<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
__________
FORM 8-K/A
AMENDMENT NO. 1
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported) DECEMBER 23, 1997
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>
The Form 8-K filed on January 9, 1998 is hereby amended to read as follows:
Item 5. OTHER EVENTS
On December 23, 1997, Apartment Investment and Management Company, a
Maryland corporation ("AIMCO"), entered into an Agreement and Plan of Merger
(the "Ambassador Merger Agreement") with Ambassador Apartments, Inc., a
Maryland corporation ("Ambassador") that has elected to be taxed as a real
estate investment trust ("REIT"), pursuant to which Ambassador will be merged
with and into AIMCO with AIMCO being the surviving corporation (the
"Ambassador Merger"). The Ambassador Merger Agreement also provides that,
unless otherwise agreed by the parties, Ambassador Apartments, L.P., the
operating partnership of Ambassador(the "Ambassador Operating Partnership"),
will be merged with and into AIMCO Properties, L.P., the operating
partnership of AIMCO (the "AIMCO Operating Partnership") and all outstanding
Ambassador Operating Partnership Units will be converted into AIMCO Operating
Partnership Units at the "Conversion Ratio". In the Ambassador Merger
Agreement, the common stock, par value $0.01 per share, of Ambassador ("the
Ambassador Common Stock") is valued at $21.00 par share. Holders of
Ambassador Common Stock will receive for each share an amount of Class A
Common Stock, par value $.01 per share, of AIMCO ("AIMCO Common Stock") equal
to the "Conversion Ratio." The "Conversion Ratio" means the quotient
determined by dividing $21.00 by the "AIMCO Index Price," which is the
aggregate of the average of the high and low sales prices for AIMCO Common
Stock on each of the twenty consecutive New York Stock Exchange ("NYSE")
trading days ending on the fifth NYSE trading day immediately preceding the
closing of the Ambassador Merger, divided by 20. If the AIMCO Index Price is
less than $36 (i.e., the Conversion Ratio is greater than 0.583), then AIMCO
may elect to fix the Conversion Ratio at 0.583 and pay to each holder of
Ambassador Common Stock cash sufficient to provide $21.00 in value for each
share of Ambassador Common Stock. Any outstanding options to purchase
Ambassador Common Stock may be 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. The Ambassador Merger
Agreement provides that Ambassador's outstanding preferred stock, par value
$0.01 per share ("Ambassador Preferred"), shall be redeemed, subject to the
right of holders of shares of Ambassador Preferred to convert such shares
into Ambassador Common Stock, immediately prior to the Ambassador Merger.
Ambassador has indicated that, as of December 20, 1997, 10,552,180 shares of
Ambassador Common Stock were issued and outstanding (excluding options), not
more than 2,319,000 shares of Ambassador Common Stock were reserved for
issuance under various stock incentive plans, and 1,351,351 shares of
Ambassador Preferred were issued and outstanding.
Consummation of the Ambassador Merger is subject to the affirmative vote
of the holders of at least two-thirds of the shares of Ambassador Common and
Preferred Stock, voting as a single class, the approval of all appropriate
governmental and regulatory authorities and other customary conditions. A
copy of the Ambassador Merger Agreement is included as an exhibit to this
report and incorporated herein by this reference.
Item 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS
(a) Financial Statements of Businesses Acquired
The required Financial Statements are included as Exhibits 99.3 and
99.4 to this Report, and incorporated herein by reference.
1
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(b) Pro Forma Financial Information
The required pro forma financial information is included as Exhibit
99.1 to this Report and incorporated herein by this reference.
(c) Exhibits
The following exhibits are filed with this report:
Exhibit
Number Description
- ------- -----------
2.1 Agreement and Plan of Merger, dated as of December 23, 1997, by and
between Apartment Investment and Management Company and Ambassador
Apartments, Inc.*
12.1 Calculation of Ratio of Earnings to Fixed Charges.
12.2 Calculation of Earnings to Combined Fixed Charges and Preferred
Stock Dividends.
23.1 Consent of Ernst & Young LLP.
99.1 Pro Forma Financial Information of Apartment Investment and Management
Company.
99.2 Press Release of Apartment Investment and Management Company and
Ambassador Apartments, Inc., dated as of December 23, 1997.*
99.3 Financial Statements, Schedule and Report of Independent Auditors for
Ambassador Apartments, Inc. as of December 31, 1996 and 1995 and for
the Years Ended December 31, 1996, 1995 and 1994.
99.4 Financial Statements for Ambassador Apartments, Inc. as of
September 30, 1997 and December 31, 1996 and for the Three and Nine
Months Ended September 30, 1997 and 1996 (unaudited).
- --------------
* Previously filed
2
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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: February 6, 1998 By: /s/ Troy D. Butts
------------------------------------
Troy D. Butts
Senior Vice President and Chief
Financial Officer
3
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EXHIBIT INDEX TO CURRENT REPORT ON FORM 8-K
Exhibit
Number Description
- ------- -----------
2.1 Agreement and Plan of Merger, dated as of December 23, 1997, by and
between Apartment Investment and Management Company and Ambassador
Apartments, Inc.*
12.1 Calculation of Ratio of Earnings to Fixed Charges.
12.2 Calculation of Earnings to Combined Fixed Charges and Preferred
Stock Dividends.
23.1 Consent of Ernst & Young LLP.
99.1 Pro Forma Financial Information of Apartment Investment and Management
Company.
99.2 Press Release of Apartment Investment and Management Company and
Ambassador Apartments, Inc., dated as of December 23, 1997.*
99.3 Financial Statements, Schedule and Report of Independent Auditors for
Ambassador Apartments, Inc. as of December 31, 1996 and 1995 and for
the Years Ended December 31, 1996, 1995 and 1994.
99.4 Financial Statements for Ambassador Apartments, Inc. as of
September 30, 1997 and December 31, 1996 and for the Three and Nine
Months Ended September 30, 1997 and 1996 (unaudited).
- --------------
* Previously filed
<PAGE>
EXHIBIT 12.1
CALCULATION OF RATIO OF EARNINGS TO FIXED CHARGES
(DOLLARS IN THOUSANDS)
APARTMENT INVESTMENT AND MANAGEMENT COMPANY
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
------------------------------------------------------------ ----------------------------
NINE MONTHS
ENDED YEAR ENDED DECEMBER JANUARY 10, 1994 NINE MONTHS
SEPTEMBER 30, 31, (INCEPTION) ENDED YEAR ENDED
-------------------- -------------------- THROUGH SEPTEMBER 30, DECEMBER 31,
1997 1996 1996 1995 DECEMBER 31, 1994 1997 1996
--------- --------- --------- --------- ----------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Income before gain on
disposition of property,
extraordinary item and
minority interests........ $ 20,649 $ 11,132 $ 15,740 $ 14,988 $ 7,702 $ 45,772 $ 39,401
Fixed charges:
Interest expense.......... 33,359 16,775 24,802 13,322 1,576 52,156 57,486
Capitalized interest...... 751 616 821 113 29 751 821
--------- --------- --------- --------- ------- ------------- -------------
Total fixed charges
(A)................... 34,110 17,391 25,623 13,435 1,605 52,907 58,307
--------- --------- --------- --------- ------- ------------- -------------
Earnings before fixed
charges (1)(B)............ $ 54,008 $ 27,907 $ 40,542 $ 28,310 $ 9,278 $ 97,928 $ 96,887
--------- --------- --------- --------- ------- ------------- -------------
--------- --------- --------- --------- ------- ------------- -------------
Ratio of earnings to fixed
charges (B divided by A)..... 1.6:1.0 1.6:1.0 1.6:1.0 2.1:1.0 5.8:1.0 1.9:1.0 1.7:1.0
--------- --------- --------- --------- ------- ------------- -------------
--------- --------- --------- --------- ------- ------------- -------------
</TABLE>
AIMCO PREDECESSORS
<TABLE>
<CAPTION>
HISTORICAL
-------------------------------------
YEAR ENDED
JANUARY 1, 1994 DECEMBER 31,
THROUGH --------------------
JULY 28, 1994 1993 1992
--------------- --------- ---------
<S> <C> <C> <C>
Income (loss) before extraordinary item and income taxes................. $ (1,463) $ 627 $ 54
Fixed charges:
Interest expense....................................................... 4,214 3,510 2,741
Capitalized interest................................................... 0 0 0
------ --------- ---------
Total fixed charges (A).............................................. 4,214 3,510 2,741
------ --------- ---------
Earnings before fixed charges (1)(B)..................................... $ 2,751 $ 4,137 $ 2,795
------ --------- ---------
------ --------- ---------
Ratio of earnings to fixed charges (B divided by A)........................ (2) 1.2:1.0 1.0:1.0
------ --------- ---------
------ --------- ---------
</TABLE>
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(1) Earnings before fixed charges excludes capitalized interest.
(2) 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>
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 PRO FORMA
------------------------------------------------------------ ----------------------------
NINE MONTHS
ENDED YEAR ENDED DECEMBER JANUARY 10, 1994 NINE MONTHS
SEPTEMBER 30, 31, (INCEPTION) ENDED YEAR ENDED
-------------------- -------------------- THROUGH SEPTEMBER 30, DECEMBER 31,
1997 1996 1996 1995 DECEMBER 31, 1994 1997 1996
--------- --------- --------- --------- ------------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Income before gain on
disposition of property,
extraordinary item and
minority interests........ $ 20,649 $ 11,132 $ 15,740 $ 14,988 $ 7,702 $ 45,772 $ 39,401
Fixed charges:
Interest expense.......... 33,359 16,775 24,802 13,322 1,576 52,156 57,486
Capitalized interest...... 751 616 821 113 29 751 821
Preferred stock
dividends............... 846 0 0 5,169 3,114 8,058 10,744
--------- --------- --------- --------- ------ ------------- -------------
Total fixed charges
(A)................... 34,956 17,391 25,623 18,604 4,719 60,965 69,051
--------- --------- --------- --------- ------ ------------- -------------
Earnings before fixed
charges (1)(B)............ $ 54,008 $ 27,907 $ 40,542 $ 28,310 $ 9,278 $ 97,928 $ 96,887
--------- --------- --------- --------- ------ ------------- -------------
--------- --------- --------- --------- ------ ------------- -------------
Ratio of earnings to combined
fixed charges and preferred
stock dividends (B divided by
A)........................... 1.5:1.0 1.6:1.0 1.6:1.0 1.5:1.0 2.0:1.0 1.6:1.0 1.4:1.0
--------- --------- --------- --------- ------ ------------- -------------
--------- --------- --------- --------- ------ ------------- -------------
</TABLE>
AIMCO PREDECESSORS
<TABLE>
<CAPTION>
HISTORICAL
-------------------------------------------
JANUARY 1, 1994 YEAR ENDED DECEMBER 31,
THROUGH --------------------------
JULY 28, 1994 1993 1992
--------------- ----------- -------------
<S> <C> <C> <C>
Income (loss) before extraordinary item and income taxes........... $ (1,463) $ 627 $ 54
Fixed charges:
Interest expense................................................. 4,214 3,510 2,741
Capitalized interest............................................. 0 0 0
Preferred stock dividends (2).................................... 0 0 0
------- ----------- -------------
Total fixed charges (A)........................................ 4,214 3,510 2,741
------- ----------- -------------
------- ----------- -------------
Earnings before fixed charges (1)(B)............................... $ 2,751 $ 4,137 $ 2,795
------- ----------- -------------
------- ----------- -------------
Ratio of earnings to combined fixed charges and preferred stock
dividends (B divided by A).......................................... (3) 1.2:1.0 1.0:1.0
------- ----------- -------------
------- ----------- -------------
</TABLE>
- ---------
(1) Earnings before fixed charges excludes capitalized interest and preferred
stock dividends.
(2) The AIMCO Predecessors did not have any shares of Preferred Stock
outstanding during the period from January 1, 1992 through July 28, 1994.
(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>
Exhibit 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the use in this Current Report on Form 8-K/A Amendment No. 1,
dated December 23, 1997, filed with the Securities and Exchange Commission by
Apartment Investment and Management Company ("AIMCO") of our report dated
January 27, 1997 (except for note 15, as to which the date is March 13, 1997
and note 2(J), as to which the date is March 31, 1997), with respect to the
Consolidated Financial Statement and Schedule of Ambassador Apartments, Inc.
We further consent to the incorporation by reference of such report in
AIMCO's Registration Statements on Form S-3 (No. 333-26415, No. 333-98338,
No. 333-828, No. 333-4542, No. 333-4546, No. 333-8997, No. 333-17431, No.
333-20755, No. 333-36531, and No. 333-36537), AIMCO's Registration Statements
on Form S-8 (No. 333-4550, No. 333-4548, No. 333-14481, No. 333-36803, and
No. 333-41719), and AIMCO's Registration Statement on Form S-4 (No.
333-39357), all filed with the Securities and Exchange Commission.
ERNST & YOUNG LLP
Chicago, Illinois
February 5, 1998
<PAGE>
Exhibit 99.1
PRO FORMA FINANCIAL INFORMATION OF
APARTMENT INVESTMENT AND MANAGEMENT COMPANY
INTRODUCTION
On May 5, 1997, pursuant to a Stock Purchase Agreement, dated as of April
16, 1997 (the "Stock Purchase Agreement"), Apartment Investment and
Management Company, a Maryland corporation ("AIMCO" and, together with its
majority-owned subsidiaries and controlled entities, the "Company"), acquired
2,866,073 shares of common stock ("NHP Common Stock") of NHP Incorporated
("NHP") in exchange for 2,142,857 shares of AIMCO's Class A Common Stock
("AIMCO Common Stock"). AIMCO contributed such shares of NHP Common Stock to
its wholly owned subsidiary, AIMCO-LP, Inc., which contributed such shares of
NHP Common Stock to AIMCO's operating partnership, AIMCO Properties, L.P.
(the "Operating Partnership"), in exchange for additional partnership
interests ("OP Units") in the Operating Partnership. The Operating
Partnership contributed such shares of NHP Common Stock to AIMCO's
unconsolidated subsidiary, AIMCO/NHP Holdings, Inc. ("ANHI"), in exchange for
95,000 shares of ANHI's Series A Preferred Stock (the "First ANHI Stock
Transfer"). In addition, on May 5, 1997, pursuant to the Stock Purchase
Agreement, ANHI acquired 3,630,000 shares of NHP Common Stock for $72.6
million in cash. Such cash consideration was obtained by ANHI from the
proceeds of a loan made pursuant to a Credit Agreement (the "ANHI Credit
Facility"). The acquisition of 6,496,073 shares of NHP Common Stock by
AIMCO and ANHI on May 5, 1997, is hereinafter referred to as the "Initial
NHP Stock Purchase."
On June 3, 1997, the Company acquired a group of companies (the "NHP
Real Estate Companies") previously owned by NHP that hold interests in
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 is currently engaged in a reorganization (the "NHP Real
Estate Reorganization") of its interests in the NHP Real Estate Companies,
which will result in the vast majority of the assets of the NHP Real Estate
companies being owned by a limited partnership (the "Unconsolidated
Partnership") in which the Operating Partnership will hold a 99% limited
partner interest and certain directors and officers of AIMCO will, directly
or indirectly, hold a 1% general partner interest.
1
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On August 26, 1997, AIMCO sold 2,400,000 shares of AIMCO Common Stock to
an institutional investor, at a price of $31.60 per share, and used
substantially all of the net proceeds from such sale to purchase 3,717,000
shares of NHP Common Stock from ANHI for an aggregate price of $74.3 million
(the "August 1997 Stock Offering"). ANHI used the proceeds from its sale of
such shares of NHP Common Stock to repay its outstanding borrowings under the
ANHI Credit facility, and then terminated the ANHI Credit Facility.
On September 12, 1997, AIMCO sold 2,373,418 shares of AIMCO Common Stock
to an institutional investor at a price of $31.60 per share, and sold 279,000
shares of AIMCO Common Stock to another institutional investor at a price of
$33.125 per share. AIMCO used $40.0 million in proceeds from such sales to
purchase 2,000,000 shares of NHP Common Stock from ANHI (the "Second ANHI
Stock Transfer" and, together with the First ANHI Stock Transfer the "ANHI Stock
Transfers"), $7,039,500 of such proceeds to purchase an additional 351,975
shares of NHP Common Stock pursuant to the Stock Purchase Agreement, and
$35.5 million of such proceeds to reduce the amount outstanding under AIMCO's
credit facility. On September 12, 1997, AIMCO also acquired an additional
82,074 shares of NHP Common Stock pursuant to the Stock Purchase Agreement in
exchange for 61,364 shares of AIMCO Common Stock. AIMCO's acquisition of an
aggregate of 434,049 shares of NHP Common Stock on September 12, 1997
pursuant to the Stock Purchase Agreement, is hereinafter referred to as the
"Subsequent NHP Stock Purchase" and, together with the Initial NHP Stock
Purchase, the "NHP Stock Purchase." AIMCO's sale of an aggregate of 2,652,418
shares of AIMCO Common Stock on September 12, 1997, and the application of
the net proceeds thereof is hereinafter referred to as the "September 1997
Stock Offerings."
As a result of tender offers commenced in June 1997 and continuing
through mid-November 1997, the Company acquired a majority limited partner
interest in three partnerships for which the Company serves as General
Partner (the "LP Acquisitions"): (i) approximately 54% of the limited partner
interests in Country Lakes Associates Two, the owner of the multi-family
apartment community known as The Greens of Naperville, Naperville, Illinois,
for approximately $521,000 in cash and OP Units, (ii) approximately 62% of
the limited partner interests in Point West Limited Partnership, owner of the
multi-family apartment community known as Point West Apartments,
Lenexa, Kansas, for approximately $379,000 in cash and OP Units, and (iii)
approximately 72% of the limited partner interests in The Oak Park
Partnership, the owner of the multi-family apartment community known as 100
Forest Place Apartments, Oak Park, Illinois, for approximately $3.35 million
in cash and OP Units.
On September 15, 1997, the Company purchased 886,600 shares of
Ambassador Apartments, Inc. ("Amabassador") common stock ("Ambassador Common
Stock") for $19.9 million. The shares acquired represent 8.45% of the
Ambassador Common Stock outstanding as of September 30, 1997.
On October 15, 1997, the Company purchased Windward at the Villages
Apartments (the "Windward Acquisition"), a 196-unit apartment community
located in West Palm Beach, Florida, for $10.8 million in cash.
On October 27, the Company sold 7,000,000 shares of AIMCO Common Stock
at a price of $36.50 per share in a public offering. Net proceeds of $241.5
million were used to repay outstanding indebtedness, provide working capital
and finance certain acquisition activities.
On October 31, 1997, the Company purchased a portfolio of 8,175 units in 35
apartment communities from sellers associated with Winthrop Financial
Associates (the "Thirty-five Acquisition Properties"). The aggregate purchase
price of $263.5 million (including $10.0 million of transaction costs) was
comprised of $116.1 million in cash and the creation or assumption of $147.4
million of mortgage indebtedness.
On December 1, 1997, the Company purchased the property known as
Foxchase Apartments ("Foxchase" and such acquisition is defined as the
"Foxchase Acquisition"), a 2,113 unit apartment complex located in
Alexandria, Virginia for approximately $110.3 million in cash, assumed
mortgage obligations and OP Units. The Company purchased Foxchase from a
limited partnership for which the Company serves as General Partner and
majority limited partner.
On December 8, 1997, AIMCO/NHP Acquisition Corp., a wholly-owned
subsidiary of AIMCO ("NHP Merger Sub"), merged (the "NHP Merger") with and into
NHP, with NHP being the surviving corporation after the NHP Merger and
becoming a wholly-owned subsidiary of AIMCO. As a result of the NHP Merger,
each outstanding share of NHP Common Stock, other than NHP Common Stock held
by NHP, AIMCO or NHP Merger Sub, was converted (subject to certain exceptions)
into the right to receive (i) 0.74766 shares of AIMCO Common Stock (the
"Stock Consideration"), or (ii) at the election of the holder, 0.37383 shares
of AIMCO Common Stock and $10.00 in cash (the "Mixed Consideration"). Also in
the NHP Merger, outstanding options to purchase shares of NHP Common Stock
were converted into options to purchase shares of AIMCO Common Stock.
2
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Immediately following the NHP Merger, AIMCO engaged in a restructuring
(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 ANHI and/or other unconsolidated
subsidiaries of AIMCO (together with ANHI, the "Unconsolidated
Subsidiaries"). The Unconsolidated Subsidiaries have an ownership structure
similar to ANHI, in which the Company holds a 95% economic interest through
ownership of shares of non-voting preferred stock, and certain directors and
officers of AIMCO hold a 5% economic interest through direct or indirect
ownership of all of the outstanding shares of common stock. As a result of
the controlling ownership interest in the Unconsolidated Subsidiaries held by
such directors and officers, AIMCO will account for its interest in the
Unconsolidated Subsidiaries using the equity method.
Pursuant to rights distributed to NHP stockholders in May 1997 (the
"Rights Distribution"), upon the effective time of the NHP Merger all of the
outstanding shares of common stock of The WMF Group, Ltd., formerly a wholly
owned subsidiary of NHP ("WMF"), were distributed to NHP stockholders (the
"WMF Spin-Off"). Shares of WMF common stock issued to AIMCO and ANHI in the
WMF Spin-Off were transferred to the sellers of NHP Common Stock pursuant to
the Stock Purchase Agreement.
On December 22, 1997, the Company sold 2,400,000 shares of AIMCO 9%
Class C Cumulative Preferred Stock ("Class C Preferred Stock") in a public
offering. The Class C Preferred Stock has a liquidation preference of $25 per
share. Net proceeds of $57.9 million were used to repay outstanding
indebtedness and provide working capital. Dividends on the Class C Preferred
Stock are cumulative from the date of issue, and are payable quarterly,
commencing on April 15, 1998, at a rate equal to 9% per annum of the
liquidation preference, or $2.25 per share.
On December 23, 1997, AIMCO executed an Agreement and Plan of Merger
with Ambassador, pursuant to which Ambassador will be merged into AIMCO.
Pursuant to the terms of the Ambassador Merger Agreement, each outstanding
share of Ambassador Common Stock, other than those shares held by AIMCO or
Ambassador, will be converted into (i) 0.583 shares of AIMCO Common Stock,
assuming that the price of AIMCO's Common Stock, as defined by the Ambassador
Merger Agreement, is greater than $36 per share or (ii) to the extent that
the price of AIMCO's Common Stock is less than $36 per share, 0.583 shares of
AIMCO Common Stock plus additional consideration in the form of cash or AIMCO
Common Stock. Any outstanding options to purchase Ambassador Common Stock may
be 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. The Ambassador Merger Agreement provides that the
outstanding shares of Ambassador Preferred shall be redeemed or converted
into Ambassador Common Stock prior to the Ambassador Merger. The Ambassador
Merger Agreement also provides that, unless otherwise agreed by the parties,
the Ambassador Operating Partnership will be merged with and into the AIMCO
Operating Partnership, and all outstanding Ambassador Operating Partnership
Units will be converted into AIMCO Operating Partnership Units at the
Conversion Ratio.
3
<PAGE>
PRO FORMA FINANCIAL INFORMATION
The following Pro Forma Consolidated Balance Sheet of AIMCO as of
September 30, 1997 has been prepared as if each of the following transactions
had occurred as of September 30, 1997: (i) the Company's sale of 7,000,000
shares of AIMCO Common Stock in October 1997 (the "October 1997 Stock
Offering") and the application of such net proceeds (a) to acquire 35
multifamily apartment properties from Winthrop Financial Associates (the
"Winthrop Acquisition") and (b) to repay indebtedness; (ii) the Company's
disposition of five real estate properties (the "1997 Dispositions"); (iii)
the Company's purchase of the Windward Apartments (the "Windward
Acquisition"); (iv) the Company's purchase of Foxchase Apartments (the
"Foxchase Acquisition"); (v) the acquisition of partnership interests through
tender offers in certain partnerships in which the Company acquired ownership
interests in the NHP Real Estate Acquisition (the "Tender Offers") (vi) the
NHP Merger; (vii) the WMF Spin-Off; (viii) the NHP Reorganization; (ix) the
Company's sale of 2,400,000 shares of Class C Preferred Stock for cash in
December, 1997; and (x) the Ambassador Merger.
The following Pro Forma Consolidated Statement of Operations of AIMCO
for the year ended December 31, 1996 has been prepared as if each of the
following transactions had occurred as of January 1, 1996: (i) the NHP Stock
Purchase and the ANHI Stock Transfers; (ii) the NHP Real Estate Acquisition;
(iii) the NHP Real Estate Reorganization; (iv) the Company's acquisition
during 1996 of (a) 7 multifamily apartment properties, (b) general and
limited partnership interests in limited partnerships owning 22 multifamily
apartment properties, and (c) general partnership interest in and loans to
limited partnerships owning 12 multifamily apartment properties, the related
issuance of AIMCO Common Stock and Partnership Common Units of AIMCO
Properties, L.P., the incurrence of indebtedness to finance such
acquisitions, and the refinancing of such indebtedness (the "1996
Acquisitions"); (v) the Company's disposition of 4 multifamily apartment
properties (the "1996 Dispositions"); (vi) the Company's purchase of a
management company in the third quarter of 1996 (the "Management Company
Acquisition"); (vii) the Company's acquisition of (a) the Tustin East Village
and The Californian apartments in June 1997, (b) the Vinings at the Waterways
in June 1997, (c) the Stonebrook Apartments in May 1997, and (d) The Bay Club
at Aventura in April 1997 (collectively, the "Recent Property Acquisitions");
(viii) AIMCO's sale of 1,265,000 shares of AIMCO Common Stock in November
1996, and the application of the net proceeds thereof to repay indebtedness
(the "November 1996 Stock Offering"); (ix) AIMCO's sale of 2,015,000 shares
of AIMCO common stock in February 1997, and the application of the net
proceeds thereof to repay indebtedness (the "February 1997 Stock Offering");
(x) AIMCO's sale of 2,300,000 shares of AIMCO common stock in May 1997, and
the application of the net proceeds thereof to repay indebtedness (the "May
1997 Stock Offering"); (xi) AIMCO's August 1997 sale of 750,000 shares of
Class B Preferred Stock and the application of the net proceeds thereof to
repay indebtedness (the "Class B Preferred Stock Offering"); (xii) the August
1997 Stock Offering; (xiii) the September 1997 Stock Offerings; (xiv) the
Company's receipt of a dividend from ANHI from proceeds ANHI received from
the ANHI Stock Transfers (the "ANHI Dividend"); (xv) the Company's purchase
of 886,600 shares of common stock of Ambassador Apartments, Inc. (the
"Ambassador Stock Acquisition"); (xvi) the purchase of third-party notes
payable secured by
4
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three properties owned by real estate partnerships in which the Company
acquired ownership interests in the NHP Real Estate Acquisition, and the
conversion of such notes payable into loans from the general partner (the
"Loan Acquisitions"); (xvii) the purchase of land leased by two properties
owned by real estate partnerships in which the Company acquired ownership
interests in the NHP Real Estate Acquisition (the "Land Lease Acquisitions");
(xviii) the payment of third-party notes payable secured by one property
owned by a real estate partnership in which the Company acquired ownership
interests in the NHP Real Estate Acquisition (the "Property Loan Payment");
(xix) the Company's purchase of the Sawgrass Apartments (the "Sawgrass
Acquisition"); (xx) the Company's purchase of an interest in a partnership
owning the Morton Towers Apartments (the "Morton Towers Acquisition"); (xxi)
the Company's acquisition of the Los Arboles Apartments (the "Los Arboles
Acquisition"); (xxii) the October 1997 Stock Offering and the Winthrop
Acquisition; (xxiii) the 1997 Dispositions; (xxiv) the Windward Acquisition;
(xxv) the Foxchase Acquisition; (xxvi) the Tender Offers; (xxvii) the NHP
Merger; (xxviii) the WMF Spin-Off; (xxxi) the NHP Reorganization (xxxii); the
Class C Preferred Stock Offering; and (xxxiii) the Ambassador Merger.
The following Pro Forma Consolidated Statement of Operations of AIMCO
for the nine months ended September 30, 1997 has been prepared as if each of
the following transactions had occurred as of January 1, 1997: (i) the NHP
Stock Purchase and the ANHI Stock Transfers; (ii) the NHP Real Estate
Acquisition; (iii) the Recent Property Acquisitions; (iv) the February 1997
Stock Offering; (v) the May 1997 Stock Offering; (vi) the Class B Preferred
Stock Offering; (vii) the August 1997 Stock Offering; (viii) the September
1997 Stock Offerings; (ix) the ANHI Dividend; (x) the Ambassador Stock
Acquisition; (xi) the Loan Acquisitions; (xii) the Land Lease Acquisitions;
(xiii) the Property Loan Payment; (xiv) the Sawgrass Acquisition; (xv) the
Morton Towers Acquisition; (xvi) the Los Arboles Acquisition; (xvii) the
October 1997 Stock Offering and the Winthrop Acquisition; (xviii) the 1997
Dispositions; (xix) the Windward Acquisition; (xx) the Foxchase Acquisition;
(xxi) the Tender Offers; (xxii) the NHP Merger; (xxiii) the WMF Spin-Off;
(xxiv) the NHP Reorganization; (xxv) the Class C Preferred Stock Offering;
and (xxvi) the Ambassador Merger.
The following Pro Forma Financial Information is based, in part, on the
following historical financial statements, which have been previously filed by
AIMCO: (i) the Consolidated Financial Statements of AIMCO for the year ended
December 31, 1996 and the nine months ended September 30, 1997; (ii) the
restated Consolidated Financial Statements of NHP for the year ended December
31, 1996 (which have been restated to reflect WMF as a discontinued operation
as a result of the Rights Distribution) and for the nine months ended September
30, 1997; (iii) the Combined Financial Statements of the NHP Real Estate
Companies for the year ended December 31, 1996 and the three months ended March
31, 1997; (iv) the Financial Statements of NHP Southwest Partners, L.P. for the
year ended December 31, 1996 and the three months ended March 31, 1997; (v) the
Combined Financial Statements of the NHP New LP Entities for the year ended
December 31, 1996 and the three months ended March 31, 1997; (vi) the Combined
Financial Statements of the NHP Borrower Entities for the year ended December
31, 1996 and the three months ended March 31, 1997; (vii) the Historical
Summaries of Gross Income and Certain Expenses of The Bay Club at Aventura for
the year ended December 31, 1996 and the three months ended March 31, 1997;
(viii) the Historical Summary of Gross Income and Direct Operating Expenses of
Morton Towers for the year ended December
5
<PAGE>
31, 1996 and the six months ended June 30, 1997; and (ix) the Combined
Statement of Revenues and Certain Expenses of the Thirty-Five Acquisition
Properties for the year ended December 31, 1996 and the six months ended June
30, 1997. The following Pro Forma Financial Information is also based on
the historical summary of gross income and direct operating expenses of First
Alexandria L.P. for the year ended December 31, 1996 and the nine months
ended September 30, 1997. The following Pro Forma Financial Information
should be read in conjunction with such financial statements and the notes
thereto. In the opinion of AIMCO's management, all material adjustments
necessary to reflect the effects of these transactions have been made.
The following Pro Forma Financial Information is also based on the
consolidated financial statements of Ambassador for the year ended December 31,
1996 and nine months ended September 30, 1997, which are included herein
as Exhibits 99.3 and 99.4.
The unaudited Pro Forma Financial Information has been prepared using
the purchase method of accounting whereby the assets and liabilities of all
acquired properties and entities 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 may differ from the amounts ultimately determined.
The following Pro Forma Financial Information assumes that ANHI elects
to receive Mixed Consideration, and all other NHP stockholders elect to
receive Stock Consideration. The Pro Forma Financial Information also assumes
that no NHP or Ambassador stockholder will receive cash in lieu of shares in
excess of the Ownership Limit in AIMCO's Charter or fractional shares.
The following unaudited Pro Forma Financial Information 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. The unaudited Pro Forma
Consolidated Statement of Operations for the nine months ended September 30,
1997 is not necessarily indicative of the results of operations to be expected
for the year ending December 31, 1997.
6
<PAGE>
APARTMENT INVESTMENT AND MANAGEMENT COMPANY
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
As of September 30, 1997
(In thousands, except share data)
(unaudited)
<TABLE>
<CAPTION>
Previously Issuance of Ambassador
Reported Class C Ambassador Merger
Pro-forma(A) Preferred Stock(B) Historical(C) Adjustments(D) Pro-Forma
------------ ------------------ ------------- -------------- ------------
<S> <C> <C> <C> <C> <C>
ASSETS
Real estate $1,327,176 $ - $ 500,017 $ 144,502 (E) $1,971,695
Real estate held for sale 6,439 - - - 6,439
Investments held for sale 25,025 - - (21,112)(F) 3,913
Investments in and notes receivable
from unconsolidated subsidiaries 163,432 - - - 163,432
Investments in and notes receivable
from unconsolidated partnerships 161,685 - 4,018 (1,518) 164,185
Cash and cash equivalents 64,606 57,910 5,536 (49,501)(H) 78,551
Restricted cash 22,934 - 31,265 - 54,199
Investment in management contracts 744 - - - 744
Goodwill 72,284 - - - 72,284
Accounts receivable 24,299 - 1,421 - 25,720
Deferred financing costs 10,102 - 13,725 (856)(I) 22,971
Other assets 32,259 - 3,894 (308)(J) 35,845
------------ ------------------ ------------- -------------- ------------
$1,910,985 $ 57,910 $ 559,876 $ 71,207 $2,599,978
------------ ------------------ ------------- -------------- ------------
------------ ------------------ ------------- -------------- ------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Secured long-term notes payable $ 611,979 $ - $ 43,614 $ - $ 655,593
Secured short-term financing - - 24,800 (24,800)(H) -
Secured long-term tax-exempt
bond financing 74,441 - 311,496 - 385,937
Unsecured short-term financing - - - - -
Accounts payable, accrued and
other liabilities 58,782 - 10,431 13,000 (D) 82,213
Resident security deposits and
prepaid rents 9,099 - 2,480 - 11,579
------------ ------------------ ------------- -------------- ------------
754,301 - 392,821 (11,800) 1,135,322
Minority interest in other partnerships
and corporations 39,709 - 19,753 (19,753)(H) 39,709
Minority interest in Operating Partnership 117,323 - 10,160 8,631 (K) 136,114
Unrealized gain on investments 1,175 - - (1,231)(F) (56)
Class A Senior Cumulative Convertible
Preferred Stock ($.01 par value) - - 24,132 (24,132)(L) -
Class B Preferred Stock ($.01 par value) 75,000 - - - 75,000
Class C Preferred Stock ($.01 par value) - 60,000 - - 60,000
Class A Common Stock ($.01 par value) 401 - 106 (42)(M) 465
Class B Common Stock ($.01 par value) 3 - - - 3
Additional paid-in capital 981,904 (2,090) 146,754 85,684 (N) 1,212,252
Notes due on common stock purchases (30,459) - - - (30,459)
Retained earnings (distributions in excess
of earnings) (28,372) - (33,850) 33,850 (O) (28,372)
------------ ------------------ ------------- -------------- ------------
999,652 57,910 137,142 94,129 1,288,833
------------ ------------------ ------------- -------------- ------------
$1,910,985 $ 57,910 $ 559,876 $ 71,207 $2,599,978
------------ ------------------ ------------- -------------- ------------
------------ ------------------ ------------- -------------- ------------
</TABLE>
7
<PAGE>
(A) Represents the unaudited pro forma consolidated financial position of
AIMCO as of September 30, 1997, as previously reported in AIMCO's Current
Report on Form 8-K, dated December 1, 1997, which represents the
historical consolidated financial position of AIMCO, adjusted to include
the (i) the October 1997 Stock Offering; (ii) the Winthrop Acquisition;
(iii) the 1997 Dispositions; (iv) the Windward Acquisition; (v) the
Foxchase Acquisition; (vi) the Tender Offers; (vii) the NHP Merger; (viii)
the WMF Spin-Off; and (ix) the NHP Reorganization.
(B) Represents adjustments to reflect the issuance of 2,400,000 shares of AIMCO
9% Class C Cumulative Preferred Stock in December 1997 resulting in net
cash proceeds of $57.9 million.
(C) Represents the unaudited consolidated financial position of Ambassador as
of September 30, 1997. Certain reclassifications have been made to
Ambassador's historical balance sheet to conform to AIMCO's balance sheet
presentation.
(D) Represents adjustments to record the Ambassador Merger in accordance with
the purchase method of accounting, based upon the assumed purchase price of
$701,696 assuming a market value of $36.00 per share of AIMCO's Common
Stock, as follows:
<TABLE>
<S> <C>
Issuance of 6,422,871 shares of AIMCO Common Stock based on the
Conversion Ratio of 0.583 exchange for 11,016,931 shares of
Ambassador Common Stock, which includes 1,351,351 shares of
Ambassador Common Stock resulting from the conversion of
Ambassador Preferred Stock....................................... $ 231,223
Purchase of 886,600 shares of Ambassador Common Stock in August
1997............................................................. 19,881
Issuance of 521,970 units of AIMCO Properties, L.P. based on the
Conversion Ratio of 0.583 exchange for 895,318 units of
Ambassador Apartments, L.P....................................... 18,791
Consideration related to the conversion of Ambassador stock options
to AIMCO stock options........................................... 1,279
Assumption of Ambassador's liabilities............................... 392,821
Redemption of limited partnership interests not owned by Ambassador
in Jupiter-I, L.P. and Jupiter-II, L.P. ......................... 24,701
Ambassador Merger costs (see calculation below)...................... 13,000
----------
$ 701,696
----------
</TABLE>
<PAGE>
The following is a calculation of the estimated fees and other expenses
related to the Ambassador Merger:
<TABLE>
<S> <C>
Expected severance costs............................................ $ 6,100
Legal fees.......................................................... 2,000
Investment banking fees............................................. 3,200
Other professional fees, including printing......................... 1,700
---------
$ 13,000
---------
---------
</TABLE>
(E) Represents the estimated increase in Ambassador's real estate assets, net,
based upon AIMCO's purchase price and the adjustment to eliminate the basis
of Ambassador's net assets acquired:
<TABLE>
<S> <C>
Purchase Price (see Note D)......................................... $ 701,696
Less: Historical basis of Ambassador's net assets acquired
Real estate assets............................................ (500,017)
Value of Investments in unconsolidated partnership (See Note G) (2,500)
Other assets, net of purchase adjustments..................... (54,677)
---------
Step-up to record fair value of Ambassador's real estate assets..... $ 144,502
---------
---------
</TABLE>
(F) Represents the elimination of AIMCO's previous investment in Ambassador,
which was marked-to-market as of September 30, 1997 in accordance with the
provisions of Statement of Financial Accounting Standard No. 115,
ACCOUNTING FOR CERTAIN INVESTMENTS IN DEBT AND EQUITY SECURITIES.
(G) Represents the reduction of Ambassador's investment in unconsolidated
partnerships to fair value.
(H) Represents (i) repayment of $24,800 of Ambassador's revolving line of
credit upon consummation of the Ambassador Merger according to the
terms of the Ambassador Merger Agreement, and (ii) redemption of
limited partnership interests not owned by Ambassador in Jupiter-I, L.P.
and Jupiter-II, L.P. in the amount of $24,701 representing the limited
partners' initial contributions of $23,000, less previous distributions of
$3,247 (together, represents current balance of $19,753) plus a preferred
return of $4,948 (which includes amounts previously distributed).
(I) Represents the elimination of the deferred loan costs related to
Ambassador's revolving line of credit in connection with the repayment upon
consummation of the Ambassador Merger.
(J) Represents the elimination of deferred lease costs in connection with the
Ambassador Merger.
<PAGE>
(K) Represents the estimated increase in Minority Interest in Operating
Partnership based upon AIMCO's purchase price per limited partnership
interest in Ambassador Apartments, L.P. ("Ambassador OP Unit") and the
adjustment to eliminate the basis of Ambassador's Minority Interest in
Operating Partnership:
<TABLE>
<S> <C>
Purchase price of minority interest in Ambassador Operating Partnership
(see Note D)..................................................................... $ 18,791
Less: historical basis of minority interest in Ambassador Operating Partnership... (10,160)
--------
Adjustment to record fair value of limited partnership
interests in AIMCO Operating Partnership ("AIMCO OP Units")
issued in exchange for Ambassador OP Units....................................... $ 8,631
--------
--------
</TABLE>
(L) Represents the elimination of Ambassador's Preferred Stock as a result of
its redemption or conversion in connection with the Ambassador Merger.
(M) Represents the elimination of Ambassador's Common Stock at $.01 par value
($106) net of the issuance of AIMCO Common Stock at $.01 par value ($64)
(see Note M).
(N) Represents the increase to paid-in capital to reflect the following:
<TABLE>
<S> <C>
Issuance of 6,422,871 shares of AIMCO Common Stock at $36.00 per
share............................................................ $231,223
Less: Par value of AIMCO Common Stock issued (64)
Ambassador's historical paid-in-capital.......................... (146,754)
Consideration related to the conversion of Ambassador stock options
to AIMCO stock options........................................... 1,279
--------
$ 85,684
--------
--------
</TABLE>
(O) Represents the elimination of Ambassador's distributions in excess of
accumulated earnings, as a result of the Ambassador Merger.
<PAGE>
APARTMENT INVESTMENT AND MANAGEMENT COMPANY
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
For the Year Ended December 31, 1996
(In thousands, except per share data)
(unaudited)
<TABLE>
<CAPTION>
Previously Ambassador
Reported Ambassador Merge
Pro-Forma(A) Historical(B) Adjustments Pro-Forma
------------ ------------- ----------- ----------
<S> <C> <C> <C> <C>
RENTAL PROPERTY OPERATIONS
Rental and other property revenues $ 237,091 $ 70,194 $ - $ 307,285
Property operating expenses (111,182) (27,465) - (138,647)
Owned property management expense (7,572) - - (7,572)
------------ ------------- ----------- ----------
Income from property operations
before depreciation 118,337 42,729 161,066
Depreciation (44,756) (13,430) (8,466)(C) (66,652)
------------ ------------- ----------- ----------
Income from property operations 73,581 29,299 (8,466) 94,414
------------ ------------- ----------- ----------
SERVICE COMPANY BUSINESS
Management fees and other income 17,935 - - 17,935
Management and other expenses (15,025) - - (15,025)
Corporate overhead allocation (590) - - (590)
Amortization of management company
goodwill and other assets
depreciation and amortization (1,474) - - (1,474)
------------ ------------- ----------- ----------
Income from service company business 846 - - 846
Minority interest in service company
business 10 - - 10
------------ ------------- ----------- ----------
Company's share of income from
service company busines 856 - - 856
------------ ------------- ----------- ----------
General and administrative expenses (756) (5,225) 5,225(D) (756)
Interest expense (43,210) (19,246) 4,969(E) (57,487)
Interest income 2,998 - - 2,998
------------ ------------- ----------- ----------
Income before equity in earnings of
unconsolidated subsidiaries,
equity in losses of partnerships
and minority interests 33,469 4,828 1,728 40,025
Equity in earnings of unconsolidated
Subsidiaries 14,114 - - 14,114
Equity in losses of partnerships (15,590) 233 - (15,357)
------------ ------------- ----------- ----------
Income before minority interests 31,993 5,061 1,728 38,782
Minority interest in other partnerships 3,603 (1,414) 1,414(F) 3,603
------------ ------------- ----------- ----------
Income before minority interests in
Operating Partnership 35,596 3,647 3,142 42,385
Minority interest in Operating Partnership (4,461) (469) (93)(G) (5,023)
------------ ------------- ----------- ----------
Net income $ 31,135 $ 3,178 $ 3,049 $ 37,362(E)
------------ ------------- ----------- ----------
------------ ------------- ----------- ----------
Net income allocable to preferred stockholders $ 5,344 $ 10,744
------------ ----------
------------ ----------
Net income allocable to common stockholders $ 25,791 $ 26,618(E)
------------ ----------
------------ ----------
Net income per common share $ 0.67 $ 0.59(E)
------------ ----------
------------ ----------
Weighted average number of common shares
and common share equivalents outstanding 38,686 45,109
------------ ----------
------------ ----------
</TABLE>
<PAGE>
(A) Represents the unaudited pro forma consolidated results of operations of
AIMCO as of December 31, 1996, as previously reported in AIMCO's Current
Report on Form 8-K, dated December 1, 1997, which represents the
historical results of operations for AIMCO, adjusted to include the
following, as if they had occurred on January 1, 1996: (i) the November
1996 Stock Offering; (ii) the 1996 Acquisitions; (iii) the 1996
Dispositions; (iv) the Management Company Acquisition; (v) the NHP Stock
Purchase and the ANHI Stock Transfers; (vi) the NHP Real Estate
Acquisition; (vii) the Recent Property Acquisitions; (viii) the February
1997 Stock Offering; (ix) the May 1997 Stock Offering; (x) the Class B
Preferred Stock Offering; (xi) the August 1997 Stock Offering; (xii) the
September 1997 Stock Offerings; (xiii) the ANHI Dividend; (xiv) the
Ambassador Stock Acquisition; (xv) the Loan Acquisitions; (xvi) the Land
Lease Acquisitions; (xvii) the Property Loan Payment; (xviii) the Sawgrass
Acquisition; (xix) the Morton Towers Acquisition; (xx) the Los Arboles
Acquisition; (xxi) the October 1997 Offering, (xxii) the Winthrop
Acquisition; (xxiii) the 1997 Dispositions; (xxiv) the Windward
Acquisition, (xxv) the Foxchase Acquisition; (xxvi) the Tender Offers;
(xxvii) the NHP Merger; (xxviii) the WMF Spin-Off; and (xxix) the NHP
Reorganization.
(B) Represents the historical statement of operations of Ambassador for the
year ended December 31, 1996. Certain reclassifications have been made to
Ambassador's Historical Statement of Operations to conform to AIMCO's
Statement of Operations presentation.
(C ) 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.
(D) Decrease results from identified historical costs of certain items which
will be eliminated or reduced as a result of the Ambassador Merger, as
follows:
Duplication of public company expenses..................... $ 717
Reduction in salaries and benefits......................... 2,917
Other...................................................... 1,591
--------
$ 5,225
--------
--------
(E) Represents the decrease in interest expense related to the repayment of
the Ambassador revolving credit facility upon consummation of the
Ambassador Merger.
<PAGE>
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.................................. $ 478
---------
---------
Income before Minority Interest in Operating Partnership
(after minority interest in other partnerships).............. $ 41,907
Minority Interest in Operating Partnership.................... (4,966)
---------
Net income.................................................... $ 36,941
---------
---------
Net income attributable to common stockholders $ 26,197
---------
---------
Net income per common share $ 0.58
---------
---------
</TABLE>
(F) Represents elimination of minority interest in Jupiter-I, L.P. and Jupiter-
II, L.P. resulting from the redemption of limited partnership interests not
owned by Ambassador in connection with the Ambassador Merger.
(G) Represents adjustments to Minority interest in Operating Partnership
assuming the Ambassador Merger had occurred as of January 1, 1996. On a
pro forma basis, without giving effect to the Ambassador Merger, as of
December 31, 1996, the minority interest percentage is approximately 12.5%.
On a pro forma basis, giving effect to the Ambassador Merger, as of
December 31, 1996, the minority interest percentage is approximately 11.8%.
<PAGE>
APARTMENT INVESTMENT AND MANAGEMENT COMPANY
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
For the Nine Months Ended September 30, 1997
(In thousands, except per share data)
(unaudited)
<TABLE>
<CAPTION>
Previously Abassador
Reported Ambassador Merger
Pro-Forma(A) Historical(B) Adjustments Pro-Forma
------------ ------------- ----------- ----------
<S> <C> <C> <C> <C>
RENTAL PROPERTY OPERATIONS
Rental and other property revenues $ 191,398 $ 68,745 $ - $ 260,143
Property operating expenses (82,932) (26,449) - (109,381)
Owned property management expense (6,234) - - (6,234)
------------ ------------- ----------- ----------
Income from property operations
before depreciation 102,232 42,296 - 144,528
Depreciation (35,169) (13,933) (2,489)(C) (51,591)
------------ ------------- ----------- ----------
Income from property operations 67,063 28,363 (2,489) 92,937
------------ ------------- ----------- ----------
SERVICE COMPANY BUSINESS
Management fees and other income 10,903 - - 10,903
Management and other expenses (8,388) - - (8,388)
Corporate overhead allocation (441) - - (441)
Amortization of management company
goodwill and other assets
depreciation and amortization (1,133) - - (1,133)
------------ ------------- ----------- ----------
Income from service company business 941 - - 941
Minority interest in service company
business 48 - - 48
------------ ------------- ----------- ----------
Company's share of income from
service company busines 989 - - 989
------------ ------------- ----------- ----------
General and administrative expenses (841) (5,052) 5,052(D) (841)
Interest expense (34,941) (19,766) 2,551(E) (52,156)(E)
Interest income 5,356 - - 5,356
------------ ------------- ----------- ----------
Income before equity in earnings of
unconsolidated subsidiaries,
equity in losses of partnerships,
and minority interests 37,626 3,545 5,114 46,285
Equity in earnings of unconsolidated
subsidiaries 6,920 - - 6,920
Equity in losses of partnerships (12,952) 333 - (12,619)
------------ ------------- ----------- ----------
Income before minority interests 31,594 3,878 5,114 40,586
Minority interest in other partnerships (332) (654) 654(F) (332)
------------ ------------- ----------- ----------
Income before minority interests in
Operating Partnership 31,262 3,224 5,768 40,254
Minority interest in Operating Partnership (3,429) (350) (452)(G) (4,231)
------------ ------------- ----------- ----------
Net income $ 27,833 $ 2,874 $ 5,316 $ 36,023(E)
------------ ------------- ----------- ----------
------------ ------------- ----------- ----------
Net income allocable to preferred stockholders $ 4,008 $ 8,058
------------ ----------
------------ ----------
Net income allocable to common stockholders $ 23,825 $ 27,965(E)
------------ ----------
------------ ----------
Net income per common share $ 0.59 $ 0.60(E)
------------ ----------
------------ ----------
Weighted average number of common shares
and common share equivalents outstanding 40,396 46,819
------------ ----------
------------ ----------
</TABLE>
<PAGE>
(A) Represents the unaudited pro forma consolidated financial position of
AIMCO as of September 30, 1997, as previously reported in AIMCO's Current
Report on Form 8-K, dated December 1, 1997, which represents the
historical results of operations for AIMCO, adjusted to include the (i)
the NHP Stock Purchase and the ANHI Stock Transfers; (ii) the NHP Real
Estate Acquisition; (iii) the Recent Property Acquisitions; (iv) the
February 1997 Stock Offering; (v) the May 1997 Stock Offering; (vi) the
Class B Preferred Stock Offering; (vii) the August 1997 Stock Offering;
(viii) the September 1997 Stock Offerings; (ix) the ANHI Dividend; (x) the
Ambassador Stock Acquisition; (xi) the Loan Acquisitions; (xii) the Land
Lease Acquisitions; (xiii) the Property Loan Payment; (xiv) the Sawgrass
Acquisition; (xv) the Morton Towers Acquisition; (xvi) the Los Arboles
Acquisition; (xvii) the October 1997 Stock Offering, (xviii) the Winthrop
Acquisition; (xix) the 1997 Dispositions; (xx) the Windward Acquisition,
(xxi) the Foxchase Acquisition; (xxii) the Tender Offers; (xxiii) the NHP
Merger; (xxiv) the WMF Spin-Off; and (xxv) the NHP Reorganization.
(B) Represents the historical statement of operations of Ambassador for the
nine months ended September 30, 1997. Certain reclassifications have been
made to Ambassador's Historical Statement of Operations to conform to
AIMCO's Statement of Operations presentation.
(C ) 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.
(D) Decrease results from identified historical costs of certain items which
will be eliminated or reduced as a result of the Ambassador Merger, as
follows:
Duplication of public company expenses $ 521
Reduction in salaries and benefits 2,551
Other 1,980
--------
$ 5,052
--------
--------
(E) Represents the decrease in interest expense related to the repayment of
the Ambassador revolving credit facility upon consummation of the
Ambassador Merger.
<PAGE>
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%.
Increase in Interest Expense..............................$ 358
--------
--------
Income before Minority Interest in Operating Partnership
(after minority interest in other partnerships)......... 39,896
Minority Interest in Operating Partnership................ (4,193)
--------
Net income $ 35,703
--------
--------
Net income attributable to common stockholders $ 27,645
--------
--------
Net income per common share 0.59
--------
--------
(F) Represents elimination of minority interest in Jupiter-I, L.P. and Jupiter-
II, L.P. resulting from the redemption of limited partnership interests not
owned by Ambassador in connection with the Ambassador Merger.
(G) Represents adjustments to Minority interest in Operating Partnership
assuming the Ambassador Merger had occurred as of January 1, 1996. On a
pro forma basis, without giving effect to the Ambassador Merger, as of
September 30, 1997, the minority interest percentage is approximately
11.0%. On a pro forma basis, giving effect to the Ambassador Merger, as
of September 30, 1997, the minority interest percentage is approximately
10.5%.
<PAGE>
AMBASSADOR APARTMENTS, INC.
INDEX TO FINANCIAL STATEMENTS
AND
FINANCIAL STATEMENT SCHEDULE
<TABLE>
<CAPTION>
FINANCIAL STATEMENTS Page
----
<S> <C>
Report of Independent Auditors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-2
Consolidated balance sheets of Ambassador Apartments, Inc. as of December
31, 1996 and 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-3
Consolidated statements of operations of Ambassador Apartments, Inc. for the
years ended December 31, 1996 and 1995 and for the period from August 31, 1994
through December 31, 1994 and combined statements of operations of
Prime Properties (the Predecessor to Ambassador Apartments, Inc.) for the
period from January 1, 1994 through August 30, 1994 . . . . . . . . . . . . . . . . . . . . . . . F-4
Consolidated statements of changes in stockholder's equity of Ambassador Apartments,
Inc. and Prime Properties' (the Predecessor to Ambassador Apartments, Inc.) net
deficit for the years ended December 31, 1996, 1995 and 1994 . . . . . . . . . . . . . . . . . . F-5
Consolidated statements of cash flows of Ambassador Apartments, Inc. for the years
ended December 31, 1996 and 1995 and for the period from August 31, 1994 through
December 31, 1994 and combined statements of cash flows of Prime Properties
(the Predecessor to Ambassador Apartments, Inc.) for the period from January 1, 1994
through August 30, 1994 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-6
Notes to consolidated and combined financial statements . . . . . . . . . . . . . . . . . . . . . . . F-7
FINANCIAL STATEMENT SCHEDULE
Schedule III - Real Estate and Accumulated Depreciation as of
December 31, 1996 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-1
</TABLE>
Schedules, other than those listed, are omitted for the reason that
they are not applicable or equivalent information has been included elsewhere
herein.
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Stockholders and Board of Directors
Ambassador Apartments, Inc.
We have audited the accompanying consolidated balance sheets of
Ambassador Apartments, Inc. (the "Company") as of December 31, 1996 and 1995,
and the related statements of operations, stockholders' equity and cash flows
for the years then ended and the period from August 31, 1994 through December
31, 1994. We have also audited the accompanying combined statements of
operations, partners' deficit, and cash flows of Prime Properties (the
Predecessor to the Company) for the period from January 1, 1994 through
August 30, 1994. Our audits also included the financial statement schedule
listed in the Index. These financial statements and schedule are the
responsibility of the Company's and Predecessor's management. Our
responsibility is to express an opinion on these financial statements and
schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Ambassador Apartments, Inc. at December 31, 1996 and 1995, and the consolidated
results of its operations and its cash flows for the years then ended and for
the period from August 31, 1994 through December 31, 1994, and the combined
results of operations and cash flows for Prime Properties for the period from
January 1, 1994 through August 30, 1994, in conformity with generally accepted
accounting principles. Also, in our opinion, the related financial statement
schedule, when considered in relation to the basic financial statements taken
as a whole, presents fairly in all material respects the information set forth
therein.
Ernst & Young LLP
Chicago, Illinois
January 27, 1997
except for note 15, as to which the date
is March 13, 1997 and note 2(J), as to
which the date is March 31, 1997
F-2
<PAGE>
AMBASSADOR APARTMENTS, INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
(DOLLARS IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C>
ASSETS
Rental property:
Land.......................................... $ 82,124 $ 57,718
Buildings and improvements.................... 407,002 283,062
Furniture and equipment....................... 6,166 3,089
------------ ------------
495,292 343,869
Accumulated depreciation........................ (33,340) (19,910)
------------ ------------
461,952 323,959
Cash and cash equivalents....................... 4,002 5,270
Escrow deposits................................. 30,897 12,945
Escrowed bond funds - restricted................ 549 2,779
Note receivable - Officer....................... 1,000 1,000
Accounts receivable............................. 1,870 1,230
Investment in and advances to unconsolidated
real estate limited partnership............... 4,549 657
Deferred financing costs, net................... 9,640 11,530
Other........................................... 1,325 619
------------- ------------
Total assets.................................... $ 515,784 $ 359,989
------------- ------------
------------- ------------
LIABILITIES AND EQUITY
Bonds payable................................... $ 279,355 $ 182,050
Notes payable................................... 79,974 47,931
Accrued interest................................ 913 ---
Real estate taxes payable....................... 3,837 4,998
Tenant security deposits........................ 2,231 1,632
Accounts payable and other liabilities.......... 2,138 2,143
Distributions/dividends payable................. 750 ---
------------- ------------
$ 369,198 $ 238,754
------------- ------------
Minority interest.............................. $ 32,006 $ 12,062
Preferred Stock, $.01 par value; 20,000 shares
authorized, 1,351,351 shares of Class A
Senior Cumulative Convertible Preferred
Stock issued and outstanding................. 24,132 ---
Stockholders' equity:
Common Stock, $.01 par value; 100,000,000
shares authorized, 8,958,525 shares issued
and outstanding ........................... 90 90
Additional paid-in capital................... 112,975 112,957
Distributions in excess of accumulated
earnings................................... (22,617) (3,874)
------------- ------------
Total stockholders' equity..................... 90,448 109,173
------------- ------------
Total liabilities and equity................... $ 515,784 $ 359,989
------------- ------------
------------- ------------
</TABLE>
See accompanying notes to consolidated and combined financial statements.
F-3
<PAGE>
AMBASSADOR APARTMENTS, INC. (THE COMPANY) AND PRIME PROPERTIES
(THE PREDECESSOR TO THE COMPANY)
CONSOLIDATED STATEMENT OF OPERATIONS OF THE COMPANY AND COMBINED
STATEMENTS OF OPERATIONS OF THE PREDECESSOR
(DOLLARS IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
AMBASSADOR APARTMENTS, INC. PRIME PROPERTIES
--------------------------------------------------------- -------------------
Year Ended Year Ended
December 31, December 31, August 31, 1994 to January 1, 1994 to
1996 1995 December 31, 1994 August 30, 1994
---------------- ---------------- ------------------ -------------------
<S> <C> <C> <C> <C>
Revenues:
Rental . . . . . . . . . . . . . . . . . $ 64,842 $ 49,966 $ 13,161 $ 19,146
Other . . . . . . . . . . . . . . . . . . 5,352 3,415 1,519 1,288
---------------- ---------------- ----------------- -----------------
Total revenues . . . . . . . . . . . . . 70,194 53,381 14,680 20,434
Expenses:
Property operating . . . . . . . . . . . 16,853 13,477 3,599 5,406
Real estate taxes . . . . . . . . . . . . 6,327 5,255 1,334 2,367
General and administrative . . . . . . . 5,225 3,612 1,167 --
Depreciation . . . . . . . . . . . . . . 13,430 8,894 2,101 3,190
Advertising and marketing . . . . . . . . 1,329 1,088 240 353
Repairs and maintenance . . . . . . . . . 2,522 1,754 572 943
Property management fees . . . . . . . . -- -- -- 937
Asset management fees . . . . . . . . . . -- -- -- 172
Financing fees . . . . . . . . . . . . . 3,272 1,466 271 383
Bad debt . . . . . . . . . . . . . . . . 434 584 292 298
Interest . . . . . . . . . . . . . . . . 14,145 8,903 1,467 5,393
Amortization of deferred financing
fees . . . . . . . . . . . . . . . . . 1,829 2,792 622 333
(Income) losses from investment
in unconsolidated real estate
limited partnerships . . . . . . . . . . (233) 320 162 --
---------------- ---------------- ----------------- -----------------
Total expenses . . . . . . . . . . . . . 65,133 48,145 11,827 19,775
---------------- ---------------- ----------------- -----------------
Income before minority interest, gain
on sale of rental property, loss on
sale of interest rate cap, and
extraordinary item . . . . . . . . . . . 5,061 5,236 2,853 659
Income allocated to minority interest . . (1,883) (615) (332) --
--------------- --------------- ---------------- ----------------
Income before gain on sale of rental
property, loss on sale of interest rate
cap and extraordinary item . . . . . . . 3,178 4,621 2,521 659
Gain on sale of rental property,
net of minority interest . . . . . . . . -- 966 -- --
---------------- ---------------- ----------------- -----------------
Income before loss on sale of interest
rate cap and extraordinary item . . . . . 3,178 5,587 2,521 659
Loss on sale of interest rate cap,
net of minority interest . . . . . . . . (2,084) -- -- --
---------------- ---------------- ----------------- -----------------
Income before extraordinary item . . . . 1,094 5,587 2,521 659
Extraordinary item, net of minority
interest . . . . . . . . . . . . . . . . (4,653) 4,360 (772) --
---------------- ---------------- ----------------- -----------------
Net (loss) income . . . . . . . . . . . . (3,559) 9,947 1,749 659
Income allocated to preferred
shareholders . . . . . . . . . . . . . . 851 -- -- --
----------------- ---------------- ----------------- -----------------
Net (loss) income applicable to
common shareholders . . . . . . . . . . . $ (4,410) $ 9,947 $ 1,749 $ 659
----------------- ---------------- ----------------- -----------------
----------------- ---------------- ----------------- -----------------
PRIMARY EARNINGS PER SHARE OF COMMON
STOCK:
(Loss) income per weighted average
share of common stock outstanding:
Before extraordinary item . . . . . . . . $ 0.03 $ 0.62 $ 0.28
Extraordinary item . . . . . . . . . . . (0.52) 0.49 (0.09)
---------------- ---------------- -----------------
Net (loss) income . . . . . . . . . . . . $ (0.49) $ 1.11 $ 0.19
---------------- ---------------- -----------------
---------------- ---------------- -----------------
Weighted average common stock
outstanding . . . . . . . . . . . . . . . 8,958,525 8,958,525 8,847,547
---------------- ---------------- -----------------
---------------- ---------------- -----------------
FULLY DILUTED EARNINGS PER SHARE OF
COMMON STOCK:
Before extraordinary item . . . . . . . . $ 0.22
Extraordinary item . . . . . . . . . . . (0.55)
----------------
Net (loss) income . . . . . . . . . . . . $ (0.33)
----------------
----------------
Weighted average fully diluted
shares outstanding . . . . . . . . . . . 10,348,645
----------------
----------------
</TABLE>
See accompanying notes to consolidated and combined financial statements.
F-4
<PAGE>
AMBASSADOR APARTMENTS, INC. (THE COMPANY) AND PRIME PROPERTIES
(THE PREDECESSOR TO THE COMPANY)
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
OF THE COMPANY AND THE PREDECESSOR'S NET DEFICIT
(Dollars In Thousands, Except For Per Share Amounts)
<TABLE>
<CAPTION>
1996 1995 1994
------------------- ------------------- --------------------
<S> <C> <C> <C>
COMMON STOCK, $0.01 PAR VALUE
Balance, beginning of year . . . . . . . . . . . . $ 90 $ 90 $ --
------------------- ------------------- --------------------
Net proceeds from the offering . . . . . . . . . -- -- 90
------------------- ------------------- --------------------
Balance, end of year . . . . . . . . . . . . . . . $ 90 $ 90 $ 90
=================== =================== ====================
Paid-in capital
PAID-IN CAPITAL
Balance, beginning of year . . . . . . . . . . . . $ 112,957 $ 112,943 $ --
Net proceeds from the offering . . . . . . . . . -- -- 127,476
Principal payments on notes receivable for
issuance of common units . . . . . . . . . . . 18 14 3
Adjustments for minority interests ownership
in operating partnership . . . . . . . . . . . -- -- (14,536)
------------------- ------------------- --------------------
Balance, end of year . . . . . . . . . . . . . . . $ 112,975 $ 112,957 $ 112,943
=================== =================== ====================
DISTRIBUTIONS IN EXCESS OF ACCUMULATED EARNINGS
Balance, beginning of year . . . . . . . . . . . . $ (3,874) $ (3,071) $ --
Net (loss) income applicable to Common
Shareholders . . . . . . . . . . . . . . . (4,410) 9,947 1,749
Distributions . . . . . . . . . . . . . . . . . (14,333) (10,750) (4,820)
------------------- ------------------- --------------------
Balance, end of year . . . . . . . . . . . . . . . $ (22,617) $ (3,874) $ (3,071)
=================== =================== ====================
PREDECESSOR'S NET DEFICIT
Balance, beginning of year . . . . . . . . . . . . $ -- $ -- $ (2,422)
Net income . . . . . . . . . . . . . . . . . . -- -- 659
Contributions . . . . . . . . . . . . . . . . . -- -- 1,690
Distributions . . . . . . . . . . . . . . . . . -- -- (1,708)
Reclassification of net deficit in connection
with the reorganization . . . . . . . . . . -- -- 1,781
------------------- ------------------- --------------------
Balance, end of year . . . . . . . . . . . . . . . $ -- $ -- $ --
=================== =================== ====================
</TABLE>
See accompanying notes to consolidated and combined financial statements.
F-5
<PAGE>
AMBASSADOR APARTMENTS, INC. (THE COMPANY) AND PRIME PROPERTIES
(THE PREDECESSOR TO THE COMPANY)
CONSOLIDATED STATEMENT OF CASH FLOWS OF THE COMPANY AND COMBINED
STATEMENTS OF CASH FLOWS OF THE PREDECESSOR
(Dollars In Thousands)
<TABLE>
<CAPTION>
AMBASSADOR APARTMENTS, INC. PRIME PROPERTIES
---------------------------------------------- ----------------
YEAR ENDED YEAR ENDED AUGUST 31, 1994 JANUARY 1, 1994
DECEMBER 31, DECEMBER 31, TO DECEMBER 31, TO AUGUST 30,
1996 1995 1994 1994
------------ ------------ --------------- ----------------
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net (loss) income . . . . . . . . . . . . . . . $ (3,559) $ 9,947 $ 1,749 $ 659
Adjustments to reconcile net (loss) income to
net cash provided by operating activities:
Depreciation . . . . . . . . . . . . . . . . 13,430 8,894 2,101 3,190
Bad debt expense . . . . . . . . . . . . . . 434 584 292 298
Amortization of deferred financing fees . . . 1,829 2,792 622 333
Minority interest . . . . . . . . . . . . . . 1,883 615 332 --
Extraordinary item, net of minority
interest . . . . . . . . . . . . . . . . . . . 4,653 (4,360) 772 --
Loss on sale of interest rate cap, net of
minority interest . . . . . . . . . . . . . . 2,084 -- -- --
Gain on sale of rental property, net of
minority interest . . . . . . . . . . . . . . -- (966) -- --
Write-off of deferred letter of
credit fees . . . . . . . . . . . . . . . . . -- 1,374 -- --
(Income) losses from investment in
unconsolidated real estate limited
partnerships . . . . . . . . . . . . . . . . (233) 320 162 --
Changes in operating assets and liabilities:
Accounts receivable . . . . . . . . . . . (1,074) (448) (1,155) (329)
Other assets . . . . . . . . . . . . . . . (706) (182) (437) 129
Accrued interest payable . . . . . . . . . 913 (92) (119) (119)
Real estate taxes payable . . . . . . . . (1,161) 1,925 1,390 210
Tenant security deposits . . . . . . . . . 599 526 348 26
Accounts payable and other
liabilities . . . . . . . . . . . . . . . . (5) 663 (812) 538
------------- ----------- -------------- --------------
Net cash provided by operating
activities . . . . . . . . . . . . . . . . 19,087 21,592 5,245 4,935
------------- ----------- -------------- --------------
INVESTING ACTIVITIES
Purchase of rental property . . . . . . . . . . (59,951) (55,565) (66,148) --
Improvements to rental property . . . . . . . . (16,189) (12,227) (1,746) (1,731)
Advances to unconsolidated real estate
limited partnerships . . . . . . . . . . . . . . (39,883) -- -- --
Repayment from unconsolidated real estate
limited partnerships . . . . . . . . . . . . . . 36,048 -- -- --
Note receivable - Officer . . . . . . . . . . . -- -- (1,000) --
Net proceeds from sale of rental property . . . -- 7,650 -- --
Cash from contributed assets . . . . . . . . . . -- -- 3,423 --
Contribution to unconsolidated real estate
limited partnerships . . . . . . . . . . . . . . -- (28) (557) --
Distribution from unconsolidated real estate
limited partnerships . . . . . . . . . . . . . . -- 1,640 50 --
Purchase of partnership interests . . . . . . . -- -- (14,460) --
------------- ----------- -------------- --------------
Net cash used in investing activities . . . . (79,975) (58,530) (80,438) (1,731)
------------- ----------- -------------- --------------
FINANCING ACTIVITIES
Net proceeds from common stock offering . . . . -- -- 127,566 --
Capital Contributions from Investor I and II . . 23,000 -- -- --
Net proceeds from preferred stock offering . . . 24,132 -- -- --
Proceeds from sale of interest rate cap . . . . 1,485 -- -- --
Decrease (increase) in escrowed bond
funds-restricted . . . . . . . . . . . . . . . 2,230 1,035 16,278 (20,089)
Proceeds from bonds payable . . . . . . . . . . 34,305 42,015 6,400 20,000
Payment to sinking fund . . . . . . . . . . . . -- (550) -- --
Escrow deposits . . . . . . . . . . . . . . . . (17,952) (12,945) -- --
Proceeds from notes payable . . . . . . . . . . 145,721 102,362 -- --
Purchase of bonds payable . . . . . . . . . . . (12,217) (15,053) -- --
Repayment of notes payable . . . . . . . . . . . (113,744) (55,631) (59,070) (1,600)
Deferred financing fees paid . . . . . . . . . . (9,762) (5,587) (8,332) (698)
Partner capital contributions . . . . . . . . . 18 14 3 1,690
Distributions to predecessor owners . . . . . . -- -- (3,859) --
Dividends paid to preferred stockholders . . . . (284) -- -- --
Dividends paid to common stockholders . . . . . (14,333) (14,333) (1,237) --
Distributions paid to minority interest . . . . (2,979) (1,543) (132) --
Distributions to partners . . . . . . . . . . . -- -- -- (1,708)
------------- ----------- -------------- --------------
Net cash provided by (used in) financing
activities . . . . . . . . . . . . . . . . . . . . 59,620 39,784 77,617 (2,405)
------------- ----------- -------------- --------------
Net (decrease) increase in cash . . . . . . . . . . (1,268) 2,846 2,424 799
Cash and cash equivalents at beginning of
period . . . . . . . . . . . . . . . . . . . . . . 5,270 2,424 -- 2,850
------------- ----------- -------------- --------------
Cash and cash equivalents at end of period . . . . $ 4,002 $ 5,270 $ 2,424 $ 3,649
============= =========== ============== ==============
</TABLE>
See accompanying notes to consolidated and combined financial statements.
F-6
<PAGE>
AMBASSADOR APARTMENTS, INC. (THE COMPANY) AND PRIME PROPERTIES
(THE PREDECESSOR TO THE COMPANY)
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
1. FORMATION AND ORGANIZATION OF THE COMPANY
Ambassador Apartments, Inc., formerly Prime Residential, Inc.,
(together with its consolidated and unconsolidated investments in real estate
limited partnerships, the "Company") was organized in Maryland on April 15,
1994. The Company was formed to continue the residential rental operations
business of The Prime Group, Inc. and certain of its affiliates (collectively
"PGI"). The Company will continue to make an election to qualify as a real
estate investment trust ("REIT") under the Internal Revenue Code of 1986, as
amended, for Federal income tax purposes.
The Company is a self-administered and self-managed REIT engaged in
the ownership and management of residential rental properties leased primarily
to middle income tenants. As of December 31, 1996, the company owns interests
in 49 apartment communities with a total of 14,564 units located in Arizona,
Colorado, Florida, Georgia, Illinois, Tennessee and Texas. The Company's
principal markets with more than 1,000 units include Phoenix and Tucson,
Arizona; Orlando, Florida; and Austin, Houston and San Antonio, Texas.
On August 31, 1994, the Company completed an initial public offering
(the "Offering") of 7,821,000 shares of Common Stock at $16.00 per share. On
September 12, 1994, the underwriters of the Offering exercised their over
allotment option to purchase 1,137,525 shares of Common Stock at $16.00 per
share.
Upon consummation of the Offering, the Company contributed the initial
net proceeds of $110.5 million from the Offering in exchange for 7,821,000
common units of partnership interest ("Common Units") of Ambassador Apartments,
L.P., formerly Prime Residential, L.P. (the "Operating Partnership"). The
Company contributed the net proceeds of $17.1 million from the exercise of the
underwriters' over allotment option to the Operating Partnership in exchange
for 1,137,525 Common Units.
The Company is the sole general partner of the Operating Partnership
and owns 90.28% of the Common Units and 100% of the Class A Preferred Units
(defined below) as of December 31, 1996. Dividends declared or paid to holders
of Common Stock and Class A Preferred Stock are based upon such distributions
received by the Company with respect to its Common Units and Class A Preferred
Units.
Upon consummation of the Offering, PGI contributed its interest in the
predecessor to the Company (the "Predecessor") to the Operating Partnership in
exchange for a limited partnership interest represented by 846,703 Common
Units, approximately $3.0 million in reimbursement of formation costs advanced
by PGI and the right to receive an additional 441,000 Common Units (the
"Performance Units") which will be issued if certain performance criteria are
met. None of the performance criteria has been met as of December 31, 1996.
Of the 846,703 Common Units received by PGI, 156,250 Common Units were
immediately transferred by PGI to a senior executive of the Company in exchange
for such executive's interest in PGI. PGI also transferred the right to
receive 90,000 Performance Units to the same senior executive. Another senior
executive contributed his interests in the Predecessor to the Operating
Partnership in exchange for 17,280 Common Units and the right to receive up to
9,000 Performance Units. PGI and senior executives
F-7
<PAGE>
AMBASSADOR APARTMENTS, INC. (THE COMPANY) AND PRIME PROPERTIES
(THE PREDECESSOR TO THE COMPANY)
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
(the "Limited Partners") hold all of their Common Units as limited partners of
the Operating Partnership.
Unless the context requires otherwise, all references to the Company
herein mean Ambassador Apartments, Inc. and those entities owned or controlled
by Ambassador Apartments, Inc., including the Operating Partnership. The
combined financial statements of the Predecessor include the accounts of eleven
property partnerships which owned the 21 Prime Properties (the "Predecessor
Partnerships"). The Predecessor Partnerships were considered to be entities
under common ownership and management. Upon consummation of the Offering, PGI
sold a 50% interest in one Predecessor Partnership (Williamsburg Limited
Partnership) to a senior executive of PGI. PGI then contributed to the
Operating Partnership its ownership interest in ten of the Predecessor
Partnerships and its remaining 50% ownership interest in Williamsburg Limited
Partnership, which is accounted for as a joint venture using the equity method
of accounting. The Company also acquired for $400,000 a 49.9% general
partnership interest in a partnership ("Brook Run") which is accounted for as a
joint venture using the equity method of accounting. Effective December 31,
1995, a partner in Brook Run with a 0.1% limited partnership interest assigned
his interest to the Company.
In August 1996, the Company entered into a joint venture with an
affiliated entity to form G.P. Municipal Holdings, L.L.C. ("G.P. Holdings")
(see Note 2). The Company owns a 49.6% interest in G.P. Holdings, which is
accounted for as a joint venture using the equity method of accounting.
At December 31, 1996 the interests of the Company are represented by
three types of partnerships (collectively, the "Property Partnerships"): 1)
interests in the partnerships owned by the Company prior to the Offering (the
"Predecessor Partnerships"), 2) newly created partnerships which own certain
properties acquired by the Company or transferred from other partnerships (the
"New Partnerships"), and 3) real estate limited partnerships in which the
Company owns a joint venture interest (the "Joint Venture Partnerships"). The
following tables set forth the Property Partnerships and their corresponding
operating properties.
F-8
<PAGE>
AMBASSADOR APARTMENTS, INC. (THE COMPANY) AND PRIME PROPERTIES
(THE PREDECESSOR TO THE COMPANY)
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PREDECESSOR PARTNERSHIPS OPERATING PROPERTIES
- ------------------------------------------ ------------------------------------------------------------
<S> <C> <C> <C>
Eagle's Nest Partnership None (1)
LaJolla Partnership None (1)
Cape Cod Partnership None (1)
Braesview Partnership None (1)
Mesa Ridge Partnership None (1)
Prime H.C. Limited Partnership None (1)
Prime Aspen Limited Partnership None (1)
Brookdale Lakes Partners None (1)
Prime Crest, L.P. None (1)
Ambassador I, L.P. Privado Park Quail Ridge Windridge
(formerly Prime MFP Limited Partnership) Shadow Creek Tierra Bonita Bent Oaks
Vista Ventana The Stratford Mountain View
NEW PARTNERSHIPS
----------------
Ambassador II Limited Partnership Sandalwood Country Club West Pine Shadows
(formerly Prime MFP II Limited Trails of Ashford Courtney Park Hidden Lake
Crossroads Heather Ridge Woodlands
LaJolla de Tucson
Ambassador III, L. P. Sun Lake
(formerly Prime MFP III Limited
Ambassador IV, L.P. Falls of Bells Ferry
(formerly Prime MFP IV Limited
Ambassador V, L.P. None
(formerly Prime MFP V Limited
Ambassador VI, L.P. Cypress Ridge Madera Point
(formerly Prime MFP VI Limited Broadmoor Stonybrook
Ambassador VII, L.P. Coral Cove Summit Creek
(formerly Prime MFP VII Limited Tatum Gardens Westway Village
Ambassador VIII, L.P. Eagle's Nest Harbor Cove The Mills
Cape Cod Prime Crest Shallow Creek
LaJolla Royal Crest Franklin Oaks
Mesa Ridge Aspen Hills Crossings of Bellevue
Braesview Brookdale Lakes
Ambassador/CRM Florida Partners Arbors Village Crossing
Limited Partnership Ocean Oaks Haverhill Commons
JOINT VENTURE PARTNERSHIPS
--------------------------
Williamsburg Limited Partnership Williamsburg
Brook Run Associates Brook Run
G.P. Municipal Holdings, LLC N/A
</TABLE>
(1) Transferred properties to Ambassador VIII, L.P. concurrently with the
closing of the FNMA Facility, as described below.
F-9
<PAGE>
AMBASSADOR APARTMENTS, INC. (THE COMPANY) AND PRIME PROPERTIES
(THE PREDECESSOR TO THE COMPANY)
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
(a) Basis of Presentation
The accompanying consolidated financial statements include, subsequent
to the Offering, the accounts of the Company, the Operating Partnership and all
entities in which the Company has majority interest or control. The effects of
all significant intercompany balances and transactions have been eliminated in
the consolidated and combined presentation.
Investments in Joint Venture Partnerships which the Company does not
have a majority interest in, or control of, are accounted for on the equity
method, except that any gains or losses of Williamsburg Limited Partnership
resulting from financing transactions are allocated to the Company, the
managing general partner of Williamsburg Limited Partnership. To the extent
the Company's investment basis differs from its share of the capital of an
unconsolidated Partnership, such difference is amortized over the depreciable
life (20 years) of the unconsolidated Partnership's investment assets.
Certain amounts in the 1995 and 1994 financial statements have been
reclassified to conform with the 1996 consolidated presentation. Such
reclassifications have not changed the results of operations for 1995 and 1994.
(b) Revenue Recognition
Rental revenue is recognized as income in the period earned.
(c) Development Costs
All property renovation costs, including construction, architectural
design and other similar renovation costs incurred during the renovation
period, are capitalized to rental property.
(d) Cash Equivalents
All highly liquid investments, with a maturity of three months or less
when purchased, are considered to be cash equivalents.
(e) Rental Property
Rental property is carried at lower of cost or fair value.
The Company evaluates its rental properties periodically for
indicators of impairment, including recurring operating losses and other
significant adverse changes in the business climate that affect the recovery of
the recorded asset value. If rental property is considered impaired, a loss is
provided to reduce the net carrying value of the asset to its estimated fair
value. No impairment losses are included in the accompanying financial
statements.
F-10
<PAGE>
AMBASSADOR APARTMENTS, INC. (THE COMPANY) AND PRIME PROPERTIES
(THE PREDECESSOR TO THE COMPANY)
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
Depreciation is calculated on the straight-line basis over the
estimated useful lives of the assets which are as follows:
<TABLE>
<S> <C>
Building . . . . . . . . . . . . . . . . . . . . . 30-40 years
Building improvements . . . . . . . . . . . . . . . 5-30 years
Furniture and equipment . . . . . . . . . . . . . . 3-12 years
</TABLE>
Expenditures for ordinary maintenance and repairs are expensed to
operations as incurred. Significant renovations and improvements which improve
and/or extend the useful life of the asset are capitalized and depreciated over
their estimated useful life.
(f) Income Taxes
The Company will continue to make an election to qualify as a REIT.
Under the applicable provisions of the Internal Revenue Code of 1996, as
amended, a REIT will generally not be subject to Federal income tax so long as
it distributes at least 95% of its REIT taxable income to its shareholders and
complies with certain other requirements. Even if the Company qualifies as a
non-taxable entity for Federal income tax purposes, the Company may be subject
to certain state or local taxes on its income and property depending on the tax
laws of particular states. Prior to the Offering, no provision for Federal
income taxes has been made in the accompanying combined financial statements of
the Predecessor as the liability for any such taxes is that of the partners of
the respective combined entities rather than the Predecessor.
As of December 31, 1996 the bases of the Company's net assets reported
in the Company's consolidated financial statements exceeded the tax bases by
approximately $6.0 million.
(g) Deferred Financing Costs
Deferred financing costs include costs incurred to obtain long-term
financing and interest rate protection. The deferred financing costs are being
amortized over the terms of their respective agreements on a straight-line
basis. During 1996, unamortized deferred financing costs of approximately $9.8
million were fully amortized due to sale of the interest rate cap, early
repayment of bridge financing, and reissuance of certain bonds in connection
with replacement of credit enhancement. During 1995, unamortized deferred
financing costs were written off upon the Company's acquisition of its fixed
rate bonds, termination of standby purchase agreements with the Lumbermens
Mutual Casualty Company ("Kemper Lender"), and the Company's sale of the
Laurelwood property. The total unamortized financing costs written off due to
the transactions mentioned above was approximately $2.0 million. Unamortized
financing costs written off due to early repayment of debt in 1994 were
approximately $855,000.
<TABLE>
<CAPTION>
(IN 000's)
DECEMBER 31
-----------------------------------------
1996 1995 1994
---------- ----------- -----------
<S> <C> <C> <C>
$ 25,558 $ 15,796 $ 12,163
Deferred financing costs . . . . . . . . . . .
Accumulated amortization . . . . . . . . . . . (15,918) (4,266) (1,474)
---------- ----------- -----------
$ 9,640 $ 11,530 $ 10,689
---------- ----------- -----------
---------- ----------- -----------
</TABLE>
F-11
<PAGE>
AMBASSADOR APARTMENTS, INC. (THE COMPANY) AND PRIME PROPERTIES
(THE PREDECESSOR TO THE COMPANY)
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
(h) Minority Interest
Concurrently with the formation of the Operating Partnership, PGI and
certain senior executives of the Company contributed assets in exchange for
863,983 Common Units, and certain senior executives purchased 100,000 Common
Units in the Operating Partnership. PGI and certain senior executives of the
Company hold these Common Units as Limited Partners. The partners' equity of
the Operating Partnership excludes loans made by the Operating Partnership to
certain senior executives of the Company in the amounts of $1.4 million and
$250,000 ($1.3 million and $244,000, respectively, at December 31, 1996) to
acquire 84,375 and 15,625 Common Units, respectively. However, the minority
interest percentage in the Operating Partnership includes such Common Units
because these executives will receive all of the benefits of a Common Unit
holder. The loans are collateralized by pledges of the Common Units acquired
with the loan proceeds. The loans bear interest at the prime rate (8.50% at
December 31, 1996 and 1995) plus 0.50% per annum and have a maturity date of
August 31, 2004.
The 963,983 Common Units held by Limited Partners have the same
characteristics as 963,983 shares of Common Stock in as much as they share
proportionately in any distributions of the Operating Partnership. The
minority interest ownership percentage is calculated by dividing the number of
Common Units held by Limited Partners divided by the total number of
outstanding Common Units.
On March 27, 1996, the Company, through its affiliates, formed two new
limited partnerships, Jupiter-I, L.P. and Jupiter-II, L.P., which hold 99%
limited partnership interests in Ambassador I, L.P. and Ambassador VII, L.P.,
respectively. The Company, through its affiliates, holds a 1% general
partnership interest in both Ambassador I, L.P. and Ambassador VII, L.P. and a
49.6% general partnership interest in both Jupiter-I, L.P. and Jupiter-II, L.P.
In return for a capital contribution of $17.8 million, a Japanese
corporation ("Investor I") received a 50.4% limited partnership interest in
Jupiter-I, L.P. In return for a capital contribution of $5.2 million, a
Japanese individual ("Investor II") received a 50.4% limited partnership
interest in Jupiter-II, L.P. The Company used the proceeds to pay
approximately $1.4 million of placement fees and formation costs for Jupiter-I,
L.P. and Jupiter-II, L.P. and approximately $21.6 million to repay principal
outstanding on the Company's Nomura Revolving Loan (defined below). The
Company treats as minority interest any profits and losses allocated to
Investor I and Investor II in accordance with the respective partnership
agreements of Jupiter-I, L.P. and Jupiter-II, L.P.
The partnership agreements of Jupiter-I, L.P. and Jupiter-II, L.P.
provide that profits and losses will generally be distributed to the partners
as follows. All depreciation of the applicable properties (see above) shall be
allocated to the partners in proportion to their respective ownership
percentages. All other profit and loss (excluding depreciation) from the
applicable properties shall be allocated to the partners in proportion to the
amount of cash distributed to each partner during the year (see below).
F-12
<PAGE>
AMBASSADOR APARTMENTS, INC. (THE COMPANY) AND PRIME PROPERTIES
(THE PREDECESSOR TO THE COMPANY)
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
To the extent available, the following cash distributions shall be
made to the partners of Jupiter-I, L.P. First, Investor I shall receive an
8.5% per annum cumulative priority return on its original investment, paid
monthly in arrears. Second, the Company shall receive an 8.5% per annum
cumulative priority return on its capital contribution (as defined) into
Jupiter-I, L.P., paid monthly in arrears. Third, the Company shall receive
excess cash flow up to a specified amount (as defined), paid quarterly in
arrears. Fourth, any remaining excess cash flow from Ambassador I, L.P. is
paid quarterly in arrears, 30% to Investor I and 70% to the Company.
To the extent available, the following cash distributions shall be
made from Ambassador VII, L.P. to the partners of Jupiter-II, L.P. First,
Investor II receives an 8.5% per annum cumulative priority return on its
original investment, paid monthly in arrears. Second, the Company receives an
8.5% per annum cumulative priority return on its capital contribution (as
defined) into Jupiter-II, L.P., paid monthly in arrears. Third, the Company
receives excess cash flow up to a specified amount (as defined), paid quarterly
in arrears. Fourth, any remaining excess cash flow from Ambassador VII, L.P.
is paid quarterly in arrears, 30% to Investor II and 70% to the Company.
At any time following the fifth, but automatically upon the seventh,
anniversary of the formation of Jupiter-I, L.P. and Jupiter-II, L.P., Investor
I and Investor II are each entitled to a redemption of their partnership
interests in the form of cash and/or Common Stock in the Company. The election
of the form of the redemptions (cash or stock) is at the sole and absolute
discretion of the Company. The Company has reserved 1,195,233 shares of Common
Stock for issuance upon conversion of the limited partnership interests by
Investor I and Investor II.
(i) Earnings Per Share of Common Stock
Primary earnings (loss) per Common Stock were computed by dividing
earnings (loss) after deduction of Class A Preferred Stock dividends by the
average number of common and dilutive equivalent shares outstanding, which
there are none. Fully diluted per share of Common Stock amounts assume
conversion of Class A Preferred Stock and the elimination of the related Class
A Preferred Stock dividend requirement as well as conversion of Investor I and
Investor II limited partnership interests in certain of the Company's
consolidated subsidiaries into Common Stock and elimination of the related
Minority Interest representing income allocated to Investor I and II. The
conversion of a Common Unit to Common Stock will have no effect on earnings per
share of Common Stock since the allocation of earnings to a Common Unit is
equivalent to earnings allocated to a share of Common Stock.
F-13
<PAGE>
AMBASSADOR APARTMENTS, INC. (THE COMPANY) AND PRIME PROPERTIES
(THE PREDECESSOR TO THE COMPANY)
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
(j) Derivative Financial Instruments
The Company has entered into swap transactions to modify the interest
characteristics with respect to certain of its variable rate tax-exempt bonds
(see Note 2). The agreements involve the exchange of amounts based on a fixed
interest rate for amounts based on variable rates over the life of the
agreement without an exchange for the notional amount upon which the payments
are based. The differential to be paid or received as interest rates change is
accrued and recognized as an adjustment of interest expense related to the
debt. The related amount payable to or receivable from the counter party is
included in other liabilities or accounts receivable. The fair value of any
swap agreement that qualifies as a hedge is not recognized in the financial
statements. The gain or loss on any termination of the interest rate swap
agreement will be deferred and amortized as an adjustment to interest expense
related to the debt over the remaining term of the original contractual life of
the terminated swap agreement. In the event of the early extinguishment of the
related debt, any realized or unrealized gain or loss from the swap would be
recognized in income coincident with the extinguishment. Other swap agreements
are recorded at fair value.
The Company purchased interest rate protection to hedge its exposure
to increases in interest costs for certain other of its variable rate
tax-exempt bonds (see Note 2). The premium paid for the Company's interest
rate protection is included in deferred financing costs and is amortized
ratably over the term of the related interest rate protection agreement.
Payments received as a result of the specified interest rate index exceeding
the strike price are accrued in accounts receivable and are recognized as a
reduction of interest expense (the accrual accounting method). Upon any
termination of the interest rate protection agreement, any gain or loss is
recognized in income coincident with the termination.
The Company is exposed to credit loss in the event of non performance
by counter-parties on the interest rate swap agreements, but the Company does
not expect non-performance by any of these counter parties. The amount of such
exposure is generally limited to the amount of any payments due but not yet
received from the counter party.
(k) Use of Estimates
The preparation of the financial statements in accordance with
generally accepted accounting principles requires management to make estimates
and assumptions that affect amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
F-14
<PAGE>
AMBASSADOR APARTMENTS, INC. (THE COMPANY) AND PRIME PROPERTIES
(THE PREDECESSOR TO THE COMPANY)
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
(l) Stock Based Compensation
Effective January 1, 1996, the Company adopted SFAS No. 123,
"Accounting for Stock-Based Compensation." This Statement defines a fair value
based method of accounting for an employee stock option or similar equity
instrument and encourages all entities to adopt that method of accounting for
all of their employee stock compensation plans. However, it also allows an
entity to continue to measure compensation cost for those plans using the
intrinsic value based method of accounting prescribed by Accounting Principles
Board ("APB") Opinion No. 25, "Accounting for Stock Issued to Employees."
Under the fair value based method, compensation cost is measured at the grant
date based on the value of the award and is recognized over the service period,
which is usually the vesting period. Under the intrinsic value based method,
compensation cost is the excess, if any, of the quoted market price of the
stock at the grant date or other measurement date over the amount an employee
must pay to acquire the stock. The Company has elected to continue to account
for its employee stock compensation plans under APB Opinion No. 25. Unaudited
pro forma disclosures of net earnings and earnings per share, as if the fair
value based method of accounting defined in SFAS No. 123 had been applied, are
presented in Note 6.
F-15
<PAGE>
AMBASSADOR APARTMENTS, INC. (THE COMPANY) AND PRIME PROPERTIES
(THE PREDECESSOR TO THE COMPANY)
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
2. DEBT (A)
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------
1996 1995 MATURITY DATE
-------- -------- -------------
(IN 000'S)
<S> <C> <C> <C>
BONDS PAYABLE
Prime Crest (B)(D).......................... $ 2,400 $ 2,400 12/21
Royal Crest (B)(D).......................... 3,400 3,400 12/21
Aspen Hills (B)(D).......................... 9,800 9,800 12/21
Eagle's Nest (B)(D)......................... 5,200 5,200 12/21
LaJolla (B)(D).............................. 10,000 10,000 12/21
Cape Cod (B)(D)............................. 8,100 8,100 12/21
Braesview (B)(D)............................ 20,500 20,500 12/21
Mesa Ridge (B)(D)........................... 5,100 5,100 12/21
Harbor Cove (B)(D).......................... 5,900 5,900 12/21
Brookdale Lakes (B)(D)...................... 14,800 14,800 12/26
Bent Oaks (B)(D)............................ 4,400 4,400 12/23
Privado Park (B)(D)......................... 9,200 9,200 12/33
Quail Ridge (B)(D).......................... 6,400 6,400 12/33
Shadow Creek (B)(D)......................... 5,600 5,600 12/33
Vista Ventana (B)(D)........................ 6,400 6,400 12/33
Cypress Ridge (C)(E)........................ 4,250 -- 06/26
The Mills (B)(D)............................ 14,575 -- 12/26
The Stratford (B)(D)........................ 5,945 5,945 12/21
Broadmoor (C)(E)............................ 6,000 -- 06/26
Windridge (B)(D)............................ 6,270 6,270 12/21
Shallow Creek (B)(D)........................ 2,300 -- 12/26
Tierra Bonita (B)(D)........................ 6,000 6,000 12/33
Franklin Oaks (B)(D)........................ 17,700 17,700 12/21
Falls of Bells Ferry (H).................... 28,935 28,935 02/09
Madera Point (C)(E)......................... 7,180 -- 06/26
Arbors (B)(F)............................... 7,280 -- 08/15
Ocean Oaks (B)(F)........................... 10,920 -- 08/15
Village Crossing (F)........................ 9,800 -- 12/07
Haverhill Commons (F)....................... 10,950 -- 12/07
Crossings of Bellevue (G)................... 8,572 -- 05/97
Sun Lake (G)................................ 15,478 -- 10/25
-------- --------
Total Bonds Payable......................... $279,355 $182,050
-------- --------
-------- --------
NOTES PAYABLE
Bank One Loan (J) $ 63,950 $ -- 06/99
LaJolla Note (I) -- 930 --
Coral Cove (K) 4,031 -- 04/26
Summit Creek (K) 3,583 -- 04/26
Tatum Gardens (K) 3,483 -- 04/26
Westway Village (K) 4,927 -- 04/26
Nomura Revolving Loan (J) -- 47,001 --
-------- --------
Total Notes Payable $ 79,974 $ 47,931
-------- --------
-------- --------
</TABLE>
- ------------
F-16
<PAGE>
AMBASSADOR APARTMENTS, INC. (THE COMPANY) AND PRIME PROPERTIES
(THE PREDECESSOR TO THE COMPANY)
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
(A) Debt is collateralized by substantially all of the assets of the
respective Partnerships.
(B) Permanent financing for these properties has been provided by variable
rate tax-exempt revenue bonds (the "Bonds"). Under the terms of the
bond loan agreements, the respective issuing Partnerships are to make
interest-only payments calculated using a variable rate determined by
the remarketing agents of the Bonds. The rates ranged from 2.5% to
7.0% for the year ended December 31, 1996, 2.7% to 6.0% for the year
ended December 31, 1995 and 1.75% to 5.55% in 1994. Under certain
conditions, the interest rate on the Bonds may be converted to a fixed
rate at the request of the respective Partnership. A bondholder may
tender the Bonds during the variable interest rate period and receive
principal, plus accrued interest through the tender date. Upon
tender, the remarketing agents shall immediately remarket the Bonds.
In the event the remarketing agents fail to remarket any of the Bonds,
the Partnerships are obligated to purchase those Bonds, for which they
may draw on the letters of credit. The remarketing agents receive a
fee between 0.08% and 0.125% per annum of the outstanding Bond
balance, payable quarterly in arrears. Such fees are included as
financing fees in the accompanying consolidated and combined
statements of operations.
Under the terms of the bond loan agreements, the Bond proceeds were
deposited in escrow accounts with trustee third-party banks. The Bond
funds were used for development costs including the acquisition and
rehabilitation of the properties owned by the Partnerships. As of
December 31, 1996, $549,000 remains in escrow for future renovation
programs.
(C) Permanent financing for these properties has been provided by fixed
rate tax-exempt term bonds (the "Term Bonds"). Under the terms of the
bond loan agreements, the respective issuing Partnerships are to make
interest-only payments using a fixed rate ranging from 5.3% to 6.35%
depending upon the maturity date of each series of bonds. The Term
Bonds proceeds were deposited into escrow accounts with trustee
third-party banks. The Term Bonds funds were used for development
costs including the acquisition and rehabilitation of the properties
owned by the Partnerships. As of December 31, 1996, there were no
funds in escrow for future renovation costs associated with the Term
Bonds. The Term Bonds are subject to mandatory redemption dates
beginning on June 1, 2006 with final maturity of the Term Bonds on
June 1, 2026.
(D) On December 18, 1996, the Company replaced its letters of credit on
approximately $186.5 million of existing variable rate tax-exempt
bonds associated with 22 of its properties (including Williamsburg)
with a single facility (the "FNMA Facility") issued by Federal
National Mortgage Association ("FNMA"). FNMA has established three
separate mortgage pools as collateral for providing credit enhancement
on the bonds. The first pool, which consists of 13 properties that
have a carrying value of approximately $140.6 million at December 31,
1996, collateralizes $119.8 million of variable rate tax-exempt bonds.
The second pool collateralizes $50.2 million of variable rate
tax-exempt bonds relating to eight properties owned by Ambassador I,
L.P. (formerly Prime MFP Limited Partnership), whose carrying value
approximated $61.0 million at December 31, 1996. The third pool
collateralizes $16.5 million of variable rate tax- exempt bonds
relating to the Williamsburg property, whose carrying value
approximated $15.0 million at December 31, 1996. The credit
enhancement agreements are collateralized by first mortgages on the
properties.
F-17
<PAGE>
AMBASSADOR APARTMENTS, INC. (THE COMPANY) AND PRIME PROPERTIES
(THE PREDECESSOR TO THE COMPANY)
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
FNMA is entitled to credit enhancement fees on the FNMA Facility at a
weighted average rate of 1.04% per annum of the base value of the
bonds, less any cash collateral. FNMA also receives a reserve fee of
0.38% per annum on the amount of cash collateral with respect to the
FNMA Facility. The credit enhancement and reserve fees are payable
monthly in advance.
As additional collateral, the Company deposited $15.2 million with
FNMA into an interest bearing escrow account. The Company is also
making monthly principal reserve payments of approximately $243,000 to
FNMA which will be used to redeem bonds. The FNMA credit enhancement
matures on December 1, 2021.
(E) On October 1, 1996, the Company entered into Insurance and Indemnity
Agreements with Financial Security Assurance, Inc. ("FSA") to provide
credit enhancement for these three bond issues. The Company made a
ten year prepayment of the insurance premium in the amount of
$775,937, which is included in other assets and will be expensed over
a ten year period. In addition, an annual insurance premium will be
due in the amount of 0.6% payable monthly in advance on the face
amount of the bonds, commencing June 12, 2006. The Insurance and
Indemnity Agreements have expiration dates consistent with the
redemption dates of the bonds themselves with maturities that begin on
June 1, 2006 with final maturity of the bonds on June 1, 2026. The
Insurance and Indemnity Agreements are collateralized by first
mortgages on the properties, whose carrying value approximated $22.3
million at December 31, 1996.
(F) Permanent financing for these properties has been provided by variable
rate tax-exempt bonds (the "Florida Bonds"). The interest rate on
$20.7 million of the Florida Bonds is reset annually by the
remarketing agent on December 1 of each year. At December 31, 1996
the rate was 8.5% (pay rate of 6.0% and 2.5% deferred rate) and is
paid monthly in arrears. Deferred interest, if any, is paid every
August 1 and February 1. These bonds were issued by Housing Finance
Authority of Palm Beach County and have a maturity date of December 1,
2007. Interest on the remaining $18.2 million Florida Bonds is
currently calculated using a variable rate determined by the
respective remarketing agent of the bonds. The interest rate is
currently reset on a weekly basis. These bonds were also issued by
Housing Finance Authority of Volusia County and have a maturity date
of August 1, 2015. The Company's obligation under the Florida Bonds
is collateralized by first mortgages on the properties, whose carrying
value approximated $38.3 million at December 31, 1996.
Concurrent with the acquisition of the Florida Properties, the
Company, through G.P. Holdings, contributed its interest in the
Florida Bonds to TEB Municipal Trust I, a New York Trust ("TEB") in
which G.P. Holdings is the managing depositor of TEB. TEB, in turn,
sold $27.0 million in Class A certificates of beneficial interests in
TEB. The Class A certificates are credit enhanced by Bank One, Akron
and are priced as AA rated seven day variable rate tax exempt bonds.
The interest rate on the Class A certificates is swapped for seven
years at 4.85% with Goldman Sachs. On October 25, 1996, TEB sold
$10.0 million in Class B certificates to a group of individual
investors. The Class B certificates earn interest at a fixed rate of
12% per annum, paid monthly. G.P. Holdings holds the remaining $2.0
million in Class G certificates which earn interest equal to the
excess of interest earned by TEB
F-18
<PAGE>
AMBASSADOR APARTMENTS, INC. (THE COMPANY) AND PRIME PROPERTIES
(THE PREDECESSOR TO THE COMPANY)
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
ownership of the Florida Bonds over distributions paid to the Class A
and Class B certificate holders. Under the terms of the LLC
agreement, the Company received 100% of any excess cash flows, as
defined, from G.P. Holdings at December 31, 1996.
(G) Under the terms of the Bellevue Bonds note agreement, the Company
currently makes monthly principal and interest payments based on a
30-year amortization. The Bellevue Bonds bear interest at 9.3% and
were issued by The Industrial Development Board of the Metropolitan
Government of Nashville and Davidson County. The Bellevue Bonds are
guaranteed by FNMA and mature on May 1, 1997. The Company is
currently negotiating with FNMA to include the Bellevue Bonds under
the FNMA Facility. The guaranty is collateralized by a first mortgage
on the property, whose carrying value approximated $15.7 million at
December 31, 1996.
Under the terms of the Sun Lake Bonds note agreement, the Company
currently makes monthly principal and interest payment based on a 30-
year amortization. The Sun Lake Bonds bear interest at 6.45% and were
issued by the Orange County Housing Finance Authority. The Sun Lake
Bonds are also guaranteed by FNMA and mature on October 1, 2025. The
guaranty is collateralized by a first mortgage on the property, whose
carrying value approximated $24.3 million at December 31, 1996.
(H) Under the terms of the Falls Bonds loan agreement, the issuing
Partnership is to make interest-only payments calculated using a one-
year fixed rate determined by the remarketing agents of the Falls
Bonds which is adjusted annually on January 15. The rate was 3.55% at
December 31, 1996 and 5.25% at December 31, 1995. Under certain
conditions the interest rate on the Falls Bonds may be converted to a
long-term fixed rate at the request of the Partnership.
The Falls Bonds are collateralized by an irrevocable letter of credit
issued by Guardian Savings and Loan Association. A letter of credit
fee of 1% per annum of the outstanding amount of the letter of credit
for the period from September 1, 1995 through August 15, 2004, and 2%
per annum of the outstanding amount of the letter of credit from
August 16, 2004 through August 15, 2006, and 2 1/2% per annum from
August 16, 2006 through February 1, 2009. The letter of credit is
collateralized by a mortgage on the property, whose carrying value
approximated $31.3 million at December 31, 1996, and cash placed in
escrow with Guardian Savings and Loan Association of $3.3 million.
The cash collateral will remain in place for as long as the Letter of
Credit is outstanding. The letter of credit expires on February 1,
2009. The total commitment outstanding under the letter of credit at
December 31, 1996 is approximately $29.5 million. The due date of the
Falls Bonds would be accelerated upon the expiration of the letter of
credit unless the letter of credit is extended or replaced.
A bondholder may tender the Falls Bonds during the one year fixed rate
period and receive principal, plus accrued interest through the tender
date. Upon tender, the remarketing agents shall immediately remarket
the Falls Bonds. In the event the remarketing agents fail to remarket
any of the Falls Bonds, the Partnerships are obligated to purchase the
Falls Bonds, for which they may draw on the letters of credit. The
remarketing agents receive a fee of
F-19
<PAGE>
AMBASSADOR APARTMENTS, INC. (THE COMPANY) AND PRIME PROPERTIES
(THE PREDECESSOR TO THE COMPANY)
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
0.325% per annum payable quarterly in arrears. Such fees are included
as financing fees in the accompanying consolidated statement of
operations.
(I) Pursuant to a rehabilitation loan agreement with the City of San
Antonio, the loan bore no interest as long as certain rehabilitation
restrictions were met and required monthly principal payments of
$10,000 which began on February 1, 1995. On December 18, 1996, the
Company repaid the entire outstanding principal balance on this loan.
(J) Concurrent with the Offering, the Company entered into an agreement
for a revolving credit facility (the "Nomura Revolving Loan") with
Nomura Asset Capital Corporation ("Nomura") for approximately $43.5
million which was subsequently increased to $100.0 million.
Borrowings under this facility bore interest at a floating rate equal
to 1.75% per annum above the 30-day LIBOR rate.
On June 26, 1996, the Company refinanced its Nomura Revolving Loan,
with Bank One Arizona, NA (the "Bank One Loan"). The Bank One Loan
bears interest at a variable rate between LIBOR plus 1.70% and 1.95%
(as defined in the Bank One Loan Credit Agreement) and has a maximum
commitment of $75.0 million based upon the amount of collateral
pledged by the Company. As of December 31, 1996, the amount available
under the Bank One Loan is approximately $64.0 million. As of
December 31, 1996, ten properties, whose carrying value approximated
$85.8 million, are pledged as collateral under the Bank One Loan and
$64.0 million was outstanding. The Bank One Loan matures on June 26,
1999. However, the Company may request one year extensions pursuant
to the terms of the agreement.
The Company was not in compliance with certain covenants relating to
its Bank One Loan as of December 31, 1996. However, the Company has
obtained a waiver covering the period through June 30, 1997 and is
currently negotiating with Bank One to modify the loan agreement. The
ultimate outcome of their negotiations cannot be determined at this
time. Accordingly, 1997 maturities in the five year debt schedule
below incudes the outstanding principal amount of the Bank One Loan.
(K) Ambassador VII, L.P. (formerly Prime MFP VII Limited Partnership) was
formed to own four properties (Coral Cove, Westway Village, Summit
Creek and Tatum Gardens). In connection with the formation of
Jupiter-II, L.P., Nomura provided a $16.1 million loan collateralized
by the four properties, whose carrying value approximated $23.7
million at December 31, 1996. Under the terms of the loan agreements,
payments of principal and interest at a rate equal to 7.88% based on a
30- year amortization are due monthly in advance. The loan matures on
April 11, 2026.
Interest Rate Protection Facilities
On August 31, 1994, the Company acquired an interest rate cap for
approximately $5.6 million to protect itself from interest rate fluctuations.
On March 14, 1996, the Company sold its interest rate protection contract for
approximately $1.5 million. As a result of this sale, the Company recognized
$2.1 million loss, net of minority interest.
F-20
<PAGE>
AMBASSADOR APARTMENTS, INC. (THE COMPANY) AND PRIME PROPERTIES
(THE PREDECESSOR TO THE COMPANY)
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
On May 26, 1995, the Company entered into a swap transaction with
Nomura Capital Services, Inc. ("NCSI") pursuant to which the Company paid a
fixed rate on approximately $130.0 million of its variable rate tax-exempt
bonds. Under the terms of the swap agreement, the Company paid, quarterly in
advance, a fixed rate of 6.498% on a notional amount of $94.0 million to NCSI,
which results in an effective interest rate of 4.7% on $130.0 million of the
Company's variable rate tax-exempt bonds, and NCSI paid a variable amount based
on 72.5% of 30 day LIBOR rate on $94.0 million notional amount. Management
believes that there is a reasonable correlation between changes in the LIBOR
rate (on which the fixed rate was based) and the Kenny Index (the tax-exempt
bond index.) The swap agreement had a maturity date of May 26, 2005. However,
this swap agreement was canceled on December 9, 1996 as described below.
On February 27, 1996, the Company entered into a swap transaction with
NCSI (subsequently assigned to Salomon Brothers) pursuant to which the Company
pays a variable rate (71% of 30-day LIBOR) on a notional amount of $130.0
million of variable rate tax-exempt bonds to Salomon Brothers. The Company
receives a floating rate based on the Kenny Index. This swap agreement matures
on February 26, 1999.
On March 14, 1996, the Company entered into an additional interest
rate swap transaction with NCSI pursuant to which the Company paid a fixed rate
of 6.55% on a notional amount of approximately $17.0 million to NCSI, which
resulted in an effective interest rate of approximately 4.72% on $23.6 million
of variable rate tax-exempt bonds. This swap agreement had a maturity date of
March 17, 2003. However, this swap agreement was also canceled on December 9,
1996 as described below.
On October 3, 1996, the Company entered into an interest rate swap
transaction with Goldman Sachs Capital Markets, L.P. ("Goldman") pursuant to
which the Company pays a fixed rate of $26.5 million of its variable rate
tax-exempt bonds. Under this swap agreement, the Company pays, quarterly in
advance, a fixed rate of 6.84% to Goldman and receives a floating rate based on
a 30-day LIBOR.
On December 9, 1996, the Company canceled its swap agreements with
respect to its $94.0 million and $17.0 million swap transaction entered into
with NCSI and entered into a new swap transaction with Credit Lyonnais New York
Branch ("CLNY"). Pursuant to this swap agreement, the Company pays a fixed
rate on $186.5 million (including Williamsburg Limited Partnership) of its
variable rate tax-exempt bonds. Under the terms of the agreement, the Company
pays a fixed rate of 4.636% on a notional amount of $186.5 million to CLNY and
receives a floating rate based on the PSA Municipal Swap Index. The swap
agreement matures on December 9, 2003.
The loss on cancellation of the swap agreements of approximately $1.4
million will be amortized over the original life of the swap and recognized as
an adjustment to interest expense on the underlying bonds.
F-21
<PAGE>
AMBASSADOR APARTMENTS, INC. (THE COMPANY) AND PRIME PROPERTIES
(THE PREDECESSOR TO THE COMPANY)
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
Other
Interest costs were as follows:
<TABLE>
<CAPTION>
(IN 000'S)
YEAR ENDED DECEMBER 31,
-----------------------------------------------
1996 1995 1994
----------- ----------- ------------
<S> <C> <C> <C>
Total interest incurred . . . . . . . . . $ 14,145 $ 8,903 $ 6,860
Interest paid . . . . . . . . . . . . . . 13,232 8,995 7,098
</TABLE>
Scheduled principal payments of bonds and notes payable and sinking
fund deposits as of December 31, 1996 are as follows:
<TABLE>
<CAPTION>
(IN 000'S)
-----------
<S> <C>
1997 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 75,893
1998 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,373
1999 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,387
2000 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,407
2001 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,427
Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 269,842
---------
$ 359,329
---------
---------
</TABLE>
3. TRANSACTIONS WITH RELATED PARTIES
Prior to the Offering, PGI and/or certain subsidiaries of Kemper
Corporation ("Kemper Companies") were entitled to payments and fees for various
services performed for the Predecessor.
<TABLE>
<CAPTION>
(IN 000'S)
YEAR ENDED DECEMBER 31,
-------------------------------------------------
1996 1995 1994
--------- -------- --------
<S> <C> <C> <C>
-- -- $937(A)
Property management fees . . . . . . . . . .
Asset management fees . . . . . . . . . . . . -- -- 172(A)
- ----------------------------
</TABLE>
(A) Incurred and paid prior to the Offering.
There were no amounts due to PGI and/or Kemper Companies at December
31, 1996 or 1995.
4. UTILITY DEPOSITS
Certain Partnerships are required to place escrow deposits with local
utility companies. The deposits are typically for a two year period and accrue
interest at an average rate of approximately 4% per annum. Total utility
deposits, including accrued interest, at December 31, 1996 and December 31,
1995 are approximately $1.0 million and $746,600, respectively. Such deposits
are included in accounts receivable.
5. NOTE RECEIVABLE--OFFICER
Concurrently with the Offering, the Operating Partnership made a
limited recourse loan to a senior executive of the Company in the amount of
$1.0 million which he used to pay income taxes due in connection with the
transfer by PGI to him of 156,250 Common Units. The loan is
F-22
<PAGE>
AMBASSADOR APARTMENTS, INC. (THE COMPANY) AND PRIME PROPERTIES
(THE PREDECESSOR TO THE COMPANY)
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
collateralized by a subordinate pledge of these Common Units. The loan bears
interest at 8% per annum and matures on March 1, 1998.
6. STOCK OPTION PLAN
In 1994, the Company established a stock option plan for the purpose
of attracting and retaining directors, executive officers and other significant
employees (the "1994 Option Plan"). The Company authorized the issuance of
options to purchase 425,000 shares of Common Stock. In 1996, however, the
Company's board of directors amended the 1994 Option Plan to increase the
number of options to purchase Common Stock from 425,000 to 469,000.
Options to purchase an aggregate of 322,000 shares of Common Stock
were granted at a purchase price of $16 per share to Michael W. Reschke and
three executive officers. Options to purchase an aggregate of 30,000 shares of
Common Stock were also granted to four outside directors at a purchase price of
$16 per share. These options vest at a rate 33 1/3% per year over the next
three years. These initial options have a grant date of August 31, 1994 and a
term of ten years.
In 1995, options to purchase 19,000 shares of Common Stock were
granted under the 1994 Option Plan at a purchase price of between $15.53 per
share and $16 per share to certain key employees. These options vested in
certain cases immediately upon the grant date or up to two years, and they have
terms of five to ten years.
In 1996, options to purchase 90,000 shares of Common Stock were
granted to four executive officers of the Company, pursuant to the 1994 Option
Plan, at a purchase price of between $17.50 and $18.65 per share. Certain of
these options vest ratably over the next 48 months and have a term of ten
years. The remaining options vest over six months and a ten year term. The
Company also granted options to purchase 18,000 shares of Common Stock to
certain key employees at a purchase price of $16.95 per share. These options
vested immediately upon the grant date of the options and have a five year
term.
The board of directors of the Company established a new stock option
plan in 1996 (the "1996 Option Plan") to attract and retain directors,
executive officers and other significant employees. The 1996 plan is subject
to stockholder approval at the Company's May 15, 1997 annual meeting. Under the
1996 Option Plan, the Company authorized the issuance of an additional 200,000
shares of Common Stock (subsequently increased to 250,000 in March 1997) .
During 1996 options to purchase an aggregate of 85,000 shares of Common Stock
at a purchase price of $22 per share were granted to three executive officers
of the Company. The options vest ratably over the next 48 months and have a
term of ten years. Additionally, under the 1996 Option Plan, options to
purchase an aggregate of 37,500 shares of Common Stock were granted to four
outside directors of the Company and Michael W. Reschke. These options vested
immediately upon the grant date and have a ten year term.
At December 31, 1996, none of the options granted has been exercised
under either the 1994 or 1996 Option Plan. Options for 67,500 and 51,000
shares of Common Stock are available for grant at December 31, 1996 and 1995,
respectively.
F-23
<PAGE>
AMBASSADOR APARTMENTS, INC. (THE COMPANY) AND PRIME PROPERTIES
(THE PREDECESSOR TO THE COMPANY)
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
Information on stock options is shown in the following table:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING EXERCISABLE OPTIONS
--------------------------------- --------------------------------
WEIGHTED-AVERAGE WEIGHTED-AVERAGE
SHARES EXERCISE PRICE SHARES EXERCISE PRICE
------ -------------- ------ --------------
<S> <C> <C> <C> <C>
JANUARY 1, 1994 -- --
Options granted 352,000 $16.00
Options canceled (10,000) 16.00
--------------------------------
DECEMBER 31, 1994 342,000 16.00 -- --
Options granted 19,000 15.64
--------------------------------
DECEMBER 31, 1995 361,000 15.98 160,999 $15.95
Options granted 230,500 20.26
--------------------------------
DECEMBER 31, 1996 591,500 $17.63 391,750 $16.90
--------------------------------
--------------------------------
</TABLE>
Exercise prices for options outstanding as of December 31, 1996 ranged
from $15.25 to $22.00. The weighted-average remaining contractual life of
those options is 8.2 years.
The Company measures compensation cost using the intrinsic value-based
method of accounting. Had compensation cost been determined using the fair
market value-based accounting method for options granted in 1996 and 1995,
unaudited pro forma information would be as follows (in thousands except for
earnings per share information):
<TABLE>
<CAPTION>
1996 1995
-------------- ---------------
<S> <C> <C>
$ (5,068) $ 9,862
Unaudited pro forma net (loss) income
Unaudited pro forma earnings per common
share (0.57) 1.10
Unaudited pro forma fully diluted earnings
per share (0.40) N/A
</TABLE>
The weighted average fair value of an option granted in 1996 and 1995
was $6.16 and $5.16, respectively. For purposes of fair market value
disclosures, the fair market value of an option grant was estimated using the
Black-Scholes option pricing model with the following weighted-average
assumptions:
<TABLE>
<CAPTION>
1996 1995
------------ -----------
<S> <C> <C>
Risk-free interest rate 5.7% 6.8%
Dividend yields *0.0% *0.0%
Volatility 19.0% 19.0%
Expected life of option (years) 4.6 5.0
</TABLE>
* Assumes that stock price reflects dividend rate.
7. SAVINGS PLAN
Effective January 1, 1996, the Company established for the employees
of the Company a retirement plan with a salary deferral retirement feature,
which qualifies under section 401 of the Code (the "401(k) Plan"). The 401(k)
Plan permits the employees of the Company to defer a portion
F-24
<PAGE>
AMBASSADOR APARTMENTS, INC. (THE COMPANY) AND PRIME PROPERTIES
(THE PREDECESSOR TO THE COMPANY)
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
of their compensation in accordance with the provisions of section 401(k) of
the Code. The 401(k) Plan allows participants to defer up to 15% of their
eligible compensation on a pre-tax basis subject to certain maximum amounts.
In addition, a profit sharing feature of the 401(k) Plan provides for a
contribution by the Company to be made annually (beginning in February 1997 and
in each February thereafter) on behalf of each participant in an amount, if
any, as determined by the Company based upon a to-be-determined percentage of
increases in profitability from year to year. In February 1997, the Company
contributed a total of $33,000 on behalf of the participants. This amount is
accrued at December 31, 1996, and is included in accounts payable and other
liabilities. Amounts contributed by the Company on behalf of the participant
will vest over a period of five years (20% per year). Amounts contributed by
the Company and amounts contributed by the participants will be held in trust
until distributed to the participant pursuant to the provisions of the 401(k)
Plan.
8. GAIN ON SALE OF RENTAL PROPERTY
On December 15, 1995, the Company sold the Laurelwood property for
$7.7 million, net of closing costs. Laurelwood had a net cost basis of $6.6
million, net of accumulated depreciation of approximately $464,000. The
Company also wrote-off approximately $20,000 of unamortized deferred financing
fees. As a result of the transaction described above, the Company realized a
gain of approximately $966,000, net of minority interest of approximately
$104,000.
9. PREFERRED STOCK
The Company is authorized to issue up to 20 million shares of
preferred stock. On August 15, 1996, the Company issued 1,351,351 shares of
Class A Senior Cumulative Convertible Preferred Stock ("Class A Preferred
Stock"), par value $.01, for $18.50 per share or an aggregate amount of $25
million. Net of underwriting discounts and expenses, the Company received
approximately $24.1 million in net proceeds from the issuance. The Company
contributed the proceeds to the Operating Partnership in exchange for 1,351,351
preferred units of partnership interest ("Class A Preferred Units") of the
Operating Partnership. The Operating Partnership, in turn, used such proceeds
primarily for property acquisitions.
The dividend on the Class A Preferred Stock issued and outstanding is
paid quarterly at an annual rate of (i) $1.68 per share of Class A Preferred
Stock, on or prior to August 14, 1997, (ii) for the period August 15, 1997
through August 14, 1998, $1.73 per share of Class A Preferred Stock, (iii) for
the period August 15, 1998 through August 14, 1999, $1.78 per share of Class A
Preferred Stock, (iv) for the period August 15, 1999 through August 14, 2001,
$1.84 per share of Class A Preferred Stock, (v) for the period August 15, 2001
through August 14, 2002, $1.89 per share of Class A Preferred Stock, and (vi)
on or after August 15, 2002, the greater of (x) $1.68 per Class A Preferred
Stock, per annum or (y) the product of 1.05 of the dividend paid to Common
Stock.
The Class A Preferred Stock is convertible into common stock at the
sole and absolute discretion of the holder. If converted on or prior to August
14, 1997, the number of shares of Class A Preferred Stock convertible into
shares of Common Stock is determined by dividing the number of shares of Class
A Preferred Stock by 1.08. If the conversion occurs after August 15, 1997, the
F-25
<PAGE>
AMBASSADOR APARTMENTS, INC. (THE COMPANY) AND PRIME PROPERTIES
(THE PREDECESSOR TO THE COMPANY)
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
number of shares of Class A Preferred Stock convertible into shares of Common
Stock is determined by dividing the number of shares of Class A Preferred Stock
by 1.0.
The Company has the right to redeem the Class A Preferred Stock on or
after August 15, 2001. Prior to August 14, 2002, the Company has the right to
redeem this Class A Preferred Stock at a premium of 1.06% of the per share
purchase price of $18.50. The premium paid for the Class A Preferred Stock
decreases over an eight year period to zero by August 15, 2010. In the event
of a change of ownership of the Company, the Company may be required by the
holder of Class A Preferred Stock to purchase all of the shares of Class A
Preferred Stock at a price equal to the lesser of (i) $19.98 or (ii) the price
at which the Company has the right to redeem shares of Class A Preferred Stock
from the holders as described above.
Except as limited by law, the holders of the Class A Preferred Stock
are entitled to vote or consent on all matters submitted to the holders or
Common Stock together with the common stock as a single class. Each share of
Preferred Stock will entitle the holder to one vote for each share of common
stock into which such Preferred Stock is convertible as of the record date for
such vote or consent.
10. DIVIDENDS AND DISTRIBUTIONS TO STOCKHOLDERS AND MINORITY INTEREST
The total dividends declared to holders of Common Stock in 1996 and
1995 were approximately $14.3 million and $10.8 million, respectively,
representing $1.60 and $1.20, respectively, per share. Dividends paid to
holders of Common Stock in both 1996 and 1995 were $14.3 million. Of the
dividends paid to stockholders in 1996, approximately $0.94 per share of Common
Stock is considered to be a return of capital and $0.66 per share of Common
Stock is considered to be capital gain.
The total dividends authorized for payment to holders of Class A
Preferred Stock in 1996 were approximately $851,000, representing $0.63 per
share. Dividends paid to holders of Class A Preferred Stock in 1996 were
approximately $284,000.
Total distributions to the Minority Interest include distributions to
the Common Units held by the Limited Partners as well as distributions made to
Investor I and Investor II. Amounts declared in 1996 and 1995 for the Common
Units held by the Limited Partners represent $1.60 and $1.20, respectively, per
Common Unit. The following table summarizes the distributions declared and
paid to the Minority Interest during 1996 and 1995:
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS)
FOR THE YEAR ENDED DECEMBER 31,
---------------------------------------------------------
1996 1995
--------------------- ---------------------
DECLARED PAID DECLARED PAID
-------- ---- -------- ----
<S> <C> <C> <C> <C>
Limited Partners $1,542 $1,542 $1,157 $1,543
Investor I 1,274 1,129 -- --
Investor II 346 308 -- --
</TABLE>
11. FAIR VALUES OF FINANCIAL INSTRUMENTS
F-26
<PAGE>
AMBASSADOR APARTMENTS, INC. (THE COMPANY) AND PRIME PROPERTIES
(THE PREDECESSOR TO THE COMPANY)
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
The following methods and assumptions were used by management in
estimating fair value disclosures for financial instruments:
CASH AND CASH EQUIVALENTS: The carrying amount reported in
the balance sheet for cash and cash equivalents approximates fair
value.
ESCROW DEPOSITS: The carrying amount reported in the balance
sheet for escrow deposits approximates fair value.
ESCROWED BOND FUNDS-RESTRICTED: The carrying amount reported
in the balance sheet for escrowed bond funds-restricted approximates
fair value.
NOTE RECEIVABLE-OFFICER: The carrying amount reported in the
balance sheet for the note receivable officer approximates fair value.
INTEREST RATE CAP: The fair value of the interest rate cap
agreement is estimated based on the Company's current replacement
costs for similar interest rate protection contracts.
INTEREST SWAP: The fair value of the interest rate swap is
estimated based on current settlement values.
BONDS PAYABLE: The carrying amounts of the Company's
tax-exempt variable rate bonds approximate their fair value. Fair
value of fixed rate tax-exempt bonds are estimated using discounted
cash flow analyses, based on quoted market prices for similar
borrowings.
NOTES PAYABLE: The carrying amounts of the Company's notes
payable approximate their fair values based on the Company's current
borrowing rates for similar types of borrowing arrangements. The
carrying amount of accrued interest approximates its fair value.
The carrying amounts and fair values of the Company's financial
instruments at December 31, 1996 and 1995 are as follows:
<TABLE>
<CAPTION>
(IN 000'S) (IN 000'S)
1996 1995
----------------------------- -----------------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
------------ ---------- ----------- -----------
<S> <C> <C> <C> <C>
ASSETS:
Cash and cash equivalents $ 4,002 $ 4,002 $ 5,270 $ 5,270
Escrow deposits 30,897 30,897 12,945 12,945
Escrowed bond funds - restricted 549 549 2,779 2,779
Note receivable - officer 1,000 1,000 1,000 1,000
Interest rate cap -- -- 4,440 1,500
LIABILITIES:
Bonds payable 279,355 279,355 182,050 182,050
Notes payable 79,974 79,974 47,931 47,931
Interest rate swap 798 1,459 -- 4,064
</TABLE>
12. EXTRAORDINARY ITEM
During 1996, unamortized deferred financing costs were written off
upon reissuance of certain bonds in connection with replacement of credit
enhancement. As a result, the Company recognized an extraordinary loss of
approximately $4.3 million, which is net of minority interest of
F-27
<PAGE>
AMBASSADOR APARTMENTS, INC. (THE COMPANY) AND PRIME PROPERTIES
(THE PREDECESSOR TO THE COMPANY)
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
$1.5 million. The Company also wrote off unamortized deferred financing
costs upon the early repayment of bridge financing; the Company recognized an
extraordinary loss of approximately $209,000, which is net of minority
interest of $22,000. In addition, the Company's share of income/loss from
investments in unconsolidated real estate limited partnerships includes an
extraordinary loss of $159,000, which is net of minority interest of $17,000.
As a result of the Company's acquisition of its fixed rate bonds
(see Note 2) and subsequent discounts to the original purchase price paid to
purchase such bonds, the Company recognized an extraordinary gain of
approximately $2.3 million in 1995, net of minority interest of $253,000 and
the $562,000 write-off of deferred financing costs and other loan fees
associated with the bridge financing used to acquire the fixed rate bonds. In
addition, the Company's share of income/loss from investments in
unconsolidated real estate limited partnerships includes extraordinary income
of $2.0 million, net of minority interest of $218,000.
During 1994, unamortized deferred financing costs were written off
upon the repayment of certain mortgage indebtedness. As a result, the Company
recognized an extraordinary item of approximately $772,000, net of minority
interest of $83,000.
13. ACQUISITIONS
During the year ended December 31, 1996, the Company acquired the
properties listed below. Each property was purchased from an unaffiliated
third party. The acquisitions have been accounted for using the purchase
method of accounting and, accordingly, the acquired assets are included in
the statement of operations from their respective dates of acquisition.
Acquisition cost includes the purchase price of the property and related
closing costs.
<TABLE>
<CAPTION>
(IN 000's)
PURCHASE DATE PROPERTY LOCATION UNITS ACQUISITION COST
- --------------- ------------------------- ----------------------- ----- ------------------
<S> <C> <C> <C> <C>
02/09/96 Madera Point (1) Mesa, AZ 256 $11,021
04/18/96 LaJolla de Tucson Tucson, AZ 223 4,883
05/23/96 Stonybrook (2) Tucson, AZ 411 8,938
08/20/96 The Arbors (3) DeLand, FL 224 7,721
08/20/96 Ocean Oaks (3) Port Orange, FL 296 11,471
08/20/96 Village Crossing (3) W. Palm Beach, FL 222 9,253
08/20/96 Haverhill Commons (3) W. Palm Beach, FL 189 10,114
09/30/96 Pine Shadows Tempe, AZ 272 9,451
09/30/96 Heather Ridge Phoenix, AZ 252 7,302
10/01/96 Crossings of Bellevue (4) Nashville, TN 300 15,789
10/28/96 Hidden Lake Tampa, FL 267 5,856
10/28/96 The Woodlands Tampa, FL 416 9,117
11/21/96 Sun Lake (5) Lake Mary, FL 600 24,318
</TABLE>
(1) The Company financed a portion of the acquisition of Madera Point by
assuming $8.1 million of tax exempt bonds. Concurrently with the acquisition,
the Company also purchased the bonds, a portion of which were subsequently
sold (see Note 2).
(2) The Company financed a portion of the acquisition of Stonybrook by
assuming $4.1 million of tax exempt bonds. Concurrently with the acquisition,
the Company also purchased and continues to hold the bonds.
F-28
<PAGE>
AMBASSADOR APARTMENTS, INC. (THE COMPANY) AND PRIME PROPERTIES
(THE PREDECESSOR TO THE COMPANY)
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
(3) The Company financed a portion of the acquisition of The Arbors,
Ocean Oaks, Village Crossing, and Haverhill Commons (collectively, the
"Florida Properties") by assuming $39.0 million of tax exempt bonds.
Concurrently with the acquisition, the Company also purchased the $39.0
million in tax-exempt bonds for $37.5 million, of which $37.0 was
subsequently sold (See note 2).
(4) The Company financed a portion of the acquisition of the Crossings of
Bellevue by assuming $8.6 million of variable-rate, tax exempt bonds.
(5) The Company financed a portion of the acquisition of Sun Lake by
assuming $15.5 million of variable-rate, tax exempt bonds.
F-29
<PAGE>
AMBASSADOR APARTMENTS, INC. (THE COMPANY) AND PRIME PROPERTIES
(THE PREDECESSOR TO THE COMPANY)
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
14. LEGAL PROCEEDINGS
The Company is involved in a variety of legal proceedings arising in
the ordinary course of business. It is management's belief that,
collectively, all such proceedings are not expected to have a material impact
on the Company's financial position.
15. SUBSEQUENT EVENTS
On January 23, 1997, the Board of Directors declared a quarterly
dividend of $0.40 per share to the stockholders of the Company for the
quarter ended December 31, 1996. The dividends were paid on February 18, 1997
to holders of record as of February 10, 1997.
On January 23, 1997, the Board of Directors also authorized
distribution of $385,593, or $0.40 per unit holder, to limited partners of
the Operating Partnership for the quarter ended December 31, 1996. The
distributions were paid on February 18, 1997.
On February 5, 1997, a former executive officer of the Company
exercised his option to purchase 115,000 shares of Common Stock at grant
prices between $16.00 and $18.65 per share.
On March 5, 1997, Nomura Asset Capital Corporation funded $21.5
million of 10 year, fixed rate financing, secured by Country Club West and
Courtney Park. The loan bears interest at 8.08% and is based on a 30 year
amortization. Net proceeds from the closing were used to repay outstanding
principal on the Bank One Loan.
On March 6, 1997, variable rate, tax-exempt bonds of $6.0 million
were issued for Crossroads. The bonds, which are collateralized by
Crossroads, will mature on December 15, 2036. Escrowed bond funds -
restricted of $204,000 have been set aside to reimburse Crossroads for future
renovation costs. The Company used net proceeds of $5.7 million to repay
outstanding principal on the Revolving Loan.
In order to hedge against fluctuations in interest rates on the
bonds encumbering the Crossroads property, effective March 3, 1997, the
Company entered into a swap transaction with Credit Lyonnais New York Branch
("CLNY"). Pursuant to the swap transaction, the Company will pay a fixed rate
on $6.0 million of its variable rate, tax-exempt bonds. Under the terms of
the swap agreement, the Company will pay, monthly in advance, a fixed rate of
4.850% to CLNY and receive a floating rate based on PSA Municipal Swap Index.
The swap agreement matures on March 3, 2004.
On March 6, 1997, the Company issued 17,280 and 84,375 shares of
Common Stock to a former executive officer of the Company and LG Trust, a
trust in which the executive officer is the trustee, in exchange for an equal
number of Common Units pursuant to the terms of the Exchange Rights Agreement.
On March 13, 1997, the Company acquired Palencia for $14.9 million. Palencia
is a 420 unit apartment complex located in Tampa, Florida. The Company
financed a portion of this acquisition by assuming $13.3 million of fixed
rate, tax exempt bonds, which are collateralized by Palencia.
F-30
<PAGE>
AMBASSADOR APARTMENTS, INC. (THE COMPANY) AND PRIME PROPERTIES
(THE PREDECESSOR TO THE COMPANY)
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
16. PRO FORMA FINANCIAL INFORMATION - UNAUDITED
The following unaudited table of pro forma information has been
prepared as if the acquisition of 13 properties in 1996, the acquisition of
seven properties in 1995, and the formation of G.P. Holdings had occurred as
of the beginning of each year presented. In management's opinion, the pro
forma is not indicative of consolidated results of operations that may have
occurred had the above transactions taken place on January 1 of each year.
<TABLE>
<CAPTION>
(IN 000'S EXCEPT PER SHARE AMOUNTS)
PRO FORMA FOR THE YEAR ENDED
---------------------------------------------
(UNAUDITED)
1996 1995
------------------- -------------------
<S> <C> <C>
Total revenue $ 88,157 $ 83,215
Property operating expenses 38,742 35,960
Depreciation and amortization 18,230 17,020
Interest 23,674 21,113
Income from investment in unconsolidated real estate
limited partnerships (771) (647)
------------------- -------------------
Total expense 79,875 73,446
------------------- -------------------
Income before minority interest, gain on sale of rental
property, loss on sale of interest rate cap, and
extraordinary $ 8,282 $ 9,769
------------------- -------------------
------------------- -------------------
Income per share of Common Stock $ 0.74 $ 0.98
------------------- -------------------
------------------- -------------------
</TABLE>
The pro forma financial information includes the following
adjustments: (i) an increase to rental revenues; (ii) an increase in general
and administrative expense; (iii) an increase in interest expenses; (iv) an
increase in amortization; (v) an increase in depreciation.
Net income has not been reduced for Minority Interests, and net
income per share assumes that all limited partnership interests in the
Operating Partnership have been converted to shares of Common Stock;
therefore, the total Common Stock outstanding at January 1, 1995 was
9,922,508 and January 1, 1996 would have been 11,117,741.
Total Common Stock Outstanding at December 31, 1996 includes the minimum of
1,195,233 shares reserved for issuance upon conversion of Investors I and II
limited partnership interests in Jupiter- I, L.P. and Jupiter-II, L.P., under
certain circumstances.
F-31
<PAGE>
AMBASSADOR APARTMENTS, INC.
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1996
(Dollars in Thousands)
<TABLE>
<CAPTION>
COST CAPITALIZED SUBSEQUENT TO
ACQUISITION
INITIAL COST TO COMPANY --------------------------------------
------------------------------------- BUILDINGS &
BUILDINGS, IMPROVEMENTS
ENCUM- FURNITURE & FURNITURE &
DESCRIPTION BRANCES LAND EQUIPMENT LAND EQUIPMENT TOTAL
----------- ------- ---- --------- ---- ---------- -----
<S> <C> <C> <C> <C> <C> <C>
Management Business $ -- $ -- $ -- $ -- $ 1,473 $ 1,473
Properties:
Prime Crest (Austin, TX) 2,400 670 857 314 2,477 2,791
Royal Crest (Austin, TX) 3,400 805 1,183 392 3,215 3,607
Aspen Hills (Austin, TX) 9,800 2,051 4,891 -- 3,830 3,830
Eagle's Nest (San Antonio, TX) 5,200 975 1,791 181 4,048 4,229
LaJolla (San Antonio, TX) 10,000 1,944 1,434 484 10,459 10,943
Cape Cod (San Antonio, TX) 8,100 1,360 5,617 259 2,587 2,846
Braesview (San Antonio, TX) 20,500 2,599 14,916 380 5,203 5,583
Mesa Ridge (San Antonio, TX) 5,100 630 3,654 189 2,301 2,490
Harbor Cove (San Antonio, TX) 5,900 1,174 3,575 -- 1,289 1,289
Brookdale Lakes (Naperville, IL) 14,800 1,295 -- 234 17,993 18,227
Bent Oaks (Austin, TX) 4,400 1,078 3,823 16 889 905
Coral Cove (Clearwater, FL) 4,031 1,289 4,570 22 504 526
Mountain View -- 644 8,552 28 774 802
(Colorado Springs, CO)
Privado Park (Mesa, AZ) 9,200 600 6,898 39 1,890 1,929
Quail Ridge (Tucson, AZ) 6,400 1,202 4,023 28 1,146 1,174
Shadow Creek (Phoenix, AZ) 5,600 1,559 5,526 29 1,074 1,103
Summit Creek (Austin, TX) 3,583 1,067 4,013 18 485 503
Tatum Gardens (Phoenix, AZ) 3,483 916 4,171 14 264 278
Vista Ventana (Phoenix, AZ) 6,400 1,146 4,581 32 981 1,013
Cypress Ridge (Houston, TX) 4,250 1,306 2,649 -- 1,090 1,090
The Mills (Houston, TX) 14,575 5,773 10,187 -- 2,886 2,886
</TABLE>
<TABLE>
<CAPTION>
GROSS AMOUNT AT WHICH
CARRIED AT CLOSE OF PERIOD
--------------------------------
BUILDINGS & DATE
IMPROVEMENTS CONSTRUCTED
FURNITURE & ACCUMULATED (C)
DESCRIPTON LAND EQUIPMENT TOTAL DEPRECIATION ACQUIRED(A)
---------- ---- ------------ ----- ------------ -----------
<S> <C> <C> <C> <C> <C>
Management Business $ -- $ 1,473 $ 1,473 $ 550
Properties:
Prime Crest (Austin, TX) 984 3,334 4,318 533 Mar. 1990 (A)
Royal Crest (Austin, TX) 1,197 4,398 5,595 727 Mar. 1990 (A)
Aspen Hills (Austin, TX) 2,051 8,721 10,772 1,437 June 1991 (A)
Eagle's Nest (San Antonio, TX) 1,156 5,839 6,995 1,113 Jan. 1990 (A)
LaJolla (San Antonio, TX) 2,428 11,893 14,321 1,680 June 1990 (A)
Cape Cod (San Antonio, TX) 1,619 8,204 9,823 1,303 June 1990 (A)
Braesview (San Antonio, TX) 2,979 20,119 23,098 3,027 Nov. 1990 (A)
Mesa Ridge (San Antonio, TX) 819 5,955 6,774 987 Nov. 1990 (A)
Harbor Cove (San Antonio, TX) 1,174 4,864 6,038 838 June 1991 (A)
Brookdale Lakes (Naperville, IL) 1,529 17,993 19,522 3,306 Dec. 1990 (C)
Bent Oaks (Austin, TX) 1,094 4,712 5,806 551 Oct. 1993 (A)
Coral Cove (Clearwater, FL) 1,311 5,074 6,385 577 Oct. 1993 (A)
Mountain View 672 9,326 9,998 1,075 Oct. 1993 (A)
(Colorado Springs, CO)
Privado Park (Mesa, AZ) 639 8,788 9,427 962 Oct. 1993 (A)
Quail Ridge (Tucson, AZ) 1,230 5,169 6,399 632 Oct. 1993 (A)
Shadow Creek (Phoenix, AZ) 1,588 6,600 8,188 746 Oct. 1993 (A)
Summit Creek (Austin, TX) 1,085 4,498 5,583 506 Oct. 1993 (A)
Tatum Gardens (Phoenix, AZ) 930 4,435 5,365 523 Oct. 1993 (A)
Vista Ventana (Phoenix, AZ) 1,178 5,562 6,740 628 Oct. 1993 (A)
Cypress Ridge (Houston, TX) 1,306 3,739 5,045 291 Aug. 1994 (A)
The Mills (Houston, TX) 5,773 13,073 18,846 1,081 Aug. 1994 (A)
</TABLE>
S-1
<PAGE>
AMBASSADOR APARTMENTS, INC.
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION (CONTINUED)
DECEMBER 31, 1996
(Dollars in Thousands)
<TABLE>
<CAPTION>
INITIAL COST TO COST CAPITALIZED SUBSEQUENT TO
COMPANY ACQUISITION
----------------------- ---------------------------------
BUILDINGS &
BUILDINGS, IMPROVEMENTS
ENCUM- FURNITURE & FURNITURE &
DESCRIPTION BRANCES LAND EQUIPMENT LAND EQUIPMENT TOTAL
----------- ------- ---- ----------- ---- ------------- -----
<S> <C> <C> <C> <C> <C> <C>
Sandalwood (Houston, TX) $ 4,275 $1,647 $ 3,625 $ - $1,687 $1,687
Trails of Ashford (Houston, TX) 8,062 2,056 6,949 - 1,423 1,423
Westway Village (Houston, TX) 4,927 2,961 4,506 1,033 1,033
Stratford (San Antonio, TX) 5,945 1,583 8,722 - 1,390 1,390
The Broadmoor (Austin, TX) 6,000 1,158 4,626 - 1,027 1,027
Windridge (San Antonio, TX) 6,270 1,122 7,278 - 672 672
Shallow Creek (San Antonio, TX) 2,300 1,083 5,017 - 740 740
Tierra Bonita (Tucson, AZ) 6,000 1,550 6,250 - 1,371 1,371
Country Club West (Greely, CO) 10,062 646 12,254 - 694 694
Courtney Park (Fort Collins, CO) 9,450 1,556 10,344 - 593 593
Crossroads (Phoenix, AZ) 5,663 432 7,004 - 633 633
Franklin Oaks (Franklin, TN) 17,700 2,932 21,570 - 730 730
Falls of Bells Ferry (Atlanta, GA) 28,935 6,250 25,751 - 646 646
Madera Point (Mesa, AZ) 7,180 453 10,568 - 570 570
LaJolla de Tucson (Tucson, AZ) 3,450 954 3,929 - 849 849
Stonybrook (Tucson, AZ) - 1,732 7,206 - 281 281
The Arbors (Deland, FL) 7,280 1,528 6,193 - 25 25
Ocean Oaks (Port Orange, FL) 10,920 2,272 9,199 - 50 50
Village Crossing 9,800 2,015 7,238 - 38 38
(West Palm Beach, FL)
Haverhill Commons 10,950 2,251 7,863 - 85 85
(West Palm Beach, FL)
Heather Ridge (Phoenix, AZ) 5,175 1,460 5,842 - 22 22
Pine Shadows (Tempe, AZ) 6,638 1,890 7,561 - 13 13
<CAPTION>
GROSS AMOUNT AT WHICH CARRIED
AT CLOSE OF PERIOD
--------------------------------------
BUILDINGS & DATE
IMPROVEMENTS CONSTRUCTED
FURNITURE & ACCUMULATED (C)
DESCRIPTION LAND EQUIPMENT TOTAL DEPRECIATION ACQUIRED(A)
----------- ------- ------------- --------- ------------- -----------
<S> <C> <C> <C> <C> <C>
Sandalwood (Houston, TX) $1,647 $ 5,312 $ 6,959 $ 379 Aug. 1994(A)
Trails of Ashford (Houston, TX) 2,056 8,372 10,428 660 Aug. 1994(A)
Westway Village (Houston, TX) 2,961 5,539 8,500 510 Aug. 1994(A)
Stratford (San Antonio, TX) 1,583 10,112 11,695 816 Sept. 1994(A)
The Broadmoor (Austin, TX) 1,158 5,653 6,811 446 Sept. 1994(A)
Windridge (San Antonio, TX) 1,122 7,950 9,072 637 Oct. 1994(A)
Shallow Creek (San Antonio, TX) 1,083 5,757 6,840 441 Jan. 1995(A)
Tierra Bonita (Tucson, AZ) 1,550 7,621 9,171 531 Feb. 1995(A)
Country Club West (Greely, CO) 646 12,948 13,594 798 April 1995(A)
Courtney Park (Fort Collins, CO) 1,556 10,937 12,493 676 April 1995(A)
Crossroads (Phoenix, AZ) 432 7,637 8,069 429 May 1995(A)
Franklin Oaks (Franklin, TN) 2,932 22,300 25,232 1,097 Aug. 1995(A)
Falls of Bells Ferry (Atlanta, GA) 6,250 26,397 32,647 1,305 Aug. 1995(A)
Madera Point (Mesa, AZ) 453 11,138 11,591 367 Feb. 1996(A)
LaJolla de Tucson (Tucson, AZ) 954 4,778 5,732 130 April 1996(A)
Stonybrook (Tucson, AZ) 1,732 7,487 9,219 192 May 1996(A)
The Arbors (Deland, FL) 1,528 6,218 7,746 95 Aug. 1996(A)
Ocean Oaks (Port Orange, FL) 2,272 9,249 11,521 143 Aug. 1996(A)
Village Crossing 2,015 7,276 9,291 111 Aug. 1996(A)
(West Palm Beach, FL)
Haverhill Commons 2,251 7,948 10,199 121 Aug. 1996(A)
(West Palm Beach, FL)
Heather Ridge (Phoenix, AZ) 1,460 5,864 7,324 55 Sept. 1996(A)
Pine Shadows (Tempe, AZ) 1,890 7,574 9,464 71 Sept. 1996(A)
</TABLE>
S-2
<PAGE>
AMBASSADOR APARTMENTS, INC.
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION (CONTINUED)
DECEMBER 31, 1996
(Dollars in Thousands)
<TABLE>
<CAPTION>
INITIAL COST COST CAPITALIZED
TO COMPANY SUBSEQUENT TO ACQUISITION
----------------------- ---------------------------------------
BUILDINGS &
BUILDINGS, IMPROVEMENTS
ENCUM- FURNITURE & FURNITURE &
DESCRIPTION BRANCES LAND EQUIPMENT LAND EQUIPMENT TOTAL
----------- ------- ---- --------- ---- --------- -----
<S> <C> <C> <C> <C> <C> <C>
Crossings of Bellevue $ 8,572 $ 1,871 $ 13,918 $ -- $ 50 $ 50
(Nashville, TN)
Hidden Lake (Tampa, FL) 4,369 1,257 4,599 -- 17 17
Woodlands (Tampa, FL) 6,806 1,939 7,178 -- 31 31
Sun Lake (Lake Mary, FL) 15,478 4,784 19,534 -- 5 5
-------- ------- -------- ----- ------- -------
$359,329 $79,465 $331,635 $2,659 $81,533 $84,192
-------- ------- -------- ----- ------- -------
-------- ------- -------- ----- ------- -------
GROSS AMOUNT AT WHICH CARRIED
AT CLOSE OF PERIOD
---------------------------------------
BUILDINGS &
IMPROVEMENTS DATE
FURNITURE & ACCUMULATED CONSTRUCTED (C)
DESCRIPTION LAND EQUIPMENT TOTAL DEPRECIATION ACQUIRED (A)
----------- ---- ------------ ----- ------------ ---------------
<S> <C> <C> <C> <C> <C>
Crossings of Bellevue $ 1,871 $ 13,968 $ 15,839 $ 121 Oct. 1996(A)
(Nashville, TN)
Hidden Lake (Tampa, FL) 1,257 4,616 5,873 30 Oct. 1996(A)
Woodlands (Tampa, FL) 1,939 7,209 9,148 49 Oct. 1996(A)
Sun Lake (Lake Mary, FL) 4,784 19,539 24,323 57 Nov. 1996(A)
-------- ------- -------- -------
$ 82,124 $413,168 $495,292 $33,340
-------- ------- -------- -------
-------- ------- -------- -------
</TABLE>
S-3
<PAGE>
AMBASSADOR APARTMENTS, INC.
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1996
(Dollars in Thousands)
(Continued)
Depreciation on building and improvements is calculated on the straight-line
basis over the estimated useful lives of the assets as follows:
Building . . . . . . . . . . . 30 to 40 years
Building improvements . . . . . 5 to 30 years
Furniture and equipment . . . . 3 to 12 years
The aggregate cost of real estate for federal income tax purposes was
approximately $467.8 million at December 31, 1996.
The change in total real estate assets and accumulated depreciation for the
years ended December 31, 1996, 1995 and 1994 are as follows:
<TABLE>
<CAPTION>
REAL ESTATE ASSETS
-----------------------------------------------
1996 1995 1994
---------- --------- ----------
<S> <C> <C> <C>
Balance, beginning of year . . . . . . . . $343,869 $235,916 $166,433
Elimination of rental real estate associated
with the Company's change in acounting for
Williamsburg Limited Partnership . . . . . . . . . -- -- (17,064)
Increase in basis resulting from the purchase,
for cash and assumption of negative deficit of
$2,462, of a non-promoter's interest in certain
Predecessor Partnerships . . . . . . . . . . . -- -- 16,922
Sale of rental property . . . . . . . . . . -- (7,024) --
Acquisitions and improvements . . . . . . . 151,423 114,977 69,625
-------- -------- --------
Balance, end of year . . . . . . . . . . . $495,292 $343,869 $235,916
-------- -------- --------
-------- -------- --------
</TABLE>
<TABLE>
<CAPTION>
ACCUMULATED DEPRECIATION
------------------------------------------------
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Balance, beginning of year . . . . . . . . $19,910 $11,480 $7,285
Depreciation expense . . . . . . . . . . . 13,430 8,894 5,291
Elimination of accumulated depreciation
associated with the Company's change in
accounting for Williamsburg Limited
Partnership . . . . . . . . . . . . . . . -- -- (1,096)
Sale of rental property . . . . . . . . . . -- (464) --
-------- -------- --------
Balance, end of year . . . . . . . . . . . $33,340 $19,910 $11,480
-------- -------- --------
-------- -------- --------
</TABLE>
S-4
<PAGE>
AMBASSADOR APARTMENTS, INC.
CONSOLIDATED BALANCE SHEETS
AS OF SEPTEMBER 30, 1997 AND DECEMBER 31, 1996
(Dollars in thousands, except for per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997 DECEMBER 31, 1996
------------------- -----------------
<S> <C> <C>
ASSETS
Rental property:
Land.................................................. $ 89,440 $ 82,124
Buildings and improvements............................ 450,782 407,002
Furniture and equipment............................... 7,068 6,166
------------------- -----------------
547,290 495,292
Accumulated depreciation................................ (47,273) (33,340)
------------------- -----------------
500,017 461,952
Cash and cash equivalents............................... 5,536 4,002
Escrow deposits......................................... 31,017 30,897
Escrowed bond funds--restricted......................... 248 549
Note receivable - Officer............................... 1,000 1,000
Accounts receivable..................................... 1,421 1,870
Investment in and advances to unconsolidated real estate
limited partnerships.................................. 4,018 4,549
Deferred financing costs, net........................... 13,725 9,640
Other................................................... 2,894 1,325
------------------- -----------------
TOTAL ASSETS............................................ $ 559,876 $ 515,784
------------------- -----------------
------------------- -----------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Bonds payable........................................... $ 317,796 $ 279,355
Notes payable........................................... 62,114 79,974
Accrued interest........................................ 329 913
Real estate taxes payable............................... 6,327 3,837
Tenant security deposits................................ 2,480 2,231
Accounts payable and other liabilities.................. 3,036 2,138
Distributions/dividends payable......................... 739 750
------------------- -----------------
Total liabilities....................................... 392,821 369,198
------------------- -----------------
Minority interest....................................... 29,913 32,006
Preferred Stock, $.01 par value; 20,000,000 shares
authorized, 1,351,351 shares of Class A Senior
Cumulative Convertible Preferred Stock issued and
outstanding........................................... 24,132 24,132
Stockholders' equity:
Common Stock, $.01 par value; 100,000,000
shares authorized, 10,552,180 and 8,958,525
shares issued and outstanding at September 30, 1997
and December 31, 1996, respectively................. 106 90
Additional paid-in capital............................ 146,754 112,975
Distributions in excess of accumulated earnings....... (33,850) (22,617)
------------------- -----------------
Total stockholders' equity.............................. 113,010 90,448
------------------- -----------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY.............. $ 559,876 $ 515,784
------------------- -----------------
------------------- -----------------
</TABLE>
See accompanying notes to consolidated financial statements.
-4-
<PAGE>
AMBASSADOR APARTMENTS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except for per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
ENDED SEPTEMBER 30 ENDED SEPTEMBER 30
----------------------- ----------------------
1997 1996 1997 1996
----------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Revenues:
Rental............................................. $ 22,342 $ 16,086 $ 63,661 $ 45,553
Other.............................................. 1,917 1,397 5,084 3,790
----------- ---------- ---------- ----------
Total revenues................................ 24,259 17,483 68,745 49,343
Expenses:
Property operating................................ 6,225 4,102 16,770 11,554
Real estate taxes................................. 1,985 1,693 6,165 4,442
General and administrative........................ 1,924 1,373 5,052 3,753
Depreciation...................................... 5,027 3,359 13,933 9,547
Advertising and marketing......................... 483 362 1,208 905
Repairs and maintenance........................... 1,020 575 2,176 1,668
Bad debt expense.................................. 33 85 130 307
Financing fees.................................... 768 762 2,086 2,425
Interest.......................................... 5,661 3,452 16,809 9,072
Amortization of deferred financing fees........... 387 349 871 1,452
Income from unconsolidated real estate
limited partnerships........................... (11) (267) (333) (55)
----------- ---------- ---------- ----------
Total expenses................................ 23,502 15,845 64,867 45,070
----------- ---------- ---------- ----------
Income before allocation to minority interest, loss
on sale of interest rate cap and extraordinary
item.............................................. 757 1,638 3,878 4,273
Income allocated to minority interest............... (261) (555) (1,004) (1,032)
----------- ---------- ---------- ----------
Income before loss on sale of interest rate cap
and extraordinary item............................ 496 1,083 2,874 3,241
Loss on sale of interest rate cap, net of minority
interest.......................................... -- -- -- 2,084
----------- ---------- ---------- ----------
Income before extraordinary item 496 1,083 2,874 1,157
Extraordinary item, net of minority interest........ -- -- (900) --
----------- ---------- ---------- ----------
Net income......................................... 496 1,083 1,974 1,157
Income allocated to preferred stockholders......... (576) (283) (1,711) (283)
----------- ---------- ---------- ----------
Net (loss) income allocable to common
stockholders..................................... $ (80) $ 800 $ 263 $ 874
----------- ---------- ---------- ----------
----------- ---------- ---------- ----------
(Loss) income per share of weighted average
common stock outstanding:
Before extraordinary item.......................... $ (0.01) $ 0.09 $ 0.12 $ 0.10
----------- ---------- ---------- ----------
----------- ---------- ---------- ----------
Extraordinary item................................. $ -- $ -- $ (0.09) $ --
----------- ---------- ---------- ----------
----------- ---------- ---------- ----------
Net (loss) income.................................. $ (0.01) $ 0.09 $ 0.03 $ 0.10
----------- ---------- ---------- ----------
----------- ---------- ---------- ----------
Weighted average common shares outstanding......... 10,512,260 8,958,525 9,592,925 8,958,525
----------- ---------- ---------- ----------
----------- ---------- ---------- ----------
</TABLE>
See accompanying notes to consolidated financial statements.
-5-
<PAGE>
AMBASSADOR APARTMENTS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
----------------------------
1997 1996
------------ ------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income.......................................... $ 1,974 $ 1,157
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation....................................... 13,933 9,547
Bad debt expense................................... 130 307
Amortization of deferred financing fees............ 871 1,452
Minority interest.................................. 1,004 1,032
Income from investments in unconsolidated
real estate limited partnerships................. (333) (55)
Loss from sale of interest rate cap................ -- 2,084
Extraordinary item, net of minority interest.......... 900 --
Changes in operating assets and liabilities:
Accounts receivable.............................. 319 (1,377)
Other assets..................................... (1,569) (1,184)
Accrued interest payable......................... (584) 238
Real estate taxes payable........................ 2,490 (143)
Tenant security deposits......................... 249 347
Accounts payable and other liabilities........... 898 (100)
----------- -----------
Net cash provided by operating activities........... 20,282 13,305
INVESTING ACTIVITIES
Purchase of rental property......................... (24,179) (42,045)
Improvements to rental property..................... (14,569) (12,847)
Advances to unconsolidated real estate limited
partnerships..................................... -- (36,815)
Repayment from unconsolidated real estate limited
partnerships..................................... 864 25,908
----------- -----------
Net cash used in investing activities.............. (37,884) (65,799)
FINANCING ACTIVITIES
Net proceeds from joint venture partners............ -- 21,671
Net proceeds from preferred stock offering.......... -- 24,394
Net proceeds from sale of shelf offering............ 28,887 --
Escrowed bond funds - restricted.................... 301 (8,159)
Escrow deposit...................................... (120) (8,393)
Deferred financing fees paid........................ (5,946) (2,413)
Proceeds from sale of interest rate cap............. -- 1,485
Proceeds from bonds payable......................... 34,805 10,250
Repayment of bonds payable.......................... (9,614) --
Proceeds from notes payable......................... 75,431 125,628
Repayment of notes payable.......................... (93,291) (101,575)
Proceeds from exercise of stock options............. 3,196 --
Proceeds from sale of common units.................. 100 --
Partner capital contributions....................... 1,322 13
Dividends paid to preferred stockholders............ (1,702) --
Dividends paid to common stockholders............... (11,496) (10,750)
Distributions paid to minority interest............. (2,737) (2,222)
----------- -----------
Net cash provided by financing activities.......... 19,136 49,929
----------- -----------
Net increase (decrease) in cash and cash equivalents.. 1,534 (2,565)
Cash and cash equivalents at beginning of period...... 4,002 5,270
----------- -----------
Cash and cash equivalents at end of period............ $ 5,536 $ 2,705
----------- -----------
----------- -----------
</TABLE>
See accompanying notes to consolidated financial statements.
-6-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for
interim financial information and the instructions to Form 10-Q and Article
10 of Regulation S-X. They should be read in conjunction with the
consolidated financial statements and notes thereto included in the
Ambassador Apartments, Inc. (the "Company") 1996 Annual Report on Form 10-K.
The following notes to the consolidated financial statements highlight
significant changes to the notes included in the 1996 Annual Report on Form
10-K and present interim disclosures as required by the SEC. Accordingly,
they do not include all of the information and footnotes required by
generally accepted accounting principles for complete financial statement
presentation. In the opinion of management, all adjustments considered
necessary for a fair presentation have been included. Operating results for
such interim periods are not necessarily indicative of the results that may
be expected for a full fiscal year.
Investments in joint venture partnerships which the Company does not
control or in which the Company does not have a majority interest are
accounted for on the equity method.
Certain amounts in the 1996 financial statements have been reclassified
to conform with the 1997 consolidated presentation. Such reclassifications
have not changed the results of operations for 1996.
Significant intercompany accounts and transactions have been eliminated
in consolidation.
Revenue Recognition
Rental revenue is recognized as income in the period earned.
Cash Equivalents
All highly liquid investments with a maturity of three months or less
when purchased are considered to be cash equivalents.
Earnings Per Share
Earnings per share is computed based upon net income and weighted
average common shares outstanding for the appropriate period. The dilutive
effect of common stock equivalents on the primary earnings per share
computation is not considered significant. Fully diluted earnings per share
for the three and nine month periods ended September 30, 1997 equals $0.06
and $0.15, respectively, and is based upon weighted average common and common
share equivalents of 12,882,033 and 11,962,698, respectively.
-7-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Recently Issued Accounting Standards
In February 1997, the Financial Accounting Standards Board issued
Statement No. 128, Earnings per Share, which is required to be adopted on
December 31, 1997. At that time, the Company will be required to change the
method currently used to compute earnings per share and to restate all prior
periods. Under the new requirements for calculating primary earnings per
share, the dilutive effect of stock options will be excluded. The Company
believes that the new requirements for calculating primary earnings per share
will have no material impact since there is no dilutive effect with respect
to stock options. The impact of Statement 128 on the calculation of fully
diluted earnings per share for these quarters is not expected to be material.
Rental Property
Rental property is carried at lower of cost or fair value.
Depreciation is calculated on the straight-line basis over the estimated
useful lives of the assets which are as follows:
<TABLE>
<CAPTION>
<S> <C>
Building ................. 30-40 years
Building improvements .... 5-30 years
Furniture and equipment .. 3-12 years
</TABLE>
Expenditures for recurring maintenance and repairs are expensed to
operations as incurred. Renovation and improvement costs which improve and/or
extend the useful life of the asset are capitalized and depreciated over the
estimated useful life. In addition, initial "turn over" costs such as
electrical, plumbing and painting generally incurred during the renovation,
re-tenanting and stabilization period, which are necessary to restore
apartment units to their intended use, are capitalized and depreciated over
their estimated useful life.
Leasing costs, such as commissions, locator fees and other costs
incurred in connection with renting the Company's apartment units, are
amortized on a straight-line basis over a period of nine months. The
amortization period is consistent with the weighted average life of the
associated lease agreements.
Marketing costs incurred to rent real estate during the approximate
two-year renovation, re-tenanting and stabilization period are capitalized
and amortized over such stabilization period.
2. DEBT
On May 28, 1997, the Company entered into an unsecured revolving credit
facility with Credit Lyonnais New York Branch ("CLNY") for $25.0 million (as
amended on June 27, 1997, the "CLNY
-8-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
2. DEBT (continued)
Unsecured Line of Credit") at the prime rate plus 1.25% or, at the option of
the Company, the Eurorate plus 2.25% or LIBOR plus 2.25%. Unpaid advances,
together with any accrued or unpaid interest thereon, shall be due and
payable 120 days following the date of any advance under the CLNY Unsecured
Line of Credit. As of September 30, 1997, there were no amounts outstanding
under the CLNY Unsecured Line of Credit. The CLNY Unsecured Line of Credit
previously had a maturity date of December 31, 1997; however, on September
30, 1997, the Company amended the CLNY Unsecured Line of Credit to extend the
maturity date to May 23, 1998.
On June 22, 1997, the Company entered into a secured revolving credit
facility to refinance its credit facility with Bank One Arizona (the "Bank
One Credit Facility") with Nomura Asset Capital Corporation (as amended, the
"NACC Revolving Loan"). The NACC Revolving Loan bears interest at LIBOR plus
1.50% and has a maximum commitment of $75.0 million subject to the amount of
collateral pledged by the Company. As of September 30, 1997, six properties
were pledged as collateral under the NACC Revolving Loan, and approximately
$24.8 million was outstanding. As of September 30, 1997, the six properties
pledged as collateral would have permitted an additional $11.0 million of
borrowings under the NACC Revolving Loan. The NACC Revolving Loan previously
had a maturity date of December 31, 1997; however, on September 30, 1997,
the Company amended the NACC Revolving Loan to extend the maturity date to
December 31, 1998.
On September 18, 1997, Bexar County Housing Finance Corporation issued
$2.3 million of variable-rate taxable bonds (the "Shallow Creek Bonds") for
the benefit of the Shallow Creek property. The Shallow Creek Bonds bear
interest at a floating rate that is reset weekly by the remarketing agent at
the minimum rate required to remarket the bonds at par. The Shallow Creek
Bonds are credit enhanced by a credit facility (the "FNMA Facility") issued
by Federal National Mortgage Association ("FNMA") and mature on December 15,
2026.
Effective September 11, 1997, the Company entered into an interest rate
cap agreement with CLNY at a purchase price of $58,000 to protect against
interest rate fluctuations with respect to the Shallow Creek Bonds. Pursuant
to the terms of such interest rate cap agreement, the interest rate is
limited to 6.53% per annum on a notional amount of $2.3 million. The
interest rate cap agreement terminates on September 11, 2002.
3. ESCROWED BOND FUNDS--RESTRICTED
As of September 30, 1997, the Company has approximately $248,000 in
escrow, of which approximately $199,000 related to those properties owned by
Ambassador I, L.P., a partnership in which the Company holds a 50.1%
interest. The escrow monies will be used to complete certain renovation
projects associated with tax-exempt bond requirements on those properties.
4. ESCROW DEPOSITS
As of September 30, 1997, the Company has approximately $31.0 million in
escrow deposits. The
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<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
escrow deposits consist primarily of reserves for (i) real estate taxes,
(ii) insurance, (iii) recurring capital expenditures, (iv) sinking fund
deposits, (v) collateral for swap contracts entered into by the Company
and (vi) additional collateral for debt.
5. STOCK OPTION PLAN
Pursuant to the 1994 stock incentive plan, as amended (the "1994 Stock
Incentive Plan") and the 1996 stock incentive plan, as amended (the "1996
Stock Incentive Plan") as discussed in note 6 to the 1996 Annual Report on
Form 10-K, directors, executive officers and certain key employees were
offered the opportunity to acquire shares of Common Stock through stock
options. In March 1997, the Board of Directors adopted the 1997 stock
incentive plan (the "1997 Stock Incentive Plan") for the purpose of
attracting and retaining directors, officers and key employees. The 1997
Incentive Plan provides for the issuance of options to purchase up to 1.6
million shares of Common Stock. Collectively, the 1994, 1996 and 1997 Stock
Incentive Plans are referred to herein as the "Stock Incentive Plan." During
the quarter ended September 30, 1997, 67,000 options were exercised under the
Stock Incentive Plan at prices ranging from $15.53 to $18.65 per share of
Common Stock. The Company granted 7,000 stock options to certain
non-executive officers during the quarterly period ended September 30, 1997.
At September 30, 1997, options for 1,665,990 shares of Common Stock are
available for grant under the Stock Incentive Plan.
6. DECLARATION OF DISTRIBUTIONS TO STOCKHOLDERS AND LIMITED PARTNERS
On October 31, 1997, the Board of Directors of the Company authorized
distribution payments of approximately $4.6 million, or $0.40 per Common
Unit, to holders of Common Units of Ambassador Apartments, L.P. (the
"Operating Partnership") for the quarter ended September 30, 1997. The
distributions are payable on November 17, 1997. Also on October 31, 1997,
the Board of Directors of the Company authorized distribution payments of
$576,197, or approximately $0.4264 per Class A Senior Cumulative Convertible
Preferred Unit ("Class A Preferred Units"), to the holder of Class A
Preferred Units of the Operating Partnership, for the quarter ended
September 30, 1997. This distribution is also payable on November 17, 1997.
On October 31, 1997, the Board of Directors of the Company declared a
quarterly dividend of $0.40 per share of Common Stock to the Common
Stockholders of the Company for the quarter ended September 30, 1997. The
dividends are payable on November 17, 1997, to holders of record as of
November 13, 1997. The Board of Directors of the Company also authorized
a quarterly dividend in the amount of approximately $0.4264 per Class A
Senior Cumulative Convertible Preferred Stock ("Class A Preferred Stock") to
the holder of Class A Preferred Stock for the quarterly period ended
September 30, 1997. The Class A Preferred Stock dividend is also payable on
November 17, 1997.
7. EXTRAORDINARY ITEM
On June 22, 1997, the Company refinanced the Bank One Credit Facility.
Unamortized deferred financing fees associated with the Bank One Credit
Facility were written-off upon issuance of the NACC Revolving Loan. As a
result of this write-off, the Company recognized a $900,000 extraordinary
loss, net of minority interest.
-10-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
8. LEGAL PROCEEDINGS
The Company is involved in a variety of legal proceedings arising in the
ordinary course of business. It is management's belief that, collectively,
all such proceedings are not expected to have material impact on the
Company's financial position.
An advisor to investors who hold the Class B certificates described
below has challenged the Company's right to pay off the Class B certificates
prior to August 1, 2003. The Company believes it has the current right to
redeem such certificates. The advisor has threatened to bring an action
against the Company for damages. If litigation is filed, the Company will
vigorously defend its position.
9. SUBSEQUENT EVENTS
On October 24, 1997, the Company borrowed $7.5 million under its NACC
Revolving Loan to fund the escrow account required to redeem the Prior
Florida Bonds (as hereinafter defined) associated with the TEB transaction
(described below) plus certain costs and fees associated therewith, fund
renovation expenses on certain of the Company's properties and to provide for
additional working capital needs.
On October 27, 1997, the Housing Finance Authority of Palm Beach County,
Florida and The Housing Finance Authority of Volusia County, Florida issued
$16.1 million and $17.9 million, respectively, of variable-rate tax exempt
bonds (the "Florida Bonds") for the benefit of Haverhill Commons, Village
Crossing, Arbors and Ocean Oaks Properties. The Florida Bonds are rated
AA+/A-1+ and bear interest at a floating rate that is reset weekly by the
remarketing agent at the minimum rate required to remarket the bonds at par.
The Florida Bonds mature on October 1, 2027. The Florida Bonds are credit
enhanced by four separate letters of credit aggregating $34.5 million from
CLNY and a corresponding confirming letter of credit issued by Republic Bank
of New York. Under the terms of the CLNY letter of credit agreement, CLNY
was paid an origination fee of $345,030 and is also entitled to a letter of
credit fee of 1.5% per annum of the stated amount of the letters of credit
payable monthly in arrears. An additional fee of 0.25% per annum of the
stated amount of the letter of credit is due to CLNY as long as a confirming
letter of credit remains in place. The CLNY letters of credit expire not
later than October 27, 2002.
Concurrently with the issuance of the Florida Bonds, the Company
defeased $38.7 million of bonds (the "Prior Florida Bonds") owned by TEB
Municipal Trust I ("TEB"), a New York Trust in which an unconsolidated
subsidiary of the Company holds an approximately $2.0 million of original
principal balance Class G certificate. In addition to the Class G
certificate, TEB also sold $27.0 million of original principal balance in
Class A certificates and $10.0 million of original principal balance in Class B
certificates. During the third quarter ended September 30, 1997, the trust
certificates were subject to a $300,000 partial redemption, thereby leaving
an aggregate outstanding balance of $38.7 million in trust certificates.
Pursuant to the terms of the bond agreements, the Company deposited the
proceeds from the Florida Bonds plus an additional $4.7 million into an
escrow account which will be used to redeem the
-11-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Prior Florida Bonds on December 1, 1997 and ultimately redeem the Class B and
Class G certificates in TEB and to reimburse the credit enhancer for the
Class A certificates for the draw on its direct pay letter of credit with
respect to the Class A certificates. Alternatively, the Class B certificate
holders may have the option to put their certificates to the Company at a
price equal to their par value plus a 4% premium if exercised prior to
January 14, 1998.
On November 12, 1997, the Company obtained a $20 million standby
commitment (the "Standby Commitment") from Bank of America National Trust and
Savings Association ("Bank of America") for the benefit of FNMA in connection
with the FNMA Facility. FNMA may draw upon the Standby Commitment in the
event that (i) under certain circumstances the limited partner of Jupiter-I,
L.P. has elected to dissolve the partnership and receive a cash liquidation
or to cause the partnership to redeem its interest for cash or (ii) FNMA has
not received a replacement standby commitment or other adequate security by
October 12, 1998. The Standby Commitment has a term of one year. The Company
paid $400,000 to Bank of America in connection with the issuance of the
Standby Commitment and must pay an additional fee of $200,000 if the Standby
Commitment remains outstanding on the six month anniversary of its issuance.
In the event of any advance under the Standby Commitment, the Company shall
pay to Bank of America a fee equal to 2% of the amount of such advance and on
each 90th day thereafter a fee equal to 2% of any unreimbursed advance then
outstanding. In addition, any unreimbursed advances under the Standby
Commitment accrue interest at a rate equal to Bank of America's reference
rate plus 500 basis points and are required to be repaid on the earlier of
the expiration date of the Standby Commitment, an event of default under the
Standby Commitment documents and a merger of or the transfer of more than 40%
of the voting interests in Ambassador Apartments, Inc., Ambassador
Apartments, L.P., or AJ One Limited Partnership.
The Standby Commitment was provided to FNMA in connection with FNMA's
consent to certain amendments to the Jupiter-I, L.P. Partnership Agreement
and a related document (the "Jupiter Amendments") that were entered into
without FNMA's prior consent as required by the FNMA Facility. On November
12, 1997, FNMA consented to the Jupiter Amendments effective as of the date
the Jupiter Amendments were executed and confirmed that, as a result of such
consent, there is not continuing a default under the FNMA Facility. At the
same time, the Company agreed to use its good faith efforts to cause the
Jupiter Amendments to be reversed. The Standby Commitment documents provide
that if FNMA determines in its sole discretion that the Company has not used
such efforts by January 31, 1998, it may notify the Company of the actions
reasonably required to discharge the Company's good faith efforts. Failure
of the Company to satisfy such requirements within 30 days of such notice
could result after notice from FNMA in the revocation and termination of
FNMA's consent to the Jupiter Amendments, in which event the Company would be
in default under the FNMA Facility. FNMA has agreed to release the Standby
Commitment in the event that (i) the Company reverses the Jupiter Amendments
or (ii) the Company becomes the owner of substantially all of the ownership
interests in Jupiter-I, L.P., and a subsidiary of the Company guarantees
certain obligations to FNMA under the FNMA Facility.
-12-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
10. PRO FORMA INFORMATION
The following unaudited table of pro forma information has been prepared
as if the Company's acquisitions and related debt in 1996 and 1997 had all
occurred as of the beginning of each period presented. In management's
opinion, the pro forma is not indicative of consolidated results of
operations that may have occurred had the above transactions taken place on
January 1 of each year.
Pro Forma for the Nine-Month Period Ended September 30
(Dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
1997 1996
------- -------
<S> <C> <C>
Total revenue............................... $71,629 $69,060
Property operating.......................... 31,470 29,905
Depreciation and amortization............... 15,442 14,980
Interest.................................... 20,238 20,263
------- -------
Total expenses.............................. 67,150 65,148
------- -------
Income before Minority Interest, loss from
sale of interest rate cap, and extraordinary
item........................................ $ 4,479 $ 3,912
------- -------
------- -------
Income per share of weighted average
Common Stock................................ $ 0.35 $ 0.32
------- -------
------- -------
</TABLE>
-13-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
The pro forma financial information includes the following adjustments:
(i) an increase to rental revenues, property operating expenses and related
interest expense to reflect the acquisitions in 1996 and 1997; (ii) an
increase in general and administrative expense to reflect additional costs
associated with increasing the size of the portfolio; (iii) an increase in
interest expenses associated with acquisitions in 1996 and 1997; and (iv) an
increase in depreciation to reflect the acquisitions noted in (i) above.
Net income has not been reduced for Minority Interests, and net income
per share assumes conversion into Common Stock of (i) all limited
partnership interests in the Operating Partnership; (ii) certain limited
partnership interests in Jupiter I, L.P. and Jupiter II, L.P.; and (iii) the
Class A Preferred Stock. Therefore, the total Common Stock outstanding at
January 1, 1997 and January 1, 1996 would have been 12,858,016 and
12,192,181, respectively.
-14-
