE>
<S> <C>
Increase in interest expense $ 114
=========
Income before Minority Interest in Operating Partnership 53,093
Minority Interest in Operating Partnership (2,225)
---------
Net income 50,868
=========
Net income attributable to common stockholders 16,694
=========
Basic income per share $ 0.36
=========
Diluted income per share $ 0.35
=========
</TABLE>
(Q) Represents the net income attributable to holders of the AIMCO Class B
Preferred Stock, the AIMCO Class C Preferred Stock, the AIMCO Class D
Preferred Stock, the AIMCO Class G Preferred Stock and the AIMCO
Class H Preferred Stock as if these stock offerings had occurred as of
January 1, 1997.
(R) Represents AIMCO's equity in earnings in the Unconsolidated Subsidiaries of
$5,676, plus the elimination of intercompany interest expense of $4,750.
The combined Pro Forma Statement of Operations (Pre-Merger) of the
Unconsolidated Subsidiaries for the year ended December 31, 1997 is
presented below, which represents the effects of the Ambassador Merger, the
NHP Merger and the NHP Reorganization as if these transactions had occurred
as of January 1, 1997.
11
<PAGE> 12
UNCONSOLIDATED SUBSIDIARIES
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS (PRE-MERGER)
FOR THE YEAR ENDED DECEMBER 31, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
REORGANIZATION
HISTORICAL(i) ADJUSTMENTS(ii) PRO FORMA
------------- --------------- ---------
<S> <C> <C> <C>
Rental and other property revenues.................... $ 6,194 $ 6,371(iii) $ 12,565
Property operating expenses........................... (3,355) (3,531)(iii) (6,886)
Owned property management expense..................... (147) (478)(iii) (625)
Depreciation expense.................................. (1,038) (767)(iii) (1,805)
-------- --------- --------
Income from property operations....................... 1,654 1,595 3,249
-------- --------- --------
Management fees and other income...................... 23,776 41,992(iv) 65,768
Management and other expenses......................... (11,733) (20,403)(iv) (32,136)
Amortization.......................................... (3,726) (4,017)(iv) (7,743)
-------- --------- --------
Income from service company........................... 8,317 17,572 25,889
Minority interest in service company.................. -- -- --
-------- --------- --------
Company's share of service company.................... 8,317 17,572 25,889
-------- --------- --------
General and administrative expense.................... -- (6,573)(iv) (6,573)
Interest expense...................................... (6,058) (5,849)(v) (11,907)
Interest income....................................... 1,001 (148)(iv) 853
Minority interest in other partnerships............... (2,819) 2,198(vii) (621)
Equity in losses of unconsolidated partnerships....... (1,028) 1,028(iii) --
Equity in earnings of Unconsolidated Subsidiaries..... 2,943 (2,943)(vi) --
-------- --------- --------
Income from operations................................ 4,010 6,880 10,890
Income tax provision.................................. (1,902) (3,013)(viii) (4,915)
-------- --------- --------
Net income............................................ $ 2,108 $ 3,867 $ 5,975
======== ========= ========
Income attributable to preferred stockholders......... $ 2,003 $ 3,673 $ 5,676
======== ========= ========
Income attributable to common stockholders............ $ 105 $ 194 $ 299
======== ========= ========
</TABLE>
- ---------------
(i) Represents the historical results of operations of the Unconsolidated
Subsidiaries for the year ended December 31, 1997.
(ii) Represents adjustments related to the NHP Reorganization, which includes
the sale or contribution of 14 properties containing 2,725 apartment units
from the unconsolidated partnerships to the Unconsolidated Subsidiaries, as
well as the sale or contribution of 12 properties containing 2,905
apartment units from the Unconsolidated Subsidiaries to the Unconsolidated
Partnership.
(iii)Represents adjustments for the historical results of operations of the 14
real estate properties contributed or sold to the Unconsolidated
Subsidiaries, offset by the historical results of operations of the 12 real
estate properties contributed or sold to the Unconsolidated Partnership,
with additional depreciation recorded related to AIMCO's new basis
resulting from the allocation of purchase price of NHP and the NHP Real
Estate Companies.
(iv) Represents adjustments to reflect income and expenses associated with
certain assets and liabilities of NHP contributed or sold to the
Unconsolidated Subsidiaries.
(v) Represents adjustments of $6,058 to reverse the historical interest expense
of the Unconsolidated Subsidiaries, which resulted from its original
purchase of NHP Common Stock, offset by $2,622 related to the contribution
or sale of the 14 real estate properties, $4,285 related to assets and
liabilities
12
<PAGE> 13
transferred from AIMCO to the Unconsolidated Subsidiaries and $5,000
related to a note payable to AIMCO.
(vi) Represents the reversal of the historical equity in earnings of NHP for the
period in which NHP was not consolidated by the Unconsolidated
Subsidiaries.
(vii)Represents the minority interest in the operations of the 14 real estate
properties.
(viii)
Represents the estimated Federal and state tax provisions, which are
calculated on the pro forma operating results of the Unconsolidated
Subsidiaries, excluding amortization of goodwill which is not deductible
for tax purposes.
13
<PAGE> 14
APARTMENT INVESTMENT AND MANAGEMENT COMPANY
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS (PRE-MERGER)
FOR THE SIX MONTHS ENDED JUNE 30, 1998
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
AMBASSADOR
COMPLETED AMBASSADOR PURCHASE PRICE
HISTORICAL(A) TRANSACTIONS(B) HISTORICAL(C) ADJUSTMENTS(D) PRO FORMA
------------- --------------- ------------- --------------- ---------
<S> <C> <C> <C> <C> <C>
Rental and other property
revenues.......................... $ 161,264 $ 6,199(E) $ 35,480 $ -- $ 202,943
Property operating expenses......... (59,643) (2,534)(E) (14,912) -- (77,089)
Owned property management expense... (4,713) (167)(E) -- -- (4,880)
Depreciation........................ (34,289) (1,489)(E) (7,270) (1,420)(G) (44,468)
------------- --------------- ------------- --------------- ---------
Income from property operations..... 62,619 2,009 13,298 (1,420) 76,506
------------- --------------- ------------- --------------- ---------
Management fees and other income.... 9,562 -- -- -- 9,562
Management and other expenses....... (5,470) -- -- -- (5,470)
Corporate overhead allocation....... (196) -- -- -- (196)
Amortization........................ (3) -- -- -- (3)
------------- --------------- ------------- --------------- ---------
Income from service company
business.......................... 3,893 -- -- -- 3,893
Minority interest in service company
business.......................... (1) -- -- -- (1)
------------- --------------- ------------- --------------- ---------
Company's share of income from
service company business.......... 3,892 -- -- -- 3,892
------------- --------------- ------------- --------------- ---------
General and administrative
expenses.......................... (4,103) -- (5,278) 5,278(H) (4,103)
Interest expense.................... (34,778) 2,982 (F) (10,079) 145(I) (41,730)(L)
Interest income..................... 11,350 -- -- -- 11,350
Minority interest in other
partnerships...................... (516) -- (252) 252(J) (516)
Equity in losses of unconsolidated
partnerships...................... (4,681) -- (71) -- (4,752)
Equity in earnings of unconsolidated
subsidiaries...................... 5,609 -- -- -- 5,609(N)
Amortization of goodwill............ (3,394) -- -- -- (3,394)
------------- --------------- ------------- --------------- ---------
Income from operations.............. 35,998 4,991 (2,382) 4,255 42,862
Income tax provision ............... -- -- -- -- --
Gain on dispositions of property.... 2,526 (2,526) -- -- --
------------- --------------- ------------- --------------- ---------
Income before extraordinary item and
minority interest in Operating
Partnership....................... 38,524 2,465 (2,382) 4,255 42,862
Extraordinary item - early
extinguishment of debt............ -- -- -- -- --
------------- --------------- ------------- --------------- ---------
Income before minority interest in
Operating Partnership............. 38,524 2,465 (2,382) 4,255 42,862
Minority interest in Operating
Partnership....................... (3,262) 196(K) -- 164(K) (2,902)(K)
------------- --------------- ------------- --------------- ---------
Net income.......................... 35,262 2,661 (2,382) 4,419 39,960(L)
Income attributable to preferred
stockholders...................... 8,650 8,354 -- -- 17,004(M)
------------- --------------- ------------- --------------- ---------
Income attributable to common
stockholders...................... $ 26,612 $ (5,693) $ (2,382) $ 4,419 $ 22,956(L)
============= =============== ============= =============== =========
Basic earnings per share............ $ 0.62 $ 0.48(L)
============= =========
Diluted earnings per share.......... $ 0.61 $ 0.48(L)
============= =========
Weighted average shares
outstanding....................... 43,206 47,831
============= =========
Weighted average shares and
equivalents outstanding........... 43,409 47,929
============= =========
</TABLE>
- ---------------
(A) Represents AIMCO's unaudited consolidated results of operations for the
six months ended June 30, 1998.
(B) Represents adjustments to reflect the following as if they had occurred on
January 1, 1998: (i) the 1998 Stock Offerings; (ii) the 1998 Acquisitions;
and (iii) the 1998 Disposition.
(C) Represents the unaudited historical statement of operations of Ambassador
for the four months ended April 30, 1998. Certain reclassifications have
been made to Ambassador's historical Statement of Operations to conform to
AIMCO's Statement of Operations presentation.
14
<PAGE> 15
(D) Represents the following adjustments occurring as a result of the
Ambassador Merger: (i) the incremental depreciation of the purchase price
adjustment related to real estate; (ii) the reduction in personnel costs,
primarily severance costs, pursuant to a restructuring plan; (iii) the
reduction of interest expense resulting from the net reduction of debt; and
(iv) the elimination of the minority interest associated with Jupiter I,
L.P.
(E) Represents adjustments to reflect the 1998 Acquisitions, less the 1998
Disposition as if they had occurred on January 1, 1998. These pro forma
operating results are based on historical results of the properties, except
for depreciation, which is based on AIMCO's investment in the properties.
These adjustments are as follows:
<TABLE>
<CAPTION>
1998 1998
ACQUISITIONS DISPOSITION TOTAL
------------ ----------- -------
<S> <C> <C> <C>
Rental and other property revenues........... $ 6,297 $(98) $ 6,199
Property operating expense................... (2,625) 91 (2,534)
Owned property management expense............ (173) 6 (167)
Depreciation................................. (1,507) 18 (1,489)
</TABLE>
(F) Represents adjustments to interest expense for the following:
<TABLE>
<S> <C>
Borrowings on AIMCO's Credit Facility and other loans and
mortgages assumed in connection with the 1998
Acquisitions.............................................. (2,760)
Repayments on AIMCO's Credit Facility and other indebtedness
with proceeds from the 1998 Disposition and the 1998 Stock
Offerings................................................. 5,742
-------
$ 2,982
=======
</TABLE>
(G) Represents incremental depreciation related to the real estate assets
purchased in connection with the Ambassador Merger. Buildings and
improvements are depreciated on the straight-line method over a period of
30 years, and furniture and fixtures are depreciated on the straight-line
method over a period of 5 years.
(H) Decrease results from identified historical costs of certain items which
will be eliminated or reduced as a result of the Ambassador Merger, as
follows:
<TABLE>
<S> <C>
Duplication of public company expenses...................... $ 355
Reduction in salaries and benefits.......................... 2,482
Merger related costs........................................ 1,212
Other....................................................... 1,229
------
$5,278
======
</TABLE>
The reduction in salaries and benefits is pursuant to a restructuring plan,
approved by AIMCO senior management, assuming that the Ambassador Merger
had occurred on January 1, 1998 and that the restructuring plan was
completed on January 1, 1998. The restructuring plan specifically
identifies all significant actions to be taken to complete the
restructuring plan, including the reduction of personnel, job functions,
location and date of completion.
(I) Represents the decrease in interest expense of $1,480 related to the
repayment of the Ambassador revolving lines of credit upon consummation of
the Ambassador Merger, offset by an increase in interest expense of $1,335
related to borrowings under the AIMCO line of credit.
(J) Represents elimination of minority interest in Jupiter-I, L.P. resulting
from the redemption of limited partnership interests not owned by
Ambassador in connection with the Ambassador Merger.
(K) Represents adjustments to Minority Interest in AIMCO Operating Partnership
assuming the Completed Transactions and the Ambassador Merger had occurred
as of January 1, 1997. On a pro forma
15
<PAGE> 16
basis, without giving effect to the Ambassador Merger, as of June 30,
1998, the minority interest percentage is approximately 12.8%. On a pro
forma basis, giving effect to the Ambassador Merger, as of June 30, 1998,
the minority interest percentage is approximately 11.2%.
(L) The following table presents the net impact to pro forma net income
applicable to holders of AIMCO Common Stock and net income per share of
AIMCO Common Stock assuming the interest rate per annum increases by 0.25%:
<TABLE>
<S> <C>
Increase in interest expense $ 57
============
Income before Minority Interest in Operating Partnership 42,805
Minority Interest in Operating Partnership (2,896)
------------
Net income 39,909
============
Net income attributable to common stockholders 22,905
============
Basic income per share $ 0.48
============
Diluted income per share $ 0.48
============
</TABLE>
(M) Represents the net income attributable to holders of the AIMCO Class B
Preferred Stock, the AIMCO Class C Preferred Stock, the AIMCO Class D
Preferred Stock, the AIMCO Class G Preferred Stock, and the AIMCO Class H
Preferred Stock as if these stock offerings had occurred as of January 1,
1998.
(N) Represents AIMCO's equity in earnings in the Unconsolidated Subsidiaries of
$5,609. The combined historical statement of operations of the
unconsolidated subsidiaries for the six months ended June 30, 1998 is
presented below. There were no pro forma adjustments to the statement of
operations for the six months ended June 30, 1998.
16
<PAGE> 17
UNCONSOLIDATED SUBSIDIARIES
PRO FORMA CONSOLIDATED
STATEMENT OF OPERATIONS (PRE-MERGER)
FOR THE SIX MONTHS ENDED JUNE 30, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
HISTORICAL
----------
<S> <C>
Rental and other property revenues.......................... $ 6,550
Property operating expenses................................. (3,390)
Owned property management expense .......................... (230)
Depreciation expense........................................ (650)
--------
Income from property operations............................. 2,280
--------
Management fees and other income............................ 37,585
Management and other expenses............................... (23,673)
Amortization................................................ (1,390)
--------
Income from service company................................. 12,522
--------
Interest expense............................................ (3,878)
Interest income............................................. 425
Minority interest in other partnerships..................... (250)
--------
Income from operations...................................... 11,099
Income tax provision........................................ (5,195)
--------
Net income.................................................. $ 5,904
========
Income attributable to preferred stockholders............... $ 5,609
========
Income attributable to common stockholders.................. $ 295
========
</TABLE>
17
<PAGE> 18
PRO FORMA FINANCIAL INFORMATION OF AIMCO
(MERGER)
INTRODUCTION
On March 17, 1998, AIMCO entered into Merger Agreement pursuant to which
Insignia will be merged with and into AIMCO with AIMCO as the survivor. The
Merger Agreement provides that prior to the Merger, Insignia will complete the
Distribution to its stockholders all of the Holdings Common Stock. Pursuant to
the Indemnification Agreement, Holdings will provide indemnification for certain
liabilities arising under the Merger Agreement.
In the Merger, the Insignia Common Stock will be converted, assuming the
stockholders of AIMCO and Insignia approve the Merger, into the right to receive
an aggregate number of shares of Class E Preferred Stock approximately equal to
$303 million divided by the AIMCO Index Price. In addition to receiving the same
dividends as holders of AIMCO Common Stock, holders of AIMCO Class E Preferred
Stock will be entitled to the Special Dividend of $50 million in the aggregate.
When the Special Dividend is paid in full, the AIMCO Class E Preferred Stock
will automatically convert into AIMCO Common Stock on a one-for-one basis,
subject to antidilution adjustments, if any. In addition, there will remain
outstanding approximately $308 million in indebtedness and other liabilities of
Insignia and its subsidiaries and subsidiaries of AIMCO will assume
approximately $149.5 million of Convertible Securities for a total transaction
value of approximately $811 million. Also, the Merger Agreement provides that
AIMCO is required to propose to acquire (by merger) the outstanding shares of
beneficial interest in IPT (the "IPT Merger"), at a price of at least $13.25 per
IPT share and use its reasonable best efforts to consummate the IPT Merger after
the closing of the Merger, but not earlier than August 15, 1998. IPT is an
approximately 61% owned subsidiary of Insignia; the 39% of the shares of IPT not
owned by Insignia are valued at an aggregate of approximately $152 million,
after considering the effect of the proposed merger of IPT and AMIT (the
"IPT-AMIT Merger"), assuming a value of $13.25 per share. If the Merger is
consummated, AIMCO will assume property management of approximately 192,000
multifamily units which consist of general and limited partnership investments
in 115,000 units and third party management of 77,000 units. IPT owns a 32%
weighted average general and limited partnership interest in approximately
51,000 units.
The following Pro Forma Consolidated Balance Sheet (Merger) of AIMCO as of
June 30, 1998 has been prepared as if each of the following transactions had
occurred as of June 30, 1998: (i) all the transactions discussed in the Pro
Forma Financial Statements (Pre-Merger), appearing elsewhere herein; (ii) the
Merger; (iii) the Distribution, (iv) the IPT-AMIT Merger, (v) the IPT Merger;
and (vi) the transfer of certain assets and liabilities of Insignia to the
Unconsolidated Subsidiaries following the Merger (the "Insignia
Reorganization").
The following Pro Forma Consolidated Statement of Operations (Merger) of
AIMCO for the year ended December 31, 1997 has been prepared as if each of the
following transactions had occurred as of January 1, 1997: (i) all the
transactions discussed in the Pro Forma Financial Statements (Pre-Merger),
appearing elsewhere herein; (ii) the Merger; (iii) the Distribution, (iv) the
IPT-AMIT Merger, (v) the IPT Merger; and (vi) the Insignia Reorganization.
The following Pro Forma Consolidated Statement of Operations (Merger) of
AIMCO for the six months ended June 30, 1998 has been prepared as if each of the
following transactions had occurred as of January 1, 1997: (i) all the
transactions discussed in the Pro Forma Financial Statements (Pre-Merger),
appearing elsewhere herein; (ii) the Merger; (iii) the Distribution, (iv) the
IPT-AMIT Merger, (v) the IPT Merger; and (vi) the Insignia Reorganization.
The following Pro Forma Financial Information (Merger) is based, in part,
on: (i) the audited Consolidated Financial Statements of Insignia for the year
ended December 31, 1997; (ii) the audited Consolidated Financial Statements of
AMIT for the year ended December 31, 1997; (iii) the unaudited Consolidated
Financial Statements of Insignia for the six months ended June 30, 1998; and
(iv) the unaudited Consolidated Financial Statements of AMIT for the six months
ended June 30, 1998. The following Pro Forma Financial Information of AIMCO
(Merger) is also based, in part, on the Pro Forma Financial
18
<PAGE> 19
Information of AIMCO (Pre-Merger), included elsewhere herein. Such pro forma
information is based in part upon: (i) the audited Consolidated Financial
Statements of Ambassador for the year ended December 31, 1997; (ii) the audited
Consolidated Financial Statements of AIMCO for the year ended December 31, 1997;
(iii) the unaudited Consolidated Financial Statements of Ambassador for the four
months ended April 30, 1998; (iv) the unaudited Consolidated Financial
Statements of AIMCO for the six months ended June 30, 1998; and (v) the
historical financial statements of certain properties and companies acquired by
AIMCO filed in AIMCO's Current Reports on Form 8-K, dated April 16, 1997, May 5,
1997, June 3, 1997, September 19, 1997, October 15, 1997, and December 1, 1997.
The following Pro Forma Financial Information of AIMCO (Merger) should be read
in conjunction with such financial statements and notes thereto.
The unaudited Pro Forma Financial Information of AIMCO (Merger) has been
prepared using the purchase method of accounting whereby the assets and
liabilities of Insignia are adjusted to estimated fair market value, based upon
preliminary estimates, which are subject to change as additional information is
obtained. The allocations of purchase costs are subject to final determination
based upon estimates and other evaluations of fair market value. Therefore, the
allocations reflected in the following unaudited Pro Forma Financial Information
of AIMCO (Merger) may differ from the amounts ultimately determined.
The unaudited Pro Forma Financial Information of AIMCO (Merger) has been
prepared under the assumption that the AIMCO stockholders approved the Merger,
the AIMCO Class E Preferred Stock has been converted to AIMCO Common Stock, the
IPT-AMIT Merger occurs, and the IPT Merger was consummated.
If the stockholders of AIMCO do not approve the Merger, the Merger may
nonetheless be consummated. However, instead of receiving a number of shares of
AIMCO Class E Preferred Stock approximately equal to $303 million divided by the
AIMCO Index price holders of Insignia Common Stock would receive a number of
shares of AIMCO Class E Preferred Stock approximately equal to $203 million
divided by the AIMCO Index Price, and a number of shares of AIMCO Class F
Preferred Stock approximately equal to $100 million divided by the AIMCO Index
Price. In either case, holders of AIMCO Class E Preferred Stock would be
entitled to the Special Dividend. Holders of AIMCO Class F Preferred Stock will
be entitled to receive the greater of (i) the dividends received by holders of
AIMCO Common Stock and (ii) preferred distributions of 10% of the liquidation
value of the AIMCO Class F Preferred Stock, with the preferred return rate
escalating by 1% each year until a 15% annual return is achieved. Upon the
approval by stockholders of AIMCO, the AIMCO Class F Preferred Stock will
convert into AIMCO Common Stock on a one-for-one basis, subject to antidilution
adjustments, if any. The AIMCO Index Price will be the average market price of
AIMCO Common Stock during the 20 NYSE trading days ending five business days
prior to the Merger, subject to a maximum average price of $38.00 per share.
The AIMCO Index Price is not intended to and will not necessarily represent the
fair market value of the AIMCO Class E Preferred Stock or the AIMCO Class F
Preferred Stock.
The following unaudited Pro Forma Financial Information (Merger) is
presented for informational purposes only and is not necessarily indicative of
the financial position or results of operations of AIMCO that would have
occurred if such transactions had been completed on the dates indicated, nor
does it purport to be indicative of future financial positions or results of
operations. In the opinion of AIMCO's management, all material adjustments
necessary to reflect the effects of these transactions have been made.
19
<PAGE> 20
APARTMENT INVESTMENT AND MANAGEMENT COMPANY
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET (MERGER)
AS OF JUNE 30, 1998
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
INSIGNIA AIMCO BEFORE INSIGNIA
PRE-MERGER INSIGNIA MERGER INSIGNIA REORGANIZATION AIMCO
PRO FORMA(A) AS ADJUSTED(B) ADJUSTMENTS(C) REORGANIZATION(D) ADJUSTMENTS(E) PRO FORMA
------------ -------------- -------------- ----------------- -------------- ----------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Real estate...................... $2,319,933 $ 30,600 $ 21,348 (F) $2,371,881 $ -- $2,371,881
Property held for sale........... 35,695 -- -- 35,695 -- 35,695
Investments in securities........ 5,767 -- 292,297 (F)
(292,297)(G) 5,767 -- 5,767
Investments in and notes
receivable from unconsolidated
subsidiaries................... 108,105 -- -- 108,105 14,561 (H) 122,666(J)
Investments in and notes
receivable from unconsolidated
partnerships................... 243,799 242,457 424,756 (F) 911,012 -- 911,012
Mortgage notes receivable........ -- 35,316 35,316 35,316
Cash and cash equivalents........ 49,320 42,585 -- 91,905 (15,102)(I) 76,803
Restricted cash.................. 75,123 -- -- 75,123 -- 75,123
Accounts receivable.............. 26,201 24,385 -- 50,586 (23,773)(I) 26,813
Deferred financing costs......... 22,629 7,158 -- 29,787 -- 29,787
Goodwill......................... 122,068 19,836 13,145 (F) 155,049 -- 155,049
Property management contracts.... 89,838 22,211 (F) 112,049 (77,410)(H) 34,639
Other assets..................... 78,725 22,780 (632)(F) 100,873 (8,954)(I) 91,919
---------- -------- --------- ---------- --------- ----------
$3,087,365 $514,955 $ 480,828 $4,083,148 $(110,678) $3,972,470
========== ======== ========= ========== ========= ==========
LIABILITIES AND SHAREHOLDERS'
EQUITY
Secured notes payable............ $ 774,368 $ 26,476 $ -- $ 800,844 $ -- $ 800,844
Secured tax-exempt bond
financing...................... 394,662 -- -- 394,662 -- 394,662
Secured short-term financing..... 11,468 233,310 (297,000)(F)
152,000 (F)
50,000 (F)
308,434 (F) 458,212 (50,000)(H) 408,212
Unsecured short-term financing... 20,489 1,647 -- 22,136 -- 22,136
Accounts payable, accrued and
other liabilities.............. 155,129 32,669 20,000 (F) 207,798 (44,931)(I) 162,867
Deferred tax liability........... -- 18,802 (18,802)(F)
12,849 (F) 12,849 (12,849)(H) --
Security deposits and deferred
income......................... 12,882 2,898 -- 15,780 (2,898)(I) 12,882
---------- -------- --------- ---------- --------- ----------
1,368,998 315,802 227,481 1,912,281 (110,678) 1,801,603
Minority interest in other
partnerships................... 43,167 66,216 (66,216)(F) 43,167 -- 43,167
Minority interest in Operating
Partnership.................... 134,694 -- 134,694 -- 134,694
Company-obligated mandatorily
redeemable convertible
securities of a subsidiary
trust.......................... -- 144,210 5,290 (F) 149,500 -- 149,500
Class A common stock, $.01 par
value.......................... 481 358 (358)(F)
77 (G) 558 -- 558
Class B common stock, $.01 par
value.......................... 2 -- -- 2 -- 2
Class B Cumulative Convertible
Preferred Stock, $.01 par
value.......................... 75,000 -- -- 75,000 -- 75,000
Class C Cumulative Preferred
Stock, $.01 par value.......... 60,000 -- -- 60,000 -- 60,000
Class D Cumulative Preferred
Stock, $.01 par value.......... 105,000 -- -- 105,000 -- 105,000
Class G Cumulative Preferred
Stock, $.01 par value.......... 101,250 -- -- 101,250 -- 101,250
Class H Cumulative Preferred
Stock, $.01 per value.......... 50,000 -- -- 50,000 -- 50,000
Additional paid in capital....... 1,242,701 (37,595) 37,595 (F)
292,173 (G)
10,750 (F) 1,545,624 -- 1,545,624
Notes receivable on common
stock purchases................ (45,508) -- -- (45,508) -- (45,508)
Distributions in excess of
earnings....................... (48,203) 25,964 (25,964)(F) (48,203) -- (48,203)
Accumulated other comprehensive
losses......................... (217) -- -- (217) -- (217)
---------- -------- --------- ---------- --------- ----------
1,540,506 (11,273) 314,273 1,843,506 -- 1,843,506
---------- -------- --------- ---------- --------- ----------
$3,087,365 $514,955 $ 480,828 $4,083,148 $(110,678) $3,972,470
========== ======== ========= ========== ========= ==========
</TABLE>
- ---------------
(A) Represents AIMCO's pro forma consolidated financial position as of June 30,
1998, which gives effect to the purchase of three properties for an
aggregate purchase price of $32.6 million, the Class G Preferred Stock
Offering and the Class H preferred stock offering. See "Pro Forma Financial
Information (Pre-Merger)."
20
<PAGE> 21
(B) Represents adjustments to reflect the Merger, including the IPT-AMIT
Merger, and the Distribution, as if these transactions had occurred on
June 30, 1998. These adjustments are detailed, as follows:
<TABLE>
<CAPTION>
INSIGNIA IPT-AMIT HOLDINGS INSIGNIA AS
HISTORICAL(i) MERGER(ii) DISTRIBUTION(iii) ADJUSTED
------------- ------------ ----------------- --------------
<S> <C> <C> <C> <C>
ASSETS
Real estate............................................ $ 25,808 $ 4,792 $ -- $ 30,600
Property held for sale................................. -- -- -- --
Investments in securities.............................. -- -- -- --
Investments in and notes receivable from
unconsolidated subsidiaries.......................... -- -- -- --
Investments in and notes receivable from
unconsolidated partnerships.......................... 282,599 -- (40,142) 242,457
Mortgage notes receivable.............................. -- 35,316 -- 35,316
Cash and cash equivalents.............................. 57,807 6,248 (21,470) 42,585
Restricted cash........................................ -- -- -- --
Accounts receivable.................................... 147,569 604 (123,788) 24,385
Deferred financing costs............................... 7,158 -- -- 7,158
Goodwill............................................... 245,391 -- (225,555) 19,836
Property management contracts.......................... 134,344 -- (44,506) 89,838
Other assets........................................... 53,513 (258) (30,475) 22,780
------------ ------------ ------------ ------------
$ 954,189 $ 46,702 $ (485,936) $ 514,955
============ ============ ============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Secured notes payable.................................. $ 21,951 $ 4,525 $ -- $ 26,476
Secured tax-exempt bond financing...................... -- -- -- --
Secured short-term financing........................... 265,737 -- (32,427) 233,310
Unsecured short-term financing......................... 1,647 -- -- 1,647
Accounts payable, accrued and other
liabilities.......................................... 147,116 1,629 (116,076) 32,669
Deferred tax liability................................. 24,865 -- (6,063) 18,802
Security deposits and deferred income.................. 4,349 -- (1,451) 2,898
------------ ------------ ------------ ------------
465,665 6,154 (156,017) 315,802
Minority interest in other partnerships................ 66,484 -- (268) 66,216
Minority interest in Operating Partnership............. -- -- -- --
Company-obligated mandatorily redeemable
convertible securities of a subsidiary
trust................................................ 144,210 -- -- 144,210
Class A common stock, $.01 par value................... 318 40 -- 358
Class B common stock, $.01 par value................... -- -- -- --
Class B Cumulative Convertible Preferred
Stock, $.01 par value................................ -- -- -- --
Class C Cumulative Preferred Stock, $.01 par
value................................................ -- -- -- --
Class D Cumulative Preferred Stock, $.01 par
value................................................ -- -- -- --
Class G Cumulative Preferred Stock, $.01 par
value................................................ -- -- -- --
Class H Cumulative Preferred Stock, $.01 par
value................................................ -- -- -- --
Additional paid in capital............................. 234,819 40,508 (312,922) (37,595)
Notes receivable on common stock purchases............. -- -- -- --
Distributions in excess of earnings.................... 42,693 -- (16,729) 25,964
Accumulated other comprehensive losses................. -- -- -- --
------------ ------------ ------------ ------------
277,830 40,548 (329,651) (11,273)
------------ ------------ ------------ ------------
$ 954,189 $ 46,702 $ (485,936) $ 514,955
============ ============ ============ ============
</TABLE>
21
<PAGE> 22
- ---------------
(i) Represents the unaudited consolidated financial position of Insignia as of
June 30, 1998, as reported in Insignia's Quarterly Report on Form 10-Q.
Certain reclassifications have been made to Insignia's historical balance
sheet to conform to AIMCO's balance sheet presentation.
(ii) Represents the historical balance sheet of AMIT, as well as pro forma
adjustments related to the IPT-AMIT Merger. The IPT-AMIT Merger is expected
to close prior to the Merger.
(iii)Represents the distribution of two shares of Holdings Common Stock for each
three shares of Insignia Common Stock to holders of Insignia Common Stock.
(C) Represents the following adjustments occurring as a result of the Merger:
(i) the issuance of 7,690,784 shares of AIMCO Common Stock, based on an
AIMCO Index Price of $38.00 per share, as consideration to holders of
Insignia common stock outstanding as of the date of the Merger; (ii) the
additional purchase price consideration of $10,750 for the Merger resulting
from the Insignia stock options, which will be converted to options to
purchase shares of AIMCO Common Stock; (iii) the IPT Merger; (iv) the
payment of the Special Dividend of $50,000; (v) the assumption of $149,500
of the Convertible Debentures; and (vi) the allocation of the combined
purchase price of Insignia based on the preliminary estimates of relative
fair market value of the assets and liabilities of Insignia.
(D) Represents the effects of AIMCO's acquisition of Insignia immediately after
the Merger. These amounts do not give effect to the Insignia
Reorganization, which includes the transfers of certain assets and
liabilities of Insignia to the combined Unconsolidated Subsidiaries. The
Insignia Reorganization must occur immediately after the Merger in order
for AIMCO to maintain its qualification as a REIT. This column is included
as an intermediate step to assist the reader in understanding the entire
nature of the Merger and related transactions.
(E) Represents adjustments related to the Insignia Reorganization, whereby,
following the Merger, AIMCO will contribute to the combined Unconsolidated
Subsidiaries certain assets and liabilities of Insignia, primarily
management contracts and related working capital assets and liabilities
related to Insignia's third party property management operations. The
adjustments reflect the transfer of assets valued at AIMCO's new basis
resulting from the allocation of the purchase price of Insignia. AIMCO will
receive non-voting preferred stock as consideration in exchange for the net
assets contributed. The net deferred tax liability is assumed by the
Unconsolidated Subsidiaries as it resulted from the assets and liabilities
transferred to the Unconsolidated Subsidiaries.
(F) In connection with the Merger, AIMCO will issue 7,690,784 shares of AIMCO
Common Stock based on an AIMCO Index Price of $38.00 per share, to acquire
the shares of Insignia Common Stock owned by the Insignia stockholders.
The total purchase price of Insignia is $995,783, as follows:
<TABLE>
<S> <C>
Issuance of 7,690,784 shares of AIMCO Common Stock in the
Merger, at $38.00 per share............................ $ 292,250
IPT Merger............................................... 152,000
Assumption of Convertible Debentures..................... 149,500
Assumption of Insignia liabilities as indicated in the
Merger Agreement....................................... 308,434
Transaction costs........................................ 20,000
Generation of deferred tax liability..................... 12,849
Special Dividend......................................... 50,000
Consideration for Insignia Stock Options outstanding..... 10,750
----------
Total.......................................... $ 995,783
==========
</TABLE>
22
<PAGE> 23
The Insignia Stock Options will be assumed by AIMCO in the Merger. The
consideration for the Insignia stock options was calculated based on the
exercise of Insignia Stock Options at a value of $25 per share.
The purchase price was allocated to the various assets of Insignia acquired
in the Merger, as follows:
<TABLE>
<S> <C>
Purchase price........................................... $ 995,783
Historical basis of Insignia's assets acquired, adjusted
for the IPT -- AMIT Merger and the Distribution........ (514,955)
----------
Step-up to record the fair value of Insignia's assets
acquired............................................... $ 480,828
==========
</TABLE>
This step-up was applied to Insignia's assets as follows:
<TABLE>
<S> <C>
Real estate............................................... $ 21,348
Investment in real estate partnerships.................... 424,756
Management contracts...................................... 22,211
Goodwill.................................................. 13,145
Reduction in value of other assets........................ (632)
--------
Total........................................... $480,828
========
</TABLE>
The fair value of Insignia's assets, primarily the real estate and
management contracts, was calculated based on estimated future cash flows
of the underlying assets.
As of June 30, 1998, Insignia's stockholder's deficit, as adjusted for the
IPT -- AMIT Merger and the Distribution, was $(11,273), which is detailed
as follows:
<TABLE>
<S> <C>
Common stock............................................... $ 358
Additional paid-in capital................................. (37,595)
Retained earnings.......................................... 25,964
--------
Total............................................ $(11,273)
========
</TABLE>
Upon completion of the Merger, the entire amount of the stockholder's
deficit is eliminated.
The increase of $5,290 in Convertible Debentures relates to the elimination
of unamortized issuance discount.
In addition, the minority interest in other partnerships of Insignia of
$66,216 will be eliminated upon the IPT Merger.
(G) Represents the issuance of 7,690,784 shares of AIMCO Common Stock to
Insignia Stockholders, in exchange for all the shares of Insignia Common
Stock.
In accordance with the Merger Agreement, AIMCO will issue a number of
shares of AIMCO Class E Preferred Stock, approximately equal to $303
million divided by the AIMCO Index Price, provided that the AIMCO
Stockholders approve the Merger. Each share of AIMCO Class E Preferred
Stock will automatically convert to one share of AIMCO Common Stock upon
the payment of the Special Dividend. As such, for the purpose of preparing
the pro forma financial statements, AIMCO's management believes that the
AIMCO Class E Preferred Stock is substantially the same as AIMCO Common
Stock, and that the fair value of the AIMCO Class E Preferred Stock
approximates the fair value of the AIMCO Common Stock. Upon the payment of
the Special Dividend and the conversion of the AIMCO Class E Preferred
Stock to AIMCO Common Stock, the former Insignia stockholders will own
approximately 13.8% of the AIMCO Common Stock. The Special Dividend is
intended to represent a distribution in an amount at least equal to the
earnings and profits of Insignia at the time of the Merger, to which AIMCO
succeeds.
In the event that the AIMCO stockholders do not approve the Merger, AIMCO
will issue a number of shares of AIMCO Class E Preferred Stock
approximately equal to $203 million divided by the AIMCO Index Price and a
number of shares of AIMCO Class F Preferred Stock approximately equal to
$100 million divided by the AIMCO Index Price. The terms and rights of the
AIMCO Class E Preferred Stock are the same as those stated above. The
holders of the AIMCO Class F Preferred Stock will be entitled to receive
the greater of (i) the same dividends as holders of AIMCO Common Stock and
(ii) preferred cash dividends of 10% of the liquidation value of the AIMCO
Class F Preferred Stock, with the preferred dividend rate escalating by 1%
each year until a 15% dividend rate is achieved. AIMCO's management
believes that
23
<PAGE> 24
the preferred dividend will compensate the holders of the AIMCO Class F
Preferred Stock for the lack of convertibility to AIMCO Common Stock, the
lack of voting rights, and the uncertainty as to the liquidity of the AIMCO
Class F Preferred Stock. For the purpose of preparing the pro forma
financial statements, AIMCO's management believes that the fair value of
the AIMCO Class F Preferred Stock approximates the fair value of the AIMCO
Common Stock.
The AIMCO Index Price will be the average market price of AIMCO Common
Stock during the 20 NYSE trading days ending five business days prior to
the Merger, subject to a maximum average price of $38.00 per share. The
AIMCO Index Price is not intended to and will not necessarily represent the
fair market value of the AIMCO Class E Preferred Stock or the AIMCO Class F
Preferred Stock.
(H) Represents the increase in AIMCO's investment in Unconsolidated
Subsidiaries to reflect the contribution of property management contracts,
including the related deferred tax liability, and notes payable to the
Unconsolidated Subsidiaries. These assets and liabilities are valued at
AIMCO's new basis resulting from the allocation of the purchase price of
Insignia.
(I) Represents certain assets and liabilities of Insignia, primarily related to
the management operations of Insignia, contributed by AIMCO to the
Unconsolidated Subsidiaries, valued at AIMCO's new basis resulting from the
allocation of the purchase price of Insignia.
(J) Amount represents notes receivable from the Unconsolidated Subsidiaries of
$50,000, advances to the Unconsolidated Subsidiaries of $18,933, and equity
in the Unconsolidated Subsidiaries of $53,733. The combined pro forma
balance sheet of the Unconsolidated Subsidiaries as of June 30, 1998 is
presented below, which reflects the effects of the Merger, the IPT Merger
and the Insignia Reorganization as if such transactions had occurred as of
June 30, 1998.
24
<PAGE> 25
UNCONSOLIDATED SUBSIDIARIES
PRO FORMA CONSOLIDATED BALANCE SHEET (MERGER)
AS OF JUNE 30, 1998
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
Pre-Merger Insignia Insignia
Pro Forma(i) Reorganization(ii) Pro Forma
------------ ------------------ ---------
<S> <C> <C> <C>
ASSETS
Real estate........................................... $ 21,727 $ -- $ 21,727
Cash and cash equivalents............................. 5,627 15,102 (iii) 20,729
Restricted cash....................................... 5,010 -- 5,010
Management contracts.................................. 50,320 77,410 (iv) 127,730
Accounts receivable................................... -- 23,773 (iii) 23,773
Deferred financing costs.............................. 3,217 -- 3,217
Goodwill.............................................. 44,252 -- 44,252
Other assets.......................................... 21,020 8,954 (iii) 29,974
-------- -------- --------
$151,173 $125,239 $276,412
======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Secured notes payable................................. $ 72,037 $ -- $ 72,037
Secured short-term financing.......................... -- 50,000 (iv) 50,000
Accounts payable, accrued and other liabilities....... 41,761 44,931 (iii) 86,692
Security deposits and deferred income................. 316 2,898 (iii) 3,214
Deferred tax liability................................ -- 12,849 (iv) 12,849
-------- -------- --------
114,114 110,678 224,792
Common stock.......................................... 2,319 766 (v) 3,085
Preferred stock....................................... 39,172 14,561 (iv) 53,733
Retained earnings..................................... (4,174) -- (4,174)
Notes receivable on common stock purchases............ (258) (766)(v) (1,024)
-------- -------- --------
37,059 14,561 51,620
-------- -------- --------
$151,173 $125,239 $276,412
======== ======== ========
</TABLE>
- ---------------
(i) Represents the Unconsolidated Subsidiaries pro forma consolidated financial
position after giving effect to the Ambassador Merger. See "Pro Forma
Financial Information of AIMCO (Pre-Merger)."
(ii) Represents adjustments related to the Insignia Reorganization, whereby,
following the Merger, AIMCO will contribute to the combined Unconsolidated
Subsidiaries certain assets and liabilities of Insignia, primarily related
to the management operations owned by Insignia. The adjustments reflect the
transfer of assets valued at AIMCO's new basis resulting from the
allocation of the purchase price of Insignia. AIMCO will receive non-voting
preferred stock as consideration in exchange for the net assets
contributed. The net deferred tax liability is assumed by the
Unconsolidated Subsidiaries as it resulted from the assets and liabilities
transferred to the Unconsolidated Subsidiaries.
(iii)Represents certain assets and liabilities of Insignia, primarily related to
the management operations of Insignia, contributed by AIMCO to the
Unconsolidated Subsidiaries, valued at AIMCO's new basis resulting from the
allocation of the purchase price of Insignia.
(iv) Represents the transfer of management contracts, and the establishment of
the related estimated net deferred Federal and state tax liabilities at a
combined rate of 40% for the estimated difference between the book and tax
basis of the net assets of the Unconsolidated Subsidiaries. The primary
component of the deferred tax liability is the difference between the new
basis of the property management contracts, as a result of the allocation
of the purchase price of Insignia, and the historical tax basis.
(v) Represents the issuance of common stock to the common stockholders of the
Unconsolidated Subsidiaries in exchange for notes receivable, in order for
the common stockholders to maintain their respective ownership interest in
the Unconsolidated Subsidiaries.
25
<PAGE> 26
APARTMENT INVESTMENT AND MANAGEMENT COMPANY
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS (MERGER)
FOR THE YEAR ENDED DECEMBER 31, 1997
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
INSIGNIA INSIGNIA
PRE-MERGER INSIGNIA AS MERGER REORGANIZATION AIMCO
PRO FORMA(A) ADJUSTED(B) ADJUSTMENTS(C) ADJUSTMENTS(D) PRO FORMA
------------ ----------- -------------- ----------------- ---------
<S> <C> <C> <C> <C> <C>
Rental and other property
revenues........................ $ 395,290 $ 6,912 $ -- $ -- $ 402,202
Property operating expenses....... (165,859) (3,307) -- -- (169,166)
Owned property management
expense......................... (10,412) -- -- -- (10,412)
Depreciation...................... (84,959) (966) (1,321)(E) -- (87,246)
--------- -------- -------- -------- ---------
Income from property operations... 134,060 2,639 (1,321) -- 135,378
--------- -------- -------- -------- ---------
Management fees and other
income.......................... 21,750 94,330 -- (74,404)(K) 41,676
Management and other expenses..... (15,304) (57,615) -- 49,236(K) (23,683)
Corporate overhead allocation..... (588) -- -- -- (588)
Amortization...................... (7,201) (16,768) (25,616)(F) 28,922(L) (20,663)
--------- -------- -------- -------- ---------
Income from service company
business........................ (1,343) 19,947 (25,616) 3,754 (3,258)
Minority interest in service
company business................ (10) -- -- -- (10)
--------- -------- -------- -------- ---------
AIMCO's share of income from
service company business........ (1,353) 19,947 (25,616) 3,754 (3,268)
--------- -------- -------- -------- ---------
General and administrative
expenses........................ (6,421) (21,199) -- 6,392(K) (21,228)
Interest expense.................. (85,681) (9,035) (15,899)(G) 3,725(K) (106,890)(O)
Interest income................... 10,576 10,967 -- -- 21,543
Minority interest in other
partnerships.................... 1,657 (12,871) 1,170(H) -- (10,044)(P)
Equity in income (losses) of
unconsolidated partnerships..... (10,057) 12,515 (25,357)(I) -- (22,899)
Equity in earnings of
Unconsolidated Subsidiaries..... 10,426 -- -- (8,082)(M) 2,344(R)
--------- -------- -------- -------- ---------
Income (loss) from operations..... 53,207 2,963 (67,023) 5,789 (5,064)
Income tax provision.............. -- 1,701 (1,701)(J) -- --
Gain on sale of property.......... -- 80 (80) -- --
--------- -------- -------- -------- ---------
Income (loss) before minority
interest in AIMCO Operating
Partnership..................... 53,207 4,744 (68,804) 5,789 (5,064)
Minority interest in AIMCO
Operating Partnership........... (2,238)(N) -- 6,267(N) -- 4,029(O)
--------- -------- -------- -------- ---------
Net income (loss)................. 50,969 4,744 (62,537) 5,789 (1,035)(O)
Income (loss) allocable to
preferred stockholders.......... 34,174 -- -- -- 34,174(Q)
--------- -------- -------- -------- ---------
Income (loss) allocable to common
stockholders.................... $ 16,795 $ 4,744 $(62,537) $ 5,789 $ (35,209)(O)
========= ======== ======== ======== =========
Basic earnings (loss) per common
share........................... $ 0.36 $ (0.65)(O)
========= =========
Diluted earnings per common
share........................... $ 0.36 $ (0.65)(O)
========= =========
Weighted average shares
outstanding..................... 46,685 54,377
========= =========
Weighted average shares and
equivalents outstanding......... 47,066 55,221
========= =========
</TABLE>
- ---------------
(A) Represents AIMCO's pro forma consolidated statement of operations for the
year ended December 31, 1997, which gives effect to (i) the 1997
Acquisitions; (ii) the 1997 Stock Offerings; (iii) the 1997 Dispositions;
(iv) the 1998 Stock Offerings; (v) the 1998 Acquisitions; (vi) the 1998
Disposition; (vii) the NHP Real Estate Companies Purchase; (viii) the NHP
Merger; (ix) the NHP Reorganization; and (x) the Ambassador Merger, as if
these transactions had occurred on January 1, 1997. See "Pro Forma
Financial Information of AIMCO (Pre-Merger)."
26
<PAGE> 27
(B) Represents adjustments to reflect the Merger, the IPT-AMIT Merger and the
Distribution as if these transactions had occurred on January 1, 1997.
These adjustments are detailed, as follows:
<TABLE>
<CAPTION>
INSIGNIA IPT-AMIT HOLDINGS INSIGNIA
HISTORICAL(i) MERGER(ii) DISTRIBUTION(iii) AS ADJUSTED
------------- ---------- ----------------- -----------
<S> <C> <C> <C> <C>
Rental and other property revenues......................... $ 6,646 $ 266 $ -- $ 6,912
Property operating expenses................................ (3,251) (56) -- (3,307)
Owned property management expense.......................... -- -- -- --
Depreciation............................................... (966) -- -- (966)
--------- ------- --------- --------
Income from property operations............................ 2,429 210 -- 2,639
--------- ------- --------- --------
Management fees and other income........................... 389,626 -- (295,296) 94,330
Management and other expenses.............................. (315,653) -- 258,038 (57,615)
Corporate overhead allocation.............................. -- -- -- --
Amortization............................................... (31,709) (303) 15,244 (16,768)
--------- ------- --------- --------
Income from service company business....................... 42,264 (303) (22,014) 19,947
Minority interest in service company business.............. -- -- -- --
--------- ------- --------- --------
AIMCO's share of income from service company business...... 42,264 (303) (22,014) 19,947
--------- ------- --------- --------
General and administrative expenses........................ (20,435) (1,351) 587 (21,199)
Interest expense........................................... (9,353) -- 318 (9,035)
Interest income............................................ 4,571 6,853 (457) 10,967
Minority interest in other partnerships.................... (12,448) (382) (41) (12,871)
Equity in income (losses) of unconsolidated partnership.... 10,027 2,639 (151) 12,515
Equity in earnings of Unconsolidated
Subsidiary............................................... -- -- -- --
--------- ------- --------- --------
Income (loss) from operations.............................. 17,055 7,666 (21,758) 2,963
Income tax provision....................................... (6,822) (180) 8,703 1,701
Gain on sale of property................................... -- 80 -- 80
--------- ------- --------- --------
Income (loss) before minority interest in Operating
Partnership.............................................. 10,233 7,566 (13,055) 4,744
Minority interest in Operating Partnership................. -- -- -- --
--------- ------- --------- --------
Net income (loss).......................................... 10,233 7,566 (13,055) 4,744
Income (loss) allocable to preferred stockholders.......... -- -- -- --
--------- ------- --------- --------
Income (loss)allocable to common stockholders.............. $ 10,233 $ 7,566 $ (13,055) $ 4,744
========= ======= ========= ========
</TABLE>
- ---------------
(i) Represents the audited consolidated results of operations of Insignia for
the year ended December 31, 1997, as reported in Insignia's Annual Report
on Form 10-K. Certain reclassifications have been made to Insignia's
historical statement of operations to conform to AIMCO's statement of
operations presentation.
(ii) Represents the historical statement of operations of AMIT, as well as pro
forma adjustments related to the IPT-AMIT Merger. The IPT-AMIT Merger is
expected to close prior to the Merger.
(iii)Represents the distribution of two shares of Holdings Common Stock for each
three shares of Insignia Common Stock to holders of Insignia Common Stock.
(C) Represents the following adjustments occurring as a result of the Merger:
(i) the incremental depreciation of the purchase price adjustment related
to consolidated real estate and investments in real estate partnerships;
(ii) the amortization of goodwill and property management contracts
resulting from the Merger; (iii) the increase in interest expense resulting
from the net increase in debt; (iv) the elimination of the income tax
provision; and (v) the elimination of the minority interest associated with
IPT.
(D) Represents adjustments related to the Insignia Reorganization, whereby,
following the Merger, AIMCO will contribute to the Unconsolidated
Subsidiaries certain assets and liabilities of Insignia, primarily
management contracts and related working capital assets and liabilities
related to Insignia's third party management operations. The adjustments
reflect the related revenues and expenses primarily related to the
management operations owned by Insignia, with additional
27
<PAGE> 28
amortization recorded related to AIMCO's new basis resulting from the
allocation of the purchase price of Insignia.
(E) Represents incremental depreciation related to the consolidated real estate
assets purchased in connection with the Merger, based on AIMCO's new basis
resulting from the allocation of the purchase price of Insignia. Buildings
and improvements are depreciated on the straight-line method over a period
of 20 years, and furniture and fixtures are depreciated on the
straight-line method over a period of 5 years.
(F) Represents incremental depreciation and amortization of the tangible and
intangible assets related to the property management business of Insignia,
based on AIMCO's new basis resulting from the allocation of the purchase
price of Insignia, including amortization of property management contracts
of $37,350, amortization of goodwill of $1,612 and depreciation of
furniture, fixtures, and equipment of $3,119, less Insignia's historical
depreciation and amortization of $16,465. Property management contracts
are amortized using the straight-line method over a period of three years.
Furniture, fixtures, and equipment are depreciated using the straight-line
method over a period of three years. Goodwill is amortized using the
straight-line method over 20 years. The allocation of the purchase price
of Insignia is preliminary; therefore the amount and life of goodwill are
subject to change as additional information is obtained and the purchase
price allocation is finalized.
(G) Represents the increase in interest expense of $3,725 related to borrowings
to pay the Special Dividend of $50 million to holders of the AIMCO Class E
Preferred Stock; $11,324 related to borrowings of $152 million to
consummate the IPT Merger; and (iii) $850 related to borrowings of
$11,434 for the additional liabilities of Insignia assumed by AIMCO. The
interest rate used in the calculation of interest expense was LIBOR plus
1.75%
(H) Represents elimination of minority interest in IPT resulting from the IPT
Merger.
(I) Represents amortization related to the increased basis in investment in
real estate partnerships, as a result of the allocation of the purchase
price of Insignia, based on an estimated average life of 20 years, and
based on AIMCO's new basis resulting from the allocation of the purchase
price of Insignia.
(J) Represents the reversal of Insignia's income tax provision.
(K) Represents the historical income and expenses associated with certain
assets and liabilities of Insignia that will be contributed to the
Unconsolidated Subsidiaries, primarily related to the management operations
of Insignia.
(L) Represents the depreciation and amortization of certain management
contracts and furniture, fixtures, and equipment that will be contributed
to the Unconsolidated Subsidiaries, primarily related to the management
operations of Insignia, based on AIMCO's new basis resulting from the
allocation of the purchase price of Insignia.
(M) Represents AIMCO's equity in earnings of the Unconsolidated Subsidiaries.
(N) Represents adjustments to Minority Interest in Operating Partnership
assuming the Merger had occurred as of January 1, 1997. On a pro forma
basis, without giving effect to the Merger, as of December 31, 1997, the
minority interest percentage is approximately 11.8%. On a pro forma basis,
giving effect to the Insignia Merger, as of December 31, 1997, the minority
interest percentage is approximately 10.3%.
28
<PAGE> 29
(O) The following table presents the net impact to pro forma net loss
applicable to holders of AIMCO Common Stock and net loss per share of AIMCO
Common Stock assuming the interest rate per annum increases by 0.25%:
<TABLE>
<S> <C>
Increase in interest expense.............................. $ 1,232
========
Loss before minority interest in Operating Partnership.... $ (6,296)
Minority interest in Operating Partnership................ 4,155
--------
Net loss.................................................. $ (2,141)
========
Net loss attributable to common stockholders.............. $(36,315)
========
Basic loss per share...................................... $ (0.67)
========
Diluted loss per share.................................... $ (0.67)
========
</TABLE>
(P) This amount includes distributions of $10,003 related to be Convertible
Debentures. The holders of the Convertible Debentures have the right to
convert each debenture into 1.8868 shares of Insignia Common Stock. In the
event that all of the holders of the $149,500 principal amount of
Convertible Debentures converted to Insignia Common Stock prior to the
Merger, the total number of shares of AIMCO Class E Preferred Stock and
AIMCO Class F Preferred Stock issued in connection with the Merger would be
approximately equal to $452,500 ($303,000 for outstanding Insignia Common
Stock and $149,500 for the conversion of the debentures) divided by the
AIMCO Index Price. If the conversion were to occur, the net loss
attributable to common stockholders would decrease to $(26,233) and the net
loss per share would decrease to $(0.45).
(Q) Represents the net income attributable to holders of the AIMCO Class B
Preferred Stock, the AIMCO Class C Preferred Stock, the AIMCO Class D
Preferred Stock the AIMCO Class G Preferred Stock and the AIMCO Class H
Preferred Stock as if these stock offerings had occurred as of January
1,1997. In the event the AIMCO stockholders do not approve the Merger,
AIMCO will issue a number of shares of AIMCO Class F Preferred Stock
approximately equal to $100 million divided by the AIMCO Index Price. The
holders of the AIMCO Class F Preferred Stock will be entitled to receive
the greater of (i) the same dividends as holders of AIMCO Common Stock and
(ii) preferred cash dividends of 10% of the liquidation value of the AIMCO
Class F Preferred Stock, with the preferred dividend rate escalating by 1%
each year until a 15% dividend rate is achieved. If the AIMCO Class F
Preferred Stock is issued, dividends attributable to the holders of the
AIMCO Class F Preferred Stock will be $10,000 for 1997, the net loss
attributable to common stockholders will increase to $(44,183) and the net
loss per common share will increase to $(0.85).
(R) Represents AIMCO's equity in losses in the Unconsolidated Subsidiaries of
$(2,406), offset by the elimination of intercompany interest expense of
$4,750. The combined Pro Forma Statement of Operations of the
Unconsolidated Subsidiaries for the year ended December 31, 1997 is
presented below, which represents the effects of the NHP Merger, the NHP
Reorganization, the Ambassador Merger, the Merger, the IPT Merger and the
Insignia Reorganization as if these transactions had occurred as of January
1, 1997.
29
<PAGE> 30
UNCONSOLIDATED SUBSIDIARIES
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS (MERGER)
FOR THE YEAR ENDED DECEMBER 31, 1997
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRE-MERGER INSIGNIA INSIGNIA
PRO FORMA(i) REORGANIZATION(ii) PRO FORMA
------------ ------------------ ---------
<S> <C> <C> <C>
Rental and other property revenues................ $ 12,565 $ -- $ 12,565
Property operating expenses....................... (6,886) -- (6,886)
Owned property management expense................. (625) -- (625)
Depreciation...................................... (1,805) -- (1,805)
-------- -------- --------
Income from property operations................... 3,249 -- 3,249
-------- -------- --------
Management fees and other income.................. 65,768 74.404(iii) 140,172
Management and other expenses..................... (32,136) (49,236)(iii) (81,372)
Amortization...................................... (7,743) (28,922)(iv) (36,665)
-------- -------- --------
Income from service company business.............. 25,889 (3,754) 22,135
-------- -------- --------
General and administrative expenses............... (6,573) (6,392)(iii) (12,965)
Interest expense.................................. (11,907) (3,725)(iii) (15,632)
Interest income................................... 853 -- 853
Minority interest in other partnerships........... (621) -- (621)
-------- -------- --------
Income (loss) from operations..................... 10,890 (13,871) (2,981)
Income tax provision.............................. (4,915) 5,364(v) 449
-------- -------- --------
Net income (loss)................................. $ 5,975 $ (8,507) $ (2,532)
======== ======== ========
Income (loss) allocable to preferred
stockholders.................................... $ 5,676 $ (8,082) $ (2,406)
======== ======== ========
Income (loss) allocable to common stockholders.... $ 299 $ (425) $ (126)
======== ======== ========
</TABLE>
- ---------------
(i) Represents the Unconsolidated Subsidiaries pro forma consolidated results
of operations after giving effect to the Ambassador Merger. See "Pro Forma
Financial Information of AIMCO (Pre-Merger)."
(ii) Represents adjustments related to the Insignia Reorganization, whereby,
following the Merger, AIMCO will contribute to the Unconsolidated
Subsidiaries certain assets and liabilities of Insignia, primarily related
to the management operations owned by Insignia. The adjustments reflect the
related revenues and expenses primarily related to the management
operations owned by Insignia, with additional amortization recorded related
to AIMCO's new basis resulting from the allocation of the purchase price of
Insignia.
(iii)Represents the historical income and expenses associated with certain
assets and liabilities of Insignia that were contributed to the
Unconsolidated Subsidiaries, primarily related to the management operations
of Insignia.
(iv) Represents the depreciation and amortization of certain management
contracts and furniture, fixtures, and equipment that will be contributed
to the Unconsolidated Subsidiaries, primarily related to the management
operations of Insignia, based on AIMCO's new basis resulting from the
allocation of the purchase price of Insignia.
(v) Represents the estimated Federal and state tax provisions, which are
calculated on the pro forma operating results of the Unconsolidated
Subsidiaries, excluding amortization of goodwill, which is not deductible
for tax purposes.
30
<PAGE> 31
APARTMENT INVESTMENT AND MANAGEMENT COMPANY
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (MERGER)
FOR THE SIX MONTHS ENDED JUNE 30, 1998
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
INSIGNIA INSIGNIA
PRE-MERGER INSIGNIA MERGER REORGANIZATION AIMCO
PRO FORMA(A) AS ADJUSTED(B) ADJUSTMENTS(C) ADJUSTMENTS(D) PRO FORMA
------------ -------------- -------------- ----------------- ---------
<S> <C> <C> <C> <C> <C>
Rental and other property revenues..... $202,943 $ 3,988 $ -- $ -- $ 206,931
Property operating expenses............ (77,089) (1,736) -- -- (78,825)
Owned property management expense...... (4,880) -- -- -- (4,880)
Depreciation........................... (44,468) (600) (660)(E) -- (45,728)
-------- -------- -------- -------- ---------
Income from property operations........ 76,506 1,652 (660) -- 77,498
-------- -------- -------- -------- ---------
Management fees and other income....... 9,562 47,635 -- (37,672)(L) 19,525
Management and other expenses.......... (5,470) (27,585) -- 23,395 (L) (9,660)
Corporate overhead allocation.......... (196) -- -- -- (196)
Amortization........................... (3) (8,928) (12,164)(F) 14,461 (M) (6,634)
-------- -------- -------- -------- ---------
Income from service company business... 3,893 11,122 (12,164) 184 3,035
Minority interest in service company
business............................. (1) -- -- -- (1)
-------- -------- -------- -------- ---------
Company's share of income from service
company business..................... 3,892 11,122 (12,164) 184 3,034
-------- -------- -------- -------- ---------
General and administrative expenses.... (4,103) (10,272) 4,937 (G) 4,760 (L) (4,678)
Interest expense....................... (41,730) (9,614) (7,885)(H) 1,847 (L) (57,382)(P)
Interest income........................ 11,350 4,431 -- -- 15,781
Minority interest in other
partnerships......................... (516) (8,643) 3,056 (I) -- (6,103)
Equity in losses of unconsolidated
partnerships......................... (4,752) 14,482 (9,295)(J) -- 435 (Q)
Equity in earnings of unconsolidated
subsidiaries......................... 5,609 -- -- (3,613)(N) 1,996 (S)
Amortization of Goodwill............... (3,394) -- -- -- (3,394)
-------- -------- -------- -------- ---------
Income (loss) from operations.......... 42,862 3,158 (22,011) 3,178 27,187
Income tax provision................... -- (231) 231 (K) -- --
Gain on dispositions of property....... -- -- -- -- --
-------- -------- -------- -------- ---------
Income (loss) before extraordinary item
and minority interest in Operating
Partnership.......................... 42,862 2,927 (21,780) 3,178 27,187
Extraordinary item-early extinguishment
of debt.............................. -- -- -- -- --
-------- -------- -------- -------- ---------
Income (loss) before minority interest
in Operating Partnership............. 42,862 2,927 (21,780) 3,178 27,187
Minority interest in Operating
Partnership.......................... (2,902) -- 1,902 (O) -- (1,000)(O)
-------- -------- -------- -------- ---------
Net income (loss)...................... 39,960 2,927 (19,878) 3,178 26,187 (P)
Income attributable to preferred
stockholders......................... 17,004 -- -- -- 17,004 (R)
-------- -------- -------- -------- ---------
Income (loss) attributable to common
stockholders......................... $ 22,956 $ 2,927 $(19,878) $ 3,178 $ 9,183 (P)
======== ======== ======== ======== =========
Basic earnings per share............... $ 0.48 $ 0.17 (P)
======== =========
Diluted earnings per share............. $ 0.48 $ 0.16 (P)
======== =========
Weighted average shares outstanding.... 47,831 55,523
======== =========
Weighted average shares and equivalents
outstanding ........................... 47,929 56,188
======== =========
</TABLE>
- ---------------
(A) Represents AIMCO's pro forma consolidated statement of operations for the
six months ended June 30, 1998, which gives effect to (i) the 1998 Stock
Offerings; (ii) the 1998 Acquisitions; (iii) the 1998 Disposition; and (iv)
the Ambassador Merger, as if these transactions had occurred on January 1,
1998. See "Pro Forma Financial Information of AIMCO (Pre-Merger)."
31
<PAGE> 32
(B) Represents adjustments to reflect the Merger, the IPT-AMIT Merger, and
the Distribution as if these transactions had occurred on January 1,
1997. These adjustments are detailed, as follows:
<TABLE>
<CAPTION>
Insignia IPT-AMIT Holdings Insignia
Historical(i) Merger(ii) Distribution(iii) as Adjusted
------------- ---------- ----------------- -----------
<S> <C> <C> <C> <C>
Rental and other property revenues............ $ 3,627 $ 361 $ -- $ 3,988
Property operating expenses................... (1,736) -- -- (1,736)
Owned property management expense............. -- -- -- --
Depreciation.................................. (600) -- -- (600)
--------- ----- --------- --------
Income from property operations............... 1,291 361 -- 1,652
--------- ----- --------- --------
Management fees and other income.............. 274,749 (227,114) 47,635
Management and other expenses................. (228,454) 200,869 (27,585)
Corporate overhead allocation................. -- -- --
Amortization.................................. (20,021) (33) 11,126 (8,928)
--------- ----- --------- --------
Income from service company business.......... 26,274 (33) (15,119) 11,122
Minority interest in service company
business.................................... -- -- --
--------- ----- --------- --------
Company's share of income from service company
business.................................... 26,274 (33) (15,119) 11,122
--------- ----- --------- --------
General and administrative expenses........... (13,116) (302) 3,146 (10,272)
Interest expense.............................. (10,320) -- 706 (9,614)
Interest income............................... 2,878 2,618 (1,065) 4,431
Minority interest in other partnerships....... (8,497) -- (146) (8,643)
Equity in losses of unconsolidated
partnerships................................ 13,624 858 14,482
Equity in earnings of unconsolidated
subsidiaries................................ -- -- -- --
Amortization of Goodwill...................... -- -- -- --
--------- ----- --------- --------
Income (loss) from operations................. 12,134 2,644 (11,620) 3,158
Income tax provision.......................... (5,460) -- 5,229 (231)
--------- ----- --------- --------
Income (loss) before extraordinary item and
minority interest in Operating Partnership.. 6,674 2,644 (6,391) 2,927
Extraordinary item - early extinguishment
of debt..................................... -- -- -- --
--------- ----- --------- --------
Income (loss) before minority interest in
Operating Partnership....................... 6,674 2,644 (6,391) 2,927
Minority interest in Operating Partnership.... -- -- -- --
--------- ----- --------- --------
Net income (loss)............................. 6,674 2,644 (6,391) 2,927
Income attributable to preferred
stockholders................................ -- -- -- --
--------- ----- --------- --------
Income (loss) attributable to common
stockholders.................................. $ 6,674 2,644 $ (6,391) $ 2,927
========= ===== ========= ========
</TABLE>
- ---------------
(i) Represents the unaudited consolidated results of operations of Insignia for
the six months ended June 30, 1998, as reported in Insignia's Quarterly
Report on Form 10-Q. Certain reclassifications have been made to Insignia's
historical statement of operations to conform to AIMCO's statement of
operations presentation.
(ii) Represents the historical statement of operations of AMIT, as well as pro
forma adjustments related to the IPT-AMIT Merger. The IPT-AMIT Merger is
expected to close prior to the Merger.
(iii)Represents the distribution of two shares of Holdings Common Stock for each
three shares of Insignia Common Stock to holders of Insignia Common Stock.
(C) Represents the following adjustments occurring as a result of the Merger:
(i) the incremental depreciation of the purchase price adjustment related
to consolidated real estate and investments in real estate partnerships;
(ii) the amortization of goodwill and property management contracts
resulting from the Merger; (iii) the increase in interest expense resulting
from the net increase in debt; (iv) the
32
<PAGE> 33
elimination of the income tax provision; and (v) the elimination of the
minority interest associated with IPT.
(D) Represents adjustments related to the Insignia Reorganization, whereby,
following the Merger, AIMCO will contribute to the combined Unconsolidated
Subsidiaries certain assets and liabilities of Insignia, primarily
management contracts and related working capital assets and liabilities
related to Insignia's third party management operations. The adjustments
reflect the related revenues and expenses primarily related to the
management operations owned by Insignia, with additional amortization
recorded related to AIMCO's new basis resulting from the allocation of the
purchase price of Insignia.
(E) Represents incremental depreciation related to the consolidated real estate
assets purchased in connection with the Merger, based on AIMCO's new basis
resulting from the allocation of the purchase price of Insignia. Buildings
and improvements are depreciated on the straight-line method over a period
of 20 years, and furniture and fixtures are depreciated on the
straight-line method over a period of 5 years.
(F) Represents incremental depreciation and amortization of the tangible and
intangible assets related to the property management business of Insignia,
based on AIMCO's new basis resulting from the allocation of the purchase
price of Insignia, including amortization of property management contracts
of $18,674, amortization of goodwill of $826 and depreciation of furniture,
fixtures, and equipment of $1,559, less Insignia's historical depreciation
and amortization of $8,895. Property management contracts are amortized
using the straight-line method over a period of three years. Furniture,
fixtures, and equipment are depreciated using the straight-line method over
a period of three years. Goodwill is amortized using the straight-line
method over 20 years. The allocation of the purchase price of Insignia is
preliminary; therefore the amount and life of goodwill are subject to
change as additional information is obtained and the purchase price
allocation is finalized.
(G) Represents the elimination of merger related expenses recorded by Insignia
during the six months ended June 30, 1998. In connection with the
Merger, certain Insignia executives will receive one-time lump-sum payments
in connection with the termination of their employment and option
agreements. The total of these lump sum payments is estimated to be
approximately $50,000.
(H) Represents the increase in interest expense of $1,847 related to borrowings
to pay the Special Dividend to holders of the AIMCO Class E Preferred
Stock; $5,615 related to borrowings of $152 million to consummate the IPT
Merger; and (iii) $423 related to borrowings of $11,434 for the additional
liabilities of Insignia assumed by AIMCO. The interest rate used in the
calculation of interest expense was LIBOR plus 1.75%.
(I) Represents elimination of minority interest in IPT resulting from the IPT
Merger.
(J) Represents amortization related to the increased basis in investment in
real estate partnerships, as a result of the allocation of the purchase
price of Insignia, based on an estimated average life of 20 years, and
based on AIMCO's new basis resulting from the allocation of the purchase
price of Insignia.
(K) Represents the reversal of Insignia's income tax provision.
(L) Represents the historical income and expenses associated with certain
assets and liabilities of Insignia that will be contributed to the
Unconsolidated Subsidiaries, primarily related to the management operations
of Insignia.
(M) Represents the depreciation and amortization of certain management
contracts and furniture, fixtures, and equipment that will be contributed
to the Unconsolidated Subsidiaries, primarily related to the management
operations of Insignia, based on AIMCO's new basis resulting from the
allocation of the purchase price of Insignia.
(N) Represents AIMCO's equity in earnings of the Unconsolidated Subsidiaries.
(O) Represents adjustments to Minority Interest in AIMCO Operating Partnership
assuming the Merger had occurred as of January 1, 1997. On a pro forma
basis, without giving effect to the Merger, as of June 30, 1998, the
minority interest percentage is approximately 11.2%. On a pro forma basis,
giving effect to the Merger, as of June 30, 1998, the minority interest
percentage is approximately 9.8%.
33
<PAGE> 34
(P) The following table presents the net impact to pro forma net income
applicable to holders of AIMCO Common Stock and net income per share of
AIMCO Common Stock assuming the interest rate per annum increases by 0.25%:
<TABLE>
<S> <C>
Increase in interest........................................ $ 611
=======
Income before minority interest in AIMCO Operating
Partnership............................................... $26,576
-------
Minority interest in AIMCO Operating Partnership............ (940)
=======
Net income.................................................. $25,636
=======
Net income attributable to common stockholders.............. $ 8,632
=======
Basic income per share...................................... $ 0.16
=======
Diluted income per share.................................... $ 0.15
=======
</TABLE>
(Q) This amount includes distributions of $5,012 related to the Convertible
Debentures. The holders of the Convertible Debentures have the right to
convert each debenture into 1.8868 shares of Insignia Common Stock. In the
event that all of the holders of $149,500 principal amount of Convertible
Debentures converted to Insignia Common Stock prior to the Merger the total
number of shares of AIMCO Class E Preferred Stock and AIMCO Class F
Preferred Stock issued in the Merger would be approximately equal to
$452,500 ($303,000 for outstanding Insignia Common Stock and $149,500 for
the conversion of the debentures) divided by the AIMCO Index Price. If
this conversion were to occur, the net income attributable to common
stockholders would increase to $13,703 and the net income per common share
would increase to $0.23.
(R) Represents the net income attributable to holders of the AIMCO Class B
Preferred Stock, the AIMCO Class C Preferred Stock, the AIMCO Class D
Preferred Stock the AIMCO Class G Preferred Stock and the AIMCO Class H
Preferred Stock as if these stock offerings had occurred as of January 1,
1997. In the event the AIMCO stockholders do not approve the Merger,
AIMCO will issue a number of shares of AIMCO Class F Preferred Stock
approximately equal to $100 million divided by the AIMCO Index Price. The
holders of the AIMCO Class F Preferred Stock will be entitled to receive
the greater of (i) the same dividends as holders of AIMCO Common Stock and
(ii) preferred cash dividends of 10% of the liquidation value of the AIMCO
Class F Preferred Stock, with the preferred dividend rate escalating by 1%
each year until a 15% dividend rate is achieved. If the AIMCO Class F
Preferred Stock is issued, the dividends attributable to the holders of
the AIMCO Class F Preferred Stock will be $5,500 for the three months
ended March 31, 1998, the net income attributable to common stockholders
will decrease to $4,223 and the net income per common share will decrease
to $0.08.
(S) Represents AIMCO's equity in losses in the Unconsolidated Subsidiaries of
$3,613. The combined Pro Forma Statement of Operations of the
Unconsolidated Subsidiaries for the six months ended June 30, 1998 is
presented below, which represents the effects of the Ambassador Merger, the
Insignia Merger, the IPT Merger and the Insignia Reorganization as if these
transactions had occurred as of January 1, 1997.
34
<PAGE> 35
UNCONSOLIDATED SUBSIDIARIES
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS (MERGER)
FOR THE SIX MONTHS ENDED JUNE 30, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
PRE-MERGER INSIGNIA INSIGNIA
PRO FORMA(i) REORGANIZATION(ii) PRO FORMA
------------ ------------------ ---------
<S> <C> <C> <C>
Rental and other property revenues............... $ 6,550 $ -- $ 6,550
Property operating expense....................... (3,390) -- (3,390)
Owned property management expense................ (230) -- (230)
Depreciation expense............................. (650) -- (650)
-------- ------- --------
Income from property operations.................. 2,280 -- 2,280
-------- ------- --------
Management fees and other income................. 37,585 37,672 (iii) 75,257
Management and other expenses.................... (23,673) (23,395)(iii) (47,068)
Amortization..................................... (1,390) (14,461)(iv) (15,851)
-------- ------- --------
Income from service company...................... 12,522 (184) 12,338
General and administrative expense -- (4,760) (4,760)
Interest expense................................. (3,878) (1,847)(iii) (5,725)
Interest income.................................. 425 -- 425
Minority interest in other partnerships.......... (250) -- (250)
-------- ------- --------
Income (loss) from operations.................... 11,099 (6,791) 4,308
Income tax provision............................. (5,195) 2,988 (2,207)
-------- ------- --------
Net income (loss)................................ $ 5,904 $(3,803) $ 2,101
======== ======= ========
Income (loss) attributable to preferred
stockholders................................... $ 5,609 $(3,613) $ 1,996
======== ======= ========
Income (loss) attributable to common
stockholders................................... $ 295 $ (190) $ 105
======== ======= ========
</TABLE>
- ---------------
(i) Represents the Unconsolidated Subsidiaries pro forma consolidated results
of operations after giving effect to the Ambassador Merger. See "Pro Forma
Financial Information of AIMCO (Pre-Merger)."
(ii) Represents adjustments related to the Insignia Reorganization, whereby,
following the Merger, AIMCO will contribute to the combined Unconsolidated
Subsidiaries certain assets and liabilities of Insignia, primarily related
to the management operations owned by Insignia. The adjustments reflect the
related revenues and expenses primarily related to the management
operations owned by Insignia, with additional amortization recorded related
to AIMCO's new basis resulting from the allocation of the purchase price of
Insignia.
(iii)Represents the historical income and expenses associated with certain
assets and liabilities of Insignia that were contributed to the
Unconsolidated Subsidiaries, primarily related to the management operations
of Insignia.
(iv) Represents the depreciation and amortization of certain management
contracts and furniture, fixtures, and equipment that will be contributed
to the Unconsolidated Subsidiaries, primarily related to the management
operations of Insignia, based on AIMCO's new basis resulting from the
allocation of the purchase price of Insignia.
(v) Represents the estimated Federal and state tax provisions, which are
calculated on the pro forma operating results of the Unconsolidated
Subsidiaries, excluding amortization of goodwill, which is not deductible
for tax purposes.
35
